$10M Realistic?
For someone who goes into traditional high finance (IB/PE/HF/VC etc) with an average career path, is it realistic for them to have $5-10M in savings when they retire?
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Yes, if you get to senior levels at any of those paths (reputable firms, standard returns/environment, etc) then it is very attainable.
Yup
Assuming a standard 20-30 year (Age 22 -> Age 40-50) career making it to and staying at senior ranks at decent firms with good personal/firm performance:
$5-10M is a reasonable floor
$10-20M is probably more of a mid-case
$25-50M+ if things go really well for you.
Of course you have rare outcomes like career megafund PE professionals and founders of funds that scale who can erupt past $100M+ but that's rare. Former is just very hard to achieve statistically and latter is akin to being an entrepreneur with the risks that are inherent to that path.
EDIT: revised the floor to $5-10M from $7-10M.
$7-$10mm feels more like a mid-case scenario after tax but maybe thats because I’m an analyst and can’t fathom making $1mm+ as an MD yet.
Investment returns are a thing - what kind of finance professional saves money into a bank account? lol.
Hell, even if you spent just 10 years working in high finance and accrued a $1m+ pot, in another 10-20 years that'd be worth $3-5m just from the average return of the market.
$7-10mil is an aggressive floor if you’re considering the typical NYC finance professional. Extremely high COL plus childcare, private schools, club memberships, etc
Definitely lifestyle dependent (number of kids, working spouse, how much you indulge in vacations, luxury items, etc). And probably a bit aggressive.
That being said, in PE and HF you are getting a reasonable amount of comp in carry or equity, so a lot of it you can’t really go spend anyway, but the actual value of it isn’t really known (and could be 0 if sh*t hits the fan).
Can’t speak for PE but in HF it isn’t crazy to be accumulating $500k-1.5mm a year in deferred investments in a fund as you get to mid 30s. Do that for 15 years and hope your fund doesn’t blow up.
I concede that once you factor in the trappings of the upper middle class / high earner lifestyle, especially so with multiple kids, you could maybe shave $1.5-3m from that range.
Maybe I just assumed that the average high finance professional was a bit more frugal than I'd imagined but I can't imagine it being that difficult to save 40-50%+ on comp numbers that range from mid six figures to low 7 figures.. Unless you were really trying to overlever and overspend on everything imaginable. It seems like you would actively have to try to overspend to not save that much.
Only and intern but know from various people and data that the ranges above are way too high and contain far too favorable assumptions.
What a lot of people don’t realize on this forum is that the higher you move up in the financial world the smaller the amount of spots there is. Not every analyst will make MD even if they want to. Furthermore, not every MD will kill it and make a million dollars year over year. I think people need to realize how many people are in “high finance” and while it definitely is a financially rewarding career path it’s no where near the vision of people making millions by just following a certain set path. I think a better assumption is $7-$10 million in Net Wort rather than in savings.
I’m a bit confused, while I agree on the general that some of these numbers are aggressive, the numbers I’m posting above (including equity investments, etc) are first hand knowledge (including my own comp), not from “knowing people”.
If you are at a HF and are a good/top performer at a good fund then the numbers are completely realistic.
I agree that the filters to get to that level mean that you are the top [insert small percentage]. But if you have a career out of it at a top place it is realistic.
There is the separate question about what is the “average” path (do people end up at top firms? Do people get to the “top”?). I think that is your point, that many people don’t make it, and that I completely agree with.
Sorry I reread my comment and it was definitely confusing. Yes, my main point was in regard to the idea of the “average” path. Most students that enter into IB or another high finance position won’t make it to the top of their company. Not to say that the money is bad if you’re not an MD at a BB or a PM at a prestigious HF, but there’s only a very small percentage of people that actually get there. Your numbers are definitely reasonable for people that achieve above average success in “high finance”.
Net worth and not in savings?
Anything left over after expenses is (or rather, should be) usually invested, not saved into some bank account. You should always be compounding your money regardless of if it's in home equity or invested into real estate or co-invested in a fund or plopped into a brokerage account buying some passive index tracker. The combination of high personal earnings and the compounding nature of investing should be more than enough to propel you towards (and well beyond) that range.
Anyone that is pursuing this career path that doesn't have a $5-$10MM net worth at retirement has completely bungled their retirement planning. If you contribute barely six figures annually to your retirement, assume modest returns, and a ~55 year age for retirement, you'll be far beyond this point. That's not hard to do.
It's also worth pointing out that that net worth range in your mid-50's for retirement is not going to buy you anything close to a lavish lifestyle if you want to assume you'll have a long post-retirement life.
Depends how you define lavish
Wouldn't you be making $150,000 at the very least from dividends at that point? That's pretty comfortable right?
In the hypothetical scenario, not for someone that is pursuing a full IB/HF/PE career. That would be a major lifestyle reduction. For a normal person, absolutely.
Yes, it's realistic but it has much less to do with earning power in your 40s/50s (e.g., MD/Partner level) than you think. If you max out your 401k until you're 55 and get a 7% net return you're sitting at $2+ million by retirement. Similarly, if you can sock away $1 million by your early 30s (which most on the finance front can do as a mid-level VP) that would turn to $5 million by retirement age. Keep in mind that your average MD making $1-3 million in cash comp is paying 37% federal and likely a hefty state/local tax rate on that and then supporting a lifestyle/family in a high cost of living area with after tax dollars. There are plenty that work a decade as an MD and are saving $250k per year. Obviously the math changes with carry or with outsized BSD bonus years.
Aren’t most finance jobs in high COL areas?
I have seen some MD in Low COL areas rip down fees because the market is not a sophisticated. And this "Justify" a higher fee. AKA if people don't know the cost of services you can charge more.
Not saying that the cycle will repeat itself but I would've thought plenty of normal people who retired in the last 10 years, maintained a decent savings ratio (invested into the stockmarket) and took advantage of leverage in a property market that's done well would have a net worth in that range. I know of plenty of people in multiple cities who bought houses 20-30 years ago for a few hundred thousand that are now worth millions, for example.
BUMP - some of these comments are ridiculous. Most MDs I know (grew up in Greenwich) have NOWHERE near a $250-$50M net worth because they are terrible with money. You have to save & invest aggressively to get to that amount - or be a rainmaker. $1-$2M of comp (most of which is deferred stock) will not get you there unless you are a total rainmaker OR....marry a rich girl. These bank stocks have performed terribly, by the way. I know guys who have lost millions and millions in DB/UBS stock.
yes. you can save that much being a plumber. you have 40 years to work. if you are financially responsible its pretty hard to not end with a comfortable retirement (assuming not tons of student loans or family members you are supporting).
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