Well prepared: David Katzmann is keen to get saving for his retirement.
As a 35-year-old junior faculty member at the Mayo Clinic in Rochester, Minnesota, David Katzmann is relieved to be finally starting his retirement savings in earnest. While he was a doctoral student and postdoc, Katzmann had no real savings and a house was his only investment.
And he is far from alone. Most young scientists admit to a state of financial denial between leaving university and landing their first permanent position. That, on average, takes 7–10 years according to the US National Science Foundation's Survey of Doctorate Recipients. And waiting to save later on a higher salary is a big gamble: it assumes that no financial crisis will occur and that training will not stretch beyond a decade.
"Frankly, most scientists don't think about this stuff because it's not on the radar," Katzmann says. "I would be happy to never have to think about money." Katzmann plans to catch up on his retirement savings now by tripling his effort. But he knows that waiting to save until later, like most people do, has meant forfeiting precious years of compounding interest.
Some money-minded young researchers have come up with savings strategies even on modest pay cheques. Most are strikingly simple, but they require discipline and all-important consistency. And as the experts tell us, everyone should be saving something — even if it seems like small potatoes.
Future returns
Young researchers who tend to make what other professions would call 'starting pay' for almost a decade — ranging from $14,000 graduate stipends to $40,000 for experienced postdocs — usually feel that saving money requires difficult choices between today's lifestyle and tomorrow's security. Many choose to focus on more manageable short-term goals, such as buying a car. Or they feel capable of working towards just one long-term goal and choose between buying a house, children's education funds or retirement.
And many scientists say that they just don't have the knowledge, time or mental energy that financial planning requires. Faced with these challenges, many adopt a 'why bother' attitude, choosing to concentrate on career development to secure their future.
As a graduate student, David Goetz says he followed the "stingy strategy" of living really cheaply to save about $25,000. But in 2001, his last year of graduate school, he watched it disappear in the stock-market crash. "It wasn't a large enough amount of money to diversify my investments," he says.
So when he started a postdoc at the University of California, San Francisco, Goetz says that he originally had no investment plan. But his cheap living led to money piling up in his account by default. Three years later, he says, he has to decide what to do with the extra money: "Buy a new car? Keep it in a savings account with low yield? Or something different. That's the question I'm debating now."
Because California real estate is out of the question, Goetz is thinking of buying a house in San Antonio, Texas — an investment less volatile than the stock market and which at least gives him a tax break. He knows other postdocs who are also considering buying out-of-town houses, but admits it is still financially a bit risky. "As a postdoc you don't have much cushion if something happens," such as major damage from tenants, he says.
Heather Leslie and her husband Jeremy Rich, both postdocs at Princeton University in New Jersey, have taken the simple-but-disciplined approach to their retirement savings. They have continued to live like graduate students in subsidized university housing with donated furniture. That way, "a large fraction of our joint monthly income goes to savings", she says. They also revisit their individual retirement accounts (IRAs) if any money is left over after taxes.
"My father always stressed letting your money grow through time," Leslie says. The couple, like many young scientists, started their nest eggs with money from a family inheritance. Leslie recommends checking out large investment companies that have low fees, low buy-in thresholds and easy web-based customer service for busy lab workers. Adam Mullick, president of the Society of Fellows of the Scripps Research Institute at La Jolla, California, couldn't agree more: he recommends saving at least the allowed, tax-deductable $4,000 maximum per year in an IRA.
"When you look at how much growth depends on when you start contributing, it's really foolish not to start as early as possible," says Mullick. Leslie says her next goal is to have three months of income set aside for a safety-net fund. This can be especially important because postdoctoral funding can be unpredictable or short-term.
The Exchange Rate
Renzo Rubele worries that younger researchers don't save enough money.
Short-term contracts and a more frequent change of job, especially moving between different countries, give European scientists-in-training a somewhat different set of financial problems. As foreign workers in 'temporary' positions, many cannot take full advantage of the usual social benefits, such as unemployment and pension schemes, and have a difficult time getting loans to buy property.
"We consider this stretch of ten years between graduation and a position to be very unpleasant for young researchers in Europe in general," says Renzo Rubele, a doctoral candidate at the University of Salerno in Italy and president of the EURODOC professional organization for graduate students and postdocs. He says it is extremely rare for European researchers to save money beyond their monthly expenses. But, he says, "the culture is that you don't complain if you think that in the near future you will have a permanent position."
Agn
Kulyt, a 31-year-old Lithuanian postdoc working at the Karolinska Institute in Stockholm, Sweden, says that although she has saved a bit of an emergency fund, she feels that having children and buying an apartment are financially out of reach. Although this is a typical situation, she is frustrated by the nagging financial worries. "You cannot live your life thinking 'I'm not going to get sick, or be unemployed, or I'll worry about retirement later'," she says.
"But what really hurts is that my education just doesn't correspond to the income," Kulyt adds. And a more stable, higher-paying job may not come up for many European scientists until middle age, when it may be too late to have children or catch up on savings. Another Karolinska postdoc, Therese Pham, who is 37, says that she definitely feels she is falling behind her peers in other professions.
And Annika Armulik, also at the Karolinska, says she has moved from Estonia to Germany to Sweden for graduate school and postdoc work, and will soon move to Switzerland in search of another position. She worries that the different national pension funds set up for her may not transfer to her when she retires in perhaps yet another country. "I am 34 now and feel I have nothing behind me," she says.
Attitude Adjustment
Financial advisers and money-management experts argue that there's no reason for any young scientist to feel that way. They say it is possible to invest wisely whether you are a graduate student making $15,000 a year or a tenured investigator making $150,000. And delaying financial planning and saving until after the postdoc stage makes little sense.
"That is a mindset that the scientific community needs to break," says Dave Ramsey, a money-management talk-radio host based in Nashville, Tennessee. He points to the fact that investing $100 per month from age 20 to 60 results in just over a million dollars, if you assume historic rates of return. But the same amount saved from age 35 to 60 will give you only about $170,000. And even if the amount you save is tripled to $300 from age 35 to 60, it still won't catch you up, giving you only about $500,000. "It's the cost of pizza and cable to retire with some dignity rather than retiring broke," he says.
Ramsey also recommends that young scientists try to live within, or even below, their means. In other words, a graduate student should drive a paid-for $4,000 car rather than making payments on a $17,000 one. He says everyone should prioritize their savings efforts into attainable goals, so that as one goal is met, the next is clear. A high priority would be to establish and maintain an emergency fund of 3–6 months of income. After that, 15% of income should go towards retirement savings.
And after that, concentrate on long-term, large investments, such as a mortgage or children's education funds. In a bit of good news for young scientists trying to juggle expenses, Ramsey says that it's not necessary to save up a large sum of money before you have children. Sure, they add to monthly expenses, he says, but it's not substantial enough to require saving in advance.
Most young scientists find themselves without the benefit of matched savings plans from their employers or even good financial guidance. But it's not impossible to find your way to a solid money-management plan through a consultation with a financial adviser, or through a university benefits office or credit union. The Scripps Research Institute offers all employees lunchtime seminars on everything from demystifying your credit rating to buying a house to how to invest.
Nevertheless, many young researchers will continue to play and work hard now, leaving savings to later. And if so, there's advice for that group as well. When Katzmann began his investigator position at Mayo, he set up the automatic pay deductions for his pension plan right away. "It's so much easier to never see that money. In going from a postdoc salary to a principal-investigator salary, missing $300 a month is nothing. Set it up before you get used to that money."