Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
This interview took place in September.
My questions are in bold italics and his responses follow in black.
Let’s get started…
OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
Hi, my wife and I are both 57 yrs. old. We have been happily married for 32 yrs.
We both started working right out of college at the same company, we met there. I moved to another company 2 years later and she stayed at the same company her whole career, but it was bought out twice during her career.
I want to say up front, we have been pretty good savers for most of our careers, but that changed somewhat after our kids got of out college.
My wife had Hodgkin’s Lymphoma back in the mid-90’s. She had the Chemo and radiation and has fully recovered, but this changed her view on how long she will live. She feels there is no way she will reach too old of an age having gone through the Chemo. No way to debate that, just hope she is wrong.
I am telling you this, because once the kids made it out of college we started spending more than saving more. We still saved the same, but any extra money we made, my salary also jumped up during this time, was spent on traveling more, nicer vacations and dining out more. Trying to find that balance between living now and still saving for the future.
Do you have kids/family (if so, how old are they)?
We have 2 kids.
Our son is 29 yrs. old and our daughter is 26.
They are both out of the house and nicely employed, so they don’t need financial help from us, mostly.
What area of the country do you live in (and urban or rural)?
We live in a suburb of a large North Eastern U.S. city. We have lived in the area since we were married.
What is your current net worth?
Our net worth is roughly $2.4 million.
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
- 900K in IRA(~80%) and Roth IRA (~20%) – wife’s 401K rolled over into an Vanguard IRA when she retired last year. These funds are mostly in retirement date funds. We picked the 2030 date fund, even though I hope to retire in 2025. I did this because I wanted a high percentage in Stocks and 2030 is my Full Social security date and maybe I will have to work that long, we will see.
- 900K in 401K (98%) and Roth 401K (2%) – from my current job, managed by Fidelity. My company just started offering a Roth 401K, so I switched over to having all my 401K payroll deductions going into the Roth. Fidelity has a date fund, but I thought its fees were a little high and created my own date fund by putting 50% in a U.S. stock index fund, 25% in an International stock fund and 25% in bonds. Feed is .2% and the Fidelity date fund was 0.26%. not much, but still lower and I am thinking of doing the same with my wife’s IRA money as well.
- $80K in Vanguard balance fund
- $75K in stocks
- $35K cash
- $410K in house equity (what we should clear when we sell)
Not part of Net Worth, but part of our retirement:
- $1,000 /month pension (mine)
- $500 / month pension (my wife’s)
EARN
What is your job?
Senior Director of a mid-size IT Services company focused on security.
I run the Engineering development side for one of our products.
What is your annual income?
~$250K (this includes bonus’s)
Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?
Good question, haven’t thought about this in a while.
I started at $26K for a Healthcare IT company when I came out of college at 22. I remember I had 2 offers, so the company I went with offered me $2K more and went for the money. Kids out of college today in the IT field make around 3 times that now depending on location.
My salary grew just through normal raises each year, always working to make myself seem indispensable to my boss.
I made my one company move 2 yrs. later and got a bump up to $33K salary from my new company. I have been at that company now for 32 yrs.
It was probably about 10 yrs. or so later my salary moved into low 6 figures when I moved into lower level management. I have been in the same area of the company, just various different jobs as I move up in management and responsibility. Can’t say I did anything special other than focusing on the saying “my job is to make my boss successful”. I still have that view today and it has done well for me as the various boss’s I have had over my career have taken care of me.
It wasn’t until around my late 40’s / early 50’s my salary really took off with salary increases and bonus opportunities. When I started out I never envisioned I would ever make this much money, just being honest.
What tips do you have for others who want to grow their career-related income?
Understand what your boss and company value. They will reward you based on THEIR perceived value you bring to the company, not yours.
If this frustrates you, look for another company to work for (previous statement stays the same) or try starting your own company.
What’s your work-life balance look like?
It has fluctuated over my career.
Long hours initially, more evenly split when the kids arrived, went back to longer hours when we became empty nesters and now back to more evenly split once my wife retired last year.
In mid-career I wanted to make sure I was home for dinner every night with the family. I was able to make that happen and coached them in every sport they we interested in trying. My dad was around when I was growing up and it was great, so I wanted to make sure my kids had the same.
Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?
No other sources.
For most of my career we had dual incomes with both my wife and I working. I met her at the start of my career at the Healthcare IT company.
At the very start of my career I did own a rental with a couple friends, but that did not last long, bad renter, so I got out of that and never went back to owning real state for renting.
SAVE
What is your annual spending?
Great question and I know this is going to kill some of the readers, but I don’t know.
As we get closer to retirement, we are just starting to track our spending.
How could this be you say……………it really is about having all your savings (401K, kids college, personal savings) and bills (mortgage, etc.) automatically pulled out of your monthly pay check. So we did pay ourselves first and then pretty much just spent what was left. I am not saying this is the best way, but I have always been able to do our spending math in my head and knew what we could afford and what we could not.
Now that we are tracking our spend, it is coming out to around $9K a month.
Our house is by far our largest buy followed by new cars, every 10 yrs. or so. While the house was our largest expense ($225K) it was below what the mortgage companies “said” we could afford.
What are the main categories (expenses) this spending breaks into?
Essential or Necessary spend (property tax, medical, home maintenance, utilities, etc.): ~$5K
Discretionary spend ( travel, charity, entertainment, shopping, etc.): ~$4K/month
Do you have a budget? If so, how do you implement it?
As I said, no real budget, we paid ourselves first and then the necessary bills and then saw what was left and figured out how to spend that.
What percentage of your gross income do you save and how has that changed over time?
Today it is ~25%, but probably closer to 15 – 20% when the kids were young.
What’s your best tip for saving (accumulating) money?
Pay yourself first, especially 401K’s and any separate savings you want.
For the 401K’s, put it mostly in equity index funds and then “kind of” forget about them and they will grow nicely over time.
Work up your retirement % over time as your salary increase until you hit the maximum, but also remember to live today, the future is not a given.
What’s your best tip for spending less money?
Have a priority list of what you want to save for and fund them first. What you have left is what you can spend and remember to not spend more than what you can afford.
We always plan to pay off credit card bills each month, which helped us keep our spend within what we make. The only loans we ever took was for the house and occasionally for a new car.
I would also say, re-evaluate your essential spends periodically to make sure you really need them. When we started out everyone had a house phone. Now, I feel very few have a house phone and we cut that expense years ago when we all had cell phones and only my parents ever called us on the house phone.
What is your favorite thing to spend money on/your secret splurge?
Early on our spend was focused on our kids, but now our key spend is around travel and making memorable memory’s by seeing the world.
Also, when we go to events and there is a VIP option to get in early or to beat the crowds, we will consider it and probably pay the extra. We don’t go to events a lot, so when we do, I want the experience to be the best possible.
INVEST
What is your investment philosophy/plan?
Save and forget mostly.
My parents stressed putting money away in a 401K right away with my first job. I started at 6% to cover the company match and then increased it over time to eventually maxing it out for both my wife’s and my salaries.
We have our investments mostly in stocks and I pretty much always let it ride. I was a firm believer in by not messing with it, my monthly deductions would buy more shares when the market was down and less it went up.
Our 401K’s, my wife’s and mine, just naturally grew over time until we have about $1M in each of them.
What has been your best investment?
Finding a person who viewed life similar to me to share my life with.
I know that sounds corny, but divorce definitely limits the amount of money you will have available in retirement.
What has been your worst investment?
Not sure, but it might have been the loan I took off my 401K early on to help buy our first house.
Overall it was not that bad and we got the house we wanted, but probably would have gotten better return if I didn’t have to take the loan.
What’s been your overall return?
I would say roughly 8%, but again never tracked it over my work career.
In the past couple of years, since thinking of retiring in 5 yrs. or so, have started tracking our retirement savings more closely.
How often do you monitor/review your portfolio?
I now monitor it monthly and have a financial day once a year.
Interesting point is our son is very much into FIRE and tracks everything he and his wife save and spend, probably similar to most folks reading this interview. By now, you know that was not what my wife and I did, but he did get the saving first plan from us.
He actually holds the financial day with us each year, where we review how our investments did. He probably wants to make sure he doesn’t have to take care of his parents if our money runs out. 🙂
NET WORTH
How did you accumulate your net worth?
No inheritance for either my wife or me. Both our parents did not have a lot of money, but we never felt poor growing up. Really our accumulation of wealth was just putting money into our company’s 401K’s and slowly increasing our contributions over time (1% increase at a time).
It is really amazing how much you can grow your wealth over time. I know it is an overused phrase, but if we could do it, most anyone can.
We set up investing in a Vanguard balance fund early to save for our kids college costs and then just kept putting money into it even after they got out of college. This fund has done very well for us and maybe where we will put out money when we retire. The fund does a 60/40 split for stocks / bonds, which might be ok, but with possible 30 yrs. of retirement we might need to be more aggressive.
What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?
Earning since it leads to more savings, percent of pay, into our 401Ks.
Our Investment strategy to date has pretty much been autopilot with a focus on mostly stocks.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
I cannot say we really had any bumps.
We have been lucky to never experience any layoffs and we didn’t have any large expenditures, other than our house, the could have derailed our plans.
What are you currently doing to maintain/grow your net worth?
Continue to pay ourselves first.
My company just started offering a Roth 401K, wish we had this earlier. This year was the first year for me to save into a Roth 401K, which I have all my 401K payroll deductions going into the Roth.
I also found out I would use my company’s after tax, non-401K, payroll deduction and using a backdoor method move this money into my Roth 401K as well. Nice little option to save even more in my 401K.
My wife had a Roth 401K option previously at her company, so we do already have some money saved in a Roth 401K.
Do you have a target net worth you are trying to attain?
Not really, but $3M sounds like a nice round number, but not sure I need to achieve it before I would retire.
How old were you when you made your first million and have you had any significant behavior shifts since then?
I would say somewhere in my 40’s and at the time I did know when it happened, just don’t remember now.
No change to our behavior, just a cool milestone.
What money mistakes have you made along the way that others can learn from?
I dabbled in individual stocks early in my career and that never worked out. I did not have enough time to spend learning what the key indicators are for a company.
If you don’t give yourself enough time to get competent in an area, don’t spend money in that area.
What advice do you have for ESI Money readers on how to become wealthy?
The turtle does win the race to retirement.
Automatic paycheck to paycheck deductions into your 401K will get you to be a millionaire. We did not use real-estate or any other investment methods to become multi-millionaires.
FUTURE
What are your plans for the future regarding lifestyle?
I am 57 now and hope to retire in 5 yrs (62). That is my goal and according to the Fidelity planning tool I use, that should be doable using their “market will significantly under performs” scenario.
As most are probably familiar, the recommendation seems to be is to plan for the worse and you will be ok.
Interesting to note that the other scenario’s (market under performs or market is average) give me $2M or $5M left over when we die. I guess we will re-evaluate our retirement spend each year or so to see how we are doing.
What are your retirement plans?
This is the part I need to work on. We will travel and I will probably pick up golf again, but I do not have many hobbies and especially ones that don’t cost a lot to do.
We will do hiking, biking and exercise a lot, but I really do need a couple hobbies.
I may do more money management and that is why I am here reading and learning from ESI and the commenters.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
I see 2 main issues.
One will be around when to retire, do I really have enough, and can I walk away from my high paying job. I plan to deal with this by reading and studying as much as I can to educate myself on all the risks.
The second is around how much should we spend on travel early in retirement when we are more active verse later when we are less likely to be all that active. Not sure how to deal with this one yet, so any ideas would be appreciated.
MISCELLANEOUS
How did you learn about finances and at what age did it “click”?
Funny story, but my first recollection of finance as a boy was a wooden ruler that my parents bank gave out that showed (on the back) how much saving a penny a day will grow overtime.
This led to me buying in on investing in 401K’s for my whole career.
Who inspired you to excel in life? Who are your heroes?
My parents. They made my brothers and sister feel safe and have a great childhood.
We all have done well and financially better than our parents, but the values they instilled led the way to all our successes.
Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?
Not really any favorite money books, actually need to read some of the ones recommended at this site.
From a life perspective, “Make Your Bed” by US Navy Admiral William H McRaven is a fantastic book and you should listen to his speech as well.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
We average around 10%. Our focus has been Cancer research and local homelessness.
Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?
Leaving an inheritance is not the plan, but as I noted about the Fidelity planning projections there is a good chance their will be an inheritance at the end.
We have helped our children for their whole lives (paid for college, paid for cars, etc.) and expect to continue helping as needed through retirement, but no specific plans on leaving an inheritance.
I have told my parents multiple times they should spend every penny they have and if in the end they run out, I will help them out. They of course will not do that and I would not do that to my kids, but I would prefer that over them leaving me an inheritance.
The Millennial Money Woman says
Thank you so much for sharing your candid thoughts. I really enjoyed reading your story. One lesson I learned by reading your thoughts was regarding how to grow your income from your 9 to 5 job by understanding what your boss and company value. It’s true that their perception is truly reality – it doesn’t matter what you perceive your value to be. It’s how they view your value add to the company. Thanks for sharing this.
Personally, you make a great point when you share that it’s important to find a life partner who shares similar values to you. Divorce really can limit your income and retirement potential, so marry wisely.
Thanks for sharing your candid remarks!
Cheers,
Fiona
MI-224 says
Thanks for the comment and for enjoying the read. It actually was more fun than I thought writing it all down, gave time to reflect on the journey.
David @iretiredyoung says
If you don’t mind me saying, I found your story showed a fairly simplistic approach. That’s a compliment by the way – most things don’t need to be complicated and your success demonstrates that well, hard work and consistently trying to do the right thing count for a lot. I feel my experience was quite like yours – I retired early at 47, also without so many hobbies, but I’ve found that I’ve been plenty busy enough and I’m sure you will be too. All the best, and thanks for sharing your story.
MI-224 says
Thanks and wow, at 47, great job. I am sure I will find stuff to do and also my wife will have a list. 🙂
MI220 says
Very happy to hear that your wife recovered and is doing well.
Can you share your wife’s impact on your finances too? Half of the 401k/IRA total is hers, and she gets a $500/mo pension. She worked, and given her 401k total, she had a decent paycheck.
Also, I’m curious about your Roth 401K decision. I’ve considered a Roth 401k also, but the advice I’ve read for a high earner is to stay Traditional 401k. The logic is this: Your current 401k contributions are savings for your top tax bracket, I’m guessing the 24% bracket for you. At withdrawal time, your (Traditional) 401k RMDs will be taxed at graduated taxes, so the first $25,100 is 0% tax, the next $19k is 10% tax, etc. You’ll save 24% now (your marginal rate), and pay taxes later at a graduated/effective rate, which is (usually) lower. There are other considerations, just curious about your decision.
thanks,
MI220
MI-224 says
HI MI220,
Yes, my wife’s finance’s have definitely played a big part, like half. Ironically, since I did this interview many months ago, both our 401K’s each broke the $1M mark! Pretty tremendous since we did not do anything fancy, just start putting money in your 401K early and keep doing it over your career. For the Roth portion of your question, my expectations is that taxes will go up over what they are today. If you assume taxes stay the same then I would agree with you and just stay with standard 401K/IRA. A lot of this is just best guess on taxes and know knows for sure, but that is my guess.
Arrgo says
Enjoyed your story and perspective. Doing the right things consistently over many years with saving, investing, and spending usually pays off more so than all the effort and worry over trying to time the market and figure out how to get in on the next Tesla type stock. Its worked surprisingly well for me and I never even had a large salary. Any market timing I tried to do has usually worked out worse than if I just put them money in and not even looked at it.
MI-224 says
Thanks for the reply and agree my experience of trying to time the market has never worked and luckily I stopped trying long ago.
Accidentally Retired says
The 401 (k) is the single most powerful savings tool there is. This is great to show that if you simply keep upping it until you get to the max, you can retire off that alone. Great job!
MI-224 says
Thanks for taking the time to read and yes, it really is this simple and I have stressed that with my children and both have luckily listened.
Paper Tiger (aka MI-27 & MIU-8) says
Hi MI-224, I enjoyed reading your story. Like others have commented, I applaud you for keeping things simple and steady as she goes. Taking the long view has put you in great financial shape. I am glad to hear your wife has recovered and in remission and pray she has a long and healthy life with you and your family.
Best of luck to you both and may all your plans continue to prosper!
MI-224 says
Hi MI-27, thanks for reading and for the prayers for my wife. Life is usually easier if you keep things simple and this case most definitely.
Maverick says
A very good, well rounded philosophy on personal finance. Best of health to your family.
MI-224 says
Thanks Maverick, appreciate you taking the time read and best of luck to you an your family as well!
MI236 says
Thank you for sharing your story. May I ask what is your plan to ensure medical care is accessible to you and your wife once you decide to retire?
MI-224 says
Hi MI236, great question and probably should have added that to issues in retirement. I know a lot has been shared here about health shares vs. ACA. With my wife’s medical history I think ACA is our only path until we get to 65. My thought there is, If retire at 62, I could hopefully do Cobra until 63 1/2 and then 1 1/2 yrs. on ACA, or 2 1/2 if I retire at 61. We are currently getting ready to sell our house and may just move to be renters. If we do this, my plan is to live off our house proceeds (~$400K/$450K) until 65. This will keep our yearly income very very low and qualify for ACA subsidies which will keep our medical premiums low. I have also started investing with our HSA account, so will have some HSA money to help cover some out of pocket medical costs as well.
MI236 says
Thanks! So have you accounted for COBRA/ACA premiums + deductibles + copays in your retirement expenses using the Fidelity tool? You will have living expenses of course, rent, food, utilities etc.
I use the Fidelity tool also to model income/assets and square it with expected expenses and find the tool may be overly optimistic even when using the “market performs below average” estimate. For example, that tool does not have any way to account for recessions, increased inflation, higher taxes etc.
BTW – you and I are peas of the same pod. 🙂 I too work in IT, as Sr. DevOps Architect, just not in Healthcare.
MI-224 says
Hi MI236 or should i say Brother 🙂 ,
Wife was in Healthcare, I am in IT Security, but similar work. Good point on healthcare care premiums forecast expense. Not really, but probably should. I have just started tracking at a high-level, our expenses, so have included in the copay’s and deductibles (have a high deductible plan today) we pay each year, but not premiums. Will have to look into that. As far as the Fidelity tool goes, it maybe too optimistic, but remember this is kind of a worse case. While I do use this worse case to see how I am doing, in my opinion this is unlikely and if it would happen I believe we could cut back on some of our expenses, which have quite a bit of travel baked in. Remember, the goal is not to be the riches guy in the graveyard. 🙂
MI236 says
BTW – wish you and your wife all the best. I hope and pray for continued good health for you both. I totally empathize.
David @ Filled With Money says
It’s interesting that you didn’t have any other sources of income besides your day job, which is high enough already!
Maybe the “the average millionaire has 7 sources of income” is just for clickbait headlines? 😉
In seriousness, congratulations. I wish some day I have a household income of $250k, that amount of money sounds really good. Even though studies show that happiness tapers off after $75k per year, $250k sounds like a much better figure. After retirement contributions, $75 really isn’t all that much money.
MI-224 says
Thanks David for the comments, yes only day job bringing in the money, but most of the time we were dual income family, with wife part time when kids were young. Even though wife was part time for some of her career I will point out with automatic 401k pay check deductions she still passed the $1M mark this year.
Russ Maney says
Hi –
I read your interview with great interest. We are in very similar situations:
– I’m 58 and my wife is 60 – 2 grown children who are both now in their late 20’s and indepedent
– My wife is also a cancer survivor (breast) – currently 5 years ‘clean’ and counting, but went through a full chemo and radiation regimen in 2016
– she’s retired and I’m still working
– Our net worth is $3.5M ($2.8M in investments and $700K in home equity; no debt)
– But, no pensions, so our overall financial situations are actually pretty close together
Reading your interview, I immediately hit on the 2 key questions: How much is enough and, based on that, when can I retire?
My salary is significantly higher, but my work-life balance is undoubtedly significantly worse. I’m determined to keep going until I’m 60 (2 more years!), but doing my current job into my 60’s just isn’t attractive. And yet, I want to delay taking SS as long as possible and I want to make sure our health insurance is more than adequate.
I’m not sure what the magic answer is. I, too, have been running models to calculate my retirement income, based on various stock market scenarios. Still, the key question remains: When will I cross that key inflection point where being free from work obligations becomes more ‘valuable’ than another monthly deposit into our savings accounts?
MMiguel says
Russ, we have a lot in common, married, same age bracket, same questions, similar health concerns, similar investment nest-egg, though I also have substantial equity in r.e. to use for income or to monetize down the road, and a tiny pension (though I’m discovering that every little bit counts in the retirement calculus). Also, I’m still working full out in a stressful career and everyday asking myself why. And maintaining my current position and income into my 60’s is just a recipe for a heart-attack. I’m definitely suffering from one more year syndrome.
One issue is that I am concerned about medical benefits much as you are. And like you, I have been running retirement calculations backwards and forwards (partly because I’m just a total spreadsheet geek).
I like the way you put it: “the key question remains: When will I cross that key inflection point where being free from work obligations becomes more ‘valuable’ than another monthly deposit into our savings accounts?”
I’m sure you have also noted what I have noted: That its not just about one more year of deposits from your earned income, but also about one more year of investment returns (i.e. one more year in which you are not drawing on your nest-egg, one more year of asset growth), not to mention one less year to plan for in terms of life expectancy (yes I know that is particularly bad reason to wait).
Anyhow, I’ll tell you what answers I’ve arrived at:
1) I could have retired some time ago and so could you, and have a pretty nice lifestyle. What’s keeping me from doing that is inertia… making the transition will take some energy and effort, sometimes it’s just easier to stay on the highway.
2) The debate over withdrawal rates is far too simplistic. My opinion – I think the 4% rule of thumb is way too conservative. It’s designed for 95% confidence level you’ll never run out of funds. But, that means very high likelihood you will die rich – maybe thats ok if you’re looking to pass a lot of money on to your kids.
3) What’s more realistic for higher NW folks, is that you will have a lot of flexibility to modify your spending and lifestyle as you age and also in response to how your portfolio is performing. 95% confidence is a good approach for someone with a small nest-egg, who needs to reliably fund the basics. In other words, a situation where there is no margin for error. At higher NW levels, in down years, you can skip the winter vacation, cut back on eating out, sell the boat, vacation house, etc. And also people just spend less on that stuff as they age. So, I have stopped sweating the 4% rule.
4) I’m engaging in more discussion with my wife and friends around what retirement could look like for me… consulting, teaching, getting a new degree, serving on boards, etc. I’m not the retiring type, so its important for me to know I’ll still “feel” like I’m working, albeit with way less stress or concern about earning a big income.
FYI, I plan to take S.S. as soon as possible. In my calc’s, there is not much upside to waiting. That conventional wisdom of waiting to maximize the benefit works well if you are highly dependent on S.S. as a pillar of your retirement income. In that case, the annuity-like safety of it outweighs other considerations.
MMiguel says
To put a finer point on some of the items I noted above, I would guess that like me, you are putting the max in your 401K ($19,500) plus the catch-up contribution ($6,500), plus $14,000 into after-tax IRA’s ($6,000 + $1,000 catch-up for each of you and wife), so let’s say around $40,000 annually. That’s nice but not much of a reason to put off retirement when you have a nest egg of nearly $3mm.
The real jamba juice is that even a conservative return of 7% on a balanced portfolio of $3mm earns you $210,000 a year (I’m rounding). Recent returns have been much higher than that (though much debate on long that can continue). I don’t know what your retirement budget is, but clearly the avoidance of withdrawal is a more powerful motivator than the earned income savings.
Tell you what I’ve discovered in my own calcs: A few years of partial/part-time earnings in retirement, even at a fraction of your current income, seem to really help boost the longevity of your portfolio by reducing the amount of withdrawal.
The other big wildcard is how long you plan on living. I know financial planners want us to think it terms of living to 100. But, don’t know about you, but with my family history, and my stress-related health conditions, I’ll be quite lucky to make it to 85, life expectancy calculators peg me at 83. Just sayin.
Russ Maney says
Hi MMiguel –
I read your replies with interest. Some thoughts:
– Yes, my wife and I are maxing out my retirement contributions.
– I often wonder if I should have invested in rental properties. Is the total return (plus some adjustment for the time required to manage them) really any better than just a reasonably aggressive stock portfolio? If so, have I already missed this boat or should I consider doing so? (These are honest questions, I really have no idea.)
– I admit I envy anyone with even a modest pension – I’ve never worked for a company that offered one. Still, knowing the real value is the annual income divided by .04 (to get the equivalent investment balance needed to generate a similar income), even a very modest pension is actually worth a lot, as you pointed out.
– I’m still working full out in a stressful career, too. Before the pandemic, my work commute was actually transatlantic flights – 2-3 week stints in Europe, a week in the U.S., and back then to Europe – the added stress of repeated bouts of jet lag and being away from my family so much really compounded the toll my 60+ hour work weeks. I’ve managed to work remotely during the pandemic, but only just barely. As soon as transatlantic travel returns, so will my frequent flyer miles accumulation.
– The golden handcuffs are that my salary is ~$400K and we’re putting ~$150K/year in regular savings, in addition to our contributions to our retirement accounts – so, every year I keep working makes a very material difference to our future retirement income (in addition to the benefits you cite – one more year w/o withdrawals and w/full asset growth). And, no, I haven’t made anywhere near that much until the last few years. If I had, my nest egg would be much higher and I would have already popped my retirement chute.
– My longevity could also be an issue – my grandfather made it to 98 and my dad will be 88 this year and still lives like he’s 70 – living completely independently, still drives, still vacations, etc. In my modelling, I’m assuming I get to at least 90.
– I think the most important point you made is one that also fits me – a few years of partial earnings make a huge difference and I’m not the ‘full’ retirement type either. My thoughts are leaning towards finding a non-profit in an area I’m passionate about (environment or child poverty) where I really enjoy it, the stress and pace are lower, and the income simply reduces (or eliminates) the need for retirement withdrawals for a few more years.
– A wildcard on my side is that my wife and I may look to move overseas again. We lived in Australia from 2011-2017 and absolutely loved it. But, it’s expensive and visas for people over age 50 are nearly impossible. The worst ‘financial’ mistake I ever made was not becoming dual AUS+USA citizens when we had the chance (after having lived and worked in Oz for 5 consecutive years). If we had, we could have retired to Oz and enjoyed free healthcare for the rest of our lives. Factoring THAT into my retirement spreadsheets makes me want to beat myself with a didgeridoo.
MMiguel says
Nice salary! My income is similar to yours, but more like salary in the $200’s and rest is variable pay based on performance. I dream about not having to sweat the performance-based pay, but in good years can’t complain (too much).
All-in I probably average out in the ~$400-500k range over the past 20 years. But, fortunately my best earning years were earlier in my career and that’s when I banked a few payday and investment windfalls. That has made the last 10 years more of an earn enough to cover the lifestyle, watch the investments grow period.
Nowadays, other than the 401K/IRA contributions, I’m spending much of what I earn because we live in a very high cost region, and maintain a couple of expensive residences (will consolidate to the lower cost home/region in retirement). Also giving a lot to charities right now, and would probably cut back in retirement.
One of the reasons I feel comfortable not putting so much away now is that I feel the retirement is pretty much fully-funded. Also, my asset base is substantial when I include real estate. What that translates to is that even with reasonably conservative assumptions, my assets should grow at the rate of ~$400-500K per year including dividends, rental income, gains/appreciation, etc. Have actually averaged better than that past 10 years, but I feel this has been an unusual period in financial history.
Anyhow, to your question on rental property, I am far from an expert on the topic. Would say that the key benefits are potential for property appreciation, which has been substantial in my case, and the tax-advantaged rental income – very important for high tax-bracket folks like us. You can right off a lot of depreciation and expenses against the rental income, making it tax-efficient (I don’t like to say tax-free because the depreciation expense comes back to bite you later when you sell the property). But, with r.e. there are a million ways to keep kicking the tax can down the road.
Would say that being a landlord is not for the fainthearted. I let my wife deal with it mostly – already have enough stress. Commercial is best as tenants more self-sufficient. Have to keep a lot of liquidity on hand for emergencies, tenants disappearing in the middle of the night, etc. R.E. pays nicely but can go thru some pretty bad times (like right now in big cities). Will be glad to be out of that business someday.
FYI, by “small pension” I meant like $10k a year, so yes I too have pension envy, same as you. I especially hate it when two pension couples act like they are the “poor” little guys and its “rich” folks with savings/investments who should get taxed to death… but I won’t start that rant right now.
From your numbers, I would guess your current spending is in the area of $150K/year. With a $3mm portfolio, thats 5% withdrawal which is not unreasonable (opinion). You have to also think about taxes, but then you would also be getting S.S. for much of your retirement. I do see how longevity is a concern for you – nice problem to have. But if your expenses are reasonably flexible, you are probably more prepared than you think (more opinion FWIW).
Russ Maney says
Thanks MMiguel – especially for the insight on RE.
– I have the potential for significant bonuses as well, but they aren’t easy to earn, so I don’t count on them
– We’re looking to keep total expenses under $120K this year (the current restrictions on international travel are certainly helping with that)
– Right now, Monte Carlo simulations show us as on track (by the end of 2022) to have a 90% chance of achieving $10K/month in retirement income – after taxes, including SS (eventually), and with adequate health insurance – through age 90 for me (and 92 for my wife) – with a healthy ‘reserve’ leftover
– Key variables are: how long I stay in my current job beyond ’22, if I take a ‘retirement’ job afterwards for a while, and (most importantly) where we go after I leave my current job – the ex-pat life beckons, which could be more expensive than where we live now, but maybe not – we’ll see
Anyway, great chatting with you and congrats on reaching FI. Now, when will we both have the balls to do the RE part?
MI-224 says
Hi Russ, thanks for reading my story and sharing yours. Your questions are really the million dollar questions, no pun intended. I wish I knew the answer and know when I get to 61 or 62, I will more than likely be in the “1 more year” syndrome. How do you walk away from that salary? I try not to stress about it now and remind myself to spend money now and live life now since nothing is guaranteed. Hopefully when I get to my projected retirement age the answers to these questions are clearer. Good Luck!
Russ Maney says
MI-224: Best of luck to you, too. I think, for me, I’ll keep weighing the “cost-benefit” of my job – long hours, high stress, lack of real freedom vs. salary – until the scale finally tips towards popping my chute – it’s still tipping the other way right now, but not by a lot.
I also expect that my early “retirement” will likely include looking seriously at working for a non-profit in an area I’m interested in (environment or child poverty) and where I’m there every day because I want to be, not because of the paycheck.
Regardless, after my wife had her breast cancer scare in 2016, we went into “live life now” mode for sure, which proportionally drove up our monthly spending (we have a passion for world travel, after living in Australia for 6 years). Less grain in the retirement silo as a result, but we don’t regret that decision one bit. And, as soon as the world opens up again, we’ll be back out seeing as much of it as we can. (One perk of my current job is many frequent flyer miles, which we gleefully spend every chance we get.) We might even retire overseas – we’ll see.
Also the best!
Daniel says
Thanks for sharing. I enjoyed the quote rhe saying of the turtle wins the long race, like in the philosophy story of the Hare and the Turtoise.
The balancing act of spending today vs saving for tomorrow is an interesting one. I find I in different parts of my life have adjusted it up/down a few times so far. Feels like there is no perfect middle ground. Depends more on mind set than most other things.
MI-224 says
Hi Daniel, thanks for sharing your thoughts. I agree over your life that balance will skew different ways. Now, with the kids out of the house, we are definitely spending more on nicer travel or we were, before COVID.
charlie @ doginvestor.com says
I like stories like this where you just earn and save it and let it compound. Too many folks look for the big hitters instead of just doing it the standard way of working and saving. Focus on growing the career income, don’t overspend/over leverage and without anything too fancy you’ll be fine in retirement.
It’s great to see the results of hard work and saving over time.
MI-224 says
Thanks Charlie for taking the time to read. When I offered up to do this interview to ESIMoney, I told him it would be sort of boring and he said he loved a boring way to become a millionaire. 🙂
ESI says
Yep. You don’t have to be flashy to become a millionaire. We’ve all learned this after 200+ interviews, right? 🙂
MMiguel says
Agree with Charlie and others who like this sort of “boring” story of earning, saving, compounding your way to wealth. This is the sort of approach that most people could replicate if they had the knowledge, willingness, work ethic, and patience. I wish I had understood this about 30 years ago.
Personally, I’m one of those folks who has spent a lot of effort searching for and mining the big hits. Fortunately I was able to land a couple of windfalls, so my efforts were not fruitless. But, when I analyze my wealth trajectory, really the foundation of my wealth has come from basic blocking and tackling… moving up the income curve while living below my means. I see now that that is all it would have taken to become a multi-millionaire… just a lot of patience and a lot less work and stress. The extra stuff was what I would call the “alpha,” the high octane moves that allowed me to outperform expectations.
According to the millionaire next door formula, I should be in the $2.5mm range. But, the big hits have carried me into the upper reaches of seven figures, with the deca-millionaire mark within sight if I continue to work a bit longer, or simply retire to a reasonable (vs extravagant) lifestyle and let my wealth keep growing.
That all sounds really great of course, until I ask myself… were the many sacrifices worth it, in terms of my health, emotional well-being, relationships (or lackthereof), etc.
Honestly, I just don’t know, but I’m not sure I’m gonna like the answer when I finally figure it out.
Sylder says
I really appreciated this interview and all the subsequent questions and comments. As I approach retirement I appreciate hearing from someone who doesn’t track too closely and things still work out. I am finding that it is awfully unnerving to rely on calculators and “financial advice”. In my perfect world, someone would set out 3 possible scenarios for my retirement and I could pick one. The options are stressful!
Success Triangles says
Great post!
This is a key point:
“Trying to find that balance between living now and still saving for the future.”
None of us knows how long we are going to live, so finding the right balance between how much we save versus how much we spend is key. If you only live for the present, you’ll end up broke, but if you save everything and live like a miser, there’s no guarantee that ‘day’ will ever come where you will be able to enjoy the fruits of your labor.
I think the FIRE movement is a great concept in theory – but I worry about people who save 85% of their income for years and forego all of life’s joys for some far off day where they’ll be ‘financially free’. There are no guarantees in life and it could all end at any moment.
MI236 says
Great conversations folks! Our story is yet to be featured but a lot of the questions and commentary is absolutely relevant. A few “big-hitters” has allowed our NW to be higher than aggregate income as computed by SS report on total income since 1998 – as my wife and I are personally also navigating the question of “how much is enough”?
If not for the mess our health care system is, a lot more options would be on the table for us. Much like the debate and the issues surrounding the OMY syndrome, is the unreal attachment one feels about the big-hitters who are doing so well for us – is it greed plain and simple, FOMO, inertia, confirmation bias or all of the above? Said otherwise, at some point one has to be ready to sell, be content with the profits made and do something different – which goes back to the question of “how much is enough”, the 4% withdrawal rule, living on savings, giving etc.
For sure, we want to travel more and give a good grounding to our kids in terms of experiences, education and a base on which to start the journey of being adults and contributing to society.
None of this is possible and none of these questions would exist if we don’t reach that stage in life, so for all of that – we are thankful.
MMiguel says
A number of posts above have raised the question of “how much is enough”. I don’t know what the ESI rules are on linking to articles, so I won’t. But, I suggest searching for the research of David Zolt, CFP, EA on the topic – pretty fascinating stuff. Notably, his “Achieving a Higher Safe Withdrawal Rate With the Target Percentage Adjustment” (google it) is a great read for anyone with a bit of financial analysis acumen.
I’ll be the first to admit I had to look it over several times to make sure I got the fundamentals, but it seems to confirm some things I was noticing as I ran my own analysis, namely that the 4% rule is overly conservative for someone like myself – I can only speak for myself as I am not purporting to be an expert on this. I am however a relatively quant-y guy who loves to run analysis.
For my own planning purposes, I know I can easily meet a budget and lifestyle that adheres to the 4% rule, so I think of that as the safety net, the fallback position. What I’ve been trying to grapple with is the question of how much more can I spend without being reckless. How far can I push my retirement budget? Can we winter in warm, luxurious, beachy places each year? How extensive could our international travel budget be? Could we live 3 months a year in Tuscany? What happens if big healthcare issues suck up more expense dollars than anticipated? Should we upgrade to a larger boat? Can I buy that mid-life crisis car? etc. Basically, how large can we live above and beyond the basics?
I’m convinced that for the multi-millionaire population the considerations should be somewhat different given the (presumably) much higher level of budgetary flexibility. The work by Zolt suggests that WD rates as high as 7% might be acceptable for me – depending on how much risk I’m willing to take – with the caveat that my budget needs to be flexible enough that inflation increases can be curtailed in lean portfolio performance years. Things like travel can be easily cut back, or perhaps the mid-life Porsche should be leased not purchased (especially since unlikely to enjoy it after a certain age).
Yes, I am aware that saying this is like nails on a chalkboard to a financial planner. I don’t want to die poor, but seriously, I don’t want to die too rich either. FYI, I have no intention of using a 7% WD rate, just saying seems its not out of the question if wanted to live lifestyles of the rich & famous for a few years.