Anyone work in Finance and pursuing Early Retirement? Seeking career advice..

[ragnarkar]

I've only recently started a career and just learned of the concept of Early Retirement. It seems like a goal I want to achieve in the long run. However, I've been set back a few years due to some "mistakes" I've made in the past regarding my education and career.

Here's where I stand right now:

No Debt.
Started my "First" Job in 2010
Current Net Worth: ~$50,000 (no real estate, just stocks, gold, and government bonds.)
Yearly Income: ~$40,000/yr.
Industry: Financial (yes, I know I'm very underpaid in this field.)
Education: BS in Physics (2005), MS in Physics (2007), MS in Finance (2009)

I did some calculations and if I were to save $10,000 towards retirement each year (adjusted for inflation) and got a 5% annual return after taxes and inflation, I'd only achieve $1 million (in 2012 dollars) by the time I'm in my 70s!

I switched from Physics to Finance after I had failed out of my PhD program a back in 2007. (Yeah, I know the timing couldn't have been any better for receiving my Finance degree.)

I'm actually also considering a career change to a related field if it brings about more income and employment opportunities. I'm seriously considering the Actuarial field.. but it requires a series of several very difficult exams that'll easily take 5-10 years to complete. And since my goal is to retire early, it doesn't make too much sense to invest so much time in a new career before retiring.

What do you think?

 

[pb4uski]

Welcome. I think you are doing well. I'm guessing that you are in your late 20s and you have two master's degrees, no debt and $50k net worth. Bravo!!

If you goose your savings for a good share of projected earnings increases I think that your net worth projections will look better. At your age I think it is best to focus on career, stable earnings, LBYM and consistent saving and investing since you have so many years to go.

On the career change, my advice would be to follow your heart and not the money. Find something that you enjoy and are good at - hone your skills and in most cases the rewards will follow. While I worked a lot with actuaries over my career and they are generally well paid, as you probably know each time you make a career change you usually take a little step backwards.

 

[Brat]

Pay a visit to Milliman.com to explore career options.

 

[H2ODude]

Income is important in a career. But remember you'll be doing it for a long time, so be careful not to be seduced by bucks if the cost is doing something you can't stand for a long time. Theoretically we're trying to ER to do something we're passionate about (well, maybe that's just loafing, taking it easy, etc) but it's nice to have a touch of passion about what you do to get there. I always told my kids to select their career carefully, they'd be doing it a good long while. Good luck in your journey!

 

[Marathoner]

If the only reason you're thinking about becoming an actuary is that they make more money and you think there are more career opportunities, I'd pass, personally.

In my experience, there are many, many jobs out there for Finance grads (probably depends on where you live), so if you don't like what you're currently doing, it's a flexible enough major that you can find something else that might be more interesting for you.

I'm in Finance -- I work on an asset management team (mutual funds and separately managed accounts.) I find it fascinating and I'm learning things that will help me along the way to ER.

 

[Semiretired2008]

Finance is a broad area for both income and employment opportunities. I spent the last 12 years of my career in that field without a degree in Finance. I have an MS in Systems Analysis and Design and an MS in Logistics Management / Engineering. I was good at numbers and if you are considering the Actuarial field you must feel that you are also (a lot of math there). Research and pursue that angle. People that are really good with numbers and can go beyond the standard math problems that most mathematicians live by can go far in the Finance world and it can be very rewarding - financially and personally...

I had a gentleman that I hired out of a bowling alley snack bar just because I could tell he was good at math, had an open mind with a high learning curve, and he was a programmer. I could teach him the rest. He started at 38k and was making 6 figures within 5 years in the Finance field... The right combination of skills is what makes them work - not just the degree - it only gets you in the door - you have to do the rest.

 

[Brat]

These days an actuary uses a computer to calculate risk, the key skill (other than passing the exam) is knowing what risks to include in the analysis. As you can see in the link I provided the skills desired are multifaceted.

 

[RISP]

Welcome ragnarkar. I did some quick&dirty calculations with the numbers you provided - I believe it would take you 30 years to reach 1 Mio. $ with the assumptions you provided. Are you already 40+? Since you said "I've only recently started a career", I would have guessed you are younger.

That leaves a couple of questions:
- Do you really need a million dollars? It seems you are currently getting along on 40,000 per year (is this gross or net?), out of which you plan to save 10,000. If your spending is 30,000 rather than 40,000, your portfolio could reach 25x expenses (or 750,000) in 26 years.
- Will this be your only source of income in retirement, or do you expect to get a pension? What about SS?
- Don't you expect your earnings to grow faster than inflation? If yes, make sure that your raises increase your savings rate, not (only) your spending. I'm in Finance, too, and my salary grew by ~50% when I changed positions after one year.

 

[ragnarkar]

Welcome ragnarkar. I did some quick&dirty calculations with the numbers you provided - I believe it would take you 30 years to reach 1 Mio. $ with the assumptions you provided. Are you already 40+? Since you said "I've only recently started a career", I would have guessed you are younger.

That leaves a couple of questions:
- Do you really need a million dollars? It seems you are currently getting along on 40,000 per year (is this gross or net?), out of which you plan to save 10,000. If your spending is 30,000 rather than 40,000, your portfolio could reach 25x expenses (or 750,000) in 26 years.
- Will this be your only source of income in retirement, or do you expect to get a pension? What about SS?
- Don't you expect your earnings to grow faster than inflation? If yes, make sure that your raises increase your savings rate, not (only) your spending. I'm in Finance, too, and my salary grew by ~50% when I changed positions after one year.

Edit: A few tweaks

My calculations:

Inputs: PV = -$50K, PMT = -$10K, FV = $1Mil, r = 5%
Result: N = 32.2 years

Interpretation: Where I stand, if I achieve a real after-tax return of 5% annually and save $10,000 in 2012 dollars each year, I will achieve $1 million (in 2012 dollars) after 32 years. I'm almost 29.5 so that's when I'm almost 62 (not 70 as originally expected but still a long time.)

My assumptions are a little pessimistic I'll admit but not the worst-case scenario by far (low raises over time, no social security) although some might argue even a 5% real after-tax return on investment won't be sustainable in this economic environment.

I tend to live well below my means and save quite a bit. I had a small bonus last year and ended up making about $45K (before taxes) and ended up saving almost $16,000, $5000 of which went into my IRA. $10,000/yr is also a worst-case saving rate assuming I had to cough up some money for "emergencies". It may sound a bit naiive and idealistic but my main motivation to saving and investing a large portion of my income is simply to "hedge" against the possibility of no pay raises in the future (by investing the money saved and creating income through dividends and capital gains.)

As for my aspirations, I'm passionate about Finance and Investing but I'm not too passionate about working for an employer. I aspire to eventually open my own shop and help others make intelligent decisions regarding their investments and personal finances.

Now that I've thought over it more, it's probably not worth it pursuing the path of an Actuary in order to raise my income for the sole purpose of saving money to open a Financial Advisory company.

For those of you who have taken both, how do the Actuarial exams compare to the CFA (I've only passed the 1st out of 3 so far)? It seems the high level of difficulty of the Actuarial exams mostly come from the complex math which is one of my strong areas.

 

[Brat]

You may want to explore this website: SOA - Society of Actuaries - Exam & Requirements

 

[RISP]

but still a long time

Well, what did you expect? A million bucks is not exactly small change. That brings us back to my earlier observation:

Don't you expect your earnings to grow faster than inflation?

I can't comment on your question regarding exams, but I'd like to offer a general observation: You already have two advanced degrees, so I'm not sure if you really need more formal education. I suggest you focus on doing a good job, make sure some of the higher-ups notice, and if you're halfway competent, you'll climb the ladder in no time.