Lazy Man and Money

Finding Purpose in Retirement

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Retirement means different things to different people. There’s a traditional view of sipping Mai Tais on the beach. I know a few retired people and I don’t know anyone who does that. I think it gets more boring. They are more likely to take their surfboard into the water at the beach.

I’ve been thinking of retirement a lot lately. I’m not sure if I believe in that traditional retirement of not working completely. When I tried to define “retirement” in 2007, I came up with five things that I would want in my retirement job:

  • Ability to work on projects that I enjoy
  • Flexibility to working as much (or as little) as I want to
  • Flexibility to when I want to
  • Flexibility to work from wherever I want to
  • Freedom from having to take orders (which I might disagree with) from others

The article that I wrote s a little rough around the edges, but the comments are exceptional for 2007. There are some bloggers who are still popular today (Early Retirement Extreme) as well as Brip Blap giving a great definition of “Work Optional”, something that’s seen some popularity in more recent “retirement” discussions. This is one reason why I love when people leave comments on blog posts. It’s a time capsule treasure.

I still agree with all those aspects of the ideal retirement job, or what is often called a “second act” today. For me blogging fits the mold. Unfortunately, blogging got a lot more difficult and the income has gotten a lot worse. It’s trending in the hobby category for me, which is fine as our financial situation is very good now.

While all those things are still great, they don’t do much to help with one thing:

Finding Purpose in Retirement

Even though I have these retirement qualities to my work now, it would be a stretch to say that I’m retired. On a basic level, I do customer service work for someone else, so that defeats almost all the bullet points above. Fortunately, there’s not a tremendous need for customer service much of the time. I still do blogging obviously. I also do dog sitting, which matches some of the above retirement qualities.

Unfortunately, I don’t find a lot of purpose in any of these things. Customer service is famously known as a thankless job. That said, I get so many polite people who say “thank you”, far more than the rude people. Dog sitting has some of the retirement job qualities, but not all of them. Overall, most people just want their dog back healthy with some good pictures that he/she had fun. Personal finance blogging has become a crowded field and producing more financial content for the world to consume seems, well, entirely unnecessary.

The first two (customer service and dog sitting) are transactional fulfilling someone’s needs. I don’t remember most dogs or customers from three years ago.

Blogging seems to have more purpose. For example, by digging up that old article from 2007, I feel like I uncovered a tiny piece of history. Like dogs or customer service requests, I do sometimes forget blog posts from a few years ago, but they are still there.

I’ve been thinking about how to do things that have more staying power than a transaction. I am working on starting another blog. I would like to self-publish a couple of eBooks. I don’t know if the eBooks will make any money as that’s a crowded area as well. However, I would be able to say, “This is something I created. Someone will be able to read the thoughts I had while on this Earth (and not with all the typos and poor grammar like my blog posts).” It doesn’t matter much to me that most people may not want to read those thoughts. It would be nice if they did, but it’s enough for me to know that they could.

I’m at a point in my life where I’m trying to put all these pieces of the puzzle together. There are those three jobs. There’s landlording our three rental properties that are becoming more and more difficult. In reality, our patience for dealing with them is running low. When I’m not doing those, I’m doing the basic errands of laundry, dishes, grocery shopping, cooking, etc. (some cleaning and yard work are outsourced). There’s also the kids and their activities.

I don’t know when I’ll reach a point of true retirement. Maybe we’ll get property managers or sell the properties. The kids will go off to college or live on their own someday. Maybe we’ll take fewer dogs as our mortgages get paid off. Even though, I can’t see a clear path to true retirement, it is helpful for me to think about what I’m going to do that’s going to have a purpose or leave some legacy. (Some may say raising decent human beings counts, but the human beings have to be decent and the jury isn’t close to deciding that one yet – LOL.)

So what do you think? How do you think you’ll find purpose in retirement? Or have you already found it?

Fixing My Biggest Money Mistake

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Last week, I wrote about My Biggest Money Mistake. It was not a money mistake that most people can identify with. I over-optimized and put too much into retirement accounts. It’s great if we are looking to maximize our net worth. It’s very poor if the plan is to use the money to pay expenses now – 15 years before traditional retirement age. As I mentioned in my previous article, this is a “good problem” to have. We’ve been extremely lucky that most of our personal finance plans have worked out well.

Overall, around 90% of our money is in real estate equity or a retirement account. Half of the real estate equity is our primary residence. The other half is in rental properties. We’re a few years away from owning our primary residence which will largely eliminate our biggest expense. The mortgages on the rental properties will be paid off in a few years as well, giving us a supplemental income. The rental property equity simply looks like a big number on paper a screen.

Getting the money out of the rental properties is straightforward. We could sell one to pay off the other two and get a smaller income stream now. We could sell off all three and invest the money in an index fund. If we did that, we may get around $10,000 a year in dividends. However, if we stay the course, I estimate we’ll get $30,000 a year in rents after all expenses once the mortgages are paid off. I don’t like the idea of selling the properties at this time.

Getting the money out of the retirement accounts early is a little more complicated. Actually, it can be easy if you are okay with paying penalties. However, the whole reason why I put the money in a retirement account was to maximize the growth and the amount available after taxes.

When we look at retirement accounts there are two basic types – those that are invested with pre-tax money and those that are invested with after-tax money. Pre-tax retirement accounts include 401ks, traditional IRAs, and government TSP plans. After-tax retirement accounts include things like Roth IRAs, Roth 401ks, and Roth TSP plans. With the after-tax Roth accounts, you’ve already paid tax, so you don’t need to pay tax again. For this reason, the only thing we need to think about with Roth IRAs is being old enough (age 59.5) that we don’t get penalized.

However, with the pre-tax retirement accounts, we have to pay regular income taxes on all the money we take out. Right now, that actually isn’t too bad. If we earn up to $80,250, we’ll pay only about 12% of taxes. If we earn less than $171,050 we’ll be in the 22% tax bracket. If we earn less than $326,600 we’ll be in the 24% bracket. That’s a ton of income, so I it’s not worth look at the 32% tax on incomes over $326,601. This almost guarantees that our effective tax rate would be less than 20%. (If you didn’t know, you pay all the taxes as you move up in the bracket, landing in a high tax bracket doesn’t mean all your income is suddenly taxed at that number.)

It’s hard to imagine we’d make over $326,000 in retirement, but it isn’t impossible. My wife may get a $60,000 pension that’s indexed for inflation. We might have income of $45,000 from rental properties (which will naturally adjust for inflation). We have a few other income sources (blogging, my dog sitting, etc.) that could add up to around another $50,000. My wife may continue to work that brings home an income. That would be around $150,000 before we account for withdrawing money from the IRAs. There’s not much room left in the 22% bracket, but still plenty of room in the 24% bracket.

So we wouldn’t pay too much more than the expected 20% in taxes except for two possible scenarios:

1. The brackets get lowered over time. I think there’s a strong possibility that this happens. We can imagine that at some point we want to fix the national debt and one way to do that is to raise taxes by lowering the bracket thresholds. If the $326,000 bracket gets dropped to $200,000, we might risk running into the 32% bracket easier. Alternatively, the tax rate may go up, which would conceivably be the same thing.

2. At age 70-something, we might have to pay Required Minimum Distributions (RMDs). I write “70-something” because the RMD age has changed recently and there’s legislation for it to potentially change again. In any likely scenario we’d be forced to take a percentage of our nest egg as regular income at age 70 or later. Since my wife and I are 45 years old, we may have 25 years of compound interest. With that much time, our pre-tax retirement accounts could be a big number, leading to taking a big distribution in our 70s. Social Security will still exist (in some form) and some simulations say that will be another $60,000 of income.

Some combination of #1 and #2 will likely happen. It’s always difficult to plan for “what ifs” in the future, but it never hurts to be prepared.

I’ve been writing a ton about taxes, but having access to money earlier rather than waiting until age 59.5 would be ideal. Fortunately, it’s possible to get access to the money early, while also potentially limiting high tax brackets in the future.

There are two ways we can access our IRAs early:

1. We can take Substantially Equal Periodic Payment (SEPP). That means that we commit to taking an amount of money out of our IRAs as determined by an IRS formula. We’d have to continue it until age 59.5 or face big penalties… with interest. It’s not a bad plan, but I don’t like to have to withdraw money based on what an IRS formula says we should. I also don’t like to be locked into 10-15 year decisions.

2. We can use a Roth IRA conversion ladder to move money from our pre-tax IRA to a Roth IRA. We’ll have to pay the taxes on the income immediately, but that sets up two very good scenarios. First, we can withdraw the money, tax-free, after 5 years. Second, we can let the money grow while not having to worry about taxes. The first scenario would give us access to money, penalty-free. The second scenario gives us the flexibility to decide not to take the money if we don’t need it.

I’m 90% sure that the Roth IRA conversion is the way to go. Getting access to money tax-free in 5 years is about as good as we could hope for.

There’s one small problem with a Roth IRA conversion. Paying taxes up-front can be tough. If we were to convert $50,000, we’d have to pay $10,000 in taxes (and we can’t use that $50,000). When you are trying to get through 5 years because you don’t have access to that retirement money, it’s not easy to come up with $10,000. That’s when I had an idea. Since you can take out Roth IRA contributions at any time, we could use our previous Roth IRA contributions to pay off the taxes on our IRAs. Under normal circumstances, you won’t want to pull those Roth IRA contributions out. However, pulling $10,000 out means putting $50,000 in, so I’m sure the personal finance experts won’t mind.

At the end of the day, all this essentially guarantees us paying around a low 20-ish% marginal tax rate, while giving us access to money in five years. Locking in that tax rate now is valuable, because I feel that taxes will rise in the future. Of course, I’ve felt this way for a long time and it doesn’t happen. Politicians don’t like the idea of raising taxes as it’s unpopular with almost all voters. At some point, I think we’ll simply need to do it.

My Biggest Money Mistake

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My Biggest Money Mistake

For whatever reason, people love to ask me about my biggest money mistake. Other bloggers will ask it when they are compiling a top ten article. For a few years, I had gave some answers, but I didn’t have any strong conviction behind them. There was a brief period of day trading after college. I also bought a convertible after college. Basically, the “after college” time wouldn’t make many of my financial highlight reels.

However, in hindsight, I don’t think either were big money mistakes. I didn’t lose too much day trading and I learned a lot. I still have the Mustang convertible today (20 years later) and have paid roughly about $1400 a year (or a little more than $115/mo.) for it. Things could have been a lot worse.

I think it’s difficult for many people to talk about their biggest money mistakes. In about 99.9% of the cases, it is because they are embarrassed that they made the mistake in the first place. I’m finding it difficult to write about my financial mistake, but for a completely different reason. My biggest money mistake comes from a situation when it’s considered a “good problem to have” such as having two great starting quarterbacks or being at a great buffet and realizing that you only have one stomach. (Does anyone remember buffets?) Because most people would love to have this kind of problem, it may sound tone-deaf. If so, I’m sorry in advance.

I Saved Too Much for Retirement

For years, I made it my mission to max out my retirement accounts the best I could. As a software engineer, I was pretty successful. As a blogger, less so. My wife, as a pharmacist was able to max out her retirement accounts as well. It turns out that if you max out your retirement you can have a million dollars in 20 years. Neither of us are there, but, as you can imagine with our retirement accounts are not small. Given the stock market run of the last decade, maybe a lot of people find themselves in this situation.

In general, putting more money into retirement accounts is a smart move. You get to delay paying taxes during what is, for most people, their peak earning years. Then you can pull out the money and pay taxes on the smaller amount because you don’t have your main income. The downside to most retirement accounts is that you can’t easily access the money until you are older, typically around age 59.5.

Having too much money in the future isn’t the problem. The big money mistake is that the money we have access now is 7% of that retirement nest egg. That’s not a lot of liquid cash.

I should have planned it so that we set aside 35-45% of the money to use now and 55-65% that we can use later in retirement accounts. It’s a lopsided situation, where it feels like we are just getting by now, but are set up to have a lot more money in the future.

That’s why we stopped retirement contributions, with the exception of Roth IRAs. We continue to contribute to Roth IRAs because we can pull those contributions out at any time without a penalty. In fact, the ability to do this may turn out to be very important in the future, but we’ll put that aside for the follow-up article.

There was another reason why we put so much money for the future. Simply put, we could. We didn’t have kids for a long time, so the dual-income, no kids gave us a lot of financial flexibility. More importantly, we have my wife’s military pension and rental properties to help supply income before retirement. Unfortunately, we still have to wait five years for the mortgages on those rental properties to be paid off. They won’t produce income until then.

There’s one other “problem” with this lopsided situation. When you combine a pension, rental income, and a big IRAs it has the potential to lead to a high tax bill. The IRA disbursements are taxed as regular income which may be 37%, or (much likely) even higher in the future. I’ve forgotten a lot of math over the years, but if memory serves, the commutative property of multiplication means that it doesn’t really matter when you pay the taxes, you just want to pay the lower amount. If we had invested money in a regular taxable account, it could be subject to long-term capital gains rate which maxes out at 20%. The money could also be invested in a way that paid qualified dividends that would realistically max out at 15% for us. (You need over $500,000 in qualified dividends a year for a married couple to get to the 20% range.)

If we could pay taxes of between 15-20% it would be a lot better than paying taxes of 40%.

Fixing My Biggest Money Mistake

Sometimes there are problems you can’t fix. As the saying goes, you can’t put the toothpaste back in the tube.

Fortunately, in this case, there are some things we can do. OThe solutions that I initially found were less than ideal. However, with a little more time and focus, I think I’ve found some ways that it won’t be so terrible…

… but that will be an article for another day. Update: Read Fixing My Biggest Money Mistake.

Where Do We Go From Here?

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Where Do We Go From Here

One of the best hours of television ever created was the Buffy the Vampire Slayer musical. The big plot was a demon came and made all the characters sing their deepest secrets. By this time in the show’s arc, every character is in some kind of turmoil. They defeat the demon, as they always do, but all is not well. With all the characters singing their secrets all the dirty laundry is revealed for all to see.

You can feel the depression in the last song, Where Do We Go From Here?



If you don’t want to watch, here are the relevant lyrics.

Where do we go from here
Where do we go from here
The battle’s done,
And we kinda won.
So we sound our victory cheer.
Where do we go from here.
Why is the path unclear,
When we know home is near.

I know what you are thinking, “Cool story, Bro! But… what’s the point?”

I’ve had this song in my head for a few months now… because I feel like we’re living the lyrics.

The Million Dollar Email

A few months ago, I wrote that we were waiting for the million dollar email . If you missed it, here’s a quick summary:

My wife is military and has been up for promotion for about 10 years now. It’s been a big rat race as they keep moving the goal posts. One year it was get a certificate (that’s been compared to passing the bar). After that, it was, “Yeah, we know you have a Pharm. D, but we want you get an MBA.” That lead to essentially doing two jobs for a few years. After that they wanted her to lead some committees, so she became an officer at the top pharmacy organization. Then they said it wasn’t related to her military work, so she had to climb the ladder to become president of the 6,000 officer corp. Which of course, she did, and we get to meet VPOTUS Kamala Harris in a couple of months.

You get the picture. We figured that this would be the year that she’d get promoted. Enough is enough. This was the last shot. If she didn’t get it, it was time to retire and maybe run the social media for Lazy Man Media.

It was a little stretch to say that a million dollars was on the line, but if she got the promotion she wouldn’t have to do all the extra work (she could “coast” just doing her base job). She would stay on for three more years to maximize her pension at the new rank (they use the highest salary of 36 months to figure out the pension). That’s a lot more money now, and a higher pension is tens of thousands of dollars for decades (hopefully). In addition, we could continue to get some big active duty discounts that we enjoy. It does probably fall short of a million dollars, but not by too much.

I bet you are smart enough to put two and two together…

… the promotion didn’t happen once again. This time, they had to admit to systemic problems in their structure. They have too many officers that rank too high, so they need some to retire first. However, they prevented anyone from retiring last year because it was all hands on deck for COVID-19. For years, they haven’t been recruiting people, so they told the officers that if they want to be promoted they should recruit others to make the bell curve look better. A lot of people got a laugh when I pointed out that they are on a slippery slope of becoming a MLM scam. It’s a tough situation all around for a lot of people – even for the people making the big decisions at the top.

Where DO we go from here?

That’s been the common question, I’ve been asked. Some people have congratulated me on the retired wife. (That felt awkward, but I guess that’s a positive way to look at it.)

It turns out that my wife can’t even retire this year. Well, she can, but it would be weird. The presidency that I mentioned above doesn’t end until next July, and it makes since for her to be working while she’s helping with the worker conditions. So it’s one more year. Except that maybe when the promotions come out at the end of July she’ll get promoted then and we’ll change course.

One good thing about the “one more year” thing is that it gives us time to plan. We’re looking to have a year’s worth of expenses saved in cash and we’re only halfway there now. There are also strategic times to retire such as when you complete a year of service because the pension is based on years worked as well. The discount that our kids receive from school comes about once a year. We would want to time it after that to get one more year of reduced rates.

There are a lot of moving pieces and right now we are a little too busy to figure it all out. The good news is that we have another 7 or 8 months figure it out. Look for another article at the end next June that gives more detail on what our plans are.

Waiting for the Million Dollar Email

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We’re on pins and needles in the Lazy Man household. Two days ago the Million Dollar Email (MDE) had a 33% of arriving. Yesterday it had a 50%. Today, it has a 100% chance of arriving. Well maybe 99.9% chance, just in case the internet goes down.

I’m getting ahead myself. What’s this Million Dollar Email about, right?

For the last 7 years, the end of June has become “the wait.” That’s when the military promotion list comes out.

My wife has been up for promotion 7 times and each year it has ended in disappointment. At her level, almost no one gets it the first time. Each year the promotion board has come back with new recommendations. One year it’s “Get a certification.” The next year it is “Get an MBA (to add to your Pharm.D).” The next year it is “Lead an organization.” The next year it is, “Not the top pharmacy organization of thousands of people, but a military one.” The year after that it is, “Vice President of the top military organization isn’t enough. Do better.” One year it is, “Deploy more, we don’t care that your boss rejects your deployments.” Another year it is, “Get more awards, we don’t care that we gave you the top award and later sent you an email that it was taken away.”

This year she’s President of the organization. She deployed a lot last year. The awards… well… the promotion board can still ding her for that.

In any case, this is for all the marbles. She’s made it no small secret that she’s done jumping through hoops. If she gets the promotion, she’ll consider continuing to work without all the second job of hoop-jumping. If she doesn’t get the promotion, she’s O-U-T with her military pension.

With the promotion, the following happens:

  • Continuing to work at a six-figure salary, with an increase of $1500 a month.
  • A pension that is worth $12K more a year for life
  • Kids’ private school continues to honor the military discount, a “savings” of $12,500 a year. (This is our luxury item, please don’t judge too much.)

Does that add up to a million dollars? I’m going to fall back on my Lazy Man moniker and not do the math completely. A back-of-the-envelope calculation says it may be $500K in pension. I think the other 500K can come from working at the high salary, the raise, and the kids’ school discount. Maybe it isn’t a million dollars, but I think it’s close.

Without the promotion, she can break away from the “one more year” hamster wheel that she’s been on. That might be worth it alone. I suppose that either way, our life will significantly change.

The reason for the suspense is that the promotion list has to come out in June as it has done for the last 20+ years (maybe decades longer). If it doesn’t the payroll for July first becomes a mess (from my understanding.)

As I write this, June has less than 12 hours left in it… tick, tick, tick.

Update: She didn’t get the promotion, so it looks like she might retire over the next year. They only promoted 9% of the eligible people. It used to be 30%, then it was 25% and was 12% before. I guess few pharmacists did anything worthy over the last year…. /sarcasm.