How much do you earn from a master’s or doctoral degree?

Graduate degrees such as a master’s and doctoral (PhD) degree can be a great financial investment, but by how much?

In this article, I break down the costs and benefits of graduate degrees and look at ways to justify (or reject) this option. In particular, I focus on my experience from my thesis-based Master of Mathematics in Computer Science program at the University of Waterloo. Nonetheless, the insights written here also apply for doctoral degrees.

Figure 1. Projection of savings comparison from a Master degree to a Bachelor degree.

First of all, a graduate degree is not for everyone

The benefits you can gain from a graduate degree varies across industries and where you are in your career.

For example, the marginal benefit you gain from a degree diminishes the more experience you have in the industry (e.g. a fresh graduate v.s. 10 years of work experience).

Pursuing a graduate degree allows you to learn more about theory and allows you to specialize in a subfield in your industry. You will have more time to delve into fundamental concepts and understand niche insights compared to working directly after a bachelor’s degree or high school. This is because in a workplace, you are often pushed to complete tasks as soon as possible, leaving no time to develop a well-thought-out solution.

There are also many project management skills that you can gain from a graduate degree

Because a graduate degree is usually self-paced, I personally learned to look at the bigger picture, to prioritize goals with potential for huge impact, and work backwards from said goals.

I have also learned to absorb information quickly and be question-oriented when reading through numerous articles.

Overall, pursuing a graduate degree can train you to be autonomous, independent, and high-performing.

A master’s degree gives you $380,000 more at retirement

I used a financial planning application that I made to understand the economics of a graduate degree before pursuing it. The main benefit of this application is being able to visualize your finances with taxes automatically incorporated into the projections. This allows you to plan big-ticket decisions such as buying a house, a car, or… a graduate degree!

Like any financial planning application, it is garbage-in-garbage-out: if you use unrealistic numbers, you will get unrealistic results.

The parameters for comparison

Using the application, I compare a bachelor’s degree salary with the costs and salary gain from a master’s degree. I used numbers researched from online sources:

• The industry is Computer Science (for salary information)
• A conservatively low bachelor’s degree salary of CAD 6000 / mo (Computer Science graduates that go to Silicon Valley / investment banking companies and the like earn much more)
• Master’s degree pay raise of 15% ([source] claims a 20% increase)
• The master’s degree takes 2 years (master’s degree salary starts after two years, and relevant funding lasts for 2 years, while the bachelor’s salary starts from year 0)
• Both pay rates increase at 3%, inflation rate average of 3%
• Using taxes in Canada, Ontario, Waterloo.
• Tuition and funding is based on Fall 2021 entry to University of Waterloo’s Master’s program (e.g. tuition of around CAD 50,100 for 2 years (6 terms), and approximately CAD 3,317 of funding per month)

The projection in Figure 1 can be loaded via this link.

To perform this comparison in the application, we set the bachelor’s degree salary to be negative.

The breakeven for the master’s degree, assuming conservative estimates, is 13 years

Figure 2. Projection showing the breakeven point for a Master degree compared to a Bachelor degree.

What does this mean?

That means in 13 years (as shown in Figure 2), you will have made the same amount of money as if you did not pursue the graduate degree. At the same time, your salary is higher at that point in time, meaning you will earn even more than your bachelor self moving forward.

But how much more?

At the end of retirement (assuming a retirement age of 65 and 40 years of working), you will have earned ~CAD 380,000 more

Figure 3. Projection of additional savings at the end of 40 years of working for a master’s degree compared to a bachelor’s degree

Taking into account interest rates / inflation at 3%, this is equivalent to getting CAD 116,480.87 now.

This is because of the “time value of money” (e.g. a dollar 40 years from now is less valuable as a dollar now).

What does this look like in other terms?

This is equivalent to an additional 2x CAD 2,488 week-long vacations every year or an additional CAD 94.2 per week

These numbers are of course subject to your actual increase in earnings (Hopefully above 15%!)

BONUS: Without adjusting for taxes, your projections would be off by 77%!

The projection without taxes can be seen in this link.

With the same inputs, we can select the tax location to no taxes. With this setting, the projected savings at the end is CAD 672,707 which is 77% more than if you included taxes.

Conclusion

In this article, I have compared the earnings increase of pursuing a master’s degree with the costs of the degree, and opportunity cost of sticking with a bachelor’s degree. The insights gained from this article can be extrapolated into the expected benefits of a doctoral degree.

You can use finance.justinsj.com to automatically incorporate taxes and make your own projections.

If you found this article useful or enjoyed it, I would really appreciate your clap :)

If you have more ideas that you think can help, send me a message or comment down below!