Engineer Your Retirement

I get plenty of email from readers, usually filled with good questions, interesting stories, or links to YouTube videos of obscure Christmas songs (keep ‘em coming!). Every once in a while, I get an email so good, I find myself thinking, “Maybe this person should be writing my articles!”

I had that thought when I received an email with the following:

I created a spreadsheet to calculate required distributions from regular investments and IRA investments […] to maintain a fixed income level based on an assumed inflation rate and rate of return on investments. Of course, the spreadsheet also factors in taxes, Social Security incomes, and pension incomes — all of which start in different years.

After I read this person's email, one word came to mind: engineer.

Turns out I was right. This person is indeed an engineer who spent more than 20 years working for one of the big automotive companies, then left to build software. Now he's in his sixties, and he has enough to retire but still enjoys working; his wife, a teacher, just retired. They're also millionaires, which is actually par for the course given their professions.

As author Thomas Stanley explains in Stop Acting Rich, there are a disproportionate number of engineers and educators among America's millionaires. According to Stanley, the reason engineers tend to accumulate more wealth is that “substance, design, and endurance are more important factors in selecting a product, even a home, than showy style and status connotations.” Wealthy engineers even outshine their fellow millionaires; for example, they keep their cars longer and pay less for them than other millionaires.

I asked this fellow for the secrets to his success. He didn't want us to publish his name — we'll call him Mr. Engineer — but he kindly shared what he sees as the ingredients of his financial freedom.

Buy a Secure Future
Like most self-made millionaires, Mr. and Mrs. Engineer lived below their means. However, he tells us, “I've never liked that concept because it sounds too negative. I guess we thought of it more as ‘spending all the money we had,' except that some of our money was being spent on our future — and eventually our kids' futures.” They didn't live by a strict budget, but an early experience taught them the value of spending money in ways that provide true worth.

When Mr. Engineer was in his mid-twenties, he got laid off and was unemployed for almost a year. He began tracking every penny he spent, even if it was just a candy bar or soda. “It really brought home to me how much money I was wasting on things that really didn't matter,” he says. “It was something like 25% of my total spending at that time. After that we never really needed a formal budget.”

Debt-Free = Financially Free
If their money didn't go to “things that didn't matter,” then where did the Engineers put it? Toward their car loans, credit cards, and mortgage. They had a goal of being debt-free by the time they retired; they were able to do it by age 55. “It was an actual goal that we both had a desire to accomplish,” Mr. Engineer says, “not just a ‘wouldn't it be nice if…'”

That “goal” part extended to their assets as well as their liabilities. In their thirties, Mr. and Mrs. Engineer set a dollar amount they wanted to accumulate in savings. They've since met that goal. Mr. Engineer says, “Doing that [setting goals] and reviewing our progress periodically was important.”

Become a Do-It-Yourselfer
As you might expect from an engineer, Mr. Engineer does most of his own auto and home repair. What you might not expect is that Mr. Engineer got a builder's license so he could design and build his energy-efficient home. It costs just $600 a year to heat and cool their 2,500-sq.-ft. house (with a basement) in the upper Midwest. Mr. Engineer also has a pilot's license. As he says, “I like learning and doing new stuff.”

As I've written before, growing your human capital can include expanding your skills so you can do things you'd otherwise have to pay for, such as your financial planning. Mr. Engineer learned this the hard way.

“We worked with a couple of brokers, but every recommendation they gave us resulted in a loss,” he says. “We later tried working with a financial advisor after spending some time getting to know him. Although our overall success was much better with him, we didn't think that the results were any better than what we would do on our own — without the extra fees.”

Mr. Engineer's best investment: shares of a utility stock he bought in 1977 for $3,300, which are now worth 30 times that amount — and pay $4,000 a year in dividends. Plus, as he demonstrated in our email exchange, Mr. Engineer understands the mechanics of turning a lifetime of work into a lifetime of retirement income.

Engineer Your Retirement!
You may not have the time or interest in learning how to build your own house, fly your own plane, or plan your own retirement. You certainly don't want to try any of those before you know what you're doing (as for getting financial advice, I'm a fan of fee-only advisors such as the folks found at the Garrett Planning Network or NAPFA). But the more you can do for yourself, the more money you can invest — and you'll know you're working with someone you can trust.

A combination of smart spending, long-term investing, and lifelong learning has turned Mr. and Mrs. Engineer into the quintessential “millionaires next door.” They might not look the part, but looking rich isn't the same as being rich. As Mr. Engineer told us, “Nobody has everything they want, but we have more than we need.”

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s
s
9 years ago

“substance, design, and endurance are more important factors in selecting a product”

Words to live by! Thanks, JD.

SB @ One Cent At A Time
SB @ One Cent At A Time
9 years ago

Interesting, being an engineer myself, I want to second your thoughts. Very true, engineers are oriented to think in the line of durability and endurance. Being a software engineer, I also tend to make things error proof and hackers proof as well. But I do think that this trend is not rooted in your profession, rather, it’s in the way you took on your life since childhood. A doctor or a sales man, don’t they possess the qualities you mentioned? Off-course they do. I know many engineers who spend like a mad cow. SO in summary, to me, it’s not… Read more »

Scott MacDonald
Scott MacDonald
9 years ago

I agree. It isn’t the fact that a person is an engineer that creates these values in people. I know plenty of engineers that lack them. But these values do help greatly in becoming a successful engineer.

I believe that you will find these values in many millionaires regardless of profession.

The unfortunate take away from this is that once those values are forged in early life, it is very difficult to learn them or even emulate them.

Amy
Amy
9 years ago

I’m an engineer by training as well. I agree with Mr. Engineer (‘substance, design, and endurance are more important factors in selecting a product’) and SB (‘But I do think that this trend is not rooted in your profession, rather, it’s in the way you took on your life since childhood’). Both your outlook on life and your vocation or eductional training influence how you spend your money today! It’s worth doing some self analysis to see if you like what you’re doing financial wise, what you’d actually like to be doing financial wise and how to bridge the gap… Read more »

No Debt MBA
No Debt MBA
9 years ago

Engineers have had plenty of opportunity to learn to do the math and can easily understand how powerful compound interest is: When it’s against you it sucks and when it’s going for you it’s the best.

Have to agree with SB though, having a certain mentality attracts people to engineering and the training probably just reinforces what’s already there.

Kaytee
Kaytee
9 years ago
Reply to  No Debt MBA

I don’t necessarily agree with having a certain mentality being attracted to engineering. I’ve always been more of a liberal artsy and environmental type, but surprised everyone when I decided to major in Civil Engineering. I knew that I wanted to work in the wastewater field and found the major most suitable to doing that. Although true to engineering style, I have developed a certain fondness for spreadsheets. The engineering training definitely reconfigured my brain and thought patterns to follow those more suitable to engineering.

Todd
Todd
9 years ago

Give us the spreadsheet!

Pat W.
Pat W.
9 years ago
Reply to  Todd

Is this spreadsheet available????

Jenna
Jenna
9 years ago
Reply to  Pat W.

Ditto! I would love to get my hands on that, being a former engineer myself. 😉

Katie
Katie
9 years ago
Reply to  Jenna

Yes! I would love to see this spreadsheet!

Samantha
Samantha
9 years ago
Reply to  Todd

I agree – please post it!

Steve
Steve
9 years ago

While I do not have his spreadsheet, or keep track of every penny, I and my family live by much of what is written by Mr Engineer. While our situation is different, family late in life (I’m 50 and the kids are 3 and 7), we put much of the planning illustrated here to practice (targets for investments, reducing debts, etc). While I will probably not be able to retire at age 55, I do need to apply the idea of “growing my human capital” to complete the process.

Classier+Corn
Classier+Corn
9 years ago

Like they say in Tibet:

“You are rich – when you know that you have enough”!

Self Taught Economist
Self Taught Economist
9 years ago

I like Amy’s comment that you don’t have to be an engineer to think and act like one. While I’m not an engineer, I like to think I’ve developed some of the same skills mentioned in the article: attention to detail, do-it-yourself mentality, and creating systems and tools (like the spreadsheet) to help you reach financial goals. Too many people in this country use one source of information as the final word on a topic. If Americans did a better job using multiple, trustworthy sources of information we might not be facing such tough economic times. (Not as many home… Read more »

Scott MacDonald
Scott MacDonald
9 years ago

There is definitely a fundamental problem with how and when we teach economics and finance in this country. You are right that most of us would be better off if we thought more like an engineer but this problem starts so much earlier than a college education. I beleive it stems from a divergence from the common wisdom that the baby boomers were taught. Go to school, get a good job with a good company, stay with them for 30+ years and they and the US Government will take care of you via a pension and social security. That model… Read more »

imelda
imelda
9 years ago

They didn’t “learn that too late in life”; the rules were CHANGED on them late in life. Pension plans were dismantled, social security is being attacked, and so on and so forth. While I agree with your principle points – that we need better economics/finance education in this country – you can’t blame the baby boomers for not saving enough for retirement. I entered the work force a few years ago, and was told from the start that I’d need to save and invest wisely (and significantly) in order to retire some day. I can’t say the same about my… Read more »

Scott MacDonald
Scott MacDonald
9 years ago
Reply to  imelda

I don’t think I assigned blame to anyone or at least I didn’t intend to assign blame. Your right the rules were changed.

However, I do believe that pensions and social security as we know them were well intentioned but ill conceived from the start.

Nate
Nate
9 years ago

While I’ll probably never think like an engineer, I agree with @SB’s comment that it’s not so much about the profession as it is the mindset. This is a great success story! I love stories like this, it gives hope! Mr. & Mrs. Engineer are good examples of the possibilities.

Pamela
Pamela
9 years ago

While some people defy stereotypes (Kaytee?), engineers often have character traits that will lead to financial success.

However, one point the article didn’t make is that engineering is a fairly lucrative profession. I also do many of the things Robert talked about. But when you work for a nonprofit, living below your salary isn’t going to leave quite as much for investing in the future.

Canadian Dream
Canadian Dream
9 years ago

I’ll confess I’m an engineer as well. I would agree people who like numbers tend to do well finanically, but it doesn’t mean all engineers are good with money.

Onto Kaytee’s comment. Yes some of engineers also have artistic flares. After all the best problem solvers often come up with out of the box solutions…even to the question of early retiement.

Tim

Rob
Rob
9 years ago

What a great and interesting article, I have managed engineers and used to often hear their comments about ‘how much the sales guys make?’. I used to say to them if you think you can sell then you can join the sales team, however remember the nature of an engineer is different to the sales mentality, the sales guy will accept the boom or bust theory earning loads one month and nothing for the next few months, the engineer mentality is knowing they will earn a steady income each month and know how much they will be getting at the… Read more »

Amy
Amy
9 years ago

This whole article made me grin. For anyone familiar with the “Rich Dad, Poor Dad” concept, my father-in-law was definitely my rich dad, and my own father and step-father are classic examples of poor dads. I learned so much from all of them. My FIL was an electrical engineer for NASA. My MIL is an elementary school librarian. When he passed earlier this year at age 63 after several years of a debilitating illness, he left a small fortune to his wife and 4 children. (My husband alone received ~$600k in various assets from the family trust.) He was a… Read more »

Catherine
Catherine
9 years ago

While I in no way wish to take away from what our engineer friend accomplished, I wish some mention had been made of the luck involved in being the millionaire next door. Plenty of people do all the right things financially and get whipsawed by prolonged unemployment, serious illness or divorce. Luck, or the absence of devastating events beyond our control, play such a large and under acknowledged part in our financial well being. I would love to hear a reader story from someone who recovered from disaster or bad luck.

chacha1
chacha1
9 years ago
Reply to  Catherine

It says right in the article that Mr. Engineer was laid off and unemployed for nearly a year in his mid-twenties. Was that luck?

If someone does “do the right things financially,” and consequently is financially successful, their achievement shouldn’t be disrespected by saying it’s due to good luck.

That’s like saying it’s nothing but good luck that someone who eats right, stays active, doesn’t smoke, and manages his weight is healthy.

Catherine
Catherine
9 years ago
Reply to  chacha1

Dear chacha1, if only the converse were true. I lost three people dear to me last year, all of whom ate right, exercised, didn’t smoke and maintained their weights. If only their own good efforts had been enough to save their young lives. Experience has taught me that luck is a tricky thing, not to be underestimated, good or bad.

Catherine
Catherine
9 years ago
Reply to  chacha1

Likewise, I would suggest that an early in life bout of unemployment, however unfortunate, doesn’t have the same financial impact that it would later in life, when there is less time to recover. While our engineer friend may well have experienced some financial setbacks later in life, he didn’t mention them. I mean him no disrespect, but I feel deeply that we should all be grateful not just for what life has dealt us but for what it hasn’t. I grieve for my friends who are currently unemployed, many through no fault of their own. There but for the grace… Read more »

MelodyO
MelodyO
9 years ago
Reply to  Catherine

I think that all of us have good AND bad luck throughout our lives, and what really matters is how we handle both. Of course there will always be a small percentage of the population who have truly devastating events to overcome…but I think most of us get dealt a fair to middling hand at least some of the time.

Nathalie
Nathalie
9 years ago
Reply to  Catherine

chacha1, I don’t believe Catherine was suggesting that his fortunate circumstances were due to good luck. She was merely pointing out that with the exception of a small bout of unemployment (in the ’70’s, natch), Mr. & Mrs. Engineer have done exceptionally well. That isn’t the case for a lot of folks.

Reminding everyone that sometimes a twist of fate can mean the difference between a setback (after which one recovers relatively unscathed), versus a blow (after which the course of a life is forever changed) is not being disrespectful. It’s being realistic.

Shara
Shara
9 years ago
Reply to  Catherine

Nathalie, how do you know they’ve done well otherwise? He brought up the layoff as life changing but it doesn’t imply that other bad things didn’t happen, just that he was better prepared to deal with them. I have a hard time with talks of luck in this context not because it doesn’t exist, but because so many people use it as a cop out and a crutch. So many people have *bad* luck that ends up doing good things for them, like in this case where a layoff taught him about frugality. I am as compassionate as the next… Read more »

Nathalie
Nathalie
9 years ago
Reply to  Catherine

Shara, at point did I express that luck, “bad” or otherwise, was the entire driving factor in someone’s financial standing, and therefore permissible as an excuse? And, uh, the entire article is an outline of how well Mr. & Mrs. Engineer have done; a result of fortuitous timing (read: the utility stock) and careful, well executed decisions. But you are still failing to acknowledge that fortuitous timing and smart decisions can be overridden by a debilitating family illness, a longer bout of unemployment, and/or any number of factors beyond personal control. Yes, there are always lessons to be learned from… Read more »

Mike Moyer
Mike Moyer
9 years ago
Reply to  Catherine

I guess I don’t understand why you guess they were so fortunate. This is a story is told in the third person…of what the poster thought was relevant to retirement…of what Mr. Engineer thought was relevant to the questions he was asked.

I don’t think it’s fair to discount Mr(s). Engineers decades of hard work, when you have know idea if they had any tragedies in their life.

krantcents
krantcents
9 years ago

My guess is accountants do pretty well too! Accountants and engineers are similar traits! My wife and I are savers and the only debt was a mortgage. My route to success and financial independence was income property and a business that provided financial freedom at 38 years old. As I near retirement (again), I find I am always planning (occupational hazard). It keeps me focused on what is important.

Beth
Beth
9 years ago

Par for the course for a teacher to be a millionaire? Huh?

Sara
Sara
9 years ago

Hmmm, maybe I should look into studying engineering. I already seem to have the mindset…

Shara
Shara
9 years ago

I would add that engineers aren’t just good at math, but they are trained to think deeper about math, not just algebra but three dimensional calculus. It doesn’t translate directly, but it does explain why he would “of course” take into account taxes and other expenses in his spreadsheet. It’s about more than just earning, more than just saving, more than just spending, more than just expenses. It’s a coherent system that takes all of them into account.

The+Other+Brian
The+Other+Brian
9 years ago
Reply to  Shara

Exactly. Mathematicians worry about math, engineers focus on optimized solutions.

Kelsey @ Zero to One Million Challenge
Kelsey @ Zero to One Million Challenge
9 years ago

I’m not surprised by the fact that engineers are often millionaires. What DOES surprise me is that many professionals in the financial industry (particularly accountants) are very poor at handling their money as a whole. Mostly this applies to younger accountants who are just out of college, who want to buy a brand new Mercedes as soon as they sign on the dotted line, or classify a deep frier as a necessity when they don’t even cook. The ones that end up in a great financial position, and are undoubtedly millionaires, are the ones that take advantage of the office… Read more »

Tyler Karaszewski
Tyler Karaszewski
9 years ago

I find much of this rings true based on my experience as a silicon valley software engineer. I work mostly with people in their early to mid thirties with net worths (for those I know) in the several hundred thousand dollar range. This is because there’re responsible with their money, but also because they make good salaries. I probably make below average on my team (I haven’t been there as long as most) and still grossed over $150k last year. People around here so tend to buy nice cars – the parking lot at work has no shortage of BMWs… Read more »

Ryan @ LifeFreshOut
Ryan @ LifeFreshOut
9 years ago

As an engineer, I have to raise my hand and say that I too love spreadsheets. Especially when it comes to making financial decisions. This past weekend I spent hours creating a spreadsheet to prove that selling my new car and buying an older used one would work out for the best for me. In the end, the spreadsheet pointed towards keeping my car, unless I wanted to spend significantly less for the used car. My manager at work, also an engineer, created a large spreadsheet to figure out the cost of the house he eventually bought. A fellow older… Read more »

Luke
Luke
9 years ago

I think I must be an engineer at heart – my fiancee was so tickled by my love of spreadsheets that she got me an ‘I <3 spreadsheets' mug 😀

Jaime
Jaime
9 years ago

I don’t think the writer meant that you have to be an engineer to make wise choices. What I got from the article is be willing to learn and be willing to invest in yourself and in your life.

I think that if someone is motivated enough then they will succeed with or without college. But it’s much easier to succeed with a college education.

Bella
Bella
9 years ago

As an engineer I have to agreee that the mindset that makes one a successful engineer is one that comes in handy when setting up a solid financial future. But you really can’t discount the sheer numbers side. Engineering is on average one of the highest paid professions (yea, some actors get paid a lot – but there are A LOT out of work so – on average). So they have a pretty good pile of money to start with. I think Kaylee above is a great example of how this works with the smart money people too. Let’s say… Read more »

Kevin@RothIRA
9 years ago

Most people, not being engineers, probably won’t be able to plan out every financial detail the way this guy has. There’s a certain mindset that goes with that.

For the rest of us, there’s balance–earn, save, allocate, and most of all, keep expenses low.

Just staying out of debt is a seriously underrated component of retirement planning (or any kind of financial planning). Any money going into debt isn’t going into savings. By being debt free, you can 1) save money faster, and 2) keep your lifestyle cost in check.

Sonja
Sonja
9 years ago

I am curious about the house and how he engineered it to be so energy efficient. I’d love to see a follow up interview with Mr. Engineer about that!!

Like others, I’d love to hear the qualities that tend to make teachers millionaires…discipline comes to mind.

Thanks.

freebird
freebird
9 years ago

I’m an older engineer who hates spreadsheets (especially Excel), so I don’t think that’s why so many of us reach financial independence. Pay is pretty good, which helps, but I think the main element is self control. It takes a certain amount of will power and stamina to survive the engineering curriculum at most colleges, and the impulsive types wash out sooner or later. Another factor is that in most work environments I’ve seen engineers have a pretty compressed payscale, so status is largely decoupled from finances. Instead it’s your ability to solve really difficult problems that no one else… Read more »

Van Beek - Trend Investing
Van Beek - Trend Investing
9 years ago

Too many engineers still do not spend enough time on engineering their financial future. I think that most just dive into their job, work hard and care for their family and friends. But most engineers do not apply their analytic skills on how to manage their finances and grow theirs savings. They cut themselves short. For a long time, I was one of them. 10 years ago that changed and I have never looked back. Articles like this are good to tell all engineers out there that also without an MBA in Finance, they can take their financial future in… Read more »

temperament
temperament
9 years ago

Hi, “Articles like this are good to tell all engineers out there that also without an MBA in Finance, they can take their financial future in their own hands”. Just to let you know, i only have a technical certificate in electronics, but i believe in lifetime’s learning in anything to build up your human capital. So i know, with my meager education, therefor salary, i know i must learn how to invest in the stock market and money management. i started with asking for God’s Blessings and He has being unfair to me. Of course i believe God only… Read more »

Andrea Travillian
Andrea Travillian
9 years ago

Great post, it is always a great thing to be reminded of what works. I love the idea of thinking about investing as spending on your future. It does sound like a lot more fun!

Kathleen Goldson Clarke
Kathleen Goldson Clarke
9 years ago

Great article. Love Mr Engineer.We don’t have to be engineers to accomplish this. We all can invest in the future (love the concept),evaluate what we spend on, learn new skills, find ways to reduce our spending and the earlier the better.

Danielle
Danielle
9 years ago

Little late here, but wanted to comment on the best thing I did for my finances: I moved back home. This saves me rent money, and allows me to save for my own home, and in addition, I get to help my parents out. This includes projects where I get to learn how to maintain and improve a home. Currently, my brother and I are working to replace some walls and cement the floor in our barn — which neither of us has done before. My parents are saving money on the work, and we’re learning how to do it… Read more »

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