Millionaire Interview 420

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 June.

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 am a 59-year-old single woman.

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

I have no children.

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

I live in Lisbon, Portugal. I moved from the U.S. to Portugal after I retired.

I lived all over the U.S. over the course of my career, usually in urban or suburban areas. I chose to live in Portugal because it is safe, has a lot of sunshine and beaches, the people are warm and friendly, and the health care system is good.

I have access to the entertainment, dining, and airport of a world-class city while enjoying a slower pace of life.

What is your current net worth?

Current net worth is about $15.2 Million.

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 Investments – $12.66 Million
• IRA’s– $1.13 Million
• Personal Residential Real Estate – $1 Million
• Deferred Compensation – $0.31 Million
• Cash Value of Pensions – $0.27 Million
• Health Savings Account – $.05 Million

My allocation of investable assets is approximately 75% stock, 25% cash/bond. I have no debt.

EARN

What is your job?

I am retired now, but I was an executive in a mid-sized bank.

I retired twice, the first time in 2012 for one year, and the final time in 2018.

What is your annual income?

Before retiring, my W2 income was around $1.4-$1.5 Million. That is because I cashed out stock incentives as soon as they vested, in order to minimize my exposure to the company.

The last few years I worked, I was able to cash out quite a bit per year, in addition to my salary and bonus.

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 first job was for the federal government as an engineer making $17,000 per year. Raises came quickly, and by the time I left 7 years later my salary was $65,000 per year.

Although I could have made more in private industry, the agency paid for my master’s degree, and I really enjoyed the work and the people I worked with. I went to business school full-time for two years and took on some debt.

But I emerged with a 50% bump in salary, plus bonus potential. I worked as a management consultant for four years and left earning $235,000 per year.

From there, I took a pay cut to have a better work-life balance with a small bank.

That bank got acquired, and I ended up working for a big bank, which I did not enjoy. I jumped to another bank and increased my salary every year.

During the financial crisis, my work-life balance cratered, as did my stress level and my health. I decided to retire in 2012.

By that time my income had reached $800,000 but my spending was only about $60,000 per year and I had about $3 Million in savings. So I “retired”, and took care of myself for a year.

Just as I was settling into retirement, I got a call about doing a project for a mid-sized bank. Somehow that turned into a job (that I really hated), but they also matched my previous salary and bonus.

I was able to turn the role I hated into one I liked much more, and increase my total compensation to $1.5 Million. Then my health started to suffer again, and I re-retired in 2018.

Nowadays my income is about $280,000 per year. I receive deferred compensation for ten years from my last employer.

It is usually about $70K-$80K per year. The rest is from dividends and capital gains in my taxable portfolio.

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

Learn as much as you can about all aspects of a business. The things I excelled at were not things I was trained on, but I was willing to try and found I was good at and enjoyed.

Invest time in the people you enjoy working with. Find mentors you respect, but also co-workers who you admire.

These people can surprise you. My biggest pay jumps came from jobs I found because former coworkers saw roles I would be perfect for and contacted me.

What’s your work-life balance look like?

This is an area I went to extremes on. I had no work-life balance while working. It was all work.

I liked the competition, the deadlines, and getting things done. I enjoyed it, so no regrets.

But this had negative effects on my health that I am still dealing with. Currently, I don’t work at all, and I love it.

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?

No, I only had my job income.

Of course, as I saved, I began to have dividends, interest, and capital gains that snowballed to the point that I could live on them.

SAVE

What is your annual spending?

I spend about $100,000 – $150,000 per year. In addition, my taxes range from $50,000 to $100,000 per year, depending on the situation.

I have run out of tax losses to harvest (for now), so every time I rebalance my portfolio, I incur capital gains taxes.

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

US Federal income taxes are by far my largest expense. US citizens pay US taxes, regardless of where they live.

I also pay Portuguese taxes in certain categories As a single filer, my taxes are fairly high, and include surtaxes on investment income.

Travel is my most treasured expense. I try to spend about $40,000 per year traveling.

I usually spend 2-3 months in a location, then move on to someplace else. Since moving to Portugal, I have flown back to the States several times per year for family events.

This year’s expenses include a car, as well as apartment-related costs, so it will be higher than usual. These expenses have been planned for.

Food and Entertainment are fairly high on the list at $1250 per month. Groceries are less expensive here, at about $250 per month for lots of organic, healthy food.

Eating out runs about $500 per month lately, including wine. I’ve been having a nice dinner out at least 2-3 times per week and have long lunches at my favorite tascas frequently.

I spend another $500 per month on entertainment, including concerts, cultural events, and shows.

Health Care expenses are much less here than in the US. I have top-tier insurance that costs less than $300 per month, while out-of-pocket expenses average about $25 per month.

Last year the cost of insurance increased by 60%, and I expect this to continue to rise. I also have access to the National Health System, but lines are long, and I did not pay into the system so feel uneasy about using it.

I registered because during Covid it was the only way to get access to vaccines. Other categories include the gym, personal care, gifts to family, clothing, and utilities.

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

I have an annual budget, and I track my spending monthly. It’s really there to set guardrails, and I don’t take it as seriously as I used to.

I got into this habit when I was living like a student to pay back my student loans. I rarely spend as much as I budget.

For me, it is important to know where my money comes from and where it goes.

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

My plan called for saving a minimum of 1/3 of my gross, but I actually saved closer to 50% of my gross income while working. Taxes were 30% or more on average, living expenses were 10-20%, and everything else went to Vanguard or my deferred compensation plan.

Now I don’t intentionally save anything, I am trying to spend more and enjoy life.

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

Live within your means. If possible, continue living like you are a student after you get the big job.

Get rid of debt as quickly as possible and treat it like a disease you want to avoid catching again. Bonuses (if you get them) are not for toys, they are for your future.

Eliminate purchases that don’t make you smile.

What’s your best tip for spending less money?

I always use the need/want categorization to be clear on what I absolutely needed to purchase, vs. what was nice to have. Only so many “nice-to-haves” were allowed while I was accumulating.

I also used other mental tricks to help control spending. For instance, if an item is over $xxx (or a bunch of items in my shopping cart reach that amount), I have a 48-hour cooling-off period.

The threshold has changed as my assets have increased. It used to be $250, now it is $1000.

I find that about 70% of the time before 48 hours have passed, I have either decided to skip the purchase or found a less expensive alternative.

I also regularly went through any recurring spending items and actively reduced them. Cable, cell phone, Netflix, Spotify, auto and home insurance, and many other recurring expenses add up to a large amount, and regular reductions can result in large savings.

Tracking spending against plan on a regular basis helps me stay on course. No matter where I am or what I am doing, I view my spreadsheet of spending vs plan at the end of each quarter.

If I am over plan, it is very easy to spend less in future months to get back on course. If I am under plan, I know I can splurge without thinking much about it.

Plan for unexpected expenses. Things cost more if you are in a hurry or can’t pay cash.

So, I always had my “Just in Case” stash for things like new tires, the furnace breaking, or having to fly home to see my family in an emergency. At first, it was one month’s expenses, but the stash grew as the potential size of the emergencies grew.

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

Travel is and has always been my favorite thing to spend money on. I love experiencing life in other places, and seeing how people live and view the world.

I have given myself the gift of living outside the US so I can be immersed in a slower pace of life, learning a new language and new customs, and I could not be happier.

INVEST

What is your investment philosophy/plan?

My plan has always been simple:

• Save at least 1/3 of my gross income.
• Buy the whole market, at the lowest possible expense ratio.
• Reinvest dividends and capital gains.
• Rinse and repeat.

Over time, I added diversification into bonds and international, and as rates increased, so did my cash holdings.

What has been your best investment?

I have moved for jobs ten times. As a result of these moves, I made quite a bit on residential real estate, buying and selling every 2-3 years, frequently with the employer paying the transaction costs.

The returns actually exceeded my stock market returns, but it was dumb luck.

What has been your worst investment?

When I was changing careers, I thought I needed help with my investments, since I was making lots more money and had no time to focus on anything other than my career.

A friend of a friend was a broker at a major firm. I should have known when they transferred my entire IRA, not the 25% I authorized.

They then proceeded to under-perform the market while charging me exorbitant fees. They also invested my money in their proprietary funds, which could not be transferred in kind to another brokerage.

It took me years to get my money away from them, and back under my own control. But it did show me that I can invest quite well for myself, given all the tools and products available.

And it taught me that no one was as interested in growing my wealth as me.

What’s been your overall return?

About 9% compound annual growth rate over the years.

How often do you monitor/review your portfolio?

I review my portfolio at least quarterly. I check my spending transactions daily to ensure no errant charges have hit my credit cards.

I see the total portfolio value on the home screen of Empower (Personal Capital), but outside of news of market crashes or market highs, my portfolio is reviewed quarterly.

NET WORTH

How did you accumulate your net worth?

Slowly and steadily building my income, while continuing to live on the same amount.

Investing the savings consistently in the total market. Never raiding my investments.

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?

My greatest strength is a toss-up between earning and saving. My most unexpected strength is definitely earning.

Without decent earning, saving and investing are more difficult, especially in the early stages. That’s why I have so much respect for some of the millionaires who save so much on less income.

I always expected to earn a median engineer salary, but I had a lot of good fortune along the way and earned more. I have always been a good saver, it comes naturally for me, but I far surpassed my own earnings expectations.

I am an average investor by design – average market returns are good enough for me.

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

Using an advisor who charged a percent of assets and tied my account up with their proprietary funds for a few years. Assisting family members in a tough spot put a dent in my savings for a few early years, but it was worth it.

Changing careers and jobs, sometimes taking debt (for school), or a pay cut in the process.

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

Absolutely nothing. I have left my investments as they were during the accumulation phase.

My withdrawal rate is consistently less than 2%, so I plan to increase spending on some first-class travel. I have also been going to a lot more shows and concerts.

My investments are up 50% since retiring 6 years ago. As long as I maintain my current spending power, I am happy.

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

The first time I retired, I had a goal of reaching $4 Million. I was in my 40’s and assumed I needed a withdrawal rate below 3%.

I left the work world before I hit the goal, and coasted along until I achieved it. In my second retirement, I didn’t have a goal, but I knew that $10 Million was well in excess of any spending I might want.

It wasn’t a target because I knew I could live well on my current assets, but it felt like a pretty big number, and I couldn’t imagine ever spending 4% a year.

I decided that if I hit that number, I had done enough, no matter how much was left on the table. The day I realized I hit $10 Million I turned in my resignation.

Of course, as luck would have it, the market corrected shortly after, but I knew I would be fine. Now, I just hope to maintain my spending power.

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 when I realized I had a $1 Million net worth.

I have increased my spending significantly since then. I travel more, spend more on personal care, eating out, and entertainment, and give more.

What personal habits and/or traits have you developed that have made you successful at growing your net worth?

As I mentioned earlier, I am a natural saver. I always put savings on autopilot and did not touch the funds once they were invested.

Keeping an eye on my cash flow and net worth regularly helps to stay focused. Aggregators such as Fidelity Full View and Empower make this easy, and I always know where I stand.

Then waiting and letting the mix of time and compound interest do its thing.

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

I mentioned having an advisor for a few years. That was a big mistake.

I have also loaned large sums of money to family members. This was never paid back, and the relationships were ruined.

Even though I was (eventually) comfortable forgiving the loan, my family member avoided me. Now I gift if someone is in need, not loan.

My biggest mistake, though, was going back to work when I was already financially independent. I didn’t need the money, but I was 48 years old and single, with few peers to do things with, and I honestly missed being the go-to person for solving tough problems.

I was enticed by the siren song of being a well-paid, important person. The new role turned out to be an all-consuming hellscape.

The stress and constant travel had a huge impact on my health, and although I was able to turn the situation around, I will never get those five years back. It took a lot of self-reflection to realize that I was creating problems that I didn’t want and to walk away.

So, my advice is to take the time to ease into retirement, let yourself get bored, and don’t be afraid to try unusual things (Like moving to another continent) if it strikes your fancy. But prioritize your physical and mental health above all else.

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

Just keep earning, saving, and investing. We are so fortunate to live in a time when many people with a good education and a lot of determination can chart a path to wealth.

But it is a long-term commitment. Write down your goal and the plan to get there, and when obstacles arise, re-read them, and re-commit.

FUTURE

What are your plans for the future regarding lifestyle?

I have been working on increasing my spending on things that bring me joy for the last several years.

My lifestyle includes lots of dinners out, concerts, shows, and time with friends. I plan to continue that.

What are your retirement plans?

I plan to continue building community in my new home and maintaining the community I had in the States. I also plan to continue traveling, perhaps even upgrading to Business Class more often.

I don’t want to have the biggest bank balance in the cemetery!

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

Long-term care is a concern. With no family, who will notice that I am losing my marbles and giving money to scammers?

I have been slowly educating myself on the equivalent of Continuing Care Retirement Communities in Europe. I am planning to apply for citizenship when eligible, which means I can live anywhere in the European Union, so I will cast a wide net.

MISCELLANEOUS

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

I found the Motley Fool discussion boards when I was in business school and found them inspiring. I’ve been lurking at the Early Retirement Forum for years, picking up tidbits here and there.

When I got out of business school with a mountain of debt at 32, I realized that if I buckled down, I could pay it off within a couple of years, and if I continued to live the way I had in debt reduction mode, I could become financially independent.

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

My mother has always been my hero. As a single divorced mom, she raised three driven, successful children on a shoestring.

She went back to school herself after we all had our degrees and got her masters.

My grandmother was another hero. She was widowed with eight kids. She raised them all to be responsible, well-educated adults.

You would think she would have to be a drill sergeant to pull that off, but she was kind, and giving of her time and of support. The entire community relied on her, and anyone could stop by for a meal and a chat.

She is my role model for perseverance and building community.

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 Simple Path to Wealth by JL Collins. This is the book I thought I would write on how to become financially independent.

When I read this book, I realized he has said it all, and in a very relatable manner. I give this book to younger friends and family if they ask for advice.

The most recent book to impact me was Die With Zero by Bill Perkins. I have been under-spending since I retired, for no reason other than habit.

This book helped me realize that I will likely run out of time to enjoy experiences long before I run out of money, so I had to re-evaluate my choices and reprioritize my life.

During my early accumulation phase, I read a quote about becoming an expert, essentially saying if you spend an hour a day on something, you will become an expert in about five years. So for years, I read a book every week focused on financial independence, financial planning, withdrawal studies, or living with intention.

My favorites were Work Less Live More by Bob Clyatt, Your Money or Your Life, The Little Book of Common Sense Investing, The Intelligent Investor, and The Coffeehouse Investor.

Over time, those changed to online forums and blogs. In aggregate, they changed the way I approached life.

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

I give to charity through my Donor Advised Fund. When I was working, I put a percentage of my bonus into the Fund every year.

By the time I retired, it had grown to six figures. I give to my universities, and to organizations that help single mothers get an education and get out of poverty.

I try to give away 3-5% of the balance each year.

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 don’t have any heirs. My sisters, best friend, nieces, and nephews will get medium-sized bequests, and the rest will go to charities.

I finally made a will and a trust in the States at the beginning of the pandemic after procrastinating for decades but need to put together a separate set of documents for my assets in Portugal, so thanks for the reminder.