Millionaire Interview 8

The following is a millionaire interview I first published on a previous site.

I thought you’d enjoy this interview with another person who grew his net worth to over $1 million.

My questions are in bold italics and their responses follow in black.

Let’s get started…

How old are you (and spouse if applicable, plus how long you’ve been married)?

53, divorced in 2000, married 10+ years.

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

None

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

Portland, Oregon Metro but, on the income tax free Washington state side (suburban/urban).

What is your current net worth?

$2.7~M doesn’t count “stuff” just my property, investments and a Jeep.

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?

Cash, I Bonds, stock owning mutual funds, variable annuity with a 75% stock/25% “income oriented” portfolio.

Breakout is as follows:

• $400K~ Stock owning mutual funds via managed accounts (98% stock fund/2% cash) $400K~ for personal inflation protection and eventual “long term care”, as well as growth. I pay a .5% annual fee for management on this account.
• $40k ~Managed Account (A small beneficiary IRA of $40K~ that I take the minimum RMD of currently $1-$2K from, this was approximately $37.5K in 2001 when inherited from my Dad (btw -85% stock funds/15% bond funds) I pay a .5% fee to manage this account also (Includes the RMD calculation and reporting).
• $685K~ In a variable annuity registered as a traditional IRA. This VA has a valuable “income for life rider” that pays up to 7% annually of the highest annual balance beginning my age 59 if I elect to convert to income forever. The income stream can never be computed at an amount less than the $685K nor ever end. At one point this account had dwindled to under $400K but, has returned to the original amount invested. It is about 75% Stock mutual funds, 21% bond mutual funds/4% alternate investments. Guaranteed, worry free income for life!
• $575K~ US Govt Series I bonds – some have a 3% floor plus the inflation adjustment. Tax deferred and always growing! Too bad the Treasury limits the amount purchased to $10K PP now (used to be $60K annually).
• $145K~ personal residence/property I own outright (I carry this on “the books” at only the tax value, knowing when you sell, you have commissions, moving costs etc., that reduce profits) Market value is close to $200K.
• $14K~ Insurance cash values. Whole life policies purchased young (in my 20’s) that provide a modest $52K death benefit. Permanent guaranteed insurance always provides instant, tax free dollars at death that beneficiaries need for final expenses, costs of settling an estate, final medical costs, etc., etc., that are needed soon after death.
• $840K~ in CD’s/Money Markets/Liquid cash. Yes, this is a high amount but, I have no specific heirs so growing my estate is not primary concern, maintaining/improving my standard of living IS. Thus, I reduce the overall portfolio risk even more carrying this amount of cash. Should I remarry, I will invest a part of this for modest growth.
• $15K~ A 2010 Jeep Wrangler, book value is about $20K though.

I don’t value my “possessions” as “actual market value” of things is often close to nothing when selling in mass.

I keep my estate relatively “simple” using one broker, one primary bank (and online banks) so as to allow my estate to be easily managed or distributed if my health should fail or I die. It pretty much is on auto pilot now and has performed nicely in a decade of very not normal returns. My fees paid are “worth” the expense as a former financial planner, I value my time and the fact I may not always be able to manage my money properly.

What is your annual income?

Approximately $53K~ varies with investment income.

What is your main source of income (be as specific as possible — job, investments, inheritance, etc.)?

Military retired pay (Captain USAF), DVA Disability Compensation, Interest Income and Dividend Income

What is your annual spending?

$42K ~ varies…

How did you accumulate your net worth?

By 1982, I completed my double major and graduated with honors in a recession only surpassed by the current one this century. 177 resumes sent, only a few interviews but, a secure position one month before graduation for $3.35 an hour with commissions possible from Radio Shack – the old Tandy Corporation. Overtime too! I felt lucky, graduated with no college debt/loans (I emancipated at age 19 for the benefits of financial aid/grants as my “exemption/deduction” meant little to parents who already had enough children to deduct on income tax), working part-time during school and full-time in the summer to pay for school/personal expenses and with a little financial help from Mom and Dad too, I managed to save over $1000 by graduation in 1982, and owned two “paid for” cars, though they were a combined 25 years old.

At age 22, life was to begin again. I wasn’t “cheap” but was raised and still am “frugal”. So a week after college graduation, I began work for Radio Shack and within two months was the top sales trainee in New England, earning a promotion and management responsibility of my first store in just four months. The store was “broke” and I “fixed it”, returning it to profit in just over 60 days. 65+ hour weeks were the norm. I then moved to computer sales, back to retail management and by age 25 was averaging about 60 hours work a week/$36K~ a year (this was 1985) running the last of my three stores in the state of Maine. Tandy matched 40% then 60% of up to 15 % of gross pay deposited in the stock savings plan and I added about another $125~ a month to a high yield money market account. By age 24 I was had over $15,000 put away. I took a car loan in 1983 for 48 months but, leery of debt like my parents had been, I paid off the loan in 19 months. I had to beg the local banker for a VISA/Mastercard and by the second visit to the bank, I got a card with a $500 limit. Financially, I felt great!

RS had great plans for me but, I decided it was time for something different, to give back, to serve and find a career self-fulfilling. I applied for and against the odds, (about a 12 1/2%~ percent chance), was accepted into the Air Force as a Staff Sergeant with an assignment to Officers’ Training School in the summer of 1985. A 45%~ pay cut awaited too! I barely met the challenge against some of the country’s best and brightest officer candidates and was lucky to graduate in the bottom 20% of my class as a 2LT Administrative Officer assigned to Keesler AFB in MS, with a follow on assignment to Vandenberg AFB, CA.

I “cut my teeth” with various positions of increased responsibility but, seemingly the Air Force felt my business acumen was a strength so my assignments were managing people, programs and money. I had two commands at a young age and was selected for the prestigious Education with Industry Program at the end of Desert Storm in 1991. Along the way, I married a California gal after living for 2+ years in an $8K mobile home that I paid off in two years and sold for $7300.

Marriage to my new wife meant travel to Europe, courtesy the United States Air Force as our Honeymoon – to my assignment in southern Italy. Along the way, I always remembered my Dad, never making more than $20K a year in his life but, paying cash and “paying yourself first” by saving something every paycheck.

I became a client of a firm that catered to military officers and was saving/investing almost 25% of my pay by my seventh year of service. We had over $100K+ of liquid assets by 1990 and about $225K~ when the Air Force Reduction In Force of 1992 selected me for separation after 7 1/2 years as a mid-grade captain. I was making about $45K a year. My wife worked “on and off” since we moved almost annually. The Air Force had paid for much of my professional education, about 70% of my MBA and cut a check for about $24K~ at separation.

I started receiving $990~ a month unemployment. I continued on as an inactive reservist for another 7+ years. Of course it was 1992 and yet another recession loomed. Jobs were hard to find, careers even harder, and after little luck job searching, my wife and I decided to take the plunge as “self-employed”. I became an independent contractor for the investment firm that had helped me so much: USPA&IRA. We settled in Vacavillle, CA and I studied hard getting licensed, trained and learning the art of cold and warm calling to get the attention of potential clients. 6 1/2 day work weeks again became the norm and the expenses of running a business had us in a $12,500~ deficit in only a few months. Commissions were slow to build. My bride took a $6.50 an hour assistant manager clerical job that paid for the rent and the local phone connection – much needed so I could make calls to clients and potential clients from home, instead of the office a few miles away – quality home time so to speak.

I worked hard and by the end of year one, I showed a $4500~ profit for almost 4000 hours of work! But, the pipeline was full of clients referring potential clients and by the next year – my first “full year” I showed a profit of almost $190K~ and was the number one revenue producer in the world for the small company that was my parent broker. Two more hard years of work grew my income and along the way, I always maxed my Self Employed pension, our IRA’s and saved additional dollars. Paid estimated taxes on time and usually more than needed.

My wife joined me in the business near the end of year one so we could have some more “time together”. By the end of 1996, our liquid net worth soared to over $750K~ and I took the challenge of managing a new office in Central Texas, outside of Fort Hood. Modest success ensued but, I realized my work ethic was far greater than the folks I hired and trained. My income dropped a bit, to the “mid-hundreds” but, the low cost of living, debt free lifestyle (we rented homes quite cheaply) and internet bubble moved our portfolio to over $1M, all before my 40th birthday.

Unfortunately, the marriage didn’t survive and in late 2000, I wrote a check for about $425K, plus turned over title of the new car to my now ex-wife. In addition, I decided that my work ethic would better be served directly serving clients – instead of management, so I again moved my business, this time to Tacoma, WA to serve our firms growing list of “high net worth” clients. I had net worth of about $750K at this time.

Tremendous success ensued as my income approached $450K by 2003. It remained in the high two to mid three hundred thousand annually and I continued to live a modest – $60K~ or so a year lifestyle. Still frugal but, never wanting for anything. Inflation bonds, SEP-IRA, stock mutual funds, money market accounts, etc., I saved/invested all I could (often over $100K a year) while paying up to $150K a YEAR in federal income taxes. Business costs exceeded $50K a year. Do the math.

By 2007 the parent company, going through internal changes and seeing me as one of the top earners of the corporation in the world, decided that reducing “trailing commissions”, in my case amounting to over $100K+ annually, along with other commission schedule changes would be a better “motivator” AND soon after they decided to terminate the contracts of those high earners like me in masse. So at age 47, but, always knowing the end in the financial services industry could come at any time, I was unemployed.

I had started slowing down my work schedule in 2006, to a leisurely 35-40 hours a week and now had amassed just over $2.8M+. Some of that money wasn’t in “constructive receipt” so taxes were still owed on it (deferred compensation for instance) but, I had always figured, $2.65M~ was my target to be “all done” as far as earning/saving money and work. Most of my peers lived “up” to their income and scrambled to other brokerages/firms for work, I decided – to retire, at age 47! I had over $800K~ in cash, and the interest rates of 2007, still in the 4%+ range gave me plenty of monthly capital. In addition, through a large class action lawsuit, I was deemed to have been illegally separated by the USAF back in 1992 (“reverse discrimination”) and was awarded a full 20 year military retirement as a Captain. So a pension, modest but a pension none the less, and medical care awaited. Why work?

I built a small but very comfy townhome with many amenities for about $250K~, paying cash for it all – outside Portland, OR but, in income tax free WA state. I rearranged my portfolio becoming very conservative and cautious, for example: putting all my tax deferred (SEP-IRA/IRA) monies into a variable annuity with an income for life rider. I booked large tax “losses” during the market meltdown of 2008 but, my true cash losses were far smaller. Paid the taxes on the deferred income and built a very tax efficient portfolio.

Today, I typically show “income” of less than $45K~ annually and pay federal taxes of only $4500~ or so. No state income tax. Modest property tax of $2200~ a year. I travel, play competitive ASA mens’ softball – with folks far younger than myself. Live near the lake and million+ dollar homes but being 3/4 a mile away, I don’t have those kind of taxes/maintenance/housing costs. Now, I’m a bit “looser” with the cash but, my net worth, even in this awful market and ultra-low interest rate environment remains between $2.4 – $2.5M. Whole Life Insurance I purchased young is “paid up”, the “deferred variable annuity” promises me a lifetime of income that can only grow, never drop. Some I bonds STILL pay over 8% annually, tax deferred. Stock mutual funds in a managed account (at a .5% annual fee for rebalancing, oversight, etc.,) should provide inflation proof growth. Still large amounts of cash allow liquidity and a sleep factor.

I have my health and am blessed. Literally, the “millionaire next door”. At 53 years of age, I couldn’t imagine life being better! It wasn’t luck, nor inheritance, nor “hitting it big”. Education, hard, HARD work, living well below my means and avoiding debt were the keys to making it happen. I am making up for “lost time” now. And loving it!

What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?

Always plan for tomorrow, a dollar saved today will be $5 or $10 tomorrow, living on a shoestring while young can mean great wealth by middle age, Self-Employment, though the greatest risk financially is the greatest reward!

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

Diversification!

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

No, except to die after age 100 “almost broke”, from what I’ve heard, after a life here, the money can’t go with you!

What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?

Gradually increase my lifestyle and reduce my net worth through spending!

Is there any advice you have for ESI Money readers regarding wealth accumulation?

Start young, 15% should be the minimum and avoid consumer debt at ALL costs!

photo credit: Rodrigo_Amorim Coins via photopin (license)