FREE NEWSLETTER

Road to Retirement

Dennis Friedman

WHEN I WAS IN MY early 20s, many of my friends wanted to buy expensive new cars. But I wanted to save money. In fact, I was probably too thrifty. Some people wear their frugalness as a badge of honor. But I was sometimes embarrassed by my spartan lifestyle.

I was a college graduate with a history degree. There weren’t too many jobs for someone like me. That could be the reason I was squirreling away so much money. Later, I did get an MBA, but that insecure feeling never went away.

Most of the homes I lived in were small apartments without the standard conveniences you would expect when renting or buying a home. Some of my apartments were so terrible I was embarrassed to invite friends over. In 1980, I was looking for an apartment to rent. I walked by an older building that had two vacancies.

One was a studio apartment located on an alley above a garage. The rent was $300. The other apartment was a one-bedroom with a long and narrow floor plan facing the street. It reminded me of a bowling alley lane. The rent was $500. I chose the studio apartment because it was cheaper and I could save more money. I was making decent money at the time, working as a production control planner, but I was determined to live well below my means.

It wasn’t the safest place to live. A drug dealer lived in the apartment next to me. My car was broken into more than once. One day, someone stole my clothes from the laundry room. But none of that fazed me—until the new owner raised my rent to $390. At that moment, I realized I needed my housing costs to be more stable and predictable if I was ever to reach financial freedom. I knew if I kept renting, my landlord could increase my rent at any time. I’d have no control over one of my biggest expenses—my home.

My first big investment. In 1985, I found a small 789-square-foot, one-bedroom condominium for sale in Long Beach, California. It was on the top floor of a nice-looking, secure, three-story building and overlooked the street. It felt like you were in a treehouse because the top of a big tree was hanging over the front of the unit. It was within walking distance of the beach and plenty of good restaurants. It seemed like the ideal place to settle down. The owner was asking $102,000, but I was able to negotiate the price down to $91,000.

The next morning, I woke up with buyer’s remorse. I felt anxious about being a first-time homeowner. I’d never purchased anything that expensive before. The only other thing I’d bought of any real value was a new 1976 Mercury Capri, and that cost just $4,500. I went to work that day thinking about all the things that could go wrong with owning that condo: What happens if I lose my job? What happens if I can’t get a home loan? Is that big tree out front going to be a problem? Is it going to be too noisy facing the street?

I was sitting in my boss’s office at Hughes Electronics discussing some manufacturing issue, when he asked, “Is there something bothering you?” I guess my demeanor revealed the uncertainty I felt about the purchase.

I told him I’d put a deposit down on a condo, but I was thinking about canceling the transaction. I said, “I don’t know if it’s a good deal for me.” Cliff reassured me. He pointed out the upside of being a homeowner. It could increase my net worth because I would build equity if the condominium rose in value. I could also deduct the interest on the home loan and the property taxes on my tax return. It started to sound like a pretty good deal, after all. It was what I needed to hear.

The condo was one of the best investments I ever made. My mortgage payment was only about $150 a month more than the rent I’d paid for that crummy studio apartment. Later, I refinanced at a lower interest rate and my mortgage payment was even less. I eventually paid off the mortgage in 14 years.

The condo purchase put me on the road to financial security. Because of my low and stable housing costs, I was able to save a lot of money during the 35 years I lived there. I maxed out my 401(k) plan contributions. When I reached age 50, I added regular catchup contributions to the plan. Any other extra money I had left over I invested in a taxable account at Vanguard Group. My salary kept going up and my housing costs were going down. It was a perfect scenario for someone who’s an avid saver. I thought I’d reached nirvana.

When I sold my condo in 2020 for $380,000, my old studio apartment on the alley above the garage was renting for $1,564. If I’d stayed there, or rented another apartment, I never could have saved the amount of money I did. At the time I sold the condo, my housing costs were approximately $600 a month. That included homeowners’ association fees, property taxes, insurance and utilities. I rarely had any out-of-pocket expenses for repairs.

A mistake pays dividends. While I was doing a good job saving money, I wasn’t doing a very good job at investing it. I was constantly jumping in and out of different mutual funds and stocks, trying to find the right investment—until the day I got some fatherly advice.

I used to call my mother every day just before I left work. If I didn’t call her, she would think something was wrong. One day, I called and my father picked up the phone. He started talking about this guy on the radio who was giving out investment advice. He encouraged me to listen to his show at the weekend. I was skeptical, but I gave it a try.

It was the early 1990s. The host started talking about something called Spiders—otherwise known as Standard & Poor’s Depository Receipts—and about a Vanguard 500 index fund. At first, I had no clue what the guy was talking about. I didn’t know you could buy a mutual fund or an exchange-traded fund that tries to match the performance of an index, such as the Standard & Poor’s 500. But the more I heard him talk about how these types of investments cost less, generated less taxable income and were highly diversified, the more I liked what I heard.

The one thing he said that really caught my attention was this: If you invest in an index fund, you take away one of the biggest risks in investing—underperforming the stock market. After all the years of unsuccessfully trying to beat the market by investing in actively managed funds and individual stocks, this statement rang true. I began to make low-cost, broad-based index funds the core holdings in my investment portfolio.

Our Free Newsletter

Unfortunately, I also listened to something else the radio show host said—and that advice cost me money and sleep. He was a market-timer. He issued a major buy signal for the Nasdaq Composite index and suggested buying an exchange-traded index fund that’s now known as Invesco QQQ Trust. I bought QQQ at $70 a share and watched it fall to $20. I found myself invested in the most volatile part of the stock market during a savage bear market. As the share price plunged, I felt like I had jumped out of an airplane without a parachute. And I wasn’t the only one. I had talked my sister into it. Then my dad jumped in. He didn’t want to miss out on the opportunity. I felt terrible for sucking them into this mess.

It took many years before QQQ reached my breakeven share price. I learned an important lesson about trying to time the market: It’s extremely difficult to predict what the stock market is going to do in the short run. After that financial fiasco, I decided to keep it simple and become a long-term investor. When I retired, almost all my money was in just three funds: Vanguard Total Stock Market Index Fund, Vanguard Total International Index Fund and Vanguard Total Bond Market Fund. I’d learned the hard way that these three funds were all I needed to help me reach my financial goals.

A lesson from my father. Although I had a fairly sizable investment portfolio when I retired, I still didn’t feel financially secure, in part because of a conversation I had with my father. I received a phone call one evening from my dad. He asked if I could come over right away. I knew it must be important because I lived about 25 miles away, and the rush hour traffic at that time was terrible.

When I got there, we went upstairs to a small room that my parents had made into a study. He handed me a tablet and pen, and started telling me where all their money was. I knew right away what my father was doing. He was getting his affairs in order.

My father had been battling cancer for two years. He went through many rounds of chemotherapy and radiation treatment. He’d even tried experimental treatments to combat the disease. He’d finally realized he wasn’t going to make it. My dad wanted to make sure I knew where every nickel and dime was located, so I could help my mother when he was gone. Most of the money was at Vanguard, but there was also money at a few banks and a brokerage house.

As I listened to my father, I realized how important it is to have sufficient guaranteed income for life. He knew it would be difficult to survive on just his Social Security benefit and their modest retirement savings. My dad had taken his Social Security at age 65. My mother also had a small pension of $495 a month from her days as a switchboard operator at a department store. They had declined the survivor’s benefit option on my mother’s pension, which meant my father wouldn’t have received anything if she died first. They thought her pension was so small it didn’t make sense to take the survivor option and get an even smaller payout, plus a woman’s life expectancy is longer than a man’s. It turned out to be the right decision. My mother lived until age 96, passing away seven years after my father.

When I left my parents’ house that night, I knew it would be wise to delay my own Social Security benefit until age 70. I saw the worried look on my father’s face, knowing that my mother’s savings might run out, and that his Social Security and her small pension might not be enough for her to live on. Still, waiting until 70 to take Social Security wasn’t easy. It was difficult to withdraw money from savings to cover all of our living expenses, especially after drawing a paycheck for 40 years. Knowing that all my friends and acquaintances weren’t waiting until 70 also didn’t help. But I kept thinking about my mother, and how a larger check would have made her life more financially secure. I wanted that for my wife.

There was another reason to delay my benefits. It lowered my taxable income. While I waited to claim Social Security, I was able to make larger Roth conversions. That means I’ll have smaller required minimum distributions starting at age 72.

The wait for a larger check was well worth it. My Social Security today is over $40,000 a year. If I ever have to have a conversation with my stepson about our money, I’ll be able to tell him that my larger check should be more than enough to cover our basic living expenses for as long as we live. Meanwhile, we’re enjoying ourselves. We can spend more freely knowing we have a financial backstop. The experts might be right when they say retirees who have predictable income are happier. When you add together my wife’s Social Security benefits and mine, they’re large enough to support us during periods of market turmoil. That means we can give our portfolio time to rebound from any market hit. Maybe most important, the larger check gives us peace of mind.

When I look back, I was obsessed with the idea of saving enough money so I could retire early. I did retire early, at age 58. Even so, I still felt financially insecure—until I started receiving my Social Security benefit.

Tomorrow is here. Although I now have a financially comfortable retirement, I also have regrets. I wish I had traveled more earlier in life rather than waiting to do most of it when I retired. Instead of accumulating more wealth than I needed, I should’ve invested some of that money in a trip to Europe, Asia or even Australia. It doesn’t seem right that a 70-year-old man, who loves to travel, has been out of the country just twice—to Canada and Mexico, and that’s if you count Tijuana.

I waited until retirement to do some of the things I’ve always wanted to do, and that might have been a mistake. Almost immediately after retiring, I had caregiving responsibilities for my parents and now, of course, we have this pandemic. Together, they’ve kept me from doing the things I’d planned to do in retirement. It’s been 12 years and counting since I quit work, and I’m still waiting to fully experience what retirement life is supposedly all about.

I feel a sense of urgency to get on with my retirement. I don’t feel like I’ve lived a full life yet. It’s a painful feeling that no amount of money can cure. The only way to make that feeling go away is to experience life. That’s what I plan to do with my remaining time.

Latest Posts

HERE ARE THE SIX other articles published by HumbleDollar this week:

  • With bond yields so low, does owning a classic 60% stock-40% bond balanced portfolio still make sense? John Lim looks at some alternatives.
  • “The best way to protect yourself from Mr. Market’s manipulations is to be expert on that other important person: yourself,” says Charley Ellis. “It’s important to learn about your weaknesses.”
  • How does Ron Wayne cover his retirement expenses with a less-than-average income? He details how he holds down housing, entertainment, grocery, vacation and other costs.
  • Many investors voice strong opinions and make outsized investment bets. Adam Grossman suggests a radical alternative for 2022: moderation.
  • How many ways can we mess up financially? Greg Spears offers a guided tour of 17 behavioral finance biases.
  • “While baby boomers control the majority of the wealth, it’s the younger generations who are creating the investment opportunities of the future,” notes Jim Kerr. “Best listen to what they’re telling us.”

While you’re at it, be sure to peruse the past week’s blog posts, including Kyle McIntosh on real estate agents, Mike Zaccardi on target-date funds and Dick Quinn on his good fortune. Also check out the blog posts devoted to New Year’s resolutions, including John Lim on sleeping more, Kristine Hayes on worrying less, Jim Wasserman on going back to school, Dennis Friedman on being patient, Rick Connor on getting healthy and Mike Zaccardi on automating his finances.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

Do you enjoy HumbleDollar? Please support our work with a donation. Want to receive daily email alerts about new articles? Click here. How about getting our newsletter? Sign up now.

Browse Articles

Subscribe
Notify of
14 Comments
Inline Feedbacks
View all comments
macropundit
macropundit
6 days ago

>>  I don’t feel like I’ve lived a full life yet. It’s a painful feeling that no amount of money can cure. The only way to make that feeling go away is to experience life. 

If one feels one hasn’t experienced a full life, IMO then probably no amount of future experience will help. It’s an overall philosophy of life question. Something is always missing. Religious belief in the value of the mundane, or the philosopher’s childlike wonder of the world if you prefer, is the only real answer IMO because something will always feel missing. It’s the human condition. If there’s something I really want to do, then I do it. I do the same for my family. But these things seldom live up to the hype so despite the conventional wisdom of “experiences over things”, I don’t think chasing future experiences is a good idea.

Ronald Wayne
Ronald Wayne
9 days ago

You were fortunate to be able to live in the same place for that long. Between 1985 and 2020, I moved seven times to different cities because of job changes. Although our moving expenses were covered by employers for four of the moves, we ended up staying in two cities where we bought houses for just four years, which is not a lot of time to gain a lot of equity. Plus after we eventually had two kids, we needed a larger place along the way. And now I’m a condo I bought after separating 15 years ago before the Great Recession. The real estate market can be a boon to owners, but not always.

UofODuck
UofODuck
10 days ago

A good article, but some perspective would be appropriate. First and foremost, you have to earn enough in order to save money. Not everyone has the luxury (and it is truly a luxury) to save money. Assuming you can get over this hurdle, you the have to have the discipline to spend less than you earn and save the difference. Time is also critical as having a long enough time frame in which to reap the benefits of compounding is also important to most of us. Finally, you have to be able and willing to put enough of your savings “at risk” (i.e., investing) that your returns over time will be greater than inflation.

Your path sounds a lot like my own. I bought my first house in 1975 and began saving for retirement beginning with my first job out of college. It didn’t hurt that I also worked in the investment business for 42 years that taught me (with regular pain along the way) how to manage and grow what I had saved.

The next big hurdle is who will take over the investment of our savings after I am gone, or no longer able to do it myself. A lot of us will face this final hurdle and it warrants some careful advance consideration.

Ormode
Ormode
10 days ago

If you saved that much and put money into stock in the 80s and 90s, you should have a very large sum of money by now. I am 68 and quite wealthy, but if I had put money into the S&P in the 90s I’d have more money than I could ever spend.

Matt McGuinness
Matt McGuinness
10 days ago

Great article Dennis! I followed a somewhat similar track, just ~ 9 years behind you (I’m 61, and getting ready to retire at the end of this year). Like you I moved to So Cal from the midwest (from Michigan, in 1982), and got a steady corporate job (Big 8 CPA firm).

After renting for 4 years near the sand in Manhattan Beach w/ 2 college buddies, I bought a 1,000 sf starter home in Long Beach for $104K (major “Fixer” 9 miles from the beach), and got engaged. Did all the work myself, thanks Home Depot, and sold it a year later in 1987 for $175K. If you lived in So Cal during the past 40 years, serial buying RE, fixing & flipping was another way to accumulate significant home equity. We have owned 5 successor fixers since that first house, but have lived in our current home in Laguna Beach for the last 21 years now.

I have 7 older brothers and 1 sister (who is coming to visit us next week from Ann Arbor to celebrate her 60th B-Day), and I have been preaching “wait until 70 to collect SS” to all of them for years. I believe my wife will probably outlive me by at least 5 years, and this strategy has an excellent probability of easily exceeding the breakeven payback point related to deferring benefits.

You did me a big favor this morning by sharing your overall retirement portfolio strategy (ie you’re primary savings are all invested in only 3 Vanguard funds: VITSX, VGTSX and VTBIX). My remaining 401K balance is currently invested in exactly those same 3 funds, in that order, not because I was wise but because I was lazy! Our plan automatically moved everyone’s balances to age-appropriate Target Date Vanguard Funds (VTHRX, the 2030 target date fund for me), and I was too lazy to override that default.

That is, I was too lazy up until COVID hit. Until then I was disappointed in most years year that S&P and NASDAQ beat my 401K returns by wide margins, 5-10% points in many years. But I stayed the course and stayed in VTHRX. (Yawn!)

Then I started taking a series of very large tax-free in-service Rollover Distributions from my 401K into a self-directed Rollover IRA right after COVID hit and the market tanked, ultimately moving ~ 98% of my 401K funds over – and reinvested those funds into small cap value funds, individual REITs and energy stocks that had been crushed along with everything else, instead of back into VTHRX. That has turned out very well for me, and since March 2020 my IRA has significantly outperformed the broader market indices (which of course themselves have done very well over the same period). But I could never have pulled this off if I hadn’t gone INTO Covid at the end of 2019 with all of my 401K funds so conservatively invested, including a significant bond allocation!

So if I recently moved 98% of my funds OUT of VTHRX over the past 21 months, why am I so glad I saw your timely article this morning, which endorses that very allocation ?

Because you just reminded me WHY this is such a powerful asset allocation strategy when times are still uncertain. In fact. most of my market success over the past few years was only possible precisely BECAUSE I was so invested in the VTHRX allocation strategy going in – which set me up to be in a position to take advantage of that turmoil almost 2 years ago now.

I was just getting ready to rebalance OUT of VTHRX the last ~ 2% of my formerly large 401K balance, to other more narrowly targeted sector allocations. I was literally working on this when I took a break to read your new post this morning!

But you have caused me to reconsider. Since I intend to retire in < 12 mos, and I a focus-on-the-law friend named Murphy & I believe the much anticipated/ long overdue/ gully-washer of a market correction everyone has been waiting years will finally arrive by early 2023, soon after my retirement party.

So Sequence-of-Returns risk is now on my mind. That being the case, the sensible/ conservative/ SIMPLE portfolio allocation represented by VTHRX seems an excellent place to park a signifcant portion of our retirement savings as my wife & I embark on the next phase of our lives. Hmmm…instead of cleaning out the last 2% of my 401K from VTHRX, maybe I will leave it alone after all – and in fact reallocate a big chunk of my new Rollover IRA holdings with 80%, 120% returns and more BACK into VTHRX…to await that big correction, when it finally arrives.

Thanks again, Dennis!

James McGlynn CFA RICP®
James McGlynn CFA RICP®
10 days ago

Great article Dennis. The pandemic has put a crimp into my travel bug as well. I enjoy reading or hearing about retirees a few years down the road from me for do’s and don’ts.

Dwain Sims
Dwain Sims
10 days ago

My guess is that you were listening to Bob Brinker back in the early 90s. I found Bob gave a lot more good advice than bad. He also turned me on to the best book on personal finance ever written, in my opinion. A Random Walk Down Wall Street.

Luca Brasi
Luca Brasi
10 days ago
Reply to  Dwain Sims

I think I heard him too. In the nineties, while painting the basement walls of my new home, I got addicted to Bruce Williams, also giving financial advice. At age 55 I realized I had invested all those years like I even knew what a Boglehead was. Total Stock & Total Bond Index’s. Glad I had walls to paint!

SanLouisKid
SanLouisKid
10 days ago

We’ve been running on a parallel course. Age wise and somewhat experience wise. My first apartment was $160 a month and had a Murphy bed, plus a nice gas fireplace. I never did figure that out. I read a lot about personal finance and one line from The Millionaire Next Door about playing “good offense and good defense” has stayed with me. Since my earning years are over, I am now concerned with “longevity risk” and traveling and leaving a legacy. I could travel more and leave less of a legacy, but I’m inclined to travel a little less and leave a little more. My grandfather Mayhew died in 1956. I often wonder what he would think about how I’m living. A computer, a thermostat to control temperature, a color TV with hundreds of channels, streaming video, a car with heated seats, an iPhone, etc. I think I will try to enjoy all those things a little more and travel a little less.

Subhajyoti Bandyopadhyay
Subhajyoti Bandyopadhyay
10 days ago

What a clear and candid article! For all the advice we receive on investing, in the end, it is our life that we finally get to live – with all the messiness and imperfections it entails. Those mistakes and shortcomings do not make that life any less important but serve as guides to reflect on our own imperfect lives. I hope that I can develop a clear and concise account of my financial adventures and misadventures as yours one day.

Rick Connor
Rick Connor
10 days ago

Great article, Dennis. I resonated with much of what you wrote. Retiring into a pandemic has been especially difficult. I’m hoping things improve this year and we can start to enjoy more of the fruits of our labor.

MikeinLACA
MikeinLACA
10 days ago

I always value the honesty and openness of authors at Humble Dollar – especially when they tell such personal stories as this one. Nice job, Dennis.

Denis Chamberland
Denis Chamberland
10 days ago

Thanks for that Dennis. Very interesting article. I wonder which historical novels about personal finance would you recommend?

evan rayers
evan rayers
10 days ago

Hi Denis,

With todays bond yields & annuities at the current centuries multi-decade lows I’d suspect you got lucky Denis.

At 70, with solid finances & good health you’re free to roam, do what interests you and explore.

Whenever I purchased R.E, it was with an exit plan and rehab sale strategy. I see RE agents as a dying breed. I did it in the 70s as PT SALESMAN, inside info abounded to these properties as I’m sure it still does today in major metro areas despite the nay-sayers.

Good luck & best wishes.

Last edited 9 days ago by evan rayers

Free Newsletter

SHARE