Millionaire Interview Update 65

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 November.

It’s a long one (which I love!) so I’ll be breaking it into two separate posts.

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

OVERVIEW

How old are you?

I’m now 64 years old and my spouse is a year younger. I’m less than a year from Medicare!

We’ve known each other for 45 years and we’ve been married over 38 years.

We met during college, and then in 1982/83 we were commissioned in different communities of the U.S. Navy. We were at separate duty stations until 1986, when we married near the end of my first submarine tour. We managed to get homeports together for the rest of our careers.

I retired from active duty in 2002 while my spouse downshifted to the Navy Reserve in 2001 and then retired in 2008.

We joke that because of sea duty and deployments, we’ve only spent 36 of those 38 years together. That punchline ages a lot better in retirement.

Do you have kids?

We have an adult daughter and a son-in-law, both in their early 30s. Our preschool granddaughter was born in early 2020 and starts kindergarten in summer 2025!

In the 1980s my spouse and I talked about starting our family, and we decided the time was right when I went to shore duty after my second sea tour. Our daughter was a fireball to raise, and she’s nicknamed “Hurricane Carol” after the notorious 1950s natural disaster.

As rookie parents, we were outnumbered and undergunned from the day she was born. She’s heard this before: with her energy (and our dual-military careers), we never expanded our family.

That same energy helped her score a Navy ROTC college scholarship. Shortly after her commissioning, she met her spouse while they were both on active duty.

They attended the same session of a course where the students had to read the classified materials in the training building. Pretty soon those two were studying together, and a year later they were planning their wedding.

They were at separate duty stations for their first two years, and they married near the end of those sea-duty tours. They’ve been stationed together ever since. (And now they have their own sea stories.)

They’ve reached their financial independence through (too much) sea duty and a high savings rate. Carol discusses her part of that in her Millionaire Interview 367.

She finished her Navy service over two years ago and today enjoys working from home on part-time financial paraplanning. He’s approaching the end of his active-duty obligation, which is an ongoing retention discussion for 2027.

Carol is also my co-author of our book on raising money-savvy families. In reality, I scrambled to keep up with her writing. I was a lot more help with my experience in editing & publishing.

Our granddaughter combines the most challenging behaviors of both her parents, and we really enjoy spending time with her. (At least this preschooler sleeps mostly through the night, but by her bedtime we’re all still exhausted.)

We grandparents also love hearing our daughter’s weekly apologies for her own childhood behavior— those heartfelt affirmations never get old.

When our daughter was born she completely realigned our priorities. I’ve been surprised to learn that a grandchild has realigned our priorities all over again.

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

We live in Hawaii on Central Oahu in a suburban bedroom community.

It’s 30 minutes from consistent south shore surf and 30 minutes from famous North Shore surf. Admittedly our neighborhood also has one of the state’s best public schools, which is the actual reason we bought a home here. We’d like to spend the rest of our (very long) lives in it.

The Navy sent us to Pearl Harbor assignments in 1989, and today we’ve lived at the same address for the last 24 years. My spouse and I have been in these islands for over half of our lives, and it’s the longest we’ve ever had the same address.

In early 2024 our son-in-law and our daughter returned to Oahu, and they plan to stay for at least a few decades. (Because world’s best surf.)

Our granddaughter (Class of 2038) will attend the same schools as her mother. I’m sure her teachers are looking forward to that!

What was your original Millionaire Interview on ESI Money?

We’re Millionaire Interview 248 and…

Is there anything else we should know about you?

… we’re Retirement Interview 49.

I’ve also written a few submarine sea stories, er, I mean, guest posts on ESIMoney. (The stories have financial lessons.)

I spend a lot of time writing about military personal finance.

NET WORTH

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

In 2024 our net worth hovered around $3.3M, although it varies with stock-market volatility. In late 2020 (our Millionaire Interview 248) we were at $3.8M-$4.1M.

In 2023 we peaked at $5M, and our net worth has dropped over 30% since then. (Spoiler: it’s all good.)

We never expected this much wealth. We grew up with our parent’s scarcity mindsets, and after two decades of retirement, we’ve finally made the shift to abundance & gratitude.

What happened along the way to make these changes?

During our military careers with “reliable employment”, we bought (and sold) our homes at each duty station. We put the rest of our asset allocation in the stock market.

Oahu’s real-estate bubble peaked in 1990, right after we paid top dollar for a home in the Waipio Gentry neighborhood. The next decade gave back all of its 1980s gains… and more.

In 2000 as I approached my active-duty retirement, our home had lost 30% of its value and the real-estate recession was (only in retrospect) finally bottoming out.

Bargains were everywhere, and we eventually found ours in the Mililani school district. The house has a beautiful lot with a good layout but it was in horrible condition, so we made a lowball cash offer.

We rented out our Waipio property and focused on turning our Mililani home into a better house. It’s a good thing that we enjoy the challenge of home-improvement projects.

When I retired from active duty in 2002, about half of our net worth was in real estate and the rest was in the stock market. Since I have a reliable inflation-adjusted military pension, we initially decided to keep our mutual funds in >90% equities.

Each year we spent my pension and withdrew from our investments at the 4% Safe Withdrawal Rate.

During the Internet Recession we gradually moved out of actively-managed mutual funds into passive index funds with much lower expense ratios. We survived the rest of that recession while both our real estate and our index funds began to grow.

More importantly, our spending rose a little slower than inflation while my pension grew with inflation. Over the next 20 years, our real estate & index funds grew faster than long-term inflation, despite their incredible volatility during the Great Recession.

In 2009 my father developed Alzheimer’s and passed away in 2017. I inherited $600K, but we had no idea what we wanted to do with his money.

My spouse and I had just finished a protracted cash-out refinance of our home, including paying off our rental property’s mortgage. We already knew that after a death in the family, we should avoid hasty financial decisions, and our new 30-year loan’s fixed rate of 3.50% was the best we’d ever seen.

After 2017 we gradually consolidated my inheritance and our other investments in a total stock market index fund with even lower expense ratios. Our net worth kept rising.

Our granddaughter was born in early 2020, and we barely noticed the pandemic recession because we were busy helping with feeding & diapers.

Our daughter and son-in-law were also finishing their initial service obligations in California, and they had long-term plans to raise their daughter in Hawaii. A few months later when an incredible stroke of luck popped up, we were ready.

In mid-2020 a house up our street unexpectedly went on the market, and our neighborhood is a great place for them to raise our granddaughter. My spouse and I toured the property and we had a quick four-way family discussion before putting in our offer.

We would have loved a mortgage or a 1031 exchange, but the sellers were in a hurry and there were several eager buyers. A couple weeks later we won the bidding war for $1.2M cash.

Buying this third house started as a contentious transaction, already complicated by peak pandemic. The realtor insisted on a verification of assets because we “don’t look old enough to have that much money.”

Meanwhile, Fidelity Investments’ advisor noted “Wow, you have quite a bit of capital gains here. When you sell these index funds to buy your house, you’ll want to set aside another $50K for taxes.”

Well, yeah, everyone was absolutely right. That’s how compounding is supposed to work— especially when you start in your early 20s.

We quickly cashed out my inheritance and added more from our own investments. (The $1.2M wire transfer from Fidelity to the title company was another interesting experience.)

In 2021 the Navy abruptly diverted our progeny to San Diego for two years (“needs of the service”), but they eventually negotiated orders to Oahu and moved into their house in 2024.

During those four years, the four of us had many family discussions about which of us should own their property. We also posted a long thread on ESIMoney’s Millionaire Money Mentors forum to learn what tactics other wealthy families have used.

As grandparents, our default option was keeping the house in our names until we passed away, and they’d inherit at a stepped-up cost basis. Our daughter and I even did a seminar with her financial advisory firm (two CFPs and four paraplanners in a conference room) to analyze the details.

We have no clarity on how Hawaii’s estate tax could change in 30-40 years, and we realized that holding the house in our names was a meaningful risk of us elders paying estate taxes on that house’s future value. A stepped-up basis isn’t much of a consolation prize for our daughter & son-in-law if our estate had to pay federal & state taxes.

Incidentally, the CFPs helped me realize how much more I’m worth dead than alive. I’m not sure how I feel about that. #DeathGoals.

A second option was a family mortgage (at IRS-approved interest rates) or rent-to-own on our generous family terms. However, their payments to us grandparents would be taxable (federal and state) and we’d also have to pay 4.5% state excise tax.

Over the years of this financing, we might end up paying more in property taxes & income taxes than we’d pay in estate taxes. Besides, if we were still going to avoid estate taxes after our deaths then our money needed to flow downhill through the generations, not uphill to us parents.

A family-limited partnership is an attractive third option. The more we learned, though, the more it looked like an expensive legal transaction upfront to avoid possible estate taxes later.

There was also the effort (and additional expense) of properly documenting the family business while gradually transferring our shares to our daughter and son-in-law, with all of the IRS attention that might attract. Although the FLP process works, it makes much more sense with larger assets.

A fourth option was simply… gifting the house. Financially, title transfers are cheap.

As owner-occupants our daughter and son-in-law would pay half the amount of the property taxes that we grandparents were assessed for an investment property. The title transfer is very simple, with most of our time spent waiting for Oahu’s Land Court to record the paperwork.

There was no pressure to make a decision on these options, and we could switch among most of them if we changed our minds. However the four of us had already spent months on the analysis, and our choice was clear.

The fourth option was very attractive because we grandparents wanted our progeny to be empowered, and not just good tenants. (They wanted empowerment too, because they’d never owned a home.)

We’d give them their inheritance now, while we were all still around to discuss it and enjoy it together. As homeowners, they’d feel the stewardship that we would have wanted when we were in our 30s.

Our daughter and son-in-law already wanted to become Hawaii residents in order to minimize their income taxes. As soon as they finished that process (driver’s licenses, vehicle registrations, voter registrations) we transferred the house’s title. They filed for their homeowner’s exemption on their property taxes.

We grandparents have to file IRS Form 709 on our 2024 income-tax returns to register the gift against our estate-tax exemption. From now on we can deliberately keep our net worth below whatever that lower future tax threshold might be.

After a few months, we all agreed that gifting was the right choice for all of us. They’re happily dealing with all of the fun surprises (and a few frustrations) of first-time homeowners.

We grandparents are on call with our decades of experience in landscaping, facilities maintenance, and repairs. (“Welcome to homeownership!”) We’re also impressed with the projects they’re tackling, and they’re even helping to landlord our rental property.

I’ve belatedly realized that it’s a great way to honor my father’s legacy by paying it forward to the next generation. This is the feel-good part of dynastic wealth.

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

Well, we’re aggressively reducing it. Moving on— next question? (Just kidding.)

We grandparents still have our home, our rental property, and an aggressive investment asset allocation of >95% in a passively managed total stock market index fund.

More importantly, in 2022 my spouse started her Reserve pension. Today we both have inflation-adjusted pensions plus rising net operating income on our rental property… and now we’re both eligible for Social Security.

We’re continuing the spend-down plan that I described in our Retirement Interview 49. I’ll discuss this plan in more detail near the end of this interview.

EARN

What is your job?

I served for 20 years of active duty in the U.S. Navy’s submarine force and reached the rank of lieutenant commander. (That’s the equivalent of a mid-level team manager in nuclear engineering and weapons systems.) I retired to an active-duty pension in 2002 at age 41.

My spouse served for a total of 25 years of active duty (meteorology and oceanography) and the Navy Reserves. She retired as a captain (senior leadership) and she started her Reserve pension in 2022.

During my 22 years of military retirement, I’ve become an author and a speaker. I’ve written two books (one with my daughter) and over a thousand blog posts.

I’m working on a refresh of my first book, and then I’ll feel free to start my third book.

I spend a couple of hours per day answering questions from my audience on social media, e-mail, or an occasional coaching call. (Those discussions inspire more blog posts and books.) I also give presentations several times per year at financial conferences and meetups.

These days my primary jobs are being a good spouse, a good parent, and an awesome grandparent. Fortunately, our granddaughter is easily impressed, but this one shows early signs of grrrrl power.

What is your annual income?

Let me point out that military retirees have a very real survivor bias, and even the typical survivor’s longevity is reduced by at least a decade. In this interview, you’re seeing the happily-ever-after ending of our movie.

In the 1980s we had no idea what our lives were going to be like, and I was too busy with my submarine duties to explore my other career options. I did a particularly ignorant job of understanding how to leave active duty for the Reserves and a civilian life.

Our fear (and chronic fatigue) meant that I overshot the tripwire of the 4% SWR by over a million dollars. Now consider the impact of investing an extra $1M in the stock market for the last two decades, where it would double every seven years.

I also failed to understand the impact that an inflation-fighting pension has on retiree income, especially when we have our spending dialed in with our lifestyle. Over my 22+ years of retirement, the cost-of-living adjustments to my pension have boosted it by 73% — and three of those years had zero COLAs.

My spouse’s military pension has already risen by nearly 10% in the last three years (thanks to the inflation spike after the pandemic), and Oahu’s market rents have risen at least as fast.

These are the stories we tell ourselves as we try to comprehend how we got here.

Our gross income is currently over $16K/month ($196K/year). That should rise with inflation for the rest of our lives.

My pension is $55K/year, and nearly 20% of that is tax-free veteran’s disability compensation. For the military families reading this, I’m doing all right with my 40% VA disability rating.

I certainly don’t want to pay the price of a higher rating, but osteoarthritis and audiograms are relentless.

My spouse’s Reserve pension is $93K/year. The majority of hers is based on nearly 18 years of active duty plus drill weekends.

We’ve landlorded our rental property for 27 years. It currently grosses $48K/year (on an assessed value of $1M) and our long-term net operating income is about half of that.

Over the last decade it’s rising faster than inflation. Our equity investments earn the total stock market’s return, and we reinvest the small dividend.

How has this changed since your last interview?

The biggest change has been my spouse starting her Reserve pension. She’s earned it!

During this millennium, Hawaii’s real estate has appreciated faster than inflation for well over a decade. (Between 2020-24 the value of our third house rose by 30%.)

Market rents have gone up just as much, and our long-term vacancy rate has been 2%. Our last tenant turnover was less than 24 hours.

I’ll hasten to add that the growth is unsustainable. Oahu is finally adding new homes– on former agricultural land, which is a completely different sustainability issue.

Our population is aging faster than the rest of the nation, and we’ve suffered several years of net emigration. Our properties are great homes but our rental has a lousy capitalization rate compared to the Mainland.

I turned 62 years old in 2022, and my spouse did the same in 2023. We’re both eligible for Social Security but we’re going to delay it until we reach age 70.

We’ve done the analysis on Mike Piper’s Open Social Security calculator, but there’s a very small impact for taking SS before age 70. My spouse has the longevity genes to beat the breakeven by at least a decade of higher deposits.

In my case, I’d like to maximize my inflation-adjusted income (military pension + SS) to self-insure for long-term care as much as possible without drawing down our investments. I have a lot of hope for home care and caregiving robots, too.

Speaking of unsustainable, the military pension & Social Security COLA for 2023 was 8.7%. I haven’t heard of a COLA like that in over 40 years, and I hope we never see that much inflation ever again.

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

Nope. As of now, we expect to start Social Security in 2030/31 at age 70.

I receive a few hundred dollars a year in book royalties, and I don’t expect that to change. (It’s all donated to military-friendly charities.) I don’t monetize my blog or my social media.

Maybe one of my three surviving angel investments will surprise everyone with another exit, but I’d be happy to simply get our money back. An exit wouldn’t significantly affect our net worth and it certainly won’t change our lives.

Neither of us expects to inherit any more wealth. My spouse would prefer that her parents pass their inheritance elsewhere, and our siblings could do the same with whatever assets they have.

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To read the rest of this story, see Millionaire Interview Update 65, Part 2.