[Retire Early]


Career Advice for Budding Early Retirees.

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This article was posted on October 1, 1999.

Several Retire Early visitors have asked, "What exactly did you do in your career that allowed you to retire so young?" Good question. Obviously, the best advice would be to find the next Microsoft or Dell, get hired into a position with stock options, then retire once you're allowed to sell your shares after the IPO. Failing that, here's what I've found useful.

The Retire Early strategy for collegians.

Choose the "right" major. Educators say, "do what you love", but let's face it, some jobs pay more than others. Your prospects of getting a high paying job after graduation are better in law, medicine, engineering, and computer science rather than, say, art history or medieval literature.

A demanding course of study may not be financially rewarded. At the engineering school I attended, some majors were more difficult than others. Chemical Engineering was regarded as the most demanding program, while something called "Management Engineering" was the easiest. (Some people even questioned whether "Management Engineering" was really engineering at all.) The cruel irony is that the highest starting salaries don't always go to the students who took the toughest courses. If "rocket science" pays the same as "pouring concrete", it may not be financially worth your while to expend the additional effort required to "shoot for the stars."

I studied Civil Engineering, and was able to take two extra courses per semester since the work was less demanding (at least to me) than some of the other Engineering disciplines. By doing so, I graduated after three years. Not only did this save me a year's worth of tuition, but it also allowed me to earn an engineering salary one year earlier. When I graduated in 1977, tuition and room & board were around $5,000 per year and the starting salary for an Engineer was about $15,000 per year. In effect, by going to work a year early, I almost got my education for free compared to a student that took four years to get a degree.

Is an expensive private college worth it? With Bill Gates and Michael Dell dropping out of college and becoming billionaires, a university education may not be worth its opportunity cost at all. Tuition at a private university is often 2 to 3 times the cost of a public university, yet the starting salaries for new graduates and the lifetime earnings for alumni are much the same. If you're getting a full scholarship to Harvard, take it. If you (or your parents) are paying the full tuition at a private college, sit down and do some arithmetic -- click here. If you saved the difference in cost between a public and private university and invested that incredible sum of money for 20 years, you'd be well on the way to retiring before age 40.

Grad school is even less likely to be financially rewarding. While you are likely to do well as a graduate of law school, medical school, or a Top 5 MBA program, many with graduate degrees from more pedestrian schools don't get much of a return on their investment.

When I was working for Exxon in the early 1980's, an Engineer with a Bachelor's degree started at salary Grade 23 and was usually promoted to Grade 24 in two years. Someone with a Master's degree also started at salary grade 23, but was promoted to the next grade in one year. Assuming it took one year of full-time schooling to get a Master's in Engineering, both employees were at about the same salary level two years after earning their Bachelor's degree. Financially, the Master's degree holder was way behind. He's paid a year's worth of tuition and lost one year of an Engineer's salary (up to $50,000 per year in today's market.)

I avoided this opportunity cost by getting my MBA at night while working full-time. My employer paid the tuition (at an "expensive" private university, to boot.)

But wait, you ask, "Wouldn't someone with a Master's degree get promoted faster and eventually rise much higher in an organization?" Well, maybe. That's certainly the hope of many graduate degree holders. Unfortunately, the business world doesn't always work that way. Once an employee has 5 or 10 years worth of experience, work history and accomplishments become more important than university degrees and where you went to school. Of the group of 15 or 20 young engineers I worked with at Exxon in the early 1980's, by far the most successful is a former colleague who went on to become a Senior Vice President at a major international oil company. And he only has a Bachelor's degree from a state university!

For more on "Why Stay in School?", see Andrew Hacker's Money: Who has how much and why. The chart on page 218 is particularly revealing. Fully 20% of workers with only a high school diploma earn more than 30% of the people holding graduate degrees. I suspect these results would be even worse (for the case that graduate school pays) if the analysis excluded MDs, JDs and MBAs from the Top 5 business schools.

Should I be a "Company Man" or a "Job Hopper?"

When I graduated from college in 1977, the conventional wisdom was you should get a job with a "blue chip" company (i.e., IBM, Exxon, AT&T), keep your mouth shut and kiss up to the boss for 30 years, and then retire to a big home in Florida. Mercifully, few new graduates are under this delusion today. And a decade of "downsizing" and the introduction of "cash balance" pensions have dissuaded most baby boomers of the notion that being a "company man" was ever a good idea in the first place.

The joys of "Job Hopping." I'm very proud of the fact that the longest time I spent with one employer during my 17 year corporate career was about 5 years. I was always willing to jump to a new employer for a minimum 10-15% raise. I've never seen a company that gave bigger raises to the employees that loyally stayed with the company. If your boss doesn't have to pay more to keep you, he won't.

Can I make money on a job switch without getting a raise? You sure can. Many people don't realize that living and housing costs vary much more than salaries. Having worked in New York, California, and several places in between, I've seen this first hand. Monetarily, the best job switch I ever made was moving from San Diego, CA to Baton Rouge, LA. (I know, living near the beach in Del Mar is nice, and one of my California neighbors asked "Isn't Louisiana kind of like Saudi Arabia with regular cable TV?") He may have a point, but the move was a financial bonanza. In addition to my 10% salary increase, my housing costs were cut in half, and state income taxes were much lower in Louisiana. This allowed me to increase my savings to 40% to 50% of my gross salary. Five years later, I retired at age 38.

But what about my pension? There is nothing more disheartening than seeing a young employee soldier on in a job he hates because he wants to collect a pension. It might make sense for a 53 year old to hang on for a couple of years if he's fully vested at age 55, but a 30 year old? The sad truth is that even before the advent of "cash balance" pensions, the standard "defined benefit" pension plan wasn't the "pot of gold at the end of the rainbow" that most people thought it was. A 25 year old could probably duplicate his expected company pension benefit by saving and investing as little as 2% of his salary. See, "Should I stick around for 40 years to collect a pension?"

The Retire Early take on handling day-to-day workplace issues.

Should I adopt the "yuppie" work ethic? Since I almost never arrived at work early, nor stayed in the office late, I was always amused at colleagues who bragged about how many hours of overtime they worked -- especially since they weren't paid for it. Maybe this behavior makes sense if you're on the partnership track at Goldman Sachs, but for the average "wage slave" working for free is rarely financially rewarding.

Most of these folks working nights and weekends were also a dull and clueless bunch. Some put in extraordinary hours because they had nothing better to do with their time. Others hid out in the office to avoid spending hours with their wives and family. Only rarely did this frenzy of activity result in anything productive.

What's the return on "uncompensated overtime?" One of the biggest "crocks" in the corporate world is being an "exempt employee." That means that, for the most part, you don't get paid overtime. If you are not paid wages and salary for overtime work, the near term return on your investment of time is zero. Working overtime may be financially productive if you get stock options or a big year end bonus. But, if the difference between a 40-hour and 60-hour work week is the difference between at 3% raise and a 6% raise at year end, the overtime is obviously not doing much for you. Ask yourself, "Would my boss sign a contract to do 50% more work for a 3% increase in revenue?" I thought not. You probably shouldn't either.

Organizations have different cultures. If "nights and weekends" are the norm and the company highly values "face time" (meaning that the boss expects to see your face in the office at a lot of odd hours) make sure that the 40-hour salary quoted compensates you for all the "fluff.".

Managing "face time." Despite your best efforts, you are likely to encounter a boss at some time in your career that demands "face." These are the guys that just love calling Saturday morning meetings to handle tasks that easily could have been completed in 5 minutes on Thursday. (Discerning readers will now begin to recognize that "face time" and "uncompensated overtime" are often intertwined.) Even highly valued employees in secure positions have to put up with some of this nonsense. I used to settle my "face time/uncompensated overtime" account by applying the "Three for One Rule" -- for each hour of "uncompensated overtime" imposed on me, I spent three hours during the work week "goofing off."

Here are some of my favorite "Three for One" activities. Playing tennis and golf didn't make the list. Regrettably, you need to have your head down and look busy when the boss passes the door to your office.

  • Read magazines or newspapers at work. (Hint: Magazines work better since they are small enough to put inside a three-ring binder.)
  • balance your check book
  • play computer games. (Hint: Make sure the game has a "boss" switch that quickly changes the screen graphic to a spreadsheet.)
  • learn about financial planning, manage your personal investment portfolio. (Editor's Note: this is the highest value item on the list.)
  • write a screenplay.
  • just about anything you can do at your desk that looks like work to your boss qualifies as a potential "Three for One" activity.

I learned most of what I know about the stock market and financial planning from studying these topics during my spare time at the office. So much so, that one supervisor actually criticized me during an annual performance review for spending too much time "working my stocks." Turns out that "working my stocks" was exactly the right thing to do. The time I spent at work learning about financial markets were undoubtably the most highly compensated hours of my career. I retired early while my former supervisor is still at the office worrying about the next round of "downsizing."

Other Career Planning Resources.

Corporate Career Advice...Cautionary insights for those lost in the bowels of some large bureaucracy.

John Andersen's Essays - thought provoking ideas on work, school, and retirement.

Frequently Asked Questions (FAQs) on Retire Early's Career Advice.

Question 1:

Q: If you hated working in a corporation so much, why didn't you start your own business?

A: Starting a business isn't for everyone. Most successful business owners I know work 60 to 80 hours per week. I haven't found any activity I'd be willing to devote that much time to. Also, customers and clients can be even more demanding than bosses. There's an old Irish saying, "The Devil you know is better than the one you don't."

Question 2:

Q: I have a problem with your "Three for One" rule. Isn't it unethical to conduct your personal business on company time?

A: No more than it's unethical for the company to let its "business" encroach on your personal time. I hate to get biblical with you, but our Lord said "Render therefore unto Caesar the things which are Caesar's, and unto God the things which be God's. (Luke 20:25, Mark 12:17, Matthew 22:21, King James Version -- I guess more than one apostle heard Jesus recite this timely phrase.) If your employer is paying for 40 hours, its not "unethical" to "work" your 40 hours and no more.

Question 3:

Q: How did you graduate from engineering school in only three years? Are you some kind of "genius" or something?

A: My SAT scores were just about at the median for the freshman class at the school I attended. So half the students there were "smarter", at least by that measure. Yet, I'm aware of only 1 or 2 other students out of a class of 600 that graduated in three years or less. Being able to graduate early depends more on focus and the ability to manage your time, rather than possessing a great intellect.

Question 4:

Q: It can't be this easy, did you win the lottery or cash in on an IPO?

A: It's not easy, but no, I didn't win the lottery, receive a big inheritance, or cash in on an IPO. (Heck, I didn't even get stock options when I was working.) It was simply a matter of living below my means, being a long term buy and hold (LTB&H) investor in computer and pharmaceutical stocks, and minimizing the fees and commissions I pay on my portfolio.

While I bought Dell and Pfizer in the early 1990's (some would say that's the equivalent of winning the lottery) those two stocks didn't really take off until after I retired in 1994. Prior to my retirement, my investment returns only exceeded the S&P500 by about 1%. I can't say that it was "beating the market" that allowed me to retire early. Minimizing my living expenses and saving played a much larger role.

I'm also convinced that not owning a home (I prefer to rent an apartment) was a big help, but that depends on where you live. There are at least a few parts of the country where owning a home can be a good investment. However, on a nationwide basis, the stock market has offered much higher investment returns. (Over the past 30 years, S&P500 13.67% annually vs. 5.71% annually for residential real estate. Source: Chase Investment Performance Digest, as quoted from How to Retire Rich, by James P. O'Shaughnessy, page 23.)

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Copyright 2000 John P. Greaney, All rights reserved.

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