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.
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)?
I am 54 years old and my wife is 48 years old.
We have been married for 25 amazing years. I sometimes think that she could have done better!!
Do you have kids/family (if so, how old are they)?
We have 2 daughters – 23 and 17.
Older one is working in CA but wants to move back home and go to grad school.
Younger one will be off to college next year.
Both are amazing kids with good heads on their shoulders. They have done well in their life so far. They have spoiled us in parenting.
What area of the country do you live in (and urban or rural)?
We live in NW part of the country in a large metropolitan city.
We have lived in CA & TX prior to this but love this area, outdoors, people and we might probably retire here.
What is your current net worth?
Our net worth today is $8.30 Million.
Having said that – I don’t like to include the primary home that we live in the net worth. May be I should, but I don’t consider it as an investment. It is our abode that we love and will live here. Our home is fully paid off.
If I take that out, our net worth is $7.30 Million.
OK – one more thing. I don’t like to include the kids’ 529 plans and kids IRA’s. We will never count on it for our retirement and it is for their use for education and their retirement.
Now our net worth is $ 6.90 Million
We have two high-end expensive cars that we drive and enjoy. But, I don’t include depreciating asset into the net worth calculations. Similarly, valuables in the house, jewelry, etc. are not included either.
My wife has a retirement pension from her work. We will also have social security. Both are not included in our net worth or retirement goals.
I consider them as additional bonus and will not depend on it for retirement. But will help us live life to the fullest including charitable giving when they do happen.
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?
- Retirement accounts (IRA’s, 401K) — $4,500,000
- Individual Stocks in Scott Trade account (Stocks) — $1,470,000
- Rental home (fully paid) — $380,000
- Primary home — $980,000
- 2 houses in our country of origin — $320,000
- Investments in VC’s — $70,000
- Cash & Gold coins — $245,000
- Debt (two cars at 1.5% & 0.99%) — ($83,000)
EARN
What is your job?
I am currently not working – retired or I should say looking for other things to do.
I held executive level jobs including CEO and did well in my career.
My wife is a physician with three specialties and has good work life balance
What is your annual income?
When I was working in the executive positions, I made including salary & bonuses of as high as $840,000/year to as low as $300,000/year in the last 5 years.
It fluctuated due to varying bonuses and different companies.
My wife makes consistent $290,000/year and is growing slowly.
We get about $24,000/year in rental income. We net (after expenses, tax, insurance, etc.) $19,500 per year.
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?
I moved to USA in 1987 to go to grad school. During the school years, I worked part time doing CAD drawings etc. earning few dollars to save for college.
My first job was in 1990 after graduation making $26,089 per year, which I thought was on the low end of the pay scale but I was very happy and glad to have a full-time job.
My income grew regularly and my first $100,000/year plus salary came in 2000 (10 years later).
It grew much faster from then (education and jobs with higher roles & pay were the key – more on this later). My first $200,000 salary came in 2003, only 3 years later. It grew much faster from then on and $500,000+ came in 2010.
My wife started working in 1996 as a resident earning $30,000 per year.
Her first $100,000+ per year came in 2002 as full time Internist. She then quit and continued post-doctorate and graduated with a triple specialty.
Her income came down to $45,000 per year for 4 years while at school. Then in 2009, her income shot up to $200,000+ per year. It has grown steadily to close to $300,000 per year now.
What tips do you have for others who want to grow their career-related income?
I think the biggest income growth came from a list of following aspects:
- Education, Education, Education – Me & my wife feel that having a great education will really pay off in lot of ways in addition to growing your income. Education brings wealth of knowledge, understanding, recognition, ability to grow your income, personal and career growth.
- A great wife – For me, without my wife, her drive, her motivation and support, it could not have happened. She is the reason for my success – not a cliché but true for me.
- Working for mentors – In my working career, I have had really good supportive bosses/mentors who have helped me grow. I feel that it is a combination of supporting your boss and at the same time putting in the hard work
- Hard work – there is no substitute for this. I was able to put in 24/7 sacrificing family in many instances to grow the career. This is not just in time alone but really vested in making a business successful as if it was your own. I did this early in my career and now I am able to let go and have a better work-life balance. I am saying that you should do this. Healthy life balance is important but make sure to work hard and achieve results. It will pay off.
- Risk taking – I have had the pleasure and experience in taking risks with my career such as taking on responsibilities when I did not have the experience but working hard to excel in it. I never said no to an opportunity for career growth. Having said that, it came at the expense of sacrificing family time. To some extent, I do regret taking on too much of this risk as I neglected kids and my wife. There is some truth to not taking on too much of this.
My wife’s advice:
- Integrity – Work with integrity even when no one is looking, easy to say but has been hard many times but on a long run – this has gotten me to great heights both in personnel life and at work.
What’s your work-life balance look like?
As I mentioned earlier, during some of my career years, I did not have a healthy work life balance. I spent a lot of time at work and travelling. It also came at the expense of not focusing on the family life.
I wish I had spent more time with my kids and helping my wife in that aspect. I think my older daughter especially struggled and I could have been a better father being present and helping her.
In the last two years or so, it has been a healthy work life balance. I have learned that these were personal mistakes I made but now that I am semi-retired, it is time to give back to family and community. It is part of the personal growth I am working towards.
I spend a lot of time with my wife and kids now and enjoy it immensely. I also spend time angel investing, going to meetings, due diligence on companies, etc. It is not a 9-5 work and I have time to do other things.
My wife has healthy work life balance now working 3 days and working from home other times. We enjoy going for long walks, weekly runs, yoga 2-3 times a week, movies, travel, etc.
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?
Our only other source of income is the rental house. We have one locally that brings about $19,500 per year (net after expenses).
We have two other homes in our country of origin but we don’t bring that income here. We leave it there for our travels and spending when visiting family there.
We have also not included any dividends from investments in our income as they are re-invested.
SAVE
What is your annual spending?
Our annual spending is about $153,000.
This includes everything from groceries, clothes, food, entertainment, travel/vacation, home repairs, high school tuition (younger one goes to private school), two car loans, property taxes, insurance etc.
We used to spend a lot more before and in the last two years we have brought it down a lot. It still feels like a lot and we think we can take it down to $120,000 per year. We are working on it!!
What are the main categories (expenses) this spending breaks into?
- Food, entertainment, groceries, repairs, etc. — 32%
- Kids tuition, school, activities — 17%
- Vacation, travel — 9%
- Property taxes — 9%
- Utilities, phone, internet, etc. — 8%
- All insurances — 3%
We have done well with reducing utilities expenses including no cable – social media is amazing in getting what you need for almost free (just need internet).
School expenses will reduce dramatically next year after our younger one goes to college. She has a 529 fully funded for 4 year college. This is a big part of the expense.
Our vacation & travel expenses may increase as we would like to travel more. As we slowly retire and enjoy life more it is one of our goals to visit as many countries as possible.
Do you have a budget? If so, how do you implement it?
We have a budget and we are very detail oriented in tracking expenses.
One thing we don’t do is that we don’t look at our budget and stick to that spending.
For example, Dave Ramsey would say that if you have a budget of $100 for groceries that week, you should take $100 in cash and go buy groceries. It feels too restrictive for us. We monitor the expenses against budget and if we go over one month, we try to adjust next month or in other categories.
I have created an excel spreadsheet to track every expense monthly and by category. We also map this out by monthly & annually to see the progress against our budget.
I was mostly maintaining this but in the last year or so, we both are involved in maintaining and improving on this. We work well together. My wife is broad thinker and I am detail oriented! It works well for us other than occasional anxiety – mostly on my part!
What percentage of your gross income do you save and how has that changed over time?
We both have fully funded both our 401K plans all these years. When I had deferred compensation plans, I put over $100,000 per year into it.
In the last two years, we decided to live on my wife’s income and take all of my net pay and invest into mutual funds.
It seems that on an average we have been saving roughly over 50% of our income into retirement and savings.
In the beginning years of our earnings, we were probably saving more like 25%-30%. That is when we were fully funding our kids 529 plans (we saved close to $300,000/kid for their education), paying mortgages on our primary home and rental home, etc.
As we paid off our homes and stopped funding the 529s, we were able to increase the savings quite a bit.
Now that I am not working, I would say probably 20% of my wife’s gross income is going into retirement & savings.
What is your favorite thing to spend money on/your secret splurge?
Vacation: We have done a lot of international and domestic travels. We always take our kids with us. This is where we typically spend more than we would like.
We are not the bargain hunters with respect to air tickets and hotels but not necessarily luxury either. Convenience, safety and schedule are important.
Cars: We both have Tesla’s. One is paid off and other one is 1 year old. Both had 1.59% interest rate. May be we consider them as splurge. But, we love them.
Once or twice a month we eat out at our favorite restaurant and once a month we go out for movies.
We don’t eat out regularly and we don’t do Starbucks etc. as well.
We cook at home and eat healthy.
I used to have wine every weekend but stopped all alcohol about a year ago. We both don’t have any drinking habits.
INVEST
What is your investment philosophy/plan?
Interestingly, we both are aggressive investors.
Since we started early and have (or had) time in our hands, we took the risk. I think we have been talking about shifting that to more moderate risk taking investments. We will shift towards conservative investment maybe in the next 5-10 years or so.
I was quite hesitant about buying individual stocks but when the market crashed in 2008, it was an opportunity to buy. It wasn’t until 2010, when we started buying more stocks and investing. As a result, our portfolio has grown significantly.
I have invested heavily into mutual funds. A very large portion of my investments are in Vanguard funds. I have found them to have the least expense ratios but a very large portfolio of funds with good returns.
I am not big on financial planners. I don’t think it is necessary to give regular fees and/or a percent of your investment to someone who is essentially doing what you can do yourself.
It is important that you should be well-educated as you embark on it yourself. I do meet a financial planner that we trust in a lot and work with him on our progress, how are we doing with goals, and other discussions. But, they don’t manage our investments.
What has been your best investment?
In some sense, our best investment has been in education. I think that gave us a leg up on our careers and ability to grow. The result was that we were able to acquire the net worth that we did not dream of in the beginning.
I was listening to money stations since 1993 or so. I learned a lot about money and investing by myself. I read a lot of articles and books about investing. I also did a lot of research on funds, expenses, fees, rate of return, best funds, stocks, fund managers, financial planners, what companies & industries each fund invests in, etc.
By no means am I an expert but this is continued education. I actually enjoy understanding this as well. I think that has been my best investment – self-education.
There is no one single money investment that stands out from all. Few notables are specific stocks like APPL, GOOG, FB, TSLA, COST, HD, etc., have done really well for us.
We have always maxed out on 401k. Most companies I have worked for has matched 5%-6%. In addition, my wife’s organization not only matches but also puts in 1 to 1 into 401K. That is unheard of and taking full advantage of.
When I had deferred compensation plan, I put as much as possible into it. I also gained from company matching. In the 13 years I had, that grew into over a $1,100,000 portfolio.
What has been your worst investment?
Honestly – When I was travelling for work I spent more than necessary on personal expenses. We could have saved more had I been prudent. When work life balance suffers, wealth suffers as well.
What’s been your overall return?
This is a tough one. I have spreadsheets and analysis for everything. In order to truly calculate this and keeping track of cost basis and taking out money being added, it is not easy.
Sometimes I don’t trust the personal rate of return fund statements. Years of 2008 and 2009 dropped my net worth by 30%.
Having said all that, I believe that it is well over 12%. It could be even higher since I have been on the aggressive side most after 2010.
How often do you monitor/review your portfolio?
I check my stocks mostly daily. My wife does as well.
We both sit together and religiously update all of our investments and balances every quarter. We feel that it is unhealthy to look at this too often especially when you are planning for a longer time horizon.
I might look at our Scott Trade account more frequently as I may be buying more stocks or different stocks. I have a portfolio of 18 stocks from financials to Tech to Consumer goods to Retail.
We do talk about our investments, goals, tracking, changes we need to make, what can we do better, are we OK type of discussions couple of times a week.
NET WORTH
How did you accumulate your net worth?
We accumulated our net worth mainly through earnings, keeping our debt to absolute minimum, savings and investing. We both came from low income families and have no inheritance. Our parents taught us to spend wisely, save a lot and get great education.
When we took debt – such as car loans or HELOC, the only reason to take loans is not because we did not have cash but because we could borrow money at less than 2%. We could invest and make more money in the market.
If we had debt that were higher than 5%, we did everything possible to pay that off early.
We never paid interest on any credit card since we got married. My wife taught me well on this.
If we financed anything (such as furniture), it was because it was 0% interest for 12 months, etc. Never pay interest. Pay cash.
For the most part, it’s pure hard work to earn money and live within our means.
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?
It seems to me that ESI in that order is well crafted in our philosophy. I feel that without earning, you can’t save. Without saving, you can’t invest. The most important is earning. Having said that, it is critically important to have goals and live well within the means to achieve that goal. Never go for short-term instant gratification.
As mentioned many times, we live well below our earnings. We didn’t worry about how others lived and focused on us. Not to say that we were tempted once in a while if someone did remodeling or took a vacation to Bahamas. But, we controlled those temptations with good planning on our side and doing it for our happiness.
Also – every time we got increases in our salaries, we did not increase out lifestyle. We stayed course and moved those extra earnings quickly into retirement or savings. That is how we were able to put significant money into deferred compensation programs and Scott Trade accounts.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
We have been lucky with many things. We have not had any financial disasters, no health issues, no investments gone wrong, wrong careers, etc., that would have set back – knock on wood!
Of-course there were market setbacks such as the 2008 crash where our net worth dropped by 35%+.
But we continued on by investing heavily in 2009 and 2010 which paid dividends later. I remember that in 2009 when we were vacationing, at the house we were renting, I started a dummy portfolio of various stocks and monitored for a year or so to see how my $50,000 hypothetical investment would have done.
I was amazed how well it grew within 1 and ½ years and the returns were exceptional – of course the market was bouncing back. That gave me courage to actually start Scott Trade account and started buying stocks which today is a $1.47M portfolio.
What are you currently doing to maintain/grow your net worth?
Mostly continue to live within our means, continue to save at the same rate as our plans, watch spending and hope to learn from the 2008 crash.
As we are getting closer to retirement, we need to be little less aggressive in our strategy.
We have been thinking about conservative investments – higher % in bonds and some CD’s (from excess cash)
Do you have a target net worth you are trying to attain?
Initially, we thought that reaching $1,000,000 would be awesome. I was very happy to reach that and every million milestone after that has been icing on the cake.
Our goal is to live without fear, see the world, and give to charity (we have some specific goals on this).
In order to do this, we feel that reaching a $10M goal would be awesome. Anything north of where we are now is all blessings.
How old were you when you made your first million and have you had any significant behavior shifts since then?
We made our first million in June 2007. I was 43 and my wife was 37.
It took 15 years of my working life and 10 years of my wife’s working life to get to the first million.
Then in January of 2011, we were at $2M. It started to grow fairly quickly after that.
What money mistakes have you made along the way that others can learn from?
Good question. My wife & I thought about this but couldn’t come up with anything that is major.
I think if we would have managed our expenses to $120K per year, we would have had higher net worth and retire early.
What advice do you have for ESI Money readers on how to become wealthy?
- Live below your means — We did not live like millionaires. We but modest clothes, our home is not furnished with high end furnishes. We don’t have expensive tastes. I fix a lot of stuff around the house and try to be self-sufficient unless it absolutely requires a professional.
- Education – This is very important in our minds that really propelled the wealth. Being educated about everything from – what you eat, where the food comes from, where you invest and why, generally about life is also important. We are misinformed so much and make so many wrong choices that I am not sure how one can survive without good education.
- Hard work – no cliché, goes for everything one does in their life
- Save – Need I say more? How can one accumulate any net worth without this important component? I mean every penny should matter.
- Learn a lot about investing – Again education. Never depend on someone else to tell you about your money and future.
- Don’t depend on financial planners — If you have to, fee only (never % of investment). Still learn on your own and do the homework.
- Patience – It takes time and no short cuts.
- No debt – This is very important. Pay off credit cards every month and don’t pay interest. If you have to buy cars as an example, look for great low interest avenues such as credit unions instead of high rates. Pay off you home as soon as you can. People say that you lose mortgage & interest tax deductions, you could earn better in the market, etc. I have done the math many ways and I truly believe that one should pay off the house as fast as you can.
FUTURE
What are your plans for the future regarding lifestyle?
We would like to retire early and enjoy life, kids, hopefully grandkids and charity & volunteer work.
We have passion for travelling. We love seeing places and most of our travels have been wonderful both domestic and international.
During our working years of travel, we always felt that we were rushed, had defined timeline, and had to get back to work and kids school. After retirement, we would like to take it easy and enjoy the different countries, cultures and life.
We worked hard all these years and focused on our life and kids. We feel it is time for us to give back through charitable giving and working for helping others. This involves humanitarian as well as environmental and animal welfare.
We want to live as close to our kids as possible. They are an important part of our lives and we want to be helpful in their lives as much as they want. I hope to have a higher influence in their lives to make them highly successful.
We are quite big on living through a healthier lifestyle. We have gone to a plant-based diet in the last four years. We don’t do fast foods, sodas and sugary drinks.
If we don’t maintain a healthy lifestyle, we will not enjoy our net worth, will not be able to travel and do charitable work. We enjoy life through yoga, tennis, running, walking, hiking, biking, movies, travel, etc.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
We are always concerned about a market crash close to retirement. It is not in our control but the more prepared we are, the better we can protect to the best of our ability. I have been reading and thinking about “bucket strategy” and having a more conservative investment portfolio.
If my wife leaves her job, we may not have full healthcare covered and lose her retirement benefit. While we have not included these in our retirement plans, the lifelong healthcare benefit for both of us is significant help. Otherwise, we would have to include this in our expense planning.
We think about this on a regular basis that for some unknown reasons if we need to help our kids financially, then our net worth is drawn down. We plan on keeping a portion of that untouched until kids are fully settled.
Well, one cannot predict the impact of natural disasters and insurance can take you only so far.
MISCELLANEOUS
How did you learn about finances and at what age did it ‘click’? Was it from family, books, forced to learn as wealth grew, etc.?
We both grew up in low income families who taught us the importance of living within means, saving and education.
I am lucky to have a great wife who taught me to focus on no-debt and savings as soon as we were married.
We were already putting money away for house and 401K. But, I was about 30 years old when I seriously started listening to money radio stations a lot – learning about strategies, reading a lot about investing and researching. I began to invest and doing things slowly and early – such as starting mutual fund, investing in stocks, etc.
Who inspired you to excel in life? Who are your heroes?
My grandfather who was always there for me had a huge influence in my life. I wanted to excel and do well for him.
My father was a hard worker, ethical and focused. I learned through him to have patience, stay the course and work hard.
After marriage, my wife has been exceptional in keeping us focused as well. We both really work well in all aspects of life including finances. Our goals are really well aligned and I am lucky to have her as my life long partner.
For my wife, her father is a huge influence. He has great soul and his life is dedicated to making his kids great. He worries about her even today in a good way.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
We are not very good at giving to charity. Having said that, we do give money to various charities every year.
This is something we need to improve because we feel like it is not just about giving money but also time and commitment.
In order to have true impact, feeling good about making a difference and really understanding the pain in this world, we have to be involved. We have the ability and passion to do it now and that will be a major part of our life.
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?
Our plans are to:
- Take care of our goals
- Do what we are passionate about
- Leave the rest to kids but not until we are gone and they are mature enough to handle it
- Leave some for our passionate charity(ies)
Questions to the readers:
- We would like advice and experiences from readers about the strategy of what to do with my wife’s retirement pension. Would you take all the retirement in lump sum or go for monthly annuity? The difference is that lump sum would be $1,520,000 versus monthly benefit of $8,200. In this equation – consider that the organization she works for is stable. We would love to hear your thoughts.
- What strategies do millionaires use when the market is crashing as you get near retirement?
- Would you put $10 million in 4% interest paying 10 year bonds and live off of the interest?
- Does anyone have experience and has done bucket strategy? What are your experiences and advice on this?
The Physician Philosopher says
This was a great interview! I love the dual income perspective, particularly since one of them is a physician.
I love that you are honest about lacking work-life perspective during your career, and I think there is a lot to learn from that. We should all strive to achieve what we can at work, but only in so far as it starts to cut in on our work-life balance at home. Many can do both successfully, but it can be a tough balance at times.
P.S. This part was gold:
“I am not big on financial planners. I don’t think it is necessary to give regular fees and/or a percent of your investment to someone who is essentially doing what you can do yourself.
It is important that you should be well-educated as you embark on it yourself.”
Follow that advice, my friends, and you’ll stand to save millions so long as you educate yourself and learn to stick to a simple and diversified plan.
TPP
IamOnFire says
Thank You
TechHeadHunter says
Great interview. I too live in the NW. Are you planning on staying in the area during retirement?
Cammie says
Interesting read, nice job not allowing lifestyle creep and saving such a large percentage of your income!
Regarding the pension / Annuity question – I’d highly suggest you roll the pension out of the company’s hands either way. You can still get an annuity even if you get the pension out of the company (through a third party) BUT since you it is HIGHLY unlikely you will run out of money you should roll it out and invest in something conservative. Annuities are expensive and really only for those that are terrified of running out of money. And as we all know investing on emotion is never a good idea.
Whatever you do, roll it into your estate somehow. Otherwise (as you probably know) once you and your wife are no longer around the pension company keeps it, and it seems preferable to have it part of your estate.
Happy travels!
IamOnFire says
Thank you for your comments. This pension also comes with survivor benefits and therefore has potential to continue. Having said that your thoughts are still valid.
Bonnie says
Great interview! Can you say more about why you think paying off mortgage fast makes sense and the math you did on this?
I am evaluating this now and leaning toward paying off the mortgage vs. investing.
Robert says
1) Live below your means
2) Make sure you have a funded 6 months of living expenses.
3) Max-out on 401k matching contributions (that’s 100% return)
4) Paying off a mortgage is a great thing to do financially and emotionally. It’s a guaranteed return on your investment and you can sleep great at night, and brag about it.
5) Invest the maximum you can in tax deferred accounts in 2-3 stock mutual funds with dollar cost averaging automatic contributions. The remainder, if any, in a taxable brokerage acct.
6) Sit down, relax and watch your money grow!
IamOnFire says
I agree to the points listed by Robert. Also, I am not a proponent of paying interest on the loan just so that I can get some deduction on the taxes. It seems backwards to have a loan for that reason. Remember, in my case, the home is not an in my net worth. It is not an investment (unless it is absolutely necessary because we got into financial trouble). So, why pay so much interest on a home that is not an investment? Will you borrow money at that interest rate to invest into the market? You probably will not.
You can never discount the fact that emotionally it makes such a huge difference in how you behave towards all your money thinking when you live in a paid off home. I know many of our neighbors who carry 30 year loan (in some cases refinanced at lower rate to additional years) makes life decisions that doesn’t make sense to me because I have a house paid off and I can decide differently.
Yes – I did not give you a math here but with I am sure you can do the same calculations yourself.
Thanks
Paper Tiger (aka MI-27) says
Bonnie, I think there are several factors at play in deciding whether or not to pay off a mortgage. A lot depends on your current interest rate and time left on the mortgage and your other investments, debt, cash on hand, retirement timing, current cash flow vs. expenses, etc.
In my situation, I have 6 years left on my mortgage and about 500K left to pay off. As you know, interest is heavily front-end loaded so the backend of the mortgage has a lower effective rate than the stated rate over the life of the loan. I would suggest running an amortization schedule to determine how much interest you still have left to pay and translate that to the current interest rate on the remaining balance.
In my case, when I divide the remaining interest on my mortgage into my remaining principle, my effective rate is less than 1.5% per year average on the remaining 6 years. I can buy 18 month CDs today at 3% and 24 month CDs at 3.5%. I’ve decided to set aside enough to pay off the remaining mortgage but park it in CDs where I earn double the rate of my remaining mortgage, rather than taking 500K out of investments and paying off the mortgage.
Again, all this depends on your own variables and goals for your money. I just like the flexibility of knowing I have the money to pay off the mortgage at any time and not having so much sitting in home equity when I can stay more liquid through CDs and earn more interest by not paying off the mortgage right away.
Daveso says
WRT mortgage: I’m confused. You pay the same rate on the principle throughout the loan except you pay more interest in the beginning because your principle is bigger. You pay the same rate at the end of your loan as well.
Paper Tiger (aka MI-27) says
There are a variety of variables and programs that can impact the principal and interest remaining for an existing term which is why I mentioned you have to run an amortization schedule to see how much P + I remains on an individual mortgage. If we use my numbers, I think I can provide a simplified view to back up my statements.
In my case, I have 6 years remaining on my mortgage so if I continue to make my mortgage payments until the end, I will have paid a total of $558K with $503K being Principal and $55K being Interest. Obviously, if I paid off the principal now, I would save the cost of the additional $55K in interest.
If I take that same $503K and purchase a 60 month CD at 3.5%, and assume I could also achieve 3.5% on the 6th year, to keep the math consistent, my balance over this time would grow to $618K, netting me $115K in earned interest, or more than double the $55K it cost me in mortgage interest. Now, I don’t take into account capital gain taxes on the interest earned but I also don’t take into account the mortgage deduction on the interest paid.
At least in my situation, it seems the prudent thing to do is to keep the money invested rather than pay off the mortgage since I earn more in interest than I pay over the remaining life of the mortgage.
MI 122 says
Great Interview! You have done really well for yourselves and are far ahead of most others. Regarding your questions, I would agree with Cammie’s thoughts on taking the lump sum and finding a way to invest it yourself.
Market crash – Don’t know, I’m not in that position (ie. still working)
$10M in bonds – I would not consider this. You are too young for this strategy and I suspect based on your interview that this is far too conservative for you. I would guess you would get more enjoyment managing this yourself to find the balance between aggressive and conservative that would make you happy.
Bucket strategy – I am in the beginning phases of setting up my accounts and where certain holding are located to follow the bucket strategy. I am a fan. However, I’m not at the drawdown stage yet, so I’ll be interested in others comments as well.
Daveso says
Awesome stuff!! On the annuity- I’m no expert but I’d take the $1.5M. That way it’s all in your hands to do what you want. I assume annuity stops if God forbid something happens to your wife? Annuities are great to help cash flow but it doesn’t seem like that’s an issue for you! Now enjoy life to its fullest!!
Robert says
1) I had a similar one-time offer from my company to buyout my pension which I still have not claimed. After doing a lot of research, and different investment strategies, I decided to keep the monthly benefit. Assuming she’s in good health, she has at least another 43 years to live. You have plenty of stock/mutual investments. Think of the pension, social security and her salary as a bond investment to diversificaty your portfolio.
2) I have about $8 million in IRAs/401k. I moved 30% or $2.5 million to low interest (2.5%) tax-deferred, which can cover my expenses for 5 years, and I let the remainder balance invested in a couple of domestic mutual funds. I am not worried about a market crash, since I’ll be able to ride-it-out with my low interest portfolio. I don’t invest in an international fund. My “international” exposure is from S&P500 companies that have businesses overseas.
3) No. Put an amount that covers X numbers of years that you/your wife are comfortable to ride out your worst case scenario, and keep investing the rest in 3 mutual funds. Keep a small “play fund” to buy invididual stocks if you enjoy doing so.
4) Keep investing simple, and enjoy life.
IamOnFire says
Thank you for the great ideas. Helps a lot !
Sam says
Alright, this is what most of them would aim to get to. I loved the journey you had so far. Thanks for sharing.
Question on education – I am guessing you don’t really mean getting degrees alone, but educating yourselves to the demands around you, correct? What’s your education like?
I have a PhD and am friends with many MBAs. Some of my MBA friends think I got great career path, while I think they are set up for earning big bucks. Grass appears to be always greener on the other side 🙂
IamOnFire says
With respect to education, I received a Bachelor’s in Engineering and then Master’s in Engineering as well. I decided to get an MBA after I started working for a good 10 years. I wanted to make sure I was good at this and that MBA would help my career and work. Also, I got additional courses in the field of my work that continued to hone my skills as well. This has been true for my wife as well who went on to do triple specialty in her field of interest and became a highly valuable person in her organization. Also, she has tremendous passion in her work and her skills and talents shows of with her education.
I think focusing your education once you set your field of work in motion would be the best way yo go.
Also – Education in all issues around us is important. Such as – financial education investing education, yoga, food, lifestyle, politics, social issues, children, emotional health, start-up companies, angel investing, mentoring, etc., List goes on. Learning is fun !
Millionaire73 says
Hey Millionaire 116
Great interview and it stuck me how many similarities we had outside of our investing strategy.
If you have a 10-15 year horizon than you should not worry about a market correction and 10 year treasury bonds are only returning 2.7% and it has been 12 years since they were over 4% and keep in mind there is still federal tax so you would “clear” 2% which is close to inflation. Obviously there are bonds that return more but as the yield goes up so does the risk. I have a pretty detailed insights into my approach in the interview/comments but currently it is ~20% cash (in CD’s getting 2.65-2.75% for 13 months), ~20% self invested, and 60% spread between 4 hedge funds (two of them long/short) and I interviewed dozens before selecting.
Good luck and thanks again for sharing.
Millionaire 73
https://esimoney.com/millionaire-interview-73/
IamOnFire says
Thanks Millionaire 73! I will check yours out and learn from you!
M says
Excellent work, and congratulations on executing the ESI strategy so successfully.
On the pension, we have a similar decision with for my wife when she turns 55 yo. I’ve looked at the annuity v lump sum rate, as well as compared it to a fixed annuity that we could obtain on the open market.
In her case, perhaps because they’re a Fortune 50 company, it has an excellent rates versus comparisons. So our strategy is for her to take that as a single life annuity (ie her only) and receive the monthly check until her passing.
My thoughts are that this will provide “ballast” to our financial situation, and cover about half our living expenses, allowing us to not worry as much about risk in our portfolio. I also know she’ll be taken care of in virtually any situation, and should I outlive her, I know I’ll be fine. Lastly, its a bet on our longevity vs the actuarial tables–from reading your profile as a high earning, non drinking vegetarian who works out, I’d take that bet as well.
Best wishes.
IamOnFire says
Thank you and best wishes to you as well. We have another 8+ years before we have to make a decision.
Chris says
I think I would keep the pension not lump sum it. Then you don’t need to worry as much about market swings as much.
That said, you are going to have some serious RMD issues in your 70’s I suspect. Have you given any thought to that ? I’m guessing if that were me, I would be starting to take withdrawals @59.5 or even earlier with 72T. Curious if at this stage in the game if your strategy is to do tax advantage contributions above the matching. I don’t think I would.
Fun “problems” to have hope I have them some day 🙂
MMiguel says
Congrats on your success and getting to that stage where you can relax a bit. We have a lot in common in terms of age, NW, low income background, path to wealth, etc, minus the kids. That plus having the good sense to marrying smart women!
On your pension question, I would take the lump sum. My motives: (1) Want to be in complete control; (2) Estate planning; (3) Flexibility to redeploy in other investment opportunities; (4) Diversification away from single payor. As a finance and business professional I’ve seen too many “good” businesses go belly up and pensions are not completely protected in those situations.
Similarly, I am wary of most insurance products like annuities, long-term care, etc. because of the counter-party risk – i.e. you are dependent on the insurance co remaining solvent and creditworthy over a very long period of time, and honoring its end of the bargain. Also, employers can literally “sell” a pension to an insurance co, and.or insurance co’s can sell off business lines to less credit worthy insurance co’s… so IMO one should never assume things will remain “good” forever.
My concerns with taking the distribution would be tax impact – you should of course consult a tax professional. Also, the nice thing about pensions is protection from lawsuits (they are pretty much untouchable), so ideally you could roll the distribution into an IRA or trust or something that provides a measure of protection. At your asset levels, you need to (1) have plenty of liability insurance and (2) think about ways to shelter assets.
Kevin says
Regarding the pension question, it depends. For my family, it was hands down taking it on a monthly basis. My dad worked for the British government. He retired at 52, and has the option of taking it as a lump sum or monthly. Turns out the math was that they modeled it based on life expectancy of somewhere in the 60’s. My dad is turning 85 this year, still going strong. We haven’t calculated how much ahead he is, nor taking into account the investment return it could have been had he taken the lump sum, but going monthly worked for us.
Unless the British Government runs into serious trouble and can’t pay its retirees, it will be fine. (Brexit comes to mind)
Jace says
Congrats on your success. Here is my two cents on your questions.
1. I would favor the lump sum-This would depend on your tax situation a little bit but regardless you then have complete control over the money. You could redeploy it into another asset class that provides the same amount or more in monthly cash flow. I personally like real estate (syndications or just buying something outright on your own) and small business but I understand this is not for everyone. One thing though is that could provide you something to do from time to time during “retirement” and continue to expand your skills. You likely will be able to get a better return on that lump sum that than the monthly payout even if it lasts 40+ years.
2. I will preface this with saying that I am young (30ish) but I have been investing for nearly 15 years however I didn’t lose a substantial amount in relative terms during 2008 because I didn’t have a large balance built up yet. I don’t quite get the fear of a market crash towards retirement. I talk with my dad about this frequently because he is in the same boat as you with a few years senior but he questions it as well. My response to him is this…Even if your assets declined 30% again and stayed that low for say 5 years (which would be highly unlikely), would your retirement plans completely derail themselves to the point that you would need to go back to earning an income again to sustain life? For him the answer to that is no. Your generation is still likely to get some payout from social security as well. My risk appetite is probably a lot higher than most and but why drastically change the strategy that got you to where you are now. It obviously worked through the tech crash and the great recession. I look at this as playing to win vs playing not to lose. I’d rather play to win always. Now having said that, these conversations with my dad have forced me to evaluate my long term plan and journey which has evolved into a desire for more cash flow vs. higher asset balances in say the equity markets. At this time I have decided that I want options throughout my life not just at 59.5 and into retirement. Those options have evolved into a 3 pronged strategy where my assets and subsequent income will to be derived from tax advantaged retirement accounts that are invested in the equity markets, real estate and small business.
One thing to think about in your situation is the RMD’s. Many people haven’t go to this point in their retirement so the mainstream media and finance bloggers haven’t had a lot of experience with it but it is definitely something that will affect a lot of people and could be very frustrating into your 70’s. In some cases these will propel people to be in a higher tax bracket than when they were saving and putting money away for retirement.
Anyway hope this helps. I appreciate the interview. It’s great to learn from others.