Ask HN: Net worth of software engineer at retirement?

[krishanath]

In the best case scenario, what net worth can a typical Google or Facebook engineer (not the highest paid, but the average engineer at Google or Facebook) expect to have if he/she retires at 55?

One estimate I have seen is $1 to $2 million USD, which I think is too low [1]. I would estimate it at at $7 to $14 million USD.

Here's the back-of-the-envelope calculation I used to come up with this number: Annual salary: $250K. Assume 25% tax, which leaves us with $187.5K, which is about $15K per month. Assume $5000 in monthly expenses, which leaves us with $10K per month investable money. (Note: since net worth includes house and 401(k) I have not deducted mortgage or 401(k) payments). So $10K includes those items.) Now use a compound interest calculator [2] to see what $10K per month at 8% interest (assume investment in S&P 500 and allow for some market crashes) will result in, at the end of 30 years. It is about $14 million, which would include your house and your 401(k).

[1] https://www.quora.com/What-is-a-good-software-engineer%E2%80%99s-e-g-working-at-Google-etc-usual-net-worth-by-the-age-of-55 [2] https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator

[nostrademons]

$1-2M is ridiculous. You can accumulate that much in 5 years without too much trouble.

The challenge with extrapolating this out to retirement is that tech changes very fast, and fortunes can fall just as rapidly as they rise. Particularly if they're held in stock compensation, which Google and Facebook rely on extensively.

Many Sun Microsystems engineers were worth > $10M at the peak of the dot-com boom. A couple years later and they were insolvent, with tax bills larger than their net worth. A decade after that and their employer didn't exist anymore. Of course, a significant number of them quit and joined Google when their employer's stock crashed, and those folks have net worths > $100M or so.

If you extend out to timescales of 35 years, you not only have to worry about your employer disappearing, but you also have to worry about your industry and municipality disappearing. Right now folks who own houses in the Bay Area are sitting pretty - but what if the Bay Area goes the way of Detroit, with the tech industry obsoleted by foreign competition and houses not sellable at any price? The question isn't quite academic: Detroit had its heyday in 1950, and 35 years later, by 1985, it had lost 40% of its population and its major companies were non-competitive.

[greenyoda]

> If you extend out to timescales of 35 years, you not only have to worry about your employer disappearing, but you also have to worry about your industry and municipality disappearing.

That's a very good point. For example, if the U.S. ever passes a law like GDPR, the growth prospects of Google and Facebook could look very different. They could also end up saturating their markets (e.g., if you double Facebook's user base a couple more times, there will be no new users left on the planet - China is already closed to them). And the price of a stock is based on earnings growth rate.

Also, a large percentage of the recent growth of the S&P 500 has been due to the growth of a handful of big tech companies. If anything happens to their business models, not only will their stocks take a hit, but so will the S&P 500.

There's also no guarantee that Google, Facebook, etc. will be the leaders in new industries and technologies that emerge over the next 35 years - new startups could grab these markets. There's not even a guarantee that Google, Facebook, etc. will continue to dominate their current industries - they could be replaced by startups, just as they did to their predecessors.

Finally, tech companies could become more globalized over this time period, leading to fewer of their employees having jobs in California and more having jobs elsewhere in the world.

[thiago_fm]

Haha. I like how modest you are.

If I work my whole life as a software developer, I'll make around that figure. Then you remove the 42% taxes I pay and the fact that I'll likely be a renter my whole life(because buying apartments here is too expensive).

Basically that's the same for everybody in Europe.

[toomuchtodo]

Fortunately, your healthcare costs will be far lower than in the US (estimated to be at least $100k-200k between retirement and death).

https://money.cnn.com/2015/12/30/retirement/retirement-healt...

[jklein11]

How do you accumulate 2M in 5 years making 250K? If you had no expenses and somehow paid no taxes you would have 1.25M. The thought that you could make an extra 750K in 5 years in interest seems extremely optimistic. Saying that it is not a lot of trouble is a little bit misguided.

[nostrademons]

Stock price appreciation. Say that your pay is $150K base and a further $150K in RSUs, vesting over 4 years and with periodic refresh grants. Google stock has tripled over the last 5 years, so by the time 5 years has rolled around, assuming you keep your stock, your effective compensation was $600K/year ($150K/year salary and stock grants currently worth $450K/year) for that first year and slightly less for subsequent years (because the refresh grants are offered at a higher price). After taxes & living expenses you've got maybe $1.5-2M in the bank.

No, this is not guaranteed going forwards, and yes, an outsider could achieve the same effect just putting their paycheck into Google stock. Someone who works at the company has inside information about whether that's a good idea, though; if you're an outsider, it really is a crapshoot whether the stock goes up or down, while if you're an insider, you have knowledge of what upcoming projects are happening, how much key metrics are growing, what morale is like, etc.

This is also why I say it could turn around very fast - if your employer is Google and much of your net worth is Google stock, then if Google falls on hard times you could be wiped out just as easily as your nest egg grew.

[jklein11]

Yeah I totally get that.. current Google Engineers have made a killing with RSUs.

I guess my only issue with your comment is this:

>$1-2M is ridiculous. You can accumulate that much in 5 years without too much trouble.

I would say to rely on 300% growth is a moonshot, especially for a company that is almost 3% of the S&P 500

Calling out the risk of putting all of your eggs in one basket with google stock as an employee of google is an excellent point.

[segmondy]

Are you speaking from experience or what you heard?

[nostrademons]

Experience.

[greenyoda]

Your tax estimate seems low. Remember that on top of federal tax, there's California income tax, which could hit 10% if you're single[1] (assuming most Google and Facebook employees are in California), plus real estate tax if you own a house. If you have significant income/gains from your investments, that could push you into a higher tax bracket.

Also, your monthly expenses could be significantly higher if you have children (larger home, food, clothing, education, etc.), which most people probably end up having at some point.

Also, does your 8% growth rate on the S&P 500 account for taxes and inflation? (Unless 100% of your savings are in a 401(K), you'll be paying tax.)

[1] http://www.tax-rates.org/California/income-tax

[krishanath]

S&P 500 actually returned 10% between 1988 and 2018. If you invested $10K in S&P 500 in 1988 it would be worth $205K today. If you use a compound interest calculator you can see this corresponds to 10% growth per year.

[segmondy]

Assume $5k in monthly expenses? The typical Google or Facebook engineer lives in the Bay area where rent goes for $5k. Tax is not 25%. California and Fed tax is more like 45%. Stop this rubbish. If you are going to answer this at least make it realistic.

[nostrademons]

Rent is only $5K in the Bay Area if you want to live in one of the "luxury" complexes or a single-family home. I pay $2600/month for a 2BR townhome that's about middle-of-the-road in quality. Single engineers can do a lot better by living with roommates; if you're willing to double-up in a 2BR or triple-up in a 3BR you can do about $1200/month. (Some of the units in our complex actually have 4 young men living in a 2BR; they pay $650/month in exchange for living like they're in college again.)

The capital-gains portion of your wealth (which can be appreciable; see below) is taxed at 15% Federally and 10% CA.

[krishanath]

If you buy a house that's an investment, not an expenditure, so it is not included in monthly expenses. 45% is your marginal tax rate, not effective tax rate.

[sloaken]

As others have mentioned your tax rate is way too low. And do not forget Social Security.

Secondly you have to consider that most peoples spending rises to the level of their income. It takes a lot of will power to cook dinner verses ordering out ... EVERY DAY.

Third are you planning to get married? Have kids? They will ensure your take home pay is about 5% less than what they can spend. Relatives in need? If you got money they have needs.

If you are making $250K a year (20K a month) before taxes, after taxes you are probably pulling in 12K a month. Do you want health insurance? Dental insurance .... If you are pulling in that kind of cash you probably live somewhere expensive - they do not pay that much in Mississippi or Mexico. Rent / mortgage 3K maybe even 4K.

So after rent / mortgage and insurance you are down to at most 7K. Cable? Power? Water? Internet? Game subscriptions? Are you going to drive that old car? Vacation anyone? Oh right you are saving for when you are 55, so you will stay at home for vacation. Add in a gym membership. If you are going to save your money for when you are older, then you will want to keep fit.

So what do you think about those old clothes you wear?

Finally as your investment egg grows, what about the taxes? Yes they charge you income tax on a lot of it. If not now then when you pull it out.

All of that said, you could make a great startup, or join a great start up. Which could make you rich, but that is like the lottery. But that is hope, and hope is not a plan.

To keep from overspending, which would put you in the minority, try to squirel your money away in a retirement fund. You will have to wait to 59.5 to start pulling it, but it has a better chance of being available.

[jklein11]

Your expenses seem highly optimistic.

As a number of other posters have mentioned, your estimate for tax liability seems pretty low.

You also mention that you included all of your tax mortgage payments as going toward your net worth. Your mortgage payment will include more than just the principle and would want to include that in your estimate for monthly expenses.

If you are not in an expensive city (i.e San Francisco, NYC, etc) 5K could be a very comfortable to live on. In a more expensive city it is still doable but likely won't have as much room for international vacations, luxury cars, etc.

Also, family planning will play a big role in this. Children are expensive, you will need to factor in child care, education etc.

[mdeg]

Your tax calculation is low I think - looks like $250k would put you in the 33% band, let alone any other regional tax calculations.

$60k/year spending for the rest of your life is very ambitious for a high CoL area. I don't think you're accounting for medical insurance, car ownership, home ownership fees, children, a spouse that earns less than you, etc etc. Costs go up as you get older.

I also don't think you've accounted for inflation.

Please also keep in mind that huge Google/Facebook/Bay Area salaries are a historical anomaly and will not persist throughout your entire career.

[majora2007]

The general rule of thumb for retirement is to take your expected retirement expenses/month time 25 and have that in your retirement portfolio (cash/stock/bonds/etc). You can then pull out 4% and the money should last you at least 30 years, generally forever. You can check FIRECalc for simulations.

My only thoughts on your situation is you are assuming high return rates, and not a realistic retirement amount. You need to remember, you must pay out of pocket for health care, so budget 1k per person for that.

[godot]

There are too many variables that will change this by as much as an order of magnitude. On the high side, say your timing was good and you made enough money to buy a house around 2012, after working for a few years. You buy a house in the peninsula. By 2018 your house value doubled. Maybe the house market doesn't crash anymore like back in 2009; and it goes up even more in the next few years. Your house went from $1m to $5m by 2022, and your net worth just went up by that much.

On the low side, maybe the economy crashes like in 2000 and 2008, and that takes both your stocks and house with it. Maybe your FAANG comp has mostly been in stocks and you've been keeping them. If you're not keeping everything in cash, you probably just lost 50% of your net worth.

Then there's other factors. Maybe you choose to start a family and have a kid or two. You're making $250k, would you resist the temptation to spend money to make your life easier? It's easy to think you have the discipline to to keep your budget. When you're getting 4 hours of sleep a day, waking up every 3 hours to feed and change diapers, you might think differently and spending $5000/mo on baby care, home care helpers suddenly seem worth it, especially since you can afford it.

Lastly, how many FAANG engineers you know plan to stay in their company for 30 years -- heck, how many even stay more than 5 years? Almost every single FAANG engineer I know don't stay that long. Most are ambitious and try to start a startup after 5-8 years. Maybe a FAANG job is just that boring and no one can take it for very long? They take a hit with low salary for a few years, and then 90% startups fail.

[krishanath]

I noticed many people have found flaws in my assumptions and estimates, but nobody wants to post an alternative estimate?

Even if you increase taxes to 40% (in reality even in CA the effective tax rate as opposed to marginal is not that high) and increase expenses to $7K per month (excluding housing), the final net worth still falls in the range I estimated, i.e., north of $7 Million.

Any Facebook or Google engineer reading this, how much do you expect to have when you retire?

[LUmBULtERA]

There is a lot of pessimism here, and some of your estimates (such as taxes) may (or may not!) be a little off.. but achieving something well north of $2 million by 55 is very attainable based on an income of $250k/year. This is why early retirement blogs have grown in popularity in the last 10 years -- many of us in these kinds of situations are more interested in living frugally (I spend much less than $5k/month), saving and investing a huge percentage of income and then retiring after perhaps 10-15 years of work.

[interlocutor]

Here's a networth estimator spreadsheet. Plug in your own numbers to see how much you will have when you retire. (Note: use File > Download as .xlsx to download the spreadsheet)

https://docs.google.com/spreadsheets/d/1Ryu_-mVYxSdJbW8lmf1z...

[mabynogy]

Even if the question is legitimate, I find it a bit sad because it implies you find your current life boring and you expect to be happy with enough money at retirement.