Reader Profile: RF

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)

Next in the series is FMF reader RF. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I finished college in '92 getting a BS from Carnegie Mellon in Chemistry with a Computer science minor.   That was long enough ago tuition wasn't ruinous- between a scholar ship, working while in college and help from my parents I left with a few thousand in student loans.  While I was there tuition doubled, and has grown at an insane rate since.   I went to graduate school at Stanford for Chemisty -- my goal was to eventually become a professor, so if my replies on FMF ever seem like a lecture now you know why.

My research looked at molecular motion using femto second lasers,  it is a pretty obscure area but the year I graduated the Nobel prize in Chemistry went to Ahmed Zewail for his work on chemical reactions using femto second lasers.  If I had gone to Caltech I could have worked under him doing work very similar to what I did at Stanford.   I sometimes wonder how different my life would have been if I had done that, but sadly I didn't have a crystal ball back in 92.

As a graduate student in sciences I didn't have to pay tuition- Stanford had sufficient Teaching or Research assistant ships that covered the tuition and very basic costs of living (~18-20K/year).   I was pretty frugal so I even managed to save a few thousand/year to invest in a Roth IRA.  Learning to invest in the stock market was one of the really useful things I learned while I was in grad school.   The unfortunate thing was that I didn't learn about index funds- I was buying individual stocks, and unfortunately did fairly well enough for a number of years.   Why unfortunately?  Because in the long run I would have been better off sticking with index funds- and would have saved a lot of time and worry too.   I pretty much missed most of the internet bubble- I though the valuations on internet companies were insane so I avoided internet startups.  When I finally did buy one it was a roller coaster - doubling then losing almost all of its value. Fortunately I didn't sink a great deal into it, so it was an expensive lesson but not a huge financial setback.

By the time I graduated in '99 I was pretty burned out on science.  The rewards are few and the demands are great.  Maybe I’m strange I found spending all day alone in a mostly dark lab depressing.   Also, you have to be able to handle the possibility that years of work will yield nothing, even when you did a good job because you choose to research a topic that looked promising but wasn’t.

I interviewed with various companies but didn't find a lot of opportunities in chemistry- my thesis didn't have any direct industrial applications if I had been planning for an industrial career from the start I would have chosen differently.  

I turned down a postdoctoral fellowship at Livermore in their explosive division- I think that was a good choice, the environment was depressing:  I literally would have literally been working in a concrete bunker.   I also wasn’t excited about doing nuclear weapons research which is Livermore's primary mission.

I also turned down an academic post doctoral fellowship because I just didn't have the kind of drive an academic career requires.  There are a lot of people that are willing to give up all other facets of their life to follow the academic track.   I realized I just didn’t want that badly enough.

Instead I came to Austin, TX to work for National Instruments- I had used some of their hardware & software during my Thesis and it seemed like an interesting company to work for.   Overall it has been very stable employment with good benefits and a good working environment.  Some days I do miss doing cutting edge research but I can leave my work behind when I go home, and work reasonable hours allowing time for a family, personal finance blogs, and even some computer gaming.    I’m working in the R&D department doing software engineering.   I'm 41 married with two kids my son is 8 and my daughter is 4.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I work while my wife takes care of the kids- I’m currently making $75K + bonus that might be a few thousand.

We live in Austin TX which didn't really have a huge housing boom (or bust).  We've been in our current home about ten years, before our son was born- we bought it for $156K it appraised at $172K a few years ago.  We still owe ~$95K on it (recently refinanced to 4%/15 year mortgage).

Retirement savings - I don’t think I will be comfortable retiring until I have at least the equivalent of $1M today ($2M in 20 years).  I would like to do a semi retirement at 55 or 60 working enough to cover costs without dipping into the portfolio or taking SS. I’ve kept up the savings pretty well I contribute 11% to a Roth 401K which currently has about $30K and contribute10% (4%+6% company match) to a traditional 401K which has about 100K . I contribute $10K to Roth IRAs for my wife and myself, our current balance is about $140K.

College savings -  I would like to save up enough for the kids to cover most of tuition at a state school without excessive loans.   I expect that would be about $50K for each of them. My son has about $13K saved up and I’m contributing $60/month. My daughter has a couple thousand and I’m contributing: $100/month to balance out that my son got more contributions when he was the only child.

Emergency Fund:  We have a few thousand of ready cash available and I have a very old life insurance policy that my mother started when I was a child that I could probably cover a year’s worth of expenses.   I don’t think whole life is a great investment, but after having it for 30+ years it is a reasonable safe investment as last year’s payout was 6%.

Other Investments - Employee Stock purchase plan (ESPP): My company has an employee stock purchase plan that gives a at least a 15% discount on company stock.   I’m contributing the maximum of 15% of my salary to it and then selling the stock as soon as I get the most favorable tax treatment.   This allows me to fund the Roth IRAs,  due to the downturn I have ~$36K of stock awaiting sale. I have ~$15K of Procter and Gamble stock in a DRIP account.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

I want to have more money available outside my retirement accounts- for some longer term goals: to pay off the mortgage before the kids start college, and to potentially allowing for early semi-retirement.

I just refinanced to 15 year 4% mortgage.  I've set up a new TDameritrade account that I'm depositing the difference between my old payment and my current payment (~$270 month).  I’m investing in a mix of index funds that I can buy without commissions.  I'm targeting (30% VTI, 30% TIP, 20% VEU, 10% VWO, 10% VNQ) for this account. I plan to move some money from the ESPP stock and I'm debating selling off the P&G stock and moving it into this account as well.

What are your plans for the future. (retire early, build your career, etc.)?

In the short term I want to build my career, I'm doing the following things:

• Reading books on software development. This last year I read: Debugging the development process, Writing Solid Code, and 201 Principles of Software Development.


• Listening to computer science class podcasts while I drive. It's really great because you can get podcasts of lectures from the best universities for free. I've listened to an Algorithm's class from MIT and several classes from Berkley- their intermediate CS classes, a software engineering class, and a Compilers class.


• Improving my  communications skills- I've been in Toastmasters for several years and just completed the advanced communicator gold.   I also read Dale Carnegie's The Quick and Easy Way to Effective Speaking which was a great book.

The medium term say 5-6 years I’m most uncertain- I’m comfortable at my current job but the pay isn’t great.   We may also have a third child which would make me very unlikely to take big risks.

In the long term I might take a riskier job with the potential for great rewards or I might semi-retire working just enough to cover living expenses while letting the portfolio and SS grow.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Set up a savings and investing plan and stick to it.  I've automated the contributions and just keep them going.   When times look really bad, either stick to your plan or contribute MORE.   I increased my IRA contributions from 10% to 15% in the downturn and it has really paid off.

Comments

[Jack Sparrow]

I hate to be a jerk, but you have a PhD from Stanford and earn 75k a year? I think you can do better. It doesn't seem like you're really using your degree to its fullest. You'd be doing just as well if you had an undergraduate Computer Science degree from a second tier state school.

I'd work on my career if I were you.

Differentiate yourself. Use your degree. Market yourself. Look around for jobs. Be willing to relocate for DD, or ICI, or DOW, or any of the other manufacturers. Have you considered other scientific instrument makers as well? The Perkin Elmers, TA Instruments, or even Boston Scientific? I'd seriously look at your career.

[Pam]

RF, thank you for sharing details about your life. As long as your current career makes you happy and allow you to live a fulfilled life, i say go for it! Too many people are unhappy doing something they hate. At least you knew what you didn't like and chose to follow a different career path that seems to make you happy.

If you feel pay is low in your current company, you can try to find other opportunities that you like elsewhere that pay more.

[texashaze]

Seems like you are disciplined financially and are on the right path. Jack Sparrow makes a good point that you may want to look at increasing your income. However that can come with increased stress or lifestyle changes. I changed companies for a promotion and pay increase in 2010 and went from a slower paced easy going job to a much more demanding one. The job is very stimulating but there is no downtime and more stress. If you are happy then stay where you are. Austin is a great town but the job market is a challenge so if you have something that is stable and you like it then stay.

[Old Limey]

I agree with the previous comment. I retired in 1992 as a Staff Engineer for a leading aerospace company. I had an MS degree in engineering mechanics, was not in management, and was earning $75K/year way back then.
We had several Stanford PhDs in our department that were all making substantially more than me and they weren't in management either.
You are grossly underpaid and you need to work on your career.

Also, 1992 was a fabulous time to start investing because it was the start of the Internet Bubble. You made the mistake of investing in individual stocks. You should have invested in several of the many growth mutual funds that owned a basket of Hi-Tech companies and by March 2000 you would have had a fabulous ride. The index of the largest 100 companies on the Nasdaq went up 1288% (Ann=42.3%). Of course if you rode it back down as you describe, then that once in a lifetime opportunity was largely wasted.

As a Stanford graduate I am surprised that you didn't stay right here in Silicon Valley and work for one of the many fabulous companies that make it their home. You have to be in "Applied Science" to make money. In "Pure Science" you will write a lot of papers, go to a lot of conferences, and become well known, but that's not where the money is.

In 1992 I was working closely with a Stanford PhD that was the smartest guy I have ever known. He decided that even though he loved his work he wasn't getting paid enough. One day he walked into our manager's office and asked to be let go as an employee but to be hired back in as an outside consultant. He was so critical to our projects that they acquiesced to his desires and he hired back in at double the salary, (probably around $175K) but had to forgo the company health, retirement, and 401K benefits.

[MC]

Hi RF, I appreciate your sharing the details of your career journey! And congratulations on achieving an impressive net worth and financial security in your present life, in spite of the challenges involved in pursuing an academic science career and then switching to industry.

My brother and I both have STEM PhD degrees (STEM=science, technology, engineering, math), and we also have found that it is very true that an academic research career can pay off (eventually) with a high income, or it might not. I'm a tenured faculty making 6 figures but my brother is only an adjunct faculty and he makes at least 5X less than me even though he's much smarter. He has a PhD in Physics and does theoretical work on nuclear physics (plasma physics). It really depends on your area of expertise and what types of research/teaching are in demand 20 years after you started your graduate education when you are looking for your first "real" university research job as a faculty member.

I'd agree with the person who who said that healthcare/medicine is a massive growth area. If there is any way you can work your existing expertise into something healthcare related--for example, by switching to a company or university group that develops new types of non-invasive medical imaging devices and approaches using NMR, mass-spec, and nuclear resonance--you would likely have many opportunities for higher pay.

[Mike Hunt]

Hi RF,

The good news is there is a very good chance you can increase your salary dramatically, but you need to figure out the path you'd like your career to go.

If you are focused on speaking does that mean you want to get into a role where you are leading or influencing people more?

Good luck- you sound like you have a good head on your shoulders.

-Mike

[Bannon]

Thanks for sharing your story.

I don't understand how you're going to go from having $300,000 at age 37 to (a) paying off your mortgage, (b) funding your kids' colleges, and (c) reaching $1 million in retirement savings, all while making $75,000 a year.

I'm not sure if "a few thousand" is a sufficient emergency fund.

I wonder if it might be time to draft a gameplan for your next 20 years. Your goals are admirable, and you seem financially savvy - but it's time to take a look at what you actually need to be doing to reach your goals.

Finally, disregard comments like "you should have put all your money in a tech-based mutual fund in 1992." That isn't even a little bit helpful. The advice to limit your exposure to single stocks, however, is solid.

[jim]

I think RF is doing great. Adding it up it looks like hes saving about 33% of his pay towards retirement. Yes its not at all unreasonable to get to $2M level in 15-20 years. With his current rate of savings he could hit $2m if he averages 6% returns. Plus their house will be paid off when he's 55 years old.

$75k is actually just about the median for software engineers either nationally or in Austin. So he's not 'grossly underpaid' given his current job. He may be making less than a chemistry phd working in chemistry directly but he is instead writing software.

Austin is not a high cost area and wages will reflect that. In a city like San Jose, the median for SW engrs is $94k but housing in San Jose is 2-3 times more expensive than Austin. Plus his house didn't just lose 20-40% of its value like it would have in most areas.

Given his experience, he could probably make more if he worked at another company. But he did comment that he knew his pay was low but that he didn't have to take home work and he had time for family and fun and its a stable job with good benefits and good work environment. Sounds good to me. Many of the software jobs out there are quite demanding with long hours and low job security and high stress. Anyone ever watch Office Space? Would you rather have a 40 hour lower stress job for $75k or a higher stress 55 hour job for $90k?

[RF]

Thanks for all the responses- I will reply when I can find some time.... I'm doing Bannon's first because it is only a matter of mathematics:

@Bannon

Emergency fund- you might have missed it but the few thousand is just cash- I have a whole life policy that I could live off of for ~ 1 year if necessary.

Retirement- I'm actually 41 but compound interest is really powerful
Consider the following:

300K + 23.5K/year 6% for 21 years => $2,016,087.90
300K + 23.5K/year 7% for 19 years => $2,024,852.33
300K + 23.5K/year 8% for 18 years => $2,149,293.04

Suppose I wasn't able to save but could keep from touching the retirement fund:
$300K + $0/year 8% for 25 years => 2,054,542.56
$300K + $0/year 7% for 29 years => 2,134,277.11
$300K + $0/year 6% for 30 years => 1,723,047.35 (not quite but it would have to do)

As for paying off the house & college funding:

I currently have $1,304.17 and am adding $270.00/month

If the return is 8% I could pay off the mortgage in 9 years.
If the return is 6% then it stretches to 9.33 years.
If I saved nothing it would be paid off in 15 years.

Once it is paid off that would free $12K/year*4 years=$48K for college+ current savings - since my children will not be in school at the same time I could put $48K toward each if the mortgage is paid off with no change in my standard of living.

[RF]

@MC
Thanks for the suggestions- I will check out imaging companies.
I’m sure that academics can pay reasonably well… but as you have observed it can be pretty risky- you don’t really know the right path for success until it’s far too late. One of the incidents that really turned me off the academic track was the experience of a post doc in our group:
He was a solid experimental scientist and he had a successful post doc- he produced a fair number of papers and did his own original research. When he applied for assistant professorships he got to the final round of interviews at five top research universities… but he didn’t get any of those positions. He eventually went to work for Agilent- I’ve lost touch and I’m not sure where he is today.

[08graduate]

I've worked with PhD scientists who are on this kind of career trajectory. Contemporary research in any hard science these days involves computer simulation, data analysis, and instrumentation. As a result, newly-minted doctors of chemistry, physics, etc. have enough skills to cut it as software engineers, and the job market is much better in engineering industry than in science academia.

The catch is that "enough skills to cut it" is generally not as much skill as comes with an ECE or CS bachelor's degree, let alone an advanced CS or math degree. It doesn't matter that the condensed-matter physicist I know is smarter than most of his coworkers; his greatest talents and skills are just plain inapplicable to his middle-of-the-road software job.

That said, I've also seen two ways out of this pickle (if you consider it one). The first is to get a complete undergraduate CS education. It sounds like you're working on that, although I don't think listening to OpenCourseWare is enough by itself. Are you doing the problem sets and labs too? The second option, as others have suggested, is to find one of the niches where your hard science skills really intersect the software engineering world. You'd be invaluable.

In that spirit, here's a posting for which you're eminently qualified! I found it in about 2 minutes. (Note: I have never been affiliated with PACB. In fact, I only know of its existence because of an article in Wired. It sounds like a neat company, though.)

http://tbe.taleo.net/NA2/ats/careers/requisition.jsp?org=PACIFICBIOSCIENCES&cws=1&rid=951