Retire Rich? - Embedded.com

Retire Rich?

Last week I wrote about the relative salaries of CEOs at major corporations and engineers. Cara responded quite thoughtfully. I think all young engineers should read her letter and then think about their finances very carefully.

Cara wrote: “Your article “Love or Money” asks if we as engineers are happy to have chosen for love/engineering over management/money jobs. The answer is NO, and yet… I do love what I do, even today at 59 and 21 years of working as an engineer. How do I explain the big NO then? It's because I'm facing retirement. I've saved and put money into my 401k for all of my years of work.

For most of that time I've put the maximum into my 401k, but have little to show for it. I feel I'm facing a retirement that will be limited in where I can live and what I can afford to do with the years ahead. In fact, it's a bit scary. I probably won't be traveling, putting grandchildren through college or golfing, or flying (I'm a private pilot). My little joke is that my financial guy tells me I can only retire 3 years after I'm dead.

“Some people may have lacked opportunity. I didn't. I didn't take the management jobs when offered. I can think of 2 offers that were interesting and lucrative. I couldn't make myself do it, so here I am.”

Wow.

Many of us will face this same dilemma. When young it's hard to think about a distant retirement. The consumerism that provides many of us with jobs can, at the same time, poison our golden years. All those glittering ” and very cool ” electronic gadgets will be rusting in some scrap heap years from now, the money that paid for them long gone and un-invested.

Don't count on social security. Will a brave Congress “save” it someday? Will we ever see a brave Congress? The social security “trust fund” is nothing more than a pile of IOUs; there is no money in it.

Years of deficit spending by many administrations make funding the trust fund either unlikely or impossible. At least one presidential hopeful has made it clear that he has no interest in reigning in spending. A surge of retiring boomers will at the very least stress the system agonizingly.

This whole situation is a classic engineering problem that we can – we must – solve. While the leaders rumble with gravitas and do little more than try to out-maneuver the other party, each of us had better take some sort of action.

For those who are young there is no force more powerful than compound interest. Starting after graduation, invest just $100/month at 12% (less than the S&P 500 has traditionally returned) and you'll be a millionaire before retirement age. A more pessimistic $200/mo at 8% returns almost as much.

But if you wait till you're 40 that same $200/mo at 8% garners less than $200k by retirement age.

Start at 50 and you'll need to sock an impossible $36,000 away each year to make the millionaire mark by 65.

A million bucks doesn't go very far. Retirement-age folks prefer safe investments rather than ones geared for growth. A 5% return is probably optimistic, but even that yields a hardly-affluent $50k/year.

My advice to all young people is to find a job you love, and then to start saving immediately. Not next year. Don't wait till you're 30. Fire up a spreadsheet and do the math.

For middle-age will be here tomorrow, and retirement not long after.

Jack G. Ganssle is a lecturer and consultant on embedded development issues. He conducts seminars on embedded systems and helps companies with their embedded challenges. Contact him at . His website is .

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Millionaire???

PHAW!

Unfortunately, it takes more than a cool million to retire in these days. Or, if you live in Silicon Valley, perhaps you can sell your house, for a million bucks. Then, you can leave said valley, (actually, Bay Area California), and live somewhere that is perhaps a bit more affordable maybe? perhaps?

Just when you think you got it made … the bar gets raised:

– Pay stays flat
– College costs for children go up
– Housing costs go up
– The BIG Kahuna == rising costs of healthcare!

What are you gonna do eh?

– Ken Wada


For an engineer who is thirty now one million, or even two million is unlikly to be enouf to retire on when he/she is 65. I will further point out that the U.S. econlmy has had sveral meltdowns in its history. I think the time between WWII and today is by far the longest it has ever gone. Like it or not those wh are no longer able to work will have to depend on the goverment. The up side is that once we retire we will have enough votes to get our elected representitives to do something.

– William Ames


I disagree with characterizing this situation as a classic engineering problem that can be solved. I liken it to a classic engineering problem–perpetual motion–that cannot be solved.

Suggesting that you invest $100/month at 12% after graduation fails at so many levels: The need to pay off student loans; The cost of starting out in the world; The likelihood that with housing costs that you'll have it to invest; and there is no guaranteed 12% investment strategy. At this time, interest rate returns on the kind of investments available to the graduating student who wants, and is able, to invest $100/month are running between 5% and 6%.

Spending less and saving more is good advice, but if enough of us take it, who will we sell our product to?

– ed ezzell


Mr. Ezzell sounds like the anti-engineer, throwing up his hands, declaring the problem insolveable. The irony is that the young engineers have more flexability than the older ones, who have school-aged, expensive, kids, aging parents, community responsibilities and a lot of other issues. They might still be paying off that school loan.

Start saving young or you lose the effect of compound interest.

– John V


I'm 27 and well on my way to a healthy retirement. However, I was fortunate enough to graduate without any debt. Much of the credit goes to my parents who helped fund about half of my education and who understood that their kids didn't have to go to a prestigious school to get a good education and a good job.

However, let's not forget that the idea of retirement is a new one. It was not long ago that you worked until you couldn't work anymore and then your kids took care of you. Now it is work until you don't have to and then pay a nurse to take care of you.

Furthermore, the people I know who are retired and “living it up” are the people who could afford to live it up when working. I don't think I know anyone who worked just to make an average living and then retired rich. So even if retirement is a possibility, maybe the idea of retiring rich – traveling the world, etc.. just isn't realistic.

Finally, I've seen several reports on the health benefits of not fully retiring. We need to stay active. Thus, I'm planning on working part time after the age of 60. Probably not in engineering, but in something that I still enjoy and that brings in a bit of cash.

– Erik Lastname


I'm banking on Hitting The LOTTO Jackpot — someday!

– Steve King


People ask about my “retirement plan” and I pull pictures of my 7 children out of my wallet. I plan to quit the ratrace in 13 years, when my youngest is off to college (and I'm 56). All our kids are/will be putting _themselves_ through by working hard, saving, and earning scholarships. Like me, they won't appreciate what they have unless they earn it.

At that point, we plan to either start driving long-haul OTR trucks or working in fast food or retail. Less stress, meet people, see the country.

There's a Yiddish proverb – “One man can raise ten sons, but ten sons cannot support one father.”

– Andy Kunz


The fallacy in all this is the notion that money solves problems. It is just the opposite – – it causes problems. I'd suggest that the more money you have, the more it enslaves you.

It won't fix your health problems as you get older – you're going to die of them regardless. It won't make life fun, only your attitude can do that.

This is not to suggest one should simply forget saving and spend everything you make… possessions end up owning you even more than money does. But to suggest that there is no hope if you don't retire a millionaire is simply foolish. Quality of like has only a very weak link to wealth, once you have enough to eat and a roof over your head. The rest of the equation is what you do with your time -Time is the real coinage of your life. Do you waste it? Or do you do something? Do you have a plan? or do you go wherever the breeze blows you?

– Phil Koenig


It has to be both, start saving at early age and spend your money wisely living simple life will take you long way. We can sell our products to the people with management/money jobs.

– KASHMIRA Patel


Hah, 12%? Nothing is guaranteed.

And, you have to deal with government regulations that can change on a whim. My father invested in military medals, even obtaining a Medal of Honor over 50 years ago, which was the prize of his collection. In 1994 Congress passed a law making it illegal to sell the medal to other collectors, thus causing the value to go to 0 immediately. Talk about a government “taking”… And now we have the “Stolen Valor Act”, more like the “Stolen Value Act”. This has caused upheaval in the world of medal collecting too.

I agree with the other poster who stated that the people “living it up” in retirement did the same before…

– Scott Linn


hen again, there's still the story of the little-known Montana man who as a janitor, living frugally, managed to have saved up four million which was found after his death.

– Matthew Staben


The social security “trust fund” is nothing more than a pile of IOUs'

I'm surprised to see you jumping on the SocSec fear-mongering bandwagon.

Those “IOUs” are US Gov't bonds. The day the US Gov't stops honoring its bonds we're going to be having a hell of a lot bigger problems than retiring well!

OTOH, SocSec will never approach what most of make while working (we may need all of it just to cover our insurance!), so the rest of the advice is still good…

– Mark Lavelle

Jack Replies Mark, actually, social security is running a surplus, and has for many years. That surplus was supposed to be invested in a “trust fund.” But for at least 20 years the extra is used to offset the on-budget deficit (see http://www.realcities.com/mld/krwashington/15632221.htm and many other sources). Though bonds are indeed used to offset the deficit, there are none associated with SS due to its surplus.


This if one of the few times that I have every reply to an article but I feel that I have to point out what I see as injustices that you have put in this article.

I do not dispute your math of $100/per month @ 12% for 38 years would give you $1M. The injustice that I am referring to is promoting that the average person (meaning most people) could get a 12% return on investment for 38 years.

Your quote of ” invest just $100/month at 12% (less than the S&P 500 has traditionally returned)” is a great theoretical observation of the S&P 500 but I do not believe that you can successfully earn this rate over time. Particularly in the last 10 years you have not be able to get anything close to a guaranteed 12%. The last 10 year it has been more like 6% if you aggressively managed a high risk fund it well. If you want guaranteed then you are luck to get 3%. As you point out in the last part of your article when you state “A 5% return is probably optimistic,”.

To make an assumption that you can average 12% for 38 year is a pipe dream. So let's not misguide people that are young into believing that all they have to do is put a little money in 401K every month and they will be a millionaire when they retire. More realistically a person can get an aggressive rate (high risk, if very well managed) of 6% over the 38 year you would now only have ~$182K which you have pointed out “A million bucks doesn't go very far. Retirement-age folks prefer safe investments rather than ones geared for growth. A 5% return is probably optimistic, but even that yields a hardly-affluent $50k/year.” not go that far in retirement.

I am a 51 year old EE that has contributed on and off to 401k for many year but has also invested (other than 401K) in more inflation resistance investment. I have head this “Saving Chant” since I was in my 20s and have far surpassed what I could have done with the the saving plan alone. I am not trying to discount that 401K should be contributed to but let's be realistic on the gains to expect and not hold it up as the holy grail of retirement

– Thomas Buechner


Jack wrote an article a year or two ago about why do engineers feel un-empowered or something like that. This article is essentially the same topic. The answer to all of you, and I mean you engineers, is to never give up control. David Packard gave up control when he allowed an MBA to become CEO. That's why engineers don't control HP anymore. Never, never ever let this happen. If you are an engineer who has founded a company to develop your brainchild, then never let an MBA takeover. Close up shop first. I didn't say that MBAs are no good, it is just that they can't be allowed to sit in judgement of the engineers. I wonder why engineering can't be like baseball. The big hitters make big big bucks, even more than the managers. The answer is that the founding engineer gave up control to an MBA somewhere down the line.

– Phil Gillaspy


No sweat dudes, Finnish companies are paying record huge dividends to their biggest shareholders i.e. retirement funds in the States. At the same time new investments are record low and CEMs are transferring their production out of the country.

– Aki Peltonen


I understand landlording is not for everyone, but I'd like to share my past two years (now 39) experience here for those who doesn't mind to do some work. If I can do it over again, below is what I will do when going to college. For certain, I will instill the idea to my children starting when they are in high-school.

When you go to college, don't live in the dorm. Instead, find a 4-unit building where you can live on one unit and rent the other three to your school mates (or anyone). Why 4-fam? The financing of 1-4 unit are the same, and you can get in with small down payment. With owner occupied, the interest rate is even lower. Some of you can even get 100% financed and if the building already have tenants, you can walk away from the title company where you close the deal with a nice check in your pocket (from transfer of security deposit, partial rents, seller paid closing cost, etc.). The risk of owning 4-units is less than 1-fam home because you will have vacancies every so often, but hardly ever have empty building. Will the rent collected cover the mortgage payment? Depends on location. Find one that does. But at least you are not “wasting” your money making other landlord richer.

What do you get with this? LOTS is my answer. Learning to be responsible (do little maintenance yourself, after all you are an engineer). Learning to be a sales person (finding tenants). Learning to deal with tenant's complaints. Learning to manage your personal finance. Build your credit. Build equity along the way. Etc. etc.

Here come the numbers. Assume appreciation is 5% per year. Assume the building is self supporting (yes, you have to pay yourself rent), I know this is possible because I have several of such buildings. What's your ROI? Infinite (compare this to 12% with hope).

Let's quantify that a little further. Say building cost is 200k. 4yrs after you finish your college, w/ 5% annual appreciation and say you never have to pay toward your principal (interest only mortgage) you will build a nice $43k equity [or $68k if you decides to pursue your master] … out of your sweat and time!

What stopping you from owning the building next door?

This is about the best way, in my opinion, for [not rich] parents to help their kids to start their lives starting when going to college.

Indeed I can see the potential that one can retire quite well being an engineer.

-Aech Andra


>”I disagree with characterizing this situation as a classic engineering problem that can be solved.”

Before any problem can be solved, the problem must be understood atthe lowest level. If you think $200 Million to a CEO is bad,you'll really be upset after understanding how the system works.

Watch this four hour series on the history of “Money”:

The Money Masters – Part 1 of 2http://video.google.com/url?vidurl=http%3A%2F%2Fvideo.google.com%2Fvideoplay%3Fdocid%3D-8753934454816686947%26q%3Dmoney%2Bmasters&docid=-8753934454816686947&ev=v&esrc=sr1&usg=AL29H22bHgtmEfn7nkQW9VrtX5H58MWRbg

The Money Masters – Part 2 of 2http://video.google.com/url?vidurl=http%3A%2F%2Fvideo.google.com%2Fvideoplay%3Fdocid%3D-2665915773877500927%26q%3Dmoney%2Bmasters&docid=-2665915773877500927&ev=v&esrc=sr2&usg=AL29H21QjLWXzyEqU_cULwJNumqCmKUTHQ

There are tens of thousands of books written on “Economics”, buttry to find just one good one on “Currency Theory”.

– Bob Paddock

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