[hellogoodbyeeee]

The 7% is referring to the rate of return on your investments. He is making the assumption that if you invest $100 in the stock market on January 1, then on Dec 31 your account will have $107 in it. This assumption is an average over many years.

There is a common rule of thumb in the investing world that you can safely remove 4% a year from your investments and they will continue to grow. (7% return minus 4% withdrawals means you have 3% more in the account each year)

It doesn't matter what your lifestyle is. If you are a junior developer who makes 80k a year and spends 50k a year, then you should save 25x50k=1.25mil and then you no longer have to work for a living. This process will take years or decades.

[Z-Widwil]

Quick question. Is the 80k an example you threw out, or a reasonable amount for a junior dev to make? Specifically for a a mid-sized company in the States, outside of Silicon Valley.

Currently working as a junior dev and the senior devs feel I'm making less than I should be. Which is much less than that 80k. The only caveat being that my employer is also paying for part of my tuition (up to a max of $5000 a year). Previously, this seemed like a decent increase with what I was making, but adding that 5k to my wage and I'm still nowhere near the 80k.

I'm throwing out this comment as it seems like it would be beneficial to other junior devs to have a ballpark amount to shoot for. Obviously other factors play into this (e.g. healthcare, location, etc). This just seems like a decent play to ask without breaking taboo with local devs.

[ptmcc]

It's obviously location dependent, but in most any booming US city (Seattle, Denver, Austin, etc.) a junior dev should be making at least 80k unless they are truly green.

[eigengrau]

This is completely dependent on your location and the size of the company. E.g., when I recently looked into the stats for Germany, the average annual income for a developer in a small to medium-sized company is ~48k€ (~55k$), which is a long way from the 80k figure.

[wafflesraccoon]

Google around, check Glassdoor for dev jobs in your city. If you feel that you're under paid bring it up at your next review. If they refuse to give you more start to look for other jobs.

[logfromblammo]

The 4% number comes from 7% mean return divided by 3% mean inflation. If you take out 4%, your investment won't grow, but remain constant, keeping pace with inflation. Eventually, you will hit an off year and stumble. The probability of that per year is low enough that it is reasonable to take out 4% every year of a less than 30-year retirement.

Perpetual income, or an early retirement, therefore takes less out every year, such as 3%, and has that 1% growth buffer to smooth over the down phases of the business cycle. You can also avoid spending on life insurance, and just draw up a last will document.

Divide your target income by your withdrawal rate, and that's your target nest egg. To get $50k/year, you need $1.7 million to retire early (3%), but $1.25 million is just fine if you clock out at 65 years old (4%).

If you assume a mean 4% growth in excess of inflation, and your income and expenses rise with inflation, you can hit your target making $80k and spending $50k in just 30 short years. If you want to retire in less than 40 years of working, you'll need to spend less than 73% of what you earn (or earn 37% more than what you spend). Spend only 66%, you can do it in 34. Spend only 50%, and you're working just 22 years. Cutting your expenses can only get you so far, though. You'll have to keep that level of consumption down for the rest of your life. At some point, there's nothing left to cut, and you simply have to earn more if you want to retire. Also, you are likely to earn less earlier in your career, where the compound interest counts for more.

So this is my advice: invest at least 25% of your net income--or more, if you use it to pay off debts--before you buy anything else. When you get raises, don't spend more than 75% of them on your living expenses. Pay your future-self first. By the time you become them, you'll be very thankful for the contributions of your past-self.