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Saving for Retirement as a Software Engineer

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Take 100 young Americans starting out at age 25. By age 65, one will be rich and four will be financially independent. The remaining 95 will reach the traditional retirement age unable to self-sustain the lifestyle to which they have become accustomed. - The Bogleheads’ Guide to Investing

This is intended as a bare-bones intro to saving for retirement, targeted at software engineers. When I got my very first paycheck after college, I was fortunate enough to have a friend pull me aside and give me the benefit of their experience regarding saving. I didn’t know what a 401k was! If this describes you too, then listen up!

The average salary for a software engineer in the Bay Area ranges from $73k at entry level to $124k for a senior software engineer. Ballpark, you make about $100k a year in your 20s. If you want to have that same income in retirement, you need about four million dollars saved up. Anything less, and your income will be lower than it was in your 20s (adjusted for inflation).

That’s a BIG number. If you are a dual income family, you may very well need twice that amount. The good news is that you can do it!

Compound Interest

If you save approximately 25% of your gross income (pre-tax), then you can easily get there. But if you work until you’re 65, that will be “only” $25k * 45 years, or $1.125m. Where does the other $3m come from? Stop me if you’ve heard this before. The secret is the power of compound interest.

Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. -Wikipedia

The stock market has historically returned about 9.5% annually over the last 100 years. Some years it’s negative, but other years are way up. A more conservative estimate that you often hear is 7%.

compound interest

Over time, that 7% interest will overtake your actual cash deposits into your savings. Your savings will be growing more and more due to interest than anything else.

compound interest 2

If you save $25k a year for 45 years at 7% interest, you will end up with $7.6m. Start just 10 years later at age 30, and you will have $3.6m. Feel free to play around with a compound interest calculator yourself.


A 401k is a service offered by many employers where a set dollar amount is deducted from your paycheck before taxes and sent to a financial institution, where it is automatically invested into funds of your choice. An individual can contribute up to $17.5k a year to a 401k. Many larger companies also offer a dollar match, which can put you above the $17.5k limit.

If you work at a company the offers a match, that’s free money! It’s definitely something to think about the next time you get a job offer.

The money you contribute will grow, tax free, until you turn 59.5. At that point, you can start withdrawing the money, and you will pay taxes on it at that time. You can also make early withdrawals for specific things like buying a house and going back to school. When you leave your current company, you can roll your 401k over to your new employer, or into a third-party financial institution.

The main advantages of a pre-tax savings are:

  • It reduces your taxable income for that year.
  • You can afford to save more, so your savings will reach a higher peak value.
  • When you do pay taxes on the money in retirement, your tax rate will likely be lower.
  • You can choose to retire in a state with lower taxes.

For me, the primary advantage is that it’s automatic. It happens before you even see the money.

Published at DZone with permission of Chase Seibert, author and DZone MVB. (source)

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)


Seb Cha replied on Fri, 2014/01/03 - 10:35am

Oops... This article is a "strong sell" signal. You know what i mean ...

Wal Rus replied on Fri, 2014/01/03 - 7:07pm

The last thing you want to do is to entrust 'funds' and so called experts with your money. The truth of the matter is that inflation if far more productive at eating your surplus then the interest at building it.

So what I choose to do is to pay out all my debts first and educate people that the system built on debt is inherently not sustainable. 

Think 50 year ago: a family could have a very decent life with only man working. One man could support a wife more then two kids, have a house, a car etc. 

What does it look like now? 

What can you tell of the trend? Do you think you want to give money into the hands of people who continue to manipulate the markets in a system that continues to borrow money pushing inflation higher and higher? 

Fixing the system! That should be our primary goal at the moment. Until the system if fixed don't entrust it with your money.  Pay out your debt, I am sure that will take care of the question of where to put the money you've got.

Cej Hah replied on Fri, 2014/01/03 - 3:27pm

If you think the stock market is going to continue to gain 9.5% over the next 100 years, I have a bridge to sell you.

Rick Fisher replied on Sat, 2014/01/04 - 1:27am

 This is a very cynical bunch here :)

Look, whether the stock market returns 9.5% or not, and whether someone is selling something, or not, the fundamentals of the blog are still the same: we as working IT folks *should* invest in our retirement to provide an income in our non-productive years.

7.6m is an ambitious number, but anticipating an amount to return any amount of cash in the future is always wise.

Dave Ramsey ( recommends 15% of gross.

And Lastly the wisdom of saving goes beyond this article:
> Proverbs 13:11
   Wealth gained hastily will dwindle,
   but whoever gathers little by little will increase it.

> Proverbs 10:4-5
   A slack hand causes poverty, but the hand of the diligent makes rich.
   He who gathers in summer is a prudent son, but he who sleeps in harvest is a son who brings shame

So get to saving for the future.

Navyn Rajoo replied on Wed, 2014/01/08 - 10:40am

Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but God hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). ~ Quran 2:275

Withholds his hand from iniquity, takes no interest or profit, obeys my rules, and walks in my statutes; he shall not die for his father's iniquity; he shall surely live. ~ Ezekiel 18:17

You guys are smart and logical. Seeing the mess, the unfair distribution of wealth, control and slavery of nations through lending of money and compound interest having paid their debt many times over. I'm preaching to the preached. These are just a fraction of reasons why it is forbidden.

Adedayo Abiodun replied on Thu, 2014/01/09 - 10:36pm

I love software folks... See folks churning out scriptures (Bible and Quran).  Kinda appreciate the level of consciousness folks have.  

We deny his existence, yet the non existence of a proof is to some a proof of His existence, greatness, majesty....

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