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.
My questions are in bold italics and their responses follow in black.
This one is a bit long (which I LOVE) so I’ll be breaking it into two days.
Let’s get started…
GENERAL OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
My wife and I are both 60.
We have been married for 37 years.
Do you have kids/family (if so, how old are they)?
We have 3.5 children, ages 32, 29, 26, and 23.
The half-kid is actually a former exchange student that lived with us for a few years and became very much a part of our family. So we consider him ours also, but since we share him with another set of parents, we consider him half ours.
The last child got married in October, 2022, so we have been empty-nesters for a few months now.
What area of the country do you live in (and urban or rural)?
We live in a suburb of a mid-size city in the upper Midwest.
Is there anything else we should know about you?
I am Millionaire Interview #241, so you can get a more complete picture by reviewing that interview.
RETIREMENT OVERVIEW
How do you define retirement?
For me, retirement is a couple of things:
- Leaving an occupation where someone else sets the agenda and moving on to activities where I set the agenda. I suppose being self-employed could meet this definition also, but I have never been self-employed, so this works for me.
- Not having to trade time for money. A wage may vary from very low to very high, but it is always tied to time. And as I get older, my time gets more valuable to the point where it is no longer worth the trade. Retirement decouples the time/money equation by eliminating the wage.
How long have you been retired?
I retired on April 1, 2021.
So as of the time of this writing, I have been retired for a little over two years.
Is your spouse also retired?
According to her, the woman never retires. She has been a stay-at-home mom for decades and she says the meals still need to be prepared, the house still needs to be cleaned, and the clothes still need to be washed. However, now that the kids are all moved out, the responsibility of making sure they always have a meal on the table and clothes to wear is now gone, so it’s just us, and we are freer to just grab leftovers or something simple for meals.
The kids were old enough to do a lot of this for themselves, but just having them under your roof conveys a responsibility that disappears once they move out. When the kids are living at home, even though they are over 18, the parents don’t sleep until the kids are safely at home and in bed. When the kids stay out late, the parents are up late also. The kids can stay out late all they want after they move out and it no longer matters.
So, for my wife, a big part of retirement was the release of responsibility for the kids. Part of that occurred a few years ago, when we finished home-schooling the kids, and the remainder occurred last October, when the last child moved out to get married.
What was your career and income before retirement?
I went to school for electrical engineering, and spent the next 36 years in engineering roles spanning four different companies.
I started in 1985 with a salary of $26K per year and ended in 2021 with a base salary of $128K plus bonuses and RSUs.
I worked the last 10 years as a technical resource in the sales and marketing group for a large tech company which involved a fair amount of travel to customers within my region.
Why did you retire?
There were a few factors leading up to my decision to retire. I was 58 years old on my retirement date, which is several years before the more traditional and recognized retirement age of mid- to late-60’s. I was the first in my circles of friends to retire, which has made for some interesting and lively conversations. The question of why came up a few times, and I think I gave a different answer just about every time. This is a list of the “why’s” in no particular order:
- I was due for a change. Over my career, I have averaged a job change about once every ten years. Work at a place for a while, then I would get a hankering to do something different, and usually there was some opportunity to meet that need. I was at the last job a little over 10 years, so it fits that pattern.
- Vacation. I’ve spent the last decade or more trying to fit too many activities into too little vacation time. That’s one thing that did not go so well for the last job change was the amount of vacation. They pretty-much reset the clock when I started, granting three weeks of vacation with a fourth week added after 10 years. Most of the other people in my circles were at four weeks or five weeks or something ridiculous. For someone who likes to get out and do stuff, this has been a strangling noose for ten years. There were many other aspects of the job that were terrific and offset the vacation somewhat, and I did manage to negotiate some off-the-books time off which helped some but this has been a bit of a sore point. Retiring suddenly opened up 52 weeks of vacation per year.
- MMM. In September, 2020, I joined the Millionaire Money Mentors forum, just after it launched. I had already been noodling the idea of retirement about before this, but some of the discussions on the forum helped solidify a desire to retire.
- Covid. This was one of the things that put me over the edge. The lockdowns that happened early in the pandemic gutted my job. For a person working in outside sales, forcing them to stay home is like cutting off their arms. Even after the lockdowns were lifted, many customers retained no-visit policies for many months. I had already been working from home whenever I was not on the road, now I was at home full-time, with nothing to do. Having been raised on a work-ethic that obliged eight hours of actual work for eight hours of pay each day, I found doing nothing extremely difficult. I talked to my boss about this and proposed a part-time arrangement, an idea that did not fly. He suggested instead that I spend the time creating training materials and doing self-learning. I did this for a while and did not enjoy it.
- Because I could. I have had a retirement financial model set up in Quicken for the last several years. I made sure that it was as up-to-date as possible and I found it interesting to tweak the various knobs and levers to see how the financial plan would succeed or fail. Over the last few years, that model showed an increasing probability of success, building my confidence. Various conversations on the MMM forum also helped with this confidence.
- Addition of other income streams. In 2006, we purchased our first rental property. We added another in 2009 and another in 2011, for a total of three properties with 13 doors. The first two were complete rehabs and we put a lot of sweat equity in them. The third was more turn-key. These introduced us to the world of real estate and added another source of income to the financial picture. In 2020, we plunked $50K into our first real estate syndication and have bought into several more deals since then. These have added another source of cash flow. Now there was a growing stream of non-W-2 income.
- Spousal buy-in. If it were just up to me, I probably would have retired months, or even years earlier. I’m more of an unstructured, shoot-from-the-hip kind of person, and my spouse is one who will consider all the worst-case scenarios. What about this? What about that? Although I found this frustrating at times, it did force me to create some pretty sophisticated spreadsheet models to help us arrive at something we both felt comfortable with.
- Taxes. I do all my own taxes. So I see all the numbers up close and personal. Each year for the last several years I have been dismayed by the amount of income lost to taxes. My income was too high for many of the common tax breaks, and the financial models I had set up showed taxes to be a considerable drag on the path towards financial independence. It was a no-win situation: increasing income only increased that drag, reducing the effectiveness of the increase. Reduce the tax burden and suddenly that drag gets a lot less. I have found that retirement offers much better flexibility in tax planning.
- Age. I’m not getting any younger. And I wanted to maximize the amount of time for the go-go years, when we are healthy enough to travel, volunteer, or do whatever we feel called to do. Life is too short to spend it all at the office.
PREPARATION FOR RETIREMENT
When did you first start thinking seriously about retirement and when did that turn into a decision to do it?
The idea had been floating around in my head for a few years before actually pulling the plug. I joked with my co-worker that, if the company stock price hit $100 per share, I would retire. When it rose to $130, I had to think of some more serious reasons.
I had also been having conversations with my wife about it, and a large part of the task was convincing her that we had the financial resources to weather the worst-case scenarios she came up with. Many conversations and spreadsheets later, we arrived at the decision to retire.
Then it was just a matter of when. I wanted to retire at the end of the year–December 31, 2020, but she pointed out that this would be shutting down a major portion of my life during the busiest time of the year. So we settled on Just One More Quarter, and set the date for April 1, 2021.
When we put a date on the calendar, I found a countdown App for my phone and started the clock. 134 days. I also started a thread on the MMM forum, detailing this countdown to retirement, documenting the big and little steps along the way as the clock spun down to zero, letting everyone in the forum in on the process. That was a lot of fun and we had some great conversations during this time.
What were the major steps you took from deciding to retire to developing a plan to do so?
I actually did this in the opposite direction, developing a plan to retire and then using that plan to make the final decision.
Everyone retires at some point (or dies), so in my mid-fifties, when some of the why questions started to surface, the idea of retiring early started to swirl about.
I wondered: “Could I do this? What would it take to get there?”
I had already been using Quicken for the last couple of decades and it has a retirement planner feature. I only had to include data that it did not have access to, like the value of our rental properties, to form a pretty decent model that could be used for what-if analyses. It also gave a good picture of what our expenses were over the last year or three years or five years. If I wanted to evaluate the suitability of our financial picture in terms of the popular 4% safe withdrawal rate rule, for example, all the data was there and it was easy to come up with a number.
So you might say that many of the building blocks were already in place when the ideas started to form. The plan was already lurking about in the background. This pile of embers just needed to be fanned into flame. And over the space of a year or two, those flames were kindled as we delved into the whole concept of Financial Independence by reading books, FIRE blogs, and other materials. Financial Independence was always a goal but it was “way out there” for many years. Now it was coalescing into something that was within reach. We just needed to formalize the plan to take those last few steps.
I kept the Quicken retirement planner feature up to date. I also was having conversations with Personal Capital, our financial planner at the time, about the financial steps to retirement. PC has a fairly comprehensive retirement planner tool and I spent time making sure that tool had a complete picture of our finances. Between all these tools and some spreadsheets I built, we developed growing confidence that we had a workable financial plan.
What did your pre-retirement financials look like?
At the time the countdown clock was started, we had a net worth of about $2.6M. We have no debt. Assets were mostly in stocks/ETFs, two rental properties, and a company 401k plan. We sold the third rental property the year prior to this.
The remaining properties were worth about $650K, the stocks/ETFs were a basket of individual stocks and ETFs as selected by Personal Capital worth just over $1M, and the company 401k plan was about $300K.
I had about $350K worth of company stock, something that my financial advisor kept warning me about, since it was one stock that was more than 10% of my net worth. The remainder of our net worth was our personal residence.
About half of these assets were contained in tax-deferred accounts. I have a self-directed IRA which owned one of the rental properties and a bunch of stocks/ETFs, and traditional and Roth IRAs in both mine and my wife’s name. The remainder of the assets were in taxable accounts: brokerages, an LLC which owned a rental property, and the company stock plan.
What was your overall financial plan for retirement?
On the income side, the ultimate goal was to generate enough cash flow to cover expenses. That way, a portfolio could theoretically last forever.
Not having this kind of cash flow wasn’t going to hold us back on the retirement, however. A portfolio may theoretically last forever, but I will not, so I only need to plan for the next 30 to 35 years, assuming I even last that long. So some portfolio draw-down is acceptable.
So we figured we could still develop sources of cash flow in retirement, setting a stretch goal of covering expenses with cash flow within about five years.
On the expense side, I imported three years’ worth of expenses from Quicken into Excel and had it calculate an average for each category, which helped to smooth out some of the lumpiness of some categories. I then sorted the amounts by size and started looking at the top several expense categories. For each category, the wife and I sat down and made a best guess at what this expense would be after retirement. For some areas, this was a bit of a shot in the dark, but we figured we would repeat this exercise once per year and tweak the numbers to better reflect reality. Some of the really big areas required extra thought. Health care was one of those. I’ll discuss this a little later in the question dealing with health care.
Most of the items that bubbled to the top of the expense list were not surprising. Taxes–numero uno, by far. Retirement had the potential to reduce this by quite a bit. Charity–number two. We’ll plan on keeping this near the top. Auto:–number three. This by virtue of having to buy a new car during one of those three years. Travel–number four. This number has been steadily climbing and we’ll probably drive that to number two in the next couple of years, behind charity. Financial Planner–number six.
Wait, what?
The asset-under-management fee of just under 1% — small number, but big impact. Especially during retirement. If I am spending down at the safe withdrawal rate of 4% and the financial planner takes 1%, then suddenly the financial planner is taking 25% of my post-retirement revenue. So that is one thing that is going to change. Jettison the financial planner. I like the guy, but not to the extent of paying him a quarter of my budget. I’ll have more time to do this myself anyway.
After going through all the expense categories and adjusting them for post-retirement, I arrived at a post-retirement yearly expense figure of $116K. When considering net income from the rental properties, dividends from stock holdings, and distributions from private equity, these sources offset about 70% of that expense. So our effective withdrawal rate was just over 1%, well below the popular 4% safe withdrawal rate metric. Still a little way to go before covering expenses completely, but definitely a good margin to retire comfortably.
Some of that cash flow is from assets contained in IRAs, including one rental property, so a significant portion of cash will be piling up behind a tax wall, which is not readily accessible until age 59.5, about one year from the retirement date. We had enough cash reserves to cover the one year, plus I took a part-time consulting gig which helped with the cash flow, so the year wasn’t a big deal, and we figure we’ll deal with the IRAs gradually through Roth IRA conversions and charitable contributions.
Did you make any specific moves to prepare your finances for retirement?
There were a few things we did to prepare, some of them not necessarily financial, but nice to get out of the way before the steady source of income dried up.
The house was due for a new roof and our crumbling chimney needed to be rebuilt. Probably didn’t make a lot of difference pre- or post-retirement, but it was an emotional hurdle out of the way, large expenses that didn’t have to be borne after the paychecks stopped.
We also purchased a small RV as we hoped to take some extended road trips after retirement. We managed to pick one up for a decent price right before the Covid-induced lockdowns caused a surge in RV sales that drove prices into the stratosphere.
Keeping with our goal to develop additional sources of cash flow, we started buying into a few real estate syndications, and their monthly distributions added to the revenue from our rental properties.
I set up a Donor Advised Fund to help aggregate donations and help with tax planning.
Other than that, we didn’t really have to change all that much. Since half of our assets were in taxable accounts, we didn’t have to draw on any tax-deferred accounts right away, so we were able to avoid having to do anything with those accounts before age 59.5.
Who helped you develop this plan?
I developed this plan mostly on my own, although there were some great conversations with some great ideas that came out of the MMM forum.
The idea of developing sources of cash flow probably can be gleaned from many sources, but I was first turned on to it years ago by Robert Kiyosaki. He may be a bit of a huckster in many regards, but he does preach cash flow, and even created a board game called Cash Flow which we played with the kids on a few occasions. Although winning the game is mostly dependent on the roll of the dice, good or poor decisions concerning cash flow can make a difference.
We’ve read Your Money or Your Life and The Millionaire Next Door and sort of fell into the cadence suggested by these books years ago. We both are naturally fiscally conservative, so saving money was pretty easy.
We had a financial planner but many planners are limited to investments in the retail space. We owned a couple rental properties and were starting to pull some funds from these retail investments to put into private equity, so we were doing more and more of our own financial planning.
What plans did you make in advance to leave your job?
Probably the biggest change before leaving my job was to choose an alternate source of health care.
At the time, we still had a daughter living at home who was on our company-provided health plan. Since she was working, the first step was to enroll her in the health plan of her employer. We could then enroll in something as a ‘couple’ rather than as a ‘family’ and keep the costs down. The details of this are outlined in the health care question.
How did you handle deciding on and paying for healthcare?
This was a big issue to grapple with and I evaluated many of the options: ACA, COBRA, Health Sharing, etc. We ultimately ended up on a health sharing plan.
I’m sure that people’s experiences will vary widely in this area, particularly when considering pre-existing conditions. We were relatively healthy at the time, with no pre-existing conditions, so we had several choices open to us. Each of those choices were different, and often quite different, in how they worked, so rolling them into a yearly estimate was an interesting exercise.
To make a long story short, we signed up with Samaritan Ministries, which handles health care in terms of events. Each event has a deductible amount before the sharing starts, and then the remainder of the costs of that event are shared among the other members. For example, an event could be a broken ankle. Any charges related to that event are covered, minus the deductible.
Since it’s hard to estimate the number of events we will encounter during the year, we just drew a conservative number out of a hat and estimated six events. Our health care costs for the year would then be the normal monthly share plus the deductible for each event. Routine physicals, wellness visits, and other maintenance-type visits (such as mammograms, colonoscopies, and oil changes) are out-of-pocket, as well as any dental or optical expenses, so these were estimated separately and added to the health costs. This rolled-up number was then used as the overall health expense in our retirement spreadsheet.
The first year, we had one event, an ER visit, and the next year we had zero visits, so the health care costs came in significantly under estimates. This year we’re looking at two colonoscopies paid out of pocket. One of the things that comes along with this type of health arrangement is an education. We’ve learned a lot about the costs of various procedures and labs as we have shopped around for them. I never dreamed I would be shopping for a colonoscopy.
How did you tell your family and friends of your plans?
We held our cards close to the chest until a couple months before the date.
We confided in a couple family members and close friends a few months before the Big Reveal. There were no surprises there. We had already floated the idea to these people so they knew it was in the works.
Those on the MMM forum knew all along as I documented all the gory details in a conversation thread called Countdown to Retirement.
One month before retirement date, we went public. I turned in my notice at work and we no longer kept it a closely guarded secret in our circles of friends.
———————
What a great story so far, huh?
To read the rest of the story, see Retirement Interview 47, Part 2.
JTC says
Hello #241 – WE have a lot in common. I am 58, live in the upper midwest, and recently stepped away from Corporate America. I also have 12 doors worth of rental properties.
I REALLY enjoyed reading your update – so much of it sounds familiar. We had kids later in life so I am just now an empty nester but have the financial burden of two kids in private college. We were prepared for 80% of that tuition bill – so are having to fund that project over the next couple of years.
I debated the Christian Ministries health insurance but instead went with one of the local public program as it covered what we knew were some expensive preventative care procedures. I may switch to CM – curious to learn more about your experience with them.
Congrats again on a successfully executed exit strategy. A couple of years in now and I am loving every minute of it – though I realize I need to expand my social network. Most of my friends are still working so they are not as available as I am.
MI241 says
Hi JTC,
I’m glad you could get something out of this interview. It really helps put the thoughts together when you write it down and I find myself reading through it again a few months later, still agreeing wholeheartedly with what I wrote back in May.
Retirement is still a blast, although I am in the same position you are: most of my social network is still working. But I’ve made that work also. I can do some of the fun stuff like going to the beach or kayaking a river and a lot of the necessary stuff during the time when most people are working and have more time for the social stuff on evenings and weekends.
My experience with health sharing has so far been positive. I’ve only used it once, when I ended up in the ER with severe pain and it was all covered except for the initial non-sharable amount. Since I didn’t have “insurance”, the ER bill came to less than half of what it normally would have been and there were some pretty significant cash-pay discounts for some other elements of that event also.
Health sharing is not immune to rising health care costs so the monthly share ticks upward each year but is still significantly below what I would pay for other alteratives out there. Also, for the most part, you have to be prepared to cover the entire cost for a short amount of time, as the reimbursements for shared costs may take a month or two to arrive. I suppose you could submit the bills without paying them to try to narrow that gap and then pay the bills when the reimbursements arrive, but I’ve not had a big enough event that would make this an issue.
The other thing is that routine/preventative health care is not covered. So we have to shop around for some of the larger things like colonoscopies. One of us has a routine MRI scheduled and we found a place on the other side of the state that will do them relatively inexpensively without having to deal with insurance. So we’re going to make a day of it, sort of like medical tourism on a smaller scale.
Glad you are loving your retirement. I am, too; big time!
Thanks!
MI241
TCS says
Wondering about the syndications. Deals of the last couple of years have been based on short term loans at low rates.
Like the office market, there’s now a wall of coming maturities in multi-family, where rates are likely to double or triple – and banks will be more cautious of the equity ratios.
And there’s a boatload of new supply coming on the market in many of the areas targeted by syndicators (example: Texas) which will limit the ability to raise rents, even as the properties face higher inflation-driven costs for maintenance, re-tenanting, etc.
Have the GPs said anything yet about all of this, or is there so much room for error in the deals that they’ll keep paying distributions?
MI241 says
Hi TCS
The syndication space has certainly seen some significant headwinds the last couple years, as rising interest rates have made these deals harder to cash flow. For a while it was interest rate caps that were put out there as a solution to possible interest rate increases, but some operators are now scrambling to refinance as those interest rates caps expire. Deal flow has slowed considerably because of this but I have had one operator tell me that he anticipates picking up some assets as this challenging environment squeezes out some operators that are overleveraged or did not do adequate homework when purchasing the asset. Maybe as early as later on this year.
I have a few deals that have paused distributions to preserve cash. One of them I am not very confident that I will see the promised returns, another did not anticipate such a dramatic interest rate environment which happened in the middle of some planned expansions, but, so far, none have issued capital calls. It all comes down to the operator and how they vetted the deal. Those that kept all the knobs and dials set to the conservative side and were very picky about which deals they signed on to are generally doing OK, so distributions are continuing, although perhaps at a lower rate. In one case, the operator started paying out distributions quarterly instead of monthly.
Lately I’ve invested in short-term promissory notes, debt deals, or land deals with a maturity between 9 and 18 months. By laddering into a half dozen or so of these, I get consistent cash flow and see the pricipal turn over every couple of months or so. The cost here is having to re-deploy the capital rather often, but I like the simplicity and the consistency.
Interesting and challenging stuff, and when you have to live off of the returns, it’s not just a mathematical exercise!
Stephen D. Gold says
Great summary of your thoughts on moving into retirement, and much appreciated! My wife and I (me 60 her 56) are in the same situation, as she has closed her small at home baking business this year and I am still working as a consultant two days a week (20 hrs) in the structural engineering field. We have used Medi-Share for our health care for the last 10 or so years and it seems to work the same way that Samaratin’s Ministry works. We really have saved a lot over those years by using a Christian Sharing Healthcare program. We are in the process of building a 10 year (year specific) i-share bond/treasury bond ladder as our income floor, and are putting the remaining into a 80/20 Vanguard passive index fund(s) account for those 10 years. When we hit 70, we will both take our Social Security and it is expected to cover all to most of our expenses. One issue I have been struggling with is, although I could walk away from my consulting business (based on our set up bond ladder), I was still thinking of working one day (10 hrs) a week next year just to fill some time. Thanks again for your story, and God bless!
MI241 says
Hi Stephen,
THanks for your kind words. I’ve done a similar thing for an income floor, although using a rental property and syndicated investments and debt/land deals to produce the income instead of bonds. Still haven’t decided when to take Social Security yet. I suppose I’ll have to make that decision when I reach 62, but I have a little time yet.
I did some consulting my first year of retirement, spending about 15 hours a week. That worked out well and provided something to do during the long Midwest winter. That ended after about a year and I let it end without seeking additional work. I’ve enjoyed not having any work ties at all as we are now traveling for six weeks at a time. I enjoyed the work but I enjoy the not-work more. Somehow, the time always seems to fill up as we are always busy, even without work to fill in the gaps.
Thanks!