It amazes me that people in their 40s are working as software developers. Did everyone gamble their money away?
20 years in software developement is easily a few million in the bank + retirement account + home. Why not retire?
My real hope is that by the time I’m in my mid 40s this amount, including the new savings, will have at least doubled (if not 3X), and I’ll be able to retire or take some very light job in a cheaper area, not worrying about this nonsense software engineering bias against age.
My biggest problem was hitting the max and not being able to shelter more income from taxes.
$40K per year in retirement + $20K or $30K in saving and interest + capital gains will easily make you a multimillionaire over 20 years. I don't think people understand how long 20 years really is and how consistent savings starts to add up.
As long as you don't gamble away your money or do something stupid with it, a six figure salary as a software engineer should make you are multimillionare ( in assets ) by your 40s.
Just out of curiosity, is the $40k pre-tax including 401k contributions of a spouse too? Otherwise, how can I, as an single person, achieve retirement contributions of $40k?
In general, working for startups with crappy retirement plans, retirement accounts have been a big pain point for me, a big portion of my assets are actually held in taxable accounts, which is not too bad if you invest in tax efficient funds which at most provide qualified dividends, and during a downturn you can do some valuable tax loss harvesting, but I would gladly take advantage of more tax deferred space.
Not all would have invested in the stock market during the biggest boom it has had. Many people like myself software has paid cost of living plus some modest savings to get a deposit on a house.
A few million = 3-5 million.
Even at the low end that involves having 150k spare a year, plus a house and retirement fund? You're having a laugh.
150k spare a year, diligently invested 20 years with an overall real return rate of 5% (which should be relatively achievable with index funds, otherwise our capitalist machine is in serious trouble and it won't matter too much what my portfolio does) compound to $5.2M. And that's a real return rate so it should be protected against inflation (add a ~3% if you want to do pre-inflation calculation and see the number skyrocket to ~$7M).
In fact, that's what I've been doing myself, and I am just on track at ~Y8 like I said in my other comment, all while being an average productive software engineer in the bay. The key is to live frugally and invest in a very diversified way.
I live frugally in the bay area with ~$40k/y, I don't succumb to peer pressure of having fancy houses and cars, so for me saving ~150k/y (a bit less actually) is rather easy, and I'm lucky enough to be in a relationship with a woman who feels the exact same, and my life couldn't be any fuller: I'm not slave to material possessions, I live in a decent apartment close to work, my weekends are full of nice outdoor experiences, I work on world-class technology in the bay, and I'm building some serious wealth in the process so I can gain absolute freedom in early/mid 40s (hopefully).
I should also say, for full disclosure, that I don't plan on having kids (I have a huge extended family with tons of nephews, so that's enough for me), and I might just adopt much later in life if I'll feel the need, so that might heavily affect my savings numbers.
Math:
- Y1: $157,500.00
- Y2: $322,875.00
- Y3: $496,518.75
- Y4: $678,844.69
- Y5: $870,286.92
- Y6: $1,071,301.27
- Y7: $1,282,366.33
- Y8: $1,503,984.65
- Y9: $1,736,683.88
- Y10: $1,981,018.07
- Y11: $2,237,568.98
- Y12: $2,506,947.43
- Y13: $2,789,794.80
- Y14: $3,086,784.54
- Y15: $3,398,623.77
- Y16: $3,726,054.95
- Y17: $4,069,857.70
- Y18: $4,430,850.59
- Y19: $4,809,893.12
- Y20: $5,207,887.77
It’s a high number but if you take advantage of all the tax deferred accounts available and are an average performer at a good company, it’s incredibly easy in the bay to get a $250-300k job, at which point the $150k becomes very achievable if you live frugally (in my case it’s a bit less than $150k, but I also don’t think I’ll need 5M to retire, that’s way too much considering my life style and the fact that I’ll probably just go back to my home country in rural Europe to retire close to my family).
I don't know what the history will be over the next 20 years if you start now, but for the entire 8 years of my career so far (started at 24), my pre-tax compensation has been roughly 260k/y averaged (I'm at 350k now and started at ~120k), which has allowed me to comfortably save 120k+ a year.
My career has been a mix of a couple startups (one with decent exit, but nothing life changing, say 1.5 years worth of salary as financial outcome of the vested equity) and a big solid growing company (no FAANG though).
Some bar napkin math:
$150k (savings) + $40k (living expenses) = $190k post tax.
Assuming 30% goes to taxes (making liberal use of a 401k), that would be $272k salary. @ 35% it would be $292k.
I think the reason everyone is annoyed/down voting is the assumption that every developer in the bay area is pulling top end salaries like that. The reality is the median dev salary is a lot closer to $140k/yr. It's also quite difficult to live on $40k/yr for most people in the bay area ($3.3k/mo). It's definitely possible but compromises will be made (e.g. no children, live with partner/roommates, have no expensive hobbies, no travel, etc).
Assuming everyone is as fortunate as you, and is willing to make the same compromises as you can come off as condescending, as if everyone is is screwing up and they just need to do this simple easy thing you are doing. It's akin to "why don't you poor people just earn more money??"
With that said, congrats on kicking ass at the savings game, and I hope you enjoy your early retirement :)
You are forgetting interest, capital gains and appreciation.
Considering he has no children, $3-5 million is easily doable. Also, I was including house + retirement fund in the $3-5 million.
I wasn't having a laugh. I was just telling him that early retirement is a possibility. It's insane to worry to be worried about "career advice" in your 40s as a software dev.