Over what time horizon? How do we factor in retirement needs and inflation?

The point is that the vast majority of people are not going to be financially independent by 30, or even 40.

It’s so hard to get $1MM that only about 19% of people age 65 or over ever reach it. Is software overrepresented in that group? Probably. But not to the extent that it’s reasonable to make the claim that it’s common for software developers to reach it in their 20s and 30s.

I think you misread the comment. Or at least read it differently than I did. I read that most software engineers who work hard in their 20s and 30s can become millionaires at some point. You seem to have read it that they will become millionaires in their 20s or 30s, which I don't think is what it says. My reading is more that putting hard work in early in the career sets you on a path to pay off debts and start saving and also have the experience to get good jobs later, which allow you to save more. This meshes with my experience of the industry.

Not that they _do_ reach it, but that they can. I think the general argument is that most people are not sufficiently financially literate to appreciate that the path to a million dollars is paved with consistent savings and reasonable budgets.

It's a bad argument, though. Financial literacy isn't even necessary, though it may help. Life happens, things occur that make sustained savings impractical or impossible, and so on.

Do you include house and pension's worth in those numbers?

> How do we factor in retirement needs and inflation?

Use inflation-adjusted calculators. Any good savings and retirement calculator will have an option for this.

Inflation is commonly misunderstood in long-term financial planning. It’s important to consider inflation for expenses and future savings amount, but many people don’t realize that inflation will also life their investments to some degree.

For example, if a common house costs $5,000,000 on your future retirement date and you’ve been saving your money in cash this whole time, you’re in a bad spot. However, if you buy a house in your 30s that meets your needs, the value of your house will also rise with inflation. Inflation is also loosely coupled to rising stock prices (except for hyper-inflation or other economic catastrophes) and asset prices. Just don’t keep your money all in cash, because that’s the only guaranteed way to lose out to inflation.

And then your tax bill on that house has inflated too. There are a lot of variables (I work in finance).

This is really getting off topic.

Do you really think using Gates as an example is legitimate to talk about hard work for normal people? That was the main point.

Yes, because despite being _insanely_ intelligent he was _also_ insanely hard working. Its questionable whether aiming to be an outlier is reasonable, but it was a revelation to me that most of the wildly successful outliers I knew of growing up were also harder working than anyone I'd ever met. Yet no one ever talked about that, only how lucky it would be to be "born with" X. From there I realized that most people have this fallacy where they discount what they can achieve because they don't see how hard others work to get to whatever level they are at. Aiming for Bill Gates would be foolish, but understanding the recipe is not.

So why not showcase the data that supports the point rather than pick an outlier and have people question if the recipe really works?

The successful people I know mostly got there by luck. Sure hard work and intelligence played a role, but I know people who were smarter and worked harder and didn't get half as far.

> Sure hard work and intelligence played a role, but I know people who were smarter and worked harder and didn't get half as far.

Are you arguing that people shouldn't work hard or work to improve their knowledge or networks because its not important and won't impact their lives?

I'm arguing that working hard is not the main goal. PG completely misses how you need to be in a position to benefit from that hard work. Without that positioning it will be pointless/useless.

Gates was also extremely lucky and in the right place at the right time born to the right parents. Gladwell covers this in one of his books. As a 13 year old he got access to a time share computer. His school even bought hours on one and the school was only able to do that via the PTO which was wealthy and run by his mother etc...

Yes he was interested and worked hard but there's a lot more to it.

Is "financially independent by 30, or even 40" the definition of "being a millionaire"? Or does it count if you save up a million dollars by some point in time? I'm honestly asking what we're discussing here, because they seem like very different things.

The whole point of this comment thread is that it wasn't appropriate to use a statistical outlier like Gates to represent that hard work for normal people leads to his level of success (financially independent, multimillionaire in his 30s).

The Millionaire Next Door is about as misleading as it gets, at least for today. Let's not forget that $1M in the mid 1990's is about the same as $2M today, at least in terms of terms of CPI. Even then, that is after 20+ years of housing prices outpacing inflation by 2x or more.

In the mid 1990's, the top 20% could get to $1M with some good financial discipline and hard work. Today? Maybe the top 1% could save $1M, and unless you inherited the family home, you're still living a lifestyle that is somewhat median in 1995 terms.

The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions.

So the principles of the book may still apply, but the outcomes are worlds away from reality.

I can't speak to the book, but I would say that you should examine your thinking regarding the top 1% saving $1mm. While it might be that only the top 1% can save an actual million dollars in cash, saving about $10,000/year with somewhat conservative estimates will get somebody to around $900,000 over 30 years. Granted, that's still not most people, but it's a much larger group than the top 1%. I made a separate comment here with the same OP if you'd like to run some numbers yourself. Compound interest is crazy.

> The fact that $1M is still some kind of mental benchmark that we hold up for being "rich" tells us everything we need to know about today's economic conditions.

This is a very interesting comment. I wonder why the mentality of this benchmark amount hasn't changed. Economic conditions certainly have, $1mm isn't the same now as it would have been in 1970. Maybe it's a financial independence thing? At $1mm you really are independently wealthy in most cases.

Using the standard definition of "independently wealthy" as "no longer needs to work to cover living expenses", I would say that $1MM is nowhere enough to do that in almost any place in the US, especially if you have kids. I'd say at least $3MM in cash and as much as $5-6MM in higher cost-of-living areas would be required to maintain an upper middle class standard of living.

According to https://livingwage.mit.edu/states/48/locations (based on https://livingwage.mit.edu/resources/Living-Wage-Users-Guide...), $1MM invested (excluding equity in a primary residence) would certainly be enough in many areas, especially the midwest and southeast.

On $1MM, one can almost certainly safely take out $35k/year (after taxes on any gains) and still grow the portfolio (so as to offset inflation). That's definitely sufficient to support the barest minimum of "lower middle class" living expenses. Without kids. Add a kid and it blows right up.

But, yes, to support an upper middle class style of living one would certainly need more.

If you had $1mm today you for sure no longer need to work to cover living expenses in most places in America. I guess healthcare is a question, but even then your annual income rate will probably qualify you for Obamacare subsidies.

Even with kids. Though that makes the budgeting a little more tight.

> At $1mm you really are independently wealthy in most cases.

This doesn't strike me as true. A big facet to consider also is liquidity. Are you talking about $1M in net worth? If so, I disagree with you: a big chunk of that $1M is likely very illiquid for a younger person, tied up in a house and retirement accounts with penalties for withdrawal. But sure, if you have managed to save $1M above and beyond equity in your home and tax advantaged retirement accounts, then you are probably independently wealthy (but your actual net worth is probably significantly higher than $1M).

Well, I'd say if you look at what I wrote it was a savings rate of $10,000/year so my underlying assumption is that goes into the market, which will be liquid. You could choose to do a Traditional 401k or Roth 401k. Both are liquid enough.

My point wasn't to really give a breakdown of all savings forms, but just to show that saving $10,000/year with historical returns will net you close to $900,000. You don't even have to put it in a tax-advantaged account. Though you should.

And that amount is plenty to retire on and be independently wealthy at least today and for the next 5 or so years. Though I guess maybe that's not the best choice of words since what I mean to say is that you can just live pretty comfortably without working - more financially independent than "wealthy".

Certainly economic conditions can change, so the more the better.

And just to be clear, you could take $1mm right now with 0 assets and buy a decent enough house for <$200,000 and pay pretty low taxes. You'd still have $800,000 left over to appreciate with low cost of living in the vast majority of America.

Retirement accounts aren't liquid at all if what we're talking about is reaching financial independence and retiring really early (in your 30s or 40s say), which is what I thought we were talking about. But if you're strictly talking about being financially independent enough to retire at the normal time (when you can access retirement accounts), then I agree with you.

On the house point, people always seem to forget that people already live someplace and also often have families. No, it is not possible to find a house for a family of four where I live for less than $200k.

Sure they are. For example your Roth IRA contributions can be taken out at any time. You’ve already paid taxes on them. The interest though has to wait until I believe 55 years old. You should do your own research (you as in anyone reading this) to see what investment options are right for your personal goals.

> No, it is not possible to find a house for a family of four where I live for less than $200k

Well we weren’t talking about you specifically, but Americans in general. If you need $10mm retire in the Bay Area or something g ya know that’s just what you’ll personally have to work on. I don’t have an answer for you. You can buy affordable houses and live comfortably in almost anywhere in America. In fact there are people who retire and move to other countries, or live very frugally on much less, like $400,000.

You're right about the principal in Roth accounts, but most people (especially high earners at time of contribution) put their savings in traditional retirement accounts, for good reason. The age to withdraw without penalty (for both types of accounts) is 59.5.

200k is unrealistic in most population centers in the country, not just the Bay Area (I don't live there).

Why are you shifting goalposts? You don’t need to live near a population center. Even so, it depends on what you mean by population centers. If you’ve got a million dollars you don’t need to work, so you don’t have to incur the higher expenses. You can live 30 minutes or so outside of MCOL cities like Columbus and get houses for $200,000 or $300,000. That might be unrealistic for you but that doesn’t generalize to the vast majority of people in America.

> but most people (especially high earners at time of contribution) put their savings in traditional retirement accounts, for good reason.

Not so clear cut. So first if you’re a high enough earner you’re adjusted family income is >$200,000 or so before the Roth IRA starts being phased out for you. So we’re already talking about the top 10% or so of all income earners in the U.S.

Second, you tend to put the money in a traditional IRA, but you might withdraw (probably actually) less than you were making with your income. So if you’ve been phased out and can only contribute to a Traditional IRA, depending on when you want to retire you might withdraw $100,000/year (or less) and potentially pay a lower tax rate on that income then your marginal contribution rate on a Roth.

Lastly, you can still contribute $19,000 to a Roth 401k which doesn’t have contribution challenges related to income (at least for the income the vast majority of people would ever make - idk what happens if you make $1mm or something).

I don't think I am shifting goal posts? Most people don't have enough of their savings in liquid assets to retire early was, I think, the original goal posts. You haven't convinced me that this isn't true...

Your point about housing (and mine) would benefit from actual data. My contention is that for greater than 50% of people in the US, that they cannot, without moving (say the concrete metric here is a move that doesn't require children to switch schools), purchase a home for $200k or less. This is my intuition based on experience with housing markets and a general sense for how the population is distributed in the country, but it may well be wrong.

On the retirement account front, what I'm saying is that most professionals in their 40s will have a large amount in traditional 401k/IRA accounts, and much less in Roth or non-tax advantaged accounts. I believe this is accurate.

I think the confusion in our conversation is that you seem to be talking about what people can do, if they're focused from an early age on accumulating liquid savings, whereas I'm making a descriptive point that most people, even with large net worth, do not have most of it in liquid assets.

> Most people don't have enough of their savings in liquid assets to retire early was, I think, the original goal posts.

This must be a misunderstanding. I never made this claim so now this wasn't the original goal posts. Apologies if I somehow gave off that interpretation. I actually was pretty explicit I think when saying you could save $10,000 (this is cash) via a 401k or other investment vehicle and the math works out to be around $900,000 saved.

> Your point about housing (and mine) would benefit from actual data. My contention is that for greater than 50% of people in the US, that they cannot, without moving (say the concrete metric here is a move that doesn't require children to switch schools), purchase a home for $200k or less. This is my intuition based on experience with housing markets and a general sense for how the population is distributed in the country, but it may well be wrong.

Again, not a claim I've made. I've simply stated that you can buy a house for less than $200,000 and live just fine (this was based on accumulating a million dollars and that there was an assertion that you couldn't live off of that). It's trivially easy to see for yourself on Zillow or via another product that you can buy an affordable enough house and live just fine in most of the U.S..

> I think the confusion in our conversation is that you seem to be talking about what people can do, if they're focused from an early age on accumulating liquid savings, whereas I'm making a descriptive point that most people, even with large net worth, do not have most of it in liquid assets.

Yea that about sums it up. So I'm not sure where you're really going with any of this. I guess it's cool as a general assertion (and I think it would be interesting to discuss) but I'm bewildered as to why it would used as a rebuttal to something I've said. That's why I asked why you were shifting goalposts.

I understood your claim to be that most people on a typical salary in our industry can be financially independent prior to retirement age. My point was merely that this may seem true on paper if just looking at net worth, but that liquidity is important if you actually want to live off savings (ie. be financially independent).

So in my original post I said you could save $10,000/year. That savings can be liquid if you do choose, and even 401ks can be liquid. If you are a typical software engineer in America you can contribute to a Roth 401k and withdraw contributions penalty free. You’re liquid if you want to be.

Then on top of that $10,000 maybe you buy a house or something. You have the rest of your money to do stuff with too.

The financially independent thing really depends on individual circumstances and desires. For some, $1mm isn’t enough. For others it’s more money than they can spend for the rest of their lives.

I went back to my very first comment in the thread. I quoted this:

> > At $1mm you really are independently wealthy in most cases.

Firstly, my working definition of "independently wealthy" is when you can stop working and keep living. I think this is the common definition, but it's possible you're using a different one.

So from that quote and that definition, what I have been saying is that I don't think it is true that "in most cases" people with $1m are independently wealthy. I think that in most cases, those people have most of that $1m net worth tied up in their house and in illiquid traditional retirement accounts, and could not actually live off of just the remaining liquid wealth once those are subtracted. That's really all I've been saying. It's based on just that one quote that hinges on "independently wealthy" and "in most cases".

Using this definition:

> Firstly, my working definition of "independently wealthy" is when you can stop working and keep living. I think this is the common definition, but it's possible you're using a different one.

You are independently wealthy in America at $1mm and do not need to work. It takes very little time to see that hit is the general case. You can buy a cheap house, and buy groceries and probably actually grow the principle amount.

Now from here you can say like it’s not enough money for you, or you don’t want to leave California (or wherever) but you can easily live off of that amount of money in the vast majority of America. You can also say that people accumulated that money in some distribution and all of that too. But even if you had that amount in a house + retirement you can sell the house and move to a different location or downsize or something. If you have a million in assets you’re making a choice to work. Period. There might be some thing you don’t want to give up, or some place you want to live. That’s fine, but you’re making a choice after you’ve become independently wealthy.

At this point you are willfully failing to understand my point. It's extremely simple, many mid career people with $1M dollars in net worth are not able to retire, because their net worth is not liquid, and liquidity is necessary to pay for things. If you do not understand the concept of liquidity, then I really can't help you out. Cheers.

> many mid career people with $1M dollars in net worth are not able to retire, because their net worth is not liquid

It really depends on the assets and the choices you want to make. Generally speaking, if you have $1mm worth of assets, you do not need to work. That's it. Period.

If you find that you need to work, you're making some other choice to work because of some factor that's overriding your desire to not work.

The liquidity of the assets is only relevant if you want to talk about specific cases, and even then it's likely not an issue. You can sell your house. You can withdraw from an IRA or 401k. Etc.

The key factor in being able to do so is to have money to save early in your career. The median household may have 10k/year to spend, but the median household is already 10-15 years into their career, and thus 10-15 years behind on that compound interest.

And nobody really has that kind of money early in their career, except maybe the top 1%. You either make a lot of money and spend most of it on housing, or you make a little bit of money and spend most of it on housing.

All I’m doing is providing information. Saving $10,000 is very achievable. Some people get higher paying jobs by the time they are 30 and save $15,000/year instead. Some buy a house and save some. There are lots of paths. I completely disagree that saving $10,000/year is only something the 1% can do. I started my first job at a salary of $60,000 and was able to save $10,000/year via my 401K + 6% matching. I lived in a MCOL city, drove a Honda Civic, and traveled a little bit but not much. That’s not a 1% lifestyle. It’s better than average no doubt, but it’s accessible to many Americans.

We should talk more about how people can do it and how we can help those who don’t make enough money instead. Maybe instead of paying into Social Security we could develop a different savings plan?

Okay, but you have to understand that you're exceptional...at least top 1% in terms of capability. Only 88% of teenagers graduate high school. Some 60% of those will go to college, and only 46% of those will eventually graduate. Of those that eventually graduate, on average they will earn an average $50k starting salary, which takes your savings rate down to zero. 17% might get a salary of $85k. [Too lazy to cite the Google results, I'm on mobile].

So at least from my napkin math plus estimates, you've probably got less than a 10% chance of making enough to save any money at all for your first job out of college.

And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most. And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive.

I don't have anything against teaching people to do the best they can with the shit hand they've been dealt in life. But selling that by claiming that average people can be millionaires (even in today's terms, let alone 1990's terms) is selling an expectation that will never pan out for the vast majority of them. Any belief in the truth of that claim inherently relies on a very privileged view of the world, either because they were born with a silver spoon, or because they don't truly understand the scope of expenses that other people face, or because they think that average people are even capable of the kinds of jobs that they hold. It is flat out irresponsible to peddle this fantasy.

Please tone down the hyperbole. I'm not "peddling a fantasy" but looking at numbers and giving my best guess to speak of generalities with these numbers. Initially we were talking about software engineers. Now we're talking about the general population. Even in the initial estimate for software engineers you wouldn't reach $1mm with a 6.7 average return (it could be more, it could be less).

The person making $50,000 may have other benefits. Items like social security and a lower cost lifestyle in the first place. So maybe for them saving $5,000 is doable, and so they wind up with $500,000 and social security. Maybe that person marries someone and combined they make $90,000 and can save $8,000. I don't know. Y

> And I don't know about you, but I spent the first 5 years out of college paying off student loans...and I had a pretty low student loan burden compared to most.

Yes. I joined the Army to pay for college. Nobody in my family has ever attended. I didn't know what the SAT was. That took up 4 years, and I had no savings (obviously never learned what stocks were or anything like that, though there was some government program called the TSP but I was taught to be weary of the government of course so I didn't invest), and then I spent 3 years getting my undergraduate degree so I was around 25 when I started working. So about the same age, at least investing-wise.

> And many others might start families sooner than you've chosen to, which is expensive as well...and half of them will get divorced which is even more expensive.

Sure. Plenty of things that could happen. They could also choose to start a business, or marry a spouse that makes significantly more than they do. Idk. All kinds of things happen.

> Okay, but you have to understand that you're exceptional...at least top 1% in terms of capability.

Ha. I appreciate the accolades but promise that this is certainly not the case. I'm opinionated, and I'm no dummy, but I wouldn't consider myself exceptional in any meaningful sense to me personally. Maybe statistically.

The data indicate that it is quite rare to have $1MM at (roughly) the retirement age (fewer than 20% of those aged 65 have that amount[1]). It may seem like 20% is "common" or even "infrequent," but it's not: it's rare.

Moreover, the median SE salary is just below $100k/year[2]. It's uncommon (certainly not rare but uncommon) for a SE to be able to have a sustained savings rate necessary to achieve $1MM by retirement.

So maybe "peddling a fantasy" is a bit strong, but it's not exactly wrong. For most software engineers (over 50%) it simply is not a realistic scenario.

[1] https://personalfinancedata.com/networth-percentile-calculat...

[2] https://personalfinancedata.com/income-percentiles-by-occupa...

The median US household has ~$12k/year available to save/invest after all ordinary living expenses, per the US government (BLS), and that number goes up very rapidly for people above the median.

Americans are notoriously poor savers, also per the US government, but a large percentage of all households -- at least 40% -- could fairly easily accumulate $1M if they were diligent about saving and investing a decent fraction of that surplus income. The surplus income is available but Americans choose to use that income for things other than saving and investing.

That surplus income is only surplus until you have medical event, catastrophic loss, or need a major repair (roof). Ot to mention the need to save for retirement. It's those extraordinary living expenses that kneecap you.

Whiler I agree with the thrust of your comment, your committing an error: the distribution of incomes isn't uniform across time/age. That is, the set of under 30 and under 40 household with 12k/ year is lower than 40%. If you look at not the median household at this moment, but the lifecycle of the median household from when it started to when, it probably couldn't save 10k/yr until recently.

And the early years are the most important ones.