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Engineers are a hard-working class of people; they take calculated risks that guarantee a good return. Retiring is something all engineers have to go through. Most engineers would rather retire between the age of 45 – 52, which is what this guide can give you, that chance to retire early and live a happy retired life.
The best way to build wealth is to invest in high-value, high-return investments. Engineers can achieve this by following long-term strategies, such as government retirement and passive investing, active investing, and entrepreneurial acquisitions.
Why engineers?
This guide was written specifically for engineers because:
- Engineers can analyse opportunities and make well-calculated and safe choices
- Engineers have a good understanding of business and finance
- Engineers can eliminate risks with due diligence and planning
- Engineers are paid well, which means they can save a huge chunk of that to build wealth
- Engineers are good at math; they can easily scan through numbers and pick the most profitable investment option
- Engineers can learn new skills quickly and master it
- Engineers can become good businessmen, stock market investors and real estate investors.
Retirement means different things to different people. Some people want to retire early, and some want to retire late. Read the 6 Reasons Why Engineers Plan For Early Retirement – Mind-blowing Reasons That Only a Few Engineers Know. Anyway, to retire, the engineer must answer the following questions:
- What is the retirement number based on your lifestyle and the city you live in
- When do you want to retire
- What investment route do you want to take to achieve that goal
- How much should you be paid today to achieve that goal
The following goes through all of those points in detail:
1- What Is Your Retirement Number?
To retire, you need to know how much money you need to live comfortably. Some people can be okay with $80,000 in annual income to retire, and some need $120,000 to retire comfortably. The number you want determines how much cash flow you want to generate from your investment each year to retire comfortably. So do the math based on your current lifestyle and savings and investments.
2- When Should Engineers Retire?
This is an interesting question to ask. In a study we did where we asked 50 retired engineers and 20 unretired engineers, we found that the age retirement preference for most engineers is 58 years old.
This usually gives time for most engineers to build wealth and be ready for their life after retirement. For you, retirement age might be different; however, investing in the stock market or the housing market usually yields a higher return the longer you let your money compound.
This is the link to the full survey: When Do Engineers Retire? We Asked 50 Retired Engineers
3- How Do Engineers Build Wealth?
In general, there are 4 ways to build wealth:
Building Wealth: The Government’s Way
The government’s way of building wealth is investing in a retirement fund that is not accessible until you reach a certain age, such as your 50s or 60s. In the US, these are your classic 401K and Roth IRA. The rules for retirement accounts are different in every country.
Retirement funds are a decent way of building wealth but do not guarantee a high return because huge fees are associated with these accounts that take away most of your capital gains. Generally, they require the least amount of work compared to the other ways of generating wealth.
This route is what most people choose. Even if you are planning to pursue another way of building wealth, you should stay invested in this type of wealth generation because it is generally a safe way of building wealth.
In many countries, you do not even have the option of not investing in those retirement accounts, so if you work as an engineer, your employer must reserve some of your income in that retirement account.
Finally,
| Building Wealth: The Government’s Way | Pros & Cons |
|---|---|
| Type of wealth building | Passive |
| Invested Captial | Moderate invested capital required |
| Time Invested | Generally, no time commitment is required |
| Risk | Low risk |
| Return on invested capital (ROIC) | The least ROIC in this list |
Building Wealth: The Autopilot Way
In general, one way to passively build wealth outside the government is by investing in exchange-traded funds or ETFs, which invest in a basket of stocks that track a certain market. By investing in ETFs, you immediately diversify your portfolio in the stock market.
The good thing about investing in ETFs is that they charge lower fees than retirement funds, and you can access that investment anytime. However, they tend to perform very well when left to compound for the long term, say 20 or 30 years.
If that is something you want to do and learn about, you should check our Guide To Invest In ETFs – Stock Market Passive Investing.
| Building Wealth: The Autopilot Way | Pros & Cons |
|---|---|
| Type of wealth building | Passive |
| Invested Captial | Moderate invested capital required |
| Time Invested | Low time commitment |
| Risk | The least risky option in this list |
| Return on invested capital (ROIC) | Moderate to high ROIC |
Building Wealth: The Active Way
Actively building wealth requires investing in individual stocks by building a stock investment portfolio or investing in real estate by building a property portfolio.
Investing in the stock market can give you dividend income and capital gain income from selling those stocks. Property investment can provide you with monthly cash flow from rental income and capital gain when you sell that property.
Yet the most return on invested capital comes from buying low and selling high, so even though they sound like different types of investments, the investment mindset required is the same. These are highly risky investments and need a huge amount of capital to start those investments.
Here at the Young Hero Engineer, we teach value investing strategy, where you analyse companies’ fundamentals before buying stocks. See our Guide To Value Investing Strategy – Warren Buffett Style
| Building Wealth: The Active Way | Pros & Cons |
|---|---|
| Type of wealth building | Active |
| Invested Captial | High invested capital required |
| Time Invested | High time commitment |
| Risk | The second most risky option in this list |
| Return on invested capital (ROIC) | High ROIC |
Building Wealth: The Entrepreneurial Way
This is the riskiest option, which means opening a business and taking a huge risk, but also, this is the option that can give you the highest return on your invested capital. This means working on a business idea and quitting your full-time job. Success in doing a business means you can eventually retire by selling the business, putting in some competent people to run it for you or even better, you can IPO your business and become extremely rich.
There are so many challenges in going the entrepreneurial way you can learn about here: Self-employed Vs Employed: The Ugly Truth About Going Solo.
| Building Wealth: The Entrepreneurial Way | Pros & Cons |
|---|---|
| Type of wealth building | Active |
| Invested Captial | Highest capital investment in this list |
| Time Invested | The highest time commitment on this list |
| Risk | The riskiest option on this list |
| Return on invested capital (ROIC) | Highest ROIC on this list |
4- How Engineers Can Increase Their Income In 12 Months?
In order to start building wealth, you need to increase your income. You can be the most careful person when it comes to spending money and can save a considerable amount of money every month, but if you are not getting paid more, it will be difficult to progress.
In general, there are 5 ways to increase your income:
- Renegotiate your engineering salary and get paid more
- Invest in high-dividend stocks that can bring you passive income
- Invest in a cash-positive investment property that can bring you sustainable cashflow
- Start an online side hustle that can bring you a second income
- Become a freelancer and earn money on the side
The above are ways to increase your income which you can use to build your wealth. These methods are very realistic and can be achieved based on the feedback we got from the people who applied those methods.
We have written a step-by-step guide to growing your income in the next 12 months. Read 5 Effective Ways For Engineers To Make More Money.
