023R - Friday Roundup

Please note

These transcripts are a work in progress and the initial transcription occurred via automation, so transcription errors are not just possible but likely. Please report transcription errors by clicking the icon at the end of the stanza containing the error.

Transcript

Time Speaker Text Tags
0 - 2 Jonathan Mendonsa Hey Brad how are you doing today buddy.
2 - 4 Brad Barrett I am doing quite well. What's going on.
4 - 21 Jonathan Mendonsa Not much man. I really enjoyed that episode this past week with ESI and think there was a lot of stuff there that really hadn't been covered together especially in a place that tells a story. That episode had a purpose that helps our audience and and personally us potentially get to FI faster. I thought there was a lot of good content there. What did you think.
21 - 57 Brad Barrett Yeah no I agree. I think one of the cool aspects was was basically looking at compound interest in a sense but just on the earnings side as opposed to on the saving side right which we don't ever talk about ESI was saying how the difference between let's say like a 5 percent or 6 percent annual raise as opposed to the standard 2 or 3 percent can be literally millions of dollars over a working career and that's just an astounding figure and we should do kind of conceptually understand that based on understanding compound interest but it just never occurred to me. So even just that one thought alone was was such a game changer for me.
career, savings
57 - 72 Jonathan Mendonsa I couldn't agree more. And what's really interesting about that first of all like you said just that we don't consider it. And second how powerful would you be when you get that 3 percent 4 percent 6 percent raise just to invest it in your 401k or in your tax deferred account so you're capturing all of it instead of your after tax portion of it.
401k, tax
72 - 101 Brad Barrett Yeah. Now that's a very very very good point. And yeah it's cool actually I just opened up right before we started recording this I just opened up my Google app on my phone and I'm seeing that sign money is actually really hitting the big time. He is now an author on Business Insider. He has an article I linked to too in the show and it's entitled I retired at 52 with a $3 million net worth. Here are the 10 worst money mistakes anyone can make. So how I mean how cool is that. And he's just he's everywhere now.
networth
101 - 127 Jonathan Mendonsa Well let me ask you question do you think that that's luck. Because I would say having talked to the guy for 45 minutes I know for a fact that that is not luck. This is a guy that makes the right moves he does the small things. I mean he is connected. He networks he reaches out. He just does the little things and he doesn't spend all day poring over it. But he just takes these little steps every single day that gets him closer to his goal and whatever it is he's striving for. This is what an optimized game plan looks like. Right.
127 - 150 Brad Barrett Yeah I hear you. And I know ESI is a listener of this podcast so when he hears this hopefully he can shoot us an e-mail or send us a voicemail on how he made that happen. How he is now an author a business insider because I think that would be cool for the for the audience to hear. So maybe we'll play that on a future Friday roundup if all goes well. But I suspect very strongly there is there's some kind of networking story behind that right.
150 - 205 Jonathan Mendonsa Yes of course there is. Of course there is. I love talking to him. First of all there's a couple things that strike me one ESI is relatively new on the scene. But when I got into his content I realized just how much time he's actually put into this stuff. It's really remarkable. And some of it is just things that I'm not reading anywhere else so originally career hacking was just going to be one show. I mean there's just hey let's just talk about this real quick. But then I said here ESI help me figure out how we can package this to tell a story. And he sent me all these ideas Brad. It blew my mind and I was like you can't do this in one show you just you just can't and this is information that I actually want to learn. Please teach me you know teach me. And then let's share it with you guys and I think I don't know how many parts there are. I know that Brad and I have committed to a lot of different things you know. Real estate investing career hacking college ackee all these other things. But I think that in this particular space whether it be career hacking or college hacking ESI I has tons to offer. I mean he is just he's an expert. He's literally walked it and now he can talk about it.
career, college
205 - 208 Brad Barrett Yes so Jonathan what jumped out to you from Monday's episode.
208 - 273 Jonathan Mendonsa All the steps. Individually there were little pieces of it that I loved every single one. Now I work in the corporate world. I'm still on that side of FI as most 90 plus percent of our audience are. We have some guys that are on the other side that just love reliving it with us they've already done it all but they love reliving it with us but most of us are still on this on this path and whether it be corporate or small businesses or otherwise most of us are still on this path. And there were there were a bunch of things that I just I enjoyed reflecting on as he was talking about it. One of them was starting at a higher salary and kind of how in the FI world we do kind of strategize our careers we don't necessarily pick at random and the criteria that we have especially the more we get into this the earlier you realize that FI is going to be a 10 to 15 year career path for you that totally changes the jobs that you want to look for. You probably don't want to look for a job that's going to force you to get 300 plus thousand dollars in debt and start working when you're 35. If you find this stuff early enough conversely you want a job that gets your earning potential up high enough with as short of an educational span as possible. So I think that kind of narrows the field and allows us to look at our possible career options through a different lens. What are your thoughts Brad.
career, debt
273 - 325 Brad Barrett Yeah that makes sense to me. I mean there certainly some commonalities amongst professions and career paths amongst people who are choosing FI. Of course there are people from all all walks of life all career paths. But but you do see some commonalities. And I think that might speak to the concept of second generation fire a little bit more maybe we help steer our children a little bit. Obviously don't want to control their lives but there are certainly career paths I know accounting like I chose engineering is one. There are many many others and I'd actually love to hear from the audience as always. You know Jonathan and I well we have our opinions they're limited. And you guys have tons of ideas So again we'd love to hear from you. Just send us an e-mail to [email protected] with any kind of career paths that you think are especially relevant for for that second generation FIRE. So yeah I think that would be there would be very helpful. You know Jonathan, what are your thoughts?
2ndgenfi, career
325 - 452 Jonathan Mendonsa Yeah I love that every conversation that we have has two different focuses it has our audience now that's listening to us today. How can we help you guys reach FI faster and then the pivot with almost every conversation that we've had is how can we help second generation fire. That's how this conversation builds on itself. Naturally we had someone leave us an iTunes review the other day and basically said guys. He said yep yep yep. Everything you say and I love it. Now I'm a generation ahead of you but this is what I want my kids and my grandkids to do. This is what I am hoping for them this is what I'm wishing for them. And that's exactly the way that I look at it. I can't use everything that I learn for myself but I will use everything that I learn as I create a construct for my family. That's the most important thing. How can I help my family and so FI looks at career options through a different lens. You know if you're interested in only a 10 to 15 year working career you're not necessarily interested in the job that pays the absolute most. That's not the only criteria. There are other factors involved. What if you had a job that was seasonal and you could earn 40 to $50000 a year for six months worth of work and then the other six you had off maybe to pursue a side hustle or something else. I could see that being a viable option. What if you had a job that did not require a college degree because you had no interest in college but you were able to get you know a blue collar working job that immediately from the age of 18 paid $50000 a year. And there's certainly job options in that field to become available if you can grab on to some of these low hanging fruit some of these opportunities that pay a fair significant amount of money with out the the time costs you know time is the one thing that we're losing and we can never get back. So it is worth it from a FI perspective because the math works for you it's a function of the math it's worth it from a FI perspective to take a lower paying job that still pays you know 40 $50000 a year that doesn't require a college degree necessarily because the math works for you. So you know I'm not saying that that's what you have to do or that you have to do something else. I'm just we're going to look at it differently. And when you have a contract like FI like choose FI to look at it from you can win and all sorts of different scenarios. And I would be interested from our audience just to see what does that look like for you guys. What did you figure out that you'd like to share with us? Send us your thoughts [email protected]
career, college, hustle, testimonial
452 - 534 Brad Barrett Yeah I know what you just mentioned is actually very applicable to my own life which is my wife Laura is a CPA. Now I know you kind of in passing said without a college degree and you know we can argue whether whether that's you know plausible or not and I think it is. But this is an example of someone with a college degree who works a seasonal job essentially. So she's a stay at home mom for essentially 10 months of the year and for two months basically from February 15th through April 15 she works and full time will saying it's not exactly full time. She's not working with crazy crazy hours but she's working on tax returns. She does not know 100 150 tax returns makes a decent amount of money and that's that. And honestly like once we pay off our mortgages that just that little bit of work that Laura does will be enough to cover all of our life expenses. So we are basically even with nothing else we're at FI right there or that that covers covers our expenses without having to dip into any of our net worth and you know she likes doing it. It's like it's on just a couple of months a year it's no big deal. And I mean that's just such a nice safety net. And it really ties in precisely to what you're talking about with just thinking about a problem a little bit differently when you only need $30000 a year to live. Well you can do that by working two months a year. In this particular case which is really cool.
college, networth, tax
534 - 692 Jonathan Mendonsa That's so cool. Yeah that is so cool. And hear me audience. I did not say because someone's going to call me out of this. I did not say "Don't get a college degree." That is not what I said. What I was saying is just simply I think you can still choose FI without one. There's room there. So college. Very very very valuable and definitely not going to get into the weeds there on that one. A couple of other things that come to mind. Like you said people that have significant downtime so accountant seems like a great option. Engineers make a very high level pay with a bachelors degree. Coming right out the gate. Teachers especially in the public sector have access to the 457 that we talked about how powerful is that plus they have the summers off if they're working for it doing some sort of side hustle or something else. I've seen all sorts of you know people take those routes and have stories to tell about it. So that just gets the conversation started. Definitely doesn't finish it. Let us know your thoughts our guys. The other thing that he really hit on I thought was fantastic was managing your boss and you know not in the cynical dark hacking sort of way but just having a conversation that involves you telling your boss I'm interested in being a high performer. I want to be someone that you can coach and grow if you are a boss or manager or people you are probably aware especially if you have people above you. Your responsibility is to coach and grow your team and having an employee come up to you and say I want to be your guy is incredibly rewarding. That's low hanging fruit for you if you're a manager you are going to be automatically putting yourself into a mental role because now you have someone that is willing to be coached up. That's just a dream come true as a manager as a boss. So the next step for you as the employee is then getting them to identify what it is they're looking for and then writing that down and then over delivering on whatever it was you agreed on and I love that ESI said gross sales is not enough give them an actual number. Nail down what that actually is and you can apply that to every field but specific numbers are important because when you go back to that boss for the review and you say hey look you want me to do this you want me to do a I did a plus 10 and just across the board. That is the conversation. That is what sets you up for these ridiculously awesome raises when they're coming around. And you know what. The cool thing about that was once you've done that if you're documenting it when you go for that same review and you do that and then they say no we don't have anything for you. You're still winning because you have now built yourself a portfolio of accomplishments which is what we talked about when you decided to transition to a different job which is what ESI had these massive 10 20 percent raises come from. It's all based on accomplishments. You need to be able to talk about what you accomplished in your role and just the fact that you've gone from passively going through life and doing what they told you to do and checking in and checking out at the right time as opposed to now thinking about life in terms of accomplishments. You're positioned to win over and over and over again. You are going to be the one that gets consistently higher raises than your peers.
457, accountant, college, hustle, teacher
692 - 732 Brad Barrett You know would be incredible to walk into that new job interview. And with that ammunition. Right. To say I did X Y and Z. I raised sales by 20 percent or 22 percent whatever it is that you have documented and you can speak through it. Yeah I know. As an employer and a future employer that would absolutely blow me away. And I can't imagine not hiring that person. Right. If all things are equal How could you not hire that person. So yeah that's really impressive. And that definitely puts a nice spin on this. This whole concept of setting up that managing the boss you know not only for your current job but potentially for future opportunities as well and that could be where you get even bigger raises so it sets you up to win no matter what.
732 - 800 Jonathan Mendonsa Another thing struck me when we talked specifically about networking. We spent a lot of time really diving into linkedin and I'm going to back off that because he really talked about how you would do it. But specifically networking in general it strikes me more and more the farther I get into my career path that job applications that are posted on the Internet are for spots that haven't been filled by networking and I never realized this as a new guy coming up through the ranks and you always hear about like Monster jobs and postings and that sort of thing. All the sweet spots were filled because you knew someone and as an employer I know that I do not want to just hire someone from scratch if I talked to any of the people in my team and they say hey this person has all this experience and they're looking for an opportunity and I worked with them before and they're amazing. I don't want to start with some person that I've never met. I want to go grab that person and I'm sure that as an employer most employers would find himself in a similar situation. So the key there for the FI community that's always trying to game this thing out and be ready is yes networking is important for you. It is important for you is going to open up doors. I don't know what that looks like specifically. It sounds like the easiest thing would be something like LinkedIn but in general networking is an incredibly valuable tool if you put it in the proper construct that we're talking about.
career
800 - 812 Brad Barrett So Jonathan I know we've had discussions about how networking I guess you'd say has helped us here at ChooseFI and I think it would be interesting for the audience to hear about from your perspective especially so yeah go for it.
812 - 862 Jonathan Mendonsa Yeah this is really cool. So 8 months to a year ago I was on the outside of this framework loving personal finance devouring it listening to it nonstop figuring out how I could make improvements in my own life. And then I decided you know what. I don't just want to read it. I want to be a part of it. And at this point it's just me enjoy my passion it's reaching out to someone and I reached out to Brad to talk to him about it. The thing is I didn't have any sort of real master plan. You know I just wanted to talk about something that I'm passionate about and share this passion with other people that were in a similar place now that I'm on the inside of us essentially and we're building this thing together. Neither of us are necessarily doing this intentionally. But networking is critical. You know you would think that in an online business there's no need for networking. It's all digital it's just e-mail. No it's more important than ever. We actually use it every single day. You know what I think probably the biggest example of that if we wanted around that out was our first going to that camp mustache for the first time. wouldn't you say Brad.
862 - 890 Brad Barrett Yeah I mean that that's certainly launched choose FI to a very real degree. I mean it became real at that event. There's no doubt about it and we probably could have lined up 15 guests just from that one. That one event. But more so we were able to talk about this concept with people and and really think it through and I remember the very first night Emma who is one of the organizers really sitting down with us and challenging us in a sense. Do you remember that conversation.
890 - 917 Jonathan Mendonsa I love Emma I love everything about but she's just amazing. I love the way she challenged us on every little like minutiae. And it was. And at the end of it it was really cool. She said yeah that's really awesome. I don't think anybody's done that I get it. That's really cool. Go guys. Now I'm excited. But along the way it was poking at every single little weak point to see is this going to work is that going to fly. What makes that different. It was really cool and was just a fantastic fun person. And she is a whiz at real estate just showing you that you really can just learn anything if you just apply yourself to you.
917 - 1008 Brad Barrett As Jonathan kind of alluded to and we don't want to belabor this but it but it's so important. Networking I hate that word it it really like it sceeves me out a little bit. Honestly I really don't like it. But to me it's about personal relationships and personal connections and even in this digital world. As Jonathan alluded to personal relationships matter more than anything I would even argue my entire success with my three different Web sites or certainly my two most recent one travel miles one o one and choose FI comes down to personal relationships. And you look at ChooseFI here right. It's all about these are people. The guests we've had on would have been almost impossible to get if we were just some random new podcast that nobody knew about. But I have established friendships not just glad handing networking opportunities at a conference but genuine friendships forged over you know dozens of emails in person hanging out and having beers around a fire. You know I mean this kind of stuff like actual relationships. And when I shoot Jim Collins and email to say Hey Jim we had this great idea for a series of podcasts. You want to come on. His response was sure when not oh so who are you guys. What are you planning on doing if we were just random strangers. And he said this to us Jonathan when after we finish recording we were just random strangers. Jim's a nice guy so he wouldn't have ignored the e-mail. But he essentially would have said yeah I don't really have time but he said for you Brad and it sounds weird for me to say this out loud but you know for you Brad the answer was just sure when. And that's pretty amazing you know.
relationships, travelrewards
1008 - 1074 Jonathan Mendonsa That's incredible. And I'm glad you went back to that because you're right it's not networking. We did not necessarily go down the mustache to network. We went to share things that we love talking about with other people of similar minds. And you can't help but form relationships when you have this framework in common. That's just what happens. You're going with you're looking for a place to express your ideas and things that get you excited and you're going there with like minded people and you can't help but form these relationships and naturally you go to those relationships when you when you want to pursue something like this. I mean that that's just a natural home for it. So I agree with and you're right networking. It Does it feels it feels.. Is it did you say sceeve is that the word. Well I'm really the one that makes them up so I can't call you out too much for that but. All right. But yeah and you do. You had these longstanding personal relationships that you would put so much into over the last several years with really never asking anything in return. Just kind of being there to help them and the space that you could help them with. And of course you know when you needed something they were there for you because you are friends you know and that is what networking looks like when it's done right. That's what it looks like.
relationships
1074 - 1131 Brad Barrett Yeah and that ties kind of back into what ESI said just to put a put a bow on this were two of his things were be likable and be attractive and you know the attractive thing is a little weird but but it but I understand where he is coming from certainly. But it's just be likeable it's be genuine. Be a normal person. Don't walk into a meeting or a conference with 100 business cards and hand them out to every random person you see like that is going to get you nowhere in life. Some people might disagree but to me that is not the person that I want to establish a friendship and a relationship with you know people will go to bat for you when they care about you. And that doesn't mean make contrived friendships or pseudo friendships it's be genuine. Be a real person to me. It's more about having five 10 15 genuine personal connections and people that you care about that you'll help and they'll help you in return than having 500 people on a linkedin profile you know like to me that it's just so much more powerful.
relationships
1131 - 1167 Jonathan Mendonsa For sure. We had this one iTunes review that came through and honestly it was a while ago but I just I kept wanting to read it. It just cracked me up and it was from rancher's daughter. And the title of it was Russ Cole which by the way is a character I had to look it up it's a character in true detective but this quote is just hilarious and Rancher's daughter said most of the time I am convinced that they have lost it meaning us Brad me and you. But there were other times I think they're mainlining the secret truth of the universe. I thought that was hilarious. And I agree with you sometimes these ideas can seem out there but when you put them all together you know they tell a really cool story that's just going to amplify your energy and your results as you pursue FI.
testimonial
1167 - 1199 Jonathan Mendonsa Yeah I really like that quote. I think the mainlining the secret truth of the universe I talk about all the time like in my personal life I think I mentioned it on the on the podcast side. FI. To me is a superpower. And it's it's not just about the money it's not just about living below your means. It's everything that's part and parcel of this about just having a better happier life about being more efficient getting in better shape having better personal connections and relationships. It's all part of this secret truth of the universe says rancher's daughter said. I think that is really that's how I look at FI.
relationships
1199 - 1316 Jonathan Mendonsa It's time for us to go ahead and segue into our case study now as you know Paul gave us tons of great information and we sent this off to big Ern from early retirement now. We announced last week that big Ern is going to be an in-house expert for all things technical. Now we all know especially those you that are hardcore fire. How valuable this is. I don't think anybody understands the technicalities and the minutia of actually pulling the trigger. You know what. Early retirement and sequence of returns and safe withdrawal rates. I don't think anybody has put more time into studying it. That actually has a published blog then early retirement now. And what he's basically agreed to do is as we're doing these case studies he's going to come on to kind of analyze our thoughts and also what our case studies thoughts were and help us figure out what's the sweet spot that actually looks feasible for them going forward. Now this is the point in time where I need to make this controversial audacious statement it just has to be made. And so I'm going to put it out there and then we're going to get your feedback. I want to get Brad's feedback which he may disagree. I want to say that in the same way that you can call the Dave Ramsey Show and you can say I'm debt free. You can say that I choose FI I am FI. Once you have 25 times your annual expenses saved up in an investment vehicle or a savings account so that essentially means once you can say the 4 percent rule is a reality for me you are at FI. But there is a big difference between being at FI and actually pulling the trigger and saying I'm never going to work again I'm never going to earn another dollar and I'm going for early retirement now. And especially when you have a a 60 to 80 potential retirement range there is a difference there. So for the sake of the show and having a metric you guys can say on this show you can do the I choose FI scream when you make it to the 4 percent rule. But when you're ready to actually pull the trigger and retire and say I'm never working again that's where we need someone to come in and unpack sequence of returns and whether or not the 4 percent rule can be applied to a 60 to 80 year retirement window. Is that controversial Brad.
debt, ramsey, savings
1316 - 1398 Brad Barrett It's very interesting that that's an interesting thought and I like it. I like it just like you said as a construct for that proclamation. And I think that's cool because I think people of good faith can definitely argue whether 4 percent truly is a safe withdrawal rate. Right. And ern has done an exhaustive set of research on on that. And I think he would say that isn't realistic necessarily for a 60 plus year retirement. So so people like to Target and I think for that as something to shoot for 25 times your expenses is a very reasonable amount. And I'm like saying that's FI. Because in all likelihood people are going to make some more dollars some where they might get social security somewhere down the road. There are things that that play into this so I am onboard with that. This is the first time you're telling me about this so just hearing it as as if I was a member of the audience. I'm definitely on board with that. And I also I understand that there's nuance to this that just because by sheer definition of you having 25 times your expenses doesn't mean you can or would up and retire that very next day and expect to not work and not make one more dollar for 60 years. That doesn't intuitively make sense to me. So. So I like that both on just that aspirational level of I am at FI at 25 times and also on the practical level of understanding there is some nuance. So yeah I like that.
socialsecurity
1398 - 1451 Jonathan Mendonsa Cool. All right. Yeah I think it gives us a lot of flexibility and I like I like to have a number to shoot for like you said I like to have a target so there's two things you can officially say I'm at FI. Once you get to that number. But now we need someone to walk us through the individual situation that Paul presented and tell us whether or not it's reasonable for him to retire essentially I think he like 52 or 54 and have up to a 40 year or 50 year time period without ever earning another dollar which I'd still probably suspect is unlikely. But you know for the sake of that analysis. OK so let's go ahead and set the stage here. In Episode 20 of the round up for Episode 20 and the round up episode 21 which you can go to choose FI dot com slash 020 R and Choose FI slash 0 2 1 R you can listen to the first two parts of that case study. And now let's go ahead and get big Ern's analysis.
1451 - 1752 Big Ern Hi this is Ern from the early retirement now blog. I wanted to weigh in on that case study for Paul. First I share Paul's concern about low expected returns going forward. Of course I don't want to forecast another bear market around the corner. But I wouldn't be surprised if we go through several years maybe even 10 years with pretty underwhelming returns for both stocks and bonds. Jack Bogle The Vanguard founder recently gave an interview where he predicted a 4 percent annual stock returns over the next decade and that's nominal. It's because equity prices have gotten a bit ahead of earnings and bonds are not much better. They have low yields and Bond returns will disappoint if the Fed keeps raising rates. So the good news is that after 10 lean years we should go back to a much higher return again. But if you picked your initial withdrawal rate too high you might have depleted your portfolio so much that even with the improved returns you will not recover. So that's the definition of sequence of return risk. But back to the case study here. So I have good news and bad news. Let's start with the bad news. Without social security if you want to disregard or treat it completely as an extra I would find the $70000 withdrawal per year out of a $1.4 million portfolio much too aggressive. That's a 5 percent initial withdrawal rate and even $60000 that's still over 4 percent initial rate that's pushing it in today's environment. If you want to consider Social Security purely as an extra I would recommend only three and a half percent initial withdrawal rate. Remember we have unattractive equity and bond valuations and 40 to 50 year retirement horizon. So out of 1.4 million dollar portfolio we are now looking at just under $50000 initial withdrawal and then adjusted for inflation every year. And by the way that's before taxes though there might be a route to never pay federal taxes if you structure your Roth conversion ladder as planned. But I don't know how much you will pay in state taxes but here's the good news. You have very generous social security benefits. So Social Security would have to be more than just an extra. It's almost the cornerstone of your retirement plan. The maximum benefits are worth about four and a half percent of today's portfolio. If you reduce the withdrawals from your portfolio. Dollar for dollar. When Social Security kicks in then $70000 probably works very well. So think of this as a two stage problem. You withdraw $70000 for 19 years from the portfolio and then when Social Security kicks in you hardly need any withdrawals from from the portfolio. There's one small advantage of course you have to have the stomach to take on this political risk of potential future cuts or rule changes in Social Security. But I consider that a small risk. When politicians want to reform Social Security. The first sentence is always if you're 55 years or older you have nothing to worry about. So you're pretty close to the finish line and then you have to have the stomach to potentially draw down your nice impressive seven figure portfolio over the next 19 years assuming that you draw Social Security at age 70. You may need only a few hundred thousand dollars in your portfolio to supplement those generous Social Security benefits. If you're OK with that you can probably pull off the $70000 a year initial withdrawal and even make it through that scary Jack Bogle 4 percent equity return scenario. Talking about Social Security your situation is similar to mine. So the husband is a little bit older and expect significantly more in benefits. What's normally recommended in this situation is for the husband to claim benefits at age 70 to get the maximum benefits the wife claims. At the same time and potentially opt for the 1 1/2 times the husband's benefits which could be a little bit higher than your own benefits so you have to check check about that. And then if the husband dies before the wife the wife will keep his Social Security. As a survivor benefit I'm not the expert on this so maybe somebody else wants to weigh in on this one but that's certainly something to check out. One other thing that that I liked in your case study for your personal situation. I like the idea of not having a designated 529 account. If you have an all equity portfolio and you're in a low enough tax bracket then both dividend and capital gains are income tax free. So there's no advantage from a 529 and the taxable account offers the flexibility to repurpose that account for your own retirement if necessary. Without the 10 percent penalty. So that's it for today. Well I hope you enjoyed my comments. Let me know if you have questions. And best of luck.
age55rule, roth, socialsecurity, stocks, tax
1752 - 1765 Jonathan Mendonsa All I have to say is wow. Thank goodness we have big Ern onboard to walk us through some of that because that's the next level stuff right there that I haven't heard anybody else take the time to really unpack for you guys. That was incredible. What did you think Brad.
1765 - 1846 Brad Barrett Yeah Ern is fantastic. There's no doubt about it. I love how how he looked at it again looked at a problem a little differently. He said that not only is Social Security not something to ignore but it can be the cornerstone of this entire FI plan based on where Paul is in his life and his proximity in age to Social Security and in all likelihood he actually even looked at the political implications that Paul is so close to this mythical age of 55 where politicians say even if Social Security does change. Nobody over 55 is you'll be impacted. So that was a cool thought that that just never would have crossed my mind. So not only did I earn talk about the actual In Depth calculations but he actually looked at the political realities as well. So yeah I mean that's really helpful. So I believe we actually have some more feedback from Paul to kind of help round out the end of this case study and one of my questions to him was where are these $70000 of expenses coming from. You have your mortgage paid off. Then after that where are $70000 in life expenses coming from it just seemed like a very large number to me and I didn't know if it was just something that they arrived at as just like this mythical number or if it was actual nuts and bolts line items for 70000. So Jonathan you want to play some of the voicemails that Paul sent in with the additional information.
age55rule, socialsecurity
1846 - 1847 Jonathan Mendonsa I look forward to it.
1847 - 1961 Paul page made a comment about the age 55 distribution from the workplace. If you leave your job during the year they turn 55 then you can begin to take distributions from your 401K without having to pay the penalty. I really appreciate that input. I had seen it somewhere before but it really wasn't a plan that we were looking to execute on what we're planning to do is to start moving forward on our FI and our next phase of our lives soon like really really soon I don't know if I'm going to make it to 55 at either rate. What we want to do is use the 401 k as the primary driver for our Roth conversion ladder. You might recall that I have just over 500000 in that account in order for me to get as much of that account converted to Roths before age 70 and a half kicks in and I'll be required to take required minimum distributions. I want to start that process at the beginning of 2018. We plan to pace it annually to get the maximum overlap of three separate goals. Convert what we can to shield it from future taxes to minimize our current taxes and to meet our spending needs. Brad also asked the question about budget. I'm sending a separate e-mail on that that has a spreadsheet that breaks everything down. In short here's what 2016 look like for us. Really the last 12 months look like for us the bulk of our spending we spend right at $71000 last year but the bulk of that spending is a whopping $23000 worth of vacation. That will definitely go down in our F-I lifetime with travel miles usage. Last year we spent airfare totaling $5600 cruises two separate ones totaling 7500 lodging was $5000. Experiences were about $3000 and meals totaled about $2000. So we spent an awful lot last year on vacation. If you take that away from the 73000 number then our expenses are $50000 a year.
401k, age55rule, roth, rothladder, tax, travelrewards
1961 - 2002 Jonathan Mendonsa All right. That is an awesome look at expenses. So basically what I see Brad right just right out the gate the only thing that really strikes me is that he is hemorrhaging money on travel which is fine you know you're Fi you can afford it but you know maybe the Dave Ramsey camp once you get to post retirement and you have all this free time now you're going to do all these things travel the world travel is going to cost you buckets of money. I mean like $30000 a year to do multiple vacations a year in the FI community because we optimize everything because we're not afraid of credit cards. We can do it all for a fraction of the cost for virtually free. And I think that once Paul just takes out one lever he uses that travel rewards lever he is going to be able to slash his travel expenses. A bare minimum of it in half I would imagine.
ramsey, travel, travelrewards
2002 - 2155 Brad Barrett Yeah I think without a doubt not only slash expenses but actually increase the amount of time they can travel. It sounds like they're taking luxury cruises and I think he had over $5000 in lodging six thousand an airfare. I mean these are huge dollar amounts so he clearly can cut that out just with more intentional travel. Something akin to slow travel is as you've heard many people talk about which is maybe go to a city and live there for a month rent an apartment. There are so many cities in Europe and Asia South America that you can rent apartments for hundreds of dollars for a month. We looked into Lisbon Portugal which is supposed to be an amazing place to live. And I remember finding apartments on air B and B for I think it was under a thousand dollars a month for like a two or three bedroom apartment. So if Paul and his wife want to travel they can do this for pennies. And as compared to their 23 plus thousand dollars now. So clearly I think it's a function of more intentional slow travel and the travel rewards as we discussed. We talked about this pretty much every every week on the Friday roundup and certainly on our main travel rewards podcast which was episode 9. But you can save especially someone who's responsible with their credit cards someone pursuing FI who can pay off their cards on time and in full every month pursuing traveler rewards is really one of the best levers to pull saving huge amounts of money on travel. So I think everyone everyone out there in the audience should at the very least investigate this and you can find all of our resources at choose FI dot com forward slash travel and we have our podcast episode nine we have our recommended credit cards and a whole bunch of stuff there so definitely check it out. But Jonathan I are going to go through Paul's Excel sheet probably in next week's Friday Roundup but it does stick out to me that Paul actually has his current year expenses and then he has a post FI life. And what's interesting that jumps out to me right off the bat is once he takes out a lot of and he went to a ton of detail and is this phenomenal sheet once he takes on that vacation spending and a bunch of other posts FI amounts that will decrease his life expenses are actually only $37000. So that is a far cry from the 70000. And I think Jonathan like we talk about things are just going to be cheaper. A lot of things are going to be cheaper in FI. When when you're intentional if that's the difference between retiring for Paul at 52 or having to work a couple of more years to get to that number I think that that's a pretty easy decision to make.
savings, travel, travelrewards
2155 - 2301 Jonathan Mendonsa Yeah absolutely. I mean there's a couple of things that come to mind as well. For instance let's say that you are a lawyer you have to buy expensive clothes right to maintain a certain degree of professionalism for your career which that's cost money with post-tax dollars. Maybe you have to have three cars one for you and your spouse and maybe your child at some point and because you're going to work every day you're driving everyday you have to fuel them up and then you have to maintain them maybe. You know honestly if both of you are at home now do you really still need three cars. I just I find as I am able to spend more and more time at home it really starts to look ridiculous to have three cars in the driveway. It just does. They're just sitting there. They're giant oversized paperweights. Things do change. Costs go down. There's a real cost to having to go to work. So I cannot wait to get into the analysis. I think there's plenty of room for him to optimize even the small things. And what's really cool about that is he doesn't necessarily have to. But as big said you know his numbers they look feasible right now and if big Ern says so I'm good with that. In fact his analysis was amazing. But let's say that he needed to in a tough year where just that everything's tanking. He needed to slash his expenses by 20 30 percent. What we're looking at right now tells us that he has tons of room. Things don't have to be fixed. You can adjust. You know when you're in a bull or bear market you can adjust your expenses because he's using the word expenses at 70000. That's a very liberal definition. His actual expenses are a very small fraction of that. And then his discretionary spending carries them up to $70000. You have the ability to make decisions based in reality. Now they go up and down with time. And so he's got a lot of room. OK guys so we always ask for your feedback and Jason took us up on it he said OK here's the situation. What if he had a disease in which your life was shortened by an average of 20 years and you knew you couldn't have kids. And you and your spouse had jobs and made $500000 a year and you like to travel to other countries and nice hotels and you want to house of your own and you like to eat. Maine lobster and sushi in prime beef and drive a nice car BMW drive nicer than civics. This is true. I know you guys have convinced yourself that you aren't missing out on anything. I get it. But if you drop dead right now would you regret anything. You can't take it with you. He says argue against me. I want to know. All right Brad. First of all when I got this I didn't know if he was setting up a straw man like this is too easy to knock down and almost felt a little bit too easy but like I'm excited to try and tackle this one I don't know if he was trying to help us by making the situation as easy as possible or if this was totally serious. But either way this is a conversation that's worth having so I'm excited to go and hand this one over to you and get your initial thoughts on it.
career, tax, travel
2301 - 2474 Brad Barrett Yeah this is a really interesting question posed by Jason I think I would pivot this a little bit and I think like Jonathan said I'm not sure if it's necessarily a straw man argument but so you have a disease which shorten your life by 20 years. OK so being literal I guess does that mean my life expectancy is 65. All right maybe we'll use that as a starting point. Do you I like to travel to other countries and nice hotels. I mean I guess the larger argument is would I spend more money. Would I go out. I understand what Jason saying about we've convinced ourselves that we aren't missing out on anything. I get it. And I'm not sure that this is like an apples to apples conversation. Right. I think based on the confines of my life choosing FI is as I've discussed many times it's a super power that enables me to have this wonderful life that I would not be able to have if I were working 40 hours a week for ever in a job that I barely tolerate which was my life three years ago. And for the prior 15 years prior to that it was basic showing up to work not enjoying it getting through the day getting paid reasonably. Coming home seeing my family and going to sleep and doing it all over again. Like many of us out there. Right. But I can tell you that by choosing FI by not buying that BMW by not going out for Maine lobster and prime beef that we were able to make what maybe was little sacrifices though I don't even necessarily see it that way. But we'll even argue those are sacrifices that by making those small sacrifices I was able to take charge of my life and wrest the control back from that job that I barely tolerated. And I can tell you being on the side of it being at home with my kids and my family and having flexibility is priceless. There are not enough Maine lobsters in the world that would supersede the value that I get by seeing my kids grow up by being here every single day by you know our pool and as I talked about that's one of our big things our pool opens next Friday. We're going to be there every single day essentially for 60 to 90 days. You know we're going on vacation in August so. Normally I'd say 90 days but there are no other fathers at that pool. Maybe a handful at most and I'm there every single day just frolicking in the in the water with my kids and having fun and playing games. I mean that is that is what life is all about. It's not about buying a BMW and impressing your stupid friends for two minutes. Honestly like maybe it drives a little better. I don't really care honestly. But that doesn't provide any value to me but spending time with my family is something that I could never get back. So that's why I've chosen FI. So I think Jason again set up an interesting argument but to me this is this is a no brainer from my life and how I choose to live my life.
families, travel
2474 - 2482 Jonathan Mendonsa I would pay any amount of money just to watch Brad frolick. That's just I don't have to include that.
2482 - 2485 Brad Barrett I'm all over that pool man.
2485 - 2516 Jonathan Mendonsa All right so I think it's almost two different things here. I think you need to break up the question just a little bit. So the first one is what if you had a disease in which your life was shortened by an average of 20 years. How would your life change. I think that's part of it. And he says specifically if you and your spouse had jobs that made $500000 a year because if you keep them a get together it seems kind of dumb you're saying. OK. So you only you have 20 years left to live. And you make $500000. Are you going to want to work right up to the end. Does that make any. Does that make any sense you're not even going to have a retirement right. I mean is that reasonable just to put a pause there.
career
2516 - 2527 Brad Barrett Yeah. Absolutely is that. That's right. The premise of the question. Are you working making 500000 right into the end just to afford a BMW and Maine lobsters. Yeah that doesn't make sense.
2527 - 2606 Jonathan Mendonsa So let's talk about what it looks like for most people these days. They work through all of their valuable years saving 4 percent and by the time they're 65 or 70 they have nothing saved and they collect Social inSecurity. I stole that one from Dave Ramsey. Social Insecurity is just barely enough right to keep them sated or alive keep the lights on. And you know now they have nothing but time but they've lost their health. So first of all to me there's a huge contrast between the standard norm and what the F-I community is choosing which is to recapture their prime years and be able to spend that time on experiences. Now I think that's just kind of the first. That's the thing that strikes me right away is that's what this is all about. It's recapturing your time. Now the second what brand they're trying to do I heard this framed I think I heard it on the afford anything podcast but I love the concept. So essentially what we're creating is this we're creating another another entity in our house so it's you and your spouse is Brad and his spouse and then he's creating this third entity which is a passive income investment right where this monster portfolio and that person is now earning money as well. Right. But they don't have any expenses so they don't have to pay to keep the light keep them clothed or feed them but they are earning income and so they are more than paying their share. And in fact because they're working so hard 24 hours a day it then allows you to work less. Right. Isn't that's a cool way of looking at it.
health, passiveincome, ramsey, savings
2606 - 2609 Brad Barrett Yeah that is interesting. I've never never heard that before.
2609 - 2712 Jonathan Mendonsa I heard Paula say it. I thought I'd hijack it I thought it was pretty neat. So and then from there because you now you have to work less you can now spend the time on experiences with your kids. And so the biggest thing is he kind of makes this pivot. So first thing he says is you like to travel to other countries and nice hotels. I'm with you man that's experiences. But then you go down to a dark path and you start talking about just stuff right. Maine lobster sushi prime beef. Nice car BMW maybe throw a yacht or a jet ski. You know these really cool toys and stuff. More and more what what what I think we find Brad and I have identified is this stuff becomes boring. It's kind of like when you're trying to lose weight and they tell you you can have that one cheat meal a week right. You're allowed to have that one cheat meal a week and then over time you get in this habit where you realize you don't even really want that cheat meal that's kind of the hijacking of your brain that FI does to you maybe initially you need that cheat meal so you give yourself that allowance but you realize over time that you value that time that you've recaptured way more than you value stuff. The BMW just doesn't have the appeal because the choices that you've made that are now giving you the opportunity to pursue FI. That's the exact same process that now makes you not really care about stuff anymore. So I don't know that was Brad and I's thought. I'm with Brad. The next question is you know forget that. Let's make it even easier. Jason let's like let's get rid of the disease let's get rid of the job let's just say you haven't you know money is no longer an issue for you right. That's the real argument. What if money is no longer an issue. You can spend as much of it or as little of it as you want. What changes then. That's a real argument that's that's the question that I would ask. What would my life change that. And I think now that's the discussion we can have. And then you can really figure out what is it that you actually want to spend your money on because you have as much of it as you want. I mean would you want to have this opulent crazy lifestyle. That's a better question right Brad.
familytravel, mealplan, weightloss
2712 - 2854 Brad Barrett Yeah I agree and this is one that actually when Jason asked us Laura and I sat down and actually had this conversation about your pivot actually which is which is interesting that you brought that up that if we had more money than we have today or are making today and really money didn't matter anymore what would we spend it on. And we came to the conclusion that we certainly wouldn't go out and buy nicer cars. Maybe maybe maybe we would move to a different neighborhood. We roughly talked about moving but it would be probably two miles away near our kids elementary school and where friends of ours live. So it would actually be more of a lifestyle upgrade as opposed to just oh we want to live in a McMansion. So it wouldn't even be that much more expensive. It would just be actually moving to increase our life our life happiness so you know that's probably not even the normal answer. Maybe there are a couple hundred dollars a month that we'd spend extra on. I don't know. Some organic food that Laura couldn't bring herself to pay for normally just because she's frugal and maybe I would. I don't know do some type of other exercise like maybe I'd get a personal trainer or something like that. But but in the grand scheme of things I'm not sure that spending money would increase our life happiness. And that's really what I'm going for. If I did think that there were ways to spend money and increase happiness then I would do it. So I think again Jason brings up a great question here and I think all of us need to think about this. And this kind of ties back into what Brandon from the man fientist said on on the episode that we had him on which was he was depriving himself and making life miserable for himself and his wife Jill. And that just wasn't good enough and he needed to stop doing that and loosen the purse strings a little bit. And it's increased their life happiness significantly. And it's only made a couple of thousand dollars a year difference in actual money. So that is an absolute no brainer. So again to Jason's point is if you're depriving yourself and certainly if you're looking at it it's depriving yourself you're going to have a miserable life if you're looking at this under the construct of a normal working family. Well FI can make your life dramatically better and then maybe when you're at F-I loosing the purse strings a little bit. And being a little bit more open to spending can make your life slightly better still at the margins so. So that's how I look at this problem. And again challenged me to think a little differently. So I really thank Jason for sending it in.
2854 - 2962 Jonathan Mendonsa The last two parts of this where I love this last phrase he said. If you dropped dead right now would you regret anything. You can't take it with you. So in the first paragraph he kind of made the case you know you want to buy all this nice stuff. And the second paragraph he reminded us that you can't take it with you and I think that is that's that's like making my case for me. It's just stuff you know it's going to rust and grow old. But the experiences that's the value. So that's where the F-I community puts their energy they put it into buying their time back which is that's the scarcity right there. That's what you're running out of. And that's what we're pursuing and so we put this question out to our our community on our Facebook group and guys we try to put out one kind of thought provoking question that maybe we can tackle on our Friday round up each week. And this was the one we just asked them for you guys that are hardcore fire. Imagine that money is not an issue. How much would your life change. And we had a bunch of people respond to this. And I tell you. Nobody said they wanted the Lambo. Can you believe it. Nobody wanted the Maserati. It was all more travel more time more time with family less work. That's what this is about. That's what you're pursuing you're pursuing your passions you're freeing your time up and then you're giving that time to the people that are most important to you usually your family. So I'm going to read you all three of the responses that I got left by our Facebook community Chad says the interesting thing is the fact that money is an issue has shaped the way of my Wife and I live our lives in an incredibly meaningful way. It forces us to set goals for ourselves and our family and to make informed choices decisions as we move forward on our path to FI. In addition it forces us to serve as positive financial role models for our two young children. The closer we get to FI the less I care about the number and the more I feel as though my true calling is to help empower young people to make informed financial decisions at a time in their life when doing so could completely transform their future. That's really powerful that's kind of that's a place I think me and you are both going right Brad.
families, travel
2962 - 2963 Brad Barrett Yeah for sure.
2963 - 3148 Jonathan Mendonsa Melissa says I wouldn't be working and I would be traveling a lot more. But my house car neighborhood friends activities wouldn't change a bit. Lori says Way less work way more travel and Alan from pop up business school he says. I think there would be some work I would drop and I would probably play a little bit better but unlimited money probably wouldn't change things that much. So guys we appreciate your feedback. We try to include those each week if you want to be part of our growing community and it really is growing. Please go to choose FI dot com slash Facebook that will join our Facebook page and you can join the conversation which as you know we get excited about sharing with everybody. Alright guys. I know we're not going to play it today. But Paul did leave us some more information which I'm super excited to share with you about his plans for college and it sounds like he's planning on doing some college hacking. Now I'm going to save his message for the next round up which we will do I guess next Friday I'll play his ideas for college hacking. But today I wanted to announce that Edmund who is one of our senior writers and contributors here at ChooseFI and you guys I've told you about Edmund before he is probably one of the highest level FI thinkers on the planet and I'm not exaggerating this. I honestly cannot wait for you all to find out more about the work that he's already done and that he's continuing to do. But he's one of our senior writers and contributors at Choose FI and Edmund is going through the process of college hacking for his kids. So this is something he's actively researching. I mean this frankly I don't think anybody is going to be able to dig deeper in the weeds and find the gyms that we can all use than Edmund and he is taking all the different resources that we have kind of started to talk about and he's putting them together for you in a roadmap that you'll be able to use so we told you the sun woo incorporated the college hacking the college FAFSA a week or so ago Edmund's putting that in he's also putting the dual enrollment the clep testing the micro scholarships he's building it all into a replicable process that you can use if you're in our fire community. And guys I cannot stress this enough. This article series that he's piecing together is a game changer. I mean this is what we've been waiting for. We've been waiting for one person that's figured it out or has the ability to figure it out. To put it together for us in a package that we can then talk about and turn into a conversation and I promise you Edmond is your guy for that so we're going to be releasing the second article in that series this upcoming Wednesday. If you are subscribed to our e-mail list you will get a notification as soon as it's released so if you want to subscribe to our email list you can text choose FI That's one word to 4 4 2 2 2 choose FI to 4 4 2 2 2 and you'll get a notification when that's released works. We're thinking it's going to be Wednesday morning. It's mind blowing guys. I mean is this what you have been waiting for with regards to college hacking and our community is all about the second generation. That is what our focus is so you're going to want access to that. And I know Paul is going to want access to that as this is the process that he's planning on using and Edmunds says frankly for the community college it should cost a max of 30 to $36000 absolute max. And so Brad I know that you are kind of. Is it possible is it doable. I'm going to convince you on this and we are going to create this story that you might even to end up using for your kids Brad.
2ndgenfi, clep, college, dual-enrollment, fafsa, travel
3148 - 3164 Brad Barrett Yeah that sounds good. And obviously I never want to I'm not as exuberant as you in general been. I never want to overplay anything but Edmund is not only at the highest level FI thinker he's just the highest level thinker I've ever met just in general. Like I want to be Edmund when I grow up.
3164 - 3166 Jonathan Mendonsa I'll make a bumper sticker right now.
3167 - 3193 Brad Barrett OK. It's amazing. I mean like I get e-mails from him because he's big time into the travel rewards stuff and gift cards and earning tons and tons of points so I'm just blown away by the stuff that he's just on a different planet. So again I never want to oversell anything but Edmund is the man. And if we have him as a contributor here at crucifying it helps you the community. You know it doesn't help us it helps all of us so that's that's what this is all about.
travelrewards
3193 - 3293 Jonathan Mendonsa I'm going to start calling of e-money for sure. Just everything he writes is pure gold. All right guys. Frugal wins of the week first one just the thought from Stephen. He says the first two letters in fit for the Honda are FI. Is this a coincidence. I think not. Great points Stephen. Great point. Danielle says my frugal win of the week is actually for my mother. We switched her 401k accounts over from an ex from an investment with an expense ratio of 0.38 to Vanguard accounts with an expense ratio of zero point zero five and zero point zero 1 percent. That saved her up to 0.3 7 percent on expenses. What a simple savings from just switching accounts. Thanks for all you do. Jeff says one really nice one for my beautiful wife I offer to take her out for a Mother's Day brunch expensive. I think expensive $50 per person and $20 for our son. She said she didn't want that and we're getting sandwiches from Corner Bakery and going to a park. She's the best. That's awesome. And then Karena insurance overhaul $62 monthly savings cable downgrade $33 monthly savings that is eleven hundred dollars a year in savings and that's. In addition to the twelve hundred dollars she made selling all of her books CDs DVDs and clothes that I don't need. That is awesome guys. Thank you so much for sharing your frugal wins with us. I am still trying to figure out what my next one is going to be. I'm looking for a place to win just for you guys. But we love your feedback. Please continue to give it to us as you think of stuff. We love getting it and we love sharing it. Alright guys know this is a resource that we heard from one of our Canadian listeners and it's a life hack it's definitely a financial life. And it's one that I would like to see somebody in our community if they know of a service that's similar. I'd like to see you guys help us out and let us know about it so this is from Steve.
401k, FWOTW, cordcutting, insurance, lifeoptimization, savings
3293 - 3375 Steve - (voicemail contributor) Hey Jon and Brad it's Steve from up north in Canada. I appreciate all you guys do. I look forward to your two episodes a week coming into my ear buds I just want to share with you my hack on Term life insurance. I have them through a company called Manulife. You'll have to find the equivalent in the States. I'm sure it must exist. You guys seem to have options for everything in the south but the life insurance I'm on lets me subscribe to specific units of $25000 coverage and I can raise and lower my units anytime I want and I just pay every month based on the category that I fit into. So right now being under 35 and in good health I think my wife and I pay $42 a month for $500000 of coverage each. The great thing about being on the financial independence journey is I'm going to need less coverage as I gain my wealth. So my current plan is to drop it in about $50000 a year until I actually reach financial independence. That means that as I move up into more expensive life insurance rates my actual cost of life insurance is still decreasing because of decreasing the amount I need. Anyway this is a great option for those who are on the way to FI even though it can be a terrible option for the average person who is not aggressively saving because of course the rates will rise. Anyway I just wanted to share with you my life insurance hack and maybe it will help someone else out there. Thanks so much for all you guys do. I appreciate your show.
health, lifeinsurance
3375 - 3394 Jonathan Mendonsa That is a totally different way of looking at term life insurance. that I've never heard anybody else mention and I think that is one that is perfect for the fi community. It makes sense it fits into the model that we're talking about. I would love to know if somebody has uncovered a service here in the United States it's anything similar to that. But certainly if you're in Canada that sounds like that might be a great option.
lifeinsurance
3394 - 3407 Brad Barrett Yeah agreed. And if anybody out there has heard of something similar please send it to us at feedback at choose FI dot com. And that's actually just our general e-mail if you have any questions comments about the show send it to us feedback at Choose FI dot com.

Stay Connected