How do more people in high finance (IB/PE/HF/etc) not retire early?
Assuming your in high finance starting after graduating college... why do so many people work into their late 50s when they could retire much earlier.
Don't save/big spenders? lifestyle creep? Don't know what to do with themselves?
the compensation is obviously enough to retire early.
bump
It takes a certain type of person to make it that far in banking. People like that are sharks, they don’t just stop swimming. I’ve asked my MD (who is older and could easily retire already) what he’d do if he won the lottery and he said he’d just keep working.
Pretty simple answer. The vast majority aren't working at Natixis
LMAOO
i like to think the three monkey shits are james’s burner accounts
Lifestyle creep. Your expenses grow to match your income. Without following a disciplined financial plan it's very easy to end up in golden handcuffs - you can't stop working because otherwise your life changes materially. Even with the plan, I often find myself doing this in very small ways - "oh it's only £10" "oh I'll make that back tomorrow". These decisions often seem trivial at the point in time but compounded over a long time, that mindset and those decisions (with bigger and bigger numbers) materially reduce your wealth.
There's a fabulous article on this in a small British personal finance blog - specifically related to investment banking: https://bankeronfire.com/how-to-be-poor-on-250k-per-year
However the flip side is a lot of people actually like what they do and can't see themselves not doing it. There's actually a great scene in Industry (the TV show) (spoilers ahead) where one old MD gets let go and he's literally begging management to change their minds because he needs to work there, it's all he has.
Absolutely brilliant blog btw - thanks for sharing!
I think the scene in industry is with the MD who has the heroin addiction and can afford it. Maybe not as applicable but certainly telling of the lifestyle creep.
The compensation curve is extremely steep in those fields. By the time you make VP, you figure you may as well go for MD and make some big fees. Once you're a jr. MD, you see how much the partners / SMDs can make and you figure it's worth grinding 4-5 more years to get there. And once you're an SMD, you're now in your peak earnings and should do that for a few years at least - otherwise what were the decades of toiling for?
PE side, you're caught in in long-term carried interest payouts that take place over decades.
Anecdotally, I've seen the most retire-early people from HFs. I think it's a combination of HFs letting you make money much faster than the two (know some folks at MM platforms who have made $30M+ in their early 30s), and many people who go into HF being less interested in the work and more just really smart people who want to make a lot of money. That being said, the same compensation escalators exist in HF world: you go from an entry level associate to managing a sleeve (and getting a slice of P&L economics) to managing a book and getting potentially massive rewards if you do well. Again: why go through the work to get to where you are (peak of earnings) and not take advantage of it for a few years?
Also just on the point that 90% of us at large hedge funds aren’t clearing 8 figures
10% are clearing 8 figures???
Just want to highlight that $30mm+ by early 30s even at the best hedge funds is an extremely rare outcome that literally a decimal point of 1 percent of people in finance achieve, if not less.
Like rarity on the scale of professional athletes - literally. Think about the incomes.
Cause you can work fewer hours and coast using the experience you have amassed over an entire career, while making A LOT of money. At that point you're probably reading finance for fun, and can come up with credible advice using very little effort. Any grunt work or presentations are delegated to those under you. Your clients or contacts in the industry likely have known you for decades and talking to them is like catching up with friends. In other words, the job seems like fun and you get to focus on the interesting work.
Survivorship bias from the perspective of a 23-24 year old…
Quite frankly, for high performers in any field - premature retiring may lead to them being very restless / feeling the need to be busy. Have quite a few people in my extended family who've become wealthy via entrepreneurship and all of them pursued additional ventures after their success (one of them never gave into lifestyle creep and could have easily retired after his first exit in his 40s - with kids / wife).
Because most people in high finance are type A and typically type A people always want to work towards something or they get depressed (me)
work towards doing fun stuff. try to visit every country in the world, learn a foreign language, a couple of music instruments, bang chicks from 50 countries, bang 300 chicks in total, etc.
Tough to do some of those with a wife and kids to support
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Don’t think any of the other answers are wrong, but I think it’s ultimately derived primarily from a human’s need for purpose. Feelings of competence, power, respect, esteem, etc are secondary needs rooted in the need for purpose. Not to paint a dark or unnecessarily dramatic picture, but a banker has to make several sacrifices in life to get to this level. Relationships, personal interests, hobbies etc suffer and oftentimes, the only thing left is the job. You can zero someone out financially and they’ll be fine. Zero out their purpose and they’re toast.
Lifestyle creep is a factor for some of them for sure, but I don’t think it tells the full story. If someone has the means financially, lifestyle creep can just be a symptom of lacking esteem / respect.
So insecurity?
At that point, your whole identity is an MD at whatever firm
Hard to give up that identity for a blank slate, with no backing
At that point, the majority of your life has been spent in that one place
you answered it yourself. and "lifestyle creep" is the same as "Don't save/big spenders".
Lifestyle Creep is the first reason making 160k+ straight out of college people want to be able to live the life they have been chasing by pursuing high finance, this is compounded by the fact that the highest paying jobs are in the highest cost of living cities so you rent etc. will be higher. Also, when working longer hours professionals are more likely to spend highly on food delivery, cleaners etc. to compensate for the fact that they work so much.
Also the steep income curve plays a huge factor when "staying one more year" can lead to +$500k in income going from vp to md for example, it's easy to keep doing what you're doing since you have been for so long. The same thing happens at a smaller scale with each promotion or career change (ie. IB to PE/VC/HF). People that make it to MD are grinders and usually would lose their mind if they were just sitting on a beach all day with no real work to get done so retirement just doesn't make sense for them.
Divorce is very expensive
Basically the ideas that everyone said above are accurate. I'd also say, people stay working for all kinds of reasons.
1. Some people live to work. Even if they retire, they would just be thinking about work. Also, some people have a home life but they don't like it. They may have spent so much time working they really don't know their families/wives/kids, so they don't have a good relationship with them and the only think they know/are good at is working, so they will continue it.
2. It's also fine to enjoy both your family and your job. It's also okay to work hard. Some people who come from MD may have had a rough/poor upbringing, so sitting in an office or going to lunch really isn't looked at as work to them.
3. As said above, they pay you a lot of money. It's two sides though (a) you can make "decent" (like close to $1M) money probably not doing anything difficult, so why not (b) if you get one big deal every 3 years, it might be worth it.
4. Could also be lifestyle creep. Say you make crazy money and fly private, but if you retire you might have to fly commercial, some people might not want to make that trade.
5. Ultimately, the money you have it finite, but what you can buy is essentially infinite. So, someone might be working because they want a 4th vacation home, or because they have a lot of children/nieces/nephews that they want to give money to or pay for college.
As you get into 40s and 50s the health insurance is a major benefit. It may not mean much now, but a lot of prescription drugs and chronic issues that affect you later in life start to add up materially and are not something you consider at a younger age. Trust me, more older people than you might expect are working for insurance.
Probably the same reason that when you were 15 years old, the thought of making 300k was a pipe dream and you'd probably thought that you'd ball out for life with that. The goalposts keep moving because you keep doing the math in your head about how much more you could make if you could just stick it out for a few more years and then those few years are about to pass and you hear about your buddy Bill who just got paid $20mm in carry and suddenly now you think you can probably work a few more....
Kids are fucking expensive man
It’s about being able to retire at any moment.
People who make it that far are driven and weren’t looking to leave asap. The people that think the way you’re implying never make it in banking.
Even successful bankers can get pushed out so it’s not necessarily your choice and you might as well keep going because you don’t always last forever on your own terms.
Then of course people spend like idiots. There’s a good amount of those people.
15+ year MD here. Why keep doing it? What else would I do that is interesting?
That said, there are certainly aspects that I hate such as correcting stupid mistakes from careless juniors; how hard is it to do a spell check???
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