Can Software Engineers Fat FIRE as "just" an Employee?
Goal: $5 million invested
Assumptions:
SE1 to Staff in 10 years.
20% savings rate on pre-tax income.
Median software engineer in HCOL in US.
Earn 7% on your money while it’s invested.
Inflation and salary raises negate each other.
Yes, you can Fat FIRE as “just” an employee.
At year 27 we cross $5 million invested.
Granted, in 27 years the goal may move beyond $5 million. But a 20% savings rate to retire before 50, assuming you started after college, not bad.
This exercise is just intended as a simple illustration of what is possible over time as “just” an employee. This is how you benefit from the magic of compounding interest.
Putting this into practice is much messier than the smooth curve above would imply.
How to Actually Do This
Since I write for tech workers, I’m going to assume you have a career in tech and are steadily growing. If this doesn’t apply to you, there are many other FIRE blogs out there that are better able to speak to your circumstances than I am.
Three steps to Fat FIRE as just an employee:
Stay employed and grow your career
Invest properly (ie. low cost indexing with an appropriate stock/bond split)
Hit that 20% savings rate
With your career dialed in and assuming you are investing properly, the biggest area you need to focus on is hitting that 20% savings rate. This means you are investing a $ amount that is 20% or more of your gross total compensation.
In practice this can be challenging, especially as life throws the unexpected at you like babies, economic meltdowns, and family members that need financial help.
Some Detailed Data
I used the median (50th percentile) total compensation in Tier 1 Locations (NYC, SF, LA, Seattle) for a Software Engineer Career from the End of Year Pay Report 2023 (Levels.fyi).
I assumed career growth followed the median:
Years 1-2: SE1 / L1
Years 3-5: SE2 / L2
Years 5-10: Senior / L3
Years 10+: Staff / L4
Other Assumptions
I didn’t bother to estimate cost of living and assumed you would just hit a 20% savings rate consistently. This made the math easier but in practice this can be difficult.
The smooth chart above is not at all what typical market returns look like. We can roughly expect 7% per year annualized over a long term with a mix of stock and bonds but in reality the returns are not a constant 7% per year.
Disclaimer
As with anything market related, past performance is no guarantee of future results. This is simply for education purposes.