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Six years before I retired I suddenly realized I was getting old enough to think about retirement! How did that happen?
Part of my thinking wandered to where I would live after I retired. It was obvious to me that, as I was no longer married, it didn’t make sense for me to stay in high-priced Silicon Valley once my all-consuming work life was over. And it was equally obvious that I should set up my retirement home base in my small, lower-cost hometown in a nearby state where both my parents are still active and in good health, and where most of my siblings live with their extended families. These epiphanies lead to the first of three related great financial decisions in my life.
Acting on the above realizations, I dove right in and purchased my future retirement home at the end of 2013 instead of waiting until prices went up. I could see the area had been slower to recover from the housing crash of the Great Recession than Silicon Valley, and didn’t want to wait 6 more years to purchase.
Soon after buying the house I decided it really made sense to rent it until I retired, which was my first accidental foray into rental real estate. Well, things ran so smoothly with the help of a local property management company that I bought 3 more houses in the same neighborhood over the next few years and another a few miles away!
At the time I just considered them to be good long-term investments with minimal initial net income, as I wasn’t yet well-versed in retirement planning basics like investment diversification (I already had a substantial traditional IRA portfolio), cash flow planning, multiple sources of income, or hedging against inflation.
Wowee! Those rentals have more than doubled in value, and rents have steadily increased, especially in the last couple of years. On top of that, I took advantage of historically low interest rates and refinanced all the properties at 2.99% in the midst of the pandemic (after I retired). As a result of the increasing rents and decreasing mortgage payments, these properties now cash flow a net $3,000 a month, after expenses, a welcome influx of retirement income!
The second related big win was moving out of my Silicon Valley condo and into an apartment a year before I retired in order to sell during a huge spike in housing prices in that area, netting a $600,000 profit after 10 years of ownership. Score! (I could also add that buying the largest condo I could afford at the time was a huge contributing factor to a big win at sale time.)
Needless to say, I’m loving rental real estate, and have since used some of my home sale proceeds to purchase a few rental condos in Las Vegas (where my daughter lives). Prices there have increased 40% since I purchased at the end of 2020 – go figure!
I’m so happy I stumbled into rental real estate as a retirement income investment! And so far it’s all tax-free using basic rental tax reporting rules. How sweet is that?
Well, one of my best in my 401k was selling out of the market in November, 2007, and going to our (GIC) Guaranteed Insurance Contract Fund, which was yielding about 4 or 5% at the time. I rode out the Great Financial Crisis in great shape, the GIC paid interest monthly, so I was picking up more shares ($1.00/share) plus my 401k bi-weekly paycheck amounts plus the company’s 6%/annum kick-in amount. I was no investment genius, I just read something in August that spooked me about the markets. The speculators were to short the market as we all now know and get rich.
I have had a few winners and losers in my investment life and some I would like to forget. But clearly my best investment was in me. In my late 20s, I had a good, well paying, job as a programmer analyst, but I only had one year of college. I realized that to advance in my career, I needed a 4 year degree. I went to school at night while still working. It took me 6 years to get a BS in Accounting with a 3.92 GPA. My wife was a housewife with 2 small children, so it was difficult for both of us. In fact, I think she should have got some acknowledgement on my degree because it would not have been possible without her.
My degree enabled me to advance in my career, and I spent the last 30 years of my career in executive management positions within IT. There is no question the degree was instrumental to my success.
We’ve had some financial moves that worked out great, others pretty good, and some not so much, and several we won’t know for a very long time… but we haven’t had any truly negative outcomes.
Charlie Munger says “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
I echo those sentiments when it comes to our own financial life. “Good enough” is often a better solution than swinging for the fences. It’s much faster, more flexible, and is far less likely to blow up on you.
Given your comments, I suspect you would enjoy the book The Psychology of Money. By Morgan Housel.
Finally realizing that I’d never made a smart financial move, and then getting help.
Buying as many foreclosures as I could in the aftermath of the Great Financial Crisis of 2007-08. I ended up with eight single family homes by 2012 when the deals began to dry up locally. The margin of safety provided during that time made up for the issues all rental real estate has at point or another.
Majoring in engineering and going to work right after completing my undergraduate degree. I was able to get a decent income right out of the gate (even in a government job) and caught the financial independence bug early in life. That feeling of supporting yourself (and eventually others) was addictive and drove me to work hard at my career. I was able to start saving early in life, and a brief detour to graduate school after four years of working helped me pivot to the private sector while staying in engineering, upping my income dramatically.
There was no one big move, my financial position is the result of several factors…
The moves I’ve made:
-Studying hard to enable a good career (pharmacist/pharmaceutical development).
-Working in a lucrative industry (pharmaceutics)
-Living below my means and saving outside of my 401K plan
-Marrying someone with similar views on spending
-Following a lot of Jonathan’s advice from his Getting Going columns.
The moves the cosmos have made (luck):
-Being born to a father who preached and practiced “save, save, save”
-Investing in an era of high market returns; I made money despite some of my goofy fund selections.
-Being born with decent intelligence.
I have been fortunate to make many great moves and learn from my mistakes. The best? As long as Congress doesn’t change the rules in the middle of the game, funding a Roth IRA and aggressively investing in some huge winning stocks.
A couple come to mind.
1) Starting a Roth IRA at age 18 and maxing it out each year I could since. It led me to develop good saving and investing habits.
2) Going after the CFA Charter. I doubted myself but made it through. Now I run my own business providing content to financial advisors and investment firms. It was more than worth it. And my former employer picked up the tab for the exam fees!
Purchasing a duplex and living in it! It was a game changer.
Luck and timing played huge roles in the two smartest moves I ever made.
The first was getting vested in a state retirement pension that is ridiculously generous. The plan I’m vested in has since been discontinued (for new employees) because it simply wasn’t financially sustainable.
The second was becoming vested in a retiree health care plan at my current employer. In just over a year (at the age of 55), I’ll be eligible to receive health care insurance coverage for myself, and my spouse, for the rest of our lives. A large portion of the premiums will be paid for by my employer. When I turn 65, my employer will cover the cost of Medicare supplemental insurance premiums for myself, and my spouse, as well. It’s a benefit that my employer stopped offering to new employees almost 20 years ago. Without it, the thought of retiring early wouldn’t be possible.
Start saving (at least up to the amount of obtaining maximum company match) in 401K, the day I started my first job out of college.
Quitting my first job and becoming an entrepreneur. 100%
Marrying the smartest woman I’ve ever met.
First and foremost was investing for the long term in the stock market. Second, I was fortunate to not own any Tech stocks in 2000 and also not own any Bank stocks in 2008. However, I’m not sure if that was smart or just dumb luck.
The smartest money mood I’ve made is to buy a house. One day I might sell it to cover the cost of us staying in a retirement home.
Funny, I consider buying a house the worst long-term investment I ever made. Paid cash 24 years ago. The value has gone up about 3x in that time. But I am certain would have made a lot more money investing all that money in stocks the past 24 years and leasing a residence.
Finding and marrying an incredible partner. Together we have done more, saved more, accomplished more, and experienced more than I ever would or could have alone.
The sense of pride and accomplishment that comes from hunkering down together to save over 20% for our first house downpayment, paying for our wedding and honeymoon on our own, and tackling numerous medical bills together has proven just how important finding the right partner is.
Not sure if the smartest, but one of the things I’ve been consistently doing is saving every bonus that I’ve ever received and most of my salary increases. I think that keeping costs and avoiding lifestyle creep is important.
I 100% agree on saving the bonuses. I worked with a number of people that assumed there were going to be bonuses of x% of payroll every year and upped their lifestyle accordingly. Guess what happened in the no/small bonus years! BTW: I used my saved bonuses to either pay off the mortgage, or in a great decision (not sure it was financially, but it was personally) buying a seasonal lakeside cottage that my family all remembers with love!
This was how I paid off my house in 6 years. I was fortunate to work for a large company that provided good bonuses (up to 40% of my total wages and I was not in sales). We lived off of our regular salaries and just used the bonuses to pay off the house. I no longer work there so no big bonuses anymore 😔