4 ms·

It's definitely not feasible for most Software Engineers in Europe without extreme sacrifice, and fairly low expectations wrt to standard of living in retiremen

by nly 5y ago

It's definitely not feasible for most Software Engineers in Europe without extreme sacrifice, and fairly low expectations wrt to standard of living in retirement. Retiring at 50 is extremely risky in terms of sequence risk[0], so you'd want a low withdrawal rate on your pot. You're also likely to want a higher income initially while you're still young enough to enjoy it. So let's say your target is €2M for a €60K/yr income until you die, after a 25 year career. That gives you a couple years of fucking around after college / some bad years / gaps. To achieve that over a 25 year, investing in to a smooth 7%/yr bull market, you're going to need to invest €2,500/mo. That's something along the lines of €50K/yr of gross income (assuming 40% tax). Most software engineers in Europe probably don't even make €50K/yr... and we haven't even taken in to account taxes on gains, raising kids, buying property, or just enjoying life throughout your career! [0] https://www.investopedia.com/terms/s/sequence-risk.asp https://www.investopedia.com/terms/s/sequence-risk.asp

robocat 5y ago
Sequence risk matters the most in the first decade. So long as you have a backup plan where you can restart working, even at reduced rates, then you can protect yourself against sequence risk. Older and in an economic downturn means that finding work could be difficult, so one would probably need to keep the backup plan “warm”: for example continuing to do a day or two of consulting work or a non-technical role, preferably in an industry that is counter-cyclical.
rsanek 5y ago
The bond tent [0] is an elegant option to deal with sequence risk. It does mean though that you'll need to save a bit more to offset the years your money is out-of-market and not making those 7% returns. [0] https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/ https://www.kitces.com/blog/managing-portfolio-size-effect-w...
franciscop 5y ago
> So let's say your target is €2M for a €60K/yr income until you die > Most software engineers in Europe probably don't even make €50K/yr These two statements do not mix well together, if someone doesn't make 50k/yr it's unrealistic to expect to retire with 60k/year. Let's see more realistic numbers. You make 50k/yr, getting 35k after taxes. COL is around 25k, but that varies wildly; with a partner and each one's COL is lower, but with kids and it's higher. Of those 25k/yr, 15k are for rent. You save 830/month, which gives you 630k after 25y, or 25k/yr at a safe 4% withdrawal rate (gross, so not enough). But also let's say instead of paying rent you get a mortgage at that price, so when you own the place that is reduced drastically. Suddenly you find yourself with a COL of 12-15k/yr net, making 25k/yr gross from what you've saved previously. Sure it's tight, but these numbers are without extreme sacrifice that you mention. Get lucky and make 60-70k/yr, or find a cheaper place, or inherit something (a lot more common in EU that USA I'd think), and it now seems possible.
- nly 5y ago
  Yes, I realise those two statements are in conflict. However, it's still possible for someone earning €200K to not be able to afford to give up €50K a year of gross income to reach the 25 year target I described. High tax, high CoL, a non-working partner and kids can level your chances. And some costs are just fixed for everyone, so there's a lower limit to consider The bottom line really is the balance between CoL and earnings rather than absolute earnings. To achieve a given fraction, R, of your career salary in retirement you need to give up a fraction, S, now. My claim is that most people won't be willing to give up S to achieve the R they feel they need for early retirement (at say 50). Personally I feel that unless you're 20-25 and have hit it out of the park with a great career starting salary you may as well forget about it and look to retire later... maybe start investing for your kids instead. Give them the 20 year headstart they can't give themselves. Investing for a decade or two longer is the magic sauce
  - franciscop 5y ago
    Sure, and I know someone who got like 80k inheritance and he bought a jet ski and a car, crashed the car and sold the jet ski within a year. Not all developers can retire within 25, but what I'm trying to say is that a significant fraction of EU developers can, if they learn and are smart about their money, either retire very lavishly at the normal retirement age or retire 10-20 years earlier with a bit of luck/extra effort.
- temporaryi3 5y ago
  It's more reasonable to expect them to make 35-45K pre taxes, 20-25k after taxes. With a COL of a working class person around 17.5-20k. Most people in software, or any tech field, are barely middle class let alone retiring aged 50.

by nly 5y ago

robocat 5y ago

Sequence risk matters the most in the first decade. So long as you have a backup plan where you can restart working, even at reduced rates, then you can protect yourself against sequence risk. Older and in an economic downturn means that finding work could be difficult, so one would probably need to keep the backup plan “warm”: for example continuing to do a day or two of consulting work or a non-technical role, preferably in an industry that is counter-cyclical.

rsanek 5y ago

The bond tent [0] is an elegant option to deal with sequence risk. It does mean though that you'll need to save a bit more to offset the years your money is out-of-market and not making those 7% returns. [0] https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/ https://www.kitces.com/blog/managing-portfolio-size-effect-w...

franciscop 5y ago

> So let's say your target is €2M for a €60K/yr income until you die > Most software engineers in Europe probably don't even make €50K/yr These two statements do not mix well together, if someone doesn't make 50k/yr it's unrealistic to expect to retire with 60k/year. Let's see more realistic numbers. You make 50k/yr, getting 35k after taxes. COL is around 25k, but that varies wildly; with a partner and each one's COL is lower, but with kids and it's higher. Of those 25k/yr, 15k are for rent. You save 830/month, which gives you 630k after 25y, or 25k/yr at a safe 4% withdrawal rate (gross, so not enough). But also let's say instead of paying rent you get a mortgage at that price, so when you own the place that is reduced drastically. Suddenly you find yourself with a COL of 12-15k/yr net, making 25k/yr gross from what you've saved previously. Sure it's tight, but these numbers are without extreme sacrifice that you mention. Get lucky and make 60-70k/yr, or find a cheaper place, or inherit something (a lot more common in EU that USA I'd think), and it now seems possible.

nly 5y ago
Yes, I realise those two statements are in conflict. However, it's still possible for someone earning €200K to not be able to afford to give up €50K a year of gross income to reach the 25 year target I described. High tax, high CoL, a non-working partner and kids can level your chances. And some costs are just fixed for everyone, so there's a lower limit to consider The bottom line really is the balance between CoL and earnings rather than absolute earnings. To achieve a given fraction, R, of your career salary in retirement you need to give up a fraction, S, now. My claim is that most people won't be willing to give up S to achieve the R they feel they need for early retirement (at say 50). Personally I feel that unless you're 20-25 and have hit it out of the park with a great career starting salary you may as well forget about it and look to retire later... maybe start investing for your kids instead. Give them the 20 year headstart they can't give themselves. Investing for a decade or two longer is the magic sauce
- franciscop 5y ago
  Sure, and I know someone who got like 80k inheritance and he bought a jet ski and a car, crashed the car and sold the jet ski within a year. Not all developers can retire within 25, but what I'm trying to say is that a significant fraction of EU developers can, if they learn and are smart about their money, either retire very lavishly at the normal retirement age or retire 10-20 years earlier with a bit of luck/extra effort.
temporaryi3 5y ago
It's more reasonable to expect them to make 35-45K pre taxes, 20-25k after taxes. With a COL of a working class person around 17.5-20k. Most people in software, or any tech field, are barely middle class let alone retiring aged 50.