I Scream, You Scream, We all Scream for….. Dividends

One of the things about being an amateur blogger and personal finance geek is that we don’t have to pretend to know everything.  I really don’t know that much about investing but I don’t have to and I can still meet my goals by copying what others are doing.  I’ve been reading financial blogs since the beginning, and in fact started another personal finance blog over 10 years ago before selling it a few years back.  During the first few years of owning that blog I spent hundreds of hours reading and linking to other great PF bloggers and gained an incredible amount of “basic” knowledge about how to manage our money, increase our net worth and choose investments that didn’t require tons of research and risk (low cost index funds).  We’ve been paying ourselves first for more than 20 years and the results have worked out pretty well.  For most of those 20+ years I never really paid attention to the dividends we were earning and in fact some of our funds don’t actually distribute dividends but rather the value of a share in those funds just continues to increase so it’s really hard to notice that we were indeed earning a return on those funds.

In the last 5 years I’ve been paying more and more attention to dividends because I know they’ll be a variable in how our investments provide annual income for us once we stop working.  At the end of 2016 I tallied up each and every dividend we earned and was pleased to see that we earned about $16,000.  We earned (and reinvested) more money from dividends than most people contribute to their investment accounts each year.  When you add that to all of the actual contributions we were making it’s not hard to see how we were able to increase our net worth by such a large amount.  Our new goal is to try to get the dividends up over $20,000 per year.  We’ll do that by buying a few individual stocks to go along with our index funds.  We already have a few and have seen some nice gains and dividends from them.  From a risk perspective we are not buying very many and are keeping individual stocks to less than 10% of our overall net worth.

Another data point I’ve been tracking is how much we’d have in investments if we were to sell our primary residence, invest those funds and move to our second home that’s paid for in a more rural area of our state.  Right now we would have roughly $1,250,000 in investments if we did that.  If I use the 4% rule that would give us about $48,000 a year before taxes with very minimal expenses.  We could literally pull the trigger on retirement now but would have a few risks such as health care and a bear market weighing on our minds.  We’ve decided that we need to try to squeeze about 5 more years out of our careers, which would put us at just over 50 years old.  At the current rate, that means we’d be saving an additional $100,000 a year which could generate an extra $4000 per year in income when we retire.  5 more years of work for an extra $20,000 a year in retirement income seems like a good plan.  Of course, lots of things could change between now and then but we’ll keep chugging along either way.

Living Life in the Technology Bubble

It’s a new month and our net worth has increased to $1,542,269.  That’s an increase of almost $25,000 in a month.  To say the real estate and our economy in general feels like a repeat of the 2007/2008 bubble would be a bit of an understatement.  Of course, I’m not crying myself to sleep at night with these gains, but I fully expect to see a correction, deflated bubble, etc etc at some point, so I’m just logging the numbers and am ready to start subtracting instead of adding to our net worth if that happens.  (I’m a bit of a “Permabear”)

Last weekend, I was out with a group of about 10 guys that mostly all work in the tech industry (including myself).  We were really enjoying a lot of geek type talk and as the night wore on, we found ourselves at a seedy dive bar in the Pacific Northwest.  As I looked around the place, for some reason, it occurred to me that the group of guys at our table had a combined income of something like $1.5 million a year.  I almost fell out of my chair when I realized this.  (This is a long ways from my youth of eating hot dog casserole)  While there are certainly plenty of other places in the country that this same phenomenon could have taken place (and likely did), I don’t think it’s probably a normal occurrence across the country.  Bottom line, I feel incredibly grateful that I find myself in this situation and I think that’s one of the things that drives me to save as much as I can.  Along with being a Permabear, I also try to realize that I could lose my job tomorrow and find myself in a completely different economic reality.  The more we increase our net worth, the less I worry about that.  Clearly my defensive approach to personal finance stems from a childhood where we were constantly at risk of not having enough to pay the bills.

So, month by month we continue our march towards financial independence.  It feels like a slow grind at this point but I’m grateful to have the monthly gains we’ve been seeing.  On a somewhat related note, last week I was perusing Reddit and came across a post in the “40Something” subreddit.  It was a guy in his mid 40’s talking about feeling like his 40’s seems to be just all about working.  He said there’s not much else happening in his life and he feels bored and stuck.  As I read through some of the other comments, it seemed very similar to how I’ve been feeling.  I’m sure this is where the whole idea of “midlife crisis” comes from.  Some of the posts said things like, “Yeah, that’s just the way it is.  Everything is set in motion and you just have another 20 years before you can retire!”.  While I was relating to most of what people were saying, as soon as I saw that I thought “Nope!”.  No way in hell I’m working another 20 years like this.  I’m so grateful I took a longer view of saving and investing and started in our 20’s.  I don’t think I can keep slogging along like this for 20 more years.

Net Worth Update – August 2017

I finally got a chance to go through all of our financial updates and was pleasantly surprised to see that our net worth is continuing it’s upward trend.  As of today our net worth is $1,517,338.  If only that was just in investment accounts, we might consider throwing in the towel and driving off in to the sunset but, alas, it’s our total net worth including our home equity and vehicles.  I’ve been tracking another figure besides our total net worth which I call our “retirement assets”.  This includes the equity we have in our primary home that we will sell when we move to our secondary home outside the city and excludes our vehicle values.  When you include that equity and our investment accounts you get a figure of $1,216,061.  Why do I do this?  Because it’s a more accurate figure of how much money we have to generate an income from.  My hope is that number will get to about $1.7M by the time my daughter goes off to college.  Once we get to $1.7M, I might actually start feeling comfortable enough to consider retiring.

One thing that I don’t include in my net worth is the value of a small pension I’ll receive from my company in retirement.  They froze it a while back so it’s not increasing in value but should provide around $1250 a month at 55 years old.  Realistically we’d like to have about $75,000 a year in retirement income once we hit 62 and that little bit of pension helps us cross the line.  When you include 1 of our social security payments (I don’t like to plan the future assuming both of us will be around forever), and then add in the small pension amount, I’m estimating that will be somewhere around $3000 a month or $36,000 a year.  That means I only have to generate about $39,000 a year from our investments, which should be a conservative figure if we can get our retirement assets up over the $1.5M mark or so.  Like I said, I’m being ultra conservative on the estimates at this point.  With a 4% withdrawal rate on $1.5M in retirement assets we’d be able to take out $60,000 a year.  Add that to the pension/SS income and we’d be up over $96,000 a year.  I’d rather plan with a 3% withdrawal rate which would give us a total income of about $81,000.  At this point, I’m still just throwing numbers and estimates around while we are in the accumulation phase of our life but it does help give me an idea of how close we are to being able to pull the trigger and retire.

Net Worth Update – June 2017

Geez!  Time flies when you’re saving money!  I just realized it’s been too long since I’ve updated the blog.  In the last 3 months we’ve continued to see our net worth increase.  The key areas we’ve seen increases are in our 401k’s and our home values.  I recently booked some of the increase we’ve seen in our escalating real estate market.  The real estate market in the Pacific Northwest is going bonkers.  It feels exactly like the market of 2008 where every month saw big increases in our home values.  We’ve now surpassed the peak of 2008 by almost 10%.  It sure does make you wonder if it will all come crashing down again.  I’m hoping that it keeps going up for the foreseeable future simply because we will likely be selling our house in about 4 years and every bit it increases or at least levels off helps our retirement “after tax” account.  Since we own our vacation house with no mortgage, we’re planning to move out there so we’ll have all the equity of this house to use towards our early retirement.

Anyway, the new net worth number is $1,447,765.  To many people that likely seems like a pretty big number.  The reality is that it’s not enough to carry us through the next 40+ years of an early retirement so we’ll continue our march toward financial independence.  Once we have about $2M in invested assets, we’ll think long and hard about pulling the trigger.  I’m continuing to watch the health care situation in the US.  It’s certainly not trending toward being helpful for early retirees.  It’s hard to believe that the politicians will really make health care crazy expensive for older citizens that haven’t hit the medicare age of 65.  If we are faced with $20,000+ health care premiums in our 50’s and early 60’s, we might have to work longer than we want to.  The other option we are still exploring is moving to the UK when we retire since both my wife and daughter are British citizens.  If we moved there, we’d likely pay more in taxes, but I think it would still be cheaper than paying all the taxes we do in the US, plus healthcare costs.  Time will tell.

Edit:  Holy moly!  I just realized that from July 2016 to June 2017 we’ve averaged a monthly net worth increase of $20,416 and we still have the rest of June to go.  Wow!

What Are We Going To Do About Healthcare If We Retire Early?

Over the last 5 years or so, I’ve been getting more and more serious about retiring early.  As our assets have increased, early retirement has felt more and more possible.  My goal for the past 5 years has been to stop working at 51.  In the age of the Affordable Care Act (Obamacare for the 35% of people that didn’t know they were the same thing), I was confident that our assets, along with an affordable health insurance premium, would be able to support our modest lifestyle just as it has for Justin at Root of Good and so many other early retirees.

Then November 20th happened and the Republicans took over Congress and the Executive branch.  As they’ve been saying for many years, they want to get rid of Obamacare as fast as they possibly can.  While that sounds good to many people, it’s not clear how that will change the health insurance landscape.  At this point, all we can do is wait.  Initially it sounded like we wouldn’t need to wait long to see how the Republicans will change health care, although over the last week or so, there have been various reports that they won’t bring forward a plan until late this year or some time next year.  So we wait.

So what am I going to do in the meantime?  I’m going to keep getting up and going to work each day and try to just be patient.  My initial thoughts are that I’ll likely continue working past 51 and head towards at least 55.  That will give me an additional 4 years to keep building our assets and hopefully give us enough capital that we’ll be able to cover our health care costs from 55 until we are eligible for Medicare (currently age 65, although that could also change).

As we approach our early retirement, we’ll also seriously consider moving overseas.  My wife and daughter are both British citizens so we’ve been considering moving to the UK at some point in the future.  We’ve looked in to the requirements for legally getting me over there and it would be fairly easy to get approval due to my wife and daughter being British.  Obviously moving to the UK has it’s pluses and minuses.  Our taxes would be higher than they are here, but we’d also have more predictable expenses for health care and other social services.  I think the health care would have to get pretty bad here for us to consider moving just for that but it’s always an option in the back of our heads.  Before we did anything like that, we’d also have to run the numbers.  It could very well be that we’d pay more in taxes over there than it would cost to stay in the US and just pay exorbitant health care premiums.

In a perfect world, it would be easy to anticipate our retirement expenses but since the world is far from perfect, we’ll continue to try to build a plan that can handle anything we throw at it.  That means saving as much as we possibly can now and letting that money work for us in the market until we need it.

 

October Net Worth Update

We continue to march forward on our net worth journey.  The last couple months were pretty average, although average has been very positive.  If we are averaging a little over a $10K increase per month, that equates to over $120K per year which is pretty fantastic.  When I’m doing rough estimates in my head, I use the $10K per month figure to estimate how many years away we are from checking out of the workplace.  While we’ve had months lower than that, and months higher than that, it usually comes out to about that average.

The main areas of NW appreciation are due to investment account contributions and company matching and also real estate appreciation.  We are in the Pacific Northwest which is seeing crazy real estate values, once again.  I’m starting to think this is turning in to San Francisco.  While I’m booking the increases in our real estate, I’m doing so very cautiously.  Earlier in our careers when I was tracking our net worth, I focused on the overall NW number which included real estate.  Now I find myself looking at just the investment accounts, because a) I don’t trust what real estate is going to do and b) You have to live somewhere!  All that being said, when thinking about our future, I usually count the equity in our main home as part of our retirement funds since we expect to move to our much smaller second home that is paid for when we retire.

Anyway, the march continues.  I spend a lot of time on the FinancialIndependence subreddit over at Reddit looking for new ideas and to hear about other people’s stories.  Other than that, it’s been a pretty boring march towards financial independence, which is pretty normal for this stage of the game.  When we were younger, it was all about learning the fundamentals and putting them in to action.  As we’ve progressed, it really comes down to self discipline and staying the course.

Atlantic Article on the Authors Financial Insecurity

I was really impressed with an article I stumbled on to in the Atlantic about an author who decided to be open and honest about his financial state.  It turns out he is like a majority of the US population: Broke and one problem away from financial disaster.  While I found it somewhat depressing that a man at his age is so “stuck”, without any retirement savings, and no end in sight for his working career, I also appreciated his candor and detailed descriptions about the choices he’s made.  I highly recommend it!

Also fascinating are the comments at the end of the article.  There were so many contributions, that the Atlantic created a whole separate “Notes” article about some of the comments that were left.

As I browsed through the comments, I found one that spoke to me.  It was about a community college art teacher that decided to devote a whole lecture on the subject of basic personal finance (even though it had nothing to do with the subject he was supposed to be teaching).  While I’ve known these things for many years and they’ve helped me to build a sizable nest egg, it was still worth looking over again.  He covers both concepts and basic “spend less than you earn” type stuff.  He was shocked to see that it was the most attended, well received class he had ever taught and it was optional for the students.  It just goes to show this stuff needs to be taught in schools at a much more detailed rate than it is now.

A Conversation With A Man In A Very Different Financial Place

I had a fascinating conversation with a neighbor of mine this weekend.  I had been helping him trim some of the bushes and trees around the house and we decided to sit down and take a rest in the shade for a bit.  My neighbor, (We’ll call him John), doesn’t actually own the house.  He is living with his brother’s family in the house due to not being able to afford a place of his own.  John is 70 years old and never went to college.  He is divorced and has a couple grown children and grandchildren.  He has absolutely no savings or investments and is living off a low amount of social security.

Previously John and I have talked about money and he has asked me numerous questions.  This weekend he asked me much more pointed questions wondering how someone that is 45 years old ends up in my situation.  I had previously told him that I always pay cash for my vehicles because I don’t like debt.  He also knows that we own our second home without a mortgage and that I intend to retire around the age of 50.  As we sat in the shade, one of John’s first questions was how I ended up “being a saver”.  I told him that there were a few influences that sent me down the path I’m on.  The first was watching my parents suffer through the stress of struggling to pay the bills.  Our family owned a business when I was a kid and I helped work in the business from the time I was about 11 years old.  I would often go to work with my Dad on Sunday’s and sit behind the counter to keep him company.  By the time I was 12, I was actively helping customers.  I remember when I was about 13 years old.  I was sitting in the back office with my mom as she was paying some of the bills for the business.  I remember the stress in her voice and the concern in her eyes as she stacked bills in the “can pay” and “can’t pay” piles.  I knew that she also had a similar approach for the bills at home.  At 13 years old I remember feeling the stress of how they could pay all those bills.  I swore I never wanted to own my own business or stress about paying the bills when I grew up.  John was nodding his head while I told the story and said that he too grew up in a house with very little.  He still didn’t understand how that sent me on such a quest to try to live the opposite of that.

It was really kind of a surreal conversation because I couldn’t help but think that my future would look similar to Jack’s if we weren’t actively saving and investing for our future.  If anything, it makes me even more motivated to continue on the path we have in front of us.

5 More Years!

I was messing around with one of the tools on the MadFientist site and when I punched in all the numbers it said I could retire in 5 years at 50 years old!  I’ve somewhat been obsessed with the idea of “early retirement” and keep up with all the new posts on the Reddit /r/financialindependence subreddit.  While, compared to a lot of people on that subreddit, 50 isn’t exactly groundbreaking for a retirement age, I know that it’s pretty darned early compared to most people.

I used the figure $60,000 as a retirement income and only used my investment account totals (as opposed to my total net worth with assets like houses etc) and was surprised to see that it calculates I only have 5 more years.  That assumes that neither my wife or I work once I turn 50, which would not be the case.  My wife actually likes her job and is expecting to work about 5 years longer than I do.  That will give us the safety buffer of living off her income for 5 years and letting our investments continue to compound.  We also will have the added benefit of getting our health insurance through her job.

So, my five year horizon is giving me hope and helping me hang on at work, even though I’m not very excited about my job.  (And yes, it will be very hard to walk away from a job that pays over $100K per year.)  I think what I’m most excited about is getting through the next five years and then knowing that I could pull the trigger at any time.  As the saying goes, “I’m just one bad day away from retirement”.  At this point, I’m 5 years and 1 day away from a bad day!

Real Life Personal Finance Dork Like Me!

I finally stumbled on to someone at work that is looking at retiring early like I am.  I was shocked when her date was two years sooner than mine (we are the same age).  It helps that her husband is older than she is and already qualifies for a pension and has a large 401K.  She will also qualify for a pension at 55 but she’s looking to retire before age 50!

We only had a short conversation about retirement but I look forward to talking more with her about it.  She mentioned that they’d been to a financial adviser and I was thrilled to hear that she used a “fee only” adviser to avoid all the conflicts of interest with the other types.  While we haven’t gone to an adviser yet, I’ve been considering it in the next couple years.

I was able to share a few things with her that she wasn’t aware of including that our 401K plan now lets you invest after tax dollars (up to a max of $53,000 a year including pretax) and then lets you do annual ROTH conversions.  For us it would allow us to drastically increase our ROTH contributions, although I haven’t even taken full advantage of ROTH’s because we never set one up for my wife.  That’s currently the number one thing nagging me in the back of my brain.  It’s been foolish for me not to have started a ROTH for her.  I found myself justifying by saying that I wanted to get more money put in post tax accounts to help us live during the years before we turn 59.5 even though I KNOW I can access all the ROTH contributions before 59.5.  You know how sometimes you just make stupid decisions and can’t explain it?  Yeah, this is one for me.  My goal for this year is to correct that.

 

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