money money money
March 24, 2011 10:08 AM Subscribe
How should I best plan for my future when I'm at my potential peak earnings, and the job outlooks don't look great a decade out?
I make about $150K a year, which is probably a lot for most people. But, I'm also around my peak earnings, and the long-term future looks very bleak. I currently don't spend a lot of money, so my potential savings rate is good. But, besides maxing out my 401K and IRA each year, I don't feel I'm managing the rest very well. Of the rest, I put money into S&P 500 Index funds. Then, I try to keep about 2-3 month expenses in cash. But, it seems that a lot of my excess earnings is going to taxes. Maybe I can save around 10K a year.
Many people would die for this situation, right? But, when I do the calculations, and assume that I'll be out of a job within 10 years, my future doesn't look great. I still will have probably 40+ years of life, and I'll be at least 20 years from official retirement age. So, even at my current savings rate, with a future spending rate of say $50-60K a year, adjusting for inflation, I'll not make it that far.
There are alternatives. One, I could try to re-train in 10 years for a different career field. But, most high-earning jobs are technology jobs. And, unfortunately, there are discriminations in those fields. I don't think a company would hire a mid-40s new graduate over a mid-20s new graduate. I could be wrong. However, I expect that I'll be out of a job in my field because of age-discrimination, so why should I expect differently elsewhere? Also, the rising costs of degree programs and the time to complete them, the selection will be risky. I would have to pick the right degree. There won't be many second chances.
Another idea I have is to start a business. But, I've always been sort of risk adverse. Therefore, I don't think I have what it takes to invest the money in an idea and to make it happen.
I've noticed other people, older than me, who seem to run their life as a business, for tax reasons. I'm wondering if somehow I can take some of the money that's being taxed currently and put it into businesses that can grow over time. How would I get started doing such a thing? Are there typical kinds of things that people do to make their tax rates lower?
Any ideas would be helpful, or just pointers to other resources would be great. I've read the standard literature on financial planning, and
following those typical plans don't seem to compute. I need more fringe ideas that aren't in the mainstream.
I make about $150K a year, which is probably a lot for most people. But, I'm also around my peak earnings, and the long-term future looks very bleak. I currently don't spend a lot of money, so my potential savings rate is good. But, besides maxing out my 401K and IRA each year, I don't feel I'm managing the rest very well. Of the rest, I put money into S&P 500 Index funds. Then, I try to keep about 2-3 month expenses in cash. But, it seems that a lot of my excess earnings is going to taxes. Maybe I can save around 10K a year.
Many people would die for this situation, right? But, when I do the calculations, and assume that I'll be out of a job within 10 years, my future doesn't look great. I still will have probably 40+ years of life, and I'll be at least 20 years from official retirement age. So, even at my current savings rate, with a future spending rate of say $50-60K a year, adjusting for inflation, I'll not make it that far.
There are alternatives. One, I could try to re-train in 10 years for a different career field. But, most high-earning jobs are technology jobs. And, unfortunately, there are discriminations in those fields. I don't think a company would hire a mid-40s new graduate over a mid-20s new graduate. I could be wrong. However, I expect that I'll be out of a job in my field because of age-discrimination, so why should I expect differently elsewhere? Also, the rising costs of degree programs and the time to complete them, the selection will be risky. I would have to pick the right degree. There won't be many second chances.
Another idea I have is to start a business. But, I've always been sort of risk adverse. Therefore, I don't think I have what it takes to invest the money in an idea and to make it happen.
I've noticed other people, older than me, who seem to run their life as a business, for tax reasons. I'm wondering if somehow I can take some of the money that's being taxed currently and put it into businesses that can grow over time. How would I get started doing such a thing? Are there typical kinds of things that people do to make their tax rates lower?
Any ideas would be helpful, or just pointers to other resources would be great. I've read the standard literature on financial planning, and
following those typical plans don't seem to compute. I need more fringe ideas that aren't in the mainstream.
Response by poster: I work in software technology, but the specific area is obscure and could be on the way out. I could move to a different focus area but, there are just too many new graduates with the 'everyone is an entrepreneur' mindset, who don't mind working 60-80 hours a week, and they all want my job.
posted by TheOtherSide at 10:22 AM on March 24, 2011
posted by TheOtherSide at 10:22 AM on March 24, 2011
When your career is over in a decade, instead of retiring and using $60k/year out of your savings and investments, how about semi-retiring into a low stress job in a field you enjoy? You might not make enough to avoid dipping into savings without making some lifestyle changes, but if you plan right you can have fun, live comfortably, and still be able to retire for real when the time comes.
My dad recently did something similar after 30 years in one industry. Now he's a maintenance guy at a school. The pay isn't great, but he loves the job more than he ever liked his career, it covers the bills, and his retirement accounts are there when he's ready.
posted by indyz at 10:32 AM on March 24, 2011 [3 favorites]
My dad recently did something similar after 30 years in one industry. Now he's a maintenance guy at a school. The pay isn't great, but he loves the job more than he ever liked his career, it covers the bills, and his retirement accounts are there when he's ready.
posted by indyz at 10:32 AM on March 24, 2011 [3 favorites]
indyz has one possible solution. It's the nuclear solution and not my favorite, but if you are absolutely sure that you won't be able to work in your field or in a similarly lucrative one, then taking in 20k or 30k yearly and keeping yourself busy will be much nicer than sitting around all day and frittering away your savings.
But I think you have two major problems that you need to fix. You are focusing on a worst-case scenario and running yourself out of business. And it sounds like you are putting your money in the wrong place if you think you're going to be out of work. You'll get much more value out of working than trying creative tax shelters. I mean, creatively avoiding taxes might save you 20k in a year. If you continue working, you'll earn 150k per year. So focus on the "keep working" side because that's where the biggest gains are.
Tackling the easy one (savings) first: I think the finance-guru advice of maxing out retirement accounts is wrong. If you are going to need that money before you retire, it should go into savings. Sure, if you live to be 90 then the retirement accounts will end up saving you money. But if you have to dip into your retirement accounts, then they're not doing anything for you. I'm saving up to buy a house, so I put 10% of my gross into retirement and the rest into relatively-liquid savings. If I weren't touching that money for 40 years the retirement account would be better for me, but I know I'll need it sooner than that. So if you really think your career is coming to an end, slow down the retirement accounts and start putting away 20 or 30k in accessible savings. And I won't belabor the obvious, but if you need to save more money, then find out where you're spending it and cut back. I save an extra 5% of my gross yearly because I chose a reasonable apartment instead of the newest, fanciest thing like my peers - I bet you can find places to cut back too.
But the bigger issue is your odd insistence that your career is going to be over soon. There's a word for people over 40 who have worked in IT for years: "experienced." Employers love experience. If an employer sees "Knows XYZ technologies, recent graduate" and "Knows XYZ technologies, 25 years experience in software" they're going to favor the latter. You have a huge leg up on those college kids who right now are being rejected left and right because they have no experience. You, on the other hand, bring valuable experience to the table. If you compete with college kids for the same entry-level positions, and you demand six figures, you're going to lose. But why would you look at entry-level? Certainly you've learned some valuable things that qualify you for more important positions, such as software architect, team lead, or a specialist in a difficult area?
Since you're worried that your niche is disappearing, what you need to do NOW is start working to get out of your niche. Maybe work on an open-source project to update your skills. Maybe take on a team lead or project manager position to get managerial experience. Maybe join a consulting firm that will send you to work on a variety of projects so you a) build a variety of skills b) get client interaction c) build a network. All of these things will make it easier to transition into a different niche when your current one goes away. So start looking at what else you could do in software.
This is getting too long, so I'll wrap up. But you should look at what new niche is available to you - there's a lot of room in "sofware." I'm in healthcare software, which is a little insular. But with the projects I've worked on, I could apply for jobs managing web portals or deploying enterprise management software. Look for new areas to break into, and then focus on gaining applicable experience within your current job. I think your biggest risks turning your "I'll be out of a job!" assumption into a self-fulfilling prophecy.
posted by Tehhund at 11:22 AM on March 24, 2011 [2 favorites]
But I think you have two major problems that you need to fix. You are focusing on a worst-case scenario and running yourself out of business. And it sounds like you are putting your money in the wrong place if you think you're going to be out of work. You'll get much more value out of working than trying creative tax shelters. I mean, creatively avoiding taxes might save you 20k in a year. If you continue working, you'll earn 150k per year. So focus on the "keep working" side because that's where the biggest gains are.
Tackling the easy one (savings) first: I think the finance-guru advice of maxing out retirement accounts is wrong. If you are going to need that money before you retire, it should go into savings. Sure, if you live to be 90 then the retirement accounts will end up saving you money. But if you have to dip into your retirement accounts, then they're not doing anything for you. I'm saving up to buy a house, so I put 10% of my gross into retirement and the rest into relatively-liquid savings. If I weren't touching that money for 40 years the retirement account would be better for me, but I know I'll need it sooner than that. So if you really think your career is coming to an end, slow down the retirement accounts and start putting away 20 or 30k in accessible savings. And I won't belabor the obvious, but if you need to save more money, then find out where you're spending it and cut back. I save an extra 5% of my gross yearly because I chose a reasonable apartment instead of the newest, fanciest thing like my peers - I bet you can find places to cut back too.
But the bigger issue is your odd insistence that your career is going to be over soon. There's a word for people over 40 who have worked in IT for years: "experienced." Employers love experience. If an employer sees "Knows XYZ technologies, recent graduate" and "Knows XYZ technologies, 25 years experience in software" they're going to favor the latter. You have a huge leg up on those college kids who right now are being rejected left and right because they have no experience. You, on the other hand, bring valuable experience to the table. If you compete with college kids for the same entry-level positions, and you demand six figures, you're going to lose. But why would you look at entry-level? Certainly you've learned some valuable things that qualify you for more important positions, such as software architect, team lead, or a specialist in a difficult area?
Since you're worried that your niche is disappearing, what you need to do NOW is start working to get out of your niche. Maybe work on an open-source project to update your skills. Maybe take on a team lead or project manager position to get managerial experience. Maybe join a consulting firm that will send you to work on a variety of projects so you a) build a variety of skills b) get client interaction c) build a network. All of these things will make it easier to transition into a different niche when your current one goes away. So start looking at what else you could do in software.
This is getting too long, so I'll wrap up. But you should look at what new niche is available to you - there's a lot of room in "sofware." I'm in healthcare software, which is a little insular. But with the projects I've worked on, I could apply for jobs managing web portals or deploying enterprise management software. Look for new areas to break into, and then focus on gaining applicable experience within your current job. I think your biggest risks turning your "I'll be out of a job!" assumption into a self-fulfilling prophecy.
posted by Tehhund at 11:22 AM on March 24, 2011 [2 favorites]
I work in software technology, but the specific area is obscure and could be on the way out. I could move to a different focus area but, there are just too many new graduates with the 'everyone is an entrepreneur' mindset, who don't mind working 60-80 hours a week, and they all want my job.
This is the strangest, most fatalistic outlook I've ver read. Software has to be the easiest field to shift around in and will be the field with the biggest shortage of skilled workers for a long time to come. The US graduates fewer skilled software developers every year as of late.
Just find a new area of specialization.
posted by GuyZero at 12:24 PM on March 24, 2011
This is the strangest, most fatalistic outlook I've ver read. Software has to be the easiest field to shift around in and will be the field with the biggest shortage of skilled workers for a long time to come. The US graduates fewer skilled software developers every year as of late.
Just find a new area of specialization.
posted by GuyZero at 12:24 PM on March 24, 2011
I think you should follow the advice given to so many people who have been recently let go and are struggling to pay the mortgage and feed their kids. Look for jobs else where in other fields where you can reinvent yourself. the only difference between you and them is struggling to keep one's head above the water.
posted by Brian Puccio at 12:49 PM on March 24, 2011
posted by Brian Puccio at 12:49 PM on March 24, 2011
awesome advice by Tehhund.
posted by martinmartin at 1:23 PM on March 24, 2011
posted by martinmartin at 1:23 PM on March 24, 2011
I agree with others upthread -- your viewpoint is too narrow.
But if you're sure about needing to make a change, why not plan to teach software technology? The world needs old pros to show the younger guys that yes, you need to declare and initialize variables properly...
posted by Cool Papa Bell at 1:27 PM on March 24, 2011 [1 favorite]
But if you're sure about needing to make a change, why not plan to teach software technology? The world needs old pros to show the younger guys that yes, you need to declare and initialize variables properly...
posted by Cool Papa Bell at 1:27 PM on March 24, 2011 [1 favorite]
Response by poster: Well, another detail that I didn't really want to reveal is a chronic health issue that in the worst case will disable me, and in the best case will keep me at least a 'high maintenance employee' who will require frequent breaks and certainly not able to work long hours. It doesn't look very favorable. So, really, I want to take the most advantage of the money I earn now, for near-future use.
You guys all have fabulously positive outlooks, and I appreciate that. But, I've been working in software for a long time, and I definitely know that my time will come. Sure, I can try to maintain my current position of experience, but software is an extremely hard job that requires continuous update. I already feel the pressure. If it's my best choice, then I'll definitely take that path. But, I want to calculate other options as well, before I make that decision.
posted by TheOtherSide at 1:49 PM on March 24, 2011
You guys all have fabulously positive outlooks, and I appreciate that. But, I've been working in software for a long time, and I definitely know that my time will come. Sure, I can try to maintain my current position of experience, but software is an extremely hard job that requires continuous update. I already feel the pressure. If it's my best choice, then I'll definitely take that path. But, I want to calculate other options as well, before I make that decision.
posted by TheOtherSide at 1:49 PM on March 24, 2011
Buy rental property. Seriously, if I had money I'd be doing that right now. The housing market is going to rebound for a long time and you'll have a steady supply of renters. In 10-15 years you will have equity enough to replace a good chunk of your income with rental income.
posted by fshgrl at 1:59 PM on March 24, 2011
posted by fshgrl at 1:59 PM on March 24, 2011
I can't speak explicitly to your USA situation, but in UK all these save-for-retirement schemes, index trackers etc involve you giving your cash to someone else to manage: returns will never be great, they may be crap, the administrators cream a living off it, and they may lose or embezzle away the whole lot. And you don't get anything out of it till you're of retirement age or thereabouts. If it looks like a scam, walks like a scam and quacks like a scam... Again I can't speak to USA situation, although it may be similar, and I'm not a financial adviser, but I am using UK commercial property as a retirement savings option. And the great thing is, it's not just a retirement scheme, you get cash-flow immediately if you have some down-payment. Buy a good commercial premises (shop, office, restaurant) in a good location: take the income stream starting now; benefit from rent hikes every 4-5 years; benefit from gradual appreciation in the value of the property; benefit from stress-free FRI (full repairing and insuring) leases of 10-25 years length, which basically give the tenant the entire job of looking after the property; leave the whole value to your family when you die, if that's a concern. And it's reasonably liquid: there are regular auctions all over the country, a good commercial property investment can be bought or sold much more straightforwardly than a home. If you bought such a thing in the UK you'd also be protected against a collapse in the dollar ;) though not in the pound.
posted by londongeezer at 2:50 PM on March 24, 2011
posted by londongeezer at 2:50 PM on March 24, 2011
Okay, the revelation that you have a chronic, possibly-disabling illness does change things somewhat - but not entirely. I avoided too much discussion of frugality in my first post, but since there is a good chance that you will have to work less or not at all in the future, that means someday you will have to live more frugally. The sooner you start, the better, because starting early will allow you to put away more money. I've always liked the financial blog getrichslowly.org for its balanced view of being frugal, and you can probably find links to other good resources there. But frugality is important - if you can live as if you earned 70k, then you can put away 80k yearly - that's damn good.
Like I said, avoiding taxes won't net you as much as being frugal or continuing to work for as long as possible. But if you really want ways to decrease your tax burden, talk to wealthy people around you who have your same concern, and then probably you'll have to talk to their expensive accountant. But there's a finite reduction that you can achieve, so I'd focus more on the more important aspects.
Finally, the work situation. I am very sorry to hear about your condition; good luck. My advice remains similar: work for as long as you can. You have experience that those recent grads don't, and that experience is a good reason to keep you around even if you can't work quite as hard as you used to. Smaller companies are often more sympathetic to people with needs for flexibility; I'm currently working with someone who can't always do 9-5, but she is still in her job because we understand, work with her schedule, and can trust her to complete her work even if it's outside of regular hours.
You can't just will illness away; however, by deciding to take care of yourself you might be able to add a few years to your productive time. Perhaps you can find a support group for people with your condition and learn how they have managed careers. You could also look into a better work situation, such as remote consulting (so you can set your own hours) or flexible hours to make this work for you. A few extra years at 150k (or even at 80k) will go pretty far, so I recommend focusing on how you can stay in the workforce for as long as possible. Some things you can't control, but maybe you can finagle a little more work out of your situation.
Also, I believe there have been a few AskMes about working around chronic illnesses or disabilities. Try searching the AskMe history for some ideas about how you can balance your illness with work.
posted by Tehhund at 10:35 PM on March 24, 2011
Like I said, avoiding taxes won't net you as much as being frugal or continuing to work for as long as possible. But if you really want ways to decrease your tax burden, talk to wealthy people around you who have your same concern, and then probably you'll have to talk to their expensive accountant. But there's a finite reduction that you can achieve, so I'd focus more on the more important aspects.
Finally, the work situation. I am very sorry to hear about your condition; good luck. My advice remains similar: work for as long as you can. You have experience that those recent grads don't, and that experience is a good reason to keep you around even if you can't work quite as hard as you used to. Smaller companies are often more sympathetic to people with needs for flexibility; I'm currently working with someone who can't always do 9-5, but she is still in her job because we understand, work with her schedule, and can trust her to complete her work even if it's outside of regular hours.
You can't just will illness away; however, by deciding to take care of yourself you might be able to add a few years to your productive time. Perhaps you can find a support group for people with your condition and learn how they have managed careers. You could also look into a better work situation, such as remote consulting (so you can set your own hours) or flexible hours to make this work for you. A few extra years at 150k (or even at 80k) will go pretty far, so I recommend focusing on how you can stay in the workforce for as long as possible. Some things you can't control, but maybe you can finagle a little more work out of your situation.
Also, I believe there have been a few AskMes about working around chronic illnesses or disabilities. Try searching the AskMe history for some ideas about how you can balance your illness with work.
posted by Tehhund at 10:35 PM on March 24, 2011
chronic health issues certainly complicate your situation, but if you have the right knowledge, someone will pay for it. don't let yourself become a fungible commodity: continue to learn, either while working or by going back to school after this job ends. Lever your current skill set into something related that has a stronger outlook. Keep building your expertise (and your network), and don't worry about the fresh-faced workaholics: you've got decades on them.
posted by Chris4d at 12:00 PM on March 25, 2011
posted by Chris4d at 12:00 PM on March 25, 2011
Short but (I hope) salient points:
You're doing the right thing by saving money. Good work.
As for what to do next, what do you want to do? You don't mention that much.
There is often big money in older technology, though it depends on the specifics of your situation. Still, learning something new isn't exactly going to make that (potentially very valuable) legacy knowledge go away, is it? Give yourself *options* by learning new stuff. If speed is important, make the new stuff related to the old.
Age discrimination exists but is by no means universal. If you are demonstratably smart and can get get things done, then you can pick your price. If you are not those things, work on being those things. If you are those things, but don't have good examples, work on those examples.
posted by RikiTikiTavi at 2:40 PM on March 25, 2011
You're doing the right thing by saving money. Good work.
As for what to do next, what do you want to do? You don't mention that much.
There is often big money in older technology, though it depends on the specifics of your situation. Still, learning something new isn't exactly going to make that (potentially very valuable) legacy knowledge go away, is it? Give yourself *options* by learning new stuff. If speed is important, make the new stuff related to the old.
Age discrimination exists but is by no means universal. If you are demonstratably smart and can get get things done, then you can pick your price. If you are not those things, work on being those things. If you are those things, but don't have good examples, work on those examples.
posted by RikiTikiTavi at 2:40 PM on March 25, 2011
This thread is closed to new comments.
posted by Cool Papa Bell at 10:18 AM on March 24, 2011