This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

Here's a short piece from MSNBC that talks about the great job environment this year's college graduates are finding themselves in. The details:

This year is expected to exceed 2005 — a very good year for June graduates — and is likely to rival the Internet boom years of the late 1990s.

Wow, that's great news -- and just another example of how valuable a college degree can be. But what I want to focus on is this simple fact from the piece:

According to polls, June graduates expect to receive an annual starting salary of about $42,500 with an average signing bonus of $2,841.

So, they start out earning $42,500. Assuming they work for 43 years (starting at 22, ending at 65), they will earn the following in their lifetimes with the corresponding salary growth rates noted below:

• If their salary grows 3% a year, they'll earn $3.6 million in their lifetimes.
• If their salary grows 5% a year, they'll earn $6.1 million in their lifetimes.
• If their salary grows 7% a year, they'll earn $10.5 million in their lifetimes.
• If their salary grows 10% a year, they'll earn $25.2 million in their lifetimes.

A couple thoughts on this:

1. Even if they only start out with and average salary and only increase their pay 3% per year, today's graduates will earn a good amount of money. If they can develop a lifestyle of spending less than they earn, they could become wealthy even at this level of pay.

2. Managing your career (to get higher levels) to average the higher levels of pay increases REALLY pays off. Just look at the difference in a 3% gain per year compared to a 10% annual increase. These numbers reinforce what I always say about your career: Your career is your most valuable financial asset, offering you many financial benefits. You can make the most of it by getting a college degree and managing your career to its full potential. Doing this well can earn you millions of dollars in extra income throughout your lifetime.

Comments

[GM]

This analysis is a bit misleading, because it doesn't account for the time value of money. If you want to net up future income potential, you minimally should do so in real terms (i.e., on an inflation-adjusted basis); otherwise you're presuming long term real terms wage inflation, which could only result from sustained productivity growth.

In practice any econometically reliable estimate for expected lifetime earnings is fairly tricky to calculate. For instance, earnings do funny things over a lifetime -- on a normalised basis they rise and then fall (an upside-down u-shape curve).

However as an illustration, the US Census Bureau's synethetic work-life estimates for full-time year-round workers (itself, a simplifying assumption, as many people will not work full-time for their whole careers) from the '98-'00 US Census data are:

Doctoral degree: $3.4m
Professional degree: $4.4m
Masters degree: $2.5m
Bachelors degree: $2.1m
Associates degree: $1.6m
Some college: $1.5m
High school graduate: $1.2m
Non-high school graduate: $1.0m

(Source: http://www.census.gov/prod/2002pubs/p23-210.pdf)

[Rob]

Earning $2.3 Million a year when they're 65? Impressive if you can get it.

[JACK]

No kidding, Rob. I think of myself as well paid and was trying to compute how the heck they came up with a 25.2 million figure.

People need to realize that there's a limit to earnings growth. If you are starting out at 40K, yeah expecting 3%+ raises is fine. Once you hit somewhere in the neighborhood of 150-200K, good luck. I'm sorry, but if everyone's earning 2.3 million (today dollars) a year at 65, that means we are all CEOs of highly successful companies. Highly unrealistic. It doesn't undermine the main point, but I wish publications would stop using simplistic math that leads to (faulty) sensationalist results.

Ya and who is in their career @ 22 not many people I know these days its more like 28-30

[Allen C Grant]

As of Friday, May 16, 2008, I graduated with a Masters of Arts Degree in Education Administration from Lindenwood University. Two weeks later, I recieved my report card in the mail that indicated that I have a cumulative grade point average (GPA)of a 4.00. With these grades and current degree, where can I find some free money to fund my educational goal to attain a doctorate degree by this summer? Can you help me? I cannot receive any more student loans at this point in time.

[Chris Phone]

Oh how times have changed! People today are lucky just to have a job. I know people with masters degrees making $20,000 a year. Ain't going to make millions that way! With all the tech and innovation these days, humans are all going to become redundant.

[Matt]

I don't know who t.f. actually received $42,500 per year after graduation. I don't ever see how these figures are calculated. What is with the signing bonus figure?

All I can say is that I've consistently reviewed classified job ads for years, and haven't ever seen those figures batted around for entry-level new grads. Never.

It does say they "expect[ed]" those amounts.

[FMF]

Matt --

This post is two years old. A lot has happened between then and now, or haven't you noticed?

[Mneiae]

Quite a lot has happened between now and June 28, 2006 for sure. Back then we thought that real estate was going to keep going up forever. Back then, we thought that we were invincible; our economy is so closely linked to the world's that we thought that the other countries could literally not afford to let us fail. Well, they did and now the world is paying the piper.

This 25.2 million figure is ridiculously big and not accurate, given the current situation. This year's grads are generally still unemployed. It's hard, as they still have their student loans from when the going was good.