I got asked how I could afford to retire, and thought I’d go into a bit of detail about it here, in case it can inspire or inform your journey.
I wish I had a magic formula that was easy to follow that could get you to where I am, and while I suppose my path thus far wasn’t really rocket science, it also was a 30-year journey, and involved some luck and privilege along with decades of work.
But, the high-level key points of my trajectory have been:
- build a retirement nest egg starting at age 18 and never take any money out of it. Take advantage of compounding interest early in life and let it work for you!
- buy and pay off a house starting 15 years ago, refinancing the mortgage at the lowest possible interest rate. This traditional path to housing equity may not make sense in the current market :(
- work and save somewhat hard for 30 years, including at some very well-paying jobs
- hire a savvy financial planner to manage and diversify my portfolio so I don’t get completely tanked by many types of market crash and also ensure I steadily get a return on those investments
Let me also acknowledge my privilege and luck:
- that I could afford to go to college
- that I went to a cheap college, and took out no loans to get my degree
- that I could afford to buy a house at a good point in the market
- that housing was cheaper 15 years ago & then interest rates were low 10 years ago so I could refinance
- that I was good at and often enjoyed work that turned out to be well-compensated
- and not least that as a cis white guy with a college degree, I had less trouble landing work and getting promotions and raises than others might have had.
But perhaps the details of how I got here are still of interest to you, if so, read on.
College has sure changed in the past 30 years. It was both cheaper and a surer thing for increasing salary, when I enrolled back in the 90's. By the time I graduated in 2001, lots was already different, not the least of which can be summarized as “the value of a degree in getting a good job”! At 2001 prices, I could not have afforded to make it through without loans, since tuition had risen in cost to more than 3x as much as when I started, after only 7 years of on and off schooling. Today — 2024 vs 1994 — tuition is 6 times as expensive at the same university for the same full time courseload, according to this handy tuition calculator. Oh, and the cost of living has also gone up dramatically from my days in the dorm and my first couple of apartments, with rents under $500/mo + ability to live on a few dollars a day in food. I am not proud of the semesters when I ate only once a day and ate mostly garbage food; I am lucky I didn’t have a heart attack in my early 20’s based on a diet consisting almost exclusively of cereal, cafeteria pizza, and 1$ Burger King Whoppers, but that’s a big piece of how I didn’t need loans to maximize my college savings over the course of the first couple years on my own, when I had no/low income.
My advice today to college aged folks is to either make sure you’ll get a lot out of college (figuring out what you want to be when you grow up, networking, learning things you can’t figure out easily on your own) or to see if there isn’t a different path that would get you into the workforce quickly at a high salary.
Here, I’m talking about things like coding boot camps or internships or even doing freelance work, that can grow immediately-applicable knowledge skills. It’s hard to recommend tens or hundreds of thousands of dollars of loans for traditional higher ed, if you aren’t really learning a lot (I admit I didn’t learn much in my major for the first several years of school, and that was nobody’s fault but my own). Hopefully if you are spending the time and money on a university education today, you are making sure to really get something valuable out of it: learning things that you are pretty confident will feed into your career (e.g. medicine or law or teaching within the education system, or at least a real discovery of who you want to be when you grow up). In retrospect, I might have delivered pizza instead of taking about 1/3 of the classes I paid for & did minimal work in — and thus got minimal benefit from. At the same time, I was putting a lot of effort into my part-time tech work, & also self-discovery and networking — and those are what really helped me dial in my later lucrative career.
Every year that I was fully employed, I contributed to my retirement — either an IRA, a 401k or UT’s pension. Note that I was un- or under-employed for a total of probably 4–5 years since I was 18, by choice and/or accident, which probably reduced by 10–15% my total nest egg. No regrets about that financial setback — as it also helped me stave off / recover from burnout so I could keep working and remain largely happy!
Before I had enough net worth to make it worth hiring a financial planner/manager, I kept my retirement savings in a 401k with compounding interest; contributing as much as I could every year. This wasn’t really austerity, just having cheap tastes and living within my means. I didn’t max out the 401k when I was making <$80k in salary! But, I have been maxing out my 401k for most of the last 10 years, and perhaps the best “simple” advice I got which I can pass on to you is: always take full advantage of employer matching for retirement and healthcare savings that won’t expire; that is free money! My built-up HSA fund might cover my medical bills, tax-free, for the next 10 years if I continue to remain fairly healthy.
While I worked at the University of Texas for the better part of 10 years, in addition to small contributions to an IRA, I was forced to contribute to the pension which will net me about $1k/mo once I hit “official retirement age”. Note that age is still 15 years away for me, but is my “instead of Social Security” hoped-for-but-not-100%-sure-thing later-life income source. For the past 15 years, it’s been pretty clear to me that the pension is doing a lot better around likely-solvency-when-I-get-older than the US’s social security system is. I’ve put a lot more into social security than the pension, and I am glad that my contributions are helping people today even if it won’t be around to help me when I am older. One unstated but satisfying benefit of retirement is that I get to target my ongoing philanthropy a lot better now, rather than paying into the federal social security system which is often a political puppet, and also has a quite high administrative overhead. (Finding silver linings is one of my specialties.)
I was very fortunate to pull in net income of several hundred thousand dollars over the last decade from equity in my employers as I was an early employee at 2 startups that both paid me back. I kind of think those days have passed for most companies (and my read is that the market today seems to think they were even a fiction when they happened), and I was very lucky even within “the tech bubble” that I hitched my wagon to a couple of smaller companies that both grew at incredible rates AND provided a good return to employees. I put almost all of my tech stock profits directly into my retirement investment account so it could also take advantage of compounding interest! Of course there have been bad years on the market where I lost money and was set back, but over the long term it has evened out. I don’t think that I would have broken even without the attention of a financial planner for the past 7 years, though, so that might be a good thing to look into if you are managing (or like me…ignoring) a portfolio that has substantial equity in it, where you can make choices. I had basically set the dial at “moderate risk” with my 401k providers and that definitely didn’t serve me as well as a financial planner in terms of returns. Here’s another place I can advise you: DON’T FORGET TO PAY ATTENTION TO YOUR OLD 401K’s! Mine did much less than they should have for me until my financial planner made me consolidate everything in the single, closely-managed account he stewards for me.
Once again my privilege is showing that I could afford to handle the maneuvers around the tax liabilities on the way to realizing a return on that equity in my past employers; before I got smart enough to pay someone who understood taxes and take their advice, I got some really huge tax bills that I wasn’t entirely expecting that ate into my savings cushion dramatically and took me some time to recover from. Borrowing money to do that would have been a huge setback.
I’ve also lived within my means, almost always. Kudos to my parents for building a strong sense of financial responsibility in me, starting as a kid. I didn’t understand or appreciate it until I was in my mid-20's, but I have only carried debt on non-capital investments very briefly (read that as: only in car/home loans except for a few months in 2001 where I flirted with credit card debt during an unexpected year of underemployment.) Not owning a car since 2001 has helped me save a substantial amount of money as well, since bicycling as transport (also, as entertainment!) is cheap and is probably the main reason I am fairly healthy as well.
Today, my plan continues to be to live off of a hoped-for steady return on the interest/returns of my retirement fund rather than taking disbursements from the capital. The theory is I won’t touch the nest egg unless there is some major life event. But, I also have a fairly good cushion in savings (out of which I’ll also travel for the next 8 months, but travel by bike is relatively cheap and is not planned to eat through all of my savings).
In retrospect, my somewhat naive plan: “get a big enough nest egg, maintain it, figure out how to live off the interest while reducing ongoing living costs” that I made back in my early 20’s is pretty much still the best summary of how I got here. Unfortunately, I don’t think it’s a good path in today’s economy, if I had to do it again.
