Lazy Man and Money

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.

My Kids Get Roth IRAs

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My kids are getting a Roth IRA to jump-start them to an early retirement. How? Read On.

Yesterday, my dog walked me to a yard sale. I’m used to be walked places by him since he’s a sled dog. Rarely is there anything very interesting. This time was different:


Someone asked why I negotiated up at a yard sale. If someone is going to save me $50-60 in something that will give our family literally hundreds of hours of entertainment, I don’t mind giving him/her an extra Hamilton. It makes the seller’s day and keeps the money in the community. My day (with the savings) and my kids’ days were already happy. It’s a rare, feel-good case where everyone wins.

It was later that evening, during a family game of Rack-o where I had a revelation – my wife was going to win the game. I had a pretty poor board and I pinned myself into needing a couple of specific numbers. Although there were four of us playing, it was a simple matter of process of elimination…

… the other two players were my 5 and 6 year old sons. The game is 8+, so there were no expectations that they would be able to play a strategic game. So jokingly, said that they were a “couple of buffoons.” Everyone laughed because buffoon is a funny word, especially for a 5 and 6 year old.

That’s a long Grandpa Simpson Story way of saying that I hired my sons to do real work. I’m going to pay them real money. They’ll start funding their retirement plan this year.

Kids and Roth IRAs

It’s difficult for a child as young as ours to build wealth. They get money on birthdays and Christmas. Occasionally they give my wife a toy to sell on Ebay. We recently started to have them do some chores around the house for extra money.

Their ability to earn extra money is very limited. The US Internal Revenue Service (IRS) makes it clear that only earned income can be used for a Roth IRA. The problem is that my baby modeling idea never took off. I also don’t see people lining up to purchase their wonderful Pokemon art creations.

For a more detailed look at kids and Roth IRAs, CNBC has a helpful video. It’s especially powerful to see the amazing growth of compound interest over 55 years. Who wouldn’t want 3.4 million in one of their accounts?



So how are they going to earn this money to comply with the IRS’ demands for funding a Roth IRA. I’m going to pay them. Unfortunately, the IRS doesn’t let you pay them for household chores. For many people that’s a show-stopper for kids this age.

Kids Roth IRA

However, I make money dog sitting on Rover.com. It’s a very significant amount too since I can “double dip” at home doing other freelancing gigs.

I’ve been doing this for three and a half years now, so the kids have grown up with a couple of extra dogs around. They’ve become naturally curious about feeding dogs. They love to play fetch with the dogs. Recently, we’ve introduced them to picking up the dog droppings. It’s a chore that their peers do for allowance. However, for the family dog sitting business it’s a core part of the job.

Feeding dogs, playing with dogs, keeping the water bowl filled, and picking up after the dogs is most of the dog sitting job. These are all things that my kids can do. Occasionally I have to give them medicine, but that’s about the only thing that I need to do 100% myself. The IRS should have no issue with me subcontracting out some of the work to them. In fact, I did some math on what a professional pooper scooper company costs and it seems like it could be thousands a year for the amount of dogs we have and how often they’d have to come.

My kids are going to go into the dog sitting business. I haven’t figured out exactly what I will pay them. I think the professional pooper scooper service may be a good guide. My kids aren’t professionals, but the service doesn’t fill the water bowls or play with the dogs.

Contributing to a Roth IRA at this age is very, very powerful. Money grows quite a bit with 60 years of compounding until they reach ages 65 and 66. If they were to earn 7% interest over that long period of time, a single dollar would be nearly $58. So $1000 in a Roth IRA would be worth $58,000. Of course, at 3.5% inflation over that time, you’d need $7,878 to have the buying power of $1,000 today.

When you crunch those numbers, it gives them a real post-inflation gain of 7x their money. Theoretically, if they could earn the $6000 Roth IRA limit, they’d set themselves up with $42,000 in retirement. Of course, that would be an extreme amount of dog care and that wouldn’t be reasonable.

In addition to the Roth IRA, we’ll be paying them some real spending money. They are saving up for a Nintendo Switch, so we’re going to be creating a chart of their progress.

Finally, in the next couple of years, I’m hoping they can participate in some of blogging work. Perhaps later this year or next year, I’ll introduce a bi-weekly kids article. I’ll interview them and get their perspective on what money-related thoughts they have. I’ll then explore how we are parenting their use of money. This is just a seed of an idea. I need to think a little more about how this would work. Of course, I’d pay them for their time and insight.

Impact on Our Taxes

I have to check on this with our tax planning, but I think we’d make out well with this too. We’d be able to write off the amount we are paying, just as we would a professional service. Of course our kids would have to report the income, but it would be too low for them to be taxed on it. As best I can tell, this (small amount money) wouldn’t be taxed all and, since it is going into a Roth IRA would never be taxed.

I think it gets more complicated with them helping out with the blog since it’s an S-Corp. I may have to set-up payroll and things like that which get a little tricky. I’ll definitely need some professional tax guidance on that.

Again, I’m not sure if my understanding of that is accurate, so please check with your own tax professionals before trying anything like this.

After all, the real buffoon in the game was me. My 6 year old won handily.

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Early Retirement with a Roth IRA Conversion Ladder

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early retirement

I’ve mentioned in passing a few times in the last couple of months, but I’m crushing on Retire by 40. Joe does a tremendous job of covering early retirement and staying on track of the topic. I’m envious that he’s able to do that… a large part of me wants to blog about the TV show Best Time Ever with Neil Patrick Harris last night.

I’m going to resist that temptation and write about something equally fun… Roth IRA Conversion Ladders!

What’s that? I don’t blame you for asking. I hadn’t heard of them either. You’d think in years of reading Kiplingers and Money magazine it would come up multiple times. Maybe I just missed it.

The idea with Roth IRA Conversion Ladders is that you can minimize taxes if you are retiring early. I should note that this makes sense if you have a limited income. That “limit” isn’t that low though.

Let’s pretend that you’ve been reading Lazy Man and Money for years. You’ve read, “Maximize out your 401k plan!” a thousand times. If you took that advice over a lot of years, you may have hundreds of thousands of dollars in there. (I hope you do.)

The “problem” is that you saved that money tax-free and now you have to pay taxes on it. I put “problem” in quotes, because many people would be envious of the situation of paying taxes on a large sum of money.

If you are retiring early, you typically can’t withdraw money from your 401K or traditional IRA without penalties. You are also going to pay taxes on it of whatever your current tax bracket is. It’s not a particularly good plan.

However, if you are planning to retire early, you can convert the money to a Roth IRA. When you do, you’ll pay taxes of your current tax bracket, but then be able to withdraw it tax-free in the future. If your income is low in early retirement, which it likely would be since you aren’t working, you’ll be in a low tax bracket. If you are married and filing jointly, this could be about 15% if your income (and the conversion) is under $74,900.

The idea is to convert some money while in this low tax bracket. You can do this for years while you are in a low tax bracket. You can’t take the money out of the converted Roth IRA for 5 years, but after that you avoid withdrawal penalties.

I’m still learning about this strategy myself. I suggest reading the articles on Retire by 40 and Root of Good, which go into it in more details. Root of Good has a particularly thorough breakdown.

How does this factor into our potential early retirement? I’m not sure. Between the wife’s potential military pension, our investment properties, and my side businesses, we may have too much income to make it work. At the same time, we might be able to limit the income of our investment properties by improving them and I’m sure I could offset income of the businesses by investing in growth that will hopefully pay off in the future.

I’m not quite sure how it shake out down the road, but it’s comforting to know that there’s a tool like this available if it is helpful.

Pay Off Your Mortgage From Your Roth IRA?

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Last week I wrote about the hidden emergency fund in your Roth IRA. In case you didn’t read that article, a huge takeaway was that you can take out contributions (not earnings) out of your Roth IRA penalty-free at any age.

In writing that article, I thought about how much accessible money I might have in my Roth IRA. I’ve been maxing it out for about 15-20 years. That’s a big chunk of change. Without adding it up, I’d estimate it is around $50,000 (some years the maximum contribution was $2000). What if I took all that money out to pay off my mortgage?

Personally, I’d never such a thing and here’s why. The math of the average returns in the stock market (7-8%) is more valuable to me than saving 3.5%, especially when the interest on that is tax-deductible. I’ll go with the math every time and twice on Sunday.

However, there are others who aren’t as focused on the math. Some people, such as those who follow finance “guru” Dave Ramsey hate debt and try to eliminate it as soon as possible. A mortgage is debt. I consider it good debt, but some of these people are against all debt. I understand their thinking, being free of debt can be huge psychologically. It can eliminate stress and that’s a good thing.

This left me wondering, has anyone ever considered making this move? On some level, it makes sense to eliminate your mortgage for peace of mind. You won’t need as big a retirement if you’ve eliminated your biggest expense, right? While all this is true, I’ll still go with the numbers and take the 7-8% compounding over many years vs. the 3.5% (minus the tax deduction) compounding over the same time.

I have to think someone has said, “I’m done with debt. I’m going to raid my Roth IRA and get this debt out of my life.” If you are that person, I’d love to talk to you. I think it’s an interesting option for debt-haters and I’ve seen it discussed.

On the other hand, what about the reverse situation? What if you had home equity and did a cash-out refinance or home equity line of credit (HELOC) for the sole purpose of investing the money to earn a higher percentage. As an entrepreneur, I have access to solo 401Ks and SEP-IRAs, but I often don’t max them out. Why? Because I need the cash to live on. Also, it can be tough to max them out because these types of accounts have higher limits.

Getting money out of your home to invest sounds risky, but it truly is the opposite of pulling money out of your investment to pay off your house, right? So maybe it isn’t so crazy?

What do you think? Let me know in the comments.

Let’s Play “Invest Lazy Man’s Money!”

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Regular readers know that over the years I’ve taken suggestions on how to invest my new Roth IRA money for the year. It’s that time of year again. Give me your best suggestions.

Before you do, let me clarify a few things. To a great degree, this is meant to be fun. It would be ridiculous to take investing advice from strangers who don’t know your risk tolerance, asset allocation, and other important details. So take it a little seriously (I’m not investing in pork bellies), but not too seriously.

That said, I always give readers a little guidance:

  1. Value-Driven – As some might have noticed with my individual stock purchases over the last couple of years, I love stocks that have been beaten down. I like to buy equities at a discount. I feel it gives me some protection from it going lower and a “return to the norm” can lift it up.
  2. Diversified – I have enough individual stocks. I’m not looking to hit a home run by investing in some biotech company that may grow 20% in a year… or bust on an accounting scandal. This is about slow and steady winning the race.
  3. Give Me Risk – I’m 38, and I plan to live to 138. So with a hundred years to go, I’m focusing on great returns, not necessarily safety. Let’s be aggressive.

I’m also going to give an example of something that I’m strongly considering: BRICs. BRICs are an acronym for Brazil, Russia, India, and China stocks. Some of you may remember the BRIC craze in 2007 or 2008. I haven’t heard much about them in awhile, and looking at the value, it seems like that’s a good thing.

I know there’s a ton of risk of investing in Russia, but it’s likely to be less than 25% of this investment, which would be less than 2% of my whole portfolio. If all the Russian companies in the index went to zero, I would still be fine. On the flip side, it seems like things might get better over the next hundred years and their stocks will appreciate.

There’s a sign that things may be turning around for India and China as well. I saw news today that their indexes are at one-month highs. It’s a positive sign, but maybe I should have bought into BRICs a month ago. The value may not be the best it has been, but they are still diversified and an aggressive growth play.

So give me your suggestions. I hope to be active in comments with you.

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