This post grew out of the “I’ll Show You Mine If...” thread (http://forums.rockstarfinance.com/t/ill-show-you-mine-if-you-show-me-yours/885/31). Several posters pointed out that putting up our numbers can reassure others who are grappling with sequence-of-returns risk.
If you feel it’s #humblebrag then this discussion might not be for you... and we should get to know each
other better during a surf session.
I’m considering publishing this on The-Military-Guide.com to help inspire and motivate other military servicemembers & families. That could be the wrong audience for our financial details. I’m familiar with the personal-security issues of kidnappers, family loans, trolls, and charity solicitations. Maybe we should talk me out of making this a blog post.
20 years ago, my spouse and I started tracking our net worth after reading “The Millionaire Next Door”. I’ve maintained our spreadsheet and reconstructed it back to 1977 (our first W-2s). The raw numbers are annotated at the bottom of this post.
- These are end-of-year numbers which miss the exciting volatility of the 2000-02 tech recession and the 2008-09 Great Recession.
- My military pension is an inflation-fighting annuity. It covers the low failure rate of the 4% SWR.
- Our investment asset allocation is >90% stocks. (Because military pension.)
- Our net worth is bloated by Hawaii’s bubblicious real estate “dead equity”. We use the lower of refinancing appraisals or property-tax assessments.
- Our daughter was born in 1992 and graduated from college in 2014. We saved $400/month in the college fund for 20 years in a UTMA, which was included in our net worth.
You know how this story ends (survivor bias), so in retrospect our FI might seem inevitable. Let me share my perspective on what we knew when I retired from active duty in June 2002:
- The military version of the Thrift Savings Plan had just started.
- We had $145K in our IRAs, another $965K in taxable accounts, and $360K of 8% mortgage debt.
- The expense ratio on our investment portfolio was nearly 1%/year.
- The stock market was still dropping (it bottomed in Oct 02).
- My military pension was $2655/month before taxes. The mortgage P&I was $1300/month.
- My spouse’s parents were squatting in our rental property and might stay there for life.
- Our daughter was starting 5th grade.
Contrast 2002 to 2016:
- In 2003 my spouse earned her Navy Reserve pension starting in 2022.
- Our investment portfolio’s overall expense ratio is 0.22%.
- My military pension has risen to $3576/month: +35% over 14 years, or the CPI of 2%/year.
- My parents-in-law left our rental property in 2007. 2015 taxable income was $17K.
- Our daughter is a college graduate, off the family payroll, and employed. (And married!)
Here’s one more point about 2016. In 2002 our Plan B for SWR failure was “We can always get a job.” Today it’s “There’s money everywhere!” In ‘02 I knew I could always work at a public utility (or at Wal-Mart). Today my physical stamina is declining but my cognition is peaking and the business startup costs are near zero. Now my career options include writing, editor, financial coaching, public speaking, online curriculum development, handyman, ReCraigslist, and even surf instructor.
- You might think that FI was assured by the world’s greatest bull market. The reality is that we paid 1980s 2% sales charges and 1% expense ratios, we invested in active funds, we chased hot managers, we bought individual stocks, and we timed the market. We were afflicted with the same behavioral financial psychology that impacts today’s investors. (See “Dalbar Study”.) The only factor that overcame these mistakes was our high savings rate.
- Volatility is emotionally devastating, and it gets harder after FI. My only therapy has been education, and during 2008-09 I read a lot about financial history and asset allocation. During recessions, my spouse focuses on cash flow and ignores the net worth. After 30 years of marriage, our discussions can still get pretty intense.
- Between 2002-15 we kept two years of expenses (8%) of our investment portfolio in cash (money market and 3-year CDs). That helped us worry less about sequence-of-returns risk.
Our spending has indeed declined over the last 14 years. (See “retirement spending smile”.) When you’re FI you have the time to:
- Research (especially mortgage rates, insurance premiums, and travel expenses).
- Boost your DIY skills.
- Wait for off-peak bargains.
- Focus on what’s really important to you.
- You’ll also launch your kids from the nest.
Net worth includes all financial accounts, our possessions, and home equity:
1982 <$5K (Started our Navy careers in 1982 & ‘83.)
1986 <$40K (Opened our first IRAs, got married.)
1992 $540,385 (Daughter born in October.)
1993 $590,494 (Read “Your Money Or Your Life.”)
1997 $1,144,829 (Read “Millionaire Next Door.”)
1999 $1,502,785 (FI but didn’t realize that at the time.)
2001 $1,715,075 (Spouse left active duty for Navy Reserve.)
2002 $1,879,841 (I retired from active duty.)
2004 $2,485,303 (Started writing “The Military Guide” book.)
2007 $3,346,307 (Ridiculously high home equity.)
2008 $2,652,408 (-20% from 2007.)
2009 $2,693,106 (Peak-to-trough drop of investment portfolio was -58%.)
2010 $2,483,852 (Daughter started college, I started blogging.)
2011 $2,375,319 (Home renovation. Published “The Military Guide” book.)
2012 $2,512,476 (Between 2007-12 we donated $125K to charity.)
2013 $2,777,672 (No longer concerned about sequence-of-returns risk.)
2014 $2,853,578 (Daughter graduated from college.)
2016 $3,184,856 (Includes $1.8M of investments.)