On peak-earning age...

I've known this for quite some time in my gut, and am almost surprised to see the topic is finally mentioned in print, which is the age of peak-earning being in 40s, and then there's mostly nowhere to go but down. I'm somewhat disappointed at the lack of follow-up analysis on this article, given that studies have validated the fact that for most folks, their peak earning years arrive in mid 40s, and then it pretty much plateaued before the decline starts due to inflation and a stagnant salary level.

My own journey is probably a typical one. My salary rises rapidly when I started out with my career. Thanks to the boom times in economy, I was able to effectively double my salary with a few job change in the first couple of years. That was not hard since the starting salary was relatively low, and my sector was in demand. And then, I was able to get rather substantial pay raise every time I changed employers, mid career. Times were good, with six-figure salary, when I reached my mid 30s. We did a lot of traveling, though we remain mostly frugal, never falling for trappings like new cars or fancy homes. We saved religiously. Things were looking up and quite rosy.

Somewhere along the line, things change. Yes, recession has hit but it actually didn't do much to us personally. (*touch wood*) Maybe my focus has changed somewhat. Our first kid came, and I didn't push that hard on the career front. I had even declined two promotions along the way because I didn't (and still don't) feel like managing people. And my salary has almost stopped rising.

I sometimes ask myself the question, of whether the stagnant salary rise has anything to do with my disinclination to move up the management ladder. But is the reason really just that simple?

For every position, in every company, there's a pay scale. It's universally true. Some years ago, I read it somewhere (it might have been Fortune, but I can't recall now) that one has to continuously move forward. In short, treading water and staying put will not do. There's even a benchmark for it, which is that, if you have been in the same company, in the same position for seven years, and you didn't get a promotion, you don't have a future in that company, and it's about time to get out. At that point, I looked around me at a few managers and directors, and realized there's truth in that. Obviously that seven-year rule might be shorter in more dynamic sector, but you get my point.

Perhaps my problem has always been that, I'm not that much into title. When I was younger, my notion of promotion is more a title change, which I didn't have much care in it. I still don't. But these days, I realize that if there's no promotion, there won't be any salary raise, particularly when you have reached the salary cap of your current position, which in that sense, says something about that seven-year rule.

So then, I have a family, I have kids now, but my salary is not going up at all. Yes, it's sad to even admit it, but the company wouldn't even bother explaining to employees why no pay raise is forthcoming, which once upon a time, they had feigned some non-response like "it's the economy" or some such. In recent years, they have stopped pretending to care. Is there any surprise? They might even be looking forward for employees to actually leave so that they can hire someone cheaper (albeit much less experienced) or maybe even outsource or offshore the jobs altogether. It's all the better if you leave on your own accord since there's no need for severance package. Companies are playing the long game. Who has more staying power? The company, or the employees?

Now, you might say, go look for another job, dude. And maybe I should (and would).

But I'm more interested in creating opportunities for myself. What could be better if I have my own startup, have my own business, and be my own boss? That's exactly I've been doing for the past few years, but of course if you know the success rate of startups in general, you should not hold your hope up too high. For me, I mostly see this as a skill acquiring opportunity, rather than a desperate attempt to generate extra revenue.

In the meantime, what am I to do with the stagnant household income? For one, I do not value job changes as highly as I once was. With a family, mortgage, and kids in tow, stability with sure coverage of healthcare can be a very powerful option for one to stay put.  There's some comfort in that six-figure salary.  Sad, but true.

In a way, I don't really blame the employers too deeply for this predicament. Heck, if I were employer, I might even be doing the same thing myself. It makes sense to the company, though it can hurt employees, but what would employers care anyways? I don't expect unions to come to the rescue, actually in my sector, no one wants union. The sector is too dynamic to be constrained by work rules and collective bargaining. Everyone is their own man, as the saying goes, particularly in the high tech sector.

When I look on the web on current salary level, and the sector (even if it's booming again is abysmal). Would I really be doing any better changing jobs, I'm starting to wonder.

And then I realize something.

I'm focusing on the wrong thing. At this point in life, I'm interested in steady revenue over the long term, even after I retire. If that's my goal, I shouldn't be looking at just my job for that anyways; in any case, that point is moot upon retirement. And then what?

If I do not leverage, if I only rely on the savings (however much I put away from salary), hoping the stock market portfolio might give me sufficient yield to at least cover inflation, I would never retire comfortably. All the while, I'll have to pray too that my stock market investments would not get wiped out, like it did to so many others in 1987, then 2000, and then again in 2008/09. One could argue that such market downturns are a once-in-a-century black-swan event, but in my lifetime, when I have seen this three times over, they don't look so black-swan to me. Those downturns are what I have come to expect. Sad again, but true.

Oh, don't give me those craps from those financial advisors about target-date funds, yearly draw-down, and such, all of which are just simulation anyways. With my family history of long life, can I really expect my funds to afford me a comfortable life well into my 90s and beyond? I kind of doubt that. Conventional wisdom is always telling us to expect a reduced income level upon retirement; I'm sorry, but that's not enough for me, because I actually want to earn more, not less.

And I realize too that I can leverage on my good credit and savings. Yes, property investments are a long game, but good properties with reliable yields can be hard to come by. I am never one that chases the markets, so I never touch properties during those boom years between 2001 to 2007. We bought our homestead before boom time, and we're satisfied with that. I was happy enough to do short term trading because I want to stay liquid. Yes, I want to keep cash. I don't limit myself to day-trading but I can't afford to buy one stock and stay with it for two decades, hoping it might be a GOOG or AAPL in the making. I generally stay with tech stocks and this is particularly true. What's in now might very well be gone in five years. What's the point of holding them long term? The only thing that has staying power, if one has to insist on buying long term, is low-cost index funds that are not stock specific. That's one reason I don't view stock market as my savior to my revenue generating goal, even though it's a good way to generate short term returns far superior than money market accounts or bonds.

As it happens, the Lehman crash in 2008 and the Great Recession (six years and running thereafter) is godsend to me. I have the cash, I have the good credit. Properties tanked in 2009/10, and I was able to scoop up a number of properties in excellent locations that I could never dream of buying during boom times. Rentals and neighborhoods have held up in those good locations, even in the worst of times. With interest rate so low, the Fed is effectively sponsoring my purchases. What's not to love?

Surely, annual yield of 10% might not sound that much in a bull market in stocks, but if you can lock in that kind of yield in properties, with the upside of capital gain from rising property prices, it's one of the best investments, both for regular portfolio and for retirement (which is far better than annuity). If that kind of yield is locked in, over the long term, things would pretty much just go up instead of down, it beats stock market any day.

Obviously no one can profess the ability to time the markets, and if anyone tells you they can, they're lying through their teeth. Timing really can make all the difference. No doubt those who bought at the top of the market right before 2008, in subprime locations, will attest to that, and they will probably be stuck for a very very long time.

Maybe luck is on my side. As a small-time retail property investors, there's obviously a natural limit on how many properties I can take on, even with my savings and good credits. Thank goodness I got a few during the down market in the past six years, and everything is going way up now, both in rental yield and capital value. I could easily have replaced all my salary income with my rental income, going forward. I can't ask for more.

But as Warren Buffet once so famously says, when everyone's heading to the exit, that's where the opportunities are, but when everyone's rushing in, it's time to get out.

Almost seven years now, I'm cashing out some of the properties in my portfolio, re-balancing it to keep only the best ones and cashing out the relative weaker ones (which still command very good prices in an up market). Afterall, if I don't cash out, all those unrealized gains are just that, paper profits, nothing more. Plus, I want to cut my leverage now, particularly since the Fed is about the raise the rate again (finally). After going on binge buying in the recession, it's time to stay lean again when everyone is rushing back in. Yes, it's a game of musical chairs.

All that being said, a steady six-figure job can come in handy for all those mortgage applications, in building a portfolio with the help of leverage. But as those portfolios of mine stabilize, I'm itching to finally consider a job change, the work of which has become so mindlessly boring to me that I can do it with one eye closed.

The lesson I've learnt from all these is, I'm no longer under the illusion that my salary will continue to rise forever (perhaps rightly so). By branching out in investments, I've come to realize that it presents a much better chance for me for a steady income stream in the future, well past my working years and well above my current salary would ever give me.

My colleagues might wonder why I don't complain too loudly about the stagnant salary growth, and I never bother to elaborate to them what I do for my personal investments. Perhaps if they have known, they would understand.

I can only hope to say to others out there (as I have preached to my kids too) that there's no point expecting the world from your job, particularly when you're way past your peak earning years (in mid 40s), that your employer will continue do good to you, raising your salary religiously every year as if it's a matter of course, because - surprise, surprise - it just won't happen...unless of course if you're moving up the ranks all the way to the corner office and can be master of your own destiny. But that's a story for another day.

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PS -- I know, my story and experience ignore quite a large swath of population who might never even see anything close to "peak earnings" that they wish to ever see in their lifetime. It's indeed sad to sometimes read that $50k or $60k is now considered a comfortable middle-class salary when that salary level is lower than what I earned when I started out two decades ago. Is there any surprise why the younger generations suffer? But have we come to a point where there are simply too many people chasing too few good jobs?

PPS -- If there's any takeaway, it is that young people need to be a lot more aggressive in their career building because, guess what, once you're pass mid 30s, you'll mostly settle into a pattern, and your "peak earning" salary level will taper off at a much lower level than you would otherwise wish it to be. If you're unable to get the rapid rise before you reach mid 30s, you're somewhat doomed. Yes, sad, but mostly true.

PPPS -- Managing properties is not hassle free, and it's not for everyone. Some people hate that. More people delegate it to realtors which I don't do because no realtors or management agent will really care about the properties except tenants complain or roof collapse or something. No one will give a damn about the well-being of the properties better than the owner.