In an ideal world - for our favorite providers - the nest egg after 20 years and six clients a day might indeed amount to $1,072,100. But while a provider might try to avoid taxes, she's still subject to expenses that her clients' employers would cover.
Our provider will have medical expenses, dental expenses, legal expenses, and business expenses that the average wage earner doesn't have to pay. Our provider will incur business expenses unique to her profession: She's got to buy supplies (lube, condoms, wipes), cosmetics, outfits that the average office employee doesn't think about. She's got to pay for travel and advertising. She's going to eat out (no pun intended!) for both lunch and dinner, especially if she's going to be seeing six clients a day. She's got to pay for her hotel costs, which are anything but modest in Boston.
The median rate of return (not the average, which skews high) for 20-year periods since 1871 is actually 3.63%. There have been lots of 20-year periods where the return rate was less than 1%, just as there have been lots of periods where it has been over 10%. If the rate of return is 4% but the 20-year return rate is 3% rather than 4%, a provider will need to work an extra 5 or 10 years to make sure that her cushion lasts the length of her projected life expectancy.
We can't ignore inflation. If the actual rate of return is 4% and the inflation rate is 3%, the nest egg turns out to be closer to $250,000 rather than $1,072,100 - in 2034 dollars (20 years from today).
Remember that the provider will have made no contributions social security. So exactly how much money does $250,000 throw off each year at a 4% rate of return? Not much!
By the way, a provider who starts seeing clients in her twenties is probably not going to be able to charge quite the same amount to clients 20 years later.
A provider who sees 6 clients a day for 150 days each year will see 900 clients a year, or 18,000 clients over the course of 20 years. Many will be repeat clients; many will not be.
The provider will receive no social security and will certainly have a different life - a more expensive life - than women in more traditional jobs. Will she find a spouse (male or female) who will be comfortable with her choice of profession? If not, she'll have no safety net in the event that catastrophe strikes during her working life . . . no partner who can help support her.
Many clients may not want to see a provider during that proverbial time of the month; many providers may choose to refrain from seeing clients during the days that Aunt Flo is particularly heavy.
Precautions can be taken but there are STD's that a condom does not protect against. In addition to the costs of medical treatment, some dermatological conditions effectively make a provider unable to entertain clients.
I can think of a few Boston-area agencies that charge clients between $250 and $375. With the advent of the Internet, there is simply a lot more competition for clients than there used to be. With the advent of the Great Recession and its aftermath, there are simply a lot fewer clients able to afford $250 than there used to be.
In sum, there are probably more than a few providers who will indeed reap the benefits of a nest egg of over a $1 million 20 years from now. But those are providers who, IMHO, are in the top 5% of providers. Most gals will undoubtedly wind up with a lot less than that, and more likely closer to a third of that amount.
But only time - and the actual vicissitudes of the economy - will tell.
BostonBob
bb7353
