Wednesday, February 21, 2018

Interview With A FIRE Millionaire

Today I'd like to present an interview with a friend I met while in college. He retired at the age of 43 and has a net worth of over one million dollars and he did this just by working as a salaried employee for a large corporation. No (successful) business start ups, no side hustles. Just a W2 paycheck.

Although the emphasis of this blog is not really FIRE (Financial Independence, Retire Early), there are many common themes between those who want to take control of their personal finances and those looking to retire early. Passive income, which I am going to use to purchase my Tesla, plays a big role in both cases.

If you or someone you know is either a millionaire or has retired early (or both) and would be interested in being interviewed, please send me a note using the contact form on this site.

Here's the interview:

How old are you, your spouse, and children?
I am 48, my wife is 37 and my children are 12, 10 and 6.

At what age did you retire?

I retired at age 43.

Were you married before you retired? If so, how supportive of your retirement was your spouse?

Yes, she was supportive.  It gave her the opportunity to become a full-time student so that she could finish her undergraduate degree from Portland State University.

What is your current net worth?

Approximately $1.2 million

What does your net worth consist of, i.e. how do you hold your wealth?

$260K Primary Residence (paid in full at 4/1/2016 closing, FMV may be higher today)
$769K Retirement Accounts (mostly 401k)
$104K Oregon College Savings Plan (529 accounts for daughters)
$46K Liquid Assets (mostly cash)
$18K Automobiles (all three paid in full, two mostly depreciated by now)

What was your job before retiring?

Senior Product Manager at Intel Corporation

What is your annual income when you decided to retire and what is it now?

$164K then
$57K now

What are your sources of income now that you are retired?

Wife's salary and bonuses as a middle school teacher & investment income

What was your first job and the starting salary?

Graduate Rotation Engineer at Intel Corporation $36,600 base salary (1993)

Was your career the sole source of your income or did you work at other side hustles?

Career was the sole source.

Was it a life-long goal to retire early? If so, why?

Yes, my father retired at age 50 after working 20 years as a social worker.  He encouraged me to “get out of the rat race as soon as possible.”

Did you know anyone else who had retired early?

Yes, many males in their 40's and 50's retire from Intel.

Do you participate in / follow the FIRE (financial independence, retire early) community online?


How did you know you reached the point where you could retire early? Did you have a savings goal or a passive income goal?

The house was paid off and I had no outstanding debt.  My daughter's college accounts were fully funded for in-state tuition.  My retirement accounts had surpassed a half a million and the gains each year were greater than my contributions which I always max out.  I was within a year of exiting my money losing retail business that was costing me about $4K a month due to a 5 year lease that my wife and I foolishly signed a personal guarantee for making our LLC protection null and void for Kimco Realty.  My father had died and left me his house; although an old ranch house in desperate need of repairs, I still managed to net $130K after selling it.  As part of the voluntarily separation plan, I got a severance package from Intel.  Last, but not least, my wife wanted to finish her college degree and enter the workforce.

What steps did you take to reach that goal and how difficult where they?

Saved as much as I could when I was single.  It became more difficult once I got married because my wife is a spender and not a saver like me; case in point, she will go to the store to buy dental floss, zig zag for hours and buy $100 to $200 worth of stuff, then come home and realize she forgot to buy dental floss.  Still, I still managed to max out the 401K and Intel Stock Participation Plans until the very end.

How important are taxes and tax planning for you, both before and after retiring?

Extremely important.  Before retiring, there was a silver lining in having a money losing retail business since I was able to offset that with my income when I had no other deductions, except the standard one, because I had paid off my mortgage the year I got married.  After retiring, our “earned” income is low enough now where we don't pay any Federal taxes at all (except FICA and DI) since teachers in Arizona are among some of the worst paid in the nation.

Do you feel the need to track your spending in retirement? Did you do so prior to retiring?

Yes.  After retiring, we were still in spending mode without any real budget.  For instance, we spent $100K just in eating out for the three years post-retirement.  Having an earned income again after spending down cash for five years has enabled us to set up a target budget.  I realized recently that we were spending over $3K a year eating sushi alone, so there are clearly some places of low hanging fruit to cut. Before retiring, we did not have a budget and were on the “unrestrictive spending” plan.  In addition eating out every day before retirement, we would buy a brand new car every three years.

Do you have a budget? If so, how do you implement it?

We are using my wife's monthly income and earnings from my investments as a target.  Implementation is still a challenge because going all cash or using credit cards, it does not seem to make a difference with my wife.

Prior to retiring, what percentage of your gross income did you save?

About 15%.  When I was single, I was probably savings more than 50%.

What is your investment philosophy? Did it change when you made the switch from working to retired?

I love low cost Index funds since in 25 years of investing, my stock picks have not done as well except in brief periods of irrational exuberance.  I also was disciplined in dollar cost averaging and I double downed whenever the markets have tanked (2000 and 2008) by buying more Index funds.  In retirement, I pay more attention to diversification now.

What has been your best investment?

Vanguard Institutional Index fund (long term)
Microsoft (do not have a position now, but used capital gains from it to buy a BMW Z3 back in the 1990s)

What has been your worst investment?

Linn Energy

How often do you monitor / review your portfolio?

Every single day.

Do big swings in the stock market worry you excessively?

No, I see them as buying opportunities.

What problems did you face along the way to early retirement and how did you handle them?

Our retail business was actually part of the original retirement plan.  Instead we lost $300K over the 5 years we operated the business.   There was nothing we could have done to handle the situation since it was caused by the great Recession.

What are you currently doing (if anything) to maintain or grow your net worth?

My net worth now is roughly the same as it was when it peaked last back in 2014.  Now that we aren't burning down cash anymore, the net worth should continue to grow organically without any additional savings.

Are you satisfied with your current net worth?

Yes, otherwise I would have stayed at Intel for a few more years.

Are you actively taking any steps to increase it?


How did you learn about finances and at what age? Did your family and friends play any role in your financial education?

My parents did not have a great financial education and did what most Americans do (they got in debt).  I was always a good saver since I was a child, but I didn't learn the fundamentals of investing until after college.

If you could go back to when you first start working, what, if anything, would you do differently?


What money mistakes have you made that others can learn from?

Not diversifying out of Intel stock.  Most of my net worth prior to the .com crash was in Intel stock.  I was on my first sabbatical when Intel stock peaked at around 76.  The day after I got back from my first sabbatical, the stock tanked to 48 and then traded as low as the teens.  Intel stock did not reach 48 again until very recently which would have essentially made it dead money for almost 18 years if it wasn't for the good dividend.

Is your life in early retirement different from what you thought it would be?

Yes.  I had children relatively late in life, so being a Mr. Mom is almost a full-time job in itself.  That said, I would rather be a Mr. Mom than sit in boring meetings every day and reading endless emails and crafting Power Point slides.  I do miss some of the travel that allowed me to eat on Intel's dime though.

How do you spend your time on a typical day?

The time when the kids are at school is the “me” time where I get a chance to do reading, catching up on the shows that I like to watch and to take online courses occasionally.  Most recently, I completed an Astronomy course from the University of Arizona.  After I pick up the kids, I do some household chores and now I try to cook dinner on the weekdays; the climate in Arizona is ideal since I get to grill steak at least twice a week!  During the late evenings, I like to check my various accounts and update my net worth.

Do you donate financially to or volunteer for charity?

I volunteer at the Titan Missile Museum in near Tucson, Arizona.

What worries you and keeps you up at night?

I am retired, so nothing keeps me up at night.

Most people have medical insurance through their employer. Is finding / affording medical insurance more difficult / expensive now that you are retired?

As part of the voluntary separation plan, I got 18 months of Cobra which was based on the best health insurance you could buy through Intel.  Starting in 2014, the best health insurance at Intel starting cutting benefits and they stopped paying for Occupational Therapy for one of my daughters and I got a surprise bill for $700.  Today, my wife gets health insurance fully paid through her employer (I believe it is equivalent to a silver plan) and my kids get free health insurance since eligibility is income based (not asset based).  I suppose this is the silver lining of having a spouse who is poorly compensated as a teacher since paying for health insurance for my daughters would cost more per month than what my wife nets per month.

Do you have any advice for my readers about how to retire early?

Cost of living is key.  I lived and worked in the Pacific Northwest for most of my career at Intel, but was paid above market wages since my peers worked in silicon valley.  After retiring, we moved from the Pacific Northwest to the low cost state of Arizona.

Do you have any regrets about retiring early?


Wednesday, February 7, 2018

Goal Update: End of January 2018

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of January, 2018
Current value: $40,272
Change from last Month: +893
Percent of Goal:  37.03%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

My SQL courses on Udemy generated $225.27 of income. Those courses also generated $10.25 on SkillShare. Not much else noteworthy happened in January, at least as it relates to my Tesla savings. Just putting some money away each paycheck. I did sell some more puts, but this time they were called, so I ended up buying the stock instead of keeping the cash like the last couple of months. That's fine though, as I like the stock and I'll start collecting a monthly dividend.

Oh, there was one noteworthy event: I unlocked a new achievement!

Net Worth Update

Our net worth shows a $16,688 decrease this month. That's not as bad as it sounds. I try to write the monthly updates on the last day of the month so I get accurate figures, but this time I was late and didn't get around to writing this until February 6th. As you may have noticed, the stock market took a big dive yesterday. Had I checked my net worth on January 31, it would have been $826,175 - just about $6,000 higher. Oh well. I'm in it for the long term and there will be ups and downs in the stock market. I'm not concerned.

December 2017
January 2018

Our credit card debit more than doubled! We're taking a trip to Las Vegas in February and we charged our plane tickets. (Man, flights are a lot more expensive from Seattle than from Phoenix! And, sadly, driving there is no longer an option.) Another part of that big credit card number is a furniture purchase. We've got the cash for both of these expenses, but I charge them to get the credit card rewards before I pay them off.

If you have any questions or suggestions for topics, please drop me a line in the comments section!

Wednesday, January 31, 2018

Vanguard Is Finally Starting To Scare The Rest Of Wall St.

Vanguard is known for providing low-cost index funds whose returns are just about impossible to consistently beat and savvy investors are beginning to plow money into their funds in greater and greater amounts. Their combination of rock bottom expense ratios and hands-off, non-active stock trading investing methodology makes them incredibly attractive. I hope this means that people are beginning to take notice of what those of us in the personal finance blogosphere have been saying for years – you can’t beat a low-cost index fund in the long term.

One thing is for certain – other brokerages are taking notice. As people move money out of their high expense ratio funds and into Vanguard, these brokerages aren’t letting go easily. Fidelity just announced that they are now going to impose a 0.05% surcharge on assets in 401(k) plans managed by Fidelity that are invested in Vanguard funds. Truthfully, I’m surprised it’s that low. I’m sure over time, as the existence of this fee becomes accepted, it will increase.

401(k) plans are huge money makers for brokerages. Money comes in to the plan every time a company issues paychecks. Most plans offer only a few selections of funds (many of which may have high fees) and people tend to leave their money in a plan, even if the leave their company. This represents a very “sticky” source of income for the 401(k) managers.  Once people get invested in a 401(k), few ever leave it.

I’ve written extensively before about how these fees are relatively hidden and how they can suck away tens or hundreds of thousands of dollars from your retirement savings. I’ve also written a guide on how you can reduce those fees. As people wake up to how detrimental these fees are, they are demanding brokerages offer more lower cost funds within 401(k)s. As people shift money into those funds, the brokerages offering higher-priced funds lose revenue. Lots of revenue. They are not about to take this lying down. So, rather than try to cut their costs or improve their offers, they have opted to assess surcharges on those who invest in lower cost funds.

It’s not just 401(k) plans that are getting hit. For years, discount brokers like Schwab and E*Trade have excluded Vanguard funds from their transaction-fee-free offerings. Instead of letting their customers buy shares of Vanguard funds for no cost, their charge a higher than average transaction fee. I have experienced this myself recently. I rolled some old 401(k)s into an IRA at Schwab. I had the option to invest in Schwab’s mutual funds for free, or to invest in Vanguard funds but pay a $75 transaction fee. I opted to pay the fee because, over time, the higher expense ratios of the transaction-free funds will eclipse the $75 I had to pay now.

I think this is rather short-sighted, but Wall Street always has been more focused on short term profits than long term growth. In 2013, Vanguard had $2 trillion in assets under management. Just four years later, that amount had more than doubled to $4.5 trillion. Clearly, low cost funds are in demand.

Wednesday, January 17, 2018

Your Roth 401(k) Isn't Really A Roth 401(k)

Roth IRAs and Roth 401(k)s are some pretty powerful tools for retirement planning. They allow you to invest post-tax money now and withdraw both your contributions and their earning tax-free when you retire. These plans are especially great for young people who, presumably, have a long time until they retire because they can have years of tax-free earnings growth.

I participated in a company Roth 401(k) at the last couple of jobs I had. Last month, I went through the process of moving those old 401(k) plans into my IRAs. This is a process called a "roll over" and, provided the money is moved directly from the 401(k) into an IRA, there are no tax consequences.

Why would someone do this? Typically, it's to reduce fees, to get greater investment choice, and to consolidate accounts after leaving a company to make them easier to manage. As I went through this process, I discovered something:

My Roth 401(k) was not entirely a Roth 401(k).

By that, I mean not all the money in my account qualified to roll over to a Roth IRA. It turns out, employer matching contributions to a Roth 401(k) are actually made into a traditional 401(k). In other words, those contributions and earnings are NOT growing tax free.

If your 401(k) statement is anything like mine, it doesn't mention this anywhere. It was only when I went to roll over my funds into my IRA that I discovered this.

So if you have a Roth 401(k) and want to roll it over to an IRA, you'll actually have to roll it over into two IRAs - a Roth IRA for your contributions and a traditional IRA for your employer's contributions. Your 401(k) provider will be able to tell you how much of your 401(k) will go into which account.