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Early Start Early End

Fred Wallace

ELEVEN YEARS AGO, at age 56, I lost my job as a mid-level manager at a Fortune 500 company. I had joined the organization at age 28 with no savings. Twenty-eight years later, I was able to retire at a relatively young age with a pension and a seven-figure 401(k).

During those 28 years, I was passed over several times for promotion to vice president. Instead, I settled into my director-level position, never earning a salary of more than $150,000, plus bonus. Yes, that would be a handsome sum in most parts of the country, but it isn’t in high-cost Los Angeles, where I live.

While I didn’t have as successful a career as I’d hoped, I was—from my first day with the company in March 1982—a firm believer in saving for retirement. I don’t recall receiving any words of wisdom about the importance of starting early on retirement savings. Yes, I had an MBA. But there were no classes on personal finance at the University of California, Los Angeles, when I got my business degree. But the 401(k) came with a company matching contribution, and something told me that this was a no-brainer and that I should capture the full amount of the match.

That proved to be a great decision. As many have written, the power of compounding is one of the “financial wonders of the world.”

Knowing I had my whole career in front of me, and confident I’d always be able to find work with an MBA from UCLA, I invested my portfolio 100% in stocks. Every year, I contributed the maximum to the 401(k) to reduce my annual taxes. I also made no portfolio changes during either the 2000-02 dot-com bust or the 2008-09 market upheaval. Instead, I stuck with my bimonthly payroll deductions.

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I also lived below my means and never paid any interest to a credit card company, always paying off all credit cards in full each month. Admittedly, I didn’t marry until age 41. After marrying, my wife and I had a daughter, making me a joyful dad at age 46. Delaying marriage and not starting a family until my 40s undoubtedly made it far easier to save large sums during my initial working years—a powerful addition to my portfolio’s compounding.

Fast forward to 2011. My daughter was now age 10. I had survived two rounds of downsizing, but lost my position on the third go-around. I was 56. The good news: My 401(k) was worth $1.5 million and my pension was valued at $600,000. Here I was, a millionaire at age 56, thanks to saving from day one and despite never rising above mid-level management.

I received a severance package from my former employer. I set out to look for other work—but without any luck. It seemed my age weighed heavily against me. After a year of looking and after crunching the numbers, I decided to retire, turning my attention to part-time work for a nonprofit.

Regrets? Zero. How has my retirement gone? My family has traveled annually to places far and wide away from our home base in Los Angeles. The value of my 401(k), now rolled into an IRA, is worth more today than it was in 2011, even after this year’s stock market swoon.

The secret: starting early, passive investing and never attempting to time the market. What if I hadn’t started saving aggressively at age 28? This story probably wouldn’t have a happy ending—because I’m not sure how I would have coped with my 2011 layoff and my inability to find another job.

Fred Wallace is retired following a career in marketing and sales. He has been a do-it-yourself investor for most of his life and currently serves in a volunteer leadership role for the American Association of Individual Investors. Fred enjoys golf, skiing, and traveling with his wife and daughter.

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johny
johny
2 months ago

At 40 years old, I crossed the $1MM mark. At 50 $2MM. Now at almost 60, $3MM.

My peak earning years was my 30s and as I aged and experienced several career upheavals my income continued to drop. Right now my income is less than what I had 20 years ago.

I work in corporate IT and never rose above mid-level management. Like Fred I live in an expensive area, but on the east coast.

My wife stayed a homemaker and never worked.

What i did do is not assume my income would continue to rise or my employment be secure. Since my spouse didn’t work, I knew it would be on me – at least financially – to keep the family secure.

At 40 and crossing the $1MM mark I finally felt a certain financial stability for the family.

I didn’t do the math, but I am pretty sure my assets are where they are, even as my income shrank (or shrunk?), predominantly because I saved heavily and invested in my 30s and into my 40s, my peak earning years.

Apparently there is a name for what I am doing now – CoastFire – which keep working, save less, spend more and taking it easy. Unlucky for me, I don’t have much of a pension or any sort of retiree health insurance so it is less straightforward when I can retire.

The lesson here is the same: save early, save a lot and consistently. The past doesn’t determine the future so don’t assume anything.

Last edited 2 months ago by johny
Kevin Thompson
Kevin Thompson
3 months ago

The most important financial concept in all of the universe is savings. Not where you allocate dollars or what etf you buy, it’s savings. If you save 20-30% of your income over a long period of time, you will win. Period. If you save 30% of your income while making 150k annually, and just get a interest rate of 2%, you would end up with 1.8M. Nothing simpler than that. Yes that’s 30% savings rate at just 2% over 30 year period. Not real risk needed for that.

Last edited 3 months ago by Kevin Thompson
AKROGER SHOPPER
AKROGER SHOPPER
3 months ago

Thanks for the post Fred. The chopping ax fell on me ten years ago. It took a couple of years to recover from the shock – aged out, and getting a different career started in horology. Lucky for me our 1990 Crown Victoria saved us a ton of money avoiding cash for clunkers and the car dealers. My son now has the Crown Victoria, and appreciates the value of a dollar. We are all fortunate to have this HD site by Jonathon and the knowledge that is passed along.

rayanmiller6303
rayanmiller6303
3 months ago

Hi Fred – 56 seems too young (especially today) to be aged out. I guess things change.

Brett Howser
Brett Howser
3 months ago

I feel like you told my story Fred. Like your didn’t quite make VP, and was shown the door at 58. But had enough savings & investments & a mostly paid off house that enabled me to get off the treadmill and own my own time. What a blessing. Now there’s no room in my life for hierarchy, dogma or status.

fred wallace
fred wallace
3 months ago
Reply to  Brett Howser

Nice! Sounds like we live parallel existences….

Andrew Forsythe
Andrew Forsythe
3 months ago

Thanks, Fred, for the very candid account of your career and financial history. I’ve spent time in L.A. over the years and have family there. You’re right it’s expensive, and it has its share of other challenges—but you can’t beat the weather!*

(*That is, till climate change intervened. My family in L.A. was recently enduring more heat than we were having here in central Texas.)

fred wallace
fred wallace
3 months ago

Andrew.. Thanks for your kind words. I’m fortunate to have purchased my home in Playa del Rey about a mile from the beach. Having grown up in the San Fernando Valley I feel fortunate to not live in one of LA’s “hot spots.”

IwasRetired
IwasRetired
3 months ago

Congratulations on your journey, Fred. I was retired more than six years ago, one month before turning 59. I believe I survived a crash landing of my retirement by having a cash cushion of three years of expenses, paying down debt in my early 50s, and then maxing out on retirement savings. I’ve shared my lessons learned on a YouTube channel for the past 1-1/2 years.

fred wallace
fred wallace
3 months ago
Reply to  IwasRetired

Thanks for your words. Would love to check out your YouTube videos.. was is your link to YouTube?

Rand Spero
Rand Spero
3 months ago

You offer good advice about starting investing early, the value of passive investing, and not timing the market. It could be added that you and us older investors have benefited from having an investing tailwind.

Dr. Antti Ilmanen has written a comprehensive review of the challenge investors face today after having four decades of increasing valuations due to falling interest rates. His latest book “Investing Amid Low Expected Returns” explains how in a low-return environment, a younger person may need to save even more (or work later) to reach the same level of financial independence.

fred wallace
fred wallace
3 months ago
Reply to  Rand Spero

Rand.. Very good observation. I feel fortunate as to the timing of stock market advances during my working career and early retirement (1982-2022). Although the market suffered from two substantial bear markets (dot com bust in 2000 and financial crisis in 2008), the market recovered substantially from both. “Sequence of Returns Risk” certainly can effect those retiring in the past year or two given what has happened to the markets in 2022 and what the big financial institutions (Morningstar and others) are predicting over the next decade. I’m a big believer that stock market returns over the next decade will be lower than historical averages and have reduced my portfolio withdrawal rate intentions from 4.0% to 3.5%.

R Quinn
R Quinn
3 months ago

Good job in a tough and scary situation those early years- at least it would have been for me. But once you made the decision to retire, how did you make it work?

As you said LA is a high cost area. Even a $2 million 401k couldn’t generate an income near $150,000 (plus bonus) and a PV pension of $600,000 is modest.

Seems you have had a pretty enjoyable 11 years travel and all and still in LA.

What was your strategy for taking income all these years?

fred wallace
fred wallace
3 months ago
Reply to  R Quinn

R—- Big fan of your columns on Humble Dollar. When I left my employer I had stock options that helped me, along with a wife that works part time. At age 64 my pension had grown to $925,000 so I annuitized it into a SPIA at a strong pay-out %. Additionally I began taking Social Security as my wife qualified for spousal benefit given her age (under the “old rules’). Additionally, I had retire health care insurance support which was a huge plus from 56 until I went on to Medicare at 65.

R Quinn
R Quinn
3 months ago
Reply to  fred wallace

Thanks

Neil Gartner
Neil Gartner
3 months ago

Congrats, well done! Question: Did you stay with the 100% stock allocation in retirement? Any plans to change as you move forward?

fred wallace
fred wallace
3 months ago
Reply to  Neil Gartner

Thanks Neil. Am a big fan of Christine Benz at Morningstar and her “bucket strategy” for retirees. At retirement I reduced my stock allocation to 65% and “annuitized” my pension into a monthly annuity. I maintain “cash’ and “short term bonds’ in my portfolio to allow me to weather out a 3-4 year bear market so I will never have to sell equities at depressed values.

Nate Allen
Nate Allen
3 months ago

Great story and inspiration for others that a normal level of saving + a long time = a comfortable retirement.

The fact that you were able to retire at such a young age and enjoy your early years of retirement so much more at such a young age is a wonderful outcome.

Good luck to you and your family in the years ahead! Your daughter is likely around college age now; hopefully you were able to afford college for her with little issue.

fred wallace
fred wallace
3 months ago
Reply to  Nate Allen

Thanks, Nate, for your nice words. Our daughter is a thriving senior at University of Oregon. GO Ducks!!!

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