A high school graduate is presented two paths, both eventually require working full-time.
One path has a sign that says “Four years of college ahead. You will make $1 million more over your lifetime going this way.”
The other path says “No college required. You can start working a full-time job immediately going this way.”
Which path would you choose?
Every year over two million people are choosing the path to go to college. And recent studies show that college graduates are coming out better off during this latest decade since the 2008 financial crisis.
There are over 3,000 higher education facilities in the US that provide access to the education needed for career entry and development.
This article outlines the gaps common in income, benefits, and retirement commonly resulting from those that have college degrees and those who do not.
It’s About Quality of Living
There is no argument that life is way more than salaries and money. It is about WHAT the salary provides and how it impacts a persons quality of living.
We all have the same number of hours in a day, days in a week, and weeks in a year. It is what we do during those hours from a work and leisure perspective that differentiates us.
Every job and circumstance provides unique scenarios. Some people commute one hour each way to work every day. This is two hours of travel per work day or roughly 500 hours (62 eight-hour work days) per calendar year. That may be deemed excessive and a negative impact to some people’s quality of life. To others, it may not.
Some people have jobs that require working nights and weekends. This may be deemed a negative impact to quality of life for many.
For a moment let’s consider the things that most people value:
- freedom to do the things we want
- freedom to live where ever we wish
- to spend time with friends
- to visit family for the holidays and special events
- to start and take care of a family
- to have security
- a reliable car
- a pleasant work environment
- nine-to-five work hours
- a comfortable home
- good medical coverage for regular checkups
- medical treatment when sick
- early detection of change in the body (cancer, ulcers, high blood pressure, bad cholesterol, etc)
- to be able to stay home when sick or when a loved one is sick
- good work benefits
- a retirement savings account
- time for hobbies
- paid vacation that will allow for travel and adventure
- work you enjoy and are proud of.
Having a good quality of life is more readily supported by stable work often found in careers achieved by college graduates.
Graduates Make More
Research conducted by College Board demonstrates that the higher the education level attained results in a higher ratio of income to high school graduates. In fact, the higher the education and specialization the higher the salaries. The average Professional degree earners will actually make nearly three times the amount of a high school graduate with no college degree. Doctors can make ten to twenty times the non-college degree earners. Using these Earnings Ratios in the graph let’s demonstrate career salary differentials.
Mishel in his 2014 Economic Policy Study defined a high school graduate average hourly salary of $16.50 per hour. Using the salary table above and using constant 2014 salaries, the college graduate will have earned nearly $1 million more wages than the average worker who did not graduate college. The Professional degree earner will make nearly three times as much showing career earnings of nearly $4 million over a 40+ year career.
Apply Within – College Degree Required
In Frank Bruni’s book titled Where You Go Is Not Who’ll You Be he references the income gap and career advantages between those that graduate college and those that do not. He points out that the gap is attributable to skills picked up in college and the greater confidence an employer will have about a college graduate. He indicated that many employers won’t even look at someone without a college degree, even if it is not required for the job. Some thinking is that college graduates have more discipline, or at least discipline of the right kind. College didn’t create it, but getting to and through college reflected it, and that same discipline could be essential to securing a good job, keeping it and getting future promotions.
A June 1, 2016 Wall Street Journal article by Anna Louie Sussman identifies that lower-income workers receive some employee benefits at a substantially lower rate than higher-paid workers.
This is a major gap associated with workers in the bottom quartile of wages earned as demonstrated in the Benefits Gap chart . Only about 35% of bottom quartile wage earners receive paid sick leave and only half receive paid vacations and paid holidays, compared to 80-90% of the rest of the earnings groups.
Having To Work When Sick
The WSJ article described the situation where 56-year old Estelle Becker, a waitress at a Capital Grille Steakhouse is forced to go to work even when she is sick. “Most of us work sick,” she said, referring to other servers at her workplace. “And I’m not saying it’s a proper thing, but most people can’t afford to take off.”
Lower-paid works are commonly those without a college degree and working in job that do not require specialized degrees or training. Lack of health insurance benefits are more common for lower-paid workers in jobs like Estelle Becker’s. This may impact health quality and overall life expectancy. Foregoing regular medical check ups to detect important changes in the body such as cancer is a life risk.
The Ticket to Good Benefits
The Benefits Gap targets the entire compensation package that feeds into the Quality of Life formula, which is an example that work is more than a paycheck. Jobs earned by college graduates put are more likely to pay for time off and offer the various multitude of benefits leading to a fulfilling life with valuable work-life balance and stability.
There are many people that do not have the savings necessary to retire. Many people have no savings perhaps due to a major life event, an unplanned and longer than expected job loss, or perhaps an inability to save money.
Many People Are Working Longer
The reality is that these people without enough retirement savings are more likely to face tough times in older age. Many people are forced to work far longer (into their 70’s) to keep the paychecks coming which impacts the period in life also referred to as the golden years. Instead of stress free years as you age and watch your grand children run around you have a burden and a need to work.
Many People Have $0 Saved For Retirement
An article in Money magazine by Alyssa Kirkham on March 14, 2016 titled 1 in 3 Americans has Saved $0 For Retirement reveals a troubling result. Additionally it was pointed out that 74%, or three out of four people, have less than $100 thousand saved for retirement.
How Much Do You Really Need To Retire?
Rob Berger published an article in May 2015 titled How Much Do You Really Need To Retire? that described a common formula referred to as the “4 percent rule”. The idea is to use this rule to determine how much savings is required in order to retire. Although there is no one-size-fits-all and there are multiple variations of this “4 percent rule” the general idea is that you will need to have saved enough money by retirement age to be able to withdraw “4 percent” of the account balance each year. If you have $1 million saved then your first year withdrawal will be $40,000.
Talk to a Financial Advisor About Retirement
Find a reputable financial advisor to discuss the topic of retirement planning and lay out what your annual expenses may look like and what amount of savings is required. You can evaluate income from small part-time job(s), investments, social security, retirement account distributions. You can also map out the expenses. You may be able to lower your cost of living during your retirement years but still have to factor insurance, property taxes, home maintenance, utilities, car payments and travel to name some examples.
An Amazing 401k Retirement Plan Example
Those who do achieve college degrees are far more likely to work for an employer that offers a 401k retirement savings plan with employer matching.
The Company Match Doubles Your Money
Assume your employer will match up to 5% of your salary contributed to the 401k.
Let’s say that you earn $80,000 per year salary and choose to invest 5% of it ($333/month) to your 401k retirement savings fund, or $4,000.
Assuming you keep investing the same amount of $333 per month for 15 years you will have contributed $60,000 to the plan.
The really cool part is that your employer matched your contribution of $4,000 per year equaling an additional $60,000 investment to YOUR retirement. That is an instant 100% return on your investment with no risk and no strings attached.
Once fully vested in the retirement plan those matches are all yours.
Compound Interest and Company Matching Equals Tremendous Growth Opportunity
The great news is that due to compound interest and market returns and growth the fund is now worth $267,000. That’s right, your $333 per month for fifteen years has turned into a sizable nest egg thanks in large part to your decision to save for retirement and your employer match every year.
Eliminate The Retirement Gap Risk
This can help to shrink the retirement gap and can even avoid the retirement gap risk if you are able to increase your savings rate over time. If you would make the decision to convert all or part of your annual raise each year to your retirement savings then you will improve your total retirement savings systematically in a seemingly affordable way.
The College Degree Wins
In life there are no guarantees with anything – college degree or not. Just because someone goes to college does not ensure that they will make great career decisions that will put them into position to earn a good salary, get great benefits, or save for retirement.
Numerous recent studies have demonstrated that college can better provide the educational foundation and path to a stable career. This contributes to higher lifetime earnings and saving – with greater opportunity to achieve several quality of living variables.
More than the $1 million more that can be earned over a lifetime, the ability to have the money we need when we need it, to save for retirement and have a comfortable life is what matters. Also adding the fact that many workers have dependents that need food, water, housing, and clothing makes the need even greater.
The college degree path best equips us to prevent these income, benefits, and retirement gaps.
An even surer path may be the path that continues on to even higher education such as Masters, PhD or Professional school degrees. The lifetime earnings increase by another $1 million on that path.
Higher education wins. Period.