I have done many retirement interviews here on ESI Money — giving readers a glimpse of what it’s like after retirement.
These are very popular and I’ll keep doing them (volunteers, anyone?), but something unusual (and awesome) happened in the Millionaire Money Mentors forums that I have to share here (FYI, I’m doing so with the author’s permission).
A few months ago, one of the mentors started a thread called “Countdown to Retirement” and began chronicling in great detail what he was going through as he approached retirement.
It’s a very fascinating story and over a few posts I’ll be sharing his story here.
I’m leaving out all the conversation, feedback, suggestions, etc. from other members and mentors and simply letting the author tell his own story.
I am listing each of his posts, headed by the number of days he posted it ahead of his retirement.
Here we go…
Well I’ve gone and done it. I’ve put a date on the calendar and started the clock. 134 days. April 1. Things could still change to move that date, but right now, that’s what I’m shooting for.
No, I don’t have everything planned out. I figure I can determine a lot of that post-retirement. I do have a good idea of the financial side of things so I’m comfortable with that.
Those of you that have already retired can chime in and poke this full of holes, but the first few months I would like to step back and set up those activities that I would like to do going forward. I keep telling my wife that there are probably 4 things that I should do every day. Exercise. Stretching for my back pain. Personal quiet times. Journaling. And probably a few others.
Right now, I sometimes have time during a typical day for one of them. I’m looking forward to blocking a bit more time towards those things. As well as seek opportunities for volunteering, mentoring, and actually cleaning out the barn.
This is exciting, yet a bit scary. After 35 years I’ve gotten used to the steady income of a salaried job. Now I’m going to willingly jettison it. I’ve never been skydiving, but it seems similar to that moment when you jump out of the plane, trusting that parachute to carry you for the rest of the journey.
The varied advice and experiences of this group, both pre- and post-retirement, has been valuable.
Several days ago, I posted that I had started the clock towards retirement, setting a date of April 1 as being my first non-W2 working day. Several on this forum expressed interest in hearing updates along the way, so I thought I would capture these in a separate thread, posting any significant milestones and perhaps a few insignificant ones.
That first post marked 134 days until retirement. Today the clock is at 122 days. I found a countdown app for my phone which will show days (and even hours, minutes, and seconds, if you are interested) until a target date and my son just laughed when I told him when I was planning on retiring and pulled my phone out of my pocket and told him the exact day count.
I’ve also started working on one of the Millionaire Interviews. So I will hopefully show up sometime in the future as MI???. This is taking longer than expected as it is causing me to dig rather deeply into the data. I’ve done quite a bit of analysis already, but putting it into the interview form has forced me to organize it into a format that others can digest.
A couple things have come out of this. They are not surprising, but they are interesting and a good reminder to me of things to think about in this process. The first is that taxes are the top line item in the expense category, at almost 30% of total expenses. I’m figuring we can bring this down to more like 16% post-retirement.
In examining expenses we’re looking at what can be reduced/eliminated. Some go away automatically, other expenses that we didn’t have to deal with will show up. For example, my work paid for my cell phone bill, now I will have to carry that going forward. We’ve eliminated some of the low-hanging fruit and looked at the higher expense categories more closely. In the Auto category, can we go down to just one vehicle? That sort of thing.
One thing that this revealed is that the fees for financial planning are the seventh highest expense. That’s the second thing that came out of the Millionaire Interview process. We use Personal Capital and the fee is 0.79% of assets under management, which comes out to around $5500 per year, but that fee is 3% of total expenses.
I’ve waffled back and forth about this, but even index mutual funds carry a fee (albeit a small one), so the question is: is the difference in fees between index mutual funds and Personal Capital worth the value that they bring to the table? So far, I think so. They are managing assets in six different accounts, two belonging to my LLCs which also own my rental properties, one of those being a self-directed IRA, a taxable account, two Roth IRAs, and one traditional IRA. They attempt to do the portfolio management in the most tax-efficient way. So I think I’m convincing myself to leave this expense in place. Perhaps I will re-evaluate in retirement, when there’s more time to do this myself.
So the Millionaire Interview has been a great exercise so far.
At this point, we’ve revealed our plans to a co-worker, a good friend, and one of our sons. No surprises here. I’ve talked with the co-worker and friend about this in the past, even joking with the co-worker that, when the company stock price hits $100, I’ll retire. It’s currently at $130. So I’m past due.
We’ll continue to roll this out to others in a measured way. Not sure when to drop this on my boss yet.
So that’s the update at 122 days out. Comments, advice, constructive criticisms are always welcome!
The clock now reads 117 days.
Based on a couple of threads in this forum I have been thinking about the role of bonds in my overall portfolio. I have not been real keen on bonds as the returns have been lousy over the last few years as interest rates have been so low. The discussions got me thinking that my real estate holdings can also be considered part of the fixed-income portion of the portfolio, and this and the rather high cash holdings (>$100K) could effectively replace the function of bonds. I emailed my financial advisor over at Personal Capital about it, explaining my thoughts about the role of real estate and high cash reserves (which they suggested earlier).
One thing I appreciate about Personal Capital, as opposed to the two disastrous experiences I had with earlier financial planners, is that they are not trying to sell me something. So I don’t get the high-pressure sales push into a product that not in my best interest. However, they do make their money on a percentage of assets held, so capturing more assets to control is in their best interest, whether or not it is in mine. So here is their response:
The strategy you described is a form of market timing, which we do not believe provides better returns over time. Your Personal Capital portfolio is designed and managed for the longer term. It is our belief that you are better off in bonds, than you are in cash, even in the current environment.
When it comes to real estate, we do believe that has a place in the portfolio, but to a limited capacity. Real estate does offer diversification, but too much real estate can add additional risk. You may recall, but our strategies are designed to provide the highest level of return for any given level of risk over time (efficient frontier). I have attached our Investment Methodology here, in case it is helpful. While you have real estate that has performed well for you, that is a very concentrated risk (I believe 2-3 properties). This could be compared to owning Tesla & Apple stock, for example. If you owned them this year, you would have seen significant return. That said, the trade off between risk and return is inescapable.
If you look at the broader real estate market, that will shed light on potential volatility for real estate. Using VNQ as a proxy (Vanguard Real Estate Index Fund), you will see that it fell ~37% when we saw the downturn in March (1/1/20 – 3/23/20). In that same timeframe, BND (Vanguard Bond fund) was up ~.02%. This is the reason we own bonds, to reduce the overall volatility over time.
Another consideration is liquidity. As you enter retirement, one of the biggest risks to a successful retirement is sequence risk. This is the risk of experiencing immediate and/or prolonged down periods at the beginning of your retirement. Having around 1 years’ worth of cash on hand as you enter in to retirement is a good hedge, so your cash position is appropriate. If we get through that cash, however, then where would you turn? Would you be able to easily sell your properties for the cash in a recession? Would you want to? This is again, when bonds could be beneficial.
In summary, we still believe it is most appropriate for long term investors to own bonds. That said, we will always accommodate any requests you have to reduce/eliminate exposure. Please let me know what you prefer, or if a call would be helpful. If you would like to connect for a call, please use the “Schedule a Meeting” link in my signature to find the best time.
Market Timing. To me I feel more like I’m responding to macroeconomic trends, rotating in and out of market sectors as appropriate. And, yes, real estate is illiquid, but in times of trouble, I would not be attempting to sell my real estate holdings as that would be killing the goose that laid the golden eggs, I would be selling off stocks and ETFs, potentially at a loss to meet any needs.
As has been said somewhere else in these forums, diversification is for those who don’t know the markets. I believe I have a reasonably good finger on the Grand Rapids real estate market, so the concentrated risk that they call out is not so much of a risk for me. And comparing actual real estate to a real estate index fund is comparing apples to oranges. My real estate holdings did not fall 37% in March. It can be argued that they didn’t fall at all.
Interesting conversations, a lot to think about as the clock winds down.
In unrelated news, I completed my Millionaire Interview and turned it in. I will be MI241 and you will see yours truly hit the airwaves at the end of April. Interestingly, I talk about retirement (future tense) in the interview, and when it comes out, it will actually have already happened, Lord willing and the creek don’t rise.
I feel like I just completed a term paper.
I’m a bit of a numbers geek, and I notice patterns in numbers. I have also spent decades writing embedded software and some numbers stand out simply because they are “computer-friendly”. So the number “111” hits both of these ideas, as it is a pattern (all ones), and it can represent a binary number, which consists of only ones and zeroes.
The retirement countdown clock hit this milestone today. 111 days until April 1. It seems like there has not been much ‘progress’ since the last post, at 117 days, other than the passage of nearly a week. Sometimes is a little difficult to define and measure ‘progress’
We have been busy exploring additional investments. I will have an initial call with another real estate syndicator this morning. I have another call with a syndicator about a debt financing offer that is currently open in a few days. I posted a question on this forum about this a few days ago and several have weighed in about it. It will be interesting to hear the answers to the questions that some of you have brought up. I’ll try to summarize that conversation in that other post once it happens.
We’ve been having lots of conversations on the financial side. We’ve also talked about the sequencing of health care plans. My daughter is still on our health plan, but her job has a pretty decent plan as well, so when to transition her from ours to hers. Our plan year begins in January, hers begins in April. Probably easiest to transition in April, when her plan year starts, as ours will end at that time when the job ends. But we are also exploring transitioning on January 1 (if that’s even possible). This coming plan year was the first year that we have been offered an HSA option, and I would like to plow as much into the HSA as possible between January and April.
And the question remains of when to tell my boss. Right now I’m thinking of after the new year, and after a road trip we are planning in early January. We’ll then start rolling this out to a wider audience, including my boss.
So lots of conversations about finances, not so many about other subjects, such as what to do during retirement. I’m the kind of person that makes things up as I go, and retirement will probably be no exception to this. I’ll jump into the deep end of the pool and then learn how to swim.
Many of our conversations lately have focused on Christmas presents for the kids. With kids’ spouses and girlfriends/boyfriends and now one grandkid in the mix, these conversations take a lot longer than they used to. Retirement has been pushed out of the front seat until after the holidays.
Countdown clock is reading 103 days. Just a few more days until it crosses that psychological barrier of going from 3 digits to 2 digits.
I’ve been reading with interest the thread on how to resign gracefully, with dignity and class and wondering (especially for those that have already retired) what difference it makes when you are leaving for retirement rather than leaving for another job. The context of all the posts in that thread have been in terms of leaving one job for another and I have certainly done that throughout my career (four times). How is it different for retirement?
I’m pretty much settled on informing the boss after we get back from a road trip in early January. That leaves the holidays behind and puts the bulk of retirement preparation in those three months where very little happens here in the Northern climes. Right now my two local co-workers know, a few select friends know, and a few family members.
A few commenters have suggested negotiating some form of severance package. I’m not confident that this type of negotiation would go well and would probably result in nothing. I don’t anticipate being shown the door once the announcement comes to light, although I will certainly be prepared for that scenario.
Most of our time lately has been consumed with Christmas preparations, but we have been doing some reading on tax strategies and we have been realizing that we are not very tax-efficient, especially with the rental properties. So one task over the next few weeks and months is to discover those tax deductions that we have overlooked and take full advantage of all legal tax deductions. Perhaps that’s another topic for a new thread.
The countdown clock is at 99 days. Today a digit dropped off and the number now takes less space on a piece of paper.
I’ve been learning what a terrible investor I am. The most egregious offense: holding rental properties in an IRA. Half of my real estate holdings are owned by my self-directed IRA. I’ve learned that this is a bad idea because:
- No depreciation
- No deduction of expenses
- No possibility of writing off losses against income elsewhere
- Leverage gets complicated (#UBIT)
- Custodial complications (both expense and hassle)
- and I’m sure there are a bunch of others
I’ve been reading books which advise against this and even a member of this forum called it a terrible idea. Maybe it is. Perhaps I would have done it differently 9 years ago had I known then what I know today.
Or maybe I would not have done it differently. Back then I had an accumulated pile of money sitting in tax-deferred accounts (old 401k’s) that could only be placed in traditional investments. I wanted the cash flow and the stability of real-estate. A self-directed IRA gave me this option. And some of the tax advantages are really just tax deferrals which is what this IRA does in spades.
Any tax-hawks out there can poke this full of holes, but, overall, it has done well. And the paperwork is a breeze. Since 100% of the assets are subject to tax, the IRS really doesn’t care what happens inside of the IRA (as long as you don’t mix assets with personal assets). So I can buy properties, sell properties, and do quite a few things and not really even have to record what’s going on (I do record everything), as the IRS just wants a net worth number at the end of each year.
Once I retire, I will begin converting the assets in this IRA to a Roth IRA. Since the rental property is a giant lump which can’t be converted in little pieces, it will remain there, spinning off cash, until it eventually gets sold.
I’m learning of other tax topics that I have not done real well in. So that will be one area of learning in retirement, how to minimize the tax burden.
The countdown clock now reads 91 days. We’re nearly down to an even three months.
Now that the Christmas gift-giving, planning, and parties are behind us, time to turn our attention again to retirement planning. First order of business, transferring our daughter’s health insurance coverage to her own company’s plan. We’ve usually held our kids on our plan until they get married or until they turn 26, whichever occurs first, but since her company provides a pretty decent health plan and we will be leaving our company health plan in 91 days, it’s time to make the transfer.
It’s proving to be a bit harder than it should be.
We called her plan benefits department and they said that, in order to enroll in her plan outside the enrollment period, she needs to be off her prior plan first. I talked to my plan benefits group and they said that I need to provide proof of coverage from another health plan in order to remove her from our health plan.
So now we have a catch-22: I can’t remove her until I can provide proof of coverage, which I can’t get until she leaves our plan and joins her own. At the very least, this would mean a gap in coverage, which is not acceptable for someone with significant medical needs.
Fortunately, while my company required some sort of proof, hers did not, so we called them up, told them that her coverage had ended, and enrolled her in her own plan. We waited until she had received confirmation of coverage and then I proceeded to change my plan elections to remove her.
Our plan added an option for an HSA with a high-deductible option for next year so we opted for this starting in January. Since I plan on leaving in April, I set the payroll deductions to maximize the contributions for the year. Unfortunately, the system assumes you will be working all year and spreads the contributions accordingly, not allowing me to front-load the entire year’s contributions in the first three months. I’ll have to take care of the rest outside of payroll deductions.
I went to the office today to start the clean-out process. With Covid-19 keeping everyone home, there’s no chance that I will occupy this office before I leave the company on April 1. Other than a few brief trips to take home some essential supplies and equipment, I have not been there since last March.
It was like walking into a time capsule. The calendar on the wall was still open to March, 2020. Everything was still exactly as I left it, almost appearing like I evacuated in haste and took only the essentials. The clock outside my office door eventually stopped as its battery ran dead. It was almost creepy as the building, which holds dozens of businesses, is completely empty. The lights are on, the heat is on, the music still plays softly in the hallways, but nobody is there. Other than the music, it’s eerily quiet. I feel for the owner of the vending machines on the second floor. I’m guessing he is not selling much candy or drinks.
The retirement countdown clock for me now stands at 69 days. While life goes on, we’ve been continuing to hammer out the smaller details of our retirement journey. We’ve talked about it with a few other friends and extended family. We’ve explored some volunteer opportunities. We’re planning a retirement “victory lap” road trip in April.
One of the things we’ve had to arrive at is some level of confidence for both of us that this is going to work out and that we’re not going to have some sort of financial crash and burn due to some perfect storm of events 20 years into retirement.
We arrived at that confidence level at different rates. I, being the numbers guy, was pretty much convinced quite a while ago. My wife, being the more cautious type, took a little more convincing and arrived at that confidence level only recently. She can invent any number of fantastic worst-case scenarios which would wreck all these carefully-laid plans. Since she does not work outside the home, the W-2 safety-net completely disappearing is a Really Big Deal.
The recent run-up in the stock market has accelerated our net worth and last night it squeaked above $3M for the first time. Perhaps this belongs in the humble brag thread but it fits here also. That number is $3,000,737.62. Give or take a little bit.
In a couple days that will be cemented a little bit more strongly above the $3M mark when the city property assessments are published. I base the value of our rental properties and our home on the assessed value from the city since it is more or less an ‘official’ number. While I could use several different metrics to value the properties, the city assessments seem like a logical choice as they are adjusted each year, they loosely follow the actual value of the property (with perhaps some lag), and the banks do look at this number when judging a buyer’s financing during a purchase. I expect those assessments to be adjusted upwards, which will pop the net worth figure a little more.
I have some RSU shares vesting next month which will also help.
So, as a bit of a teaser into the up-coming MI-241 interview, our net worth broke $1M for the first time when I was 51, the second million at age 56, and now the third million at age 58. It took 28 years for the first million, almost 6 years for the second, and two years for the third. As has been said several times across this forum, that first million is the hardest.
The countdown stands at 40 days.
For a numbers guy, that is significant in that it is a nice round number. More than just a nice round number, 40 days has other significance as well. When developing new habits, I’ve read that it takes about 20 days to break an old habit and 20 days to form a new one, a total of 40 days.
40 days has Biblical significance as well. 40 years wandering in the desert. 40 days of Lent, and so on. When I looked online for the significance of the number 40, one website suggested it symbolized a period of testing, trial, or probation. Yikes!
So I’m on retirement probation for the next 40 days. Haha.
I’m seeing a bunch of “last” events happen at increasing rates. Last RSU shares vesting. I participated in my last quarterly corporate communication call. I had to change my network password for the last time. As I look at the calendar in Outlook, I can see the last instance of some meetings that I will be attending. The meetings continue past April 1 in the calendar, but I will no longer be a part of them. I’m working on using up the last few vacation days that rolled over from last year.
On the financial side we’ve been preparing for a while. We’re developing a more income-based approach, buying into syndications and looking at other sources of income. We’ve pulled as many major expenses into this side of retirement as possible: the house has a new roof, a rebuilt chimney, and some window upgrades, I’m typing this on a new computer, etc. We’ve estimated expenses in retirement based on expenses for the last three years and adjusted for a non-working scenario. We’ve used these estimates to determine our FI number. I am happy to report that our net worth is above this number.
We’ve settled on Samaritan Ministries for our health care. The application is done, a start date of April 1 is in place, and the first share has been paid. Our daughter who lives at home is now on her own insurance through her job, so it’s just the two of us. One of the tradeoffs of a Health Sharing ministry is that you can’t pair it with a HSA. So I’m dumping a whole year’s worth of contributions into my HSA before April 1 to maximize the balance of the HSA.
On the personal side, many of our closest friends and family know and we are planning some road trips with some of them this summer. I’m planning on giving notice to my boss around March 1, at which time I will consider this “public”. Up until now we’ve kept pretty quiet about it (except here on this forum).
One thing we’re still working on is the roles each of us will play after April 1. We’ve been in what can be considered a more traditional family arrangement for decades as I worked outside the home and my wife raised and home schooled the kids. She has commented a couple times saying “a homemaker never retires”. So any advice or experiences from the MMM collective would be certainly welcome.
40 days in Biblical terms symbolized “a long time”. While it’s definitely getting shorter, it still seems like “a long time”.
We’re going to end the story here for today.
For more on this story, check out part 2.