This site usually focuses on insights around technology, business, and markets. But let me pause and share my most heartfelt personal advice about finance, aimed specifically at tech workers.
You’re in your 20s or 30s and you make 4x the US average household income. The new Tesla is out, it’s really fun to stay at the most expensive resort in Hawaii and everyone you know owns a boat. You work hard and you deserve to have some fun, right?
Pause and be planful.
Tech workers are like athletes who make a ton of money in their 30s and 40s, but as they hit 50 there’s a real risk of dramatic loss of income as they become expensive and expendible. I see colleagues in their late 40s get laid off, then really struggle to find an income-replacing job. After 50, there is a real chance of dropping 50% at your next role.
A lot of people say they’ll put off saving and work longer; I believe tech people are particularly deluded if that’s their plan. Look around your company and ask where all the 60 year olds are? They were at IBM, AT&T, Xerox, HP….so why haven’t they all been snapped up by Google, Apple, etc…? See here and a lot of other data sources for answers. Here is a good article on life as a 50+ tech workers.
Poor, pitiful tech workers? No! We are so lucky! We have a fantastic opportunity to get rich gradually and be independent by age 50. This is great news, but the onus is on you to make it happen.
To be concrete, here is my best advice…
- Learn, and get good advice. Read. There is a lot of horrible advice out there, so treasure the good ones. I strongly recommend everyone read John Bogle’s work, and go peruse Paul Merriman’s site – he even has custom advice for your company 401k based on it’s available options. Download his free ebooks. I’m also always happy to chat about this topic if I can help.
- Plan Quantitatively. This is just a math problem! Use a good retirement modeling solution (many are bad). I really like the Flexible Retirement Planner. It does a Monte Carlo analysis on unknown parameters to give you a really good estimate of your chances of success.
- Be conservative about key planning parameters. Your investments may return 6% before inflation. You may live to 95. You might be retired at 55. Health care costs will be more than you expect. Plan and be ready.
- Budget. This is utterly basic but you make enough money to skip it. Don’t. If you’re a natural saver, a budget enables to spending more on things that matter. If you’re not, it will help you accomplish your goals and cut back on mindless spending on things that you don’t really care about.
- Use your work savings options! Tech companies offer amazing benefits, but many don’t take advantage of them. At least a matching 401k, and many companies now enable a “back door” additional $20,000 into a Roth 401k. That’s $47k going into retirement savings, with matching, and huge future tax advantages. Then you can do ESPP, an HSA, etc. These can add 10’s of thousands of dollars to your income.
- Don’t take more risks than necessary. In 1999-2000, I learned that no matter how much money you have, the financial industry can scale to help you lose it. The tech subculture encourages overconcentration in employer stock, making undiversified bets on individual companies (especially your employer), timing the market, going on in on stocks, etc. You should take exactly the risks necessary to achieve your goals, and no more.
This is the best advice I can share, based on my and others past successes and mistakes. Contact me if you’d like to discuss this topic – I hope you benefit from it.