We’re aging out.
As many of you know from your research, 59.5 is the minimum age for starting optional withdrawals from an IRA. Nearly everyone worries about how they’ll tap their IRA for living expenses when they reach financial independence before 59.5. (Although there are many penalty-free exceptions to this tax law.) I hit that dubious age milestone in April 2020, yet after decades of planning for our IRA withdrawals– we won’t need to. Today my spouse and I are pretty sure that we’ll never need to touch our Roth IRAs for the rest of our lives.
In late 1999 we reached financial independence on our high savings rate. We did it through 17 years of saving 40% of our gross income and investing it in equity mutual funds. We didn’t even realize we’d reached FI until 2001, when I finally understood the 4% Safe Withdrawal Rate.
I retired from active duty in 2002 at age 41. In addition to my military pension, we started withdrawing from our investments at the 4% SWR. We also began converting our Thrift Savings Plan accounts and traditional IRAs to Roth IRAs. We finished that process in 2018.
Back at the dawn of a new millennium (and the pit of the Internet Recession), reaching FI was unusual. Retiring in your 40s was controversial and bordered on foolhardy. People wanted to learn more. How did we get that much money? Did we have any clue how long it would last? What if we ran out? What about <insert myths and legends of early retirement here>… and “You’ll be so bored…” and “What will you DO all day?!?”
The 4% SWR is working just fine. In 2020, at age 59.5, we have more money than we need and we’re withdrawing less than 3.5%. It’s sustainable for life.
We used to discuss our plans to avoid running out of money before we died. Now we’re planning to avoid estate taxes. Today we’re nowhere near anybody’s estate-tax limits, but we can project the compound math for another 40 (60?) years of our FI lifestyle. We’re also spending more time on philanthropy and next-generation financial independence.
We’re not shopping for yachts or private jets, but we’re certainly not worried about the next bear market or recession.
The FI conversations are changing.
I’ve belatedly realized that people have stopped asking me how we got to FI. Everyone knows how to do that now. “Heck, Nords did it with clay tablets and a wooden stylus– how hard could it be?”
Today, the classic financial independence wisdom is so
boring widely accepted that personal-finance websites break down FI stages into a half-dozen different levels. People are finally talking about ditching the 1990s FIRE acronym to focus on FI and career changes, not on retirement. If you enjoy your avocation then why would you ever retire?!?
Instead, people want to know about our 18 years of experience at not working for money. And raising your money-savvy family. And philanthropy. And taking care of aging parents. And estate planning. And how recessions feel when you’re FI. And slow travel. And surfing. And grandparenting. And oh by the way, are we bored yet?
I’m no longer asked about asset allocation. Instead I’m getting questions about the military’s Survivor Benefit Plan and life-insurance options, annuities, Medicare, Tricare For Life, and when to take Social Security.
Nobody even asks about growing a ponytail.
My spouse and I have even stopped talking about safe withdrawal rates. We’ve changed our lives quite a bit during the last couple decades, and we’ve made important transitions. Along the way we’ve become much more aware of behavioral psychology, our evolving attitudes from scarcity to abundance, and… (*sigh*) our aging bodies.
I’m struggling to use analogies and cultural references that can be recognized by Millennials and Gen Z. But my whole point of this post is that even my second-millennium analogies are losing relevance– and you guys know how to use search engines.
I might be done writing about my personal finances. I’ll keep writing about general personal finance and I’ll certainly answer your questions– I’ll just stop writing about my specific personal financial independence.
Let’s clean up some random thoughts in a final blog post about Ohana Nords money.
Then you can tell me what else you’d like to see.
Don’t worry, we’ll still share plenty of baby granddaughter photos!
Understanding the journey when you only see the results
My spouse and I spent two decades achieving our overnight financial success. It must seem inevitable that we’re doing well today: I have a pension, she’ll get her pension, we have a rental property, and cheap healthcare!
“It’s so easy that anyone can do it!!” And many do.
However today you’re seeing the highlights reel of the director’s cut. In 2002 it was a very different documentary… as many people implied, perhaps it was “Dumb And Dumber.”
After my military retirement, my spouse and I thought we’d never earn another dollar during our entire lives. (My spouse’s parents are still alarmed by that thought.) My reasonable life expectancy was 40 more years, and the 4% SWR studies have struggled to extend their analysis past 30 years.
Back then our assets consisted of:
- our equity mutual funds with two years’ expenses in cash,
- our home (a live-in rehab project, mortgaged at 6%),
- a rental property (leased to my spouse’s parents, mortgaged at 7%, with zero cash flow), and
- my military pension.
We had a few financial issues:
- The Internet Recession (and the 9/11 attacks) were still wreaking havoc on the stock market.
- Our home needed a lot of work to become an actual house.
- My spouse had left active duty for the Reserves.
- I didn’t file a VA disability claim because I didn’t feel disabled. (Rookie mistake!)
- Our rental property needed more work and was worth less than we’d paid for it in 1989.
- Our rental might be a long-term care facility for my spouse’s parents.
Our math said it would all work. (Barely.) We projected that our expenses would actually drop after I retired because we’d stop outsourcing and start doing more sweat-equity labor.
Our biggest asset was our time. We finally had the time to become better parents, to enjoy our marriage, and to manage those troubled financial assets. We knew that we also had plenty of time to figure out whether this 4% SWR stuff was really sustainable. We had time to find other jobs, to move to a lower-cost area, and several other tactics.
The relentless math of financial independence
We still didn’t realize how our assets would appreciate with the 4% SWR, but we sure appreciated having more time in our lives.
I remember taking a lot of recovery naps in 2002. I had more time
for surfing for exercise to get my weight and blood pressure under control. We ate healthier (and cooked more). The stock market finally bottomed out in October 2002, although nobody believed that until late 2004.
We were still parenting a tweenager. We were still working on both houses. We wondered how we’d free up the money to buy all the materials (and pay the contractors) to fix everything. We started refinancing our mortgages, which is challenging when lenders only see pension income and capital gains.
By 2007, life was even better. I remember looking at our finances one night and shaking my head in disbelief about having over 200% of the money we needed for the 4% SWR.
That financial issues list was looking better:
- We’d reduced our expense ratios from mutual funds (1.38%) to ETFs (0.25%).
- Our home looked more like a house, but still needed more work.
- My spouse had qualified for a Reserve pension starting in 2022.
- Real estate values were rising, and our 30-year mortgages were now at 5.375% and 5.50%.
- My parents-in-law had returned to the Mainland, and we raised our market rent by 87%.
Then 2008 happened.
The Great Recession hammered us right in the middle of our sequence of returns risk.
Our net worth dropped by 58% from its ridiculously high peak to its ludicrously low pit. Amazingly we still had 150% of the money we’d need for the 4% SWR, but at the low point in 2009 we were sure the recession would last for a decade. I stopped looking at our financial statements.
If there was anything good about that recession, it was our opportunity to have many thoughtful discussions of our lifestyle expenses and our asset allocation. We’d dropped our mortgage rates to 3.625% and 4.625%. We’d reduced our non-discretionary expenses with solar power and fuel-efficient cars. We were converting our TSP accounts and traditional IRAs to Roth IRAs. We’d made a lot of sweat-equity progress on our home and our rental.
In 2010 our daughter started college. (We’d invested for that that since 1992, and now her college fund was in I bonds & CDs.) The markets showed “green shoots” of recovery, yet we all expected a head fake and a double-dip recession. By 2012, however, we’d begun believing that the economy really was recovering. We had the courage to spend a big chunk of our own recovery on a major home renovation.
As our second decade of FI began, our aggressive portfolio (>90% equities) recovered almost as fast as it had dropped.
I’d published a book, and suddenly (after a decade of practice) I had a writing & blogging career. I donated all of my revenue to military-friendly charities, but I knew that I’d never need another Plan B.
Our cautious optimism was boosted by confidence. Life was not only good but our attitudes finally made the transition from scarcity to abundance. We didn’t need to earn a dollar ever again, and we saw opportunities everywhere.
Yet another recession! But…
Our net worth hit a seventh annual new high in 2019. We’ve already survived two recessions and we’re just about bullet-proof from future recessions.
We’ve also finished optimizing the “personal” part of our finances. We already had more than we need, and now we’re wasting even less of it.
Amid the chaos of the Coronavirus Recession, we’re checking off our list:
- We’ve simplified our asset allocation in autopilot with a total stock market index fund.
- Our portfolio’s overall expense ratio is 0.03%.
- Oahu real estate values are at an all-time high.
- Our home is in great shape with low maintenance.
- Our 40-year-old rental property is finally rehabbed and has a little cash flow.
- We consolidated our mortgages to one loan at 3.50% (and might go even lower).
- My spouse’s pension starts in 2022.
- We finished our Roth IRA conversions.
- I finally filed my VA disability claim… 14 years late.
- We’re driving electric vehicles with free power from our home’s solar panels.
- We’ve finished our estate plan and we’ve figured out more of our philanthropy plan.
Just reducing our investment portfolio’s expense ratios has paid for a couple months of slow travel. Every year. For as long as we can travel.
My spouse is the real winner. When she declined yet another unrefusable offer of her active-duty career in 2001, she abandoned nearly $1M in pay and pension over the next two decades. I remember shaking my head and thinking “It’s only money.” She didn’t need to pay the price for it.
We gained far more than she gave up.
Not only did the Reserves improve our family’s quality of life, but it restored the career challenge and fulfillment which had withered for us in the 1990s. It turns out that we didn’t need the $1M, either, yet she’ll recover that several times over during the rest of her life.
Saving and investing for financial independence gave us choices. As every military family knows, the assignment policies are rigidly hostile to dual-career couples. (They’re especially discouraging to dual-military couples, but that’s a whole ‘nother blog post.) I’m skeptical that assignment policies will ever get better, but the Web has at least improved the career mobility options for military spouses. We were able to save for financial independence in the last millennium, and today there are even more opportunities to do that during active duty.
My father passed away in 2017 after nearly a decade with Alzheimer’s Disease. My spouse and I are now self-insured for long-term care. It makes me feel better to know that my family will have less caregiver stress, and if we don’t need the money then we’ll make a charity reasonably happy.
My VA disability rating came in at 30% for bilateral knee damage and tinnitus. I’ve waived a portion of my taxable pension for the tax-free compensation, and it’s saving me about $100/month of income taxes. Someday I might apply for a bonus round due to service-related hearing loss or (much later) a knee replacement. Otherwise, I’d like to avoid “upgrading” my membership in this unfortunately large club. We’ve already paid the price and the benefits aren’t worth the cost.
Our life’s documentary started amid attitudes of scarcity and fear, yet now we’re finally living happily ever after.
Where do we go from here?
We’re no longer watching our withdrawal rate.
The 4% SWR may have its flaws, but they’re easily avoided– and its successes lead to new challenges.
We’re boosting our philanthropy. It’s the right thing to do and it also avoids the perils of dynastic wealth. It turns out that when you raise a money-savvy family, the next generation takes care of their own financial independence without waiting for any of your assets. Our daughter and son-in-law already understand FI and career changes, and their lives are full of their choices.
Speaking of next-generation FI: our baby granddaughter is going to get two generations of coaching in it. We’re supporting her 529 account for a year or two, and we could leave her enough inherited wealth to do anything, but I doubt she’ll need it. I’ve seen what the Web has done for the career choices of our daughter and son-in-law, and I can’t wait to see what it does for Arya.
My daughter Carol and I are about to publish our book on raising your money-savvy family. The editing is done(!), the layout looks incredible, and we’ve recorded the raw tracks for the audiobook. We’re publishing in June 2020 and I’ll update this post as it approaches. Mahalo nui loa hana hou to MK Williams and the team at ChooseFI Media, and we can’t wait to see everyone’s feedback!
I’m writing my third book about financial independence for life. When my spouse and I attended FI Chautauqua 2019, we looked around the room and realized that we were the “most experienced” FI couple. I’ll keep writing books (while I still can), and this time it’s about an abundant lifestyle.
humblebragging blogging about our family’s financial independence. Now that my spouse and I are approaching what used to be a traditional retirement age, from here on our personal financial blogging will be about more traditional retirement issues.
I’ll still occasionally update the bar chart on our net worth post.
I hope we can convince even the 4% SWR skeptics what it means to reach FI with an 80% success rate. There are plenty of ways to counter the hypothetical 20% failure rate, and the benefits far outweigh the fears.
For you older readers– good news! I’ll share more golden knowledge nuggets about:
- Medicare premiums (and IRMAA),
- Tricare For Life (and other Medicare supplemental insurance),
- Social Security (and its taxation), and
- insurance programs (or self-insuring).
No worries– we won’t review chair lifts or other… “elder mobility independence products.”
We’ll also write about:
A better lifetime philanthropy plan. We don’t have to worry about signing The Giving Pledge but we could certainly give 1% of our net worth to charities every year. Right now the biggest bang for an American buck seems to happen with food banks, homeless shelters, and… AccesSurf.
Exit strategies for investment real estate. (Other than “probate.”) It’s possible that our next generation could move into our rental property during a Hawaii tour. It’s been a crappy financial investment (and a huge opportunity cost) with a great family benefit, and I don’t feel the need to optimize it any further.
The dreaded Income-Related Monthly Adjustment Amount of Medicare. My spouse and I can’t avoid IRMAA, but maybe our higher premiums will help stabilize the program for the rest of us.
Social Security at age 70 in 2030. I know everyone’s concerned about the potential 2034 reduction in benefits, but that will be fixed. Between SS and my pension we might not even need our investment portfolio.
Speaking of investments, we might start doing that again with my spouse’s pension. This time we could buy shares with her pension income and donate an equivalent amount of appreciated shares for the income-tax deduction. Better yet, if we ever needed to cash in our gains from our newer investments then we’d pay much lower taxes. If we never needed to cash in our gains then we’ll make more charities very happy.
Your call to action
I think I’m done writing about our Ohana Nords finances. If you have any questions left over, please ask them in the comments or use the “Contact me” box!
What else do you want to read about (or listen to)?
The Military Guide to Financial Independence and Retirement Price: By Doug Nordman: This book provides servicemembers, veterans, and their families with a critical roadmap for becoming financially independent.
BiggerPockets Money video podcast on FI during a global pandemic (episode #119)
The 1980s-2000s: How I Wish I’d Invested Back Then
Good News! How Our Nords Family Financial Independence Life Will Change In 2019
Our Retirement – The Spending Smile Of Financial Independence
Fear And Despair In The Time Of Bear Markets
Yet Another Decade In Review Post
Family Estate Planning For Your Disability
“I Inherited Money And Now I Can’t Blog About Financial Independence Anymore”
CFP Michael Kitces’ site: The Extraordinary Upside Potential Of Sequence Of Return Risk In Retirement
Michael Kitces explains the upside of the 4% SWR on this BiggerPockets Money video.
Don’t Gut It Out To 20: Leave Active Duty For The Reserves Or National Guard
“Hey, Nords: How’s Your Net Worth?!?”
Why You File Your Veterans Disability Claim (Not Just How)
Early Withdrawals From Your TSP and IRA After The Military
Our next book: Raising Your Money-Savvy Family For Next Generation Financial Independence