Lazy Man and Money

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.

Can My Wife Retire?

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The very simple answer to this question is yes. It will become clear why as you read this post.

The real question is “Can We Live the Same Life if My Retires?” There are a couple of questions that go along with this, but we’ll get to those later.

Can My Wife Retire?
My dog says that my wife can definitely retire.

When I started this blog in 2006 it was with the idea that I’d explore ideas on how I could retire early. My main motivation was that my wife would be eligible for her military pension at age 43. I didn’t want to have to work another 22 years after her.

Life takes a lot of turns in 15 years. I switched over to self-employment a dozen years ago. Our entire financial dynamic has changed greatly, we were only dating back when I started this blog. We’re now at the natural finish line of that original goal, but added liabilities, otherwise known as kids, have required some changes along the way. I like my side hustles enough that I don’t want to retire from them. My wife is eligible for her pension.

So it’s time to ask…

Can My Wife Retire?

The biggest indicator of being able to retire early in my opinion is cashflow. It’s true you could have a big nest egg (and you may need it), but hate having a “burn rate.” When I started my career as a software engineer around 2000, that term was used to describe a lot of internet companies. It didn’t end well for almost all of them (RIP: Pets.com sock puppet).

We have a big nest egg, but unfortunately, it’s mostly locked-in retirement accounts that we can’t easily access for another 15 years when we are 59.5. There are some ways we can get at the money, which is worth exploring, but for now, we’d like to put a pin in that idea and come back to it later.

Ideally, we’d have more income than expenses. If that works out then we can mostly say “My Wife Can Retire! (and we can live the same life!)” It’s almost impossible to guarantee either income or expenses, so we’ll have to go with what appears to be the most likely scenario. We can overestimate expenses and underestimate income to create a margin of safety.

Expenses

Last week I explored our expenses for the next five years and teased that it was going to be part of a bigger article. Surprise!

Our expenses look like:

Housing$40,000
Schooling$25,000
Transportation$3,000
Food$16,000
Healthcare$1,000
Misc$15,000
Total$100,000

These expenses are averages, but fortunately, they are fairly consistent. After around 6-7 years, the expenses change completely. Our mortgage would be paid off and our school costs would drop to zero if our kids go to public high school.* (We also will have a boost to our income around this time, but that’s for another section.)

School Expenses

When my wife retires, we will not get the military discount for the kids’ school. The cost of tuition would double to $50,000 per year for both kids. That’s crazy!

However, we would be eligible for tuition assistance. The problem is that we have no way to plan ahead for it. The calculation is a secret algorithm by a third party company. We can’t get a sample of the results or even an estimate without uploading all our financial information. Even then, the results are sent directly to the school and not through us first. I’m not very comfortable sending our financial information to the school just to get an estimate for financial planning.

The fact that the school isn’t an easy decision should indicate how much we love the school and value our kids’ education.

I was hoping this wouldn’t be a big unknown, but here we are. The enrollment coordinator said that the financial aid is all over the map. Some people get more of a discount than we are getting now. That’s possible with the drop of income and having two kids at the school. This means that our expenses could drop $25,000 (if we opt for public school), stay the same (similar financial aid), or expand $25,000 (no aid). I don’t think the last option of spending $50,000 is feasible… if we have that kind of money, I’d rather invest it.

For lack of a better alternative, I’ll continue to go with the middle option of where we are now. It’s probably the most accurate of the three as it represents some financial aid.

Transportation Expenses

The transportation number above includes only maintenance, insurance, gas for our already paid-off cars. That’s good for 6-7 years, which is my goal here.

For completeness, I thought it is worth addressing the need new cars. We spent around $23,000 on a Subaru Forester (beach/dog/kid car for me) and $44,000 on an Acura MDX (luxury car for the wife). That’s a combined $67,000, which will last us for 13 years or more. On average that comes out to about $5,000 a year for our physical car expense. Thus we should reasonably budget $8,000 a year in retirement going forward.

While this expense does go up in the future, I’m going to keep it at the same $3,000 number for this exercise. Our housing expense drops a huge amount when the mortgage is paid off. I’ll happily trade $35,000 in mortgage payments a year for $5,000 in car payments on average.

Income

Just like our expenses drop a lot in 6-7 years, our income has a jump at about the same time. Two of our investment properties will have their mortgages paid off, which means we can likely expect another $25,000 of income. As great as that is, we have to get there first.

Because of the drastic drop in expenses and the increase in income, it feels like there’s a definitive finish line – just get to year 6.

Here’s what our income looks like:

Income from my Work

I have this blog, dog sitting, some regular freelance work, and equity ownership in a small company that pays out monthly profit-sharing checks. The combination of these is about $65,000 a year.

However, the blogging income has been trending down. The dog sitting income hasn’t been a lot less due to COVID. The other two parts are consistent, but the income isn’t guaranteed either. On one hand, there’s a lot of uncertainly that I’ll continue to make $65,000 from these sources. On the other hand, it’s unlikely that they all go away. I feel there’s a high likelihood that I’ll make at least $40,000 through a combination of them.

Income from my Wife

Pension: $62,000. It’s a fairly straightforward calculation of a military pension given her rank and years of service. This may be a little on the high side because the pension is the average of your highest 3 years. It’s a very, very good estimate though, especially in comparison to my hodgepodge of income.

My wife could do other things to make an income. I think the first year it might be limited to selling our excess stuff on Ebay. I’d be very, very happy with that because we have a lot to sell or get rid of. I’ll go into more income ideas later on. The goal of this exercise is to explore if a scenario where she brings in no income.

Combined my wife and I would make $127,000 a year. With the uncertainty of my income, it could reasonably be as low as $100,000 a year.

Final Cashflow Analysis

My wife can retire and we’d have $2000 left-over each year. Of course, we wouldn’t really have $2000 left-over because I did a lot of rounding and estimating. However, for a rough analysis, it is extremely encouraging.

To be honest, I was completely shocked that it was close. I was expecting a big shortfall.

If the financial aid calculation for the kids’ school doesn’t go well, we may have a bigger shortfall. Alternatively, we could go to public school and live a more lush retirement while cruising towards the glory of no mortgages and rental income.

The Big Nest Egg

At the beginning of this article, I mentioned that ideally our income would cover our expenses and we could stay cashflow even.

That ideal scenario is close and encouraging, but we’ll still need a big nest egg. The goal is to have $100,000 in spare cash as an emergency fund. It’s an aggressive savings goal considering that we’ve put so much into maxing out our retirement accounts for years. The best way to reach that is to stop our retirement contributions, except for maybe our Roth IRAs if we can swing it.

I would like to have some of that nest egg invested safely, such as in Vanguard’s LifeStrategy Income Fund (VASIX). It’s been a fairly stable fund that returns about 5% on average. It even did well during the collapse in March of 2020. (“Well”, in this case, equates to not losing much value). This could provide us with an extra $5,000 of income to fill a gap or two.

If we need to draw down on that nest egg, we could borrow $20,000 a year for five years, which is a nice cushion.

Other Emergency Options

If cash flow and a big nest egg don’t work out for us, we have a few other options.

We have a lot of money in retirement accounts. They aren’t easy to access before age 59.5, but it’s possible. We could probably get $100,000 in our Roth IRA contributions out tax-free.

We could also refinance the house and/or investment properties over a longer time span. This would reduce our payments and help our cash flow. We’d much prefer to retire all the debt and those mortgage payments forever.

We could cut out the private school, giving us another $25,000 a year of flexibility.

Another obvious solution is that I could go to full-time work with my wife’s time free to do the kid and house management tasks.

There’s a lot to work with and I’m just scratching the surface here.

Challenges of My Wife Retiring Early

What Will My Wife Choose to Do?

For the first year, she wants to have no plans. That makes sense. She’s been working in some capacity since helping her parents clean the windows of the apartment building they managed at age 9.

I don’t think having “no plans” is going to be a long-term fit knowing her personality. I could be wrong, but I think she likes to be busy. I believe that having a purpose in life is important for one’s well-being, so maybe the first year will be able to about exploring that.

As a pharmacist, there’s an option to do that kind of work, but she hates working retail. Also, retail doesn’t usually have part-time hours. She’s thought about giving talks, which is something she does now for her work. She’s also been approached by a couple of universities to teach. She seems interested in that.

She mentioned that she could go work for CVS’ corporate office (based in our Rhode Island area) and bring in a salary of 6-figures that starts with a crooked number. That would be outstanding and I hope she gives it a try for a year to see if it is a good fit.

I’ve suggested working at a wine tasting room or organizing some kind of city scavenger hunt. I think she’d love a second act that is interacting with people in a fun way. Her dream of managing a boy band is still alive as our 7 and 8-year-old are getting more and more musically inclined.

Will I Go Crazy With Her Around All the Time?

Yes, I most certainly will. The only way I’ll get through any of this is if you comment on all my articles. So there you go; you have a role in all this too! You can start with this post.

* Some of the private high schools are ridiculously expensive – $45,000 a year, per kid. We’d need some great grants to make it work and that’s a project for another day – if at all possible. I think a much better financial option would be to work with our high school and a local community college.

We’ve Stopped Our Retirement Contributions. Here’s Why.

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Today’s update is going to be very quick. We’ve got a storm, so the kids are home from school. My wife has 4.2 zillion Zoom meetings and I have a lot of snow shoveling to do. We haven’t had a storm in a few years, so finally the kids are old enough to pick up a shovel and help a bit too.

It was back in middle of January this year that I asked, Is it okay NOT to save for retirement. Some stuff happened since then*, and now it’s time to announce that we’ve decided not to save for retirement… at least for the next 6-7 months.

My wife won’t add funds to her government TSP plan (like a 401k). I won’t add funds to my solo 401k. We’ll still max out our Roth IRAs, but that is only because we can withdraw those contributions at any time without penalty.

Why the move now?

A lot of it has to do with the way the stock market has gone this year. I’m not referring to the drop in March. Back in January, I had felt like our retirement accounts were getting too high in comparison to the liquid cash we had on hand. It wasn’t like we were each 401k millionaires with 30 cents to our name, but it was lopsided nonetheless.

And here we are in December. I look at our retirement accounts and they are up 27% for the year.

We do have more liquid cash than we did at the start of the year due to less travel, grooming, and eating out. At the end of the day that 27% gain moves the needle even more past the point where I was questioning it before.

There are two other things weighing on the decision:

  1. More liquid cash now means my wife can choose to retire when she wants to. In some ways she can with a great pension already vested. There are some golden handcuff issues to consider. Also, sometimes she seems to be on the fence on whether she wants to retire or not. In any case, having more cash on hand makes that easier.
  2. If we invest some of this money in dividend stocks outside of retirement, we may end up paying fewer taxes down the line. If we take money out of a 401k plan we’ll have to pay taxes at our regular income tax rate. With my wife’s pension, that income tax rate may be fairly high. Well, it wouldn’t be too high, but it would be much higher than what qualified dividends get taxed at. Since our Roth IRAs are not taxed, we can pull out that money without considering tax rates.

There’s more detail in the original article that I linked to above. That’s about all I can do for today.

* Understatement of the year, right?!?!

Predicting Retirement is Tough, but it Gets Easier

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JakeBeachGnarly
Retirement can be a gnarly problem and not the way gnarly is usually used at the beach

It seems like everyone is in the prediction business this week. We’re trying to predict which states will vote one way. We’re trying to predict which way the Supreme Court will vote. I’m trying to predict when the Patriots will have a competitive quarterback again. (Wait, that was supposed to be in my inner monologue. The rest of the country probably had enough of Patriots quarterbacks for a number of years.)

I don’t know about you, but I’ve had enough of those predictions for a little while. Why not take a break from them? What if instead you focused on your personal finance journey and tried to predict what retirement would look like?

I know I’m a strange bird. It takes a “unique personality” to blog about personal finances for 14 years. I continue to update my passive income and net worth statements. It’s a little outdated, but generally our next 45 years of expenses looks steady.

Most people aren’t strange like me. Has it been a while since you calculated your net worth? When was the last time you thought about what your expenses will be when you retire? Regular readers are likely to do these things more often. I wonder how often the Average Joe or Average Jane looks at this financial stuff. For example, I’m always slipping when it comes to getting my car checked. I had been very bad about seeing dentists (but I’m better now). I have to think that money check-ups are the same for some people.

When I started this blog, I could have made some predictions of what retirement would look like. I would have been wildly wrong. I had never left the Boston suburbs before, but we moved out to California for 6 years. We came back to New England and live in the “drive-through” state of Rhode Island. I may have been able to predict the two kids. I wouldn’t have thought that they’d go to private school, because the discount was just barely good enough, but it’s still extremely expensive.

Life has a way of slowly moving you a different direction than you planned. So if you last looked at your financial plan a few years ago, it is a good time to look again and see if adjustments need to be made. For example, we found that with COVID, not being able to spend on travel has helped our bank accounts. (It’s hard to admit that knowing how negative COVID has been for the country overall.)

I like to think of long-term financial planning (for retirement or even college expenses) as being like a hole of golf. You have to take a big shot with your driver to get as close as you can. Then you focus your attention more and more until you are making a manageable putt.

This might be a good time to see if you are using the correct golf club.