Millionaire Interview Update 38

Today I have an update for you from a previous millionaire interview.

I’m letting three years pass from the initial interviews to the updates, so if you’ve been interviewed, I’ll be in touch. 😉

This update was submitted in March.

As usual, my questions are in bold italics and their responses follow…

OVERVIEW

How old are you?

As I’m typing this out, I am 50 years old and one day! Yikes – that’s a big milestone!

My wife is 43, and we’ve been married for a little over three years.

Do you have kids?

All our kids are from our first marriages.

My son is 16, my daughter is 15. My son is driving and working 20 hours a week while balancing high school workload, and my daughter is super active with extracurriculars while learning the ins and outs of high school as a freshman.

My wife’s son turns 21 this year, and is a music major at an in-state school a couple hours away. His whole life is music, and I hope he figures something out career wise to leverage his love for music.

They are all excellent kids and are growing up so fast!

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

We live in a DC suburb.

Traffic is better these days thanks to COVID, so my commute to the office isn’t too bad.

What was your original Millionaire Interview on ESI Money?

I was Millionaire 173, and a lot has happened since then.

I think the original interview was posted a few weeks before COVID messed up the world as we knew it. A little crazy re-reading that interview in preparation for this, how much life has changed!

Is there anything else we should know about you?

I’m on a 2-4 year track to retiring.

While work is going fine, I am really looking forward to the days where I become a time millionaire.

It’s not long before travel can become more leisurely, I can wake up and start the day a little more slowly, and life will be a lot less rushed.

NET WORTH

What is your current net worth and how is that different than your original interview?

Wow. Just wow. Talk about changes. All numbers I use here are after-tax.

Net worth in Nov 2019 was $1.3 million as I was coming out of a divorce and rebuilding.

Thanks to an amazing company and a bunch of equity vesting over the last few years, net worth today is $9 million, which includes vested equity, since that can be converted to cash at any time.

In addition to that, the value of unvested equity at today’s market price is roughly an additional $2 million, with major upside if the stock continues to perform.

Now I see how “one more year syndrome” takes hold of you. I’m still a little in shock at how these numbers skyrocketed! A long career with steady advancement and the good fortune of working for an outstanding company has really paid off.

What happened along the way to make these changes?

Obviously, if you’re going from $1.3 million to $9 million, it’s mostly good these days!

Our company has done exceptionally well the last 3.5 years, with our stock up around 50%. I’ve also vested in a whole bunch of equity and started to cash some of that out.

I’m still very concentrated in company equity, with 70% of today’s NW in company equity. This is the year I decided to start diversifying though. That’s down from 83% to start the year, and I plan to be around 50-60% by the end of the year.

The other major things I did were reactions to COVID. I converted my entire IRA to a Roth in March 2020, one day before the market bottom. Clearly the timing was pure luck, but the Roth has since doubled in value, and everything from here on is tax free in that account. This also allows me to contribute after-tax to a traditional IRA each year and immediately convert with no tax implication for doing so.

I also went to 100% stocks in March 2020, and that decision paid off extremely well. I was earning well, and figured I wouldn’t need any of the money for years. I was always a 75-25 stock/bond investor before then.

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

Today it’s just continuing the plan.

I earn well more than we spend each year, even after a hefty alimony bill, and letting the investments continue to grow while I earn for a couple more years is all it’ll take from here.

Realistically we have enough today, but I have a decent work-life balance, several more years of alimony and a reasonable path to substantially more NW the next two years as equity vests.

EARN

What is your job?

Still in the same job, a senior level accounting role for a large public company.

I do a lot of things outside of accounting, which helps keep things interesting. I’m trusted to solve problems and get things done timely and accurately, so a lot of miscellaneous projects end up on my desk.

What is your annual income?

My cash comp (base/bonus opportunity) is around $700k, but alimony and taxes take a huge bite out of that. My net take home has been more like $400-425k a year.

I also have equity as part of my package, and that’s been the NW rocket ship for me. I waited patiently for years to exercise options, and that’s really paid off.

My W-2 earnings 2018-2022 averaged $575k a year. For 2023-2025, I expect W-2 earnings will be more like $5 million a year as I exercise equity.

How has this changed since your last interview?

My base and bonus have grown roughly with inflation. What’s changed has been the company equity appreciating dramatically, and I’ve been patient.

Many option holders exercise options early after vesting. I’ve waited well after vesting because of the time value and the leverage. I’ve started exercising in year 7 because the stock has appreciated so much, and there comes a point where you have to trade off time value for wealth preservation.

Have you added, grown, or lost any additional sources of income besides your career?

I’ve started investing in RE syndications beginning in 2020. I’m in about 15 of them, and they range from simple lending funds to full development projects. Most are conservative residential and commercial value-add deals.

I have about $700k invested. 75k in deals that suck, $250k in deals that are excellent, and the remainder are performing fine. I know how to read a pro forma and with my financial experience, I expect RE syndications to continue to be part of my income plans in retirement.

I should clear about $40k in cash distributions on these in 2023. My guess is the principal value today is probably a little over the $700k. The outperforming deals are doing better than the ones that suck.

SAVE

What is your annual spending and how has it changed since your interview?

Overall it’s gone way up. Since I’ve hit such a home run with the company equity we’ve started spending way more for convenience, efficiency or luxury.

Nov 2019: $180k a year. $70k for children costs, $50k for a mortgage, $60k on us.

2023: $250k a year is my estimate. $70k for children costs, $60k for a way better mortgage (mostly principal), and $120k on us.

The children costs should go to close to zero in a couple years. College should be fully prepaid in 529 plans. The major spending upgrades have been enhanced vacations, increases in food (way more organic, meal plans, higher end restaurants), better stuff, regular personal care stuff like massages, house cleaning, etc. We pay for convenience now and don’t worry about it.

What happened along the way to make these changes?

I went into this a bunch in my original interview. I grew up poor, and being frugal was in my blood for most of my life.

I started earning really well in 2008, and from that point until roughly a year ago, was a strong saver. When the kids were growing up, I’d spend money on them, and I had a nice house, but was borderline cheap on everything else. So I was more of a hardcore saver than my earnings really required.

When NW started to take off to insane heights in 2021, I started to realize that the budget didn’t matter much anymore. So I’ve started to embrace the philosophy of spending more and more. First class flights are becoming the norm. Nicer hotels. Higher end quality clothes, luggage, accessories. A night out in DC was recently accompanied by a hotel stay, because why not!

INVEST

What are your current investments and how have they changed over the years?

My current portfolio is pretty simple – here’s my allocation:

• Cash: 3%
• Real Estate 18%
• US Stock index fund: 5%
• Intl Stock index fund: 3%
• BRK-B: 1%
• Company equity: 70%

No, that’s not a typo. Yes, most people wouldn’t sleep well at night with that allocation. I’ve been incredibly fortunate. Our stock has nearly tripled from my first option grant. There’s still four years left until expiration. So the minute I exercise options, 46% of the value goes to taxes, and I’m left with cash to invest in other things, which would have to earn twice the return of our stock just for me to break even going forward.

I know our company financials as well as anyone, so I’m comfortable being overexposed for awhile as I gradually diversify. By the end of the year more should flip from company equity to index funds. I expect in retirement I’ll hold 10-20% in company equity, and much more in index funds.

The real estate includes syndications and the estimated home equity in our two houses. We just paid cash for a second home in a warmer climate which will be a nice lifestyle upgrade.

What happened along the way to make these changes?

Pretty simple – I vested in a whole bunch of equity the last few years, and our company stock has performed phenomenally well.

Our stock is up 50% from the time I did my original interview. Thanks to all that, NW has skyrocketed.

MISCELLANEOUS

What other financial challenges or opportunities have you faced since your last interview?

There’s really been nothing major here. I funded 529s starting at birth for both my kids. It’s looking like both are on track to choose relatively sensible college options. College should be pretty much fully funded today.

I worked with my mother’s finances so she could take part of her portfolio to buy a house in FL. She’s now living the snowbird life and avoiding cold weather as much as possible — which she’s earned after all the hard work she did to make sure I got a good start to life (there’s a lot more on that in the original interview).

The number one challenge today is removing all emotion from the diversification decision. It’s been strange moving $500k at a time into an index fund, but I have to continue to do that in an unemotional way. No hindsight allowed, no stressing about timing the market, and just gradually go from concentration (to build wealth) to diversification (to preserve wealth).

It sounds easy because NW is so high, but it’s not easy. These are huge numbers to be moving all at once, so I constantly have to remember these are long term investments, and timing won’t really matter much.

Overall, what’s better and what’s worse since your last interview?

Life overall is way, way better! I can’t think of anything that’s worse. Yes, COVID sucked. But life has been pretty normal for the last 18 months.

We bought a vacation home in what may be our retirement landing spot. Everyone is healthy, kids are doing well in school, our NW is sky high, and I’m on track to be able to retire earlier than I ever thought possible. Life is pretty damn good!

When I was 30, my dream was to retire at 55 with $5 million NW. Now that I’m 50, I’m staring at retiring at 52-53 with over $10 million NW. It’s hard to believe the kid who grew up getting made fun of in middle school for wearing fake Air Jordans has come this far. Hope those middle school taunters are reading this interview!

What are your plans for the future?

The plan is to work for a couple more years, but make sure I’m maximizing time with the kids. I’m going to go on college visits, attend their school events, work out with them at the gym.

And once work is done, we have a massive bucket list of travel we want to check off, and we also want to make sure we don’t have any more winters! So many landmarks, college football and baseball stadiums to see someday!

Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?

I went back and re-read my original interview, and I think the advice there still holds up pretty well. Earning has been my biggest strength, by far. Total W-2 earnings for my life by the time I retire will likely be over $30 million.

When it comes to earning, my whole career I took on projects I thought would pay off long-term, I always tried to drive results inside and outside my direct sphere of influence, and I’ve always had a strong work ethic. I see that already in my son – he’s 16 and already got his first promotion at the grocery store by doing the same things. Based on how he describes his workplace, work ethic sounds like enough to get ahead these days.

When it comes to saving and investing, I still think that paying attention and researching for little opportunities can make a big difference, especially when you’re younger and just starting out. The little ways to save money in your 20s and 30s will end up snowballing down the road. Discounts, coupons, Roth savings, budgeting, all that stuff matters when you’re young.

Even though I don’t do as much of that today, having those behaviors from a young age are why I can be more freewheeling with money as I’ve gotten older.