WHEN I THINK ABOUT my financial journey, I’m reminded of a line from a famous Grateful Dead song: “What a long, strange trip it’s been.” My journey has indeed been long and, on occasion, somewhat strange.
I was born in 1957, the second of three sons. My parents provided us with a loving home and an excellent education. At college, I studied to become an engineer and spent my career in aerospace engineering. No surprise, I’ve always been highly analytical, and that’s been the way I’ve approached money questions.
Forty years ago, I married the love of my life. We had two sons, and now two wonderful daughters-in-law and three grandsons. I’m surrounded by a large, caring family. I consider myself extremely lucky: The chance to have a successful life—financially and otherwise—was placed before me.
As I’ve sought to make the most of that opportunity, four experiences have had a major impact on my financial thinking. Those experiences transformed my interest in matters of money from a modest hobby to a passion and, along the way, taught me the power of sound financial planning.
Joining the club. The first experience was helping to found an investment club. My older brother and some of his in-laws wanted to start one, and asked me if I was interested. I’d never considered joining an investment club before. But they were good guys and I thought I could learn something, so I agreed. It was one of the best decisions I’ve ever made.
We started the club in 1993, at the beginning of the bull market in technology stocks. Legendary fund manager Peter Lynch’s first two books were popular bestsellers. They filled the heads of novice investors like me with the idea that we could find undervalued stocks with strong growth potential if we just kept our eyes open.
Another contribution to our can-do investment philosophy was Wall Street Week with Louis Rukeyser. The long-running weekly show on PBS was entertaining and educational. It made us feel like we could invest using our own ideas and research.
We agreed that the club needed to be a legal entity—a general partnership. We created a partnership agreement, registered for a federal tax identification number, and set up a checking account, a brokerage account and an accounting structure. I volunteered to be treasurer. I was also the accountant, keeping the books on preprinted ledger sheets.
Initially, we all invested the same amount each month, so we each owned the same share of the club. It quickly became obvious that this would impede the club’s growth. Any new member would have to invest the total amount of a founding member to keep things even.
What to do? Being the engineer that I am, I built a spreadsheet that became the backbone of the club’s accounting structure. To allow unequal ownership, we needed to run the club on a per-share basis. The value of each share was initially set at a nominal value. Each member invested their desired amount and received shares. At the end of each month, we would value all of our stock holdings and calculate the new net asset value per share.
In effect, our investment club ran like a small mutual fund. Members contributed money, which was pooled to purchase stocks. Each member owned a pro-rated amount of the fund based on his contributions plus earnings. The club was a pass-through entity: All profits and losses passed through to the members.
Members could buy or sell as many shares as they chose at the share price calculated for that month. At the end of the year, we totaled up the dividends and capital gains. These were passed through to members by way of a Schedule K-1, an IRS partnership form. It took some time, but I was able to automate the process. Club membership doubled, and I ran the books and the treasurer’s office for almost five years.
The club members decided to invest half our money in blue-chip companies. We used discounted cash flow analysis to find value stocks, those which seemed cheap relative to expected future earnings. We purchased household names like Merck, Exxon Mobil, GE, Motorola and Ford. We religiously bought more shares when their prices dipped and reinvested all dividends. I thought of these five stocks as our mini-Dow Jones index. All five were among the 30 giants in the Dow Jones Industrial Average.
The other half of our fund was devoted to speculative growth stocks. At this time in the 1990s, there were dozens of small, high-tech startups that held out the promise of becoming a big winner—the next Microsoft or America Online. Two companies, in particular, haunt me.
TRO Learning was a company that was early in electronic learning, the now-routine practice of teaching students at a distance. We bought in at around $5 a share, and the stock rose to about $20. All the company’s reports said it wasn’t making money, and didn’t expect to for several years. To me, that was a sign we should sell. I brought it up at a club meeting but was voted down. The other members liked the company’s sales momentum. We didn’t sell, and the stock dropped. We eventually sold our shares at a modest profit.
The other company I recall was a small manufacturer called Plasma-Tech. It made the equipment that created screens for flat panel displays. Industry experts said the company made the best equipment of its type in the world. The future of flat screens was limitless, and this company was essential to America’s plan to dominate that market. It was a great story and we bought it—along with a bunch of its stock.
Despite the great story, Plasma-Tech went nowhere. The company was having huge problems delivering its products. It had significant supply chain issues, as well as challenges in ramping up production. In 1999, the company was purchased by a Swiss conglomerate and is no longer listed on any exchange. I learned a valuable lesson from Plasma-Tech. A company can have great technology and a great story. But if it can’t manage its business or turn a profit, you won’t succeed by investing in its shares.
My five years in the investment club made me a much more knowledgeable—and humble—investor. We had our ups and downs, but overall our returns pretty much mirrored the broad market. Our blue-chip stocks, in aggregate, followed the Dow 30, and our growth portfolio averaged out to a similar result. The greatest return may have been the learning involved. By the end, the club had piqued my interest in all things financial.
Helping my parents. The second key experience occurred about the same time as the investment club, but it was far more serious. I realized in my mid-30s that my parents, then in their early 60s, were falling into financial difficulty. My father hadn’t worked in a while, and they were living off my mother’s salary, plus some money she had inherited. We confronted my parents, and they reluctantly acknowledged that they needed help.
My brothers, my wife Vicky and I agreed to provide enough support to stabilize their situation. After a few years of helping them meet their bills, however, it became obvious that the small steps we were taking weren’t enough to secure their long-term future. My wife suggested that we sell our home, purchase my parents’ house, move in and let them live with us. When we presented our plan to them, we could see the relief on their faces.
My parents lived with us for the rest of their lives. My father’s health was deteriorating. He soon needed a walker and oxygen. He died in 1999 at 71 years old. My mom lived with us for another six years. In summer 2004, she suffered a seizure. Over the next two months, she gradually lost control of the left side of her body. It took a few months to diagnose, but doctors discovered a tumor in her brain. It was a B-cell lymphoma, fairly advanced.
She had brain surgery and follow-up chemotherapy. Although she showed some improvement after chemotherapy, her symptoms returned within a few months. At that point, there were no good options left. She passed away a few weeks after Christmas, in early 2005, with her family and friends around her.
The experience of caring for my parents’ health and finances taught me so much. I think it marked my final transition into adulthood. I dealt with resolving debts, fighting with Medicare, retrofitting our house to accommodate my parents’ mounting disabilities and—finally—settling two estates.
All this made me determined that my wife and I wouldn’t be a financial burden to our children. Though it was a lot of work and challenging at times, I never considered it a hardship to care for my parents. It was a profound experience that I would do all over again if required. And soon I was.
Assisting my in-laws. The third experience began about five years later, when I took over the finances of my wife’s widowed aunt. Aunt Pat was childless. She started showing signs of cognitive decline in her late 70s. She gradually lost the ability to manage her affairs, and even lost track of some assets, as I was to discover.
Aunt Pat moved in with my in-laws in 2007. My wife was granted power of attorney over her medical and financial affairs. I assumed the responsibility for understanding, organizing and managing her finances.
She was fortunate to have ample fixed income from several pensions and Social Security. My biggest job was organizing and simplifying her finances. It took several years, but I consolidated everything in a Vanguard Group account and a checking account. I automated her income and expenses payments. I found evidence that Aunt Pat had lost track of assets. After an extensive search, I recovered more than $75,000.
My financial plan for Aunt Pat ensured she would have the money needed to pay for a decade or more of high-quality care, if required. That didn’t come to pass. Sadly, she died suddenly in May 2011 at age 81. From helping Aunt Pat, I learned the benefit of simplifying your finances as you age, and making sure that all your estate documents are in place.
Meanwhile, my in-laws provided a fine example of how a middle-class couple can build a successful retirement. They had spent their lives working hard, living well within their means and saving diligently. After their five children had grown, they began to invest in earnest in their retirement accounts. Between their traditional pensions, Social Security benefits and their savings, they were able to enjoy a comfortable retirement starting at 65.
My father-in-law passed away in 2009 at 82. Following her husband’s death, my mother-in-law seemed to lose interest in managing her finances. Again, I took over. As well as they planned and executed their retirement, there was one crucial mistake I discovered when my father-in-law died. When he’d taken his Teamsters’ pension, he’d chosen a single-life-only payout. That meant the checks stopped cold when he died. This greatly reduced my mother-in-law’s income.
My initial task was to organize her assets by simplifying the number of accounts and assets that she owned. Once again, I consolidated them at Vanguard. Her portfolio consisted of a 403(b), some Vanguard funds, a few individual stocks and some certificates of deposit. She kept a large amount of her assets in cash.
A year after her husband died, she decided that she was ready to sell her home and move together with her sister—Aunt Pat—into an independent living facility. She chose a two-bedroom apartment. This community didn’t require a big entry fee. But the monthly charge was about $6,000. Fortunately, the combined fixed incomes of my mother-in-law and her sister could cover it.
We sold my mother-in-law’s home and invested the proceeds in her Vanguard account. I felt comfortable that her finances were now in good shape. But then Aunt Pat suddenly passed away. Now, my mother-in-law had to pay $6,000 a month for the apartment on her own.
Not long after that, she developed some medical issues. During a routine procedure, there was a complication that led to emergency surgery. Further complications from that surgery caused a significant reduction in her cognitive abilities. At age 84, she was no longer capable of living alone without assistance.
We were forced to quickly investigate several senior living facilities. Each had its own financial structure. I had to evaluate each one to see if it fit her financial situation. We chose a quality facility near us with a small initial deposit but larger monthly charges. Her monthly cost went up to $7,000. I calculated that she had enough assets and income to cover her care until she was 95.
Because of her dementia diagnosis, the majority of her living expenses qualified as tax-deductible medical expenses. I used this tax deduction to her advantage from 2011 through 2014 to offset her IRA withdrawals, greatly reducing her income taxes. After we emptied her IRA, I used her medical deductions to offset long-term capital gains taxes. Her reported income was so low that she qualified for the 0% capital gains tax rate.
I set up a three-bucket approach for her short-, medium- and long-term expenses. We kept three years of cash in the first bucket to cover current needs. The second bucket was invested in short-term bonds, and the third in an S&P 500-index fund. Because she was already in her mid-80s, we planned on drawing down her assets over 10 years. But she only lived for another three-and-a-half years.
Taking care of ourselves. While looking after my in-laws, my wife and I were also preparing for our own retirement. In 2007, on my 50th birthday, we had a local financial planner do a detailed retirement assessment. He performed a portfolio analysis, retirement income projections and a so-called Monte Carlo analysis, which looked at how our investment mix might fare in a host of market scenarios. His detailed report showed that we were on a solid path to retire at age 62.
We all know what happened next. In 2008 and 2009, our assumption of 8% average annual stock returns suddenly looked foolish. But it didn’t change our retirement plans. Our two sons had just finished college, so we focused on maxing out our 401(k) contributions. As share prices plunged toward their March 2009 low, we kept buying stock index funds at ever lower prices.
In 2010, my employer—a division of aerospace company Lockheed Martin—was sold to a private equity firm. Employees were very concerned that this meant the end of our traditional pension. I was a senior manager at the time, and many of the employees looked to me for guidance on the complicated pension rules. I realized that, as a leader, I needed to become much more knowledgeable about the pension. This was my fourth key experience—taking my financial education to a new level.
I spent a week studying the plan and building some spreadsheets that helped explain our options. Over the next seven years, I became an expert on our pension plan, providing consultations and lunchtime briefings to many employees. In 2014, the new company froze our pension plan, meaning we could accrue no more benefits. At the same time, they added the option of a lump sum payout but provided few details. Luckily, one of my sons had a friend who was an actuary in the pension industry. He was able to educate me on the new option.
Many employees came to me to understand their choices and figure out what they should do at retirement. I enjoyed counseling them. I decided to continue my education, so I enrolled in the Certified Financial Planner program at the American College of Financial Services. I completed the program in about nine months, and then passed the comprehensive exam. A few years later, I completed the Retirement Income Certified Professional program as well.
I stopped working fulltime in April 2017—two years ahead of the schedule we’d drawn up before the Great Recession. I started taking my pension several months later. I briefly considered switching careers and becoming a financial planner. But the thought of starting a new career at age 60 was daunting. Several months after I stopped working, my former employer asked if I’d be interested in some consulting work. I agreed, and I’ve done a meaningful amount over the past four years.
I’d always intended to give back during retirement. I volunteered for AARP’s Tax-Aide program. We provide tax return preparation, free of charge, with a focus on older clients with low incomes. This proved to be a great choice. It melded my passion for finance with my desire to help the wider community, and it connected me with a great group of smart, caring people.
I also discovered the HumbleDollar website. I thought I might be able to write articles and become part of the web’s ongoing financial conversation. More than 90 articles and blog posts later, I’m happy I took the chance. It’s enriched my life and, I hope, entertained a few readers.
In 2021, Vicky and I sold our home in the Philadelphia suburbs and moved fulltime to our house on the Jersey Shore. Will this be our final stop? It might be. We love the area, and our children and grandchildren are within a few hours’ drive. But after helping my parents, Aunt Pat and my in-laws, I’ve learned to be prepared—but also stay flexible. I’m not so sure how the rest of our lives will go, but I’m optimistic that our years of saving will provide the wealth we need to live comfortably.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.