Here’s our latest (first, really) interview with a retiree as we seek to learn from those who have actually taken the retirement plunge.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
There was no way to include every possible question in an interview like this, so if you’re wondering about something that’s not addressed, please leave your question in the comments below so the interviewee can address it.
My questions are in bold italics and his responses follow in black.
Let’s get started…
GENERAL OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married, kids, family)?
I’m 58 and my wonderful wife is a youthful 60 (looks much younger).
Married 26 years, all fun and easy. No children.
We have two brothers and their families within an hour’s drive, as well as elderly parents, and a disabled sibling that are appreciative of our help and attention.
We help with taxes, bill-paying, communication and coordination with government agency services, etc. all the way down to cleaning their rain gutters.
Another brother and his children, on the other side of the country.
They are all good people, no drama, and we like to see them.
What area of the country do you live in (and urban or rural)?
We live in a rural part of the western states, right at the snow line.
We have access to excellent professional and medical services. Major market entertainment and transportation. Low population density, low crime, older demographics (30% over 65).
Is there anything else we should know about you?
We are happy to be this age, because our lives have worked out. No more fretting and worry. All those decades of ‘getting ready’ and ‘someday when…’ with lots of ‘living like nobody else’ today so that we can ‘live like nobody else’ tomorrow, are over.
We are content and happy, and glad to put struggle and frustrations in the past.
RETIREMENT OVERVIEW
How do you define retirement?
We wake up when we are done sleeping.
Do what we want, when we want.
Answer to no boss, committee, demands on our time, etc.
That is our definition.
How long have you been retired?
Six years for me, and eight years for my wife.
We tried to retire a few years before this. The dramatic 2008 recession was so stunning in the destruction of wealth, that we reluctantly continued working a few more years in order to rebuild our net worth. It was quite humbling. As hard as it was to get up to work jobs we were ambivalent about, it was far worse to do so during those ‘penalty years’.
She retired a bit before me, her choice and I don’t blame her. I had been attempting to ‘engineer my layoff’ for some time, and the opportunity presented itself when my employer hit some rough patches. Very welcome, for both of us.
One aspect, that I sometimes forget to appreciate, is that I was able to work-from-home for a great deal of the last eight years of my work life. This allowed us to live in idyllic small towns, instead of a large metro region. Also very welcome.
What was your career and income before retirement?
We both had client-facing professional jobs.
I worked in project management, and she worked at the Director level in Contracts and Grants. We made similar incomes, growing slowly to a combined $250,000/year.
In the ESI formula, Earning is important. Savings is too, and in the last 15 years of our work life we were fortunate to become Super Savers at 1/3, with another 1/3 for taxes and remaining 1/3 for living expenses.
PREPARATION FOR RETIREMENT
Why did you retire? When did you first start thinking seriously about retirement and when did that turn into a decision to do it?
My wife wanted to retire from her high-pressure position at 50, in large part to qualify for benefit vesting.
I’ve daydreamed about it since my teen years. Just a few years into post-college work, realizing this grind could be facing me for 45 years, was enough to motivate me to do something about it.
She desired freedom and time to do things that interested her, and voluntarily separated from work when our financial foundation was set.
For me, a deteriorating business climate and poor work options made engineering my layoff the most attractive option.
What were the major steps you took from deciding to retire to developing a plan to do so?
The big one was automating savings into index funds, as well as 401(k)s.
Tracking savings, then forecasting a conservative return, estimating a Net Worth able to throw off enough cash flow for expenses.
What did your pre-retirement financials look like?
No debt.
No mortgage, and with the 2018 Tax law changes there is not much point to having a mortgage deduction in comparison to the revised Standard Deduction.
Total assets, including home, at retirement was $2.4 million.
Six years later, now, it stands at $2.9 million. It breaks down like this…
- Tax Adv Equities: $80k
- Tax Adv CDs: $1,405k
- Post Tax Equities: $150k
- Post Tax CDs: $725k
- Home: $590k
Total: $2,950k
Yes, that is 72% of our net worth in Certificates of Deposit.
We sleep very well at night, and say prayers for the ESI readers that caught paper losses of $500K+ a few months back.
Meanwhile, this fits our risk tolerance just fine, and we would be happy to be on the far end of this ESI sample’s Bell Curve.
In addition, we have Shadow Assets we do not include in our Net Worth, which are expected to throw off cash flow.
One is a small monthly pension, imputed at $392K, and another is our respective Social Security benefits imputed at $800K, and discussed in detail later.
What was your overall financial plan for retirement?
“Three reasons not to have a plan. 1) You’re rich enough to buy anything you want and still have plenty of money left over. 2) I forget the other two.” – Jane Bryant Quinn
Yes, we did/do have a plan. Actually, several plans.
We have found it useful to make three scenarios, i.e. Goldilocks. Risk, Return, Duration, etc., calculated to a High, Medium, and Low value financial plan. We assume a forecast using the mean of the Medium and Low values. It has worked quite well for us, and we expect it to continue going forward.
Did you make any specific moves to prepare your finances for retirement?
Yes, we moved to a lower cost-of-living region of the state, and having a free-and-clear home is quite liberating.
If readers are so inclined, one can impute the rent/mortgage payment equivalent into their cash flow. Once the home is paid for, the remaining expenses might be surprisingly low. Try it! Let us know what you find.
Who helped you develop this plan?
I must thank my father, who led by example. Many other mentors have generously given me useful advice.
Essentially, our retirement plan has been complete for a very long time. But I am still greatly interested in the subject of Personal Finance, and really like the FI/RE community of motivated, smart and knowledgeable people.
What plans did you make in advance to leave your job?
My advance plan to leave my job was rehearsed daily in my head for decades.
But when the time arrived, I left with a smile and a handshake for everyone. Not every plan needs to be executed.
How did you handle deciding on and paying for healthcare?
We are healthy, and expect to be for some time to come. Healthcare was/is a big financial consideration. Our solution should work for those in fairly good health.
We purchase catastrophic event health insurance, about $9,000/year for us. Things like annual checkups, eye/dental, etc. we pay out-of-pocket. Rarely is it over $1,000/year, for two people.
And now, a real life example where the rubber-meets-the road… I was hospitalized for six days with influenza this December 2018. My total bill was $49,000 including ambulance, Emergency Room, Intensive Care Unit, and double-occupancy room. My share is $9,000. Thankfully the care was fantastic, and I’m fine now.
When we turn 65, Medicare will cover most healthcare costs. More info on Medicare costs here.
How did you tell your family and friends of your plans?
My wife was a total Boss. She told a small circle of friends in the course of their activities together, and they were all cool with it. Didn’t hurt that they were all retired, too.
There’s a theory called “the five chimps theory” shared by Naval Ravikant, in Tim Ferriss’s book Tools of Titans: In zoology, you can predict the mood and behavior patterns of any chimp by which five chimps they hang out with the most.
I told nobody for a long time. I didn’t even tell my parents for 18 months. Partly because I wanted to make sure that this time I could stay retired, and didn’t want to explain if I went back to work for any reason.
But also, because I was somewhat self-conscious about it. My “five chimps” were not retired, or close to it.
The subject didn’t come up for a long time, but when it did I found people seemed to require an explanation. And because they had work and family obligations, we did not hang out much after that.
That was something I did not anticipate, incorrectly assuming that nothing would change. One friend actually became emotional, not in the good way.
I wasn’t gloating or rubbing it in, and only told him reluctantly. Fortunately, we got past the moment.
Most of my friends now are 400 miles away, and we see each other every few years. Phone and e-mail are good. I miss them, and would love it if they moved up here, when they were ready to pull the plug.
THE ACT OF RETIRING
What went well?
The financial aspect went well. Our actual spending was/is much less than we planned for, and net worth continues to increase each year.
What didn’t go so well?
For me, it was social. People my age are usually working, and certainly have family and other obligations outside of work. Anyway, it is hard to make friends as one gets older, and hard to keep them, too.
There is not a limitless supply of people, with shared interests and values, in your geographic region. It takes some effort, and there might be misfires, but when it works it is totally worth it.
How did you ultimately find the courage to do it?
Not sure it was in any way courageous for us, but we had tried-and-failed once.
We were simply tired of dealing with brutal super-commutes; we lived where we wanted to, but most of our time was spent navigating sociopaths, jobsworths, bullies, etc.
Of course there were nice people, too, some even turned into friends. But those in no way compensated for the aggravation and disappointment that problem clients and colleagues created. We prefer not to work. YMMV.
RETIREMENT LIFE
How was the adjustment, especially the first few months after retirement?
Pretty easy, I would say. I enjoyed the lack of structure very much, during this time. Still do!
How is retirement life now? What do you like about it and what do you dislike?
“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” – Ralph Waldo Emerson
Do all those things, and happiness sneaks up on you.
What do you do with your time? What does an average day look like?
I do keep a ‘to-do’ list, which is helpful in keeping me moving. My natural inclination is to sit on the porch and read and daydream.
She goes to yoga class often, has culinary pursuits that benefit us both. OK, mainly me.
My wife is quite creative, and has side-hustle in fiber arts. She has also completed certification and is an instructor in Master Food Preserving. The people that share these interests are great people that don’t cultivate drama.
I’ve struggled somewhat in making new personal connections. Still working on it. I am grateful for a group of guys at my local hardware store, who have unofficially taken me on as a “project” and are turning me into a “Mountain Man.” It helps that they are hilarious.
Also learning some skills and craftsmanship, working with tools and building a talent-stack. There is a lot one can learn on YouTube. In my case, I’ve acquired skills and experience in leather furniture repair, plumbing/electrical/HVAC, landscaping, etc.
The past five years, I’ve cleared about 250 oak trees, removed the stumps and chipped the slash (I’m told by neighbors that our property looks like a park.) Repaired chainsaws, power tools, riding mowers, etc. Lots of skinned knuckles, pulled muscles, and close calls.
Pest control is another accidental skill picked up during spontaneous moments. One year I killed four rattlesnakes. In fairness, it was them or me.
“What do we say, kids? Safety First!” – Super Dave Osborne
This is still new for me, as a ‘city boy’ but the simple act of “trying” to learn craftsmanship has moved me past doubt and fear. Home repair and power tools still challenges. But I can highly recommend it for those who have the inclination and time to learn. Very satisfying. I’m able to ‘be useful’ with these skills for friends, family, and neighbors, too.
We both have held volunteer positions, and no longer do so. Working as a volunteer is still working. People don’t just give you credit for “caring” or for “trying” as the virtue-signalers quickly learn.
We’ve done grunt work, and held board positions for HOAs, professional organizations, and charities. I’ve been a Treasurer twice, and it can turn into being a Bill Collector. Both of us agree, never again.
We donate some money, usually between two and three thousand a year. When friends or family contact us for a cause important to them, we always say yes. We know how hard it is to raise money, and the rejection. We are supporting them first, and their charity second.
My wife notes that the cliché is true, “how did we ever find time to work?”
Was there any emotional impact from leaving the workforce?
Yes. I felt a huge relief, and the absence-of-stress was amazing. I was like the frog-in-the-boiling-pot for years, not aware of how I internalized the pressure and demands.
I also went through the Kübler-Ross five stages of grief, but it went by quickly.
What are your future plans?
We have made our home an oasis, and no longer have a need for vacations and weekend getaways, because there is nothing for us to get away from.
We have done our traveling, and the combined hassle of traveling and guaranteed illness upon return make it unappealing.
Our future is now, and that works well for us.
RETIREMENT FINANCES
How has your financial plan performed compared to what you had estimated before retirement?
The plan continues to evolve. I’ve made some tweaks, which are actually remarkable in result.
We are utilizing a tax-minimization strategy, taking advantage of a window in long-term Capital Gains where we can realize $30K and pay zero additional Federal Income Tax.
State income taxes are minimal, and our state does not tax Social Security.
How are you handling Social Security, required minimum distributions, tax issues and the like?
We both plan to take benefits as early as possible for two reasons.
1) 85% of the S.S. benefit is taxable beyond $44K/yr in earned income (this includes IRA, 401(k), 457(b), etc. withdrawals).
2) The ‘break-even’ for taking early benefits (62 at 70%) to our regular payout (67 at 100%) is age 78. Not only is the risk for an early demise removed for 15 years (not once, but twice for each of us), but we feel the utility value of a few hundred dollars a month in extra benefits after age 78 is lower than in earlier years.
More info on the taxation of SS benefits here.
Did you return to paid work? Why or why not?
No. We prefer not to work.
Did you find it hard going from being a saver to a spender?
Hasn’t happened yet. We have a draw-down strategy, but haven’t been compelled to start.
This nut might have to last us 35 years, and we have other family members we may be financially responsible for.
In example, an in-home caregiver at 12 hours/day is about $9,000 per month. A full-time skilled-nursing facility will cost about $107,000 per year, per person. This is a reality we are facing for parents now.
So, we are in no hurry to upgrade our lifestyle just to burn up the cash, just yet.
Here’s our deaccumulation plan:
Taxes and IRA Rollover withdrawals – we have determined the tax implications, and find the potential for compounding is outweighed by the benefit of minimizing taxation.
Our plan is to begin early withdrawals using the 72(t) Rule, realizing smaller amounts over more years. This will significantly reduce our tax bill, as well as keep our S.S. payments from being taxed at greater amounts.
The traditional advice for leaving tax-protected income as long as possible to allow maximum compounding; withdrawing tax-protected income with 72(t) in the 10 years before full SS eligibility will allow us to be taxed at the lowest brackets over a longer period of time. You can find more info and run test scenarios here.
Looking back, what do you wish you knew in advance?
You will be alone, sometimes. Embrace it.
Pick and choose worthwhile companions and activities when you can, and accept solitude when you can’t..
Guard your time. There will always be somebody willing to use your time and talent, when it costs them nothing. We were surprised to find that time is just as important to us as money.
You may be surprised at how little income is required to continue your lifestyle, unless you intend to ramp up travel, status homes and cars and memberships, etc. Income taxes, savings, transportation costs, etc. all decline dramatically.
Some people consider moving to other states for tax reasons. Do the math yourself.
First, “put a number on it” like they say in The Sopranos. What would it take for you to leave your current geographic location and residence? Do the calculation yourself, and let us know. For us, there is no way we could hit our number of $20,000/year.
Second, look at the lifestyle. Do you see yourself growing old in a big city? Mid-size urban? Retirement community? Near family? Weather? You might enjoy finding out that you don’t have to stay in one place forever, and that you can take longer hiatuses in different places.
In closing, thanks for reading. This was a worthwhile exercise for us, and we are looking forward to the new ESI series.
We’ve picked up some great information from the other series, as well, and it is so generous of these writers to share their stories. Thanks again, see you on the site!
Interesting read. Thanks sor sharing. I’m consuming this on an iPad using Safari and some of the links don’t work.
Ok, they should all work now…the outside links added some funky code so my copy/pasting of them wasn’t good — all normal now.
Thanks for letting me know.
Thanks for setting up this series, ESI, you have a nice way with people and make them want to participate in your positive communities, from ESI Money, to Rockstar Finance, Wealth Lion, Free Money Finance, I really enjoy people’s stories.
Also, am appreciating the apropos photo you used for this piece, it makes me want to gear up with ear/eye protection. 😉 Thanks for the opportunity to share!
Thanks for reading, Dan. I’m also a user of iPad and Safari, about to switch to Samsung Galaxy Tab S2 to bypass the same difficulties you are experiencing.
Even though this is only the first interview, I think it’s interesting to see the different perspectives on risk tolerance and retirement choices (i.e. 70% in CDs!)
I think a lot of the FIRE crowd is younger and doesn’t have the life experience of bad markets or high interest rates, and therefore is willing to take a lot of risk with their retirement savings, which may have consequences in the future.
Thanks, Andrew. You are right, and will predict that our profile will be the most risk-averse we will see in the series.
The reason we use CDs as our fixed-income instruments, is because bond interest rates have stuttered downward from 15% to 2% over the past 30+ years. ZIRP has been brutal, and some countries are toying with NIRP. I’ve also experienced secular bear markets, so you have accurately figured my mindset.
This was a great reflection on your journey to and in retirement. One place where I was caught off guard was your plan to take SS at 62. The reason of enjoying additional income after 78 is good. I am not yet retired, but my expectation is to retire at 60 and take SS at 70. My reasoning is that if stock market turbulence damages equity values or inflation damages fixed income values, then the larger, inflation-indexed SS benefits will serve as a sort of insurance against future damages to our portfolio. I have a few years to sort out what I will actually do, since we are still in our 50s.
PWilliam, it caught me off-guard, too! Lawrence Kotlikoff’s excellent book on Social Security, “Get What’s Yours!”, has a ton of actionable information. Bottom line, whenever you begin to draw benefits won’t matter as the age/amount/life expectancy is calculated to be the same for total lifetime benefits.
Your strategy is good, too, and you have plenty of flexibility while your decision-point approaches.
Great idea for an interview series and can already tell this is one I will be reading everyone of.
Thanks for sharing your story Retirement1.
M73, I can’t wait to read yours! I remember your interview, and beautiful family-life in particular. Seems like you could have pulled the trigger on it a long time ago, but you seem to have quite a Midas Touch turning your investments and contract wins into gold.
Outstanding and very interesting read.
I love that you’ve started this important ESI series — all questions (and answers) were relevant and will be helpful , as we continue to prepare for our own retirement—- in about 21 months, we will be done with work and retired. Can’t wait!!!!
Key “take-a-ways” for me —
1. Being debt free @ retirement
2. Home as your oasis
3. Dealing with your social issues
4. Learning new skills
5. TIME —- protect it.
6. Quote by Ralph Waldo Emerson
7. CD buildup ($1.4 mil) — wow
Thanks again for caring enough to help us all think differently during this time of preparation—-
Retirement is looming!!!
Always enjoy your insightful comments, Razorback 14, and appreciate your words above. From what you have shared, you are very well-prepared already. I checked out your side-hustle site, Crockettsings.com. Very professional and a great showcase for your gift!
Not saying this ironically at all, a sincere compliment coming to you so I hope you get ready… You are my second-favorite Arkansas singer, right behind Jim Dandy Mangum.
I got 465 days left. July 2,2020 is my last day in corporate life….can’t wait. Already started the new business to ramp up into ‘retirement’. I am jealous of all retirees at this point.
PWilliams —
As for taking SS at 70 yrs of age—- my timeline is the same and for the same reason you’ve listed.
I’m 64 yrs old, and I’ve built in to my plan to take SS at 70.
Great read. I have gone through many of the same steps, particularly where to retire and what to do with our time. We are both 54 and mostly retired, so I have a couple of questions. With so much of your funds in CDs, do you have a formula for how much you will draw out each year? Also, with major medical insurance, do you have an HSA for the out of pocket expenses?
Thanks for reading, and your relevant questions, Chuck. 1) We do have a formula for draw-down for both Tax Adv and Post-Tax, and recalculate it each year. HOWEVER! We haven’t come close to implementing the draw-down, for several reason implied in the post. Our expenses are remarkably low because we are debt-free and in good health. We don’t travel or status-signal, and practice ‘stealth wealth’ (aka ‘grey man FIRE’).
No HSA.
Thank you for this new series. This is great for the near to retirement group. I’m sure it may be very helpful for some that are already retired. There are many ways to accomplish the same goal and this series will show that.
Congrats on being #1 in the series! Thanks for sharing your story!
I found the investments primarily in CD’s interesting as well. Every day in retirement we become more risk averse, so I may look into this idea just a bit more.
Our investment advisor asked us an interesting question. “Would you rather be conservative and get small regular income knowing you might miss a big market gain or be more risky and potentially suffer a significant loss with opportunity to have big gains?” He wasn’t trying to push us one way or the other, but it made us think about our psychological make-up more deeply.
In re: SS. Although we’re still a few years out, we have pretty much made up our minds to take it as soon as possible. We’d rather spend it now, than have it later. Our breakeven point is 78 yrs old when comparing 62 vs 67 and 82 years old comparing 62 vs 70. We found it really helpful to put our SS values into an excel sheet and look at the actual dollars on paper.
I’m going to enjoy this series a lot.
I get to tell my story in about a month (#6) 😉
Thanks for the kind words, M55. Your story you shared with us last year is quite impressive, and I’m looking forward to Retirement Interview 06 in about a month!
Your investment advisor sounds like a real catch. I don’t hear stories like yours all that often, and his question is entirely in your interest (not his). The corollary (which you already know) to his question to you is, “if you do get a big market gain, what will you do with it?” Most people have no idea, and just take the risk because they have no idea of their own pain-threshold.
P.S. – just a guess, but you would spend a big market gain on a Porsche 911.;-)
YUP… ummm…maybe if wifey approved 😉
“See” you in 6 weeks!
I would be interested to know to see a breakdown of their annual expenses. Health insurance alone can be a drain. Great interview!
Agree. Given this is a financial blog, I’d like to see a more specific breakdown of expenses. While reading, I found myself reading fast to get to that part and would like to see more detail on this in future interviews.
Thanks for your inquiry, Mary (and Phillip).
We spend about $60,000/year, with occasional bumps for a new car, kitchen remodel, etc. Nothing out of the ordinary for insurance, utilities, food, entertainment, etc. Our health insurance just covers catastrophic events and is $9,000/year, as noted in the post. We have no debt/mortgage, and don’t travel. Our expenses have been roughly the same for 20 years (with slight increases for lifestyle-creep and inflation), and for that reason, we don’t bother tracking specific expenses. One of the benefits of retiring with a decent nut, Is not having to sweat this stuff.
Heck, my wife’s travel budget is about $50K a year. 🙂
Great first interview. It will be interesting to see various “real-world” experiences and choices of retirees.
Thanks, Steve. Speaking for myself, I find the “real-world” experiences entertaining, too. These stories that ESI’s community generously shares are ones that I cannot get in my “real-world.” Talking about these things face-to-face with friends and family can easily take a wrong turn, as the context is so much greater than just FIRE. And not that many people in my life are even interested in personal finance, to begin with.
Grateful for PF bloggers, and the stories they share!
Thank you for this! I’m 52 and this has been a great help in my planning and thinking. I REALLY love the links-thank you for that!
Can you explain the difference between tax advantage CDs and after tax CDs? I get the after tax ones since that is what mine are, but am unfamiliar with tax advantage ones…is it like an IRA that is in a CD instead of a mutual fund?
Thanks for reading this, Paul. Your understanding is accurate, just differentiating which instruments produce interest that is taxable now, as regular income, or deferred interest that will compound until we begin drawdown with Required Minimum Distributions.
Our tax-minimization strategy, noted in the post, has worked out well for us. We had some occasions paying six-figures in income tax, during out 1/3,1/3,1/3 years. By way of comparison, we paid 4.7% of our 2018 AGI in income tax, and 6.3% in 2017. At this time, we are not drawing S.S. or IRA RMDs, so making the most of these next few years to implement this approach.
Thank you for your comments and being so honest about retirement. My husband and I retired at 55 and 59 with no children, similar to you. But we love to travel and returning home is a joy too. Your comments about having friends who have similar interests is important. We joined our local city community center and made a few new friends that way, but we are the youngest of the retired group so still not meshing all that well.
As Paul asked, can you explain what tax advantaged CDs are? Similar to you, we have cash with the same objective as you have, rest easy at night. We have quite a bit in the market still, so when the market plummets, we will be sad but we can look at the cash and say, “oh well, we have time”. We are still considering when to collect SS.
Also, did you use a financial planner, CPA, tax attorney to help with your strategy on which funds to use for retirement?
ESI community: what type of person should I consider to hire to help objectively with assistance on which accounts to use in retirement? Tax strategy is important but without children to benefit, I’m not sure how much I want to pay now to convert 401K to a ROTH but low taxes is a consideration for next few years. Just would be good to have an outside person review what we have and offer options. We are fortunate to live off interest, dividends, pension and not need to use any principle for the last years, but I want to be prepared. thank you
CB, thanks for your comment. Thanks to some great financial mentors, mainly my father, I have been able to do this without a financial planner, CPA, etc. Anyone can do it, but not everyone is interested enough to educate themselves. In many ways, PF and FIRE is like the skills I am slowly acquiring in retirement; while I was working, it was easier to just pay somebody to do the furniture repair, landscaping, plumbing, etc.
As for tax-advantaged CDs, you can see my response to Paul. The summary of NW is cleaner to label it
” •Tax Adv CDs: $1,405k”, rather than
” • IRAs, Annuities, 401(k)s, 403(b)s, 457(b)s, Municipals, blah, blah, blah: $1,405k”
As for professional assistance with your personal finance options, there is no shortage of those willing to take your money. You could do worse than choose a Fee-Only Financial Advisor. Best of luck!
Can you expand on the 30K window on long term capital gains? Is this due to a previous loss or is there a regulation I’m not aware of?
Great question, chemist, and it allows me to clarify my point. The $30K is for me, not you or anyone else. Through minimizing declared income (after CD interest and my wife’s fun side-gig), we strategically draw-down $30K in Long-Term Capital Gains each year, and will as long as we are eliminating this overhanging obligation.
For 2018 you could earn up to $77,400 ($78,950 in 2019) and pay 0% LTC gains. After the $24,000 Standard Deduction for a couple, you can draw-down a total of $101,400 in 2018 and $103,350 in 2019 without paying any LTC gains or dividends (assuming no other income, of course). Try it yourself, let us know what you find!
I never thought of the SD as *above* (ie taking us back down to) the tax bracket we’re already in. Yay. That means I can look at our portfolio in a much different light.
Just learned about selling/rebuying stocks to realize CG w/o owing taxes last year. It’s not “tax-loss harvesting” so not a topic that comes up except thanks to one FIRE blogger I came across.
And most people don’t have to worry about it with tax-advantaged accounts, which we never had access to.
Being a diy investor with a strict buy and hold view meant that I looked at our most appreciated stocks with a “gee, I hope we never have to sell those” thought in the back of my mind. =) This gives me more breathing room to gradually raise our cost basis and avoid future taxes.
Thanks for participating in this interview series. You certainly helped me!
Glad you found value, thanks for saying so, Jenni! For decades, my buy-and-hold was the same as yours (and Warren Buffett’s), until I ran into the two back-to-back bear markets (-50% 2002, -57% 2008) and got my wakeup call for risk.
Easing into a higher cost-basis is easy to do with a bit of planning (I use HR Block tax software, and make a ‘what if’ file for the following year to calculate the LTCG for zero Fed tax harvesting. Thanks for reading! Let us know how you do in future years!
Thanks for the informative interview. Can you elaborate on the catastrophic health care insurance? If I read this correctly, the premium is $9k/yr for the two of you combined? What is the deductible? Do you mind sharing from whom you obtained this insurance? The posts I’ve seen on health insurance options for early (pre-65) retirees don’t mention this option, or at least don’t explain it in these terms. I’d like to run some numbers to determine if this might be an option for my family.
MI107, thanks for your question and comment. You can find more info about this option <A HREF="https://www.investopedia.com/terms/c/catastrophic-health-insurance.asp here. In fact, there is a website that will hook you up with information for this type of health insurance in Texas, which a google search will provide.
To your questions, our deductible is up to $12,000 each. So theoretically, we could pay the annual $9K plus $24K for a total of $33K. But I don’t think you and your family will have any trouble staying healthy, with your in-house expert.
If we were to fully insure, the cost would be well above $25,000 for the two of us, with a $3K/each deductible. Not sure if this will be useful to you, or anyone but we use Anthem/Blue Cross. The availability from companies is rarely nationwide, and the deductibles vary depending on age, location, occupation, and a lot of other particular variables.
I too, am interested in learning more regrading the catastrophic health insurance as that is the route I would prefer taking.
You can find more info about this option <A HREF="https://www.investopedia.com/terms/c/catastrophic-health-insurance.asp here.
Retirement interview #1, thanks for sharing your experiences with retirement. I just retired last year (also early, unlike all of my fellow chimps) and also tend to be less structured, enjoy just seeing where the day takes me. Reading about your perspective gave me a look ahead to 6-7 years down the road. I particularly found interesting your comments about volunteering. I have not been driven to do much volunteering (many friends have observed to me that most retirees do volunteer) and also fear it’ll be like work but without pay. Can you elaborate a bit more on why volunteering didn’t work out for you and your wife (she seems to have taken a more structured and “driven” approach to her retirement)?
Thanks for your inquiry on volunteering, yslwl. I was wondering if anyone would drill-down to that particular issue. I didn’t want to get into the specifics for one basic reason: there are readers who do volunteer, and love it. So, I don’t want to point out downside, or dwell on poor experiences. But we have tons of stories, and they all involve people who don’t act right. So, watch out.
Charities and organizations will always take your money, and when you drill-down to how that money is disbursed it can be a real eye-opener. And if there are any duties that are taken seriously, those are paid positions. For a good reason.
btw, your “friends” that observe that “most retirees do volunteer” may need a closer look by you. This isn’t anywhere close to true. My geographic region has 30% >65 years old (the national average is 15%) so there are far more people available to volunteer than opportunities. But with that surplus of people willing to try, they just burn through the bodies in short order. Friends, family, and frenemies who urge you to spend your time doing something they haven’t/wouldn’t do should be considered with a grain of salt.
Ask your friends to ‘volunteer’ and let us know what they experience.
Appreciate your additional comments on volunteering. Don’t worry, I’m moved to action when I want to, not just when people tell me that’s what I should do. While I think it noble to “give back”, I honestly haven’t felt driven to do so in this way.
yslwl, your comment came to mind when I just saw this quote from John Wooden, and your recognition of your ‘fellow chimps’. Hope you find it of interest!
“Study friendship and make it a fine art. It’s been said we become the product of the five people we spend the most time with. If that’s the case, are you picking your friends or letting your friends pick you? The popular writer C.S. Lewis wrote about the origin of enjoyable company. “Friendship … is born at the moment,” Lewis noted, “when one man says to another ‘What! You too? I thought that no one but myself . . .’” If you want to have good friends, take the time to be a good friend.”
Good new series and really liked the first interviewee. I’d like to suggest that some questioning be added around expense/income in retirement.
Interview 01 indicates his expenses are $60K/yr. Would be good to know how that expense is offset with income vs. withdrawal from savings/investments. If the retiree is investing for income, what are their investments and what is the $ and % return?
I really like the idea of offsetting my retirement expenses with income producing investments, but would like to know what others use to accomplish this (if anything).
Matt, glad you are looking forward to ESI’s new series. Me too!
The answers to your question can be inferred from the interview. 20% of our NW is our primary residence, which produces no income. 72% of our NW is in CDs. We have 48 CDs, all within FDIC limits, laddered over 10 years, and they produce about a 3% return. Our NW was $2.4mm six years ago, and is now $2.9mm so it has increased $500K in six years. We buy what we want, when we want. Hope this is useful.
So, ~60K in annual CD interest covers ~60K in annual expenses. That is definitely the way to do it! I like that formula because it gives you a lot of flexibility with the rest of your portfolio.
Well done!
Wow, I loved every minute of this article. Their situation is very similar to ours and I learned so much. Thx for sharing!
Glad you enjoyed it, Caren! Your blog is quite interesting, examining mindset, intention, coaching, etc. ESI has cultivated a community of readers who are supportive of others and themselves, in living their best life.
Maybe you will find time to share your story by participating in this series, too!
Love this new series and this first interview is a great way to kick it off. Great job RI-1! For many of us, knowing when to retire is not as easy as it seems. There is the calculation on when you have enough money to take the plunge and then there is developing the confidence to understand what you are going to do with your time once you do retire. And another key element is making sure you and your significant other (assuming you have one) happen to be ready to retire at the same time. These last two points are where my spouse and I are disconnected and that is keeping us from retiring right now.
I am 61, turning 62 in October, and my wife just turned 58. Her career is going very well and she was just promoted to VP so her thoughts are to continue to pursue her career for another 7 years. I semi-retired from the corporate world at 57 and went into a startup with some friends. We’ve worked hard for 4 years to get our business off the ground and have experienced many ups and downs. My equity in the business is now fully vested so I am most likely going to step down as an operating partner and let my younger partners continue on and grow this business to a successful exit in another 3 years or so.
I’m actually in the process of a second interview with another company to head up a small sales team in my former industry. I’d like something a little more consistent and stable than another startup. With my wife’s desire to continue to chase her work dreams, I would like to continue to have some involvement in work for another 3 years or so until I reach 65 or 66. We don’t really need the income so this is more of a “keep busy” play until our desires and timing for retirement more closely align.
In some ways, I feel like the last 4 years working in a startup gave me large swaths of time, when we weren’t very busy, to get a sense of what retirement might be like. What I learned from this mini-sabbatical is you really do need to put just as much thought and planning into how you intend to retire just like you did while you figured out how you were going to pay for retirement.
What I also found is there really are tremendous opportunities to help others and this seems like a pretty good way to allocate some of the time. I’ve been volunteering at a rescue horse ranch that works with at-risk and abused children and I have really enjoyed it. While it is a lot of physical and manual work, it is something that brings great meaning and makes you feel like you are really accomplishing some good for someone besides yourself.
We are still trying to figure out the right priorities of money, timing and how to spend retirement days, and balancing that with the desires of two people in the relationship. Maybe someday I can do an interview on our conclusions and how all this turned out.
A couple key phrases here prompted me to reply to you MI-27. The first is that you guys aren’t quite aligned in terms of retiring together yet. I would agree not to stop working until you both are ready to go together. There are a few couples in our circle of friends where one partner has retired while the other keeps working. The retired person doesn’t appear to be happy or content in their decision to have retired because, for most of the time, they are alone at home (especially if they are early retirees, most of their friends are still working). We are sure that the situation would be similar for us if we hadn’t retired together (2 yrs ago).
You are correct that there are far more important considerations than just financial, but when you said you “don’t really need the income” from additional work years, I would ask, rhetorically, why do you continue to work? What do you consider the end game? What does work offer that retirement life doesn’t?
The reason I feel compelled to ask these questions (and hopefully you don’t find them too forward or offensive) is that we were at a similar decision point a few years ago. We both agreed that work wasn’t nearly as important as spending quality time together enjoying life outside of work. And honestly, we couldn’t be happier or more at peace with that difficult decision. I certainly understand that what might work for one couple, may be all wrong for another but thought I’d offer some additional real-life perspective.
I hope this interview, ESI’s recent “don’ts” column, and just maybe our story in this interview series (later in April), inspires you both to take the leap sooner rather than later.
-all the best,
MI-55
Hi MI-55, you ask some great questions and none that I take any offense to so no worries. You asked rhetorically but I will answer your questions based on my current thinking.
The reason I continue to work is primarily based on my wife’s current desire to continue her career for another 7-8 years. I could see being retired on my own for 2-3 years before she decides to join me but 7-8 years seems too much of a gap to bridge, which is why I could see working another 5 years myself. This will also get me to Medicare for healthcare which is a small consideration.
I want to transition out of the startup gig because I no longer enjoy it as much as I did when I started. A potential opportunity came along to manage a small sales team. My favorite thing in my career is to coach and develop sales teams and be with customers. This potential opportunity seems to have a nice balance for what I enjoy doing without too much of the organizational grind holding me back. If it works out, it just seems like a good fit for a few more years and a nice way to wind down my career until my wife is closer to being ready to pull the plug as well. I guess this kind of answers the “end game” question as well. If this doesn’t work out, I’m happy to go ahead and retire now but maybe work on a few side hustles to keep busy.
When you ask, “what does work offer that retirement life doesn’t,” I would tell you that I do kind of miss being a part of leading a sales team and the game of sales which is why I feel comfortable continuing on a few more years. I have a lot more perspective now and think I can be a different, but more effective, leader than I was in some of my earlier years. It would be kind of fun to find out if this is true and if the results are any different.
As you mentioned, you hit this point yourselves but you and your wife were on the same page with retiring and with the same timing. I’m sure if that were the same for me and my wife, I’d be feeling much different. However, life has a way of changing our plans so who knows what the future really holds. The best thing about all of this is that we are financially prepared for however things unfold and can be very flexible with our plans and timing. I think that is the lesson in all of this; always be prepared for the unexpected!
Again, thank you for your insights; I certainly will look forward to reading your retirement story in a few weeks!
Paper Tiger, you were actually who I was thinking of regarding people who have excellent and rewarding experiences volunteering. Our host, ESI and his wife, also spend their time in the service of others. Thanks for bringing some balance to the subject.
Bottom line, when things are on the upswing, like your wife’s work life and your start-up endeavor, it is a little harder to step off that track. Same with rewarding volunteer efforts. Glad things are going well for you, and coordinating a retirement date that works for both you and your ascendant wife is a good problem to have! Always enjoy your comments, thanks again!
Really appreciate this rubber-on-the-road type of info. I read your articles to my wife in the evenings and the ensuing conversations are great. Really gets us jazzed. Thank you.
I have devoured all of the M Interviews since I started reading this site. I can guarantee that I will be looking forward to this new Retirement series as well. I’m about 7 years or so away from when I want to retire. I’m looking forward to seeing how different people structure their investments in retirement.
Interesting interview series and looking forward to more of these. Also, to throw my hat into the ring, consider interviewing me. I am not your traditional retiree but I think I could provide a unique prospective on being FI in my late thirties and the unique concerns of having a desire to do more while also not needing to out of necessity.
Thank you for the link to the catastrophic health insurance. From what I am reading, one must “qualify” for purchase of such plans, typically under 30 years of age or meet some type of “hardship”.
Living here in Ohio with a net worth >$2m, I’m stuggling to understand how I would qualify. Perhaps, I’m just missing something…
I had the same reaction.
MI107, your household income is >$500K/yr, and your wife is a physician. Between the two of you, your answers for your specific family situation are just a phone call away. Let us know what you find!
Chris, a household’s Net Worth has nothing to do with the issue, other than the taxable investment income generated. A lower premium means you assume greater risk. No need to struggle to understand. Get on the phone, call your insurance agent, ask your professional. Let us know what you find!
Really interesting new series. Who better to learn from than those who have already lived through the transition into and early years of retirement. Kudos, ESI!
I have a question that I did not see clearly asked in the comments regarding healthcare: why did you choose the catastrophic path over utilizing the ACA and keeping your taxable income below the cliff to be eligible for subsidies? Did you consider this alternative path as well?
Thanks!!!!
Crusher, sorry for the late reply on this. Your question belies a common misunderstanding for the ACA and ‘subsidies’. The ‘subsidy’ is just a ‘tax credit’. As the interview and comments mentioned, my wife and I are utilizing a tax-minimization strategy, which is working out great.
In 2018, we paid 4.7% of our AGI in Federal and State Income Taxes, which was about $2,400. So it makes no sense for us to pay $25,000/year, to get $2,400 back. The ACA is a ‘perceived benefit’ that has very little practical value for most households, especially since the Standard Deductions have been raised to the point where 70% of filed tax returns do not itemize.