Millionaire Interview 406

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 February.

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)?

Greetings all! I’ve been an avid reader of the ESI millionaire interviews for several years. I’d like to share my path, characteristics, traits, and habits to accumulating and maintaining wealth.

I’m 66 years old and my wife is 64 years old. We’ve been married for over 35 years.

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

I have two children who have graduated from college and are both independent and gainfully employed living in other parts of the country.

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

My wife and I reside in the suburban Washington, DC area and we love it here.

What is your current net worth?

Our current net worth is approximately $16,500,000.

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?

Our net worth is comprised as follows:

• Taxable investments in a managed broker account – $11,300,000 (Domestic bonds – 7%; Large Cap stocks – 80%; Small cap stocks – 3%; International stocks – 6%; cash – 4%)
• Retirement accounts in a managed broker account – $3,200,000 invested in approximately a dozen ETF’s and mutual funds the holdings of which generally reflect the investment allocation of the taxable account with some nuances. Holdings include low volatility index funds, inflation focused funds, treasury bond funds, mid-cap funds, small cap funds, emerging market funds, US stock funds and international stock funds. These were primarily employer sponsored 401(k) plans, but we did have some individual IRA’s as well. These are now substantially all traditional IRA’s so there are some tax implications going forward and Roth conversions may be a consideration.
• Emergency fund of $975,000 comprised of laddered maturity US Treasury bills (maturities ranging from 6 to 12 weeks). Yes, I know given the cash in the managed account and the cash in the emergency fund, am I too much in cash? I am 66 years old!
• Interests in real estate partnership and other assets – $200,000
• Home value – $825,000
• Debt – $0

EARN

What is your job?

Both my wife and I are retired accountants. We both started off working for public accounting firms as CPA’s.

The work was interesting and challenging, but the hours were equally challenging. Year-round deadlines were the norm given we were not doing tax work. I worked on taking a number of companies public which required 80-hour weeks on occasion. I spent too much time in the profession and left after about 15 years attaining a level which was one step below partner (I was never going to make partner and am glad I didn’t!) My wife was much wiser and moved to private industry after about 7 years in the profession.

My next job was as a CFO for a professional services firm and my wife’s job was as a controller for several companies. I spent about 12 years as CFO for the professional services firm before making my final stop as CFO for a sizeable real estate developer managing operations, development, and the treasury function (which entailed managing approximately one billion dollars of commercial mortgage debt). This job was the highlight of my career. I wish I had the opportunity sooner given how challenging it was and the rewards associated with being creative, innovative, and successful in a very competitive industry.

What is your annual income?

As a retired couple, given the size of the portfolio, our annual income is about $400,000, which is comprised of dividends, interest, my Social Security, and net rents from small commercial real estate investments.

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?

Hard to believe, but my first job in public accounting started out at a salary of $14,000.

Fifteen years later, I was earning about $100,000. My wife was earning similar money.

By the time I left the professional services firm, I was earning about $200,000, which included an annual performance bonus. My wife was earning about $150,000.

One very important point — my wife and I made every effort to live on her salary! My salary, no matter the amount, was for saving and investing. We almost always adhered to that goal but there were some bumps along the way.

By the time I was 40, we had accumulated our first million. That was our initial goal. Our end-game goal was to retire with ten million dollars at a normal retirement age.

Had I not taken my third and final job, I would have walked away from the most lucrative part of my career. For the last five years, base salary and annual bonuses, based on a profit-oriented model, took me to between $500,000 and $750,000. I certainly could have retired prior to my last five-year stint, but the opportunity, both professionally and financially, made it too difficult for me to walk away. Others might not have made the same choice given our investable assets were considerable at that time, but I enjoyed working (and maximizing the “earnings” component of the ESI model).

During the final year of my career, I received a pre-tax retirement bonus of $5 million, or about $2.6 million after taxes. My wife’s final earnings were approximately $250,000 per year.

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

If you want to grow your income, you must distinguish yourself from your peers. Creativity, innovation and dedicating yourself to improving even the smallest business processes worked for me. The owners knew I was adding value — they could see it in the numbers — and I was compensated for doing so.

I also took a risk in how I was compensated. Although the formula was a little more complex than presented here, it boiled down to a percentage of increased profitability. Yes, there was some degree of luck in that the economy worked in my favor, but most of it was hard work.

My goal every day was to add value to the business, and I encouraged others to do the same. We created a world-class technology platform. Our website was a leading-edge product for the retail side of the business, and we were never satisfied with the current state of any of our business or technological initiatives or processes. We improved upon even the smallest details, and we attempted to automate every aspect of the business. We continually re-evaluated and refinanced debt to take advantage of favorable interest rates, then reinvested excess refinancing proceeds in more development.

I created value and I was rewarded for it! That was the key to boosting my earnings.

What’s your work-life balance look like?

Given I’m retired now, travel, and hiking are our main activities.

While I was working, however, most weeks easily exceeded 40 hours, but it wasn’t onerous compared to the earlier part of my career.

My wife’s workload was similar.

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?

Given our careers have ended, our sources of income are passive in nature.

In 2023, we earned approximately:

• $325,000 in dividends
• $100,000 in deferred compensation
• $35,000 in interest
• $40,000 in Social Security and an interest in a real estate partnership.

The $360,000 in dividends and interest are generated from the portfolio. This amount will likely increase as we move from an aggressive investment philosophy (for our age) which favors growth over income, to one that generates more income. It just depends on the environment and our risk tolerance as we age.

SAVE

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

In 2023, our spending is comprised as follows:

• Taxes (Federal, state and property): $135,000
• Auto and transportation: $8,000
• Utilities: $9,500
• Life insurance: $8,000
• Food: $14,000
• Health insurance and medical: $13,000
• Travel: $30,000
• Recreation: $5,000
• Donations and gifts: $37,500

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

We never maintained a budget, but we always set savings and net worth goals and, most importantly, measured our progress toward achieving them. We established one and five-year goals and were surprised to see that we typically achieved or exceeded them. We were always looking forward and asking ourselves, are we getting there?

As mentioned, we did our best to live off my wife’s salary. We tracked our monthly savings and the details of what we were spending. We’ve been using Quicken since the early nineties, so it is very easy to track expenses and the growth of our net worth. We still use Quicken, particularly for its investment analysis and tax forecasting capabilities.

I would be remiss if I didn’t mention one very important aspect of our success — my wife. She is my soulmate in almost every aspect of life. In finance, we are identical twins! We didn’t care about keeping up with the neighbors, driving fancy cars, or eating out at expensive restaurants; we just wanted to live below our means, and below the radar.

No matter the bonus or the raise, we forewent gratification especially during those early years, and we didn’t mind if people thought we were just two middle-class bean counters scratching out a living. And we still don’t mind! Too often, the greatest source of friction in marriage is money. One spouse may be a saver, the other a spendthrift and the various shades of gray in between. Fortunately, that was never us, so we were at an advantage in that respect.

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

During our working careers, our goal was to save 50% of our income. The percentage varied depending upon my earnings. Certainly, in the later years, when most of my income was based on performance (particularly the last five years), we exceeded that target. For about the first thirty years of my career, I would say we achieved our goal.

Presently, we don’t set savings goals. Given the wealth we’ve accumulated, there are broader unanswered questions such as the inheritance we leave to each of our kids, how we want to enjoy the money, and what we want to give to charity.

After years of living well below our means (some could argue too far below), believe it or not, it’s difficult just to open the spigot. My wife and I have some soul-searching to do to determine what we want, and what we want for our children. Our children are both professionals and gainfully employed and share our values when it comes to money. I know they would respect the inheritance they receive.

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

Income from your career can take years to develop so the best tip for saving is controlling your expenses. Evaluate even the smallest purchase with the goal of living below your means.

When you receive a bonus or raise, maintain your lifestyle; DON’T BUY UP! It’s easy to be tempted to match your neighbors or family when they buy up (i.e., that BMW or fancy kitchen renovation). You must have the self-discipline to say no; and that’s not easy. Over the years, I’ve found that the reality of having a luxury or high-end items almost never matches up to the desire or emotion of wanting them.

Set goals early and often and stick to them. There will be times when life takes you slightly off course but don’t let that permanently sidetrack you; always revert to your goals and adjust as necessary.

It helps to have financial software like Quicken that lets you view your financial picture, so you know where you stand. You need to be able to measure where you are relative to your goals to create the discipline to build wealth. Based on income and savings levels, set one and five-year net worth goals and work toward them. If you can’t measure where you stand against your goals, you can’t manage to your goals.

The biggest tip for saving is investing in yourself and growing your income. Investing in yourself means continually learning new skills and applying them to your job. It’s true (at least for me it was) — the more you learn the more you earn. If you stay in your comfort zone, it won’t happen. Education gives you the confidence to go outside of that comfort zone. For example, if you’re in finance, become an Excel modeling expert.

The power of growing your income and living below your means will really add up over time. And don’t forget to maximize your contributions to your employer’s 401(k) plan or to take advantage of FSA’s or HSA’s that are offered by your employer. Tax deferred opportunities have enormous potential for growth. It just takes time and I’ve found that when accumulating net worth; planned, slow and steady, and measuring against your goals wins the race.

What’s your best tip for spending less money?

Overcome the desire to spend money and ask yourself does that expenditure really align with what I ultimately want to achieve? Once again, it’s not easy, but mindset has a lot to do with the hard work of saving money, and spending less money is saving money.

Evaluate your purchases and make sure you’re getting the best deal.

Drive a mid-range car and buy used if you can.

Shop around before spending and avoid buying on impulse. I’ve found that a few days of cooling off before you make that big purchase really helps.

And don’t try to keep up with your neighbors. When I saw people driving those beautiful BMW’s, I wondered, how can so many people afford them? Debt (or leasing), that’s how. Auto and credit card debt will delay or kill your goals. Avoid it if you can.

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

At this stage of our lives, it’s travel and recreation.

We love hiking and have combined the two visiting great national parks and other areas of the world.

We’re more into experiences than material things although, like everyone, some material things can make us happy.

INVEST

What is your investment philosophy/plan?

As our liquid net worth grew, it became much harder for me to justify the typical broker/client relationship. I’m an accountant, not an investment professional.

Very early in my career, I was too conservative, so it was a big leap to engage in a traditional broker/client relationship. I didn’t want to pay those commissions. But I did. The broker would call me and recommend certain equities and bonds. I’d evaluate his recommendations and say yes or no. That relationship worked for a number of years, but I came to the realization that the approach was neither strategic nor tax efficient. Given our net worth, we believed it was time for a managed portfolio relationship.

Our current investment philosophy is a portfolio that reflects 75% or so equities, 10% to 15% bonds and the remainder in cash equivalents. It’s hard to say if we will maintain this philosophy but, for now, I’m happy with the income, returns and tax efficiency. We’re happy with annual returns of 8% or so but 2023 was much higher.

We’ve never panicked during the pullbacks, and we’ve been through some scary times particularly 2008/2009 when it looked like things were going off the cliff. The portfolio continues to be well diversified.

What has been your best investment?

I was an early investor in various high-profile tech companies. My portfolio today includes all the magnificent seven stocks.

Certainly, the technology side of the portfolio has exceeded all expectations particularly with recent advances in AI and its impact on valuations.

What has been your worst investment?

No question I’ve had losers over the years. I had acquired a nice position in Intel and always believed it could weather any storm given its dominance in the microprocessor market for so many years. I suppose believing you can’t go wrong with one particular investment is your worst investment. This was certainly one of my motivations in switching to a managed account. They will at a minimum tell you when it’s time to sell and perhaps revisit the stock later. Becoming emotionally attached to any stock is not necessarily the best idea.

Worst investment, however, a $250,000 annuity my former broker said was a good deal. I didn’t realize the fees packed in and how it significantly reduced returns. I cancelled it based on an analysis done by my new broker.

Another worst investment — using bonus money to pay off the mortgage early. I would have gotten better returns by investing those bonuses in an S&P Index fund. Sometimes we’re too conservative!

What’s been your overall return?

It depends on the time frame. Certainly, 2023 was an excellent year with double digit returns.

I suspect over time; we achieved an 8% growth rate but there have been peaks and valleys along the way.

How often do you monitor/review your portfolio?

I monitor the portfolio daily. Quicken software allows me to easily download portfolio transactions, update market pricing and view our entire financial picture. I enjoy seeing asset performance and income flow. It’s just my nature as a financial person.

Our portfolio and investment philosophy are generally reviewed on a quarterly basis with the investment manager. Of course, I can call anytime with any concerns or changes I want to make. Changing investment philosophy too often doesn’t allow for adequate evaluation of the current philosophy so annual re-evaluation at this point is sufficient.

NET WORTH

How did you accumulate your net worth?

I grew up poor. My goal as a child was to grow up, go to college and earn money. My wife grew up in a blue-collar, working-class family. No inheritances!

We accumulated our net worth one penny at a time.

On the income side, it involved working hard, learning more, earning more, and taking some risks to increase earnings.

On the expenditure side, it involved delaying gratification, when possible, and evaluating and saving on even the smallest purchases.

We set realistic annual and five-year goals with the intent of meeting them. And as mentioned, most importantly, we lived below our means and never tried to keep up with the neighbors.

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?

All three are very important as there is a significant compounding effect when you can achieve your goals for each component of the model. Picking one depends on the individual.

I happened to be in a profession that allowed for significant income growth. In my last job, I took a risk whereby much of my income was based on a profit formula. In my case, it was “earn.”

But it doesn’t have to be. I’m convinced anyone can accumulate a significant net worth by saving and investing. But all three comprise a very powerful tool for achieving or exceeding your financial goals.

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

Our careers weren’t always a straight line up. I spent too much time as a CPA, staying within my comfort zone. It’s what I knew and enjoyed. It wasn’t until I went into private industry that I realized creating value in a business was so much more rewarding both professionally and financially.

But it involved taking risks and getting outside of my comfort zone. I had to learn how to manage cash flow, manage debt, make payroll, and have others execute strategies I developed. Certainly, the bumps on the road for me were career related. Saving and investing was much easier because I had a predisposition to do just that. Some people are naturally frugal and inherent savers — I plead guilty.

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

I am working with financial professionals who understand my goals and who have the expertise to achieve those goals.

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

Prior to retiring, we always had a target net worth goal. Now, I’m trying to achieve a consistent return to grow the portfolio and generate income so my wife and I can enjoy a great retirement.

I’ve done the projections and $16.5 million dollars today can grow significantly over the next twenty years. We’ll see. I assure you; I can wait for that growth.

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

I was 40 years old.

It’s hard to shift behavior, particularly inherent behavior. Frugal habits don’t just stop but I can tell you, my wife and I are enjoying our experiences.

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

I wouldn’t have held on to my favorite stocks too long thinking “buy and hold” was always the way to go.

I wouldn’t have stayed in my first career as long as I did.

I wouldn’t have paid off the mortgage as soon as I did.

I would have aggressively invested much earlier in my career, especially in employer-sponsored retirement plans.

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

Continue learning. Intellectual curiosity and satisfying that curiosity have always paid off for me.

Take risks in your career and don’t be afraid to step outside your comfort zone. And keep stepping outside your comfort zone because most people won’t. That’s how you will distinguish yourself and earn more money which, as I said, is a significant component of the ESI model.

You can only pinch so many pennies to reduce expenses and sometimes investing rates of returns won’t go your way. But increasing earnings potential depends upon only one thing — you!

FUTURE

What are your plans for the future regarding lifestyle?

Travel and enjoy life experiences with my wife, family, and friends.

What are your retirement plans?

Travel and enjoy life experiences with my wife, family, and friends.

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

Financially, no. Staying healthy, of course.

We will do our best to control the latter but sometimes, it is beyond our control.

MISCELLANEOUS

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

As long as I can remember, I’ve always had an interest in answering questions financially. When I started earning money from part-time jobs as a kid, my questions were “how do I earn more and how do I grow what I’ve saved?”

I think it had to do with growing up poor. There were no allowances, no vacations, and certainly no frivolities as a kid. It created certain insecurities which drove me throughout my career.

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?

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.

There are many good books about creating wealth, but this book describes the many common traits that millionaires share. It isn’t about driving fancy cars or keeping up with the neighbors, it’s about behaviors that lead to wealth creation. And I’m convinced anyone can do it.

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

I’ve combined these two final questions as they are related. We’re working on it.

Yes, we give to charity and yes, we plan to leave our kids an inheritance.

The question is how much? If we didn’t touch the corpus, at 7% to 8% compounded monthly over a twenty-year period, it would grow to over $75 million dollars (before any tax considerations), so we’re working on it.

Einstein said “compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” The catalyst to realizing those compound yields, however, is Earnings + Savings + Investing.

Thanks for allowing me to share!