Millionaire Interview 363

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 January.

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)?

Both my wife and I are 60 and we’ve been married for 36 years.

We knew each other in high school but didn’t start dating until freshman year of college. A mutual friend told my wife that she wanted to introduce her to a nice guy in the adjoining dormitory building. When she saw me, she said, “I know that guy, he went to my high school.” She was my first and only girlfriend.

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

My wife and I have two daughters, aged 28 and 25.

Our 28-year-old completed undergraduate and graduate school and is an elementary school counselor. She is our spender…and she is struggling a little on a school district salary.

Our 25-year-old left college after a year and half because she didn’t want to waste our money and her time when she didn’t know what she wanted to study even though she was doing very well with general studies classes. After leaving school, she lived and worked at a national park out west for a year and a half, then overseas for a year and a half. She is our saver!

They both live about 2 hours from us in the same town, but not together.

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

We live in a suburb about a 40-minute drive from a major mid-Atlantic city.

What is your current net worth?

Including real estate equity, our net worth is $5M+ as of the end of 2022.

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?

• Taxable brokerage account and other cash accounts (mostly in stock ETFs) – $1.3M = 25%
• Tax Deferred including 401K (mostly ETFs), TSP, and Company Stock – $1.4M = 25%
• Roth IRAs (mostly ETFs) – $430K = $10%
• Real estate equity including house, condo, and rental condo – $2M = 40%

We have no debt (no mortgages and no car loans).

EARN

What is your job?

I am retired from the Air Force and have worked for a small systems engineering company for the past 18 years.

I am a Senior Systems Engineer and work on a contract supporting the government performing systems engineering, strategic planning, and financial/budget management functions.

What is your annual income?

My 2021 W2 earnings were $230K before 401K contributions. My gross pension is $57K.

My wife does not work.

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?

First job, you mean like when I was a paper boy as a kid…or my various summer jobs in college; driving a Mister Softee ice cream truck, or dormitory maintenance crew, or pulling mainframe computer cables from underfloor computer facilities. Probably not interested in that stuff.

As far as my career, I can’t even remember starting salary when I first joined the Air Force, but it was a small amount, perhaps $20K/year…it slowly grew with rank and pay grade promotions. In the military, everyone makes the same amount based on years in service and rank and it’s all public knowledge. Pay raises occurred every two years within the same rank and increases with each rank promotion. I think my final salary was around $120K when I retired.

I started receiving a pension at 42, at the same time I started working for a small company that was supporting the government agency I just retired from. My starting salary was $130K as a contractor. I had higher salary offers, but I picked the company because it was very small, had a family atmosphere, and it had the best total compensation package.

That compensation included an additional 25% of my salary that was an individual benefit account that could be applied to medical expenses. Since my medical expenses were low using my retired military benefits, most of that 25% converted to additional salary. Additionally, the company contributes 25% of my salary to a 401K whether I contribute or not.

I received generous pay raises for a while until I was near the salary cap on the government contract…then I didn’t receive a pay raise for 8 years. I love my company, I felt I was well compensated, so it didn’t bother me. I never thought once about job shopping to raise my earnings. Eventually I pointed out to the CEO and COO that it had been 8 years since my last pay raise and the company gave me a 2% raise. I think they would have given more if they could, but there are constraints on the contract that limit them. They did give annual bonuses when I wasn’t receiving a pay raise and that amounted to $5,000 to $11,000 per year.

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

Many people grow their career by changing companies and receive pay raises every time they switch companies, sometimes a 10-15% bump each time they shift companies. My experience was the opposite and very old school. I stayed with the government for 20 years and received small pay raises every two years and increases with rank promotion. I also stayed with the same company for 18(+?) more years after the military. Loyalty and consistency have meant something to me.

So, after all that, what is my advice? It’s not always about the salary, look at total compensation and other quality of life factors (specific work, work location, co-workers, and company atmosphere). Also, consider advanced degrees, professional associations, and professional certifications if they are important in the career field you have chosen.

What’s your work-life balance look like?

The company contracts employees for a certain number of hours per year, usually 1860. We have a lot of flexibility how we bill those hours.

I generally work longer days (9 hours) so that I can take more days off for vacation (45-50 days a year). In the summer, I will work shorter days to play 9 holes of golf in a golf league.

I generally walk or work-out 5-6 days a week, so I feel pretty good about my work-life balance.

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 have my military pension as my primary additional source of income. This is $57K/year and I currently take home ~$40K/year after taxes, survivor benefits, and medical/dental allotments.

We have a condo that we rented as a vacation rental in a southern beach community for 7 years, then to a long-term tenant for 3 years. Renting helped pay a portion of the mortgage, HOA, taxes, but it never broke even. It wasn’t a good rental property per se (didn’t meet the 1% rule, etc.), but it helped us pay for a property that we plan to live in half of the year when retired.

My wife found another condo off island, close to the beach community that did meet the 1% rule at purchase and has since doubled in value since purchase 3 years ago. After all expenses, we plan to net $15K per year.

My wife was talking to a realtor on the island looking for a rental property but told him that her husband had this 1% rule that she had to meet. He told her don’t bother looking on the island, look off the island where you will find the best value. This was great advice.

We do not use a property management company, so my wife does all the tenant screening and maintenance at turnover. Although I mentioned my wife doesn’t have an income, this is her work. She doesn’t get paid, but it helps our bottom line…and bonus, she enjoys it.

SAVE

What is your annual spending?

This is something I am really trying to figure out as I am planning to retire at the end of 2023 and want to forecast our living expenses (longevity) and discretionary expenses (lifestyle).

I just looked at an annual report from our checking accounts to look at the outflows, credit card payments, checks, utilities, etc. It was around $130K. That seems high to me, so I am anxious to see how it will look in retirement.

I know that $6K/yr is assisting our younger daughter with medical insurance premiums and weekly therapy appointments. That will end next year when she turns 26.

$40K of that is maintaining our primary and secondary properties with $16K of that going to property taxes.

For now, I am using that number to compare how much my current income (pension, dividends, and rental income) will cover, and how much more I will need from portfolio assets to cover the rest.

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

We use credit cards for almost everything except utilities, taxes, and church donations. We have always paid for most things with credit and paid off the balance each month. We do use travel, points, and cash back credit cards. I do download any available credit card annual statements each year and look them over for tax purposes.

Our biggest expenses are food and dining out, travel, insurance, and transportation.

We will spend more on travel in retirement as I have a long travel bucket list, but other work-related costs should be less (e.g., gas and maintenance).

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

We never really had a budget. We just knew that we needed to spend less than what we earned.

In the past, I used Quicken for maybe 10 years entering a lot of details. At the end of the year, I would look at the spending categories and there really wasn’t any surprises…. we spend money on food and dining out, we spend money on housing, and we spend money on transportation. Eventually I got to the point that I questioned the value of it as we were living within our means…without a budget to remind us. I imagine it will be that way in retirement too, though I will watch how we spend in the first few years, just to get a feel for annual expenses and ensuring we have enough for longevity, lifestyle, legacy and liquidity goals.

Since the beginning of our marriage, we saved receipts and I cross-checked them against our credit card statements, but I might wait six months before I did the reconciliation. So, it was a huge effort all the time, sorting the receipts by credit card, then comparing them to the statements. Finally, last year, after all these years, I just stopped doing it. It felt great to stop wasting that time when we rarely found issues. We still save some receipts if there’s a possibility of returning an item, but we are no longer saving receipts for gas and restaurants.

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

We have never calculated a savings rate…we just always saved as much as possible.

For 2022, I would say we saved around 33% ourselves and if I can throw in the 25% 401K contribution from my company, it’s closer to 50%. That 33% uses a denominator of earnings, pension, and rental income. It would be higher if I only looked at my salary.

We had some cash sitting in savings and checking accounts and decided to pay off our two mortgages at the beginning of 2022, so that allowed us to save more aggressively in 2022 and 2023.

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

Pick an amount and save that amount automatically. This forces you to spend within what is leftover…versus spending first, then saving what is left over.

With every pay raise, save all or a good portion of that pay raise…don’t allow the pay raise to significantly increase your standard of living (lifestyle creep!).

And never, never, never carry a balance on a credit card. Rather pay off the full balance each month.

What’s your best tip for spending less money?

This won’t work for everyone, but I really enjoy saving money…when I shop…at thrift stores. I am okay buying clothes at the thrift store. I enjoy telling someone at work that I paid $2 for a dress shirt or $3 for a pair of pants. So, go to your local thrift store and “pop some tags!”

We also used to use coupons a lot for food, but we stopped clipping coupons a few years ago. We use rewards credit cards, some for miles, some for points, and some cash back. Each quarter, I update a small card for me and my wife to put in our wallet to remind us when to use two cards that have rotating 5% points or cash back categories. When we travel, we shop for deals. We watch airline prices on kayak or google and use hotel consolidator sites and Air BnB.

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

I wouldn’t call it a secret splurge, but I really enjoy finding a nice golf shirt, golf shorts, gyms shorts, light jacket, pullover, etc. at a thrift store. The find is a little exhilarating for me.

As far as the antithesis of spending money. As a veteran, I enjoy Veterans Day a lot (perhaps too much). I’ll meet my golf buddies (who are also Veterans) for a free breakfast at IHOP, then we’ll get a free 6” sub at Sheetz, then we’ll play 18 holes of golf (sometimes with a discount), then we’ll get a free car wash at Sheetz, then I’ll go get 12 free boneless wings from Buffalo Wild Wings for a late lunch, then I join my wife for dinner for a BOGO offer at Firebirds restaurant. Oh yeah, I also pick up a coupon from Texas Roadhouse to use for a free meal over the next 6 months. My coworkers just shake their heads at me!

INVEST

What is your investment philosophy/plan?

Mostly avoided individual stocks and started out investing in no-load mutual funds. Generally held all stock mutual funds in various asset classes.

When I took our accounts back from a financial planner in 2014, I used a Ric Edelman guide to portfolio selection (GPS) model and some other recommended portfolios to create my own mix of asset classes and I strategically placed the ETFs in taxable, tax-deferred, and tax free accounts.

Bottom line philosophy is low-cost index funds or ETFs.

What has been your best investment?

As much as I think about the home runs (more like grand slams) I missed hitting in the stock market, I rarely swing for home runs. I’m okay plugging away with low-cost ETFs.

Our best investments have been real estate. The annualized return hasn’t made it the best, but we haven’t lost any money with real estate and through rental income we have offset costs of ownership. My wife has been the one making the decisions on all our real estate investments and has done well.

What has been your worst investment?

There’s been several. My first investment at age 22, was buying a penny stock that was going to develop an AIDS cure…well, that was a flop. It was 1986, if only I put that $1000 in Microsoft…

I have sat in cash sometimes for too long when I should have been in the market, trying to time the market (even now!). So, the lack of making an investment is probably my worst investment.

Also, the way my brain works, I tend to think of my worst investments in terms of what I didn’t do. Sure, looking back is 20/20, but I still kick myself for not investing in FAANG stocks or buy into a hotel property when I had the opportunity.

What’s been your overall return?

Rough guess 8%. Really, I have no idea. I don’t track this at all, much to my wife’s disappointment as she asks me all the time.

Since most of our portfolio is invested in low-cost ETFs in multiple asset classes I am happy to say that our ETFs are getting whatever the market is doing in those asset classes. I am not sure that I am beating the S&P 500, but I am happy with my asset allocation and asset location, so I don’t monitor performance that closely.

How often do you monitor/review your portfolio?

Once a quarter, I update a net worth statement and portfolio to see how the overall portfolio is doing, not from a return perspective, but how the asset allocation is shifting. I review it with my wife, so she has an overall feel of our assets.

I generally know what the market is doing each day, but don’t sweat it if the market is down or up. Although I have target goals for % allocation for each of the asset classes, I don’t rebalance…so I am currently overweighted in US stock ETFs given the run up in the last 10+ years.

In general, my foreign ETFs and bond ETFs have not done well as compared to the US stock market.

NET WORTH

How did you accumulate your net worth?

We started saving right away, even when we didn’t make a lot of money. We lived within our means, always knowing that if we did that, my wife could stay home when we had kids and wouldn’t be forced to work.

I remember investing in IRAs when we were in our mid-20s, even though retirement seemed like forever from then. We also converted our original IRAs into Roth IRAS in our 20s.

I decided to stay in the military as a career…with a pension and inexpensive health care as a carrot. Receiving a pension beginning at 42 and reduced health care costs helped us to continue to save.

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?

Save – Definitely this is the key for us. My wife and I are savers and very frugal, but we do spend money on what we value. We always committed to living within our means and that allowed her to stay home and raise our girls without her having to work. We created margin between earnings and expenses even when earnings were lower. Additionally, continuing to save makes up for investing mistakes and missed opportunities here and there.

Earn – It certainly helps to have a good salary to make it easier to have margin between take home pay and expenses, but because of our save mentality, we limited our lifestyle creep with increases in salary. Earnings alone won’t help if lifestyle just increases along with increased earnings.

Invest – Although investing is very important and we certainly are where we are because we invested, both in the stock market and real estate market, continuing to save has always been more important. Because my investment choices haven’t always been optimized, continuing to save on autopilot made up for errant investing choices.

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

Some road bumps we experienced are the same for everyone; dot come bubble and financial crisis – all during the lost decade.

I think our specific road bumps were when I lost about $20K playing in individual stocks and options. My wife and I had a chat about it and decided to hire a stockbroker who managed our brokerage account and our Roth IRAs. Our stockbroker was in and out of stocks using lots of option strategies which was a nightmare come tax season. We decided to leave her right after the dotcom bubble when she said she tried to get ahold of us, but we never tagged up until our account was way down. After we left her, we sat on the sidelines too long in the 2001-2004 timeframe missing a big run up (remember that worst investment, not investing!).

We then hired a money manager to manage our brokerage account, Roth IRAs, and set up 529s for our girls. He used some American funds with high front load fees and then our brokerage account was invested in a Morningstar managed portfolio. This account had 2.5% fees with some going to Morningstar and some going to the Planner. The planner had nothing to do for 10 years….just set it up. He met with us annually, but I always felt our meetings were a waste of time. Although I trusted Morningstar to make good choices and the account grew, with the high fees I eventually realized that we were more of an asset to our planner then he was to us.

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

As we get ready to transition into the decumulation stage, I am considering options for preserving wealth (annuities and Indexed Universal Life Insurance Retirement Plans) and considering alternate investments, like grocery-anchored commercial real estate syndication for the passive income tax benefits and retirement income.

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

Based on our spending projections, I am happy with our net worth now…hence why I am stopping full-time work at the end of this year.

I have some concerns about long term care, but believe that we can cover those expenses with our investment portfolio.

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

I had a target of 35…even while still in the military. It was probably a little aggressive. The dotcom bubble hit when I was 38 and that set us back a bit.

So, looking back at previous net worth statements, I believe that we were in the 7-digit club at the age of 49, excluding real estate equity. It was probably age 45 with real estate equity.

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

Timeshares – If you like a resort and plan to go to the same resort every year and same time of the year, timeshares can be okay…just don’t buy them from the timeshare salespeople, buy them on the secondhand market. Even buying secondhand, it is a mistake if you think you can trade and go wherever and whenever you want. Management fees continue to go up for your resort and costs to exchange using RCI or Interval International continue to rise…and then you can’t get what you want.

We have had as many as three timeshares, one of those we rent every year. When the kids were young, we traded and went on some nice trips. We haven’t been using them lately, but we still must pay our annual maintenance fees. Don’t do it. Use AirBnB.

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

No one cares more about your future more than you do. Be deliberate about saving, growing your earnings, and investing. If you have an interest in investing, learn from blogs, podcasts, and books and take the time to save and invest based on what you learn. If you have no interest, consider interviewing and hiring a professional to manage your finances for you.

Best advice: SAVE and set it up on autopilot.

FUTURE

What are your plans for the future regarding lifestyle?

I plan to retire at the end of this year at age 60.

I guess from some people’s perspective, that is early. It certainly doesn’t feel like FIRE…retiring in 30s/40s/50s.

What are your retirement plans?

I have activity lists and a travel bucket list. Activities include golf, pickleball, kayaking, working out, lifelong learning, genealogy, travel, volunteering, church, etc.

My goals financially are to feel comfortable that we will meet our longevity lifestyle, liquidity, and legacy goals, which might involve shifting some of our assets (particularly the bond portion of our portfolio) into alternative investments outside the stock/bond market.

Additionally, I am interviewing financial planners to see what they suggest and see if there’s a fit for us to turn over some financial responsibilities to them.

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

Taxes – It’s great to have a sufficient portfolio of assets to enable retirement, but future taxes could put a serious dent in my plan. With the country’s continuing debt crisis, higher taxes are most likely in our future.

I am using this year to get a good retirement plan in place for when I will implement different strategies. For example, before I claim Social Security and before Medicare IRRMA kicks in, I plan to do some Roth conversions (from my TSP and 401K). I plan to sell some taxable accounts and pay the low capital gains tax before possible tax law changes in 2026. I plan to reinvest those funds with a step-up basis and continue to hold for the long term or until needed for lifestyle expenses.

MISCELLANEOUS

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

I have always been interested in finances, reading Money and Kiplinger in my 20s…also reading Millionaire Next Door and Your Money or Your Life early in my career.

I was an early reader of blogs on the internet including The Simple Dollar and ESI’s predecessor blog.

So, it clicked very early for me. That’s not to say that I did everything correctly, I took some risks, and wasn’t as efficient an investor as I could have been.

In the past several years, I have binge listened many financial podcasts including Sound Investing, Choose FI, Mad Fientist, Afford Anything, Retire with Purpose, Retire with Style, The Retirement Answer Man, Private Equity Commercial Real Estate, Wealth Managed, and The Power of Zero.

There is an overwhelming amount of content available.

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

That’s an interesting question, one that I have not thought about. I don’t really have a financial hero or career hero. I think deep down its not someone modeling behavior for me that I wanted to emulate, it’s more wanting to make my family proud and not from a financial perspective either…from my parents, to my siblings, to my wife, and our daughters.

In the end, that’s all that matters. My Dad will say, “Son, I’m proud of the man you’ve become.” That’s enough! So, my family inspires me to be the best me I can be.

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 – this helped me see that it’s not about what others see, fancy clothes, fancy watch, fancy car, type of gin you drink (I don’t drink gin anyway) that matters. The millionaire next door is the person you don’t expect to be a millionaire…the quiet saver.
• Your Money or Your Life – puts things into perspective, is it worth spending that money when you consider how many hours you had to work for that money.
• How to Retire Happy, Wild, and Free – just a fun book giving some ideas to ensure you are successful in retirement. I have already created a few retirement activity lists including a travel bucket list, but I like the “Get-a-Life Tree” to give me even more things to consider in retirement. I am planning not to be bored…lol

I know ESI only asked for three, but there are three more books that I have recently read that are rocking my financial world and making me think about alternative strategies. These books, particularly the last two, talk about strategies that were not on my radar so I am currently in firehose learning mode, particularly annuities, indexed universal life, and aggressively converting IRAs to Roth IRAs before tax increases.

• 5 Years Before You Retire – just a good resource for things to think about and actions to take prior to entering retirement
• Retirement Income Workbook – leverages the Retirement Income Style Awareness (RISA) assessment to determine if your retirement income style preference favors the stock market or the use of contracted income, i.e., annuities and if your implementation style favors doing it yourself or valuing help from an advisor. It’s a good idea to take this assessment and have your spouse take the assessment to see where you might differ with your preferences. You can take the assessment here free of charge.
• Power of Zero – looks at the three investment buckets (taxable, tax deferred, and tax free) and recommends strategies for moving through the buckets in such a way that most of your resources are in tax free accounts.

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

Yes, we do. Not enough.

We give to our church, and we also give to charities that we care about to get a charity match ($500) from my company each year. I would say it’s in the 1-2% range.

We have certain causes that we care about and that is our donation focus.

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?

Yes, but we haven’t given much thought to it beyond that.

We desire to leave something to help our daughters in their life, but not to spoil them in some way. Ideally, assuming we have grandkids at some point, we would like to help fund their education.

We are considering updating our estate planning and adding a trust to guide distributions. I like ESI’s method of dolling it out based on age, so we might look to set up something like that.