Millionaire Interview 325

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 May.

My questions are in bold italics and their 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 just turned 56 and my wife is 55.

We are approaching 33 years of marriage.

Do you have kids/family (if so, how old are they)?

We have two children who are in their mid to late 20’s.

Both have become successful adults and are excellent savers.

And our oldest turned us into grandparents this year – amazing!

What area of the country do you live in (and urban or rural)?

We are currently nomadic, but Florida is our official state for residency.

All our stuff is in storage after I retired from the military and we have no permanent residence. We lived in furnished rentals for 8 months trying out different areas of Florida to determine where we would “permanently” live.

It was 8 months as we had plans to hike the Appalachian Trail spring/summer/fall of 2021, which put the location hunting on hold. This also meant no rent or mortgage for 7 months! We successfully completed all 2,193 miles of the trail in late October.

Upon completion went to visit our children and we found out we were soon to be grandparents for the first time. This has potentially changed our view on where we want to live (ESI taught us to live close to 50% of your children). But it is tough – the beaches of Florida are nice! Our grandchild and her parents live in Texas and we are now spending time with them and are back in furnished rentals and exploring communities in Texas.

What is your current net worth?

$3.5 million not counting the value of my federal government pension.

The pension would have considerable value using the 4% rule, but I remember vigorous discussion previously on this forum about this issue, so I do not count include the pension.

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?

Just under half of our net worth is in taxable assets, with the other half essentially evenly split between Roth and pre-tax dollars.

• US stock index fund – 42%
• International stock index fund – 17%
• US bonds – 21%
• International bonds – 6%
• Real estate syndication deals – 12%
• Cash – 2%

We are heavy on bonds and cash (compared to my planned position), but we plan to buy a house (hopefully in the next year) and will need money for that.

We have no debt.

EARN

What is your job?

I am a retired military physician leader and general surgeon. I say it in that order as the last half of my career were leadership positions where I was able to do some surgery. Sadly, the more senior I became, the less surgery I performed (ultimately none in my last 3 years).

The last 4 years I worked for a 4 star (in 3 different jobs in 3 different locations of the world) and quickly learned they expect miracles on a regular basis and while those were pinnacle jobs for a medical Colonel and rewarding, they were also very stressful.

In 2020 I retired with over 28 years of active military service. Since we had been financially independent for a number of years (since at least age 50), I decided to fully retire.

My wife became a stay-at-home Mom with the birth of our first child and she did even better in her chosen career than I did in mine.

What is your annual income?

My military service earned me $104k taxable per year immediately upon retirement (indexed to inflation) and $43K tax free per year (also indexed to inflation) from the VA.

Unfortunately, I got pretty beat up in the military and being in my 50s brought on disease, so the VA check was an unexpected windfall, but one I wish I didn’t earn.

We also receive $25k in dividends and interest, as well as $24k from the real estate syndications (not counting any appreciation, although one deal just announced they may have a buyer, which will be our first syndication to go round trip).

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?

My last 3 years in medical school, my wife earned approximately $25,000 and I earned $8,000 on a military scholarship (which we thought was loads of money).

My first real job was residency where I earned $30,000 per year. I was active duty starting in my residency and never left.

In the military, pay is entirely related to your rank and time in service. I made sure to get promoted on time, otherwise no magic in getting my salary to grow.

Physicians do get bonuses based on our specialty and general surgery is in the second highest tier, but my military pay was not close to a civilian surgeon. The last year on active duty I earned $260,000. I have to say it was still a good income.

What tips do you have for others who want to grow their career-related income?

Obviously, my situation is different from many people, but I believe some things are universally applicable.

For example, not everyone gets promoted at each opportunity (55% of physicians who are eligible are selected for Colonel), so hard work is still valued.

Getting along with your boss certainly helps.

Willingness to move and take on new/different/more challenging responsibilities definitely helps you climb the ladder.

I believe all of those apply in the civilian world. I am an example of not needing to be a business owner to become a multi-millionaire. The traditional track of working hard and climbing the ladder definitely can work.

What’s your work-life balance look like?

Great now! When I worked, not good.

The last few years I mentored many people to spend more time with their families. However to this day, I wonder if I would have been as successful if I had worked 10% less, to spend more time with my family. Probably would have worked out just as well. 20% less? 50% less!?

The tricky part is knowing where the curve bends and you have diminishing returns on your extra work. Unfortunately, most bosses are not going to tell you, definitely making it a tough balancing act. As I have read the other interviews, it seems most of us now millionaires struggled with this.

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?

I covered trauma call at the local trauma center for 1.5 years when the opportunity happened to perfectly align with my job, but it is tough to work a second job in the military and not have it impact your ability to work hard in your primary job. It was a valuable lesson though – I earned 11 cents on the dollar I billed (I was paid strictly by what the billing department collected for me), so really wasn’t much money and was more valuable as a combat medicine skills builder.

We were also landlords for 8 years (after it was our primary home for 4 years) which was profitable, but being a long-distance landlord was not a great experience. The management company kept telling us the place looked great and we were getting maximum rent. We later learned the house was pretty beat up and rent definitely could have been better. We sold the house for a nice profit but don’t currently have any plans to be a direct real estate investor.

SAVE

What is your annual spending?

This was tough to determine with COVID, the hiking adventure we took in 2021, no permanent residence and being new to retirement.

Prior to retirement we spent $120,000 per year (not including taxes and retirement/investment savings).

Last year we spent $84,000 but were on the trail nearly 7 months and had no rent or mortgage during that time.

In 2020 (half working and half retired) we spent $120,000.

This year (Jan – Apr) we have spent $38,000, which is on track for another year around $120,000.

We have been planning on $140,000 (gives us a bit of cushion) as our baseline spend (before any increase in travel). My two checks cover those expenses and we are doing well.

What are the main categories (expenses) this spending breaks into?

• Housing (rent for the last many years) – 30% (all numbers are during typical years)
• Vacation – 15% (we like to have great experiences)
• Dining out – 6%
• Groceries – 6%
• “Cash” – 5% (money we take out of the ATM and no longer try to track in a meaningful way)
• Entertainment – 5%
• Insurance – 3%
• Utilities – 3%
• Electronics/software – 3%
• Charity – 3%
• “Other” or “uncategorized” – 21% (see below)

Do you have a budget? If so, how do you implement it?

For many years we have used a “reverse budget” where the mandatory spend items are automatically paid and what is left is yours to spend. Since every few months (before retirement) I would end up transferring money to our investment accounts (and about twice per year adjust our automatic saving upward), it worked well for us.

Mandatory spend items include retirement and investment accounts, housing, utilities, and insurance.

Groceries, dining out, vacations, charity, etc. were all paid on credit cards (paid off each month) or via cash/checks.

As you can tell by our large “uncategorized” we didn’t keep a line-item budget.

Now that we are retired, this method has been modified to remove retirement and investment account contributions. The last several years we used Mint to keep an eye on our spending (and look for any fraud). I also keep a running count of our future balances in Quicken based on predicted future expenses.

Thus far, we have not had to curb our spending and in fact significantly underspend vs what we could spend with a 3.5% safe withdrawal rate (to the point I have transferred some money from checking to our investment accounts with only our monthly checks as income).

What percentage of your gross income do you save and how has that changed over time?

The 2 years before retirement we were saving 45% of our gross income.

The year before our youngest daughter graduated college and those funds boosted our already good savings rate (we cash flowed college).

When we first started working, we set a savings floor at 10% and every time we had a significant increase in income (the biggest were my promotions, which happened every 6 years in the first 18 years of active duty), we increased our savings. Typically, we tried to save half the net increase (post tax) but I am not sure we made it every time. I also got smaller raises each year based on cost-of-living adjustments and time in the military bumps your pay up every January (the longer you serve, the more you make).

We didn’t programmatically bump our saving with those raises, but as I mentioned above, when we had extra money, I would transfer it and adjust our savings rate up if it was a recurring issue.

What’s your best tip for saving (accumulating) money?

Have a plan and stick to it.

Our plan of saving (about) half our raises was key, as was our reverse budgeting and discipline of saving excess rather than having a party with it.

Our investing plan also helped as it allowed us to take advantage of downturns rather than panic sell. Stick to the plan!

What’s your best tip for spending less money?

You can have almost anything you want, but you can’t have everything you want.

We spent far less than we earned, from basically the beginning and never felt deprived. It also helps my wife was frugal and an excellent saver from the beginning. She also helped me (I am still a good saver but not on her level) because if I was going to make a significant purchase (meaning over $100), I let her know first and she sometimes would ask tough questions.

On the other hand, I was frequently nudging her to spend money (especially on herself), which she never really did until the last few years (and even still, not much).

What is your favorite thing to spend money on/your secret splurge?

We do eat out quite a bit and I drive a Mercedes E350 (BMW 540 before that) but held on to the BMW 11 years and my Mercedes is 8 years old and I have no interest in a new one.

Our biggest splurge is no secret — our vacations can be epic.

We spent $30,000 on our 25th wedding anniversary cruise to the Galapagos. We booked a Jr Suite on an Alaska cruise with a land component added on for our 15th anniversary. When I was deployed to Afghanistan for 16 months, we took a 2-week trip to India ($24,000) during my one vacation during that time (if you are deployed over 9 months, the military allows you one 2-week vacation – very generous!).

INVEST

What is your investment philosophy/plan?

Our plan has been simple – total US and International stock market index funds with a gradually increasing (as I approached retirement) total US and International bond funds.

Three years ago I added syndicated real estate to our plan, mostly as a diversification move.

What has been your best investment?

It has become a standard answer to say our spouse, but it is true.

Without my wife, we would not be in as good a position as we are now (both monetarily and life in general).

Having an investment plan we have stuck to was also a key investment. It takes a lot of time (I have long been a DIY investor).

What has been your worst investment?

Long time ago our first “advisor” sold us Destiny II mutual funds. They had an insane load at 5% if you kept contributing for 10 years (it could be as much as 50% if you contributed less than 1 year).

With the load, no surprise we underperformed the market, returning us 5.96% over the 1993 – 2007 period we held them (buying in each month the entire time and was our only investment).

For reference, the same period the total US stock market made roughly 10.84%. Hmm, add in the 5% fee and the investment was pretty much returning the same. Hard, hard lesson about costs really mattering.

I would also say the whole life from the same “advisor” was also a bad investment. After 25+ years of owning the policies, the return was less than 2%. Of course, I did have life coverage, but I now firmly believe term life is the right choice for most people.

We stopped making payments on the whole life when we reached Financial Independence, but kept them as paid-up policies since the cash value wasn’t life changing and the death benefit offers a bit of peace of mind for my wife (more below in the “Future” section).

What’s been your overall return?

From the beginning (1990) to now, we have had a 7.2% return, with our Destiny II fund dragging this down significantly.

I guess we are proof “I” is not the most important component!

How often do you monitor/review your portfolio?

I look at our holdings and spending once a month and rebalance if significantly out of balance.

I use a 5% absolute discrepancy (target minus actual) or 25% relative discrepancy (target minus actual divided by target) as my trigger points.

In the recent years, I have done little re-balancing using these rules.

NET WORTH

How did you accumulate your net worth?

As I showed above, I didn’t particularly invest well (not bad but not great) but I did earn reasonably well and we saved extremely well.

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?

Clearly a consistent, high savings rate from a decent income was the key to our success. I believe Save is the most important component. If you don’t Save, the Earn and Invest components don’t matter at all.

If you can accept the lifestyle your Earn gives you (after you save), Earn is only important in as much as it allows you to save.

Invest is obviously important and if I had achieved a higher return we would be in an even better position. I think the really important part of Invest is the risk management. I can put it all in BTC and could really make a lot of money. Or lose a lot. On the other hand, I can put it all in T-bills and essentially earn nothing after inflation. So, Invest is clearly important as well but I will stick with Save is the most important.

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

I was a saver from the beginning (I invested in an IRA my second year in medical school) and my wife even more. Our investments dropped hard in the 2000 crash (lost over 60%) after 3 years of buying individuals stocks and thinking I was a genius.

I was so good I was trading on margin to magnify my results. As it turned out, they magnified my losses even more. I stopped all margin trading and started really educating myself on investing. It was a slow journey and the Destiny II trip was painful in retrospect.

The sad thing is I was happy we were seriously investing, but just didn’t understand what was really happening.

What are you currently doing to maintain/grow your net worth?

Currently, we are more conservatively invested to minimize sequence of return issues.

This part will probably be controversial, but I plan to start my glidepath to 80% equities, 10% bonds, 10% real estate syndication when the market drops 30%. I will then start increasing my target equity holdings by reducing my bond holdings at an absolute rate of 0.5% per month.

To be clear, my current target for equities is 60%, which will increase to 60.5% the first month, then 61% the second month, then 61.5% and so on. We will go from 60% to 80% equities over a 3 1/3 year period. It is a combination of glide path theory I have seen on Early Retirement Now (and other sites) with the after a bear market start being my modification (theory is I am buying the market on sale).

I welcome any thoughts on this!

Do you have a target net worth you are trying to attain?

No target, we have the resources to spend more than we ever did while I was working (by quite a bit, even at a 3.5% withdrawal rate) since my government pension provides more income than we historically spent.

This leaves our nest egg for whatever fun we can dream up. Since I retired in 2020, we have not yet tapped into our nest egg (and in fact added to it), but COVID and our hike on the Appalachian Trail made for strange years.

We plan to travel quite a bit and need to buy a house (eventually).

How old were you when you made your first million and have you had any significant behavior shifts since then?

I had to look this one up.

I remember it being a big deal when I hit Vanguard’s Flagship level ($1M with Vanguard) but I didn’t remember when we hit $1M net worth. It looks like we hit $1M net worth March 2013 (46 years old).

We hit $2M December 2017 and $3M August 2020.

What money mistakes have you made along the way that others can learn from?

Fortunately, we have not had any huge money mistakes (vs investing mistakes).

We bought a house when we should not have (with less than 3 years to go before I knew we had to move is one example) but in the end it didn’t cost us big money.

We only had two car loans (paid cash for the last several cars – we typically hold them in the 10-year range) and have always paid our bills on time.

What advice do you have for ESI Money readers on how to become wealthy?

I think saving rate is the key. Not only does it put money away for the future, but it also means you are spending less (and thus need less of a nest egg).

I know this is boring, but index investing is as well. That is the point – consistent long-term results with low stress.

FUTURE

What are your plans for the future regarding lifestyle?

My goal was to be able to fully retire after 30 years in the military (with no expectation I would make a career of the military – I was not planning on staying past my commitment for a number of years). Things went well for us and I could have retired well before I did, but I was enjoying my jobs in the military.

As I mentioned, we were somewhat frugal (as compared to our income) and we are accustomed to a nice, but not extravagant lifestyle. The retirement and VA income covers our typical expenses and still leaves us additional funds (even before we touch our nest egg). This leaves a lot of money to go have fun with.

We definitely plan to increase our travel, especially the number of epic trips. We also plan to slightly increase our lifestyle with the goal being to eliminate or reduce things annoying to us. Flying coach is one example. Definitely doable, but it never leaves us in a good mood. Lately been flying First Class (in the US) and the extra few hundred dollars are well worth the reduction in aggravation.

Same for hotel stays. We typically stay in a Hilton brand but historically the cheapest one we could find in the area. Now we are looking to be closer to the action and try to get into a slightly higher level (Homewood Suite vs Hampton Inn). A bit nicer rooms and better locations make the trip go easier. Notice both of them provide breakfast in the morning, so we are a long way from living extravagantly!

In the next few years, if the spending pattern still shows we are significantly over-saved, then we will start looking at other quality of life issues, but we will go slow on this. It is always hard to pull back once you enjoy the good life!

We definitely still look for good deals and use points programs to our advantage, but just changing the cost/benefit point a bit.

What are your retirement plans?

Spend more time with the family (military keeps you away for long stretches), travel more, develop new hobbies.

My wife is really loving pickle ball (I like it as well, but had a medical issue which should resolve by June, allowing me to head out soon) and spending time with our grandchild.

I really enjoy learning and began teaching myself to code (python, SQL and C right now) and learning Spanish.

We also both like to volunteer, but we will start in earnest once we settle down in one place.

We will see what else comes up, thanks to the book reviews on ESI we know having hobbies, activities, social connections and being close to 50% of our children are important to happiness. Spending time with our grandchild has become a major priority!

Are there any issues in retirement that concern you? If so, how are you planning to address them?

Running out of money is actually a concern, but I am mostly concerned about my wife running out. She comes from a line of long-lived people (100 is not uncommon in her family) and with my medical issues, I think 80 will be fortunate for me (still pretty good). When I die, she will lose 60% of my monthly retirement income. She keeps receiving 55% of my military retirement, but will likely (not guaranteed until I live 10 years in retirement) get a small (25%) survivor’s benefit from the VA.

If I live to 80, we are in excellent shape, but we need to be ready in case I die significantly earlier. But on the other hand, I don’t want us to die misers and give our money to the next generation. They are successful and won’t need it, plus we saved it so we should spend most of it!

One bonus of a military retirement is healthcare is low cost and risk for us. Currently TRICARE is $650 per year (covers my wife and myself) with a $3,000 catastrophic cap per year. Once Medicare kicks in, we get TRICARE For Life free, which pays the Medicare co-pays and some things Medicare doesn’t cover. It is nice to have a huge variable (for many people) greatly reduced as a concern.

We address the concern by being conservative in our spending plans and in our projections (using return projections which are on the low side of typical) and using high success rates in Monte Carlo simulations (I use 99% success rates as my guide). I also plan to be in more equities which may sound counterintuitive, but since we are talking about a 40+ year retirement, I think the higher equities are an important longevity hedge.

I will also delay taking social security until 70 to maximize her benefit after I am gone.

If our portfolio has a catastrophic downturn (I am thinking 50% or more loss), then we will also adjust our spending as the market recovers. Blindly spending our 3.5% “rule” annual budget seems reckless.

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

When growing up, my Dad would really harp on the Rule of 72, the importance of saving and paying your bills on time, etc.

I had a good grasp early on, but I really got interested when I graduated residency, doubled our income and saw the power of saving and investing (and what can go wrong).

Who inspired you to excel in life? Who are your heroes?

All of my inspiration comes from family. My parents instilled good values and my wife worked hard raising the children.

The kids were and continue to be a treat. I wanted to make sure they always had what they needed (not necessarily everything the kids wanted).

I am also self-driven – lots of docs in the military do the clinical work and duck out of everything else. I enjoyed the other work and learned I really liked leading. But to lead at higher levels, you have to keep showing excellence, so the military machine certainly worked to motivate me.

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?

Millionaire Next Door – My parents gave me this book early in our marriage and it really confirmed what I was already thinking (my wife came into the marriage with this mindset well established). You don’t need to be flashy or the best of everything. Pick what is important and make sure you always have a plan to save.

The Richest Man in Babylon – I also got this from my parents early on. Easy read and teaches the lessons Millionaire Next Door teaches. Good reinforcement at the right age.

The Bogleheads’ Guide to Investing – When I figured out complex investing (including active mutual funds) was at best a break even with passive index investing, and likely worse than indexing, it really dropped my stress levels about retirement funding. It took a while to find this, but I firmly believe it now. I won’t make as much as those who get lucky each year, but different people get lucky each year and I will beat most of them in the long run, all with basically no stress about what to invest in.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

With our current nomadic lifestyle we have not given as much as we used to in the past.

My wife is a regular giver at church and we both like to volunteer, but definitely need to elevate our volunteering game.

But we also have to leave time for pickle ball, family, etc. We don’t need retirement to become stressful.

Since we are still early in the retirement journey, financially we are not yet confident enough to start giving away significant chunks, but we have already started figuring out what we could do with our Alma Mater and charities — we have long given small amounts to.

When we get an official home town, we will also explore local charities.

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?

By the time we die (hopefully in many years) our children will be financially independent as well (both are shooting for their 40s). Which is why it is not our plan to intentionally leave them money.

When planning we use approximately $1M (in today’s dollars) as their inheritance. This provides us longevity insurance in our plan.