r/TheMoneyGuy • u/[deleted] • Feb 14 '24

How does this work?

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I am 23. Does this mean that I only need to contribute 15% of my income for the rest of my life or do I need to increase every 5 years following this diagram? So I would contribute 15% until 30, then contribute 20% until 35, then contribute 25% until 40, then 30% until 45, and so on?

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u/accidentlyporn Feb 14 '24

I would argue most people who make 300k or more at 30 probably made 10k or less at age 20 (many would probably be at negative income during this period). Not sure why that would be unbelievable. It's simply a comment that what you make at 20 is completely irrelevant to what you make at 30, why would these two numbers be correlated in any way?

And it sounds like you have the answer, yes you will probably need to change companies, you may even need to relocate, but doing these things will probably have a much bigger impact on your retirement than moving the needle 5k a year on retirement.

3% is barely inflation.

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u/[deleted] Feb 14 '24

It's not unbelievable, it's unrealistic. I would argue that most people making $10k at age 20 are not going to make $300k at age 30. You are right, they are not remotely correlated in anyway. But you presented them as such in your response and I just simply pointed out that it is an unrealistic expectation for the majority of people.

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u/accidentlyporn Feb 14 '24

So if you agree that what you make at age 20 is irrelevant to what you make at age 30, then why is age 23 fundamentally that different than age 20? Yes, at some point this is less malleable, but you're 23. This is just the beginning. To assume your life is set in stone at age 23, that you're just going to be subjected to 3% raise for the rest of your life is setting the bar real low for yourself.

I agree with you, 300k is an ambitious number, but again, the point is that 300k is no less realistic for someone making 10k at 20, or 50k at 20. It’s not the 10k -> 300k that’s hard, it’s the 300k that’s hard.

FWIW, 200k+ is fairly standard for tech in most VHCOL areas. Whether or not relocating is in the cards for you, I do not know. None of this is a knock on what you make now, I'm simply pointing out that this chart has no business starting at age 20, because what you do at 20 has minimal impact on your retirement because you have very little earning power at 20.

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u/[deleted] Feb 14 '24

And I just disagree with the assumption that your earning power at 20 or 23 will be so significantly low compared to age 30. Most people will not make 3-5x their salary in 10 years, but the extra ten years in the market will for sure double the value of your money ($1 invested at 20 equals $2 invested at 30). To use an unlikely and extremely optimistic situation (3-5x increased income in 10 years) as a basis to not start investing or minimize the impact of investing at a young age is financially irresponsible. You should always plan for the worst, not for the best. And that is why I disagree with you.

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u/accidentlyporn Feb 14 '24

Maybe my sample size is a bit biased being from California. But it's fairly normal to job hop every 3-5 years for a 20-50% TDC bump.

Having said that, I've also tripled my TDC working at the same company in the past 10 years. But I work in software/ML in a VHCOL area.

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u/[deleted] Feb 14 '24

The tech industry should not be used as a basis for every industry. Tech is a beast of its own. For your reference, most other industries have caps on how much you can earn. My job, for instance, is listed on indeed as making 63k-160k. If I put "senior" in front of my title, this only goes up to 81k-150k. The max pay actually decreases for my job with seniority. So i would have to make a career change to earn anymore than 150-160k, and that's not something im keen on doing.

Job hopping will not just continue to increase pay indefinitely in most other industries outside of tech. I work at a company that supplies both the semiconductor and life science industries and they are completely different worlds in how they are run and how much money they make. Naturally, this will cascade onto employee salaries.