Why Your Walkaway Number Is Lower Than You Think
mod (Andy) note: "Blast from the past - Best of Eddie" - This one is originally from May 2010. If there's an old post from Eddie you'd like to see up again shoot me a message.
We spend a lot of time on this site discussing how much money it would take to retire now, how much you plan to have when you walk away, and so on. I always get a chuckle out of these posts, because I know how different my actual walkaway number was from the number I had in my head when I got started. I don't bring that fact up much, because I'm not interested in being the catalyst for someone to lower their expectations/aspirations in life. I know what worked for me, and I'm satisfied with it, but I realize some people will strive for more.
I think for most of us starting out (and I know for a fact this was the case for me), somewhere around $10 million is the number. When I got started in the business, I was convinced that as soon as I accumulated $10 million, I was out. That was $10 million cash, mind you. The number in your mind might be higher or lower, but it's probably somewhere in that neighborhood.
This is going to come as a shock to many of you, but Business Week just published a fairly extensive study that might shine the harsh light of reality on your walkaway number. They found that Harvard MBA grads made more money over the span of their career than graduates from any other MBA program. The estimated career earnings for an MBA from the #1 business school in the nation? $3.87 million.
Now $4 million is nothing to sneeze at. And I can already hear some of you making the argument that the study includes MBAs from all career fields and that Wall Street naturally skews higher. That could very well be the case. But realistically, by how much more? Here is the complete table of the various B-schools and their respective earnings.
My point in this is that your actual walkaway number is probably going to be a lot lower than you think. And that's a good thing. Because it might alleviate some of the undue pressure you put on yourself. I always made good money on the Street, but it wasn't until I gave myself an expiration date that things really went my way monumentally. And the biggest component of my decision to punch out was my coming to terms with the fact that I wasn't going to have $10 million in cash when I did it.
The importance of being realistic about earning potential can't be overstated, especially in the current regulatory environment. Does that mean you should settle for less, or aim lower? Absolutely not. There is no shortage of young people making millions of dollars per year in the U.S. Just recognize the potential that exists in your current career path and if that doesn't meet your expectations/aspirations, change your path.
Here's a little something to get you started. It'll save you $100,000 and two years of your life. Something to think about.
Guys, please don't take this post in a negative light, because that's not how it's meant. Laboring under false assumptions leads to massive disappointment, and being realistic about your career path is truly liberating. Never forget that there are outliers in every field, and the outlier might be you. Never lose sight of the fact that, even if you only make a couple million bucks over the course of your career, it's still a shitload of money. Manage it (and your career) accordingly.
P.S. If you're the outlier (or think you might be), I'd love to hear about it in the comments.
Comments
"Here's a little something to
"Here's a little something to get you started. It'll save you $100,000 and two years of your life. Something to think about".
I disagree with your point, I don't think an MBA is about 10 big lessons you can learn or about watching a few concepts only. On top of the general knowledge you are going to get there are additional aspects you need to integrate:
1) It's one of the only way to change/shift career and many companies have a specific entry levels for MBA grads
2) in some industries you don't have much choice, either you get it and you progress or you get out.
3) it helps you to build key relationship for your future career and that is worth a lot, the ability to call a former classmate to know more about their recruiting process a few years after you graduated is very valuable, the opportunity to meet with someone inside the school during your mba program and start together a company is also something happening
I do believe though that there is a lot of distinction to make between the programs, the tier and the impact an MBA can have...sometimes it's true that it's not worth $100k, especially right now where jobs are tough to get and often for a lower salary.
Finally if you plan to make $10m I don't think $100K is bad investment (1% only !) as the yield can be extremely good based on my remarks above.
i'm just wondering about all
i'm just wondering about all the careers where you actually advance to management, partner if you will, after around a decade or two if you're good enough, and begin making seven figures. obviously not for everyone, but that kinda puts the whole argument to shit, don't it?
according to the study, after 20 years, the average pay for harvard grads was 230k. that's ridiculous for some career paths. if you manage to stay in consulting for example for that many years, you'll be a senior partner by then, which means you'll be making seven figures easy. in IB, PE, HF - and in C-suites after exiting from any of those you'll probably be making more.
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"... then, lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it."
Keep in mind those are MEDIAN
Keep in mind those are MEDIAN pay figures, not AVERAGE pay figures. Meaning, in your example dagro, that half the MBAs were making more than 230k and half were making less. I would bet the average number would be considerably higher (and less reliable for statistical purposes) because of the handful of C-level executives making 8 and 9 figure comp.
Edmundo Braverman wrote: Now
Now $4 million is nothing to sneeze at. And I can already hear some of you making the argument that the study includes MBAs from all career fields and that Wall Street naturally skews higher. That could very well be the case. But realistically, by how much more?
Nah, a disproportionate number of HBS grads end up on Wall Street anyways, so the data is probably pretty accurate.
Question Edmund- What did it
Question Edmund- What did it take in your life for you to step away? I'm risk adverse by nature as are most people on this forum, so for me it would have to be 1) Health 2) Another job in waiting 3) Moving to a whole new area 4) An ominous fortelling from a 3 nipples fortune teller. Essentially it seems like the more you have invested in the salary (kids, house, doggies) the less realistic quitting becomes.
Did you ever consider remaining at your level e.g. VP and NOT kill yourself to move up the ranks? (I know you were a trader, so I guess this might not apply, but still a scenario I see)
"The estimated career
"The estimated career earnings for an MBA from the #1 business school in the nation? $3.87 million."
And this number is pretax.
First of all, kudos on the
First of all, kudos on the obscure Kevin Smith movie reference, Mallrats is one of my all-time favorites.
I bailed because I hated the work. That's it in a nutshell. The hours I was putting in were horrendous, the guys at the top of my firm were total jerkoffs (one of them just got 9 years for a brain-dead fraud he cooked up a few years after we worked together), and I managed to reach my income goal six months ahead of schedule. So I bailed.
Also, there was an
Also, there was an unsustainable component to my success. I developed a trading system over the course of about two years, and it worked even better than I expected. When it failed, however, I knew it would take at least another two years to make another and I already had a bunch of money. Wasn't worth the effort to me. Sometimes you have to know when to walk away.
And just to clarify, I'm not some superstar with ESP. I happened to be trading at a time in the market when most commodities were at all-time lows and it was very easy to make money. It doesn't take a rocket scientist to figure out you should buy crude oil when it's $11 a barrel. I knew the market conditions would never be that easy again in my lifetime (who knew the Fed was going to print $2 trillion and pump it into stocks a few years later?) so I took the money and ran.
Very interesting. But I
Very interesting. But I would, as you pointed out, argue that if you look at strictly finance professionals from HBS, the lifetime earnings number is probably several times $3.87 million. If you stick it out in the field, after your 3rd or 4th year as an MD you'll be pulling in $1+ million/year at a BB bank. If you happen to be on the buyside that number will be blown out of the water.
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No doubt. But how many people
No doubt. But how many people make it to that level as a percentage of MBA holders? As a percentage of people who work in investment banking? As a percentage of the working public?
It's true that a number approaching 100% of MD and C-level bankers have an MBA. But what percentage of MBAs make it to that level? My guess is less than 5% overall. This study seems to bear that out.
Edmundo Braverman wrote: No
No doubt. But how many people make it to that level as a percentage of MBA holders? As a percentage of people who work in investment banking? As a percentage of the working public?
It's true that a number approaching 100% of MD and C-level bankers have an MBA. But what percentage of MBAs make it to that level? My guess is less than 5% overall. This study seems to bear that out.
What happens there exactly? do people just lose their drive or what? - In my opinion, if I'm not aiming for MD and higher levels and devoting a good deal of my 20's and early 30's to career progression, I shouldn't pursue an MBA.
I wonder if this survery takes into count those who started their own firms/funds..
I am not in the industry
I am not in the industry currently, more of an outsider looking to get in, so my perspective is skewed based on that and is something that must be kept in mind. Beyond that I would say my figure lies between $7-8 million in current dollars, with an additional 3.5% per year for general inflation. Assuming a 5% after-tax earning percentage, and only utilizing 1.5% for living this would give me about $120k or so a year to live on, which is sufficient if I were retiring at said level.
A consideration I have beyond that though is the fact that right now, I never stop wanting more. A thought which could very well change if/when I attain my goal. And not so much in the sense that I only want more for the sake of it, but because like any goal, you achieve the goal, then set an even higher one to reach for. Constantly striving to be better in all areas of life, including monetarily, means reaching beyond your last achieved goal. To me anyways.
Now, placing all of that into context considering the earning potential of an individual given their MBA school, I would say that the industry will not be where I earn all of that money. The reason is mostly because unless I achieve MD status, or am thoroughly successful on a trading/prop desk, there just won't be enough money coming in to achieve that over a lifetime. This means I have to look outside of the career 'box' to other options, which to my mind are: 1) Business Startup, 2) Personal Investing/Trading, 3) Winning the Lottery. So, in the end, my goal would really be to earn sufficient capital while building a business model/product, or trading system whereby I could convert that into my long-term goal, all while hoping to win the lottery. So yeah... My 2 cents. ( I want 'em back at the end BTW, for my piggy bank. :P )
-N.
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CNB90 wrote: Edmundo
No doubt. But how many people make it to that level as a percentage of MBA holders? As a percentage of people who work in investment banking? As a percentage of the working public?
It's true that a number approaching 100% of MD and C-level bankers have an MBA. But what percentage of MBAs make it to that level? My guess is less than 5% overall. This study seems to bear that out.
What happens there exactly? do people just lose their drive or what? - In my opinion, if I'm not aiming for MD and higher levels and devoting a good deal of my 20's and early 30's to career progression, I shouldn't pursue an MBA.
I wonder if this survery takes into count those who started their own firms/funds..
You say that now but try grinding away for fifteen years. I bet after five you'll be looking for an easy out. Once you have enough banked for retirement, and paid off any college/home debt, you'll probably want an easier job that let's you travel or have a personal life.
You don't need $10M to sit on a beach and drink beer. That's what retirement means to a lot of people.
Victor252 wrote: CNB90
No doubt. But how many people make it to that level as a percentage of MBA holders? As a percentage of people who work in investment banking? As a percentage of the working public?
It's true that a number approaching 100% of MD and C-level bankers have an MBA. But what percentage of MBAs make it to that level? My guess is less than 5% overall. This study seems to bear that out.
What happens there exactly? do people just lose their drive or what? - In my opinion, if I'm not aiming for MD and higher levels and devoting a good deal of my 20's and early 30's to career progression, I shouldn't pursue an MBA.
I wonder if this survery takes into count those who started their own firms/funds..
You say that now but try grinding away for fifteen years. I bet after five you'll be looking for an easy out. Once you have enough banked for retirement, and paid off any college/home debt, you'll probably want an easier job that let's you travel or have a personal life.
You don't need $10M to sit on a beach and drink beer. That's what retirement means to a lot of people.
I'm not wired to sit on a beach and drink beer, I'd like to do it maybe once a week or something but I can't see my self being that free. I like being busy and constantly achieving, I don't think that will change for a while.
@edmundo--I agree with alot
@edmundo--I agree with alot of your sentiments...however I think the businessweek table is a very bad reference.
From viewing the little methodology blurb at the bottom...not only do they use medians (which is fine for looking at income, but looking at median numbers and then producing an estimated career pay number from that won't even produce the right number if you compare it to the median of actual career pay.) Also more importantly this excludes stock + option compensation...which i imagine is most substantial at the higher ends of the dataset.
I think accurate data on the subject is going to be very hard to come by...though I would say that alot of people on here do think they are going to be multimillionaires and that isnt neccesarily a given just because you became a banker or went to HBS
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Schwarzman said the same
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When it comes down to it, a
Edmundo Braverman
I have a family member that
Nice, thanks for posting. I
1) Not all HBS MBAs are
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retirement for me is coaching
ideating, that was the major
After dealing with people in
There are a few problems I
"Walkaway number" is a flawed
The main problem here is that
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Can someone clear something
... not everybody goes to
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"... then, lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it."
Interesting topic! I was also
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Aiming for $10m plus for
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$2 million liquid on the low
Basic math. Pretty much all
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