If you remember in some of my previous posts on draw-down strategy and the Power of Zero, I talked about using money from my “fun money” value investing account to do a Roth conversion on a significant portion of my regular IRA funds. The objective would be to reduce my 401K amount and reduce my Required Minimum Distributions from them by transferring money to Roth’s now, while the tax rates are so low.
I’ve been bouncing back & forth on this because of my job situation (somewhat sketchy) and the potential impact of getting let go. If let go, I would be due a significant (six-figures) deferred payment, which would shoot me past the 24% tax rate. I’d rather not hit that.
Now that it seems secure, I traded in my two value stocks, Gilead and Cia Saneamento Basico – both of which were in negative numbers for the year. I’ll be able to offset some other stock gains, get out of the value investing business (which I apparently suck at) and convert money to the Roth. A triple win!
Mrs. 39 Months has her regular IRA & Roth at Troweprice, and I have mine at Vanguard. Both of them make it relatively easy to convert money from their regular IRA to their Roth IRA with a few clicks of the mouse. I rolled them right into the exact same index funds that they had previously, so hopefully, no harm/no foul.
The one issue for both of them is the default is that you want taxes taken out of the money you shift over (rather than paying the taxes separately). This would cause you both to lose the money from your IRA and potentially force you to pay a 10% penalty due to early withdrawal before age 59-1/2. Make sure if you do this that you pay attention to the questions you are asking and don’t pay your taxes out of the money you are transferring.
I think I may do this one more time, in 2019, based on the job situation. Then I’ll be in pretty good shape as I cruise to my FIRE date – July 2020!
Mr. 39 Months
Good article about the FIRE movement, with some examples. They’ve got most of it right, a few details off.
The examples they use is your typical high-income earning couple who made six figures in their early years. I wish we could see more examples of more normal people who do this in these sort of articles.
The article ends with recommended steps, which folks in the FIRE movement can get behind:
To get on the road to Financial Independence, Retire Early, proponents recommend these nine steps:
1. Determine why you want to achieve FIRE, and envision what you will do once you get there. (This will keep you motivated.)
2. Calculate your net worth (total assets minus liabilities) to see where you stand.
3. Track every dollar spent so you know where your money goes.
4. Slash expenses. To reach a savings rate of 50% or more, you’ll need to cut major expenses, including housing and transportation.
5. Pay off high-cost debt, such as credit cards.
6. Build an emergency fund so you don’t resort to credit cards in a pinch.
7. Take advantage of tax-friendly accounts: 401(k)s, IRAs and a health savings account.
8. Use index funds to keep investing costs low.
9. Find a side hustle to bring in extra income and boost savings.
One of the tenets of FI is to have time to do what you really enjoy. One of Mrs. 39 Months hobbies that she has picked up in the last couple of years is playing the dulcimer – a folk instrument with roots in 19th century Appalachia. It’s kind of funny, because Mrs. 39 Months is 100% Italian America (all 4 grandparents from Italy). Still, she really enjoys the instrument. Her father actually helped make one for her from a kit when she was 18 (she still has it) and she continued to have some interest over the years. Lately, though it has become quite a passion.
Part of having any sort of hobby like this is the potential to travel to various shows, with vendors, classes and a network of friends and “fellow travelers.” It also provides her with the opportunity to spend money, and the running gag in the community is, when someone asks “how many dulcimers do you have” to answer back “I still need one more.” Currently Mrs. 39 Months has 3, and may be interested in picking up “just one more.”
Going to the shows offers me the chance to travel, and to spend time with Mrs. 39 Months. When I went through various exercises to go through goals and objectives for the year, determining what makes me happy and what takes energy away, one of the things I wanted to do more of in 2018 is to travel and be with Mrs. 39 Months. So this weekend, we are up in Milford, CT at the Nutmeg Dulcimer conference.
For me, I act as Mrs. 39 Months “roady” for her dulcimer events. The official definition of a roady is “a person employed by a touring band of musicians to set up and maintain equipment.” I don’t think Mrs. 39 Months would let me touch her dulcimers, but I do the driving, help with the packing/unpacking, and generally provide the moral support. For this, I get the companionship of being with my spouse and enjoying the conversation.
She has taken various classes and is looking to buy a music book or two – but hasn’t found a 4th dulcimer that really needs to be purchased. She says she’s learned a few more things and expanded her skills – which is what it is all about.
I would urge those of you with friends and family to take the time to enjoy the comradery and life with them as you journey towards or enjoy FI. After all, it’s the journey which is the thing, not the final destination!
Mr. 39 Months
In my work life, I have to attend major team meetings 2-3 times a year. This are typically 2 day events where we go over our key objectives for the year, and look at our existing staffing (their professional goals, current level of work, and potential for growth/promotion). It’s actually a very good experience, and I have to give my boss credit for caring to develop and promote those under him. In addition, the key objectives for each team member are not job-based, but are additional goals to help “drive” the team forward and change the organization for the better.
Unfortunately for me, I am looking to reduce my responsibilities and/or early retire in less than 21 months. So when we discuss my own professional development, and potential promotions/opportunities to improve the organization, I have to hedge my conversations and downplay future contributions. Part of my FI plan includes some bonuses that would be due to me, especially in March 2019. While it wouldn’t be a back breaker to not receive the full bonus, I do believe if my contributions were good in 2018, I deserve to get the bonus.
I’ve talked before about the feeling that in some cases technology has passed me by. This was also evident in the meeting, as I was surrounded by many folks somewhat younger than me, with more technical prowess, and burning to move up the career ladder. I did not have that “burning desire” and questioned whether learning new technology and new skills (some of which I questioned if they were truly valuable) was really something I wanted to do.
It was during this event that it hit me again why I wanted to achieve FI. I wanted the freedom to be able to choose how I contribute to the organization, not to be forced into a career path or job that was ill suited for my skills or interests. Since I am pretty much there (yep, I still have “1 more year syndrome”) I have decided that in April of next year – right after bonus – I am going to approach my boss with the request to downshift pay & responsibility.
We will see how that goes over. I think I have a pretty good skill that is in short supply in my organization, so I might be able to step back from a management role and continue to be paid. I guess we will see in 6 months.
Wish me luck, just like I wish all of you luck on your journey to FI!
Mr. 39 Months
Gets you thinking.
The “Bad Habits Be-Gone In Early Retirement” List
Also makes you think about what you can eliminate now, even before you have retired.
Well, for those older FI people, it’s a tale we have all experienced. You go in for testing, either your annual checkup or due to a medical procedure – and something pops up. In my case, I’m going in for an outpatient procedure for kidney stones, and I had to get a pre-Op checkup. The EKG came back with some “anomalies” on it, and suddenly I had to get a cardiologist to check me out before I could continue with the procedure.
Do I have a major health issue? I backpack, workout 4-5 times a week, do yardwork, etc. I have always considered myself a healthy person (maxed the Army PT test when I was in, never been operated on, etc.) This was a major slap in the face….
Well, the cardiologist ordered a stress test and an Echo Cardiogram (something that is a lot more accurate than an EKG). After a lot of back-and-forth, it turns out I have a healthy heart – just a genetic “tic” that will show up on my EKG. I can continue with the procedure.
Still, the world is full of stories of people who worked their whole lives, and passed away right before they were going to retire. FI people don’t want to be that person, so most of us practice two things:
- Saving significant money so that we can become financially independent and (potentially) retire early
- Enjoy life as we go through it, rather than saving excessively only to pass away before we can enjoy it
Mrs. 39 Months and I have started vacationing more and going to some of the sites we would like to see. We are both seeking to “de-stress” our day-to-day lives as well. In our conversations, we each have noted that “free time” (vacations, days off, etc.) is more important to us now than pay. I’m sure it’s the same with you.
So don’t work till you drop. Enjoy yourselves while you are on the journey, even as you prepare for FI.
Wish me luck on my procedure today!
Other posts of interest:
Mr. 39 Months
One of the big “kicks” I got from joining the FIRE community was ideas on how to improve my savings and accelerate my timeline to reaching financial independence. For over a decade I thought that my mid 20% savings rate was very good – until I started reading articles and realizing what I was letting sit on the table. By paying off the house and making a few adjustments, I was able to have my savings rate shoot up to almost 47% in 2017, and it’s definitely going to be over 60% for 2018!
As you may remember, if we counted in Social Security, I would already be at FI; I am still concerned about counting that in, as the trust fund is due to run out in 2034 (when I am 70). At that point, they would only be able to fund 75% of expenditures. My bet is that they’ll fund folks who have lower numbers at 100% (since that is all a lot of those folks have to retire on) and “cap” the higher folks. This would mean a much lower amount for us (or none at all).
One of the aspects of hitting FI is that you don’t necessarily have to retire. You can keep working, but now use the opportunity to work on stuff you enjoy. You often see blog folks in our community who continue to work at their jobs after hitting FI, because they enjoy what they are doing. There are a parts of my job that I really enjoy (the engineering part) and parts I do not (the management part). So I’m thinking of going to my boss in April next year (after bonuses are paid) and requesting a job change. This would hopefully enable me to continue to work on what I enjoy, while allowing others to get promotions and manage people.
If I do that, one of the issues would be a significant cut in my pay (about 25%). That money has obviously been almost entirely devoted to increasing my savings rate. When I went through my numbers, I saw that my rate would drop down to around 50% (still pretty respectable) and it gave me pause. The question comes down to continuing in a job I dislike somewhat to keep the rate up, or try to rearrange my lifestyle to be more in line with my life goals. My FI date wouldn’t really change much.
I know what you all are saying and what you would all suggest. I thought I would share the decision criteria with everyone so you could see some of the issues that pop up occasionally.
Mr. 30 Months
While I’d like to consider myself technologically adept, I have to admit that over the last five years, I’ve fallen further and further behind. The pace of technology (especially communication tech) is mind-boggling, and the numerous ways that people and business communicate. Just when I think I’ve got the latest tech down, it gets superseded by some other form.
This is happening at work as well. I hate to be the “old fuddy duddy” but there are a lot of new engineers being hired with a lot of tech savvy (and a desire to do robotics and computer simulation) but who don’t have much hand-on experience in the field. My boss, and our customers, are enamored with potential for this (because we are all having a hard time finding labor) so I sometimes feel like I am the odd man out, and becoming obsolete.
The reason I bring this up is that we had the annual “icebreaker” for my professional society this weekend, which was at a distillery in Philadelphia. It was a great time, with a lot of good fellowship, good food, and some drinking. Some of the members there were older (like me) and some were younger (late 20s, early 30s) and the topics eventually settled into our engineering profession. A lot of what was discussed was basic engineer and leadership “blocking and tackling” but some of it was the effect that technology was having on their business and their work. It’s exciting, but also troubling (am I obsolete?).
In the end, one of the concepts of FI is never stop learning, so if I choose to stay in this profession, I need to dedicate myself to continued work in the field. You never stop learning.
Mr. 39 Months.
“No person has the power to have everything they want, but it is in their poser not to want what they don’t have, and to cheerfully put to good use what they do have.” Seneca, Moral Letters
Many of you know that I have, over the last year or so, started reading and trying to follow some of the basic concepts of stoicism. The philosophy practiced by some of the ancients in Greece and Rome has had quite a resurgence over the last 20 years. I thank Tim Ferris for introducing me to the stoic philosophy and the first book I read on it. Many folks get it wrong, and think of it as an emotionless, stone-like attitude to life. This is not true – it does encourage you to experience and enjoy life; but it suggests that many of the emotions that are created by life’s issues (depression, anger, etc.) aren’t really valid because most of the issues are transitory and don’t really matter in the grand scheme of things.
I have found it difficult to follow many of the lessons of the stoic philosophy. While I am an engineer, I am also a very emotion-driven individual. I’m not sure what caused it (genetics, issues growing up, etc.) but I have quite a temper, especially when I feel that I am not getting the respect I believe I am due. For many parts of my life, my emotions have been the driving force in my decision making. This is, of course, in contradiction to the stoic way.
That is why I am enjoying my reading and daily meditations on the subject. While I still have a long journey to make along this path, I believe it has already helped me. I got a book at the beginning of the year titled The Daily Stoic by Ryan Holiday. It has a daily quote from some of the great stoic philosophers of history, which I can use for my meditation, and to attempt to build a better life. Today’s is where I got the quote above from.
I hope you folks are enjoying your journey on the path to Financial Independence and a better life.
Mr. 39 Months