Extreme Early Retirement

by ⋅ 1 Comment

Looks like retiring early is becoming a “thing” now. And here I thought we were so special. 😉 I found this extended article on how to retire in your 30’s. It is definitely worth a read, and has the stories of several other bloggers that are already living paycheck-free.

The main thrust of the article, in my opinion, is that you need to change your values in order to have an extreme early retirement. I disagree. I think there are many people out there that already have the values that could lead to an early retirement, myself and Mr. PFL among them. I mean, Mr. PFL maxed out his 401(k) contributions since Day 1 of his first post-college job. I still drive my 2003 Toyota Corolla. Most Americans don’t do these things. I think it is important to realize that these values can lead to an extreme early retirement, which I don’t think I fully appreciated. I do now. And I’m grateful that I didn’t realize how much we “sacrificed” to get here.

Gotta Get Outta Here

by ⋅ 2 Comments

Delaying gratification has never been an issue for either of us. But, our current “plan” is self-imposed and somewhat arbitrary, so we are struggling. Technically, we could be done working at the end of the week and we would make it. I know this. Mr. PFL knows this. We realize that we have more money than we might be able to spend in our lifetime. We don’t need stuff, but crave experiences. But if we did just call it quits, how much would we restrict ourselves in the future? Would that cause more stress than it alleviates? Will I be more comfortable taking this risk at this time next year? How much will an extra year of working really change our position?

My head tells me that waiting is the right thing to do. My heart aches to move on. My gut knows that time=money and when we have more time on our hands, we won’t want to be restricted by a lack of money.

My immediate short-term goal is to compile a list of everything that needs to be done in order for us to live paycheck-free. The list will need to include, at a minimum, selling or closing my law practice, moving, health insurance, possibly power of attorney/estate planning, statutory agent for our LLCs, property management, a plan for our cat, a plan for our cars, and probably selling our house. It is like a graduation checklist; we just need to decide on our commencement date.

Retirement Advice

by ⋅ Leave a Comment

Almost every day, there seems to be a new article out regarding retirement. Today, for example, I found one about how to save a million dollars for retirement. The articles all seem to have basically the same advice: start early, save as much as possible, and don’t be too conservative with your investing. They almost all preach delaying retirement by continuing to work at your job and delaying social security. While this is all solid advice, I’m becoming more convinced that it is all propaganda. And, most Americans don’t follow this advice anyway!

On the flip side, a quick search for articles on investing in real estate for retirement brought up some fairly old articles. Each one seemed to highlight the negatives more than the positives. While I agree that it is much easier to put money in a mutual fund, the people that write the retirement articles really have nothing to gain from writing about real estate investing; in order to invest in the stock market, some company will get paid. If you own real estate, you don’t need anyone else.

I understand that real estate investing is not for everyone. When we talk about it, most people say they don’t want to deal with a broken toilet in the middle of the night. I’ll admit that we have dealt with a couple of broken toilets, but, really, how often does this happen? Eliminating an entire asset class and potential revenue stream because of the possibility of a broken toilet is perplexing.

While I know I’m not an expert, Mr. PFL and I truly believe in, and remind ourselves, about the real key to retirement: diversification. Most of the time, diversification is only used to describe money used to buy stocks/bonds/CDs/etc. in retirement accounts. Others try to “think outside of the box,” but still fall short (health insurance is NOT an income stream for retirement). Diversification, for me, is trying to have income from all kinds of sources that the IRS could tax. For example: wages, business income, royalties, and rental income. The goal, I believe, should be to limit “wages” as an income stream in retirement.

2014 Year End Review

by ⋅ 2 Comments

Hello Everyone and Happy New Year!!! May 2015 be as good or better than 2014 for all of you…

As I have mentioned in the past, I am a huge fan of personal finance management software. My personal choice is an application called MoneyDance and I love it. One of the features I love most is the customized reports and detailed graphs that I can create. I have so many customized reports I can break down our finances in dozens of different ways. One of my favorites is taking a look at year end to see how things went.

So, without further ado, here is a look at our 2014. The table below shows a break down of our account balances on 1/1/2014 vs. 1/1/2015 with the gain/loss listed in the right column. I have grouped these into the various assets/liabilities that I track on our Net Worth Tracker page.
Some observations:

  • Nice to see the Pension Plan add $5000 to the kitty. I’ve mentioned it before, but this is a nice little benefit of working for the corporate machine. Now that I have 10 years of service time, my pay credits has increased to 4%. Long story short, this has slowly built up to the point where I now get over $5000 added each year. I can cash this in once I leave either as a lump sum (with higher taxes) or over some period of time (with lower taxes). Let’s worry about that later and for now we’ll just watch it do it’s thing.
  • My Roth IRA has made almost all of it’s gains ($11k) since 10/2 based on my reports. I noticed that when I updated the Net Worth Tracker page today that it was at $58k on 10/2 and now at $70k. This is due to a speculative buy I made on a bio/pharma stock that has returned something like 325%. I bought 650 shares at something like $7 and it took off to over $35. I sold off enough to get back my initial $5k investment and still have 500 shares in my portfolio. Fun times when it works…
  • My Work 401k, which I consider to be the bedrock of our portfolio, is performing quite nicely. I’ve cut back my contributions this year which was EXTREMELY odd for me. I have MAXED my 401k contributions from day ONE. I fell in love with compound math the summer before my first real job and that changed everything (I remember it like yesterday). I was amazed at how much of a difference it made if you started investing at 20 vs. 30 or 40 or, heaven forbid, 50. At that moment I decided I would do all I could to max out my 401k contributions from the start. This year we decided to divert some of that cash to other interests as our 401k is pretty hefty now. Even with that, the total increased nearly $50k which is fantastic in my book.
  • Mrs. PFL did good work with her SEP and Roth IRA’s. We complement the aforementioned “bedrock” with our IRA’s and between the two of us we have a tidy little sum. I let her manage it but we try to make sure it fills in a need such as an International Fund or Small Cap. Just enough to try and keep us diversified.
  • Overall we were able to reduce our debts (credit cards, HELOC, Mortgages) by $30k. We did a bit of repair on our primary house that really prohibited us from knocking this down even more (and why our HELOC increased). I expect in 2015 we should be able to really take a good chunk of this out as it’s our primary focus. We use the rental incomes and any left over cash to knock this down. The one thing about compound math is that it also applies to interest and thus can work against you. Plus I really really really dislike debt (Ala Dave Ramsey).
  • The value of our assets, which is primarily our house and our rental units, can be a bit subjective. I try to update these based on various metrics. For our primary residence we use tax assessments and we review real estate transactions within our area and I tweak it once or twice a year. For the condo, the neighbors sold their unit this year so we have a good baseline for that. The new rental unit is the biggest gainer as we put a lot of time (and 2013 debt) to fix these up and get them rented. Ultimately the goal is to eliminate the debt on these and have them generate monthly income allowing us to truly achieve Paycheck-Free Living!!

So what do you think? Not a bad 2014 if I do say so myself. This is why I am trying to stick it out at my corporate job as long as I can. If we can grease this wheel a little bit more and eliminate our bigger debts, our dream may become true. The nice thing right now is that we are able to do all these cool things (Sugar Bowl, Hawaii) and still make progress.

Account As of: 01/01/2014 As of: 01/01/2015 Gain/Loss
Bank Accounts Total $20,471.06 $18,435.69 ($2,035.37)
Pension Plan $32,411.36 $37,466.43 $5,055.07
Investments - Total $632,741.43 $715,236.79 $82,495.36
E*TRADE Investment $32,805.07 $32,928.74 $123.67
Roth IRA (Mr PFL) $58,832.98 $70,037.96 $11,204.98
ESPP (Mr PFL) $8,878.08 $9,692.91 $814.83
Work 401k (Mr PFL) $392,069.09 $440,856.19 $48,787.10
529 Plan $2,565.06 $2,730.86 $165.80
Roth IRA (Mrs PFL) $34,563.59 $39,789.36 $5,225.77
SEP IRA (Mrs PFL) $59,004.20 $70,326.34 $11,322.14
Precious Metal - Total $11,612.00 $11,408.00 ($204.00)
Assets - Total $894,422.96 $1,001,675.00 $107,252.04
Primary Residence $480,000.00 $500,000.00 $20,000.00
Condo – Rental 1 $331,000.00 $338,000.00 $7,000.00
BD – Rental 2-7 $61,833.00 $126,000.00 $64,167.00
Auto/Misc Assets $8,000.00 $8,000.00 $0.00
Other Rental 8 $13,589.96 $29,675.00 $16,085.04
Credit Cards - Total ($110,780.98) ($109,016.02) $1,764.96
Business Credit Cards ($16,960.11) ($11,034.20) $5,925.91
Personal Credit Cards ($4,965.24) ($4,942.88) $22.36
HELOC Loan ($58,855.63) ($62,486.84) ($3,631.21)
HELOC Loan ($30,000.00) ($30,000.00) $0.00
Loans - Total ($545,256.99) ($518,218.46) $27,038.53
Primary Mortgage ($329,332.36) ($321,183.64) $8,148.72
Condo Mortgage ($99,999.99) ($89,039.57) $10,960.42
Personal Loan ($26,833.28) ($24,195.25) $2,638.03
Student Loan ($89,091.36) ($83,800.00) $5,291.36

Total

$891,597.48

$1,108,113.00

$216,515.52

Million $ Question

by ⋅ Leave a Comment

Although it has been over a month since Mr. PFL and I discovered our net worth was over a million, we haven’t made any drastic changes. We do talk about making drastic changes a lot more. I’ve found myself sinking into articles about retirement and travel. My biggest hang-up, I think, is that I struggle to envision the money being there forever and really not needing to work again.

I ran across an article today that asks: “Can you retire on $1 Million?” The short answer was yes. The analysis showed that, with proper investment, withdrawals and restraint, this amount of money can last a long time. It is even possible for it to continue growing. But, could it really last us forty years? Should I be worried about that right now? How much of an impact does owning rental real estate make in these equations? What if we just quit tomorrow? (We won’t, but really, what if?)