- The Best Careers for Early Retirement
- Engineering changes as you gain seniority
- Workload and stress
- Above-average pay
- Unassuming Lifestyle
- Other professions
- Best careers for early retirement
- Worse careers for early retirement
- Should I use my 401(k) to pay off my mortgage? 5 things to consider
- 1. Your age
- 2. Your comfort with debt
- 3. The size of your mortgage
- 4. Your nest egg
- 5. Rates of return
The Best Careers for Early Retirement
If you read early retirement blogs, then you probably notice that engineers are over-represented in this niche.
Why does it seem every early retirement blog is written by an engineer? Is engineering the perfect career for early retirement? I was an engineer for 16 years so I thought I’d share my experience and see why so many engineers retire early.
There must be some defining characteristics that set engineering apart from other professions, right? Then I’ll need your help to brainstorm and find the other careers that are a good fit for early retirement. Every engineer should plan for early retirement, but we’re not the only one that gets early burn out.
*This post was originally written in 2015 when most early retirement blogs were by engineers. The niche is a lot more diverse now. There are doctors, lawyers, accountants, managers, and many different representatives from other careers.
Engineering changes as you gain seniority
I was 7 years old when I saw a computer at my uncle’s house in Bangkok. He was a college professor and he had a personal computer at home. I asked is this a TV? (A TV was uncommon there in the 70s and we didn’t have one.) He showed me how to insert a 5 ¼-inch floppy disk and booted up Space Invader.
Wow! I could fly a little spaceship around and blow up aliens! This was way better than a TV! I loved it and played those games whenever I visited. Man, kids are so spoiled these days. RB40jr plays games on our FIRE HD 10 tablet and the graphic is amazing. Technology has come a long way since I was a kid.
When we moved to the US in 1984, I found a computer at the local library. That gave me the opportunity to learn more about them. I learned BASIC and wrote “Hello World.” It was my first step toward an engineering career.
The personal computer was a growing field in the 80s and many people recommended going into engineering. I was good at math and science so engineering was a natural fit when it was time for college.
Computer engineering was a grueling major, but I pushed through and earned an MS after 5 years.
The PC boom was still underway when I got a job with Intel right college. The Pentium was hot and Intel was raking in money hand over fist. I worked in research and development and it was exactly what I wanted to do. I loved designing and debugging computer chips. Every engineer s solving technical problems and that’s what we got to do at the beginning of our careers.
In the old days, you could stick with solving technical problems your whole career and retire as a senior engineer. Now, companies demand more. Solving technical problems isn’t enough anymore. Senior engineers need to be a “force multiplier” and work through others.
This means supervising or mentoring junior engineers, delegating your technical work, and attending a lot of meetings. Some senior engineers stick with the technical side by becoming a specialist in a particular niche. That’s one way to stay technical, but it has its own peril. Your niche can become obsolete and you’ll need to become specialized at something else.
This can be difficult when you’re older and have a family. Many technical jobs could also be outsourced pretty easily.
Engineers who are good at their job and love working on technical problems will get promoted and gained more responsibilities. Eventually, they will need to figure out if they want to go into management or become a specialist. This is an inflection point. I couldn’t do either so I retired from my engineering career.
The job wasn’t the right fit for me anymore. Most of my friends from college also moved away from R&D. They are in management, marketing, IT, venture capital, teaching, day trading, and more. None of my friends from college are in R&D at this point. It’s unfortunate we can’t do what we love anymore, but that’s life.
Workload and stress
Companies demand a lot from engineers these days. I used to work 80-90 hours per week frequently when I was in my 20s.
It was fun at the beginning because I enjoyed the technical challenges and I didn’t have much of a social life anyway. Eventually, I got married and I didn’t want this kind of work commitment.
It isn’t compatible with a happy family life especially after you have kids. I wanted to spend the weekend with my son, not my coworkers.
Engineering can also be very stressful when the deadline is looming. Companies will inevitably demand “all hands on deck” to push a product out the door. Working long hours in a stressful environment is a young person’s game. I couldn’t work from 8 am to 10 pm anymore. Well, I guess some older engineers it, but I don’t. I’d rather work at my own pace so self-employment is the way to go.
Many engineers get burned out from the stress and long hours. This is why we see so many engineers transition R&D. There are exceptions of course.
Some engineers achieved FI and they can pick and choose the work they want. They can say no to overtime and not worry about the annual performance review.
One of our readers, Freebird, is at this point in his career and he’s enjoying engineering again.
Engineers are paid relatively well early in their careers. I got several promotions in my 20s and my salary increased very quickly at the beginning of my career. The pace slowed down dramatically in my 30s. This means engineers can start saving and investing earlier than many other professions. It also means engineers get disgruntled in their 30s unless they move on to management.
I started saving in my 401k and Roth IRA right out and school and maxed them out soon after. Those accounts are the foundation of our retirement savings. As my income grew, I invested in our dividend portfolio, rental properties, and real estate crowdfunding. These passive income streams are instrumental to my early retirement.
Engineers who can control their lifestyle inflation should be able to retire early because they have an early start with investing.
Most engineers are trained to think logically and advanced mathematics is a requirement in school for us. The concept of compounding is easy for us to understand and it encourages us to invest early.
The longer you invest, the more money you’ll have in retirement. This is a simple concept that a lot of people don’t understand. We also know we need to save for retirement. It’s a simple calculation.
If you don’t save now, you won’t have money later. It’s logical.
Also, all engineers love optimization and that carries over to our personal finance. I’m always looking for ways to optimize our monthly bills.
If you don’t watch much cable TV, then get rid of it and enjoy shows on DVD or the internet. Most people don’t changes and will stay with the same plan even if there are more affordable options.
Engineers will actively look for ways to optimize their life. That makes us more frugal naturally.
Lastly, we can understand the 4% rule which is very important for early retirement. Basically, you can withdraw 4% from your portfolio and it should last 30+ years. It isn’t that complicated.
Engineers also know that you need to build some margin into every scenario. 25x annual expense might not be enough for 50+ years of retirement so I saved up 30x. Engineers are good with numbers and problems solving.
These calculations are second nature for us.
Most engineers have an unassuming lifestyle because we don’t have to impress clients and co-workers. I only wore a suit to work once in my 16 years career. Yes, it was for the interview. You probably don’t even need a suit today. The workplace dress code is super casual now.
Most engineers wear jeans and a t-shirt, drive economy cars, and life in a modest home. That keeps our monthly expenses down to a reasonable level. Lawyers and finance people have to dress the part and drive nice cars to impress their clients. Engineers don’t need to spend a lot of money to impress people. The boss only cares about the result, not what we wear.
So, what do you think? Is engineering the best career for early retirement? It’s the combination of everything above that pushed and pulled me to early retirement. Of course, only a few engineers choose this path. Most engineers just change careers and continue to work in the corporate world. That’s good too. We need productive engineers to develop more new gadgets.
What other careers are a good fit for early retirement – say before 50? Let’s stick with regular careers that anyone can get into and skip sports stars and other entertainment careers.
Best careers for early retirement
- Investment banking/high finance – The finance people get paid much better than engineers and they work crazy hours, too. They know the value of investing and this gives them the option to retire early. Investment banking is a great career if you want to go hard and burn out early.
- Police officers and firefighters – I think police officers and firefighters can get their pension pretty quickly so retiring at 50 is a good possibility.
- Entrepreneurs – If you strike gold with a popular product, you can easily retire early. Most entrepreneurs probably would continue to work, though. Real entrepreneurs never stop working completely.
- Oil industry, seaman – Great pay, but a lot of travel and long hours.
- Military, teachers, federal jobs, and other careers that offer early retirement. Most of these jobs offer early retirement at 55 if you put in the time.
- Law – Good pay, but long grueling hours. Probably need to spend a lot of money to keep up appearance. That’s another advantage of being an engineer. We can wear casual clothes and drive beaters. Nobody cares what engineers wear.
- Airline pilots – Good pay and career may not last long. See John’s comment below.
- ??? – help me out!
Worse careers for early retirement
Bonus – some careers that are terrible for early retirement.
- Physicians – It takes forever to become a doctor and you will most ly have a ridiculous amount of student loan. Doctors make a lot of money, but they invested so much time and money to become a doctor. Most of them probably would hesitate to retire early.
Interestingly, there are many physician-focused early retirement blogs now. Doctors get burned out pretty quickly too. They also have high incomes. If they can control their lifestyle, they could save a huge amount and retire early.
Okay, I need some help with this list. What do you think are the best careers for early retirement?
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Should I use my 401(k) to pay off my mortgage? 5 things to consider
When Myrna McGrath, a 73-year-old Iowa native, decided to retire at age 66, she had no intention of paying off her mortgage. “I gave it a lot of thought,” says McGrath, a former CPA. “But I earn more on my retirement plan than my mortgage costs me, so I decided to keep it.”
McGrath isn’t alone. More than 50% of retirees have a mortgage, and 36% of current workers expect to carry a mortgage payment into retirement.1
Still, you may be hesitant to head into retirement bliss with a house payment on your back. A mortgage is typically the biggest expense in someone’s retirement budget and can feel a burden on a fixed income.
… I earn more on my retirement than my mortgage costs me, so I decided to keep it.”
Myrna McGrath, retired CPA
But continuing to make mortgage payments in retirement isn’t necessarily a bad thing, financially.
It ultimately comes down to a few things: your age, the value of your mortgage, how you feel about debt, and your retirement income plan. For McGrath, it was also a matter of convenience. “I have an escrow account with my mortgage holder, so I let them escrow my insurance costs and my property taxes,” McGrath says. “The convenience of having them do that is a benefit to me.”
If you are contemplating paying off your mortgage, the decision may feel complicated. We’ll get you started with 5 key considerations.
1. Your age
Retiring early? You may face some financial penalties if you dip into your individual or employer-sponsored accounts.
If you’re younger than 59.5, that’s a 10% penalty for withdrawing early from your IRA. If you’re taking distributions from an employer-sponsored plan, such as a 401(k) or 403(b), that age drops to 55. That 10% could be a huge loss, depending on your financial goals and plan.
Beyond penalties, the more retirement funds you spend up front, the less you have to fall back on down the road. Know how much money you may need to sustain your lifestyle in retirement before you make large payoffs.
2. Your comfort with debt
Sometimes emotional factors are just as important as financial. “Who you are and how you feel about debt can outweigh the math,” says Stanley Poorman, CFP®, a financial professional with Principal®. “Are you a person who sees a mortgage balance as the world on your shoulders, or are you comfortable carrying it into retirement?”
Depending on your financial goals and your comfort level with debt, making mortgage payments into retirement could free up funds for other expenses or priorities.
Learn more: 5 steps to balancing debt and retirement
3. The size of your mortgage
The point above doesn’t mean you shouldn’t consider the numbers. The value of your mortgage at retirement could make a huge difference in your payoff plan.
“You also need to understand your current tax situation and how taking distributions from your retirement accounts to pay off debt could cause you to change tax brackets and pay more tax than you would otherwise,” Poorman says.
If you’re retired, any pre-tax money taken your 401(k) is treated as income. So, for example, taking $100K your retirement plan to pay off your mortgage could easily bump you up into a higher tax bracket (and end up costing thousands in additional taxes). A balance of $10K probably won’t have as large of an impact.
If you continue to make monthly mortgage payments, the amount of interest you pay may be tax deductible. But that interest needs to be fairly high to make it count. The 2017 Tax Cuts and Job Acts nearly doubled the standard deduction, eliminating itemized deductions, such as mortgage interest, for many Americans.
If you choose to take your house payments with you in retirement, life insurance provides a form of mortgage protection. With a term insurance policy you can align the length of the term with the length of your mortgage.
Use our life insurance calculator to see how much coverage you might need in retirement.
4. Your nest egg
“Having different buckets of money to pull from is important,” Poorman says.
How many fund sources do you have? If you plan to pay off your mortgage, draw from the source that has the lowest interest rate first. For example, if your retirement account earns 6–7% and your savings account only earns 1.5%, you may want to keep your retirement money where it is and use your savings.
But be cautious not to drain your funds; maintain a safety net for life’s “what ifs.” If you don’t have a diverse mix and paying off your mortgage will deplete most of your hard-earned money, it might be best to keep making payments.
Learn more: 3 steps to creating a retirement income plan
5. Rates of return
Interest rates are still historically low, and the interest paid might be lower than the interest you’ll gain on investments. “Your home is an investment, and the return on my investment is also greater than my interest rate,” McGrath says. “If interest rates were high, it would be a different consideration.”
If the growth potential of your retirement savings is low compared to the interest rate on your mortgage, paying off your mortgage may be a good idea. But pre-tax contributions to your retirement account may offer better growth potential along with the possible tax benefit.
Bottom line: The decision to pay off your mortgage in retirement isn’t cut and dry. It depends on a variety of factors, including your individual financial picture and goals. If you need help putting a plan in place or want ongoing guidance, a financial professional can help.
- Looking for estimates? Start visualizing retirement with your own info by visiting our planning tools and calculators.
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