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Financial Autopilot

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In an era of two income households struggling to make ends meet, my story sounds extreme. I retired from my career as a physical therapist at the age of 41 while my wife cut back to part-time work five years earlier at age 35. Some might think we spent a lot of time thinking about money.

That assumption would be wrong. We achieved financial independence by our early 40’s because we spent less time thinking about money than most people. We embrace financial simplicity.

We focused on getting the big things right from the beginning – advancing in our careers while not overspending for college degrees, housing and cars. We then put our financial lives on autopilot so we rarely had to think about money.

This worked amazingly well for us… until it didn’t. I recently wrote a post about struggling through the first year of early retirement.

Autopilot works well when cruising at 30,000 feet, but the pilot needs to take control of the plane for landing. Similarly, having your finances on autopilot is great when cruising along through the accumulation phase. But making a stressful transition demands taking control.

For the first time in years, we had to devote frequent time and energy to financial decisions. Frankly, it’s something we’re not good at.

We’re working on automating our finances for this new stage of life, including developing tax strategies and systems to manage cash flow. But this is challenging while fluctuating between net saver and spender from month to month and likely from year to year going forward.

So I’ve been reflecting on how putting our finances on autopilot got us to this point. I question whether playing to this strength is possible in early retirement.

Cruising On Autopilot

Before addressing my question, let’s explore the importance of simplifying and automating your finances. Eliminating the need to apply ongoing effort and minimizing emotions around saving and spending was one of our most powerful wealth building tools.

While I was still in graduate school, we decided to combine finances. Our goal was to be debt free (of my now wife’s student loans and car loan) by the time we were married.

She supported us financially while I finished school. We predetermined that every dollar I earned working part-time went to paying extra towards her debt. My first month of “real” paychecks as a physical therapist allowed us to complete that goal and become debt free, three months before our wedding.

From that point forward, we each contributed to our 401(k) to the level of getting the full company match. We continued living on my wife’s income while saving my full paychecks for the down payment on a house.

Once we bought a house, my first paycheck each month went to paying ahead on the mortgage. The second went to taxable investments.

We automated these transactions. In about seven years, we paid off our mortgage and directed that money to investments. We made few financial decisions month to month, or even year to year.

No ongoing thought, effort or willpower was required. Wash, rinse and repeat for a decade.

This was wildly inefficient and caused us to unknowingly pay thousands of dollars in unnecessary taxes and thousands more in investment fees annually. Despite our mistakes in not optimizing our finances, we were still in a far better position than most.

We had a fully paid off house and solid six figure investment portfolio by our early 30’s. Simultaneously we lived well while rarely thinking about money.

Adjusting Course Slightly

I started seeing early retirement could actually be possible and began reading FIRE (financial independence, retire early) blogs. JL Collins’ “Stock Series” empowered me and shaped my investment philosophy.

Sorting out our taxable investments took about three years. We gradually sold off unwanted assets to avoid getting crushed by taxes. Once we were rid of our old investments, we automated all new contributions and set up our accounts to reinvest dividends automatically.

Various bloggers shaped my thoughts about tax planning. We implemented a tax strategy of maxing out tax deferred saving. Contributions were taken directly from our paychecks and deposited into our 401(k) accounts. This lowered our taxable income to a level that we could max out Roth IRA accounts. So we automated that as well.

We made two major changes to cut our recurring spending. I switched my phone from one of the major providers to an MVNO plan. We also cut back to the most basic cable TV service. These two one time decisions save us over $100 every month without sacrificing anything of value.

The only other significant financial change we made was experimenting with credit card travel rewards. This involved occasional effort of opening a new credit card once every 3 months to get generous sign up bonuses. These rewards cut thousands of dollars a year from our travel expenses.

We were back on autopilot, but going faster than ever with the tailwind provided by cutting tens of thousands of dollars of spending each year on investment fees, income and capital gains taxes, and savings on entertainment and travel expenses. Better yet, this was accomplished with minimal ongoing thought or effort.

Traditional vs. Early Retirement

Most people think of retirement planning in two distinct phases. Working/accumulation is followed by retirement/drawdown. This dichotomy makes planning fairly simple.

When working, cash flow is the result of a paycheck. In retirement, cash flow can be created by a combination of social security, pension and/or annuity income supplemented by investment income that can be systematized.

Tax planning is simple within the framework of a dichotomy. Defer taxes that would be paid at high marginal tax rates when working by using tax deferred retirement accounts. Pay the taxes at lower effective tax rates when retired.

A similar strategy of tax loss harvesting can be  used to pay less taxes when working. Long term capital gains can then be “paid” in retirement at the favorable rate of 0% when income is low. Harvesting takes effort, but the decision process is simple and straightforward.

Most people, as we have always done, get medical insurance through an employer when working. Most retire when they are at or near eligibility for Medicare. This limits the options available.

However, Michael Kitces points out that the traditional dichotomy isn’t working for everyone, so more of us are choosing non-traditional retirements, such as semiretirement or mini retirements. This is especially true of early retirees who face unique challenges of finding reliable and affordable medical insurance combined with increased longevity and sequence of return risks.

Autopilot With Non-traditional Retirements?

Non-traditional retirements provide a solution to the fundamental challenge of retirement planning – a scarcity of time during our earlier (presumably healthier) working years, followed by a scarcity of money when attempting to simultaneously live off and preserve your investments in retirement.

Non-traditional retirements allow us to leave the grind of full-time work sooner, rather than being trapped by fear in one more year syndrome. Having some ongoing earned income provides flexibility, alleviates some stress of living off only investments and allows sidestepping sequence of return risk if you earn enough to not spend down investment principal.

A nontraditional retirement seems like a way to have your cake and eat it too. However, semi-retirements or mini-retirements are not a free lunch. While they may solve some challenges, they also can create new ones.

Rather than a black and white financial situation, decisions now become more gray. Creating adequate cash flow to cover spending in a simple yet tax efficient way is challenging.

Most early retirees face the annual challenge of how to obtain affordable health insurance. This requires ongoing finangling of your finances from year to year, especially for those relying on ACA subsidies to keep insurance costs affordable.

These gray areas require ongoing financial calculations and decisions that go against the simplicity that we desire.

More Questions Than Answers

Unfortunately, I don’t have great solutions for these challenges. I am not a guru with all the answers.

Writing challenges me to think about these problems at a deeper level as I work through them in my own life. It also allows me to create a forum for honest and intelligent discussion among like minded people, so we can help one another navigate this uncommon path through life.

If you’ve achieved financial independence by creating good money habits, and then getting out of the way while your finances ran on autopilot, how are you dealing with the uncertainty of early, semi, or mini retirements? What has worked and what has failed as you search for financial simplicity at this stage in life?

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Comments

  1. Being on autopilot through simplicity is how I’ve mostly done things as well. That’s why in the past I haven’t done travel hacking, or tax loss harvesting etc. I was working full-time, I just didn’t want to deal with it and my plan of simplicity through index funds was already working well enough. Now that I’m not working as much at my W2 job, I’ve begun exploring tax-loss harvesting and travel hacking more. I still want to keep things mostly simple, but the definition of simple has moved a little bit for me now that I have more time

    • Chris Mamula says

      Agree that we all have different definitions of simple and also that the definition can change over time.

  2. Excellent financial habits and attitudes are formed early. And are very difficult to change. Early on, you developed the bad habit of “eliminating the need to apply ongoing effort” which you acknowledge had great opportunity cost in terms of paying extra taxes and fees. In personal finance, early mistakes have high long-term consequences. You folks write about it all the time – you know, the “forgo a cup of coffee in your 20’s and you’ll have a bazillion dollars in your 60’s” school of thought.

    Are/were you merely “a better physical therapist than most”? Did you not put any “ongoing thought, effort or willpower” into your career? I hope not. I hope you were steadily investing your time and effort into being the best PT you could be. I hope you were continuously learning new things, staying up on best practices and learning how to adapt them to your own personal circumstances. The SAME is true in personal finance. “Autopilot” and “financial simplicity” are FIRE-blogger-speak for “not giving my best effort”.

    It’s never been more easy to develop excellent personal financial habits, no matter your age. We have management tools like Quicken. Planning and calculating and forecasting tools are _everywhere_. Money-saving techniques like “travel hacking” and credit-card-discount-hunting used to be a huge time sink but nowadays, online resources make it trivially easy. Personally, I have a set of spreadsheets originally set up over 30 years ago, that plan out my cash flow and taxes with almost zero ongoing effort. Leaving me time to read articles like Kitces and _really_ understand what he’s talking about.

    You could also do all those things too, but you lapsed back into the “minimal ongoing thought or effort” mindset. Because old habits really cannot be changed without effort and desire.

    • Chris Mamula says

      Agree 100% that habits are hard to change. This is why we focused so much on getting the big things right and then automating so we didn’t have to make ongoing decisions and invoke willpower. I’m not one who worries about optimizing every little thing. For me it’s exhausting and so I wouldn’t stick with it over the long haul anyway.

      As noted in the article, I put a lot of time and energy into my career including obtaining an advanced degree and specialist certification that weren’t necessary. However, I’m just not passionate about money like I am about health which is why it was so important to automate as much as possible.

      Very few people are lazy slugs, and very few people can/would want to try to excel at everything. Agree that personal finance is too important to ignore completely, so I focus on getting the biggest wins so I don’t have to worry about optimizing all the little things. Holding myself accountable to overcome my lack of natural passion for learning about personal finance was a big reason I began writing.

  3. For me, it comes down to two types of issues that have to be dealt with: psychological and math. I tend to be the one who worries about future in the family, whereas my wife has about a 36-hr planning horizon. Coincidentally, this frees her up to be way more creative and effective in the present when stuff ACTUALLY happens, whereas I am still reacting to my endless future-thinking loops. Look, it is obvious that too much thinking like this creates a sense of discontent, which is the very opposite to what we presumably are seeking, right? Otherwise, we should just go back to our damned jobs! So the way I deal with this is to shorten the budgeting planning horizon to one year, which becomes psychologically more manageable for me. Then I can just focus on the math. And there I let the actuarial guys carry the weight. Ken Steiner’s actuarial budget calculator sheets make this so easy, and give you such confidence, that you might actually be able to enjoy your early or mini or whatever retirement you think you are having. They have had an enormous impact on my peace of mind. Check them out here: http://howmuchcaniaffordtospendinretirement.blogspot.com/p/articles-spreadsheets.html

    • Chris Mamula says

      Love the suggestion to focus on one year periods when planning, which is ultimately where I think we’ll settle. Having so much change in one year (quit job, buy house and year experiment renting it until ready to move in, sell house, move cross country, transitioning from paying for daycare to daughter starting school, etc) made last year’s data pretty useless for future planning. Hopefully, as we get settled into a more stable lifestyle, we’ll be able to again automate more of our finances and take the emotions that come along with constant decisions at least mostly back out of the equation. Thanks for the website recommendation, will definitely check that out.

  4. Wade Shanley says

    While im not yet in early retirement…I am working towards it. Im practicing many of the “AutoPilot” strategies noted above. One thing that following FIRE blogs has changed in my Autopilot approach is where Im putting my investment $. Originally I was thinking put as much money as possible In tax sheltered accounts…which I do max out today. What changed my thinking is the realization that I would not be able to draw down on these accounts prior to age 59.5 without penalty. So if I drop out of a high paying job in mid-50s or earlier (which is my plan) I need to be able to generate income off of my taxable investment accounts (or other passive or active income streams). So about a year ago I started redirecting some of our auto savings into our taxable accounts to build up a base that we can use in the “gap”, before we can use retirement accounts without penalty. Im still maxing out tax sheltered accounts (401k, Roths) but until I really dug into what a drawdown would actually look like, I hadn’t thought as much about my taxable accounts in the context of where they would fit in a drawdown strategy.
    Unrelated to this topic, is that Im struggling with what I would do in semi-retirement. While I want to travel and do some things (I have passion for photography), Im coming to the realization that it won’t be enough. So I’ve been spending a fair amount of time researching what I might do to occupy myself when I leave my high paying career. For me, this is a big concern and after managing my finances the #2 item that occupies my mind as I work towards financial independence.

    • I used to fret about the “what will I do in (early/semi/partial) retirement” question too. Oh, you’ll be bored. Oh, you’ll struggle to find meaning.

      My typical work day, after subtracting breaks and travel time, is about 3 hours actual activity in the morning and another 3 hours in the afternoon. Best case. Give or take. Should I REALLY be afraid that I can’t replace that time with something more interesting or worthwhile? I can spend 3 hours in the gym instead of the usual frantic 30 minutes. Everything in my life that I presently do in a hurried and careless manner, I can slow down and do a better job at. And all that time in the evenings and nights and weekends currently spent worrying about upcoming work-stuff, I get that time back too. Plus I can develop a new interest here and there which time does not currently allow.

      Where’s the down side?

      • I’m with you Larry, I too realized that you only have to replace working hours. I also bought a half dozen books on early retirement, the best by far being How to Retire Happy, Wild, and Free by Erie Zelinski.

        Since early retirement at 56,
        I’ve taken up hiking, cycling classes, woodworking, RC Car racing, volunteering, and revived my golf game. These activities were added to mountain biking and an aquarium addiction. Two of these hobbies also require lots of tinkering and maintence, which I also enjoy. I feel no need to have a purpose, which many advocate. I just stay busy.

        • I’ve found, perhaps too late in life, that hobbies outside of work enable one to meet people that you’d simply never meet in the workplace.

          And if you want to abandon a hobby or a particular group of hobbyist friends, you easily can. Unlike the work environment where the financial complications are much more serious. Relying on your job to provide a circle of “friends” and a “sense of purpose” as Randy wrote about below, is another lifestyle mistake that’s all too easy to fall into.

      • Chris Mamula says

        Larry/Mitch,

        I used to worry a lot about this issue, but am quickly coming around to your viewpoints here. Soooo much to do and learn that I’d been putting off, so many new things I never even had time to discover or consider, so many people/organizations you can serve. Filling my time and finding purpose have definitely not been a problem for me either, though it can be for others.

        Chris

    • I retired five years ago and continue to struggle with the issue you’ve identified. The transition from an active corporate life is substantial. I learned it is normal to lose contact with former work colleagues and will have to work at developing new relationships and activities that engage and provide a sense of purpose. There is a void until you find your own way to fill it.

      • Randy, may I suggest that you visit a blog called Satisfying Retirement? Author Bob Lowry just recently began a sabbatical, but his archives are chock full of posts related to the many aspects of retirement: relationships, health, time management, finances, travel, etc. It’s a well rounded blog with thought provoking posts and a very engaged community like this one. I would think anyone planning a transition to retirement or struggling with one will find helpful and reassuring information there.

        • Chris Mamula says

          Randy,

          As noted in response to Wade I’ve found a wide variety of responses around this topic in talking to retirees. I think a lot of that has to do with how much of your identity you had tied up in your job. For example Doctors have a notoriously hard time giving up that title.

          Mary,
          Thanks for the recommendation.Love how this audience is so willing to share freely to help one another.

          Best,
          Chris

    • Wade, if you retire from your company after you turn 55, you can draw from your 401k! Called th Rule of 55. I agree, though, that having a rather large sum in after tax investments is necessary to retire early. We will start building on ours again in the next four years, when I hope to semi retire to a simple job. Good luck.

      • My husband and I took advantage of the Rule of 55 when he left the workforce. It allows you to make withdrawals from your 401k without having to pay the 10% early withdrawal penalty. (You still pay regular income taxes on the amount you withdraw, however.) The rule applies if you retire, quit or are fired from your job in the calendar year you turn 55 or later. Anyone considering using this strategy should be sure he or she understands the IRS regulations regarding it. If you roll your 401K funds over to an IRA, you lose the advantage of the rule and will have to pay the 10% penalty on withdrawals until you reach age 59 1/2. It’s an excellent option for some, but understanding the rule in its entirety is critical.

        • Chris Mamula says

          Dave/Mary,

          Thanks for chiming in and sharing. Mary, you are spot on that this does not apply to IRA’s and is one of the biggest reasons you may NOT want to do a 401(k) –> IRA rollover when leaving an employer.

    • Chris Mamula says

      Wade,

      Good point. We were fortunate that our high savings rate allowed us to eliminate the decision of whether to choose tax-deferred vs. Roth vs taxable investments. The amount in each category is something we track with our portfolio b/c it will determine our strategy of when we can take the money out and also the value of the money we actually have (ie, do we actually have the amount on our statements (Roth) or do we need to figure in taxes (deferred and maybe taxable).

      Regarding what to do, this was something I also spent a lot of time worrying about. I would say I have the opposite problem. I still feel too busy, b/c I have had a hard time downshifting and there were so many things I’d been putting off while working. Just my $.02 though, b/c I imagine there is tremendous variability there.

      Best,
      Chris

  5. Great column. I add that life itself can also throw a curve ball to the best of financial planning and financial discipline: job loss, divorce, illness, aging parents, etc. – thus the need to be even more diligent in saving and living with a realistic budget because no one gets through life w/o being affected by at least one of these factors. I retired in my early 60’s and maxing our tax deferred retirement plans each year and additional saving was critical. BTW – you are correct on airline mileage credit cards. We/I have enjoyed many free trips over the years that include extensive international travel saving us thousands.

  6. I found great help in the calculator at I-ORP.com. The extended version has made a big difference in our understanding of this new adventure of withdrawing instead of contributing to our savings. As a result, I know how much to convert to Roth and when, and which accounts I’ll draw from each year throughout retirement to balance our taxes. Previously, the projections included quite a bit extra in taxes because we had no idea how to organize ourselves to smooth out and minimize taxes.

    • Chris Mamula says

      Laura,

      Thanks for the recommendation. You’re the second reader who has recently brought I-ORP to my attention so I’ll have to check it out.

      Chris

  7. No offense, but this post sounds a little whiny. (“Poor me, retired early and still worrying.”)
    Please do not allow the tiny detail of tax-loss-harvesting-efficiency, or whatever, blind you to the obvious–you have wealth and the freedom of near-infinite choice in your life. Be happy.

    • Chris Mamula says

      Marty J,

      I actually agree with and appreciate this comment. Both my wife and I came from modest financial backgrounds and that still plays a big part in how we think about money. Fear is a big reason we have chosen the path we’re on rather than a more traditional, live only off your investments with no earned income retirement. To a degree, that is probably a good thing and helps us mitigate real risks that come with such a long retirement horizon, in particularly when starting with such unfavorable stock valuations and interest rates. However, it also prevents us from just relaxing and enjoying the abundant lifestyle we’ve created for ourselves.

      Thanks for reading and taking the time to point out the what should be, but often isn’t, obvious.

      Best,
      Chris

  8. I don’t think something as critical as your financial well being, especially if you are wanting to retire early, can ever be on autopilot. The financial markets are too dynamic, tax laws can change yearly and your personal situation can take a 180 degree turn at anytime. I always use a CPA for tax related questions and until I was comfortable with the financial products I was buying/investing in – I consulted with professionals for that as well. I still continue to read/do my own research to try and stay current and when necessary, seek professional advice. Instead of trying to find an autopilot switch, I focus on ‘managing the failure points’. Over the years, I have reduced the amount of time I spend on managing my finances and more importantly, greatly reduced the angst and uncertainty, but I always keep my finger on the pulse of my finances…ALWAYS.

    • Chris Mamula says

      Great perspective Tim O. This is actually more consistent with my philosophy than “autopilot.” It is also a reason I chose to start and continue writing about this topic, if forces me to stay on top of something I know is important but otherwise wouldn’t devote this level of thought and attention to.

      During the past year, there were definitely some things we had to be actively involved in. Buying/selling the house were the obvious ones. However, we also spent way more time and energy than necessary on things like where to come up with cash to fund our IRAs, HSA or to pay for big expenses like home repairs. It’s important, at least for us, to come up with systems to automate and thus eliminate a lot of our recurring decisions.

      • Dealing with the unexpected is always a challenge, hence my focus on managing failure points, sometimes referred to as having a plan B and C. We recently began building a home (first time), so there were mostly unknowns on the technical (build) side. As such, my budget and cash flow plan had to be very ‘flexible’, especially with current market and interest rate uncertainties. Interestingly enough, the stress with the cash flow has been minimal even with upward pressure on interest rates as that is something easily projected. Weather delays, material / supply and labor issues, price pressures due to import tariffs and all the minutiae of things I have not heard/thought of, and did not plan for, so I ended up with a big sliding window of cost variables. Oddly enough, they only move one way…UP!

        After working my way through the ups and downs of the past 40 odd years my financial planning has gotten easier as each time something falls outside my model, I adjust it accordingly. I love being retired, but building a home (and yes, I have a general contractor) is too much like work 😉

        Continued success with your retirement and thank you for sharing your journey.

  9. What are the one, two or three books I should read to understand “Tax efficiency in retirement”, “investing for income in retirement (bonds I assume)”, and “How and where to pull funds from for retirement income”? Thanks for your suggestions! Love this blog site!

    • Chris Mamula says

      Dave,

      Good question without a great answer that I know of Dave. Have you read Darrow’s book “Can I Retire Yet?” You can find a link in the right sidebar at the top of this page. I think it is a great comprehensive planning guide.

      Once you understand the big picture, you will have to find resources that make sense with your situation and/or pay for individual advice. For example, what do you mean by tax efficiency in retirement? Are you trying to maximize your income, make a small pot of money last without exhausting your funds or leave an inheritance to others. Depending on where you’re starting and where you want to go, the strategies will look very different.

      Sorry for the vague response. Hope that helps.

      Best,
      Chris

  10. I would say anyone who wishes to FIRE should either trust in their well thought out plans or keep working to increase their wealth to a level that they have a sufficiently large margin or error within their plan to feel comfortable FIRE’ed. If you feel uneasy, then that nagging uncertainty feeling kills that great FIRE buzz in my book. And that margin of error will greatly vary from person to person. At the end-of-the-day, we all need our own, customized, realistic plan that we can sleep well at night with. Suzy O suggests that unless you have something like $10M net worth, you shouldn’t think about FIRE, which I think is extreme fear-mongering and taking risk mitigation overboard, but nevertheless, there has to be a level where one can put one’s head in the sand, run the plane on autopilot and sleep soundly.

    Personally, I’m not sure if I can FIRE and sleep well at night until I have $5M+ and a paid off home based on my worst-case planning and spending desires and honestly, I do like Suzy’s $10M number but that’s not realistic for me. Hence, I’m still working but I do have a plan to reach my goal before I’m too old to enjoy FIRE. But many have posted in different blogs that they are happy and FIRE’ed with much less than $5M+. To each their own comfort level.

    • Chris Mamula says

      Phillip,

      This is a great point. This is what I was alluding to in the post when I said there is no free lunch. The downside of needing such a large cushion and being very risk averse is that you may end up saving too much and working longer than necessary. In an ideal world, we all find work that fulfills us and provides a perfect work-life balance, so working a few extra years is not a big deal. Unfortunately, this is rare. So the tradeoff is you work potentially too long and eliminate any risk/fear because you have planned and saved for every contingency or you take a leap, potentially too soon, and manage things as you go. I can see the appeal and the downside of each approach.

      Best,
      Chris

  11. I resonate very much with this article and the stress of hands-on DIY money management. There is so MUCH information out there. I’ve invested in my own personal finance education but also do not hesitate to use professionals, such as for our taxes or buying homes or legal needs. Though I’ve read every blog I could find for the last six years, like this really good one, I know myself and what I’ve learned is, I tend to fiddle with my asset allocation during this transition phase of late career in an unquenchable attempt to optimize it. That is not good. Second, my wife retired before me, which was a surprise. She has a life too and she has opinions about fixing up the house and more that we need to navigate equitably. Long story short, in 2018 we turned our portfolio management over to Vanguard Personal Advisor Services. They charge thirty basis points/year. We never needed help before this trickier phase of life and it has been a huge relief from DIY stress, honestly. Vanguard’s math and knowledge is better than mine and they keep my itchy trading fingers off the keyboard, preventing mistakes. Also, my wife has an equal forum on a regular basis with our advisor, allowing her to have her say in the money discussion now in a fair way she never really couuld before while I was running all our money, a lot of which she earned. Having an advisor is heresy in the FIRE movement, I know, but it is working well for us.

    • Chris Mamula says

      Thanks for sharing your experiences Markola. I am strongly of the opinion that personal finance is personal and as such the only “right” answer is the one that works for your personal situation.

  12. I did plenty wrong in finance decision making, but will for now just post the right moves. Bought a fixer upper that made a wonderful rental. I knew the basics of how to pick real estate and was absolutely firm with the realtor not settling for property that she had a hard time selling. She and I butted heads and I grabbed her book and said let me pick one. Took me 15 minutes. This was way back in ’79. That property served us well with supplemental income, wealth accumulation, and life insurance avoidance. Tapped the equity several times. Once to start my own business.

    Paid home mortgage off when entering retirement. About a draw on savings, but the value of such is risk avoidance in turbulent financial times. Lower cost of living and ensuing lower tax bill for the same standard of living. Since the financial markets are flat and expected returns will be lower the mortgage payoff was the best option. People forget all the crap fees to refinance and then overestimate investment returns after taxes.

    I do have six rentals and the income is almost level with my spending needs. It is nice to have a job in retirement and renting provides a wonderful outlet for a whole host of needed skill sets. As Dave Ramsey says one should not leverage rental property. If you ever experience another recession, it might be a boon for you FIRE people to pick up some rentals. The investments success is about location and price paid.

    Annuities are dumb in my book, but Social Security is the best deal for guaranteed monthly paycheck going into old age. We don’t care to maximize return on SS. We probably will, but the value of highest SS payments is much more than money. When we die I’m betting we wouldn’t care anything of losing out on maximizing withdrawal schemes. The money we have now is more valuable, safe, and returns are known. Meaning flip the spending around and spend retirement cash to empower and higher SS monthly payment later. This is the safe route and one that will minimize your tax burden.

    We are set up for RV adventures during retirement. We have always been a camping family, so this was natural hobby. Very enjoyable for all the outdoor and social activities. A couple weeks or a couple months with new experiences.0 We hunt, fish, and bike. Our brick and mortar house is the smaller just right retirement home. Low maintenance and cost.

    We need to sell rental properties before the RMDs and SS kicks in. This will make it possible to minimize tax burden. So, my experience suggests that one does not need millions to retire. The best path may be outside the often advised path for safe FIRE or retirement. Financial experts often know little of the value of rental property. Often they know little of achieving a craft that can easily supplement income as needed. Growing up I knew of retirees that had a variety of interesting jobs. Fishing guide or outdoor adventure agent. Some snow plowed, watched vacant property, education tutor, maintenance, landscape, and tree aborist.

  13. BTW, rental income does make a lot of sense with high income FIRE bound couples. First a great time in high earnings years to depreciate your buildings and write off improvements. As I said before, save a boat load of capital for inevitable economic downturn. In the midterm bone up on your area’s real estate and rental market. Try to purchase rentals all from one town as this is most efficient. Especially if your able to easily walk to the next building. This will be important as you can offer more value to your customers. Snow plow, snow shoveling, tote service for garbage, landscaping, maintenance, and grass mowing. Think of beating the competition and making your customers realize better value with your properties. Having said that it is not good to push rents to far as your tenants will not stay as long. Your workload will increase as well as quality of tenants decrease. If the units are paid off, you will have good cash flow. When you make this leap, probably a good time for one spouse to go independent. You will still need insurance and positive cash flow for a while. Use this time to improve rental property. Most Landlords prefer the blue collar and retiree market. These are the long term renters. They want low utilities, internet, well maintained units with good A.C. and heat. Good to add some custom stuff to stand out from competition.
    The investment should replace your bond side of portfolio. Rentals are even more valuable in down turn with steady income. Put your money in S&P and withdraw on up years. Some Landlord forgo insurance as the cost is high with so many caveats why bother? Not so scary once reading stats. Also, when personally in charge of units that have minimal risk, such as single story with no stairs, good wiring, low crime neighborhood, etc. Most Landlords do have ability to reconstruct damaged units as well. You can set up legally to minimize risk as well.

    This strategy would minimize retirement savings needs. Your probably need to sell before social security kicks in. No need for Roth savings either. Roth doesn’t make much sense in high earnings years. Some in low tax years. IRA doesn’t make much sense for FIRE retirement. Sure do the max company match, but other than that, just save for eventually purchase a load of rentals.

  14. I retired from my anesthesiology job and replaced my income with passive income at the age of 48 by doing a very simple thing: investing in real estate. I don’t have a pile of cash sitting in a 401k but I do get about 20-25k/mo of cash flow that I turn around and re-invest in more real estate after all the bills are paid.

    • Chris Mamula says

      This is something I’ve been thinking long and hard about Paul. I think the “simple path” of turning off your brain and using automated passive investments is a great way to build wealth. However, it creates challenges when you need income in retirement. Real estate is more work, but the more consistent, and simply more income is very appealing at this stage in life.