Lazy Man and Money

What is Yield on Cost?

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Yield On Cost
I don’t know if Glow Finger Guy knows what yield on cost is.

I’ve seen the term “dividend yield on cost” come up a couple of times recently. I’m new to looking at dividend investing, so I hadn’t come across it before. I’ve been focused on growth. My investing has almost always been in a retirement account and with very broadbased ETFs. I consider myself a Boglehead. It’s sad about Jack Bogle passing away last year (By the way, I have found that Dead or Kicking is a fast-loading site to get quick answers on well… the obvious.)

I don’t expect that will change any time soon, but I’m starting to look more at qualified dividends for taxation purposes.

The concept of a dividend yield (or any other yield) is something that (I think) most investors understand. For example, if a bank account pays you 1% interest, it’s a 1% yield. You give them $10 for a year and you get 10 cents. It doesn’t sound much with such small numbers, but through the power of compound interest it can add up to a lot of money over time. The concept of a dividend yield isn’t different than an interest yield except that it involves the money a company pays you for owning its stock. You can even reinvest dividends just like compound interest in a bank account.

That’s enough of a primer (or review depending on your knowledge) on what yields are. Now we can get to:

What is “Yield on Cost”

This is simply what you paid to own the stock in the first place. Let’s say that 10 years ago you paid $100 to buy a share of a company called “Acme.” At the time, Acme paid a 3% dividend yield. You made $3 a year. To make the math simple, we’ll pretend that you didn’t reinvest it. Instead you bought some Pokemon cards at the local 7-11.

Ten years later (now), Acme is selling at $200. Using the rule of 72 that is entirely possible – it would have grown 7% a year over each of those 10 years. Let’s also assume that Acme still pays out the same 3% dividend yield. However, 3% of $200 is $6 now. Your effective dividend is $6 on a cost of $100. So your yield on cost is 6%. Of course 10 years of inflation eats into the buying of that, but it is still nice growth.

Here’s a real world example of a stock that I own: IBM. In late October 2018, IBM accounted it was acquiring Red Hat. It sent the stock tumbling from $150 to around $115. IBM has paid a very strong dividend for quite a long time. At the time it was paying around 4.2% (roughly $6.28 a share a year). With the stock tumbling to $115, the yield would have jumped to 5.4%. Investors were likely concerned about IBM’s ability to pay its dividends given the acquisition.

Today, only about 14 months later, IBM is back to around $150 a share. They’ve even raised the dividend a bit. If you had bought IBM during that time, your yield on cost would be around 5.65% ($6.48 on a cost of $115). Investors buying it today, enjoy only a 4.3% yield. In this case, a timely purchase significantly increased the yield on cost so quickly that inflation is mostly irrelevant.

There are a couple of lessons to take away here:

  1. Buying quality companies with solid yields on dips can pay off.
  2. Buying the same types of companies and holding on to them for a long time can pay off as well.

The question is often, what counts as a great company? I like IBM, but a lot of professionals do not. I may be biased by love for their old PCjr that helped teach me how to program.

Strong companies that have a long history of dividend growth are often called dividend kings. The best place I know to get great updated information on these companies is Sure Dividend’s newsletter. It does cost some money, but for people who are investing significant amounts of money, it isn’t much and can save investors a ton in research. That link to the Sure Dividend newsletter has a special discount rate. (In full disclosure I make a few dollars if you sign up for it.)

Final Thoughts on “Yield on Cost”

I know that this may get confusing. Sometimes reading a “wall of text” isn’t the best way to learn. I found a 4-minute YouTube video with an explanation at least as good as mine:



I don’t know the makers of the video, so I can’t vouch for whether they are good financial advisors. However, if you are a visual learner, this may be right for you.

At the end of the day, the biggest thing to know is that investing money today can buy a big income stream down the line.

Passive Income Update: January 2020

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It’s time once again for my monthly review of passive income.

January was a difficult month. On the 15th, I realized that we didn’t have a single day of everyone being healthy. We had one day when our pediatrician put us in the fast lane to the hospital in Providence because she thought it could be appendicitis. It wasn’t and I’m so happy to have be his full self. Everyone in the family is back to full health.

We started the month off with a birthday party for our youngest (6) son. He was sick for his own birthday party – poor guy. At least he was healthy enough to make a great Mega Construx Mew when the rest of the family got sick. I didn’t think he could do 200 pieces, but I was pleasantly surprised. Whenever I leave either kid to do their own thing, something great happens. I used to think helicoptering around was best, but I was wrong. Figuring stuff out on their own is better.

I’m still in shock he was able to do this. Does MIT have early, early decision?

Our dog Jake celebrated his 11th birthday. I’ve done a lot of dog sitting (see below) and I don’t know if I’ve seen another dog as spry as him. I want to clone him, but my wife thinks it’s weird. As usual she’s probably right.

That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that’s not catching on. Everyone like passive income better. While I transition to the new terminology, there may be some “alternative income” mentions, including the FAQ.

The 6 year old wanted his family b-day party at the local equivalent to the Ritz Carlton. He hadn’t had a Twinkee before, so he’s doing that now.

I’ll mix in some pictures from the month throughout this financial update, because some people find numbers boring. (But not you or you wouldn’t be here!)

If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions. They way I calculate these numbers does require some explanation.

Lazy Man’s Passive Income – January 2020

I categorize our passive income into 3 main sources that are largely represented in my passive income pyramid. I ignore the bottom section of career/job – that’s not passive at all. I combine dog sitting and blogging into one section of “slightly active” income. I leave real estate and investment income as their own separate main sources of very passive income.

1. Blogging + Dog Sitting Income

The last month I reported, December, was a very average month. I’ll take it because it was much, much better than last November. It seems like I have a few regular clients that make up 80% of the business. That’s good because I know the dogs very well. That’s bad because if one dog moves, I lose significant income. I like to write about investment diversification, but I don’t have a lot of dog diversification, right now.

Blogging income for January was… not good. January is always the worst income month. I don’t know what it is, but it seems to turn out that way. Of course, having a sick family had my mind on non-blog related things.

In December, dogs and blogs combined for a total of $2,605.87. In January, it was:

Total Blogging + Dog Sitting Income: $2,043.72

I’ll take it for January. February is looking much better, so I won’t stress on that small number.

2. Rental Property Income

Zillow estimated our rental properties were worth a lot more than last month. That helps this number a lot. As with every month, we paid off a few thousand dollars of mortgage debt.

Happy #11! Celebrating at the dog park.

We now have 60.88% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I use that number because it represents our net gain. Next month, I plan to update that number. It’s a little long in the tooth and I should be able to do better.

If you multiply $3,325 by 60.88% you get $2,024 in estimated monthly alternative income. When I started tracking this (beginning of 2017), we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in 36 months, we’ve seen the number grow $850/mo. That’s like giving ourselves an annual $10,200 raise until the end of time. It’s a very nice gain from 3 years ago.

As the years march on, the ratio will grow to 100% of the $3,325 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 income I mentioned in the FAQ above. I may need to update that $40,000 number as well – it’s looking closer to $30,000.

In the previous report, the rental property income was $2,004. This number always moves slowly as it only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent.

Total Rental Property Income: $2,024

3. Dividend Income

The stocks markets went up and down in January. The corona virus got everyone in a tizzy (and it may be justified). Fortunately, the markets ended on an “up” by the time I did the snapshot on February 9th.

Our 6 year old is in the Cub Scouts now. He seems happy about it.

For this section, I assume we will earn a 2.5% dividend yield on our holdings. That could be from a high-dividend ETF or from simply holding strong companies that have a long history of dividend growth. For that we’ll look at making passive income with dividend kings. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% average dividend yield. That link to the newsletter has a special discount rate and in full disclosure I make a few dollars if you sign up for it.

The “ask dad” math strategy is vastly underrated. That’s in the common core, right?

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. This investment income is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.

Total Dividend-ish Income: $2,940

Last month, it was $2,896 – a nearly $50+ gain is great. We almost never see that! Thank you Mr. Stock Market for doing your thing. These gains can’t continue forever, but I’ll enjoy it while it lasts.

One… Two… Freddy’s coming for you.

The kids loved the trip to Ice Castles. The only problem was getting them to leave.

Annualized, this is $35,280. If our mortgage was paid off, this would cover all our necessary expenses by itself. However, because most of our investments are in retirement accounts, we can’t use this income for now. We’ll let it continue to compound for at least another 15 years, but hopefully a lot longer.

Very Close to Passive Income

Our “very close to passive income” is a combination of rental property income and dividend income. If there were some royalty income from books, movies, or music, I’d include that here. I’m too tone deaf to have a rockstar music career, but maybe there’s room to have a book someday.

My wife’s car got to 100K miles. Can it get to 200K?

The stock market goes up and down fast which makes the dividends calculation fluctuate a bit. The rental property income keeps going up because the mortgages are always getting paid down every month. Unless there’s a housing market crash, this should continue to happen.

I love having both types of income working together for us. I think everyone in FIRE should have stocks and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate economic event. We’ll still likely get rent checks if the stock market crashes. We’ll still get dividend checks if a tenant is late paying for awhile. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.

I don’t know much about archery, but this seems like great form. My 7 year old loves it.

Very Close to Passive Income: $4,964

Last month it was $4,898, so it’s up $66. Most good months, this goes up $15-$30 a month. This is a big jump in terms of passive income. I started Lazy Man and Money with the tagline of “Making my money work, so I don’t have to” and it is working overtime. A passive income of $59,568 is incredible. It’s almost double what I estimate we’d need to live on.

Can I crack the $5000 barrier? It’s so close. Tune in next month and we’ll find out.

This very close to passive income has grown from $2,354 in January 2017 – or an annual income of $28,252. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, I’m looking forward to 7 years from now when the mortgages on the investment properties (and our primary residence) are paid off. Add in stock market growth (of a conservative 4%) and this number could be real, non-fudged $100K/year.

— —

Final Alternative Income

When you add up “dogs and blogs” to the “very close to passive income” you get:

Alternative Income: $7,007.72

I’ve been stuck around the $7000 mark for quite a few months now. While I’d love to see good growth, it’s worth taking a minute to acknowlege that money isn’t everything. I focus most of my attention on family. The pictures in this post are priceless to me.

This $7000/mo income is close to $85K a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investments feels like a dream. In the long term, $85K+ would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years. You never know what bad news is lurking around the corner, but this gives us the financial flexibility to fight it.

None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last year (which isn’t passive at all). That’s the fuel that drives the passive income engine.

As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. That’s probably a deal breaker. If you know someone who I could talk to contact me.

Net Worth Update

My net worth updates aren’t very exciting as I don’t share the exact numbers. That’s why it’s just a footnote here.

I truly believe that net worth is one of the most important numbers in personal finance so it is worth sharing in some way. Showing relative growth can be useful, I think.

Some friends got a hotel room in town. They invited the kids by for an evening of swimming

The 7 year old can’t take not being at the center of attention.

One of those skiing kids are ours. Both kids got to give a try. I didn’t know that skiing was possible when it hasn’t snowed.

Our net worth jumped 1.44% this month. I don’t know what to say (or write in this case), except that compound interest is an amazing river to enjoy.

I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 14 years. FIRE wasn’t a thing back then, but it’s in the news all the time now. We naturally may be further along in that journey than some younger readers who may be beginning their journey. Don’t be discouraged by some of the numbers above if you are just starting out. Please try to use it as motivation for what may be possible (depending on your circumstances). I had a number of years where I was ecstatic simply to save any money for retirement. May the markets be forever in your favor (ummm… maybe not the best reference).

There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask whether to include a pension in your net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation if she didn’t work for the government. That would have boosted all the numbers across the board. Calculating pension value is not easy, but here’s the best way to know what a pension is worth. In the end, it seems my wife’s pension may be worth $2.28 million. However, like most of the money mentioned in this article, this isn’t money we can spend.

Because the pension would ridiculously dominate our net worth, I’ll note two separate numbers in my internal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make financial based on a pension.

How was your January? Let me know in the comments.

How Much is Condo Maintenance?

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Condo MaintenanceIt’s been a few years since I updated my assumptions of our three rental properties – all condos. I’ve been going off the estimates that I created back then. In some ways these estimates are accurate. The insurance and property taxes don’t change much. In other ways, they aren’t accurate – condo fees continual climb up is the biggest example of that.

Three years is too long, so one of my goals was to create a fresh update early in 2020. I especially wanted to get early start on it so that my alternative income reports will as accurate as they can be. (Look for January’s report next week.)

All three condos have 15-year mortgages on them. We are about halfway through paying them off. To figure out how much money we are making or spending, I needed to come up with the cashflow of each property. That’s simply what we are making in rent minus what our expenses are.

The rent side is simple. It’s the check the tenant pays us.

The expense side is more complicated. A good place to start with that is a common real estate investing acronym, PITI. PITI stands for:

  • Principal
  • Interest
  • Taxes
  • Insurance

These are the core costs for owning a property, with the big missing factor being maintenance. I’m not sure why there’s no PITIM acronym, but maybe it’s because maintenance can vary widely depending on the size and state of the property. For now, let’s fill in the PITI.

Principal and Interest were easy to find our mortgage statements.

Taxes were much more difficult since we rolled them into an escrow. I had to go digging through my city’s assessor website. I wasted a lot of time trying to use Zillow or Redfin, but going to the source turned out to be much faster… and much more accurate. Unfortunately the city didn’t include an easy tax number. Instead I had to take the city tax rate and multiply it by the assessed value of the property. That’s not too hard, but it required looking for two numbers in slightly different places.

Finally, there’s insurance. That was easy to find. I simply dug up last month’s bank statements that had the payments we sent to the insurance company.

Adding in Condo Fees

Since these are condos, they all have a condo fee. I prefer to invest in condos because some of the maintenance is covered by the association for me. I don’t have to worry about hiring landscapers or snow plows. There can be amenities like pools and gyms that are attractive to potential renters – and those costs are shared by everyone. Like some of the previous costs, this is an easy one to figure out. The condo association tells you what the fees are going to be. You pay them every month, so you should have an easy record around.

Just because I like to invest in condos, it doesn’t mean it’s right for you. For example, Rocky Balboa is not really a fan:



Special Assessments: The Hidden Beast

Before I get into the main topic that I wanted to discuss today, I wanted to take some time to cover something very specific to owning a condominium.

One thing to beware of with owning a condo is that there are occasional special assessments. These are repairs to major infrastructure. One of my properties had to put new roofs everywhere due to a structural defect. Two of the other properties needed completely new siding. Neither had planned those costs into the fees. It was tens of thousands of dollars. Fortunately, when it’s this much money, the condo associations usually work together with a loan provider to make it easier to pay.

How Much is Condo Maintenance?

No one seems to talk about condo maintenance aside from the standard condo fees. Appliances need replacing. Plumbing goes bad. Since these are rental properties, we have to paint more often than other people might. (When one tenant leaves and the furniture is gone, dirty walls become the focus of all potential new tenants.) Every so often you have to replace the kitchen and bathrooms. There’s also heating and cooling units to replace. We’re slowly switching to durable vinyl flooring because replacing carpet is a pain.

So how much do you budget for all this condo maintenance?

I could take each item, one by one, create a spreadsheet with expected life and amortize it. That would be a very thorough way to get a very accurate number. However, after calculating all the above numbers, I simply wanted a “rule of thumb” that was “close enough.” I didn’t want to spend another couple hours on each property to get a final cashflow number.

I had an idea for a rule of thumb, but I reached out to Twitter to ask for some advice. Here are some of the best responses:

Stop Ironing Shirts pointed out that the rule of thumb is to budget 2% of the value for 20-year old houses, so 1% would make sense with the condo fee covering the rest. I hadn’t read it was 2% for 20-year old houses, just that it was typically 1%. I was going to go with 0.5% for half of that 1%, but instead found that Mr. Shirts’ number was better.

Next Aron from Nine to Thrive came up with this:

I love the simplicity here. It’s a very easy calculation. This was very close to my 0.5% of the total value rule above, but well shy of the 1% estimate.

I decided that both approaches have their merits and averaged each of the numbers. Again, the goal is to come up with something quick and hopefully close to accurate over the long haul. After all, maintenance costs are always going to be an inexact science where an estimate is the best we can do. This math satisfies my requirements.

Results of the cashflow of our three condos

I put together a spreadsheet of our condos’ cashflow and this is the result:

There’s some extra data here, simply because I’m a nerd. I have “active rent”, which is the rent that we get. I also record Zillow’s estimated rent. This helps me calculate a potential rent (the simply average) of where some kind of fair value should be. In this case Zillow had a weird data point in estimating the other two condos at nearly $1800. Previous months topped out at $1500 and Zillow’s fixed their estimate to be back towards that number.

The first and third condos were ones that my wife and I owned before we met. They lose money every month. One reason is that they had a big assessment. Another is that we have 15-year mortgages on them, so our payments are high. Ordinarily, it wouldn’t be a good idea to buy a rental property that loses money every month. However, it’s a better situation to make the equity than it would be to sell.

The last four rows are my favorite. These show how much we’d make if the mortgages were paid off. This gives me an estimate to what kind of monthly and annual income we make from each property in 2027. Since these all depend on the rent that we are charging, I put three scenarios together. It’s a fairly wide range, but it looks like these properties will roughly supplement our retirement with somewhere around $28K-$30K a year (picking a low-end between the actual rents and the Zillow estimate.)

The downside to this income is that we have to be landlords. Maybe for $25K a year we can have a rental property manager do all that work for us.

For now, let’s stick with the $28-30K number. If we were to try to make this kind of passive income through the stock market we’d need $1,120,000 invested in a stocks that produce a 2.5% dividend. If we wanted to draw down on a large nest egg using the 4% rule we’d need around $700,000. In this later example, the 4% rule may only last for 30 years.

So while the cashflow of the properties doesn’t look particularly good now, the end result should give us the financial flexibility to cover most of our typical living expenses.

Do you have a good (easy) way to estimate condo maintenance expenses? Let me know if the comments.

Investing for 2030

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As a personal finance blogger, I should be encouraging you to put your money in index funds with low expenses. It’s one of the few things that nearly all personal finance people agree upon. For example, this Lazy portfolio is built with almost all Vanguard funds.

That’s boring. While boring may be best, let’s pretend that your investing tastes are a little more crazy than the basic bread and water. Let’s say you want to spice it up. After a 10-year bull market, I’m managing stock market risk different nowadays.

I don’t believe that means that you have to sit back in extremely conservative investments and wait for a crash. You could have made to case to do that in 2015 and you would have missed out on years of great growth.

Instead, I’m combining the ideas of managing the risk with some investing ideas that I think will pay off by 2030.

Environmental Trends

We may or may not get a green new deal. Even if we don’t, anyone with any kind of intelligence is delivering warnings about the effects of climate change. For once, it isn’t just landing on deaf ears. Companies are changing how they operate. Microsoft vowed to undo all the carbon emmissions it has ever created by 2050.

Solar stocks would figure to one the big winners of the next 10 years. I recommended investing in solar in 2015 and feel even more strongly about it now. My investing pick is the Invesco Solar ETF (Ticker: TAN) which I’ve personally held for a long time. It’s expense ratio is a little high at 0.7%, but I think it’s worth it. I don’t know much about individual solar companies, so this is one way that I can simply invest in the whole trend.

Over the last few years, I’ve read that a lack of water is going to be the Next Big Trend. We saw a little of this with the Cape Town water crisis a couple of years back. I have to admit, conserving water is an old story. I remember hearing about it more than 35 years ago when I was 7. I don’t think Americans have done a great job of conserving water, and yet here we are, still with water.

Despite that, I’m going to trust the smart people in the room on this. Water management is going to be a very big business over the next 20 years. I’m just starting to look into how to invest in water. From what I’ve found, it seems like Investco’s PIO is the most well-rounded ETF for your investment dollar.

Emerging Markets

I opened the article with the mention of the US market’s decade-long bull run. By now that is common knowledge. During these last ten years, emerging markets haven’t fared quite as well. I’m expecting them to catch up. You likely already have some emerging markets in your portfolio anyway. I think many people could spice it up by increasing their asset allocation to include more emerging markets.

Vanguard’s Health Care ETF

It feels like an unusual time to recommend investing in a health care ETF like Vanguard’s VHT. It’s been up sharply over the last decade. I was on the fence about including VHT, but decided to add it in at the last minute. The nation is getting older and health care keeps marching on with the discoveries. With advances like CRISPR and gene therapy becoming possibilities there’s a lot of room for advancement.

Final Thoughts

I wanted to include a few more trends in this such as ride sharing and social media. Even though I personally invest a little money in these, I don’t feel comfortable suggesting them to others. The ride sharing companies are losing lots of money and it will be a while before they can make significant profits. Social media has a dark cloud of government legislation hanging over it.

What are some of your favorite places to invest in 2030? Let me know in the comments.

Do I Need a Certified Financial Planner?

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For decades now, I’ve been studying personal finance. It’s gotten to the point that sometimes, I don’t know if I have anything new to add. In fact, one my goals this year is to organize the 2 million words I’ve written… maybe cut it down to a million words that cover all the major points.

(Don’t worry I intend to keep a back-up of my articles around if you are curious about my money thoughts on March 8th, 2007… and I know you are!)

After all of that, that title was surprise, even to me. I think the answer is, “Yes, I do need a Certified Financial Planner.” However, it’s probably not for what most certified financial planners typical do. I have a few advanced questions.

I’ll cover the advanced question that sent me down this rabbit hole in a minute. For now, let’s consider a simple possible conclusion. If I can benefit from a CFP, there’s a strong chance you can too… or maybe not.

Why See a Certified Financial Planner Now?

The simple answer is that my finances were easy. There were a set of relatively basic rules and we had the income to cover them. For example, we maxed out retirement accounts and invested them well. We bought rental properties and built and empire. I’m extremely good at saving money on all sorts of expenses from food to clothes to electricity (solar panels).

It’s all worked out very well, much better than we could have expected…

…and that’s the “problem”

Our finances have gotten fairly complex with the diverse number of income streams we have. It’s made me start to look at things that many people perhaps should not focus on. One of those things is income tax. As our money continues to compound and snowball, we may reach higher tax brackets. I don’t mind paying my fair share, but I don’t want to give them any more than I have to. I’ll play the game that they created to pay less taxes if I can. Also, if the government is going to act like it currently does, well I don’t want any part in funding this absurdity – or any more than I legally have to.

I’d rather:

  • Donate to charities that I believe in – in the best possible way.
  • Leaving behind a financial family legacy
  • Maximizing the amount of sunsets, museums, and any other wonderful things I can fit into this short life

Details of the Financial “Problem”

I keep putting “problem” in quotes because it’s a situation at least 99% would love to deal with. The issue is about optimization. If we make some mistakes with our money, we’ll likely still be in tremendous shape. However, we’ll limit those three things of above and have less money for them than we could have.

I’ve already mentioned my biggest concern. It’s taxes.

Many of the personal finance writers who retire early have saved up a lot of money when they were young and are living frugally off of the investments generated by those savings. They earn a low income, but it’s enough through their frugal activities like travel hacking, geographic arbitrage, and owning a home in a low property tax area. This low income can often be so low that they pay very little in taxes.

(Note: Some criticize them for not paying their fair share, but I’m not going to pass judgment. Don’t hate the players, hate the game, right?)

This is a tremendous plan for them, but it’s not likely to work for us.

My wife’s pension alone is substantial already. There’s no tax trick to make it look lower. We have investment properties and the income from those could be substantial as well. We may be able to reinvest that money in upgrades or further real estate, so that income doesn’t get too substantial. However, we’d like to be able to use that money for things like college expenses.

The biggest thing coming down the road is our investments. We’re 43 now and after years of saving for retirement in those accounts, they are doing quite well. We might not touch them for another 30 years, meaning that they’ll be very big when it comes time to take them. Many are in TSPs, SEP-IRAs, and Rollover IRAs (from 401Ks), so we’ll have to pay taxes on them then. We could be in a high tax bracket.

Most people who retire earn less in retirement, so their tax bill on deferred taxes is less. I have a feeling ours could be more. A certified financial planner could give us a second educated view into all this.

One thing that intrigues me is that the taxation of qualified dividends is very low – potentially even zero. It’s quite possible that it’s better to hold stocks (including ETFs) outside of our tax-deferred accounts. It looks like we’d only pay 15% maximum on the income from these dividends vs. the 28% (or more) that we’d have to pay when it comes out of tax-deferred accounts.

All of this goes into main financial question of the year (so far): Is it okay not to save for retirement?

Of course, we’d still be saving, but doing it in a way that potentially allows us to pay fewer taxes in the future.

This all me a case of me overthinking things. (I have a tendency to do that.) In this case, getting a second opinion can only be seen as a positive thing, right?

And that brings me to my original thought, “If I can benefit from a certified financial planner, there’s probably a good chance you can too.”

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