Lazy Man and Money

Operation “Wife Retire” Activated

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Beach Retire

The plan for my wife to retire was actually set in place long ago. When we met she told me that with the military, she’d be eligible for a pension and able to retire at age 43. That’s one of the main reasons why I started this blog. I didn’t want to work another 22 years after her and start living life at age 65.

That was 2006. We’ve had a great 14 years of financial planning. We’ve seen our net worth growth 4x or 5x. We should be in a great place to begin retirement.

In a lot of ways we are. I have some freelance work, dog sitting, and this blog business that brings in some money. We have some rental properties (from being an accidental landlord) that are losing money but have equity. The mortgages are done in 7 years and should bring in a good income of around $30,000/year after that.

…and yet I’m still very nervous about how to make retirement “happen.”

Now this isn’t a situation where the stay-at-home person, me, is trying to be selfish… or I don’t think I am. To understand why I think I have to explain the unique situation and obstacles.

Obstacle #1: Kids’ Private School

My wife and I treasure the education that the kids get at their private school. It may not be the very best in the country, but it would be above the 90 percentile, maybe even above 95 percentile. We wouldn’t ordinarily consider the expense of sending our kids to this school, but her military discount is exceptional and makes the math work.

However, if she retires, we expect that military discount to go away. Our expenses would go up about 35% at the same time our income drops 40%. That’s not usually a good plan to a successful retirement.

While the school is certainly something that we can eliminate, I think my wife is less willing to do that than I am. They’re in a K-8 school now, and my wife is thinking about private high school (even more expensive), while I’m thinking a combination of public high school and community college.

Do we have to cut a deal with the school? Could we cut a deal with the school? Could we look into another particular (cheaper) school that we’ve some other kids switch to?

These are all on the table. However, approaching the school with these questions takes some tact and timing. I’m often afraid of asking questions when I suspect that I’m going to get an answer that I’m not going like. We don’t know how much of a “what if” this situation even is.

Obstacle #2: Lack of Savings

I’ve always tried to make the smartest financial decision. That’s why I have this blog. In most cases it is to use index funds and retirement accounts to plan for the future. We’ve got a very good nest egg saved up… in retirement accounts that we can’t easily touch.

Many financial bloggers will use Roth IRA Conversion Ladder to get access to retirement money with limited tax consequences. It doesn’t work out as well if you have a pension and if my side hustles are performing.

One answer here may be to take out our Roth IRA contributions over the years. That would give us some savings. Obviously that comes at the risk of retirement growth, but for all the reasons I mentioned at the beginning, we look to be in very good shape down the line.

There are more obstacles, but the previous two are the big and obvious ones that I can see.

My Wife Makes the Call

My wife came up with an idea recently that makes a lot of sense. She wants to have a year of income saved up in cash. That would help cover obstacle #2.

The only problem? It’s been hard for us to save money. Between saving in retirement accounts, paying our house on a 15-year mortgage, private school, travel, restaurants, and the annual surprises, we don’t save a lot of extra cash. We’ve found that in COVID-19 world the lack of travel and restaurants allowed us to save more. My freelance work has also helped. While I still haven’t settled out the month’s bills, I think we’ll be at a quarter of a year’s income saved up.

More Plans to Be Made

On my plate is to do a more comprehensive review of our expenses. I’ve been estimating our necessary expenses for a long time. However, it’s been a while since I even ran one of those estimates. I want to be able to provide an analysis of expected income and expenses, with and without the school. In the end, I expect that will only be a guide… my income numbers fluctuate and our expenses fluctuate as well.

Sabatical or Retirement

My wife isn’t likely to go into permanent retirement. She wants to start her own consulting company using her Pharm. D. and pharmaceutical policy MBA. I don’t know anything about this field. She doesn’t know anything about the private sector. There’s a lot of potential research to be done there. It’s possible she pivots to be an even higher earner than she is now. It’s also possible that she tries to start a boy band with our kids and few of their friends.

It’s great to have those kinds of options, but it’s more uncertainty. Obviously with all this uncertainly, it’s best to plan for the worst-case scenario. There are two problems with planning for the worst-case scenario:

  1. Planning for the worst case of all the above scenarios could mean that there’s no retirement in sight in the short term.
  2. If 2020 has taught us anything, you can plan for one worst-case scenario… but there can always be another one right it.

Final Thoughts

While it seems like we’ve already taken ten thousand steps towards retirement, this feels like the first real step. It’s one thing to increase your options for the future. It’s another to try to formalize the steps and move forward with them.

Reader Question: How to Manage RMDs

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How is it going? Wait, is there any point in asking?

We’re mentally in a difficult place. My kids are turning in schoolwork that literally just says, “School is bad” a bunch of times with a sad face at the top. There friends join the video conference and say how sad they are. Even our dog is sad almost all the time. I know that many of you are sad too. I hope you can find something to make the day a little better.

It’s been a tough time to write blog posts. Finances are either mostly okay for some people or terrible. I don’t know how to write about unemployment during this time. I’ve got nothing to share except for sympathy… and I’m not sure that’s useful. We’re fortunate that money is okay for now. I’m not making much with the blog, and there are no dogs to sit, but our passive income is doing okay. My wife’s job is still paying well. Our spending is down, so that’s helpful.

I had a reader reach out to me the other day with a different topic. This may not be the time to write about this, but the thought exercise made me feel better… almost like I can pretend things are normal for a little while.

How to Manange RMDs

For those that don’t know, RMDs are Required Minimum Distributions. If you are 72 (it used to be 70.5), the government wants you to start getting your money out of tax-advantaged accounts so they can tax you. Thus they require you take the money.

I’ve never thought much about this. It’s still quite a few years in the future for us and it falls into the category of a “good problem” to have.

However, the reader raised some interesting questions. (I’m not going to the share the whole conversation, just the highlights.)

In her case, she’s got a pension, Social Security, and this nest egg of savings. Between all that, she’s making more now than she was working. Most people expect to earn less in retirement and be in a lower tax bracket, but that’s not how it seems to be working out.

To compound the “good problem” to have she has few expenses with the house and car paid off. She has some things like lawn and snow removal, but I got the feeling they aren’t too bad.

She’s getting an excess amount of cash from RMDs that she has to take. Unfortunately, there aren’t a lot of good places to put that money. Banks are paying almost zero interest. CDs aren’t much better. This is a scary time to invest in the stock market. Personally, I feel that it might drop a lot. It doesn’t seem normal for the market to only be down 10-15% when unemployment is going through the roof and corporate profits are in the gutter.

I don’t have a lot of good answers for this reader, but I felt like I should try anyway. Here were some ideas I had:

1. The most important thing, is to have a financial expert look over the situation. A Certified Financial Planner (CFP) is a good start. One of my goals for the year was to do this for our own family. However, it’s hard to do that with businesses closed. If this isn’t possible, that’s not easy.

2. Invest in a bond ETF. My favorite is Vanguard’s BND. It pays a 2.5% dividend. That’s not very high, but it has been very safe during these times so far. It’s still high enough that it can support most people if they have other sources of income like a pension and Social Security.

3. A diverse, high-dividend paying ETF. I personally like iShares HDV ETF. It’s paying a 3.4% yield now, which is a lot better than banks. Of course, the stocks in it can go down (see above warning about the stock market), and companies may stop paying dividends. Without work and profits, it’s hard to imagine them having the cash to pay big dividends.

3a. Dividends are taxed at a favorable rate. This means that the earnings aren’t taxed as income, which would be in a (likely) higher tax bracket. As always, check with your tax professional about this.

4. Look into QLACs. A QLAC is a qualified longevity annuity contract. That’s a mouthful, right? It’s also a good topic for a finance professional. Essentially, as I understand it, QLACs allow people to put 25% or $135K (whichever is lower) of their retirement savings in another account that doesn’t get taxed. I want to stress that I don’t know this very well, so please see someone more qualified.

So that’s what I have. Do you have any more ideas? Most of these don’t really solve the RMD issue itself, but at least it helps manage it a bit.

I’ve been looking at investing more outside of pre-tax retirement accounts because the dividend tax treatment is so much better than regular income. Most of those ideas are on pause for now, as we try to navigate COVID-19.

Is it Okay NOT to Save for Retirement?

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That’s the question I’ve been asking myself many times over the last couple of weeks. For a number of readers that might be a strange question to ask. After all, not all people can afford to save money for retirement. And they certainly can’t be doing it all the time.

For me it’s different. I’ve maxing out my Roth IRA since it was invented. I also maxed out my 401k from all my post-college jobs for years. It was around $10,000 in 1998 then so it may not sound as impressive as it would be today. In the world of flat wages, it’s much harder to max out 401Ks now.

I moved from a standard software engineering career to blogging and side hustles in 2007. I got burned out with the long hours, the changing technology, and I just wanted to spend more time with family. The drop in income made it more difficult to fund retirement accounts, but I was still able to put some money aside.

My wife has been saving in her TSP (the government’s 401k plan) since she started working around 2000. As a pharmacist, she could afford to max out her retirement accounts too.

After so many years of maxing out retirement accounts and an incredible 10-year market run, we have saved up a great retirement nest egg – at least great compared to the average 43 year old person. It’s been a powerful habit that has contributed tremendously to our net worth. We currently have about 45% of it there, and another 45% in real estate (our own home and 3 rental properties) that will be mortgage-free around 2027.

There’s just one problem…

… we often live paycheck to paycheck.

We have some emergency funds, but not a lot. I can usually reach into a business account and shift around some money when we have a rental property renovation. Sometimes we use the HELOC on our home for an expense. We pay that debt back monthly. Obviously this isn’t financially ideal. It would be better if we just used cash on hand.

However, between saving for retirement, four 15-year fixed mortgages, and private school for two kids our “expenses” are high. I put expenses in quotes because saving (for retirement or anything else) is not your typical expense.

Those savings aren’t there when we look at how much cash we have available to use at the end of the month. It’s great for our net worth bottom line. In the case of TSPs and 401ks, that retirement money hasn’t been taxed. One exercise that I need to do (and maybe you do as well) is figure out how much money a 401k is really worth when you start to pay taxes on it upon withdrawal.

Our Retirement Future Looks Bright

When I last published our comprehensive retirement income plan in 2015, it looked like we might have around $200,000 a year in income.

My wife’s military pension forms a strong percentage of that. However, we also have the rental properties, the retirement accounts, Social Security (which will still be around in some form), and income from websites. Since then we’ve added dog sitting and a private equity investment with a high cash yield.

I intend to publish a new update this year, and my expectation is that it will be around $250,000. At the same time, we’ll have a paid off mortgage, and (relatively) cheap military health insurance. We even have my wife’s GI Bill that helps us save less for college. When we look at our future expenses they are relatively small.

We realize we are fortunate in all these areas. It took a lot of planning, but luck always plays a role in the execution.

A Little YOLO Can Be a Good Thing

As you can tell, we’re flying a little too close to the sun in our lives now. Some of it is because we’ve gotten a little “spendy” with restaurants and children STEM toys (my shopping addiction). The rest of it is the funding for the future. I don’t know if there’s such a thing as over-funding the future. However, we aren’t striking that balance.

The strong market performance in 2019 gave us more returns than we would have expected in three years. It seems like the right time to slow down on the future and build up some cash for today.

Exploring My Downsides of Early Retirement

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Beach RetireA while back an old blogging colleague of mine named ESI Money wrote about 10 downsides of early retirement.

Yesterday, Joe from Retire by 40 shared his biggest downside to early retirement. I won’t give you any spoilers. However, when you finish reading it, you’ll see that last sentence was a bit of a pun.

Joe covered all ten of ESI Money’s downsides before giving his own thoughts. Since there are few original thoughts in the personal finance space nowadays, I’m going to blatantly steal the idea, while giving him great credit. It will help if you click on his article, so he doesn’t get mad at me. Just kidding, he’s too happy and nice to get mad.

Exploring My 10 Downsides to Early Retirement

Well first you have to retire early to have a downside, right? Depending on your definition of retirement I either retired at 30 or I will never retire. I like to say that I’m self-employed, but my life isn’t that much different than Joe’s who views himself as retired. Just to make it more complicated we aren’t sure if we are FIRE, leanFIRE, or FatFIRE . For the purpose of this article, let’s just assume that I’m retired.

Let’s look at each of ESI’s top 10:

1. Loss of Income

That’s a natural one. However, my wife has a military pension. We also have a lot of alternative income, which includes side gigs like dog sitting and blogging, along with rental properties and equities. In fact we should have more than $200,000 in annual retirement income with many of our expenses paid off. We don’t have that now, because we have about 8 years of rental properties to pay off. It’s also hard to get to the money in our retirement accounts at our age (43).

2. Reduced Social Security Income

My wife has been a big earner for a long time. I was for awhile, but not as long. I keep paying into social security with my side gigs. We don’t need this income and don’t plan for it, so it’s not a big deal. Last I looked it could be $50,000 a year combined.

3. Health Insurance

My wife’s military retirement comes with a very generous health plan that we can keep for life. We realize how extremely lucky we are to have this, especially in this day and age. We do have to pay for it and I’m sure it will get more expensive. However, it will surely be much better than what ordinary early retirees could get for the money.

4. Mental Decline

Here’s where it starts to go south. It would take a lot of work to be a good software engineer again (if I even was in the first place). I’ve spent the last 7 years focusing on interactions with babies and toddlers. I’ve spent the last 4 years sitting over 200 different dogs. While I have learned some very valuable skills that I treasure, the intellectual challenges are more about patience and understanding, not intense problem solving.

To help combat this, I’m trying to learn Japanese with Duolingo. I’m looking for more things that I can work in to windows of a few minutes of the day. I don’t get a lot of time to sit down and study anything at length.

5. Physical Decline

I’m getting older and that starts a natural physical decline for most people. I try to keep active with lots of dog walks. If I was full-time computer programmer, that wouldn’t be the case. I need to get back to going to the gym and lifting weights.

6. Loss of Social Interaction

This is a big one. I was never very social with my co-workers, but there were adult conversations. This goes back to my main conversations being about Pokemon and Daniel Tiger… or with a barking dog. There’s not a lot of deep peer friendships in my day-to-day life.

I didn’t lose these because of early retirement though. I feel I lost them through a series of moves, my introvertedness, and my old college friends just moving in different directions.

I’m hoping to build some new friendships with other parents through kids’ activities. So far, it hasn’t been very fruitful.

7. Loss of Identity

I very much feel this. I used to be a software engineer who built search engines. It was easy to explain and people understood it in just a few words. Now I’m unexceptional blogger, dog sitter, landlord, investor, customer support specialist, and corporate blog editor. I don’t know if they make a big enough business card for that.

I’m not even “retired” (except for this exercise) and my primary focus is on the kids.

I have no identity.

8. Boredom

You’d think that with all the above that I wouldn’t be bored. If so, you’d be wrong. There are not a lot of “new” things going on in any of those activities. It’s not like I have a new assignment of a special project that requires me to learn a new skill. I suppose that blogging is always changing, but with all the other activities, I have some difficulty in keeping up with the changes.

I’m planning to buy a wet suit next year and take surfing lessons with the kids. The kids joined the Cub Scouts recently so we’ve got a camping trip planned. There are so many new and exciting things in this world, I just need to find them. Many FIRE bloggers love to travel. I don’t like traveling much. Also, it makes sense to wait until the kids are a little older before going to any distant countries. I would want them to remember it.

9. Spouse Overload

My wife already works from home a lot. However, sometimes we do need our space. She’ll go off on a run. I’ll go blog at the library for a bit. We have some different interests, but we share many too. If she weren’t working from home, it might be different. For now we each do our own thing for most of the day.

10. Lack of Challenge/Purpose

This is a little like the identity question above. I did have a good professional challenge in exposing MLM fraud. Unfortunately, we don’t have the freedom of speech in the US that we are taught in school. It’s only available to those who have 3 or more million dollars that they can blow on lawyers.

After being sued several times (and winnning!), I’ve decided that it simply isn’t worth the stress and potential harm to our family. So one of my passions, helping people avoid financial fraud, was thwarted. There’s a happy ending though. More and more media publishers are taking up the cause and awareness of MLM fraud is at an all-time high.

I haven’t found my next true professional passion project. Of course, I have the passion project of the family and teaching my kids new awesome stuff about life.

That’s a very worthy purpose, but it is different from the glitzy career of search engine software engineer or pyramid scheme activist.

Putting it All Together

Early retirement may not be as easy as you think it is. I imagine that’s even more true if it’s pseudo-retirement like mine. If you won the lottery and can hire out all the help you need, that’s a different story.

I’m still hustling quite a bit with all the jobs I’m doing now. As you can tell, there are gaps in my overall happiness, but that’s normal.

Everyone’s early retirement is going to be different. If you are not financially secure, I can tell you that the grass is certainly greener on this side of the street. However, there are at least 50 shades of green and sometimes it can be difficult to compare two.

An Improptu Early Retirement

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I haven’t been writing much this week because my wife made the decision to take a break from work. It was a sudden decision, but a great one. There’s a narrow window when she doesn’t have students or health plan surveys. Summer moves quick here in Rhode Island… if you blink you’ll miss it.

My wife is having a lot of fun I want to be a part of it… but only a bit. I want to be around, but I also want to give her space. So far it’s working out well.

We’ve put a good amount into the local restaurant economy. It’s certainly not financially ideal, but it’s good for us now.

I’ve often wondered what it would be like if my wife really retired. I could never imagine her doing nothing… it’s just not her personality. Though this week has been different. She’s enjoying reading a book by the ocean. And why not enjoy that?

This is interesting… in a very good way. I’m learning more about what I want out of “retirement”, but also what she might want. And it might all change tomorrow, because, as we say in our house, “There are no rules.” (That’s usually about vacation time. We certainly have rules as the kids can attest to. We just question the value of each rule.)

This is a small sample size. If someone tried to assess my views about things after a couple of days, I’d say they are nuts. But a small sample size is better than no data at all, right?

So I learned a couple of things this week. One of them is that retirement can get expensive IF we continue to feed the local restaurant economy. (We can also game the system due to numerous deals for locals.) The other is that you can (should?!?!) make things up as you go along.

As much as I like to think I can predict the future, no one (even me) knows what tomorrow may bring. And sometimes it’s great to know that you don’t know.

What’s one thing that you didn’t know about retirement? Let me know in the comments.