Going to graduate school, in addition to the opportunity to learn and develop skills in your desired field, is perhaps the biggest financial decision any of us make. It heavily influences the kind of career paths we’re likely to have, the likely earnings we’ll garner, and our lifecycle patterns of debt, earnings, investment, family formation, and retirement. Because your 20s are your highest ROI working years due to the magic of compounding, choosing to spend them in graduate school on a $20,000 stipend is an enormously consequential choice.
In this post I outline a path to attend graduate school, earn your Ph.D., and pursue an academic career in a way that takes full advantage of your 20s’ contribution to your long-term wealth trajectory. I call it the ‘Coast FIRE, then Apply’ plan.
(Note: This is my third post in a long-term series on how to handle missed opportunities for retirement investment due to spending years of your early working life in grad school. For previous posts, see Keep Living Like a Grad Student and Should Grad Students Take Out Student Loans to Invest?)
Why Not Apply to Grad School Straight Out of Undergrad?
You certainly can! I did, and I’m doing just fine. But doing so carries substantial risks for several reasons:
- Your opportunity to invest during your 20s is severely limited.
- Your period of depressed earnings may be extended beyond graduate school if your field comes with expectations for one or more postdocs.
- Your opportunity to earn enough post-graduation in academia to make up this investment gap is highly uncertain.
- Depending on your field and specialty, your opportunity to change industries to increase your earnings may also be limited.
The Coast FIRE then Apply plan is intended to help you mitigate these risks. It lets you capitalize on the compounding potential of your 20s, mitigates the impact of an uncertain post-graduation career trajectory, and leaves you with, if not quite F-You money, at least enough to where you feel confident you’ll be able to retire comfortably, whatever happens in between.
What’s Coast FIRE?
Coast FIRE is a flavor of FIRE (Financial Independence, Retire Early) that has grown in popularity in recent years. The idea is to save aggressively early in life and invest your savings until the point that, based on your investments’ expected returns, you can stop saving for retirement and still have enough saved up to retire at your preferred age and standard of living. Unlike traditional FIRE, this approach doesn’t require that you retire before the expected age, and the total savings required is substantially reduced. Instead, Coast FIRE relies on the power of compounding to take a comparatively small amount of savings and turn it into your full retirement nest egg.
That’s a very succinct summary. If you would like to learn more about Coast FIRE strategies, check out the r/CoastFIRE subreddit and its linked resources to get started.
How Does the Coast Fire then Apply Approach Work?
It’s simple: Once you graduate from undergrad, get the best-paying job you can (ideally one that builds skills you can use in your academic career), then save as much of your income as you can until the point where you reach your Coast FIRE threshold. Then apply to the next graduate school admissions deadline (if you still want to).
What’s my Coast FIRE Number?
What that threshold is depends on several factors. The most important ones are your age now, the age you would like to retire, and the standard of living you would like to enjoy at a minimum in retirement. Based on the standard assumption of a safe withdrawal rate of 4% in retirement, you’ll need 25x your desired standard of living in your nest egg. The difference between your current age and your desired retirement age tells you how long you’ll have for your money to compound to get there. Otherwise, you just need to make assumptions about your expected rate of return on your investments and the expected inflation rate, and you have all the information you need to pick a reasonable threshold.
Following the guide on Walletburst, the basic formula is as follows:
(Coast FIRE number) = (annual spending) / ( SWR * (1 + n)^t )
Where SWR is your safe withdrawal rate (conventionally 4%), n is the expected real rate of return on investments accounting for inflation, and t is the number of years until retirement.
Let’s assume you would like to live on a minimum of $50,000 (pre-tax) in retirement, you use the 4% SWR, and you anticipate a 5% real return (e.g., 8% nominal returns minus 3% expected inflation). Depending on how long you would like your academic career to last beginning on day one of grad school, your Coast FIRE number may be well within reach:
| Years Left | Coast $ |
| 20 | $471,112 |
| 25 | $369,128 |
| 30 | $289,222 |
| 35 | $226,613 |
| 40 | $177,557 |
| 45 | $139,121 |
To spell out one example, let’s say you would like a 35 year academic career, including grad school. That means that your coast FIRE number in present dollars is $226,613.
How Long Will it Take Me to Save That?
$226,613 is obviously a lot of money. How long would it take you to save that much money?
The answer obviously depends on how much you save each year. However, if you take full advantage of the tax-advantaged retirement accounts many workers have available to them, you could actually get there pretty quickly. In the table below, I once more assume a 5% real compounding rate, and for simplicity assume annual compounding (which will slightly understate the amount you can accrue compared to daily compounding, but is more than good enough for our purposes). In the first column, I calculate the size of your nest egg after each year of saving assuming you maximize your 401(k) (currently $22,500 per year) but save nothing else and get no employer match. In the second column, I assume the same for your 401(k) but also assume you maximize your IRA (currently $6,500 per year).
| Year | 401k only | 401k + IRA |
| 1 | $22,500 | $29,000 |
| 2 | $46,125 | $59,450 |
| 3 | $70,931 | $91,423 |
| 4 | $96,978 | $124,994 |
| 5 | $124,327 | $160,243 |
| 6 | $153,043 | $197,255 |
| 7 | $183,195 | $236,118 |
| 8 | $214,855 | $276,924 |
| 9 | $248,098 | $319,770 |
| 10 | $283,003 | $364,759 |
By just maximizing your 401(k) and saving nothing else, you could reach your Coast FIRE number in 9 years, then start grad school around age 31-32. If you also maximize your IRA, you could reach it in 7 years, starting grad school around age 29-30. (I don’t show it in the table, but the same calculation is 21 years if you max your IRA only, at which point you’ll be 43 and I don’t particularly recommend you apply to grad school.) Of course, you’re more than welcome to save even more if you’re able, and that will speed things up considerably. The point is that if you’re able to get a sufficiently good-paying job relative to your cost of living, this target is pretty reasonably in reach.
Bonus Benefit: Confronting Opportunity Costs
A side benefit of the Coast FIRE then Apply strategy is that it forces you to confront the very real opportunity costs of attending graduate school. Everyone knows they’re forgoing income by doing so, but actually establishing yourself in a career and watching your wealth grow will make that opportunity cost much clearer than it probably is to most 21 year olds dreaming of an academic career.
Lots of people giving advice to prospective grad students offer a version of the “Just Don’t Go” line. Not me. I have a good career and good quality of life (at least this side of tenure). So do many of my grad school friends and my former students. As long as you know what the opportunity costs are and what your realistic chances of an acceptable career outcome are, and want to do it anyway, I won’t try to talk you out of it. But earning a real income for 7-9 years and building significant wealth for your age, then staring down the prospect of living on grad student stipends, is a great way of making sure you’ve fully reckoned with those opportunity costs (while hedging against a disastrous or suboptimal career outcome).
What About After Graduation?
If you follow the plan outlined above, you’ll start grad school sometime around 30, graduate around 35-38, start earning a meaningful salary around age 35-40, and if you’re lucky earn tenure around age 40-45. If the markets cooperate, you’ll be already on your path to a minimally acceptable retirement.
Should you save more? Well, generally in a good academic job there will be a mandatory retirement plan to which you and hopefully your employer will contribute. That should significantly improve your financial standard of living in retirement. Beyond that, whether you should save more depends on whether you hope to retire early or leave behind generational wealth. I can’t make that decision for you, but the good news is you’ll have good options if you follow this plan.
Final Thoughts
Spending your 20s earning and saving little, as most who earn a PhD do, will have lifetime personal finance repercussions that no workaround can entirely eliminate. This is my third strategy that I’ve offered to mitigate these effects, but they are nonetheless real. You should carefully consider them before applying.
If you’re deciding whether and when to apply to a PhD program, you should also keep in mind that the costs of doing so are more than financial. You’ll likely need to move to a new place where you don’t know anyone. You’ll likely be far away from your family and current support network. You’ll likely delay starting a family, perhaps indefinitely. And when you graduate, you’ll likely need to move to an entirely new place at least once, and often multiple times. These moves erode your social capital, your ties to life outside work, and your ability to maintain work/life balance and good mental health.
With those caveats, a lucky percentage of PhD matriculants will earn themselves a pleasant, reasonably well-compensated career at the other end. Whether or not that turns out to be you, you’ll be glad that you established your path to financial security before embarking on that risky journey.