Given the massive growth of this industry, most engineers are still relatively young. Therefore, I'd certainly would expect any engineer making an upper middle class income would think by the age of 65 that they would would end up with millions in wealth.
The term "millionare" needs updating. I think what people actually mean by "millionare" is something like "net worth of at least over 10 million dollars".
Likewise, the buying power of $1M in 2014 would be like having $40k in 1910.
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.
This definition of "wealthy" seems really, really arbitrary. My ancestors made a living by exporting lumber which was chopped by hand, and came close to dying of cold and hunger four or five times during the early 1900s. By that measure, we are all living like kings.
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.
I totally agree. The definition of "wealthy" really depends who you are talking to (subjective). This is why I used the Forbes definition because I am not sure if your definition matches mine.
The term also varies internationally as well (emerging vs developed countries). Like having a car, hot water, etc.
The term isn't wrong, a person with a $1M net worth is still a millionaire. People just need to be aware that $1M has a very different buying power today than it did for our parents' generation. Retirement is expensive and $1M doesn't go as far as people expect.
I think you're right, and mystified by the downvoting.
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.
A 30-year old engineer making $120,000 a year should become a millionaire easily by the time they are 40.
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.
Pre-tax income of $120k would net about $95k in the US for a married man with 2 kids and a house in a tax-free state (Texas, Florida, etc.) 8% growth isn't a stretch, it's the average return for S&P 500 over the past 100 years.
For a single person without a house and without dependents, the after-tax income is actually about $76k in CA and $87k in TX, according to ADP's online calculator.
A 50% aggregate tax burden is a choice a small fraction of Americans make. As others have pointed out, most Americans have far lower aggregate tax burdens.
Seems unrealistic, given 35 to 40% will go to taxes, benefits, etc. That leaves less than $2k a month to live on.
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.
Unfortunately, if you use a 401k you can't touch it for quite a while. Time is an important variable. There's no point in becoming a millionaire at the very end of your life (to use an extreme example).
401k allows withdrawls at 59.5, which isn't all that late. Anyone planning an earlier retirement is very likely to be investing in normally-taxed accounts in addition (due to 401k caps), which can they draw from before that. Plus Roth IRAs also allow some flexibility in terms of early withdrawls.
So I can't reply to the people who've replied to my comment, so I'll do it here...
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.
@bluedevil2k: Living in a tax-free state (Texas) is definitely a huge tax shield, but lots of people making $120k often live in a tax-happy state (California) which has the opposite effect.
(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.)
> A 30-year old engineer making $120,000 a year should become a millionaire easily by the time they are 40.
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".
Chances are an engineer would get married before they're 40.
$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.
American families of 4 usually have two wage earners. So there are a bunch of factors involved, but the math isn't far off.
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).
Depends on what you're including in "living expenses, yes"? The figure you used for a home is way off, for example--it only factors in the P+I payment--not property taxes and homeowners insurance; when those are factored in, that $16,000/yr mortgage payment suddenly becomes about $20,000 (or more). Add another $8,000 for a single car (payment, insurance, gas, and maintenance), $6,000 for student loan debt (easily achievable for a $60,000--2x the average, one for each earner--load) and that leaves $6,000 for food, childcare, and utilities (and anything else I'm forgetting) before that $40k is gone. I don't know what area of the country you think $500/mo is enough to spread over childcare, phone, water, electricity, and food (no internet allowed; just the "necessities"), but I'd be interested to find out.
The housing figure I used was for PITI (all-in). Obviously the T and I will vary by jurisdiction. But feel free to call realtors in e.g. Atlanta, Cincinnati (median price: $110k) or Jacksonville, FL (median price: $120k) to confirm that an all-in number of $1400 or substantially below is reasonable for a single-family house. (I know a number of people who pay < $1000/mo to own 3+BR houses in the city limits of Atlanta. Again, that's all-in, counting all the non-utilities expenses you think I'm leaving out.)
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.
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!
> Second, if you invest that $8,000 at a conservative 6% annual growth for 30 years, you end up with $670,000.
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. :)
Keep in mind that a good chunk of those living expenses are housing, and if you own rather than rent, a decent portion of that goes into your net worth. Not all of your living expenses are necessarily "wasted" in this way.
A million in ten years with a $120,000 salary does seem a bit tight though, to be sure.
Even if that math worked out, 56% of software engineers are not making 120K at the age of 30. 120K is above the median salary, nationally, even for the most senior bracket of software engineers, with around 10 years of experience (which typically a 30 year old does not have). Seems likely the national median for a software engineer at 30 is probably closer to 85K.
"Become millionaires" sounds a lot sexier than "Will be adequately prepared for retirement when they're 65".
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.
Or you were chronically underpaid and didn't realize it. Or you were the victim of circumstances beyond your control that resulted in abnormal financial burdens. Or any of innumerable reasons someone's life can simply not go perfectly.
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.
You don't even need to be the victim of unforeseen circumstances. Just having kids makes it much harder to save money. Your expenses for food, clothing, housing, energy, healthcare, etc. go way up, and if both parents work, they're paying for daycare when the children are young. Which means it's much harder to invest a significant fraction of your income.
> 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.
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.
What part of the US do you live in that house prices are still depressed $150k since the bubble (on a house that costs presumably less than $800k)? In most cities prices have come back up, I think.
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.
My townhouse was in the western Chicago suburbs. My builder went bankrupt, and the land was sold at fire sale prices to M/I Homes, who then proceeded to sell their townhomes for a little less than half of what I paid.
At the time, I was in a pretty rough place. Now I'm in a much better place, short selling it to get out from underneath it, my credit score has recovered, etc.
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.
Don't forget to account for the cost of raising a family in the areas all of us engineers want to live in. Being a "millionaire" perhaps means having access to $1M, not earning it over 10 years... and that is tough (no bad luck at all or market downturns or health issues...)
Oh, software engineers! Well, yes, as a breed, software engineers do seem to be particularly prone to hubris. The ego and phenomenal sense of self-worth of a mid-twenties PHP kludger compared to a mid-twenties chemical engineer or civil engineer is just amazing.
This question has nothing to do with hubris. In fact, there are likely a lot more false negatives than false positives. Most of those 56% will become millionaires and most of the other 44% will as well.
Because they plan on retiring and make a decent wage. I'm sure some percent plan on making it big.
> as a breed, software engineers do seem to be particularly prone to hubris.
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.
Hey Mate, may I ask since when you started saving and if you don't mind disclosing how you got upto 450K ? I am database developer, 28 and have only accumulated 60K.
If you don't mind asking what strategy you use ? Thnx.
Small-company stock options. They don't just reward you for working at a growing company, they reward you for working at company with a volatile stock price. If you're extra-lucky they'll reprice your options at the bottom of a dip, and then you'll make boatloads as the company recovers.
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
$450,000 will be worth $1 million in about 25 years based on inflation alone--this is before any real appreciation in those index funds or additional earnings on your part.
$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.
I came from an academic background in science (physical science; not computer science), and I couldn't agree more. There was always a sort of swagger detectable in academics I worked with, but at the same time there was always a deep and profound understanding that we don't know a lot about anything. I get the opposite sense when I discuss things with software engineers and even many computer scientists. The antagonism toward others ("shit code") is especially pronounced. It's still uncomfortable for me.
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.
I would encourage others to hack conventional wealth metrics and move to the developing world.
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.
There is medicare for old people in the USA, as imperfect as it is. Also developing countries might not be nice places to raise your kids unless you do the private school / live in a bubble thing.
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.
All valid points, but I still doubt you can get the same range of lifestyles (eg. car free, beach proximity, unmatched availability of foodstuffs) that cheaply, internal to the US, within a decent climatic zone, somewhere you'd actually want to live. Besides, you're neglecting the linguistic/cultural stimulation that comes from being somewhere truly new.
Define "millionaire". Gross assets? Net assets? Cash? Annual net income?
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...
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[ 5.8 ms ] story [ 178 ms ] threadhttp://money.cnn.com/calculator/retirement/retirement-need/
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.
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.
How so?
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...
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.
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.
(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.)
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. :)
A million in ten years with a $120,000 salary does seem a bit tight though, to be sure.
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.
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.
Because they plan on retiring and make a decent wage. I'm sure some percent plan on making it big.
69 percent of engineers say their role is “recession-proof.” 91 percent say they feel they are the “most valued” employees at their company.
those points are laughable.
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.
The mistake stems from the fact that brains have a really hard time viewing themselves from the perspective of others.
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.
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.
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...