Millionaire Interview 427

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 July.

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 59, and my (same-sex) spouse is 58.

We have been together for 30 years as of this past March, married for 16 as of Labor Day – we were married in the five-month window in 2008 between the court legalization of same-sex marriage in California and the passage of Proposition 8 in the November 2008 election, which put marriages on hold in the state for seven years.

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

We have no children, and we are currently even without dogs.

We do have a large role in managing the affairs of my husband’s elderly aunt, and a lesser role in managing the assets of my elderly father, but neither needs any significant financial support from us.

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

We live in Northern California. We have been in the Bay Area for 28 years, primarily in Oakland in the East Bay, but one or both of us has had long stints for training or work in California’s Central Valley.

I have been working in the Valley for almost 20 years and I stay there during the week in a small house that we own.

What is your current net worth?

Not counting the present value of guaranteed future income like pensions, our current net worth is about $9.3M.

If you add in the present value of three different pensions but not Social Security, based on current interest rates, it is very roughly $13M.

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 real estate is entirely our two primary residences – our permanent primary residence in Oakland, now valued at about $1.6M, and the small home where I spend my weekdays in the Valley, currently valued at about $400K.

Our investable assets currently stand at about $7.3M.  About $4M of this is in a brokerage account, about $2.7M is in retirement accounts (about half and half traditional and Roth except for about $350K in a non-qualified deferred salary account – pre-tax, of course) and about $200K is in shares in my medical group, which I will sell back upon retirement next year.

Both of our houses are entirely paid off.  My husband has about $40K in student loans outstanding, which have a 3% interest rate and whose payments are about $400 a month, so they are a relatively minor consideration, and otherwise we have no debts other than our credit cards, which we pay off every month.

EARN

What is your job?

Both my husband and I are physicians. I am a surgical subspecialist, but I am also in senior leadership in our medical system, so much of my time is spent in my administrative duties.

My husband is also a specialist, and he works in the public sector.

What is your annual income?

Our combined work-related income is about $900K, pre-tax. Interest and dividends in taxable accounts (automatic reinvestment is turned off as we rebalance in the lead-up to retirement) are about $75K.

We have no rental or other exotic income.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

I was a late starter in medicine. After graduating college, I spent a year in a volunteer program in an East Coast city, working for social justice legislation at the state level and making subsistence wages while living with five other people and eating mostly beans and rice.

I then spent three years in a master’s program, working toward a possible career in secondary education (which did not come to pass), supporting myself by working as an assistant manager a restaurant, making just enough to pay tuition and rent for the garret apartment that I shared with a friend.

I discovered my interest in medicine late in my master’s program and was able to start my pre-med courses and get a position as a research assistant in a molecular biology lab before applying to medical school. I don’t remember how much this position paid, but I do remember that the household lived frugally during those years.

During medical school in San Francisco in the late 1990s, I had no work- related income, but my husband worked in tech in Silicon Valley, and I received fairly generous financial aid.

Because I went to a state medical school, even in a very high cost of living area, I finished medical school with less than a total of $100K in student debt, which also included my undergrad and master’s loans.

Residency did not pay well. During internship in 2000-2001, also in the Bay Area, my salary was $24K.

That year, if I got a parking ticket, I was eating free meals in the hospital cafeteria for a week. Things improved a bit over the next five years, but my student loans were still in forbearance throughout residency.

Graduating into an attending position at age 40 was a bit of a (pleasant) shock, starting with generous benefits and a salary of $200K in 2005. My salary has increased 3-5% a year since then.

My husband started medical school in 1999, did a fellowship and MBA and Master of Public Health degrees, and started his attending career in 2008. He also went to a state medical school and held a variety of teaching and research positions during his school and training, so he also finished with a relatively low student loan balance.

Currently I gross around $600K a year and my husband grosses roughly $300K a year, including bonuses and incentives.

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

While, for me, being willing to go into significant debt to build up my human capital made quite a bit of sense, this won’t be the case for every career path.

Think about your particular situation, and get input from several trusted advisors, when you make this decision.

What’s your work-life balance look like?

Truthfully, my current work-life balance is not great. As a senior leader in a large medical group, I am essentially always on call, and with the myriad of ways that I can be reached, even when I want to sign out completely, there are always media that cannot be turned off.

Emblematic in my mind is being on the other side of the country in a hospital room with a gravely ill, greatly loved uncle and his wife and children, trying to guide them through the hospice discussion, as I was being barraged with texts and calls about a hospital operational issue. I will not miss this aspect of my job when I retire next year.

Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?

Our income is only work- and investment-related. We have zero interest in being landlords.

The two things that I dislike most about my current position are being on call and dealing with people behaving badly. These are both inescapable if you are a hands-on landlord.

I’m happy to get our property-derived income through EITs. My husband still has an active LLC, through which he has done consulting and chart reviews in recent years.

It has never been particularly lucrative in the past (although it has allowed us to contribute to a self-employed 401k), but this may be an option for one or both of us in the future.

SAVE

What is your annual spending?

Our annual spending, now that we are without mortgages, is about $160K. This includes the operation of two households and travel, which can often be fairly extravagant.

It does not include unusual massive property expenses (which are even lumpier than health care expenses – ask me about my new French drains!) for which we have usually paid by tapping funds in our brokerage account.

Once we go down to one household, the fixed expenses will certainly drop, but I have no doubt that our travel expenses will rise to fill the gap.

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

Our primary expenses are charitable contributions, travel, home maintenance, property taxes, food, and auto maintenance. We are lucky enough to have medical and dental insurance through my work, which will continue as part of my retirement benefits.

Several years ago we purchased a solar system with power walls which has virtually eliminated both our utility and gas bills, since we can essentially plug our cars into the sun.

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

We do not have a budget.

We have the luxury of spending and then seeing what we have spent for future planning.

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

Our after-tax income is about half of our gross income, so I always balk at questions about fractions of our gross income. Of our net income, about two- thirds goes into savings – early in the year it goes primarily to retirement accounts and later in the year to brokerage.

Our savings rate has climbed steadily throughout the years since I finished residency, as our lifestyle has not changed dramatically with our increase in income.

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

Absolutely the best thing that we have done financially is to avoid lifestyle creep (except for the travel piece.) This was not difficult for us – we were both over 40 by the time that we had physician incomes, and the habits that we had established were not extravagant.

Our tastes had always been fairly simple, our spending habits frugal, and most of our friends non-physicians who work in education, the arts, and service industries.

There was no keeping up with the Jones, and we have been able to take tremendous pleasure in treating friends on occasion in ways that they loved and that we could absorb without any major impact. And my 2008 Prius gets me where I need to be.

I have work colleagues who are making about what I make and are still, amazingly, living paycheck to paycheck, timing the payments on their Lexus SUVs and golf club dues so as to avoid overdrafts.

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

Our splurge is no secret: adventure travel. I want to see all those places that I saw in National Geographic as a child, and my husband does not tolerate discomfort very well.

This is an expensive combination. We do a lot of glamping out in the bush or staying in very nice accommodations in other far-flung locations.

All worth the mid-five-digits that we spend every other year or so. Honestly, I’d give up just about anything else for this.

INVEST

What is your investment philosophy/plan?

My investment plan has evolved over time. Coming from an intensely frugal people, I have always been debt-averse, almost religiously so.

My first years out of medical school were focused on paying off student loans, car loans, and the loan for my purchase of shares in my medical group. I also had a mortgage on the newly purchased house in the Valley.

Next phase was socking away more of an emergency fund and a downpayment for a possible home purchase in Oakland. By 2010 we knew that we would have a long-term base in Oakland and were in a position to buy a house there.

Fortunately for us, this coincided with the nadir of the housing market, and we found a house that met our needs perfectly in our neighborhood by the lake.

Since 2010 we have been focused on saving and investing. I didn’t have much personal finance knowledge in 2010, but I put my work-based retirement savings into a total stock market fund and opened a brokerage account at Fidelity, the custodian for my retirement accounts, and started putting our surplus there.

A total stock fund and a total bond fund, with a 70/30 allocation, seemed to make sense for the brokerage account based on my very limited understanding of personal finance. I muddled along with this plan, which fortunately worked out well, in the 2010s.

Somewhere around 2016, I stumbled across Mr Money Mustache through an NPR interview. While I realized that I had been following his principles all along, he gave me a coherent framework and introduced me to the financial independence community.

What I learned from this community was invaluable, but eventually, I ran into the walls of the echo chamber and was looking for more. I encountered the work of both Paul Merriman and Frank Vasquez., and through them, I learned the value of tilting our investments toward asset classes that increase our exposure to value and small-cap stocks and introducing REITs and even gold or utilities.

My current investing strategy includes S&P funds, a US large-cap value fund, US small cap blend and small-cap value funds, international large-cap blend and international small-cap value, REITs, a gold fund, and intermediate and long-term treasuries. All of these are in very low-cost index mutual funds or ETFs.

Funds needed for short- and intermediate-term use are in money market funds and municipal bond funds in the brokerage account.

What has been your best investment?

My best financial investment has been my medical education.

My best investments in my overall quality of life have been my marriage and my undergraduate liberal arts education.

What has been your worst investment?

My primary issue with my worst investment is not the financial loss but the thought process behind the investment, and it has been a valuable lesson that I hope will stay with me. It is my house in the Central Valley.

In 2005, I had accepted a position here, and this was the asymptotic phase of home price increases pre-GFC.

At the time, I thought, “Boy I need to get a house there as soon as possible because this is going to the moon.” And I bought a really lovely bungalow that I have loved and lived in for 20 years and made into an accessible home for three old dogs.

But within two years of my buying it, into the housing crash, the county valued my $400K house at $75K. Fortunately, the market has finally recovered, and after 20 years of loving my time here and paying interest and property taxes and upkeep and improvements, I can probably expect to net somewhere in the mid to high 300Ks when I sell the place next year.

What’s been your overall return?

Our overall investment return since 2008 has been about 8% annualized.

This does not include our residences.

How often do you monitor/review your portfolio?

I sign into my Fidelity account weekly. I promise that this is not because I am day-trading or rebalancing monthly.

My paycheck goes into my account twice monthly, and I invest these funds manually. I pay bills directly from my Fidelity money market account twice monthly.

I have also turned off automatic reinvestment in the brokerage account as I work toward our retirement reallocation, so I sign in at the end of the month to invest interest and dividends in alignment with our target allocation.

NET WORTH

How did you accumulate your net worth?

We accumulated our net worth almost entirely through making a very good income, paying down expensive debt quickly, keeping our lifestyle creep to a minimum, and, as a result, putting about 2/3 of our net income into investment accounts for eighteen years of overall excellent equity returns.

We benefited tremendously from being lucky, finding ourselves in high-paying careers and starting our investing career when we did.

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?

Each of these factors has worked very much in our favor. We make crazy incomes, we didn’t inflate our lifestyles, and I have learned just enough over the past decade mostly to avoid catastrophic decisions in investing.

But I think that our greatest advantage has to be saving – keeping a wide gap between our income and our expenses.

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

I think that our road bumps have been minimal. A couple of decisions that could have been better – the house purchase in the Valley, for example – and we ran across a few very expensive but unavoidable mishaps – some significant home damage in the New Years Eve storm of 2022 in California – but nothing that we couldn’t handle.

As a good friend in college observed, “if you can fix it with money (and you have the money,) it’s not a problem – it’s an expense.”

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

I am currently moving to prioritize lower volatility and decreased draw-down risk without sacrificing returns to too a great extent by rebalancing our accounts away from a significant over-representation in the S&P 500 and into an allocation that is diversified beyond a 60/40 stock/bond two-fund portfolio – one that includes some value and small-cap tilting, some REITs, and even a modest allocation to a gold fund.

We carry umbrella insurance on top of our home insurance, we will carry long-term disability while we are employed, and for the moment we have low-cost long-term care insurance through my work. (We will continue to evaluate this insurance as time goes on – we may well decide to self-fund long-term care.)

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

At this point, I don’t have a target net worth. This may be the time to lay out my philosophy about the long-term plan for our assets.

We will not run out of money. I am a fan of the fundedness approach of estimating the need for assets in retirement over any safe-withdrawal or guardrails approach, and we are ridiculously over-funded.

We have no children, we will leave a small bequest to a niece and a nephew, and the rest will go to our charities, which focus on education and the arts, health care and reproductive rights, food security, human rights, animal welfare, and environmental protection.

In a way, I see myself as CIO of our own charitable foundation – I’ll pay us a very comfortable salary in the years to come, but my goal is to maximize a legacy for these causes – just the opposite of “die with zero.”

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

I think that we were probably 44, 45 or so when we crossed that double-comma threshold.

It was largely off our radar at the time.

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

On the investing side, I have become very interested in personal finance and investing over the past decade – I listen to many hours of podcasts every week, have read many books, and have attended a few seminars. I’ve slowly built my understanding of the field to the point where I am very comfortable optimizing our own financial path for the next 35 years and can also help friends and relatives with their planning.

On the saving side, many of our pursuits are actually cost savers rather than net expenses. My husband loves home improvement projects and has saved us many thousands of dollars with his skills.

And I truly love cooking – the more elaborate, the better. We very rarely eat out.

I am very happy to spend Sunday afternoon making meals for the week or making dinner for friends.

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

See above on my home purchase in 2005.

If the market is rising exponentially, only the greater fool is buying.

Do not be the greater fool.

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

Be mindful about spending. Spend where it will give you value.

Do not keep up those stupid expenses that truly mean nothing to you. Do not spend to impress.

FUTURE

What are your plans for the future regarding lifestyle?

I am retiring in January. I will spend the next few months getting the house in the Valley ready for sale – I want to make it ready for a young family to make their own rather than selling it as-is to a large investor who will add it to their rental inventory.

I’ll then move back to Oakland. My husband will retire later in the year and we’ll start our retirement years together.

We have an eye toward making our Oakland home more friendly for aging in place, as long as we might want, in the years ahead.

What are your retirement plans?

Overall plans – so many.

I will continue my morning workout routine – but may arrive at the gym at 7 am rather than 5. I have always been in love with learning, and I will continue my online education courses and working with my Spanish tutor.

I am also currently reviewing high school math – I plan to do some volunteering as a math tutor in our local school district.

I am an avid gardener and look forward to keeping on top of my fairly large garden better than I am doing now. And I will continue to improve my cooking skills with the help of Julia Child and Jacques Pepin, and host weekly Sunday dinners for any friends who are available.

We’ll do quite a bit of traveling. I don’t picture us living abroad full-time or even for many months at a time – we love being at home too much. But there are many more places in the world to see.

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

My primary concerns are for our later years. We have no children or other younger family members who are significantly involved in our lives.

We will need to make a conscious effort to maintain social connections and we will likely need to find professional custodians for things that family managed in generations past – a fiduciary custodian for when our ability to make financial decisions wanes, personal care as our needs continue to increase.

MISCELLANEOUS

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

It was gradual – I began by being raised by the cheapest people on God’s green earth (Have you heard the saying, “use it up, wear it out, make it do, or do without?” I thought this was just a family saying, I heard it so much as a child. It was actually a WWII rationing slogan. My Quebecoise grandmother was repeating it into the 1990s.)

For me, there was a clear turning point. When I was in 10th grade, I went abroad for a semester on an exchange program.

I had worked and saved up to pay for the airfare, and then I saved for spending money so that I could see as much of Europe as possible while I was living there. I saved about $1000 in 1980 dollars.

One night shortly before I left, my father ambushed me with a check for $200 to add to my pot, telling me how proud he and Mom were that I had saved so much. I’ve been an avid saver ever since.

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

It may sound trite, but honestly, my father. He was not the most affectionate or patient parent, and in our early childhood, my brothers and I were all a bit afraid of him.

But he left the army at the end of the Vietnam War and started graduate school and, at the same time, worked for a large retailer coordinating their trucking fleets exactly as he had done for the Army in the war, simultaneously completing his academic studies and providing for his family (and helping to keep a major local retailer afloat for another ten years.)

He was 35 when he finished his PhD, and almost 40 when he got his first faculty position. All my life since high school has been guided by, “If Dad could do it, so can I.”

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?

A couple of mindset books that I like: “Your Money or Your Life,” by Vicki Robin and Joe Dominguez, and “How to Think About Money,” by Jonathan Clements and William Bernstein.

More investment-oriented books: “Just Keep Buying,” by Nick Maggiulli, “The Intelligent Asset Allocator,” by William Bernstein, and “The Most Important Thing,” by Howard Marks.

But I’d encourage everyone to read some beautiful books about our shared, fragile, human existence.

“To the Lighthouse” by Virginia Woolf.

“Dubliners” by James Joyce, especially the last chapter, “The Dead,” which finishes with some of the most beautiful prose in the English language.

The Wallace Stevens poem, “How to Live. What to Do.” Anything by Yeats.

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

We currently give about 15% of our net income yearly to our charities in the form of assets transferred to our donor advised fund. Neither of us is religious so we feel no imperative from that quarter.

We have excess resources and others need them, so there is no question that we would be charitable. We will likely continue to increase our contributions as the years go by.

When it comes time for required minimum withdrawals from our traditional retirement accounts, I fully expect that we will be donating these as qualified charitable distributions if we don’t need them for large medical expenses.

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 plan to start giving away our assets shortly after we retire, once we are both comfortable with our cushion.

The rest will be distributed to charitable organizations after we are gone.