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On a graduate student’s stipend, it’s hard to imagine having enough money left over to afford a dinner out, let alone enough to invest for retirement.
But if you can scrape together a few dollars each month, you have a once-in-a-lifetime opportunity to grow that investment. As a grad student, time is on your side.
Compound Interest
This week on the show, we welcome back our grad-school-finance-guru Emily Roberts, PhD. Not only is Emily a scientist, she’s also a coach, speaker, and the creator of Personal Finance for PhDs.
If you are a grad student or postdoc, and you’ve managed to pay down your other debts, it’s time to start thinking about retirement. That’s because the money you set aside today will have longer to grow, compounding year after year, until your retirement.
But choosing an investment strategy may seem daunting. In fact, many students never invest at all because they don’t know where to begin!
Emily recommends finding out if you are eligible for one of several tax-sheltered savings accounts. If you receive a W-2 form each year, or are married to someone who does, you’ve got a couple of options.
- Traditional accounts (IRAs, 403Bs, etc.) give you a tax break in the year you invest. So if you earn a $30,000 stipend and invest $1,000 in a traditional IRA, you’ll only pay taxes on $29,000 of your income. That money will grow over time tax free, but when you take money out of the account at retirement, you’ll pay income tax at that time.
- Roth accounts give you a tax break in the future. In our example, you’ll pay the full tax amount on your $30,000 stipend, but when you withdraw the money in your retirement, you’ll pay no additional taxes. This option tends to work well for grad students who are currently earning in the lowest tax brackets, but may be in a higher tax bracket at retirement.
Whichever tax-structure you choose, you’ll probably want to choose an investment that works without a lot of baby-sitting. Emily recommends index funds (investments that track the growth of the overall market) and those with low fees.
For the simplest set-it-and-forget-it option, choose a target-date fund that automatically shifts the money from high-growth, high-risk options like the stock market while you’re young, to low-growth, low-risk options like cash and bonds when you’re nearing retirement age.
Bottom line: investing for retirement can be easy, and it can be automated. The best thing to do is start early, and make adjustments as you learn more.
Emily has many great resources on her website, and a special page for Hello PhD listeners. Just visit pfforphds.com/hellophd for information, an investing newsletter, and an upcoming webinar on tax preparation for grad students.
You may also like:
033: It’s Tax Season – Here’s What You Need to Know
068: Use Targeted Savings Accounts for Irregular Expenses
Science Silencer
The recent school shooting in Parkland, Florida is just one more tragic line in the story of gun violence in America. Guns rank as one of the top-five killers for people under the age of 65 in the U.S.
It wasn’t so long ago that gun-related injuries were recognized as a public health threat. In fact, the Centers for Disease Control (CDC) studied the epidemiology of gun deaths until 1996 when the Dickey Amendment started a cascade of changes that undermined the CDC’s investigations.
This week, we explore the scientific approach to gun violence prevention, and how the political climate affects our ability to make meaningful improvements to this public health risk.
We encourage you to share your thoughts in the comments below, or find us on Twitter.