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By Jack Ganssle
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."
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 uninvested.
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.