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.”