My father has this retirement thing dialed in.  He has done it, and done it well, for 36+ years.   Thats a long time to get out, travel, enjoy life, and keep moving.   He, along with my mother, made sacrifices in certain areas, but they never hesitated to go on a vacation or participate at a high level in an activity that interested them.

How did he manage to pull this off?  Did he spend time with a financial planner, develop a tax strategy, work through complications of health care, downsize intentionally, or put large chunks of his pay check in both taxed and pre tax investments?  Hardly.  He did something even better: he worked for the Federal Government!

You can’t discount his frugality and thought process.   He entered into retirement years with no long term debt, a house in a resort town with skyrocketing real estate prices, and a pretty good stock of tools to enable his activities.    He drove cars until they would not go anymore, and did not take lavish vacations.  When he retired, both him and my mother pursued things they always wanted to do, at very high levels, and paid whatever it took to enable those activities.  For a few years, Dad pursued side hustles for income boosts.   He cut and sold firewood, and did seasonal driving service as a sub contractor for the USFS.

At 91 years old today, with a bum knee that limits his walking range to a couple hundred yards at a time, you can still see his nervousness build every afternoon.  If he has not gotten out and done something like a drive, walk at the mall, gone to the store, etc, he becomes almost intolerable to be around.   His DNA is Move or Die, and he does not apologize for that.   If you can go with him, that is great, but he is also not waiting around for you.

My mother and father explored the country in a car, which was their preferred method of travel.   Mom entered cooking contests, competing at national levels.  This was really strange for me.  When I grew up I had the option of cold scrambled eggs or cereal for breakfast, and dinner was invariably some piece of meat fried with vegetable oil in an electric skillet to a consistent grey color parlor, accompanied by potatoes.   After I moved out, my mother became a gourmet baker, and due to her participation in Idaho Beef Council cooking contests, an amazing chef of meat products, none cooked over medium rare.  WTH?

Dad became a professional level fishermen, specializing in spin casting for migratory ocean going trout, Steelhead.  He was bringing in 35+ fish per year, and releasing more than that.   I knew because he was continually distributing fish to the family, and I got to a point where I could not stand another morsel of that oily, stinky fish, even if if was smoked extensively.  He also pursued something he had done his whole life, hunting.   He acquired working bird dogs and hunted with them regularly, and moved to bow hunting, successfully bagging large game with a flying stick.  After my mother passed, he visited me in Europe, touring Italy and Germany, fished the inland straights with my brother, and mined for gold in Alaska.  

In retrospect, it has been an almost manic retirement, but its one we should all consider.  The mantra of Move or Die is the core.   If you spend any time at an RV park, and I mean weeks, not days, you see it.  There are people striving to stay active, and those people looking to pass the time.   Dad had the unfortunate experience of the early death of his father.  Grandpa was 58 years old, and died from a heart condition while starting a chain saw.  The result of that was that Dad refused to waste a single moment of time.

He managed all this with a retirement that he contributed little to, other than working hard and being very successful within the government.   He started part time doing trail maintenance and fire fighting as a teenager.  He could manage a pack string and had back country sense, having grown up in remote ranger stations, and tells a great story of bringing back his ‘adult’ guardian on the crew when he could not hack it anymore.   He then joined the Marines at 17 years old in 1945, and was part of the build up for the invasion of Japan.  Fortunately for both him and me, that did not happen.  After he returned from occupied China, he went back to the USFS until the age of 55.   Using my retirement model, in reverse, in todays dollars, he will have extracted over $2.4m from the US government.   To some extent that is not fair because I did not know how to value his Double Platinum Unicorn Health Care Plan. The DPUHCP has never shown up on any list of choices for my health care, so I have no real data on that cost. 

The Federal budget now makes up almost 40% of our economy.  There is no chance this decreases, and a large chance it increases.  Federal employees rarely, if ever, experience corporate layoffs, business failures, cost cutting, etc.  There is no zero based budgeting, no demands to cut 25% of the budget or go away, no worries about available cash to make the payroll, or incentives to cut cost.  Quite the opposite, where the end of year rush to spend funds is legendary, to ensure they next years budget does not decrease!  Few, if any, would consider the government to be ‘fiscally responsible’. There is a reason why congress, Right, Left, and Middle,  become strangely silent when when the topic of them participating is real world health care comes up.  They know thats a personal disaster.    Don’t get me wrong; I am not bitter about this and if you can get a gig with the government, I greatly encourage it.   That is an excellent life decision.

For most of us, its not going to go like this.  We have to plan pre and post tax retirement savings, develop tax strategies, get part time jobs, have a very clear health care strategy, and actually manage finances.    Those are just requirements in the real world.  

There is one place where we clearly have a choice:  Move or Die.    I think back to a quote from the Shawshank Redemption,  “Its a simple choice.  Get busy living, or get busy dieing”

Write it Down!!

A friend called me up this week and did a better job explaining to me what I am doing better than I could.   He asked what it was like to not go to work, then after the conversation, explained that I am still engaged in work, but in a completely kind of work.  

One thing I learned, but way to late in life, is to set an outcome based goal, write it down, then build the blocks that enable the result.  Sounds simple, but oh my, if you saw the workings inside an executive team, or take any time at all to watch our federal government, you see a host of people who confuse activities with outcomes.   Activities are soundbite items that make you feel good, but rarely deliver a final result.  Outcomes are quite simple; you either did or did not and its easily measured.  You did the work to deliver the result, or need to change.  A buddy who worked with me to implement this system across 9000+ employees explains it like this, using a football analogy:  counting first downs and tackles are activities.   The score on the board is the outcome.

I don’t mean to go on, but let me give you a positive example of an outcome based goal. Each  Christmas you see a story on an elementary school kid who is gathering and refurbishing bikes for poorer children, delivering toys, or giving backpacks with water and essentials to homeless people.   Those kids clearly defined a problem, took action to fix it, and can tell you exactly how many backpacks, etc they delivered.  They can tell you what their goal is for the next season.   Its a rare talent in todays day and age for sure.

Quite simply, for those in the second half of life, say 45 or older,  write some version of this down, filling in the blanks:   I want to work XX more years at my current job.  After that, I want to spend YY years in retirement and I am going to spend $ZZ per year.   You can break down each of those elements to infinite detail, except of course the years, which is a guess on mortality.   Put it down on a ledger, preferably a spread sheet if you can.   The complexity of your model is only limited by your skill set.  I recomend you do this yourself and not trust a Financial Advisor to do it for you.  Only you know about your plans to downsize, your willingness to work part time, and your intuition on how long you might be around.

I have never shared my financial information with anyone outside my spouse and my accountant.  But now its actually quite simple: I want to spend $60K per year for 30 years of retirement for my wife and myself.  It is everything, including taxes, insurance, utilities, food, travel, recreation, health care and medical, and incidental.  It started as a super simple model, but over time I added things like declining spend as I got older, income from downsizing, social security,  passive income from investments, income from rental property, and then looked at gaps I needed to make up through work, sale of personal goods, etc.  

After looking at the data, The biggest gap for me was the spend!  Having money that was replenished regularly at work, it had become too easy to buy this and that, and that extra debt would surely be paid off over time.  Across all income levels, people get confused that things buy happiness, not activities!  

The second biggest gap was health care.  I had heard about it, but doing research, moving from corporate provided health care to privately funded, was a huge shocker.  Due to some on going issues, I had averaged 2 outpatient surgeries and a multiple doc visits per year;  without corporate health care, this was going to be a huge problem.  Medical insurance for two, plus medical bills, was going to exceed $15K per year!

Now for the full disclosure part: I had an advantage that few get to experience.   In my mid 40s, I got to sit with an Oncologist who told me I had some nasty cancer.  At the time, I didn’t care what happened because I had already traveled the world, had a lot of fun, had a family, etc.   When I managed to make it out the other side, my mind set completely changed.   I decided right then than ‘Time is the only Precious Commodity’.    I did not exactly manage expenses for a few years and make the connection that the only purpose of money is to buy time,  but I can tell you the fun level increased exponentially.   I was doing things I used to think I was way to busy to do!  Over time,  I figured out I needed to manage the expense and income side more closely to enable even greater levels of fun.   Today if that Oncologist told me the same thing, I would do two things: kick his ass, and take off on a glorious spending adventure.  The goal statement would be modified to a shorter time and my yearly fun spend would skyrocket!  

I could go into infinite detail on the spend side, but quite simply I will recomend a process.  Challenge everything.  You hear the term Zero Based Budgeting in the corporate world.   This means you have no money, and every time you spend a dollar, it has to be justified.  That may appear extreme, but it is proven to work.   And of course I won’t leave a spend discussion with reminding everyone that there is no tolerance for long term debt in retirement.   

We also talked in an earlier blog about taking your tax strategy seriously. No mutual fund on the planet will ever equate to the amount of money the government would like to harvest from you.  This is a research project all its own, but basically you need to stash every penny you can using available pre tax options, and hopefully find a side hustle where you can put disposable income into something that generates value and reduces your tax burden, and employ any other strategies available.   A friend advised me to consult a Tax Advisor in favor of a CPA.  Wise advice.    

Now that you have a view of expenses, lets look at income.   To generate the income you want, you will need to look at passive income from pre tax and post tax money, income from side hustles like part time work, rentals, small businesses, and any other place you have value stored.  My strong opinion here is to get input from people actually doing this.   References like  Financial Samurai, Van Clan, Coolworks, and many others have tons of valuable info.  People who walked away from a corporate job and turned Side Hustles and passive income into amazing wages are everywhere!   I had a friend tell me his retirement plan was to keep working.  Crazy!  But wait, he is a Philosophy professor with months of vacation, and decent bennys.  I buy it! If you are out there putting in 50-60 hours a week to generate money for another company, you will probably come to a different conclusion!

So what is the lesson here?  Write down your top level outcome goals on spend and income, then build your bottom up execution plan.   Don’t wait for a Financial Advisor to do this for you.  Develop a plan that includes both income from passive investment, side hustles that may include small biz, rentals, or part time jobs, and the cathartic exercise of downsizing your existence.  Of course, the most important lesson is to maximize your time and spend on things you want to do, and minimizing your spend everywhere else.  

If you have over $500k, give it to us!  We are a Fiduciary company and we Care about You!    

That advertisement is all over the web and all over TV.   Money management companies are in your face every day, asking to have your money.  What drives this behavior?  Their accumulation of your wealth drives their financial success, and whether they are commission or fee based doesn’t change that.   Available cash, mainly through mutual funds, drives investment and liquidity in the market.     The investment powerhouses use the financial leverage of your money to force companies to achieve short term profitability, low cost, and high profits. That drives up stock price, and increases your investment portfolio value, and there you have the circle.   The question is, how do you, your money, and retirement future fit into this picture?

This blog is focused on wage earners who will not receive a pension and have to depend upon themselves for retirement, will have to buy their own health care when they retire, and are in the 50% of the population in the US that ends up paying federal income tax.    That is the same group targeted by the investment industry.   They are under represented in government, usually not very active other than voting, and taxed at disproportionate levels to their benefits received from the government.  Large portions of this group have not received significant increases in real take home pay for years.

Lets challenge a couple of things:  has your Financial Advisor (FA) ever recommended to buy rental properties, investment properties, small businesses, peer to peer lending,  or done something other than recomend putting money mutual funds, annuities, insurance or other similar products?   Have you created tax strategies? Do you spend more time with your Tax Advisor than your FA? These things make up Wealth Management and don’t get discussed.   Side Hustles, alternative incomes strategies, and tax structure management only come up if you look for them.

I challenge you to go through an exercise to calculate your your own effective tax rate.   Add the progressive federal income tax, state income tax, local tax, property tax, and FICA.   If you live in a state known for siphoning gas tax into the general fund, add some of that in there also.  Take into account its very unlikely your taxes are going down, and most likely to be going up for those in this situation.     Now get some coffee or something stronger, sit down, and ask yourself you are addressing your own Wealth Management problems.

I have historically kept about 10% of my savings in an on line account targeted at small investors.   My Fidelity Go account that I manage, play with risk levels based on current information, and use as a test case, has always beat the return in my account with professional advice and 10X more money.   This helps to keep my perspective, that really most people have the ability to manage their own money.

We chose a path of small business for  second income.  This can be risky: the majority of small businesses fail, and if ours was our primary source of income, it would have failed.    The advantage we had was that we had good capital backing which was my disposable income, and the losses provided a great tax advantage.   We could afford to learn lessons, like own property, don’t lease whenever you can, don’t own a business with perishable inventory, and business is based on customer demand, not your own personal passions.  Those entities we owned eventually became profitable, providing not only a good tax strategy, but long term income.  

From a wealth management standpoint, I deeply regret not investing in real estate in 2009 and 2010.   Money was cheap due to amazingly low interest rates and property in great locations could be had for a song.  I had managed to keep a salaried job which was a blessing, but I was scared to make the right choices.  Doubling down at this point would have been a huge financial benefit, and I knew it at the time.   The lesson here is to think differently than the masses.

If your FA can bring you 6% return on average, and your tax advisor knows where 35% of your wealth due to taxes goes every year,  your time should be managed the same: Spend 6X more time with tax advisor and on wealth management strategies.    Shop around for a good tax advisor, who is experienced in all phases of tax law, including small business, investing, personal income tax, retirement spending, Obamacare, etc.   If they have been around the block, they have heard every hair brained idea imaginable to make money, seen every questionable tax dodge attempt, watched people experience significant financial failure, and been through numerous tax audits.  Be respectful of their time during tax season, but use as much as they allow.   Do research on wealth management and tax strategies and generate multiple ideas to rank and asses. This could be local business markets, on line opportunities, high interest rate savings, or anything related. That person will not only know the law, but also know the local landscape from his other clients.

You need develop a wealth strategy that minimizes you tax burden while maximizing return on your time.   Everyone is different, and you have to decide yourself what is best.   Ideas like NOT having a dual income household where one earner brings home significantly less than the other (progressive tax rates, remember??), starting a small business, buying rental properties or investment properties, or focusing a potential second wage earner on cost saving can give you better return for your time.   If your job can be portable, move to a lower cost location and change your cost structure.  This is especially true these days not only in real estate costs but tax structures.  

One of my favorite blogs is Financial Samurai, who is a specialist in overall wealth management and stepped away from a corporate existence, and has a wealth of information on this topic.   Check out his blog and follow his links for great information.

Retirement searches on the web tell you to Let Your Kids Go.   That is not only in the form of financial support, but also in the form of housing, and that can be extend to family overall and ‘posse’ you may have formed over the years.   If you had a family and really needed at least 3 bathrooms and 4 bedrooms, move on to a single bedroom house with pull out beds for guests, or better yet, make the leap to full time RV life.  Learn about the wealth strategy of becoming a resident of South Dakota. Then you and cousin Eddie can stay in your kids driveway! (‘Real Tomato Ketchup Eddie??) Evolve your thinking: houses, like cars, boats, etc are just things and can be traded at sold with no personal impact.   Remember, Money is Time, not the other way around.

Is saving for retirement bad?  No way!   Is putting your entire wealth into an investment portfolio that buys mutual funds and annuities good?  No way!  The first rule of saving for retirement: put every penny you can away before tax, no matter what anyone tells you.  The next rule, to quote George Carlin ‘trust no one, especially the government, and think for yourself.’    No one cares about your future as much as you.