Study: Majority of engineers believe they will become millionaires
recode.net
recode.net
If you have a full career in any white-collar profession and don't have a million dollars between your 401k, home equity, IRA and other savings when you retire, you spent too many years living too wastefully.
The idea that getting a job, keeping it, and living responsibly necessarily result in sufficient savings and assets for retirement is pretty widespread and deeply flawed. Life just is not that simple, and there are plenty of ways to end up screwed (in varying degrees) without having done anything particularly irresponsible or stupid that would warrant it.
If only I had known this buying my home at the peak of the real estate bubble (-$150K to net worth), having to take a pay cut when switching employers (effectively -$15K/year) last year, or having to provide financially for my disabled mother (-$20-35K/year).
It sure isn't like I've been living as a rockstar. Life happens. At least I'm only 31 and can still recuperate from above financial setbacks.
Keep in mind... you have 34 years until you're 65. That's a lot of years of investment interest, additional income, and inflation away from OP's proposed $1mil figure.
It's gotten better.
Maybe. But I'm 29 and I have ~$450,000 in savings (mostly index funds), so I'm pretty sure that having a cool million by the time I retire is eminently within reach. An inflation-adjusted cool million, at that. Theoretical future homebuying, childrens' college educations, and recessions notwithstanding.
It's like one of those high-risk options strategies, except you don't actually take any risk yourself beyond the job, and the options last a lot longer than the ones you could buy online day-trading. Of course, you can't rely on them, either, so don't take any job you wouldn't be happy with anyway. :P
Also, you know all that money you make? ... Don't-spend it. Also important. :P
$1 million is just not that much money anymore, and it will be a lot less in 30-40 years when the current crop of young software engineers will be ready to retire. If most of them think they will be worth $1 million at that time, well, maybe that's just good math.
Because they plan on retiring and make a decent wage. I'm sure some percent plan on making it big.
Forbes defines weathly as $1M/yr in income and $10M in assets. If you were to retire today with $25M and put this money in bonds, you could collect about $1-2M/yr.
Sources:
https://books.google.com/ngrams/graph?content=millionaire&ye...
http://www.wolframalpha.com/input/?i=+1910+1+million+dollars
http://www.wolframalpha.com/input/?i=1+million+dollars+in+19...
You could live comfortably for the rest of your life on much less than $10MM in assets, even in the absence of an income. So I'd say if there's an absolute limit to "wealthy" in our geographic region, it would have to be "don't have to work for a living", which would be around $1-2MM for a middle-class lifestyle and a 4% annual return on capital.
The term also varies internationally as well (emerging vs developed countries). Like having a car, hot water, etc.
In common conversation people often want to use a term that means that one can live a semi-extravagant lifestyle off of the nestegg without working. A very small minority of people use "wealthy" for that, but not enough that I could use that term and be understood to mean what I want to mean. Commonly people use "millionaire," but that's wrong as you point out.
The mistake stems from the fact that brains have a really hard time viewing themselves from the perspective of others.
I started investing at 25. I am 31 now and I am a "gross asset" millionaire. If I stop investing any further and my portfolio maintains its current growth I'll be a net asset millionaire by 37.
I won't become any kind of millionaire from my $100k a year salary alone...
Lower overheads, a stimulating environment (pick up a new language just by living day to day, constantly discover new stuff), friendly test environment for new startups (lower startup costs, less regulatory problems, etc.), potentially lower taxes, and quite possibly a healthier lifestyle with less stress, a better climate and a better diet.
I for one would be terrified about living in, for instance, the US as an aging person with medical needs. To my mind, healthy living is like extremely cheap insurance that always pays out.
Try replacing the developing world with 'the US ghetto' or 'rural usa'. You can approximate the costs fairly closely in some of those cases. $40k/$30k houses in small town upstate new york or texas for example and %10-%15 federal tax rates, still be within domestic flying distance of family.
Nice
Edit: does this mean they think engineers are the most valued, or that they personally are the most valued?
My friends, this is where the "I think my coworkers would be uncomfortable if they found out how much more than them I make" rhetoric comes from.
Kinda reminds me of Hank Hill's "special deal". Sticker price and not a dollar more! :) Make someone feel special and they'll think your lame deal is a good one?
But on the other hand, why not? Becoming a millionaire with a business degree isn't necessarily better odds. If you're working harder to help the company's bottom line shouldn't you have better odds of making big money off those efforts?
I wonder who they interviewed though, because 91% most valued seems very, very high. Way too high. Most engineers I can think of think their skills are undervalued and management is rewarded for their efforts.
A more interesting question would have been "Do you think you'll ever sell an app/business for $1M?" - the crux of the question is "Do you think you'll hit the jackpot?", which in today's world, is selling something that took relatively small amount of effort to build.
Really? Let's call that $80k after tax, and $40k after living expenses. To reach a million in 10 years through compound interest would require an annual return of 20%, which sounds far from "easy".
$80k after tax? In the US, a single guy making $120k would have $32k in taxes taken out, leaving them with $88k. Only $28k if they're married. Only $40k after living expenses? Depending where you live in the US, $40k for living expenses would be normal for a family of 4. That's about the $60k in disposable income in my other comment, requiring only a 8-9% return per year, which is the long term average of the S&P 500.
Does this still hold if we restrict ourselves to the subset of the US where an engineer is likely to get paid $120k per year?
Median home price is ~$210k, which finances in the neighborhood of $1400/mo. Keeping the car & childcare budgets reasonable, $40k of living expenses all-in isn't crazy.
Add a second wage-earner and the math works even better. Move to a low-cost city and the math works even better (and you're likely to find that the pay delta is smaller than the actual cost delta).
Student loan payments will largely be made during years in which most people will not have two kids and a brand-new car. While I wouldn't begrudge anyone the choice to do both at the same time, they're obviously going to hurt a bit or push out hitting the seven-figure mark a few years. Plus, you doubled the student loan debt but didn't allow any increase in living expenses for having a second wage-earner in the HH or account for the second wage-earner's savings.
Point I'm making is the math isn't that far off, if one chooses to live anywhere outside the most expensive real estate hotspots in the country.
If the 8k difference is part of the refutation, I think you may have inadvertently proved the point.
> Depending where you live in the US, $40k for living expenses would be normal for a family of 4.
Depending on where you live in the US, $120k may not be a typical engineering salary.
First, it was a 20% difference ($40,000 vs. $32,000). Second, if you invest that $8,000 at a conservative 6% annual growth for 30 years, you end up with $670,000.
That's a really good chunk of money. It might even be enough to put your kid through college in 2044!
Point taken that a significant four-figure difference is enough to make a substantial contribution to accumulated wealth when regularly contributed and compounded on over multiple decades. Nobody should sneer at the power of diligent saving and compound interest (or, for that matter, at college tuition to grow faster than either inflation or your 529 plan :).
That said, the original sentence that kicked off this subthread was talking about a 10 year time frame:
"A 30-year old engineer making $120,000 a year should become a millionaire easily by the time they are 40"
And by the time we got to where I commented, someone seemed to be believe that $88k vs $80k post-tax might make the difference in whether or not it's true that one could be a millionaire "easily" in a 10 year time frame.
The answer, as far as I can tell, is no... uless you can live on $16k and invest the rest. It seems to me it takes roughly $72k invested annually at 6% to make you a million in 10 years.
(I'm aware that it's possible to live on $16k per year. I've done so in the last five years. But not while working full-time in metro California.)
> First, it was a 20% difference
So, a person with $4,000 left over at the end of the year instead of $3,200 should be just as excited as someone with $40,000 instead of $32,000, I suppose. :)
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A million in ten years with a $120,000 salary does seem a bit tight though, to be sure.
How so?
The taxes you're proposing are WAY WAY off base here. You're completely calculating them incorrectly and overstating the tax burden on people in America. The nominal tax rate may be 28% federal, 6% SS and 3% medicare, but you're disregarding the MASSIVE tax breaks available here - houses are huge tax shields, kids are huge tax shields, getting married is a huge tax shield. Live in a tax-free state (Texas) is like a huge tax shield. For someone making $120,000 that's married, 2 kids, with a house, paying 12-15% federal in taxes is about expected.
Many people actually have local taxes (property taxes, city sewer fees, etc, etc) to deal with, also.
There's also social security/FICA.
When you factor all this in, staying the typical six figure earning is paying 35%+ "in taxes" is not unrealistic.
Is it possible? Yes. Is it likely? No. The average person (American anyway) does not have that sort of self discipline, even if they lived in a cheap enough area to make it feasible.
This coming from someone who DOES have the discipline.
Also 8% growth a year is quite a stretch given that risk free rate is 2.64% (10-year treasury yield), and inflation eats 2% a year...
(My effective tax rate in California is almost as high as it was in Ontario, Canada, and the Canadians have free government-subsidized health care.)
Software culture is now all about the MacLeod Clueless. That's also why the median (and shitty) software company will now discard people once they are old enough that either (a) they have a clue, and get that the private-sector programmer game is rigged, or (b) they should have a clue.