Unit Ops 3 Exam 2 - Lecture 7

Job Offers and Finances for Engineers

Starting salary mean, 25th percentile, and 75th percentile

Mean - $74,990

25th - $70k

75th - $80k

How many hours in a standard work year?

2,000 hours

As a salaried employee, expect to work more

Benefits to expect

10-15 vacation days per year (~another 5 every 5 years of employment)

Health insurance, vision, dental

401k retirement plan with 100% matching up to ~4-6%

Annual bonus ~5-20% of salary (based on your and company performance)

Signing bonus / relocation

Relocation may only be offered if you are moving a long distance. Typically $4000+

Signing bonuses are not very common. If they are offered, typically $5000

Both will have to be paid back if you stay for less than a specified time

Cost of living

Some places (like Houston) have a comparable cost of living to Columbus

If moving to other places (like Portland), should expect/need a higher salary for the same living situations

Negotiating a job offer

Everything is negotiable

Always talk about salary first

vacation, relocation, signing bonus

You don’t HAVE to negotiate

You should have a good reason for asking

There is probably a salary range to negotiate within, just be reasonable

Desired salary?

do not say a hard number if possible

If you have to enter a number, but in $1 so that they HAVE to talk to you and you have the option to negotiate

Reneging?

Backing out of a job offer

Do it if it’s better for you - you have to watch out for yourself because a company won’t

Give them a good reason why you’re going elsewhere - let them down easy

Don’t accept an offer and then actively keep searching

Exploding offers are a strategy to lock in hires before their competitors change, these are typically expected to be reneged more often - expect some people to change their minds

Might get blacklisted

Financial decisions

The decisions you make are more important than how much money you make

What % of your gross pay do you take home?

60-70%

Income tax is…

Progressive - people who make more money pay a higher percentage

Does not mean that earning a higher salary is worse

Taxable income range and rates taxed

How much tax refund to expect?

None!

If you file correctly, your withholding should exactly match your tax liability

Determined by the information you enter on the W-4 (can be updated whenever)

Insurance

Home/renters, auto, life, health

a losing bet

generally, you should buy the MINIMUM amount of insurance possible that will protect you from catastrophic losses

Medical / health insurance

Expensive (over $1000 per year for one person)</p><p>Keeps you from racking up a ton of medical debt if you have a major illness or accident</p><p>If you are young and healthy, consider buying the cheapest plan</p><p>Out of pocket maximum ($/yr)

Medical / health insurance open enrollment

Towards the end of every year, you will choose the coverage you want for the following year

You cannot change your elections unless you have a qualifying “change of life” event - marriage, addition to the family, death in the family, spouse loses job, etc.

HSA / FSA

Health savings accounts (HSA) and flexible spending accounts (FSA) are ways to spend PRE-TAX money on deductibles, co-pays, prescriptions, and other qualified medical expenses

HSAs are only available if you have a high deductible healthcare plan (lower level, less expensive plan)

FSA is “use it or lose it” each year / administered by your company’s healthcare plan

HSA money rolls over

HSAs are administered independently from your company, so portable / not contingent on your employment

401k

**Absolute minimum: amount your employer will match (otherwise losing out on free money)

Employer-provided retirement accounts

You choose your contribution level, employer typically matches up to some maximum (4-8%)

Money is pre-tax, so you won’t pay income tax on that portion of your salary

You cannot withdraw any money from the account until you reach retirement age (without paying tax and a hefty penalty)

Because of the time-value of money, it’s important to contribute when you are young - first few years are most critical

Other retirement options

Traditional IRA (contributions pre-tax, distributions taxed)

Roth IRA (contributions post-tax, distributions not taxed)

Both have annual contribution limits

no employer match

set it and forget it

do NOT watch your retirement accounts

they will go up and down - you are in it for the long haul

the worst thing you can do is sell when the value is dropping

goes up long term

4% safe withdrawal rate

a rule of thumb is that you can withdraw 4% of your retirement savings annually and not run out of money before you die

Social security

government retirement plan

right now, people can expect ~$20,000 per year

Could help supplement withdrawals, but not guaranteed to still be around when we retire

Dr. Maxson’s controversial retirement savings opinion

The problem for most people who can’t retire at retirement age is the cost of housing / mortgage payments

Consider prioritizing paying off your mortgage over other investments

Financial advisors do not recommend because of the opportunity cost

Efficient market hypothesis

all of the available information about an investment is reflected in the price

There should be no bargains to be found in the market

Insider trading is illegal!

Calculating the cost or value of interest

FV = PV(1 + APR/100)^N

FV = future value, PV is present value, APR is annual percentage rate, N is the number of years

Take APR, divide by 100, add 1, multiple by current value - perform this for each year

Rule of 72

If you divide 72 by the annual percentage rate, you get the approximate number of years required for doubling

the market grows at ~7% per year, so investments are expected to double in ~10 years

Conventional wisdom may not apply

retirement age may change

social security may not exist

cost of living could be far higher (or lower)

lifespans may be longer

Budgeting

Live below your means

Do not let your budget grow to match your income

35% housing, 5-10% savings, 15-20% transportation, 10-20% food, 5-15% debts, etc.

Savings upsides

no risk

emergency fund

house down payment

avoid paying interest on financing

upsides > downsides

Savings downsides

inflation loss

opportunity cost

Credit cards

don’t spend money you don’t have

pay off every month - there is usually no cost to use a credit card if you pay the whole thing off

power of compound interest works against you

Cars / auto loans (and sweet spot)

Do not buy a new car!

Buying used cars costs less

Buying used also means you don’t have to finance the vehicle, saving the cost of interest

The best car you own is usually the one you already have

invest the money you saved!

Sweet spot is 9-14 years

Average cost per year goes down until maintenance increases it

Renting vs. Buying

Rule of thumb: if you will stay for at least 5 years, buy (real estate will increase in value typically)

Real estate is an investment

closing fees

cost of maintenance / property tax

improvement