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 October.
As usual, my questions are in bold italics and their responses follow…
OVERVIEW
How old are you?
I am 59 years old and my wife is 53.
We have been married for 25 years.
Do you have kids?
We have 2 children, both boys, one 24 and one 23. Both have graduated college and have moved away from home.
They are living in the Northeast region, with one being 4.5 hours away and the second being 7 hours away. They are both self-sufficient post-college, but I have decided to help them launch their lives given the current economic environment.
What area of the country do you live in (and urban or rural)?
We live in the Northeast in the suburbs of a smaller city. The cost of living is relatively affordable, and it allows for access to the beach, and mountains and is close enough to both of my children at the moment.
We are hoping to locate closer to one of our children as we move through our retirement years.
What was your original Millionaire Interview on ESI Money?
I was interview number 279.
Is there anything else we should know about you?
About a year and a half ago, our main home was completely destroyed by a fire. Thankfully, no one in our family was hurt, but this event forced us to rethink the plans that I had originally discussed.
Going through an event like this really changes your outlook and can create significant challenges in managing your finances.
I want to take this opportunity to remind everyone to check your insurance coverage limits with your broker. Based on my experience with this event it seems that a good portion of homeowners may not be at market due to inflation in recent years and this can cause difficulty in the recovery process.
It’s also important to inventory your personal belongings, starting with the most valuable items. Creating and updating a video tour of your property every year, or even every six months, can be incredibly helpful if you ever face a similar situation.
I never imagined experiencing such a tragedy but spending a few hours each year on this task can be invaluable. For a total loss like ours or a high-value claim, it is likely that a property adjuster would be required to help you navigate the complexity of the situation.
This could be a full topic so I will not go into those details.
Initially, we didn’t plan to move back into the damaged property. However, given the complexities of the overall situation, we did ultimately return to our home two months ago.
We’re now focused on completing several projects and buying the last few pieces of furniture to bring the house back to where it was before the fire. We will settle into this property for a year or so before we decide to move again.
Given the current housing prices and interest rates, it may make more sense for us to stay put for the time being.
NET WORTH
What is your current net worth and how is that different than your original interview?
What happened along the way to make these changes?
Roth Conversions: I realized that my assets were too heavily weighted towards tax-deferred accounts. To better manage my tax liability in retirement, I have been actively converting assets to achieve a more balanced ratio between tax-deferred and tax-free accounts.
401(k) Deferrals: I have reduced my 401(k) contributions to only cover the company match and shifted entirely to Roth contributions. This strategy allows me to build my brokerage account, which I plan to use to bridge the gap until I reach full retirement age.
Building Lot: We purchased a lot in our intended retirement location with the intention to relocate. After rebuilding our primary residence and reassessing our plans, we have decided to put this project on hold.
If we proceed with building, it will be on a smaller scale than originally planned or timed with the sale of our primary home, as I prefer not to manage additional overhead or maintain two homes into retirement for an extended period.
What are you currently doing to maintain/grow your net worth?
I have shifted my growth mindset to a maintain mindset with a focus on expense control in preparation for retirement. From a portfolio balance perspective, I am leveraging the power of compounding to enhance my account value rather than the value of additional contributions.
This does not mean I have stopped saving, but it is no longer my primary focus as I feel my balances are now sufficient to support a retirement date in the near future. My overall goal is to better manage expenses, which has become easier and more predictable now that my adult children are financially independent and living on their own.
EARN
What is your job?
I work in the operations unit of a large financial firm, focusing on automating repetitive processes.
What is your annual income?
My current income is 140K with about 10K in annual bonus.
How has this changed since your last interview?
When I wrote my original article, I was transitioning from a job at a large financial corporation to a position with a state agency, earning about half my previous salary. After a year with the state, I returned to my former employer.
This decision was made to accelerate my retirement timeline and allow my wife to stop working. I am now in a much less stressful role while still earning significantly more than I did in my state position.
Have you added, grown, or lost any additional sources of income besides your career?
The decision for my wife to stop working reduced our income slightly, but this was offset by my return to the corporate position. With my wife not working, she had more time to help with recovery from the fire and to care for our aging parents.
We will consider her returning to work once we no longer need to care for our parents and if managing healthcare costs becomes a burden we wish to alleviate. Having a lower earned income amount is also helping raise the amount that I can convert to my Roth IRA and remain within my targeted tax bracket.
SAVE
What is your annual spending and how has it changed since your interview?
It is hard to say what my current baseline spending is given that we continue to have unexpected monthly expenses related to the recovery from the house fire. My spending goal is $4000/month which would not include healthcare or travel.
This is my target for retirement which would put me around 100K annually including healthcare and travel. I am targeting a retirement budget of 120K/year and working to project an asset balance to support that level of spending.
I feel like this is a conservative number and if I need to reduce spending, I will have plenty of buffer to live comfortably.
I am planning to budget 20K a year to cover health care in the bridge period between retirement and Medicare eligibility. In addition to healthcare, I would also like to allocate $20,000 to $30,000 for travel in retirement, if decide not to build a second house or move to a new home.
If we build a second home my plan would be to reduce my travel budget to offset this expense. My planned travel would only last for the first 10-15 years of my retirement then I would expect to reduce this amount.
I am curious if any readers have experience with the actual healthcare costs prior to Medicare enrollment to validate my expense assumption.
What happened along the way to make these changes?
Obviously, the fire had an impact on my overall ability to save but 2 other factors have greatly influenced my saving plan as well. Now that my kids are no longer with us full-time, it is freed up a decent portion of monthly expenses allocated to vehicles and food.
My desire for work-life balance and less stressful employment has had the opposite effect on my ability to save given that I am not earning what I was earning previously. This has had a positive effect on my quality of life but a negative effect on my savings ability.
Weighing these factors together I feel that I am in line with my overall planning goals.
INVEST
What are your current investments and how have they changed over the years?
I have started to position myself more in cash for multiple reasons including current interest rates, pre-retirement focus, mitigation of sequence of return risk and market volatility, and general economic uncertainty. I am looking to use this cash position and my other brokerage assets to pay the taxes related to my Roth conversion that I plan to continue for the next 5-7 years and bridge the pre-retirement period.
I am hoping to use lower earned income years in early retirement to convert as much as possible in the up and possibly including the 22%/24% brackets. My tax-deferred accounts comprise over 54% of my total portfolio so lowering this component to closer to 35-40% would be preferable to me.
The majority of my portfolio is invested in broader indexed mutual funds and ETFs with a 1 single stock position in my company’s stock that I had purchased over the years using the stock purchase program. This stock makes up about 3% of my total portfolio value and pays a good dividend.
I have thought to reduce my exposure to the single stock but given the dividend component, I will keep it for now and look to sell when the capital gain will have less of a tax implication.
The interest that is being generated in my cash position in my tax-deferred account is being invested monthly to help me manage my asset allocation. I am targeting between 70/30 and 60/40 stock-to-bond ratio.
What happened along the way to make these changes?
I continue to study the optimal allocation strategies, and asset locations to minimize my tax burden in retirement. I have decided till this point to plan my retirement and asset draw-down plan on my own as I feel there is enough information in the public domain including ESI Money and several podcasts to allow me to effectively plan independently.
Should my portfolio grow significantly, or should I feel that things become too complicated to manage I would look to find someone to assist with managing the portfolio. My goal now is to ensure I do not introduce risk that could cause me to outlast my money in retirement.
My secondary goal would be to allow for some legacy planning if I am fortunate enough to continue on my current path.
MISCELLANEOUS
What other financial challenges or opportunities have you faced since your last interview?
I have been very fortunate in my career. I have had no long breaks in employment, I have found a career in my field of study, and I have been able to live below my means and consistently save for the past 35 years.
The only major financial hurdle that I have faced has been the loss of my primary residence. We were fortunate with our fire to lose material things which are unfortunate but recoverable.
Insurance has been a help but it has been a very difficult and time-consuming process. If anyone should unfortunately experience a total loss please leverage the experience of others and consider hiring a public adjuster.
In our case, we tried to go it alone for a while but given the complexity of the insurance industry, it is my opinion that a public adjuster is the best route to go to minimize stress and maximize recovery.
Overall, what’s better and what’s worse since your last interview?
My quality of life and work-life balance are much improved since my last writing. I have decided to be less worried about work and more intentional about living for today and the near future.
I feel that my retirement funds will be sufficient for the rest of my lifetime and if not I will make do with what I have.
I am still considering partial work situations as well as moving to a pre-retirement type position when the time is right. I am unwilling to allow my work situation consume too much of my personal time and headspace as I get closer to the end of my career.
What are your plans for the future?
My plans for the future revolve around ensuring a sound financial footing is established for my 2 children and planning as stress-free a retirement as I can.
My children are now self-sufficient but the economic environment that they live in is much more difficult than when I was their age. If I have the means to provide them a bit of financial relief as they start their careers, I will do what I can to make that a reality.
Since my expenses have been reduced with them out on their own, I have the ability to help them build their emergency funds and fully fund their Roth IRAs. Given their ages and the value of compounding over time, this focus on their retirement funding will have a tremendous value to them in the future.
My position is that dollars to these accounts are a form of “family tax shelter” and a prepayment of their future inheritance so it is a win-win from my perspective.
I do not plan to work past 59.5 when I plan to start to access my IRA. I am still trying to determine the best approach to bridge health care until my wife and I are eligible for Medicare but I feel that I have sufficient funding.
We will likely plan to travel more and increase our charitable giving once we are established in a retirement lifestyle and better understand our monthly expenses.
Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?
Living debt-free has served me very well. Living without a mortgage for over 10 years and with no car payments for over 20 has given me financial peace of mind that I found to be priceless.
I have also been very fortunate to be able to help my kids get through college and start their lives independently. This was accomplished on a middle-income salary by living below my means and investing with consistency.
Managing expenses, living below my means and consistent investment into a properly allocated broad-based, low-cost portfolio has been a recipe for success. The value that long-term compounding has provided to my portfolio has been remarkable.
I have taken the proper amount of risk and not tried to time the market. I have also risk-adjusted my portfolio to align with my age and investment goals.
I appreciate all the information that has been provided to me by the ESI Money blog over the years as it has been an invaluable asset to my overall understanding of finance and investing.
Well done.
“…no long breaks in employment…live below my means and consistently save for the past 35 years.”
It’s ESI, right? I did the same thing. It’s a head scratcher why so many can’t figure out such simplicity.
Incredible numbers here. I’ve always liked the “7% ratio” rule. That is that income should be a maximum of 7% of net worth. You blow this figure away, even when your wife’s prior income was factored. Good stuff.
Best of luck to you in your fore claim.
The gap between retiring and Medicare is not as scary as I thought it would be. You can go to healthcare.org and see what it looks like when you enter your projected income. The less income you have the more of a discount you will receive. Now, saying that, it is all subject to change with the new administration. I have a plan for low reportable income until I reach 65 5 years from now. The market is much easier than I had anticipated. I have been retired for 14 months now.
Great numbers here! I have a similar situation but you’re in even better NW shape than me. I left at 52 and had to bridge to 55 where my company provides retiree health care until I get to Medicare (such a great benefit!).
I used the Obamacare exchange and purchased a lower cost HSA plan with Kaiser. I was satisfied the quality of care although I didnt use it much. This was 4 years ago and it ran around 14K annual expenses including my out of pocket on average. I am fairly healthy, but one of the years I broke my foot. I think your $20K is very much in the ballpark.
You have a really nice plan here. My expenses are very close to yours and we own 2nd vacation condo. We spend 30-40K on vacations including the condo expenses.
I hesitate to make this comment, so take with a grain of salt, since everyone’s risk tolerance is different and it’s a very personal decision but after decades of being 100% in stocks when I retired I took it back to about 40/60 stock bond ratio. Having lived through 2008-2009 I like to run an exercise where you assume your stocks can lose 50% almost overnight and then see where that would put you with your NW, expenses and withdrawal rate. I was ok losing 1-2% return a year for having less a hit in the above scenario.
Thanks for health care confirmation! De-risking at this part is a key part of my near term focus.
I now park the bulk of my “cash” at SGOV ETF. Buy or Sell at any day, you get the equivalent of daily interest compounding. Slightly better yield than high yield savings or money market but IMO just as safe. Given you have $750k in cash, the higher fraction percentage may be attractive to you.
I will take a look at SGOV ETF.
Thanks for the PSA about checking one’s insurance. You really don’t know how important these “boring” tasks are until you go through something similarly yourself. I never through about doing a video tour of your belongings. Most policies have personal property coverage of $100-200k that I’ve seen. I would assume that’s more than enough to cover everything? If you did a video tour, wouldn’t they still ask for receipts to know replacement value, etc?
The average house is estimated too contain approx. 300,000 items. By math you would have less than a dollar per item to replace. Now that said we do not have high end furniture, clothing or jewelry but we maxed out our replacement value at over 300K. We did not replace a significant portion of what we had before the fire, some by choice some. Make sure you have enough in that bucket to replace that is important to you. The rest is just stuff….it is a bit freeing to downsize!
The process for replacement is a depreciated value of what you initially report. If you want to claim the replacement cost (difference between depreciated value and purchase price) you need to submit an invoice substantiation. It is over 1.5 years since the fire and we just submitted what we hope is our final submission of receipts. It has been a full time for my wife and you have to document everything.
If you have a fire save every receipt for everything you purchase until the claim is closed. Video evidence is good to help you remember but it is the burden of the homeowner to record every item the have in their house.
This is one of the benefits of the claims adjuster(at a fee) to help document these items as well as navigate the process. The adjust spent 3 days sifting thru the ruble taking a picture of every item before discarding it and researching them for value.
Fun Stuff!
I enjoyed this recap, you have done extremely well with a frugal but not cheap mindset.
As I wrote in my previous message, you are an admirable father who wants to do well by your children. This is wonderful.
However, I was very disappointed that you did not see fit to publish my original response where I was rather saddened that you made no mention of the efforts of your wife.
I am 83 and have been married to the same man for 61 years and we have raised three wonderful children and now have two outstanding grandchildren. My whole career, as a chemistry graduate, has been in some form of childcare. I was a classroom STEM teacher for over 40 years and now still substitute teach.
I am frequently saddened by the lack of public response to the efforts of women in the raising of children and increasing the resources of the family.
My great grandmother came from Ireland to the UK over 100 years ago for the expressed wish for education of her children. My grandmother passed that wish onto her eight daughters, #6 being my mother. Who installed it in me.
My mother set the tone for saving and spending and I have been proactive in doing the same for my family. So it, unfortunately, did not sit well with me when your contributor paid scant regard to the efforts of his wife for the accumulation of their family wealth.
ESI has been wonderful in recognizing the value of females in wealth accumulation. May this continue. But please remember that when my mother was born, women didn’t have the vote. And I had no ownership in the house that my husband and I bought when we were married.
When I was at school in the UK, we had selective education at aged 11. 100 girls and 125 boys were chosen to go to the better secondary schools. Of those 100 girls in our city, 90 left at grade 10. Of the remaining 10, only 3 went on to university. I was one of those 3. Most of the boys went on to various types of further education. Not so the girls. Marriage and children were in their future.
We women are moving forward. Please encourage us.
But as a teacher, I see too many boys falling behind, believing that they have a God given right to ownership and wealth.
Sorry I have gone on but I am passionate about education.
Thanks for sharing! I liked your comment, “I am unwilling to allow my work situation consume too much of my personal time and headspace as I get closer to the end of my career.”
Me and my wife felt the same way near the end of our careers, six years ago. So as planned, I took my public service early retirement option and she simply retired (her employer had no pension, but provided a 403b in which she invested for 27 years). I’m thankful to the Lord that her former employer provided free health insurance with low deductible and copay provisions. We’ve lived well over the past six years and yet our wealth has just about doubled during this time.
You seem to have planned well and will do great in retirement at handling your costs, living comfortably, and managing your wealth to last.