Big Tech & Early Retirement: The FAANG and FIRE Connection

Design by Freepik

If you are an employee in one of the big tech ‘FAANG’ companies - Facebook, Amazon, Apple, Netflix, and Google - or any other tech company with good salaries and stock compensation, you may have been familiar with the acronym FIRE Financial Independence, Retire Early). 

These companies have seen incredible stock growth in the past decade and are highly desired places to work due to their high salaries, prestige and impact and ability to do work that benefits billions of users worldwide. 

Because of their high salaries, they provide an opportunity to save aggressively and achieve financial independence earlier. However, there are also challenges that FAANG employees face that stand in the way of financial independence, including high housing costs and taxes. Achieving FIRE, therefore requires careful and intentional planning. 

What is FIRE?

The Financial Independence Retire Early (FIRE) movement encourages aggressive saving through frugal living and wise investing in order to achieve financial independence and be able to retire in one’s 40s, 50s or even in one’s 30s - rather than waiting until 65 to retire. 

Why is FIRE relevant for FAANG workers

Optionality

FAANG workers have the ability to achieve FIRE early due to their high incomes and general financial literacy. While not everyone may wish to retire in the 30s or 40s, achieving financial independence provides more optionality. For some people, this optionality may enable them to do things they consider more interesting but risky, such as working for or founding a startup. 

Economic instability

Recently, people in tech careers have seen a lot of instability due to frequent layoffs and changes to company strategies. In this climate, it is wise to be financially well prepared to weather any storms.

Career Stress

Tech careers can also be stressful, with long hours and tough performance reviews. By achieving financial independence, you can choose to work in a less stressful job. You may even be able to opt for CoastFIRE or Barista FIRE, in which a person can work part time or in a less demanding job due to achieving financial independence. 

Advantages that tech workers have

High Salaries

FAANG workers take home relatively high salaries compared to people in many other professions. For example a senior software engineer at Google can earn $390K on average and a Meta Product Manager can earn $232K - $500K+. These high incomes can facilitate higher savings rates, which, when coupled with some disciplined investing, can provide the ability to retire early with a nice nest egg.    

Stock options

FAANG companies offer stock options or RSUs as a significant proportion of compensation. Given the high growth rates that FAANG companies have seen in the last 2 decades, their stocks have appreciated significantly and created a lot of wealth for employees. 

For example, Meta appreciated by over 700% and Google by 150% over the past 10 year period. So if you had been employed in one of these companies in this time period, you may have seen significant stock upside. 

Of course, stock based compensation comes with risks and the danger of market volatility. In some cases, depending on the time of you starting work at a FAANG or another tech company, you may have encountered low or no growth or even a decline in stock value.     

Financial Literacy

FAANG employees tend to have high education levels and good financial literacy. Even without a financial background, many are able to educate themselves in the basics of personal finance. This can prove advantageous in analyzing one’s own financial situation and planning for future goals. Moreover, some (though not all) FAANG employees are also investment enthusiasts and often teach themselves how to analyze stocks and alternative investments.

Diversification opportunity

FAANG employees may be able to use their savings and assets to invest in stocks, bonds, real estate or other alternative investments and diversify their portfolio.

Challenges encountered by FAANG employees in achieving FIRE

High fixed costs

FAANG employees tend to cluster in high cost of living locations (HCOL) such as the San Francisco Bay Area, New York or Seattle. This means that fixed costs can be pretty high, especially housing. Moreover, state taxes are quite high in California and New York. Therefore, despite the high income, there is certainly a risk of living paycheck to paycheck and falling into the ‘high income but low net worth’ trap. 

Lifestyle creep

In addition to the high costs, there is also the danger of lifestyle creep within the FAANG community. With successive raises and promotions, it can be tempting to expand one’s lifestyle and ‘keep up with the Jones’. This might lead to buying bigger homes or remodeling existing ones, sending kids to private schools, taking many vacations and so on.

Concentration in company stock

Many FAANG workers may retain a significant portion of their assets in company RSUs or stocks and this can result in lack of diversification. You may end up in a situation where your job and investments are both significantly dependent on just one company. 

5-Step process How to plan for FIRE if you are a FAANG employee

1. Plan your goals

Start by planning the most important goals for you. In addition to early retirement, what major goals do you want to plan for? Buying a home, investing in real estate, saving for kids college or remodeling your home. Once you’ve identified these goals, what trade offs would you be willing to make, since it is usually hard to get everything you want. 

• Would you be willing to defer your retirement age to prioritize funding 100% of your kids’ college. 
• Or would you buy a less expensive home so that you can retire early?

2. Identify the type of lifestyle you want

In addition to future goals, what current lifestyle do you want for yourself and your family? Would you like to put your kids through private school? In that case there may be less money available for a higher mortgage for saving for early retirement. You may not want to be super frugal, but it is important to make conscious spending decisions after evaluating the opportunity costs.

3. Crunch the Numbers

Planwell can help you make tradeoffs between your goals and desired lifestyle and figure out your earliest retirement age. You can also model various scenarios, such as a higher inflation rate or mortgage rate.  

Here is an example:

John Planner is 35, and earns $400K as a software engineer. He is trying to achieve financial independence early. But he also wants to buy a $1M home next year and pay for at least 50% of kids' college in a private Ivy League school.

It turns out that John’s expected age of retirement is 75, not what he was hoping for at all!

( Assumptions : 2.5% inflation, 2% wage growth, 5% rate of retirement before and 4% return after retirement). 

So what might be a path to early retirement?

John can try different scenarios to find one that helps him achieve his goals. 

• Path 1: If he could increase his income by 16% to 350K, he could have a very comfortable retirement at age 62. 
• Path 2: If he could reduce his home value to $800K, increase his income by 16% to $350K, cut expenses to $10K per month and invest a bit more aggressively  (7% before and 5% after, he could retire at age 54. Now of course, he can decide if these tradeoffs are worth retiring earlier at age 54. 

4. Invest with Discipline

Consider a disciplined, long term buy-and-hold investing approach such as a Boglehead Investing approach involving low fees and asset allocation that matches one’s age and risk appetite. 

Real estate: This option is not for everyone, but might be worth considering for those interested in generating passive income and asset diversification and willing to deal with the operational aspects of owning real estate. Many tech workers use their savings or a portion of their stocks to invest in real estate. 

5. Stock Options & RSU management

Tech employees are paid a significant proportion of their salaries in stocks. Therefore, they need to have a well thought out strategy to manage their stocks.

Some key considerations for RSUs

Tax implications of stock vesting: When you vest your RSUs, you will owe taxes on the vested amount. In general, companies will sell a portion of the vesting RUSs to pay the taxes. If you don’t choose this option, you will need to have enough cash to cover taxes on the vested RSUs.

Decide whether you want to sell immediately after vesting or hold for the long term

• Sell immediately: In general it is wise to not place a lot of dependence on one stock and to diversify. Therefore, many people sell their RSUs upon vesting and put the money in a diversified stock portfolio such as index funds. This reduces volatility from the performance of company stocks, which can be even riskier since if the company does not do well, it could impact both your employment and investments.
• Hold for the long term: If you have a lot of faith in the company’s long term prospects and stock appreciation, you may choose to hold the stock for the long term. However, you still need to ensure there is enough diversification through your other investments and assets. 

What type of FIRE do you Want?

Financial independence comes in many flavors, and there’s no one size fits all. Think about what type of lifestyle you want both in the present and in retirement and plan accordingly. 

• Standard FIRE: The standard FIRE approach emphasizes early retirement with a frugal lifestyle but leaves room for spending money on things you really care about, such as hobbies, kids or travel. The goal is to be very mindful and intentional about how you spend your money..
• Lean FIRE: is the ultimate minimalist financial independence approach. It emphasizes very high frugality, a minimalist lifestyle and prioritizes financial independence over any kind of spending.  The primary goal is retiring early above all else.
• Barista FIRE: ‘Barista’ refers to working a part-time job in retirement to retire earlier with a lower net worth than a standard FIRE. The term ‘Barista’ is used to denote a part-time job away from the career rat race - such as a barista in a coffee shop. Barista FIRE requires you to accumulate a lower net worth to be able to retire, since you would have a part time job in retirement and perhaps even health insurance.
• Coast FIRE: The Coast FIRE approach focuses on saving aggressively to achieve a high net worth earlier in your career, and then working on a less stressful job or outside the career rat race until the standard retirement age of 65. You would still retire at the standard age, say 65. This way, you can work on a job you are passionate about, but that is a lesser paying job after you’ve accumulated your net worth.
• Fat FIRE: “The Fat FIRE approach involves working very hard early in your career to save up a fat nest egg, retire early and enjoy a very affluent lifestyle in retirement.“

Conclusion

FAANG employees have many advantages in achieving Financial independence but need to plan their goals, guard against lifestyle creep and invest wisely. A key priority for tech workers is managing their RSUs while ensuring asset diversification. 

Planwell can help you plan for financial independence with our fully automated financial planning tool. Find out the earliest age at which you can retire and get your personalized financial plan. Make tradeoffs between early retirement and other goals such as home buying or kids’ college. 

• What is Coast FIRE? Find out how to Coast Your Way to Financial Independence.
• What is barista FIRE? Retire early and work part-time.
• Lean FIRE: The frugal way to achieve financial independence and retire early. 
• How to retire early and achieve financial independence: Tips to retire early and achieve FIRE (Financial Independence, Retire Early)
• How to build a personal financial plan: Before you make a home purchase, make sure to build your personalized financial plan with our 10 step guide. 
• How to Use AI Budget Calculators and Tools to Plan Your Finances: Take advantage of our free FIRE calculator  to plan your finances more effectively.
• 5 Common Money Mistakes to Avoid: Learn about the pitfalls that could derail your early retirement plans.