Millionaire Interview Update 6

Today I have an update for you from two previous millionaire interviews.

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

We begin with Millionaire 21.

You can/should read his initial post for specifics before you read this one, just so you have the proper background.

This update was submitted in August 2020.

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

OVERVIEW

How old are you?

Just turned 59. Married for 34 years.

Do you have kids?

Son is 28. Graduated with a BS and he works in sales.

Daughter is 29. She has a Masters degree and is employed in healthcare.

We paid for all of our children’s education including graduate school and they incurred no student debt.

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

Midwest suburban.

What was your original Millionaire Interview on ESI Money?

I was MI-21 and my original interview was in April, 2017.

Is there anything else we should know about you?

I retired in October, 2019 and I am RI-23.

NET WORTH

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

• Original NW $2.1M ($1.5M stocks, $250K cash, $350 house, $75K personal property)
• Current NW $4.2M ($2.353M stocks, $340K cash, $343K bonds, $807K company equity, $375K house)

At the time of my original interview I was not vested in any of my equity package.

What happened along the way to make these changes?

My last 7 years of working were my peak earning years. I had also been planning my retirement for about 4 years prior. I had always been 100% equities during my career so at the time of my retirement interview I was actively planning my exit as evidenced by my $250K cash position.

The goal was to shift my asset allocation to approximately 75/25 at retirement. I planned to achieve this by piling most of my savings into cash and short/intermediate term bond funds.

During my last 4 years of employment we saved about $740K and plowed most of this into my cash/bond position. We also paid off our home and have zero debt.

My plan was to implement a simple bucket system in retirement with 8-10 years of liquidity to smooth out any bad Sequence of Returns. And boy I’m glad that I did!

During the depths of the pandemic I was down over $850K, but I still slept well as we were in great shape with no need to make any fire sale trades. At the time of this update I’m still about 1% below my peak.

EARN

What is your job?

I am retired but I have done a fair bit of part time consulting.

I have really limited the amount of engagements to preserve my new found love of time freedom so the income is fairly immaterial.

What is your annual income?

My income is immaterial but my wife still works and earns roughly $80K.

She plans to work another 3 years or so and this is a huge help in giving us a nominal 1.5% withdrawal rate early into our retirement journey.

How has this changed since your last interview?

I walked away from the stress of a high paying C-level role and the security of a big paycheck every 2 weeks.

The trade-off has been a good one.

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

No.

SAVE

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

During my original interview our annual spend was around $60K. The kids had recently both been launched out of the house and we still had our spending somewhat restricted as if we were still funding college, cars, apartment rent, etc.

Over the past few years our spending quickly rose to around $85K as we’ve loosened up the purse strings a bit and started smelling the roses. I tracked our spend the last 2 years prior to retirement and my goal was to at least maintain this level.

The plan will be to up this to at least $125K in the next few years as my wife retires and we have much more time to travel. We also plan to move to our dream house in our dream location which will take around $300K in addition to our current home equity.

INVEST

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

As mentioned above the only changes that I made was to our asset allocation to properly position us for retirement and to replace my paycheck. My detailed asset allocation is as follows:

• $340K Cash
• $343K ST/Intermediate bond funds
• $2,353K Equity Index Funds ($1.12M large cap/ $551K Mid cap/ $531K Small cap/ $151K International)
• $807K company equity
• $375K home (90% of FMV/no mortgage)

$4,218K Total NW

We are also in a good place in terms of our tax diversification. 54% of our portfolio is in pre-tax IRA’s and 46% is in after tax accounts so we have an easy bridge to 59 ½.

What happened along the way to make these changes?

As stated above I earned, saved, and invested as best that I could.

MISCELLANEOUS

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

The biggest challenge was in getting the courage to walk away from the security of a great career and to begin the next exciting chapter of my life.

I will not repeat the details here but it’s well documented in my retirement interview.

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

Retirement life is much better than working 70+ hours every week plus traveling Mon-Fri every single week.

What are your plans for the future?

My plan is to continue to craft my new life 2.0.

I feel like I’m just getting started and I’m excited about learning new things and traveling to new places.

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

My best advice is to earn, save, and invest as much as you can but also to balance ESI with enjoying the journey.

Life goes by fast and you have to enjoy each day and week. Balance was always my goal in determining how much to save and how much to spend on the kids, vacations, cars, etc. It’s always a struggle to identify and maintain that balance but it’s worth it.

Having a plan is key so that you know what savings goal you need to hit your retirement goal. Once you know this you can better plan your discretionary spend and avoid over saving or over spending.

Always a struggle and a moving target but you have to do your best to plan.

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Next we have an update from Millionaire 18, who has our fifth highest net worth so far.

This interview was conducted in August as well.

He tells his story as follows…

Nearly three years ago I was one of your first Millionaire Interviews. At the time I was a few months away from announcing my retirement from my 30 year career at age 52 but we had started the process of relocating from the Bay Area back to the Midwest. At the time my net worth was $12.2 million

A lot has changed since I retired. Over the course of the last few years I had the following major financial events leading up to and after my last day of work in the spring of 2018:

• I bought land for a custom “dream” home project – cost $500,000
• I had to exercise all of my options in the summer of 2018. I did an execute and hold strategy and netted $3 million in stock.
• In January 2019 because I had retired before 55 I was required under the terms of the companies deferred salary program (Which defines retirement as 55 or older) to take all my deferred salary in a lump sum instead of over several years as I had planned. It meant a lot more in taxes paid on the higher amount but the net was $1 million.
• The custom house was estimated at $4.5 million to build excluding the land.
• The market was very good to us and as a result we ended up spending $5 million on the house. I know that sounds excessive – it’s not an asset it’s just that given how we really don’t spend money it was something that brings us joy, the family gathers here and after building it, it’s built for accommodating our aging parents should moving in with us become an option and in the end we still have more assets than we need. We can now focus on charity and other things we will do with our good fortune as we age. We see that as a busy 30 plus more years.
• While we built we rented a small house (in hindsight I should have bought it) and lived off our savings using the “pay yourself a salary” model for the 24 months it took to build and move into the house. Right now that is approximately $15,000 a month now that we have no more construction costs. This amount does not include property taxes which I pay twice a year.
• We moved into the house in late fall of 2019

As of today our balance sheet looks like this (in the same order as I listed them in 2017):

• Taxable Account $5,500,000
• IRA $7,500,000
• 401K $507,000
• Roth $570,000
• Vested Options NA
• House $5,000,000 (appraised value)
• Deferred Salary NA
• Kids 529 NA (both have graduated)
• Wife’s Roth IRA $40,000
• Cash Surender Value of whole life policy $120,000

Total Assets $19,237,000

Liabilities $1,000,000 mortgage on house – 7 year arm at 2.7%

While I wasn’t planning on this update (so I can’t easily tell you where we were between 2017 and today In terms of how we grew our assets), I can say the high water mark on the asset side before the House was finished was in the $22.5 million range in mid 2019.

I know a “mortgage” sounds like a sin in retirement but from my point of view this is free money. I would rather keep $1,000,000 in the market for 7 years then pay off my construction costs in full. If rates were not at historical lows I would not have done it. But on an after tax basis plus current inflation rates this is essentially a free loan.

Along the way I paid off the rest of the cost of building the home and also paid over $3.5 million in taxes.

The SECURE act has forced us to rethink how we pay ourselves and how we have set up our trusts and planned our estate. If your readers are not aware the SECURE act eliminated the stretch IRA.

Now that I have nearly $8 million in an IRA (that I have at this time no plans to tap until I am 59.5 at the earliest – I am currently 54) which could in another 5 years time be double that amount, I have had to rethink which assets I draw down going forward.

I have not settled on a final strategy but it will likely involve preserving the taxable accounts which contain highly appreciated stock (though if Biden wins and eliminates the stepped up basis for heirs I will again have to think through how we plan our spending) but until that happens we will probably shift to consuming the IRA via a 72T plan next year as well as starting a Roth Ladder conversion to move value from the IRA to the Roth. I am developing the plan and would be glad to share it with your readers when it is finished.

One thing to note is the ONLY account that is invested in a mutual fund is my 401K which in 3 years has remained effective timely flat. Every other asset (except the house of course) is an investment in a publicly traded equity each I researched and monitor quarterly.

Still retired too and enjoying golf. I have joined a few boards and earn about $100,000 a year in directors fees. We are both looking forward to traveling and enjoying restaurants again and someday being blessed with grandchildren.