Investment update for Jan 2019

Yeah, baby! Just 17 Months to go till FI! Markets are up, my investments are up, and my financial situation looks a lot better than it did at Christmas. I believed the economy was doing well, and the only thing holding the markets back was issues with the Fed (see my post from December).

Well, it appears the “fear of the Fed” has ebbed somewhat, and the good economic results (for many companies, record profits) have helped to push stock prices up. The market is up over 10% from Christmas, and continues to push upwards. If you panicked and fled the market at Christmas, you lost out big time! I’m hoping we have a good year in 2019.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

Remember that I rebalanced at the start of the year, selling off mostly bonds and some REITs, and pumping the money into the losers for 20118, which was small cap and International. For the month of January, I’m up about 7%. The big winners have been small caps, REITs and the S&P500, while International was only coming in around +5% overall, and bonds only up 1%. So my rebalancing paid off going into small caps, but not as much as going into International. For the most part though, I sold winners and bought losers, which turned into winners in January. Very pleasing!

  • S&P500: +8.1%
  • Small Cap: -+11.4%
  • International: +5.1%
  • Bonds: +1.0%
  • REITs: +11.7%

My 401K/Deferred account at work is up a similar amount

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up about 7.7%, driven more by the REITs, though everyone was a winner. My bond funds were up around 6% (counting dividends), my stocks around 5.6%, and the REITs ranged from 9% to 18.5% (averaged around 13.4%).  Very good for dividend portfolio.

Value Investing Account: If you remember, I have to take money out every year from my Dividend income account (it’s a rollover IRA from my father) so I took the dividends for the last 3 months, and sold off about $3600 in bonds (my “winders” in 2018) to get to $5K. I then took that and folded it straight into my Value investing account. I used that to try and balance the two mutual funds to 50% each.

Allocation now:

  • 50.5% USAA Market Index (my brokerage is USAA)
  • 49.5% in Vanguard Value Index fund

Both of these were up in January, and if you add into the dividends paid out in Jan, they are up 10.5% for the month!

Starting off for the year, I’m up 7.09%. What is interesting is that, with the gains in price, my portfolio returned $69,198.98 for January. One month, and $69K of capital gains & dividends! Nice return. That is close to the FI number we are budgeting for our lifestyle ($72K/year). One more month of this sort of thing, and we’ll be close to the high of 2018. Let’s hope!

How did you do in January?

Mr. 39 Months

I’m back baby!

Well last week was a real cause for celebration for me. As a lot of you know, I went through some health issues with kidney stones (medicine, catheter, operation, etc.) in late summer/fall. While everything worked out OK (so far) it put a crimp in my fitness training. I wasn’t really able to do much of anything (lifting, biking, swimming, etc.) and the result was degradation in my fitness level.

Well, starting in Nov/Dec, I was able to get back to the gym/home fitness area, and got started building back up. I had fallen out of the “habit” of doing morning fitness, so it took me a while get back into the swing of things, but by late December I was “in the groove” and starting to work my way back up.

Well, last week I finally reached the lifting level of where I was before all the health issues hit, and I am getting ready this week to push beyond that. In addition, I’m continuing to swim, bike and walk (can’t run due to knee injury) and I’m planning to push that as well.

Like most folks, health is a big factor in our plans for FI and both Mrs. 39 Months and I want to do a lot even as we age. I urge all of you to keep fitness as one of the forefront items in your life. It’s a lot easier to maintain fitness than to try to get back to a level you used to be at.

Mr. 39 Months

Goals/Objectives for 2019

I’ve done the goal setting posts before and gone over my 2017 and 2018 goals in previous posts. For 2018 it was a mix, but overall I believe I made real progress on a number of financial and non-financial goals. I learned a lot last year, most especially that the non-financial goals were actually the ones that became the most important to me. I guess as the FIRE gets you, you end up with a lot of the finances on auto-pilot, and then you really start to concentrate on what really matters.

For 2019, I kept my finance and business goals fairly similar (just bumping up some of the numbers) and kept many similar personal goals (just added a few). Since I’m under 18 months till I hit my FI date, I need to keep the process moving and keep improving, so that I’ll be ready when I hit the magic number!


  • Save $75K in tax-advantaged accounts (saved almost $81K in 2018). 401K, Roth IRA, etc. Dropped this down a bit, due to a need to plus up my savings/emergency fund. Key part of this is using my company’s deferred savings account to push money out till I hit FI. Since the deferred account money will have to be withdrawn (and taxed) when I leave, it actually is a pretty cool FIRE solution for saving.
  • Save $5K in regular accounts (compared to $9K in 2017). This will go into my brokerage account. I withdrew a hunk of this to do my ROTH rollover (part of the “power of zero” philosophy). But I still have some bucks here. I have to take about $5K from my father’s IRA every year, so I just move it from there to my brokerage account instead f spending it).
  • Increase dividend income from all accounts to $27K/year (compared to 26K in 2018).
  • Passive income covers 40% of base living expenses in retirement (it was38% in 2018). My long-term goal is to get my dividend/passive income up to where it covers over 100% of my expected retirement living expenses, so my investments can continue to grow.
  • Beat net worth growth rate of 6% (it was -1.9% in 2018). This is my historical growth rate for the last 10+ years, so I want to beat my average.


  • Continue attending regular meetings of my local real estate investors association. They hold a regular monthly meeting, a monthly meeting for new investors, and a monthly meeting for my specific county. All three could be interesting, and it’s free for a paid member. Last year I attended, but it was spotty.
  • Double the number of blog visitors in 2019. Last year it was a little over 6,000. I want to get at least 12,000 this year, so I need to put myself out there more (i.e. comment) and write interesting topics. My thanks to everyone who stopped by, and I try to return the favor, and comment as well.
  • Write/publish a book on finance.  I wrote one for new graduates in 2017, but I have identified an area of the community which hasn’t been served as well in the past. Hopefully I can assist with something here.  I’ve got the first five chapters outlined/partially done, but still have a ways togo.


  • Increase weight lifted by 10% from 2018. Due to my illness, I didn’t make much progress beyond that, but I’m back to full strength now, and lifting what I was in September 2018.  I want to continue to improve my strength as I get older, instead of just wasting away
  • Average 2 hours of cardio per week (currently averaging about an hour). Again, want to improve my fitness. Based on my lifestyle, I don’t think I can push it past 2 hours per week
  • Take part in at least one long bike ride, like MS bike-a-thon (80 miles). Didn’t do this last year, but really want to try.
  • Backpack over 100 miles on AT (did around 80 miles in 2018). Other aspects of life interfered with my ability to get on the trail. Really want to push it this year.
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this.
  • Reduce weight by 20 lbs. from Jan 2019 (lost 2 lbs. in 2018). Again, I want to get in better shape as I get closer to financial independence
  • Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading.


  • Visit a national park (visited two in 2018)
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Need to get up to see my brother in Vermont.
  • Take a week at the shore and just relax. Too many of our vacations are spent running around. I want to see if I can go somewhere (in this case the beach) and just sit and relax.
  • Visit Ellis Island. Wanted to do this in 2018, but didn’t make it. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it
  • Go on an international trip. Not sure which one (Canada, Caribbean, etc.) but I’d like to get out this year.
  • Visit the Asheville NC area. It’s one of the areas that we are considering retiring to (close to my old home in Tennessee, interesting crafts, shops & outdoor sports, etc.). Trying to learn more about the area (we’ve been there a couple of times).

So those are my somewhat ambitious goals for 2019. I am going to do my best to hit them, so wish me luck.

What are your goals for 2019?

Other Bloggers on their 2019 Goals

Mr. 39 Months

Net Worth Jan 1, 2019

OK, a lot of folks have done postings on their net worth (and how much it took a hit in 2018). I figure I’d join the crew and open up the windows to the folks outside. I know this is a topic of some controversy within the FI community, as some folk’s post their net worth, and some folks are loathe to do it. I believe that the more information folks have, the better they can judge my writings and decisions versus their own.

Like many others, I’ve posted my net worth on Rockstar Finance. So here goes.

Real Assets Value Jan 1, 2018 Value
House $279,809 $289,171
Mrs. 39 Months Car $3,650 $3,981
Mr.39 Months Car $5,251 $4,353
Sub-Total $294,781 $297,505
Liquid Assets Value Value
Family Checking $8,428 $4,014
Family Savings $11,963 $3,673
Mr. 39 Month’s Roth IRA $135,025 $178,199
Mr. 39 Month’s IRA $298,748 $234,647
Mr. 39 Month’s 401K $55,467 $61,732
Mr. 39 Month’s Deferred Savings $56,566 $105,889
Mr. 39 Month’s Checking/Savings $9,249 $8,925
USAA Brokerage Account $53,481 $22,526
Pop’s stretch IRA $135,205 $127,882
Mrs. 39 Month’s Checking/Savings $119,658 $119,658
Mrs. 39 Month’s IRA $162,001 $104,627
Mrs. 39 Month’s Roth IRA $89,448 $135,481
Sub-Total $1,135,238 $1,107,253
Debits Value Value
Home Loan $0 $0
Credit Card bill -$1,288 -$3,240
Auto Loan $0 $0
Sub-Total -$1,288 -$3,240
Net Worth $1,428,730 $1,401,518

Overall, net worth dipped about 1.9% for 2018, and this after pumping in around $87K of money during the year. Needless to say, it wasn’t a “banner year.” However, it’s the first dip in my Net Worth since the 2008 crash, so a good ten year run. Since my growth plans are based on my long term growth rate of 6% (what I’ve averaged over the last 22 years, including the 2000 and 2008 stock dips), I’m still in the ballpark.

Key lessons learned for Net Worth in 2018?

  • Real estate not really jumping up in my area (Southern NJ). My value hasn’t moved much since 2009.
  • Cars have depreciated a lot – but they continue to run well (regular maintenance) so no need to replace anytime soon. Slowly saving up for new ones at some point of time in the future.
  • Roth IRA conversions altered the makeup of my retirement accounts. Will probably due one more $50K conversion, and then let it ride from there. Used money from investment account to pay taxes, so it dipped a lot there.
  • Put aside 25% of paycheck and 100% of bonus to deferred account, so that jumped up significantly over Jan 1, 2018. No taxes paid until I leave work (when it gets paid out as a lump sum). This will end up being a good portion of my year 1 & 2 of FIRE money
  • Credit card bill was from one of our Pet’s emergency medical costs (ouch!). We have the money to pay it off, so no big thing

Overall, while our Net Worth took a slight dip, we will continue with the plan. I believe we are still on track to retire in 18 Months (if we want), or we could retire now if we felt confident in US Social Security.

How did your Net Worth go in 2018?

Other FI Bloggers and their net worth

Mr. 39 Months

Final End of year work: Year in Review 2018

I can’t claim to own this process, I borrowed it from Tim Ferris (author and podcast interviewer) and have been doing it for a couple of years. I use it to review things that worked in the previous year, what didn’t work, what do I want to add, and what do I want to get rid of.  Tim’s recommendation is to sit down with your journals and notes from the previous year, and spend an hour or two really thinking this through. Based on the answers, you should be able to formulate your plans for the new year.

The Steps

  • Identify 20% of people, projects or ideas which provided 80% of enjoyment/powerful emotions for 2018
  • Identify 20% of people, projects or ideas which provided 80% of stress/pain/powerful emotions for 2018
  • Try and spot patterns from #1 and #2; Determine action steps to increase #1 and reduce #2:
  • Identify Three things to add to my life
  • Identify Three things to remove from my life
  • Ask folks close to you, what you should do more of and what should you do less of?
  • Start putting stuff into the calendar. If it is on the calendar, we will do it
  • Questions from “Happy Money”.
    • For Purchases, “how will this affect my use of time”
    • “How will I use this thing on Tuesday night”
    • $100 to most increase happiness?
    • $500 to increase happiness?
    • $1000 to increase happiness?
    • Take 20% of liquid cash, how would you apply it to increase your quality of life?
  • Go through 5 minute journal (daily 3 min in morning, 2 min in evening)

So what have I come up with for answers to the questions?

  1. Identify 20% of people, projects or ideas which provided 80% of enjoyment/powerful emotions for 2018
    • Travel with Mrs. 39 Months
    • Tracking Finance/heading towards FI
    • Blogging about finances
    • Exercise/Stretching
    • Reading
    • Gaming
    • Woodworking
    • Family
    • Backpacking
  2. Identify 20% of people, projects or ideas which provided 80% of stress/pain/powerful emotions for 2018
    • Working with boss (expectations, changes, etc.)
    • Dealing with employees who work for me
    • Standing up for myself when I’m right
    • Feeling being left out
    • Yardwork
    • Finances – reaching FI when market is volatile
    • Illness
  3. Try and spot patterns from #1 and #2; Determine action steps to increase #1 and reduce #2:
    • Pattern of being the boss of other workers, and stressing in getting them to perform when my boss questions them
    • Being fit/not ill means a happier life
    • Spending time with Mrs. 39 Months/hobbies
    • Reading about/studying/applying aspects of personal finance
  4. Identify Three things to add to my life
    • More time with Mrs 39 Months
    • More time on hobbies
    • More exercise/stretching and better health
  5. Identify Three things to remove from my life
    • Being the boss (just do my own work)
    • Illness
    • Lack of Control over finances
  6. Ask folks close to you, what you should do more of and what should you do less of?
    • TBD
  7. Start putting stuff into the calendar. If it is on the calendar, we will do it
    • Week at the shore with Mrs. 39 Months
    • Backpacking trips (at least five in 2019, including a full week)
    • Dulcimer festivals with Mrs. 39 Months (3 on calendar)
    • Woodworking (class in June, working at Pennsbury manor all year)
    • Travel to family in Vermont & Tennessee
  8. Questions from “Happy Money”.
  • For Purchases, “how will this affect my use of time”
  • “How will I use this thing on Tuesday night”
  • $100 to most increase happiness? A few more books to read
  • $500 to increase happiness? Another woodworking class
  • $1000 to increase happiness? Gymnastic Fitness class
  • Take 20% of liquid cash, how would you apply it to increase your quality of life? More vacation travel

9. Go through 5 minute journal (daily 3 min in morning, 2 min in evening). Key points:

  • A lot of time, I am grateful for my loving wife, Mrs. 39 Months
  • Family also mentioned a lot
  • Friends also mentioned frequently
  • Hobbies emphasized
  • Things to shy away from: Anger, depression, envy

So this helps me build my goals for 2019.

I hope this was helpful!

Mr. 39 Months

Update on ratios

If you remember, I wrote back in the middle of the year about using financial ratios to analyze your performance over a period of time. I thought it would be good to revisit my ratios, see how I’m doing, and give everyone a chance to see if this sort of tracking would suit them.


 Liquidity is a measure of the speed at which an asset can be converted into cash without loss of value. Cash, savings, checking and money markets can be quickly turned into cash. Stocks and Bonds (and real assets like gold, real estate, etc.) are more difficult to turn into cash at short notice.

Most people require a little bit of liquidity in order to survive (purchase food, pay bills, etc.). The key is to keep your liquidity in line with your other financial goals, and to keep your liquid assets as low as possible (while still being able to sleep at night).

The basic liquidity ratio is:

Liquidity Ratio = liquid monetary assets (from balance sheet) / average monthly expenses (from cash flow statement)

Liquid assets: Cash, checking, money market accounts, and savings

Two months recommended

From our previous post, the individual has a liquidity ratio of $22,200 (from Net worth) / $6,414.58 (annual expenses divided by 12) = 3.46 months for liquidity.

Our Liquidity ratio has been over 2 years for some time (thanks Mrs. 39 Months!), but it dipped in 2018 – not so much because of lack of cash, but an increase in the average monthly expenses due to some medical bills. Not a trend I want to continue.

Debt Ratios

The purpose of debt ratios is to determine the amount of financial leverage you currently use, and to track as you (hopefully) improve. The objective is obviously to become debt-free, especially if you want to be financially independent. The debt-to-asset ratio is very useful for tracking progress.

The data source is entirely the balance sheet. Debt-to-asset ratio = total debt / total assets.

From our example last post, $96,500 Debt / 335,300 Assets = 0.288

Another Debt ratio that is good to track is the Debt-to-Gross income ratio, which is the total debt payments / annual take home pay (pay after taxes, medical, etc.). It is used to help determine your ability to pay the debts off.

The source of the data is the cash flow statement.

From our example last post, $$11,400 (mortgage & debt payments) / $45,925 (total take home pay) = 0.248 or 24.8%. This is pretty good, as you should never take on debt payments (including student loans) of over 36% of salary.  Another recommendation is not to take on housing costs (mortgage or rent) of more than 28% of salary.

Our debt ratio continues to be 0, as we are debt free (and I intend to stay that way!)

Savings Ratios

You can use current income to pay for current consumption or to pay off past debts . The other option is to purchase assets that grow and create wealth – wealth that will provide financial security. This wealth is acquired by deferring current consumption and diverting income into long-term investments. The savings ratios measure the amount being saved and invested.

The savings ratio that I track is the savings-to-income ratio. It is a simple one, and its purpose is to determine the percentage of your income you save each year. You gain the data from your cash flow statement.

Based on the previous statements, the ratio for the previous documents would be $13,500 / $79,100 = 17% of their income, which is good for normal folks. However, for FIRE people, the percentage is a little low – most FIRE folks shoot for 30% – 50% or more. The ratio of savings you need to perform is based on your overall financial goals.

For the first time in our lives, our savings ratio bumped above 50% vs.Gross Income (i.e. income before taxes). Once we got the “Fire” and paid off the mortgage, it really got us pumped.

Real Growth Ratios

Inflation is the killer of savings, slowly bleeding your savings down until you have nothing left. If inflation is 3%, the price of a product will double in 24 years. How do you deal with this?

You save enough and invest correctly, so your money grows faster than the rate of inflation. You should use the growth of Net worth ratio to make sure you are keeping up with inflation.

Growth of Net Worth Ratio =[(Net worth this year – New worth last year) / Net Worth last year] – inflation rate

Example: [( 298,700 – 275,000) / 275,000] – .03 (inflation rate) = 0.056 or 5.6% Net Worth growth.

Then once you retire, you follow the 4% rule, adjust for inflation, and enjoy the good times!

Like just about everyone, our Net Worth took a hit this year (down 3.5%) due to the market. While we were diversified, and thus didn’t suffer as much as being 100% in stocks, the combination of the market and rising interest rates on our bond portfolio really gave us a hit.

Very Hope this was helpful!

Mr 39 Months

Look out for the “End of Year” status reports!….

Well, its that time of year, the end-of the old year, beginning of the new. What we can look forward to over the next 30 days is a list of the performance of various FI bloggers, and their goals for the new year. Some insights on how their investment strategies worked out, what frugal tips worked (and which ones didn’t), what travels they made, etc. Get ready for it!


While some might look down on this, or find it boring, I actually enjoy seeing the information shared by our community. I always try to take away 1-2 things from each annual review, and try to integrate some of them into my plans for the new year. I also write about my wins & losses, and what I’m planning for the next year. It could be “navel gazing” but it helps me work out my objectives and what lessons I learned. So here goes…..

We’ll start the series of blog posts off with how I did with my goals for 2018.

Financial Goals:

  • Save $90K in my tax-defered, Roth and regular investment accounts. Score A. The final total was a little over $90K, when you take into account money put into savings.
  •  Increase dividend income to over $24K, so it covers33% of a sample $72K/year standard of living (roughly what we are living right now). Grade A. Dividends were $26,436, or a little over 36%.
  • Beat new worth growth rate of 7% (I’ve averaged 6.1% over the last ten years). Grade F. Markets tanked, and the result was a loss in my net worth of 1.9% for 2018. Not as bad as some folks, but still didn’t help me along the way to my goal.

Business Goals

  • Begin attending regular meetings of my local Real Estate association. Grade C. I attended an average of 1/month (even though there are at least 3/month that  I’m interested in). Plan to continue paying for membership and attending in 2019
  • Double the number of blog visitors in 2018. Grade A. Had around 2,000 in 2017, have 6,267 in 2018. Thanks to everyone who came & read, and especially those who commented. It helps me improve
  • Write/publish a book on finance. Grade D. I have a strong idea (in my opinion) and I’ve got 3 chapters worked out, but still a long way to go. Want to finish that in 2019. I did sell a few copies of my other book on Amazon, however.


  • Increase weight lifted by 10%. Grade B: I hit the goal, but other health issues pushed my fitness training off for 2 months. Just getting back to where I was.
  • Average 3 hours of Cardio per week. Grade D. Still only hitting a little over 1 hours (see health issues above)
  • Take part in one long bike ride (80+ miles). Grade F. Did not do
  • Backpack over 100 miles on AT. Grade C. Did around 80 miles. Other things popped up which kept me off the trail.
  • Reduce weight by 20 lbs. Grade F. Only reduced by about 2 lbs for the year. I was down in July, but the health issues kept me from exercising and I ate too much. Need to get back to it.
  • Read at least one book a month. Grade A+. This was one of the more enjoyable goals. Overall, I read 23 new books in 2018. I hate forgotten the joy of reading, and this one really opened my eyes again to it. Less time in front to the TV and computer/gaming, and more time reading.


  • Visit a National Park. Grade A. Hit two while on our trip to California.
  • Visit family in Tennessee, New York and Vermont. Grade B. Saw family in TN and NY, but didn’t get up to see my brother in Vermont (did see him in TN at Thanksgiving). Plan to do this next year.
  • Visit Portland OR and Northern CA. Grade A. Completed this in 2nd Qtr. A lot of fun, and didn’t get caught in the wildfires.
  • Visit Ashevill NC, Ellis Island, and go on an International Trip. Grade F. Didn’t complete any of these. Primary reason was lack of vacation days from work to enable us to do this. Another reason to hit FI?

Like most folks, it was a mixed bag for 2018. We did get a lot of things done, and made progress on a lot of goals. I’m reasonably happy with how the year worked out. Hopefully you can all say the same!

Next up for posting: How my investment strategy worked (uggh!)

Some other FI bloggers end-of-year reports:

Mr. 39 Months

Investment update for December 2018

Well, despite some of the headlines we’ve seen about the market tanking again, November was an “up” month for me in comparison to how October left me. It just continues to show how the markets work (up one minute, down the next, but overall following an upward, though jerky, trend).

I believe a lot of folks don’t realize how much the Fed has an influence on the markets. For the 7-8 years after the “great recession” of 2008-2009, the Federal Reserve, or Fed, pumped a huge amount of money into the economy in order to keep deflation from happening. Due to that amazing amount of easy money, the markets responded by essentially tripling in value over that time. However, over the last year or two, the Fed has been increasing interest rates and pulling money out of the market. The result is that the markets are having a hard time, with the Fed putting the breaks on.

Many companies are enjoying strong profits, and the P/E ratio of the S&P 500 is 22.05 (est.) which is what it was back in 2015. Think about that, companies are more profitable than they were in 2016 (total return 11.96%) or 2017 (total return 21.83%) – but they can’t increase their price. There just isn’t much new money in the system, and it appears that the profits from 2016 and 2017, at least, were partially driven by easy Fed money.

So what to do? I plan on staying the course, like so many others of you. Over time, the market will increase. We will just have to weather the ups & downs.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

So for the month, I’m up about 2%, with the big gainers kinda matching the big losers of earlier in the year.

  • S&P500: +2.8%%
  • Small Cap: +5.5%
  • International: +1.9%
  • Bonds: +0.8%
  • REITs: +3.9%

My 401K/Deferred account at work is up a similar amount

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up about 2.3%, with several of the REITs (especially HealthCare) going up strongly. Many of the dividend stocks (Chevron, Cisco, etc.) bounced back after big loses. Bonds went up, although my total bond market index greatly outpaced by intermediate bond index fund.

Value Investing Account: I sold off my value stocks in late November to pay for my Roth IRA rollover. I rolled over about $100K from regular IRA to Roth, and paid the taxes out of this “fun money” account. Due to the losses of the stocks, I was able to “harvest the tax loss” and reduce my taxes a little for 2018.

Allocation now:

  • 39% USAA Market Index (my brokerage is USAA)
  • 61% in Vanguard Value Index fund

Both of these were up in November. USAA’s extended market was up 1.8%, but Vanguard’s value index was up 5.1%. Again, these guys both got hit last month, so for the most part, it was gaining back ground.

For the year, I am down 1.99%, so I am hoping for a strong December to at least get me into positive territory for the year. So far, it hasn’t worked out that way. I guess we will see at the year end round up.

How did you do in November?


Mr. 39 Months

Well, I took the plunge….

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

Drawdown Strategy Analysis – using “Power of Zero” – V2 using lessons from the book

My last post, I covered the traditional way to withdraw upon reaching retirement (all your taxable, then all your tax deferred, and finally, all your tax-free spending. In the end, I was left with $1.1M in my Roth IRA.

I also did the analysis with a withdrawal rate of $84,000/year (of which 8,500 if Fed/State taxes). This works out to $75,500 if I manage to avoid any taxes whatever – based on the guidelines of “the power of zero”. In addition, if I keep my income around $24K (the exemption for married) my medical subsidies will reduce my medical costs by an estimated $7.166/year. So I’m going to assume a withdrawal rate of 68,500 to keep the same lifestyle as my previous withdrawal – again provided I can keep my revenue at $24K for the year.

In order to make this work, I would need to use money in my investment account over the next two years to shift $200,000 from my Tax-Deferred bucket, into my Tax-free bucket (using my investment account to pay the taxes. If I do this, at my FIRE date (21 months from now) I should have the following assets:

  1. Taxable bucket: $302,358 (including $156,689 in deferred that I will have just paid the taxes on)
  2. Tax-Deferred: $518,578
  3. Tax-Free: $505,627

So, unless being spent, the items listed will grow at 5.24%.

  • Year 2020 (6 months): Pulling $42K out of Tax-Deferred account (Pop’s IRA). Taxable, but I just got hit with a lot of taxes for my Deferred.
  • Year 2021-2024: Withdraw minimum from Pop’s IRA (a little over $4K) and enough from Mrs. 39 months IRA to hit the $24K (allowance for IRS with no taxes) and remainder from Taxable bucket. This allows us to pay $0 in tax and minimal for insurance, due to subsidies
  • Year 2025-2026: Mrs. 39 Months starts collecting Soc. Security, which alters some stuff. Continue to pull minimum distribution from Pop’s IRA (starting to climb to $5K and $6K), finished depleting our taxable bucket, while reducing money from our tax-deferred bucket to keep total under the $32K minimum for tax-free. Will need to start pulling some from our Tax-Free Roth to make up for lower Tax-Deferred money
  • Year 2027-2028: Mrs. 39 Months goes on Medicare. Assuming medical costs increase about $4500. Continue to take minimum from Tax-Deferred to keep Soc Security under $32K point where we’d have to pay taxes on it. Still Tax free 8 years after retirement.
  •  Year 2029-2031: Mr. 39 Months goes on Medicare. Assume medical costs climb to our final number, so our withdrawal has to be $75,500/year (adjusted for inflation). Still able to pay no taxes by withdrawing minimums from Tax-Deferred and supplementing with Tax-free Roth.
  • Year 2032: Mr. 39 Months begins taking Soc. Security at age 67. However, I’m going to assume that, due to issues with Soc. Security, I am going to assume that I am only going to get half of what I will get (i.e. 50% cut in benefits), so that works out to $16,908/year. So, each year roughly $30K in Soc. Additional funds out of Tax-Deferred and Tax-Free, but I’m going to be past the “don’t pay taxes on Soc Sec – now taxed at 50% of them. Assume income requirements go up to $77K
  • Year 2033-On. RMDs and Social Security force me into higher tax brackets, meaning I’m set at $78500. Mix of Tax-Deferred and Tax-Free withdrawals keep me in good shape.
  • Year 2062: I hit 97 and Mrs. 39 Months hits 99. We have roughly $924K in Roth IRA, and $192K in Tax-Deferred IRA, for a total of $1.16M.

This is more than we had under scenario 1.  This also doesn’t touch our “emergency fund” or house money – which I think of as our backup money in case of major disaster. If this tells me anything, it’s that I should look to shift more than $200k from our Tax-Deferred money, so that we can possibly keep our taxes lower once we start taking our Social Security.

Again, issues with this are that it shows that I could have taken out more and “lived a little more” in my years. In addition, I kept the $9K in medical spending stable, which might not really be accurate.  However, I ended up not paying much in taxes over much of the early part of the retirement.

I think the next step here is to do this study, assuming no social security, and see where that hits.

Other blogs on this topic

Mr. 39 Months