Here’s our latest 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.
This interview was conducted in May. It’s the second part of an interview I posted earlier this week. In case you missed that post, it’s Retirement Interview 47.
My questions are in bold italics and their responses follow in black.
Let’s get started…
THE ACT OF RETIRING
How did you ultimately retire?
Rather than copy the entire content here, if you head over to Countdown to Retirement, everything is described there in excruciating detail.
What went well?
Nearly everything.
The financial plan was in place, health care was in place, we had an extended road trip planned which was enjoyable.
Retiring in April meant the weather here in the Upper Midwest was shaping up for outdoor activities, so I came out of the office at the same time that everyone around here was coming out of hibernation. It was like a vacation with no end date.
What didn’t go so well?
Because of Covid, there was no send-off, no retirement party, no luncheon, no friendly roast, nothing. It was like my co-workers just disappeared. Since I worked remote, most of those I worked with were scattered all over the country so it’s not like I could just go out to lunch with them occasionally.
This may have been a bit weird, but nearly all of my social circles were outside of work, so it was not that big of a deal.
How did you ultimately find the courage to do it?
It really didn’t take all that much courage. Once the financial plan was worked out, it was just a matter of flipping the switch.
Because Covid shut down many of the aspects of my job, retiring was like stepping off a train that wasn’t moving. I stepped off and never looked back.
RETIREMENT LIFE
How was the adjustment, especially the first few months after retirement?
We packed up the RV and took a cross-country road trip just a few days after leaving work. This was something I have never been able to do — take an extended trip without the looming return-to-work date. It was grand. We’ve done several road trips since then, putting 35,000 miles on the RV in 2.5 years.
I also managed to get that back corner of the yard cleaned up from the accumulated thicket growing back there. It’s something that was 20 years overdue.
There definitely was some weirdness around not settling down in the home office to work for the day. Any office work was now just dealing with personal finances or working on personal projects. I didn’t miss it, it was just a little weird.
How is retirement life now? What do you like about it and what do you dislike?
I enjoy the spontaneity that’s possible. Wanna take a day trip to the other side of the state today? Let’s go!
We’ll plan overnight outings or three-day camping trips for mid-week then the crowds aren’t there and still have the weekend to do some yard work or gardening. We’ll pick the best days to go to the lake. We can plan volunteering trips for times and locations that will give the best chance for good weather.
I’m not sure there is anything major that I dislike. Regular work certainly added structure to my day and, being a rather unstructured person, that probably was a good thing. However, there is enough going on to where I don’t need structure to keep busy. I get to the end of the day and wonder how I was able do get all this done and work full time.
What are the major activities that fill up your time in retirement? Are there any new ones you’re planning to try?
Travel and volunteering make up a couple of the major activities. Often those two are combined. Travel to volunteer.
We’ve done a couple of three-week volunteering stints, traveling across country to get there. We will usually try to tack a week or two onto these to explore the area.
We’ve taken a few major road trips, traveling as much as 7500 miles on a trip.
I returned from two weeks in Kenya earlier this year, helping an organization bring clean water to people groups in remote areas.
We are planning additional volunteering trips for this year, a houseboat trip to Voyageurs National Park with some friends, and a bicycle tour of the Netherlands. So the schedule is pretty full.
We are at the age where our parents that are still living are requiring additional and specialized care. One thing that retirement has allowed is additional time to help manage that care. I’ve learned a lot about life insurance, long-term care, veterans benefits, and assisted living, to name a few. A lot of this stuff has moved online, making it difficult for a generation that didn’t grow up online to access. So I am now the online portal for my wife’s parents, establishing a necessary presence online that they never had.
In my own home, I’m updating an area of the house that hasn’t been touched (other than a little paint) in 30 years. The garage is getting a makeover, with new storage cabinets and new flooring on the walkway.
And then there’s the grandson. As I write this, we’re staying for a week in an AirBnB, watching our 2.5 year-old grandson while his parents attend a show. So we spend whatever time we can with our grandson.
What is your social life like?
We have a group of people that we hang out with at least once a month that we’ve known since college. We’ve done camping trips for the last 35 years and will hopefully venture farther afield when other members of this group retire. We have a lot of social connections through our church and Bible study groups.
We’ve been meeting new people through our volunteering efforts also. On our trip this past January, we served at a youth camp in Florida, and we worked closely with five other couples for three weeks, getting to know them well and developing lasting friendships and many memories.
Looking back, what would you have done differently?
I had a couple of disastrous experiences with financial advisors selling me expensive investments which set me back years on the path to financial independence.
Looking back, I would have done some better vetting and not allowed myself to be talked into these investments.
Was there any emotional impact from leaving the workforce?
I have always maintained the closest social connections with people outside the workplace. So I left the workplace with my social network intact.
There was some pangs about leaving people I had worked with for ten years and knowing I would never see them again. Since I worked remote, I would work with some people mostly over the phone or via email. Once per year nearly everyone would gather at the big technical conference and we would all see each other there. That will no longer happen. But that will probably never happen anyway. Covid nixed the conference for a couple of years and I doubt if it will ever start up again.
Other than that, I left the job and never looked back. It was a great gig for ten years, but I’m not sorry to see it go.
What surprises (financial or non-financial, good or bad) have you had since retiring and how have you handled them?
The sudden rise in interest rates has caused several real-estate syndications to cut their distributions as debt service is now more expensive.
So I have seen reduced cash flow from these investments. A couple have stopped distributions entirely. This may make the goal of covering expenses with cash flow a little harder to meet. I have invested in a few debt funds which offer a more consistent cash flow. No capital appreciation on these investments, but the monthly income is nice.
So I’ve seen a realization of the Sequence of Returns Risk, but there is enough margin in the financial plan to where I still sleep well at night.
What are your future plans?
Still working on this.
The travel and the volunteering are certainly part of those plans.
Related to this, we also aim to miss as much of the Midwest winters as possible by not being present during those times.
RETIREMENT FINANCES
How has your financial plan performed compared to what you had estimated before retirement?
Over the last two years, the financial plan has performed well — surprisingly well.
Net worth has continued to climb and spending has come in under estimates in most categories. I started tracking net worth monthly and have been plotting the change in net worth. Just because it’s interesting, I also plotted the change in the S&P500 index on the same chart. 2022 was a rather tough year for the S&P500, while we were blessed to still see some growth.
Can you give us some insights into your post-retirement spending and income? How much do you spend annually and on what? And where does the income to pay for your spending come from?
In year 1 we spent $183,000, year 2 was $86,000. The biggest reason for the difference was two-year’s worth of donations placed into the Donor Advised Fund in year 1 and none in year 2.
In year 1, we were able to reduce our taxable income to a point where we could to sell some stock and stay within the zero-percent capital gains bracket. Although taxes have fallen from the number 1 spending category, they still are near the top due to some Roth conversions we have been doing.
This year, year 3, is shaping up to have charity on top, with taxes, travel, and health care clustering around the number 2 position, each being roughly $15K. Anything food-related takes number 3, at just over $10K, as we enjoy eating. Accounting for the lumpiness of the every-other-year charity expense, we are on track to average $120K. A bit above the original $116K estimate but decent considering the extra taxes paid due to Roth conversions.
Income comes from rental properties, about $3200/month, real estate syndications ($1600/month), various debt investments ($3200/month), and dividends ($500/month). The remainder comes from portfolio draw-down. Any portfolio draw-down has been offset by increases in value of the remainder of the assets, particularly the rental properties, so net worth continues to climb despite the withdrawals.
Last year we sold one of the two remaining rental properties. Although it was cash-flowing nicely, the value of the property had risen to a point where it probably made more sense to take the cash out and invest it into other areas. It sold for nearly $100K above assessed value which gave a nice little bump to net worth. We’re working on replacing the cash flow income with other sources. Another reason I sold the property: that ER visit mentioned earlier in the health care question arose from working on this property.
How are you handling Social Security, required minimum distributions, tax issues and the like?
To be honest, I haven’t thought a lot about Social Security or RMDs since that is still several years into the future. I have started doing Roth conversions when it makes sense tax-wise, which will reduce RMDs in the future, so I’m not totally stagnant on this.
One area that retirement has opened up some flexibility on is that of tax planning. Since most of my income comes from passive sources, just about all of it is being offset by passive activity losses this year. With taxable income near zero I was able to realize almost $90K in capital gains and pay zero federal tax on it.
In addition, Roth conversions this year are being offset by donations to the Donor Advised Fund and other tax write-offs, so I am on track for a federal tax bill of near zero. With W-2 income, this kind of creativity is much harder to do.
Did you return to paid work? Why or why not?
A few months after retiring, I took on a part-time consulting gig, which lasted a little over a year. At 15 hours per week, my time was still mostly my own. I had the flexibility to work those hours whenever I wanted, so I would usually reserve any rainy days for the work and spend the nice days outside. We still had one child at home so we were not quite free for extended travel. And the extra income filled the gap between already established passive income and expenses. I used this time to invest in some additional passive income sources so when the gig ended, we were that much closer to having income that would cover expenses.
It really worked out quite well. The project ended about the time we were gearing up for my daughter’s wedding. I have not made any effort to find any other gigs and I would probably decline any offers for paid work as I am enjoying the flexibility of not working at all.
Did you find it hard going from being a saver to a spender?
The saving mindset that has been a part of our lives for decades is hard to break away from.
Even two years later, I’ll catch my self searching for the best price for an item when it is better to just purchase one and not spend the time looking for something that’s a dollar cheaper. I have to remind my wife about this at times when she is agonizing over spending money on something. I’ll tell her, Honey, spend the money!
What advice do you have for those wanting to retire?
Do it.
If it is within reach, go for it.
Don’t wait one more year.
HANNELORE says
Thank you for providing this retirement update. Great to see that you found your purpose and passion. I really like the idea of traveling and volunteering and love your statement “We can plan volunteering trips for times and locations that will give the best chance for good weather.”. How do you find these volunteering opportunities? Any specific websites that you might be willing to share?
MI241 says
Hi Hannelore,
Thanks for your reply. There are lots of opportunities for volunteering, either locally through city or county volunteering organizations, or even at the state level. One such example is the Michigan Volunteer Registry, through which I helped out with Covid vaccination clinics when all the mass vaccinations were in progress. Farther afield, national and state parks use volunteer, there are opportunities for wildlife research and management, food distribution, disaster relief and more through conservation groups, para-church organizations, government-run organizations, and the like. The sky’s the limit.
We are part of a group called SOWERs (www.sowerministry.org) which does work projects at youth camps, conference centers, schools, etc. all across the US and Canada. We can choose which projects to participate in and when. Projects in Florida and Texas are really popular in January and February. Go figure.
Thanks!
MI-349 says
Love the travel + volunteer idea, too! I think I would travel more if I incorporated volunteering into it. Good to hear your take on taxes without a W-2. Have lots of unfortunate passive losses piled up so hoping to make use of them over the duration. Thank you for sharing your journey.
MI241 says
Hi MI-349
Volunteering is a great way to see other parts of the country (or even your state or city). We have had some great experiences and have met some pretty awesome people doing this. I highly encourage it. Thanks for your comments.
Paul says
Thank you and great work on multiple streams of income. It sounds like your experience with real estate syndications maybe mixed. Would you continue to invest in them beyond the ones you currently hold?
MI241 says
Hi Paul,
Definitely, I will continue to invest. I just rolled the funds from one completed deal into another new deal a few weeks ago and will continue to invest as opportunities arise. I have a short list of operators that I have vetted and I am confident will continue to perform in spite of challenging times.
Yes, there are some in the mix that I have that are sub-par right now but I think that most of those will pull through, perhaps with less-than-promised return. Even without these, if they were to go completely away, I would still be financially OK.
Thanks for your reply!
JD says
Thanks for the great writeup. Sounds like a great retirement.
Regarding your real estate syndication, do you utilize 1031 exchanges, for instance for the property you recently sold, and if not, why not/how do you deal with the loss of deferral and thus return (return % on a lower principal once taxes are taken out from the non-1031 sale)?
Have you utilized DSTs (Delaware Statutory Trusts) for any of your syndicated real estate investments and why or why not?
If yes, are you willing to share whom you vetted/trust for DSTs and how has your experience been?
MI241 says
i JD
Sorry for the tardiness of this reply. I am currently deep in the woods of the Catskill Mountains and cell service here is absolutely abysmal. The last propery I sold was owned by my self-directed IRA so there was no taxable event. That all comes later :-). I had one syndicated investment go full circle and I allowed the operator to 1031 it into another asset. I later regretted this move because I had no control over which asset it was put into so it was really not properly vetted.
A property I sold a few years ago, I just sold and took the tax hit. I just consider taxes an expense.
I have not used DSTs, have not really had the time to look into them. My financial picture is complicated enough and I really don’t care to complicate it further. I don’t want to let the tax tail wag the dog too much. It’s important, but not the number 1 concern for me.
Thanks for your comments!
MI241