Military Financial Independence

“I Inherited Money And Now I Can’t Blog About Financial Independence Anymore”

Posted on August 1, 2019 by Doug Nordman

I’m finally ready to write about distributing my father’s estate. As many of you may remember, Dad passed away in November 2017 after more than nine years with Alzheimer’s Disease. For over six of those years, Dad was in a full-care facility while I handled his finances.

It only took ~~a few~~ six months to handle his estate and finish his income-tax returns, but it’s taken me another 13 months (and a lot of keyboard therapy) to internalize everything.

Image of Cameron Huddleston's book cover "Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances" | The-Military-Guide.com

Wish I’d had this a decade ago.

I’ll discuss the mechanics of distributing an estate, as well as the lessons learned. In a future post, I’ll talk about how Dad’s death improved our own Ohana Nords estate planning.

We don’t talk enough about financial literacy in polite society gatherings– let alone aging and estate planning– yet almost everyone in the room is dealing with the caregiver burdens and the concerns of losing a loved one.

This was a painfully tough post to write, but I feel that it’s an important challenge. Financial independence gives you a lot more control over your time (and energy), but the unicorns & rainbows are always interrupted by real life. If we’re going to talk about awesome FI lifestyles then we also have to address the hard topics.

I’d particularly like to thank Dew-Anne Langcaon and Bonnie Castonguay at Ho’okele Health Innovations for helping me navigate Dad’s dementia symptoms all the way back in 2009. They were always standing by over the years. I’d also like to thank Cameron Huddleston (again!) for just letting me talk. I’m no expert but I can pass on a lot of good advice.

My blinding epiphany of the blatantly obvious

Image of Dean Nordman and Doug Nordman in early 2002, after funeral of Dean's father. | The-Military-Guide.com

Dad and me, early 2002

You’re never ready for the death of a loved one. Even though I had years to prepare Dad’s finances for his death, my brother and I still weren’t emotionally ready. Dad and my brother were in Denver and I was in Hawaii, but thousands of miles of separation made no difference in the pain and the other feelings.

We also weren’t ready because Dad had survived so many medical scares. The month before he died he had just begun showing some of the symptoms of end-stage Alzheimer’s, yet it’s quite common for late-stage Alzheimer’s to continue for several years of progressively worse issues. When Dad first started having trouble with very low blood pressure and a sudden loss of physical coordination, we expected that he’d pull through this “health crisis” just like several times before.

Two days later, on the doctor’s advice, Dad was in hospice care and (at additional expense) a 24/7 care nurse.

While my brother and I were girding ourselves for weeks of medical assistance, on Friday evening Dad was given a small dose of morphine to calm his restlessness. He slept soundly through the night, and on Saturday he never woke up.

Immediate actions

Hospice and the nurse service were exactly the support we needed. They knew what to do next, and they helped my brother through the first day after Dad died.
When the doctor suggests it, I strongly recommend hospice. (Medicare may cover it.) Even if you know what you’re doing as a caregiver, you’re in no emotional shape to do it.

We already knew that Dad wanted to be cremated after he died– but now the question was which cremation facility and when it would happen. Hospice and the care facility referred my brother to several mortuaries (with prices), he let me know the one he chose, and then hospice took care of Dad’s body.

Dad’s 1950s military training didn’t qualify him for veteran’s status, so he was not eligible for military funeral honors or other benefits.

We could have selected a mortuary years ago, but we never thought that far ahead. I’m not sure we ever would have been able to have that conversation.

The memory-care facility tactfully offered to help pack up Dad’s belongings and store them. The subcontext: they wanted the room for another patient, and Dad’s death helped relieve the caregiver stress of yet another Alzheimer’s family.

Personally, my first emotional reaction was a huge release of caregiver stress. After more than six years I was no longer dreading a ringtone with “the call”. Of course, I immediately felt guilty about feeling relieved.

The mortuary asked my brother about death certificates, and I’d read that families usually wished they’d had more certified originals. I recommended buying 20 of them. That was our most expensive mistake of the whole estate process because it turned out that we really only needed a handful.

Follow-up actions

My very first lesson was that you can’t make death notifications on weekends or holidays. People will answer the phone, sure, but they’re just taking messages for the next business day.

My reflex reaction (as a submariner) was starting a death log. (This is in addition to the death checklists.) It’s essential to help you remember who said what and when about where, how, and why. (You also think you’re handling yourself just fine during a conversation, but then your emotions sneak up on you again.) I used the log several times to remind supervisors of exactly what their employee said they were going to do and when it would be done.

A few days later I realized that the log’s keyboard therapy was also helping me through the grieving process. Much of this post comes from that 19-page chronology.

My next reaction was to empty Dad’s checking account at ANB Bank. (Yeah, I’m naming names. ANB Bank worked very hard to earn a zero-star review.) I’d dealt with their uncooperative and excessive bureaucracy since the day I received my conservator’s appointment, but even then I was very reluctant to switch his pension deposit and Social Security deposit to any other bank or credit union. Dealing with the bank was frustrating, but it still seemed less frustrating than the unknown of changing deposits to another account.

For over six years, I’d kept that ANB checking account balance at $100 and only used their online system. When any of Dad’s deposits arrived then I’d transfer them out the next day. On the morning that Dad died, I transferred out another $99 and left a dollar in the account. I figured that would avoid any trouble flags or minimum-balance fees.

I was wrong, but we’ll come back to this problem.

[UPDATE: A few days after this post was published, ANB Bank contacted me. See the details below.]

I also left a voicemail with Dad’s lawyer about filing Dad’s will with the probate court.

Who does what?

Decades ago when Dad updated his will, I was still on Navy active duty. We all agreed that my brother would be the executor of Dad’s will.

When Dad entered his Denver full-care facility in 2011, my brother was appointed as Dad’s guardian and I became his conservator. My brother (a Colorado resident) continued as Dad’s executor. We didn’t even consider other options.

When Dad died, our appointments ended. However, that just replaced our annual piles of probate-court forms with seven more of their forms. We even had to petition the probate court to terminate our appointments… despite the fact that they’d already ended upon Dad’s death.

Fortunately, Dad’s estate did not require probate. Years before he began losing his cognition, he set up his investment accounts as “Payable On Death” or “Transfer On Death”. This distributed the accounts through beneficiary designations and put them outside of the probate process. The remainder of Dad’s estate was less than the probate threshold, so Colorado law (and the Denver probate court) did not need to probate his estate. Even though my brother was the executor (excuse me, the “personal representative”), there was no need to execute anything. Dad’s lawyer simply filed his will with the probate court.

Although I was legally no longer allowed to mess with Dad’s finances, I still had a separate pile of conservator paperwork to send to the probate court. My brother had the same list of Dad’s assets (and account numbers, and balances, and phone numbers), yet I knew exactly how to make the notifications and handle the disbursement.

In addition, my brother had his hands full with the logistics of handling Dad’s remains.

Each of us was still struggling with grief, recovering from caregiver stress, and second-guessing what we could have done differently during Dad’s final days.

We agreed that when it came to the probate court, contrition was easier than permission. Even though my brother was the one with the authority, I continued to handle all of the finances and I kept him informed. That turned out to be a good thing because he might have been tempted to passively resist even more of the financial bureaucracy. We’ll come back to those issues too.

The first (business) day after death

On Monday morning I spent over three hours making 16 notification phone calls. I was talking to special teams at some of these corporations, with names like “Survivor Relations” or “Inheritor Services”. I quickly grew tired of hearing strangers recite their scripts with sentiments like “We’re sorry for your loss.”

Here’s the call summary from my death log:

Dad’s lawyer (to file his will with the probate court),
Social Security (who also notified Medicare and Medicaid),
Equifax, Experian, and TransUnion (TransUnion was easiest),
Dad’s pension management corporation,
Dad’s Medicare supplemental insurance company,
Dad’s prescription insurance company,
Dad’s doctor, pharmacy, and dentist,
ANB Bank (who immediately locked me out of the last dollar in Dad’s checking account),
USAA, Navy Federal Credit Union, and Fidelity Investments, and
Two life-insurance policies.

The next three weeks

It took that long for the state and the mortuary to give my brother the death certificates and for his priority-mail envelope to get to me.

I’d already prepared the forms and cover letters, and I sent them out with certified originals (or copies) of the death certificates. Only two companies insisted on certified originals and several companies didn’t want any paper. (They said that they used the Social Security Death Index.) I used priority mail so that I could track arrival dates and follow up on anything that got “lost in the mail”.

Image of Dean Nordman at Colorado Monument National Park in December 2009 | The-Military-Guide.com

Dad hiked here for 25 years.

I started reading about income tax returns:

Dad’s 2017 federal and state tax returns, and
Dad’s federal and state estate income tax returns for “Income in Respect of a Decedent”.

No estate tax returns were due because Dad’s assets were well below the threshold for paying estate taxes.

My brother finished scattering Dad’s ashes at his favorite hiking spots. (Scattering ashes in national parks is regulated and might be illegal in some state parks. Don’t get caught.) He donated Dad’s clothing, books, and puzzles to the care facility and a thrift store.

After that my brother seemed to step back from the rest of the estate process. His business was struggling with employee turnover (and training the new hires) so he was working overtime. He was slow to answer e-mails and texts. Nobody wants to deal with the unpleasant parts of the process, especially when we have to make financial decisions while we’re grieving.

I completed seven different forms for the probate court. My conservator’s appointment was formally terminated in January (two months after Dad’s death). Once my brother and I reported (on yet another form) that we’d received our inheritances, the probate court issued its “decree of final discharge” in May.

The inheritance paperwork details

Executors are supposed to notify potential creditors of the death so that they can file claims against the estate. A newspaper notice is usually all that’s required, and the probate court’s pro se (self-help) staff can cite the local laws for creditor announcements.

Every company has its own form for disbursing POD/TOD inheritances.

Some companies insist that you open an account with them so that they can transfer the funds “in house”. (You can always move the money later.) Other firms will wire the money anywhere you want (for a fee).

The Prudential insurance company was particularly slimy in their payout. They heavily marketed their “special checking account” for beneficiaries, which strongly encouraged leaving the money with Prudential and only writing checks when you needed the funds. Their multi-page form (in a tiny font) made it very difficult to find the check block for “Pay out all the insurance money now.”

I knew to watch for this issue because Prudential took advantage of Gold Star survivor families. They settled the class-action lawsuit in 2014 but in 2017 their forms seemed just as confusing and intimidating.

My brother and I were struggling to keep our minds on the financial part of the estate process. (My death log includes entries like “Had enough for today” and “I’ll deal with this later.”) I’d already told him that no probate was required, but twice (when the probate court mailed him notifications) he called with concerns about having to hire a lawyer and petitioning for the estate’s personal representative. We talked through it, and then we’d go over our “To Do” list again… until next time.

Paperwork became a challenge. My brother was not completing the POD/TOD affidavit forms I’d sent him, or he was “losing” them. Our progress deteriorated to the point where I finally changed my attitude and decided to be a good staff action officer again. From then on I filled out all of the forms and sent them to him, tabbed by “Sign here” stickers and with addressed/stamped envelopes. I’d follow up with phone calls about signing and mailing the forms to the financial companies or back to me.

For the next several months, I was perpetually about one phone call (or missing letter) away from flying to Denver to walk us both through the paperwork.

My brother and I get along, and we agreed on what needed to be done. I can only imagine what settling an estate must be like if one of the heirs completely withdraws from the process or even argues about the decisions.

I learned about policies I’d never encountered before. NFCU’s photo-deposit software wouldn’t accept a $21K check. We had to drive to a local branch and use their ATM. It turns out that many banks and credit unions limit their photo deposits to $10K to minimize fraud. Considering the hassle of dealing with paper checks, I greatly preferred electronic fund transfers and even wire transfers.

[2 August 2019 update: reader Brian Henry was able to phone NFCU’s customer-service number to arrange a temporarily larger deposit limit. Thanks for the tip, Brian! If you know that a large check is coming, or if your only alternative is a long drive, then consider contacting your bank or credit union to see if they can accommodate your higher limit for a photo deposit. I personally wish that financial institutions would stop sending five-figure checks to my mailbox for any passerby to pilfer (or for the U.S. mail system to lose). Electronic transfers or even properly-authorized wire transfers would avoid this additional stress.]

I searched the national and state websites one more time for any lost or unclaimed accounts. They work– when I was searching for my Dad (and for his Dad), I found a $125 utility deposit refund that was owed to my brother.

I used TurboTax to file Dad’s final federal and state income tax returns. I’d already done that for seven previous tax years, so these returns were straightforward.

We didn’t have to file an estate tax return, and I used TurboTax for the estate’s income tax return. (The specific forms were part of TurboTax Business, but that may have changed by now. Check TurboTax’s website before you buy.) I should have hired a CPA or tax-prep firm, but it was the height of tax season and I knew I’d have trouble with the filing deadlines. I also knew enough about the process and the forms to muddle my way through the software.

In retrospect, I had no need to shoulder this burden and should have just asked for an extension.

I updated my death log almost every day: who I’d called, who owed me what, when something was supposed to happen. If the process went horribly wrong, this would be my evidence for legal proceedings.

ANB Bank

ANB Bank’s letter

Here’s an example of how the estate-distribution process can go horribly wrong when corporate policy triumphs over common sense. Luckily it only cost us a dollar.

[A few days after this post was published, ANB Bank contacted me to discuss a solution. The exec didn’t have the details, so I gave them a summary from my log. I suggested that it would be easier for the bank to send the money to my brother (the estate’s personal representative). The exec asked my permission to mail me any necessary disclaimers or final agreements for my signature. That weekend I went on travel and put our postal mail on hold for a couple of weeks. The next week my brother e-mailed that the bank had sent him a check for 53 cents and enclosed a $25 gift card. When I picked up my mail after travel, I’d also received a 53-cent check and a $25 gift card. My thanks to Ms. Nicole Millican for re-assessing ANB Bank’s policy.]

ANB Bank simply refused to disburse the $1 in Dad’s checking account because Dad had never designated that account as POD/TOD. I’m sure it never occurred to him when he opened it, even if POD/TOD had existed in the 1990s (25 years before his death). I couldn’t change it to POD/TOD as a conservator, and my brother couldn’t do it as a personal representative.

The proper procedure would have had my brother petition the probate court for a letter of appointment as the estate’s personal representative. He’d forward that letter to ANB Bank (along with a copy of Dad’s will). We would have then completed our individual forms to receive our shares of the account.

In other words, ANB Bank would have sent 50 cents to each of us… on paper checks in a snail-mail letter with 50-cent stamps. ANB would’ve paid for the stamps, yay.

I was ~~admonished lectured~~ informed many times that this was company policy to prevent inheritor fraud. In retrospect, I should have just emptied the account instead of leaving the dollar in it.

My brother and I refused to jump through ANB’s hoops, and we simply stopped talking with them. I’d already been locked out of Dad’s checking account and couldn’t do anything else with it. ANB still sends me monthly e-mails from their online banking server notifying me that my account statement is ready. I can’t log into the online account to stop those e-mails. ~~and nobody from ANB Bank has responded to my letter request to shut them off.~~ It’s policy.

In another five years or so, ANB will turn over the “abandoned” checking account to the state of Colorado. (By then it’ll have bloated up to a balance of $1.08.) I’ll let my brother deal with that.

Lessons Learned

Click for the Survivor’s Checklist

If you learn that a loved one is approaching death (dementia, a terminal cancer diagnosis, cardiac disease) then join a support group. You might not need the support now, but you’ll need it later. (You’re not admitting defeat, either– you’re gathering allies and collecting valuable intelligence.) I’d favor an in-person community group over an Internet forum, although both can help. Attending a support group not only helps prepare you to handle the logistics, but it helps you understand your emotional reactions.

Use a death checklist like this one from USAA. It feels macabre, but it helps you know what you have to do when the worst case happens.

If you have time then pre-plan the death services (cremation or burial, funerals or memorial services) and consider paying in full. This removes one more decision from your checklist after a loved one dies. It can also help avoid an expensive debate among the surviving family members. Nobody wants to discuss this before death, so it helps to have written guidance that lets everyone know their loved one’s wishes.

You might only need five original death certificates, and everyone else will be willing to take a copy.

Social Security’s death database takes care of many notifications. When you’re making phone calls, ask the financial institutions if they use this service.

The executives at financial institutions care about their policies, not the amount of money in the account. (Even if it’s just one dollar.) They care about following the procedures dictated by the corporate compliance lawyers (and avoiding liability exposure). They’ll exert thousands of dollars of effort to protect those policies, even if only $1 is at stake. ~~You’ll never~~ It’s very hard to reach anyone with the authority to make an exception to the corporate policy.

The probate and POD/TOD process is designed to protect the deceased’s estate and distribute it (without probate) according to their wishes. Those designations are not designed to assist the heirs with actually receiving any assets. If a bank wants you to do paperwork before they’ll cut a check, then you have to do the paperwork… or be ready to spend hundreds of hours (and thousands of dollars in lawyer’s bills) attempting to negotiate a compromise.

Many financial institutions insist on having all of the affidavits from all of the heirs before they’ll turn over any money. Keep track of the actions required by other heirs: filling out applications, setting up accounts, signing and mailing in the forms. Don’t be surprised (let alone upset) if family members aren’t doing their part. They may be struggling with grief or trying to understand what the deceased would have wanted to do and how to honor their legacy. It’s all too easy to put aside the forms for “later”. Skip over the arguments and do as much of the paperwork as you can for the other heirs.

If you intend to pass on your estate with POD/TOD designations, then make sure you do it with all checking and savings accounts as well as other assets. This has to be done while the account owner is mentally competent, and it can’t be done with a power of attorney or a conservator’s appointment.

After your loved one’s death, their estate might receive reimbursements and refunds of premiums and other payments. The only person who can open a financial account for an estate is… the estate’s personal representative. After the will is filed with a probate court, personal representatives might require an additional petition for an appointment letter. These are legal protections and procedures for the benefit of the estate (and the deceased’s wishes), not for the heirs.

If you don’t want to go through the personal-representative process, then you have to persuade financial institutions to make out their checks directly to the heirs instead of “The Estate Of…”. Good luck.

Even if the estate is small, open a Tax ID Number for it. You’ll have to do it for the estate’s final tax return anyway, and the TIN comes in handy if a financial institution insists on making a check payable to the estate.

You have to file several income-tax returns, both for your loved one’s final personal returns and for the estate. I did it with tax software, but it’s hard to know when you’re making the right choices. It’s worth hiring a tax-prep professional to make sure that you file correctly and on time (or with extensions).

Disclosure

Dad’s inheritance added 15% to our family’s net worth.

I’m still going to blog about financial independence.

My spouse and I reached financial independence in 1999, a decade before Dad even started showing dementia symptoms. He never talked about his assets (“I’m fine!”) and in 2011 I was shocked to learn how much he’d accumulated. Once I started paying the care facility’s bills, I was again shocked at how fast his assets diminished.

The inheritance hasn’t changed my life, and I wish our frugal hermit Dad had spent more of his money on himself. I’ve invested my share of my inheritance in a total stock market index fund. Over the (very?) long term, it ensures that my spouse and I are doubly self-insured for long-term care… or for our hypothetical great-great-grandchildren’s college educations.

As I’ve mentioned in another post, our daughter has a durable power of attorney over my inheritance account. It even shows up in her accounts list, so she can log in and tap it as soon as she needs to care for us parents. Our estate plan will ensure that she doesn’t have to seek a conservator’s appointment. I’ll write more about durable powers of attorney and estate planning in a future post.

I’m not sure how Dad’s inheritance affected my brother’s finances, but shortly afterward he sold his business and began enjoying life. His attitude: he’s leanFI, and if he runs low on money then he’ll get another job.

Your call to action

Image of Nolo Press book "The Executor's Guide: Settling a Loved One's Estate or Trust" | The-Military-Guide.com

Click the image to learn more.

3700 words of advice. Now what?

If you’ve been designated in anyone’s will as their personal representative, then figure out how you’re going to deal with it. Read a (library) book like Nolo’s “The Executor’s Guide”. Browse your state’s probate court website for their pro se (self-help) division to help you understand their process. You should ask your loved one to put their wishes in writing so that you don’t have to argue with family members (or other heirs) about your decisions.

Next, pretend that you’ve just died– and imagine how much work your estate creates for your personal representative. If you don’t want them to have to clean up your mess after you’re gone, then take the time to make things as easy as possible for them.

Start thinking about your estate plan. If you do it right, preparing it will be cheaper than having your will probated. We’re doing a lot of estate planning in my family. We just signed a revocable living trust (among other actions) and I’ll write another post about its setup.

[earnist ref=”the-military-guide-to-financial-independence” id=”70177″]

Posted in Financial Independence, Insurance | 13 Comments

The 1980s-2000s: How I Wish I’d Invested Back Then

Posted on June 2, 2019 by Doug Nordman

My spouse and I were not brilliant investors. We made the typical dumb mistakes of our 20s and 30s and we paid ridiculously large fees along the way to financial independence, but a high savings rate overcame all of those errors.

Your FI journey will be better (and cheaper!) than ours, but the math is the same. Focus on the factors within your control: your savings rate, your investment asset allocation, and your expense ratios.

I’ve given this presentation at several Camp Mustache and CampFI gatherings, and now our entire audience can enjoy it. This post expands on the original two-page bullet handout (with these same images) for groups of about 50 people. Our seminar reviewed the context of world events and sentiments during the years when my spouse and I saved for our financial independence.

[Note: For over half of my military career, I was either a student or an instructor. I gave this talk with handouts because my military audiences have been overwhelmed by decades of PowerPoint presentations. I wanted people to focus on the printed words and think of questions, not just passively watch the screen. It was very casual. I typically spoke for 25 minutes followed by 20 minutes of Q&A. Our Camp audiences enjoyed snacks & drinks in the meeting rooms, and there may have been adult beverages.]

1982:

Image of the 1979 cover of Business Week magazine's "Death Of Equities" issue. | The-Military-Guide.com

Click on the image to read the actual article.

I graduated from college and commissioned into the U.S. Navy’s submarine force. My spouse (then girlfriend) graduated a year later and started her Navy career in meteorology and oceanography.

While I was learning my new job, I had no spare time in my life to appreciate the following events:

The stock market hit a new low.
Gold & diamonds were rediscovered as “inflation-proof assets”.
Checking accounts paid 10% APY. (Inflation had recently peaked at 21%/year.)
Index funds went on sale in 1976. Nobody knew about Vanguard, let alone John Bogle.
Exchange-traded funds did not exist.
Recency bias had taken over investing. By now, we all knew that stock markets went down forever (since 1966). A bull market was just a cruel head-fake before more losses. Inflation was returning any day.
Back then my Navy base pay was $1100/month. ($2860/month in 2018 dollars.) Including tax-free allowances, my annual income was $52K in 2018 dollars. Military active-duty health insurance was free. Traditional IRAs had been around since the 1970s but the military did not offer the Thrift Savings Plan or any other type of 401(k).

In town at my first military command, a one-bedroom high-rise apartment rented for $355/month. I debated long & hard whether to add $10/month for a 14 th-floor balcony. The view wasn’t very good and I was only saving $50/month to begin with, so I decided to save the extra $10 too.

1986-87:

Image of the front page of The New York Times on 20 October 1987 for the 22.6% one-day plunge of Black Monday. | The-Military-Guide.com

You can click on this image too.

During the “Evil Empire” phase of the Cold War, I went to sea on a submarine carrying ballistic missiles aimed at the Soviet Union. I spent half of three years underwater for 90 days at a time.
I started learning about investing through personal experience:

Many mutual funds had 5% front loads.
“No-load” mutual funds were starting to appear.
Hot funds still had sales charges of 3%.
Some fund managers were closing funds to new investments, but it seemed to be a sales gimmick instead of a growth problem.
Almost all funds had expense ratios of 0.5%-2.0%.

Black Monday (the one on 19 October 1987) was caused by program trading and “asset protection insurance”. In the 21st century, we’d call it a “flash crash” caused by “high-frequency trading”.

After two promotions my O-3 base pay was $2076/month. ($4754 in 2018 dollars.) By now I also had skills, too. My annual income (including tax-free allowances, submarine pay, sea pay, and nuclear bonus pay) rose to $85K (in 2018 dollars).

During those years in training and at sea I’d s aved $22K but I had no idea where to invest it. (I was skeptical of a smooth-talking shipmate who bought stocks on margin.) I saw a newspaper(!) ad for an “investment advisor” who put all of my $22K into a Paine-Webber(!!) bond fund. I have no idea what I paid for their commission or the fund’s expenses, but if I could compare that data to current investing expenses then I’d be horrified.

My spouse and I married in 1986. I brought my bond fund and zero debt to the marriage. She also had zero debt plus CDs, foreign bonds, and an actively-managed equity mutual fund. We both enjoyed being frugal and we started developing do-it-yourself home-improvement skills.

We consistently saved 40% of our income during the 1980s and 1990s but we struggled with investing it. We’d never heard of asset allocation. We chased hot mutual funds by looking in the pages of Business Week magazine’s annual “Where To Invest” issue. (No, I’m not going to link to that series.) The “good” funds had two or even three(!) up arrows.

We wondered about staying in the Navy. Would we need a military pension? Could we save and invest enough money on our own? Spoiler alert: our high savings rate overcame our mistakes, and we didn’t even need the pension.

In 1987 I filled out retirement workbooks. (Back then they were “free in the U.S. mail” from financial companies, stockbrokers, and advisors.) All of their data tables assumed that we’d work until age 65 and Medicare. As a nuclear submariner, I thought it was routine to reverse-engineer the compound growth formulas to figure out how to retire in our 40s.

We’d never heard of the term “financial independence”. We just didn’t want to have to work full-time for four decades.

1992:

Image of a smiling baby being held upside-down by her parent, showing that the parents suddenly placed more priority on their family than on their military careers. | The-Military-Guide.com

Future Navy lieutenant…

Our lives changed forever: we started a family, and our daughter overwhelmed our career priorities. Suddenly we weren’t so sure that we were going to gut it out to 20.

I turned out to be a slow learner about my career options because I was living in ignorance and fear of life outside the military. (Pro tip: learn about the Reserves while you’re on active duty.) Despite our suddenly explosive spending on diapers, we kept saving.

Another epiphany hit us shortly after we invested in diapers: the book “Your Money Or Your Life” by Joe Dominguez & Vicki Robin. (That’s not an affiliate link, it’s a blog post. Click it for more analysis.) Today people think “Oh, yeah, sure, the book which totally started the FIRE movement”, but back then Joe and Vicki were simply two niche speakers with a bunch of audio cassettes and very frugal lifestyles.

Meanwhile, the Cold War and DESERT STORM had ended, and the drawdown was in full force. America was spending the “peace dividend” and the military couldn’t downsize quickly enough. A year later I realized that I’d fallen off the submarine career track and reached my terminal rank. Never mind “gutting it out”– the next question was whether I’d be retained to 20.

My O-4 base pay was $3156/month. ($5649 in 2018.) My annual income had risen to $118K in 2018 dollars, but I’d seen my last nuke bonus. (Surprisingly I’d also seen my last sea pay.) However, we continued to save most of every promotion and annual pay raises.

By now our retirement workbooks had been replaced by software. Unfortunately, it was sent via U.S. mail (on newfangled 3.5″ diskettes), because the World Wide Web was still being beta-tested by Tim Berners-Lee. I knew how to FTP kilobytes of data over a 9600 bits/sec modem on our landline, but that just wasn’t going to happen with Fidelity or T. Rowe Price.

Even though I was a hardcore computer nerd, my spouse and I still hadn’t figured out that expense ratios of 0.90%-1.40% were too high. We were still chasing hot funds and active managers, while Vanguard was widely known for its poor customer service and excessive penalty fees on frequent trades. (Back then “everyone knew” that you needed frequent trades “to respond to dynamic market conditions”.) A few months later the first exchange-traded fund was invented: the S&P500 SPDR ETF would go on to kill those expense ratios.

The good news was that we’d started our daughter’s college fund. The other news was that 529 accounts had not yet been invented, but we bought EE bonds from our military payroll deductions for education savings. Those of you “of a certain age” may recall that EE bonds were a good deal up until 1996, when their rates started to float.

1999:

The World Wide Web took over the Internet, and stock-market experts insisted that double-digit annual returns were “the new normal”. Everyone was getting gigantic profits from tech startups and buying hot sports cars… well, everyone but us. This led to some 20th-century FOMO, but fortunately, we were too busy with parenting (and work) to start picking small-cap tech stocks.

However, we were even more motivated for financial independence. “The Millionaire Next Door” was published by Stanley & Danko in 1996. This book made an immediate impact across the nation, and we were pleasantly surprised to learn that we were Prodigious Accumulators of Wealth.

Two other studies made their own impacts, although only us hardcore personal-finance nerds noticed. William Bengen wrote about SAFEMAX withdrawal rates in 1994. (Yes, that’s the original article.) In 1998 three professors at Trinity University published a similar study on withdrawal rates. These laid the foundation for the 4% Safe Withdrawal Rate.

In 1999 my O-4 base pay had grown to $4444/month. ($6666 in 2018 dollars.) My annual income was now $111K, but we could see the finish line. The ‘90s had a few years when our 100%-equity investment portfolio gained more than our paychecks, and the exponential growth curve was starting its sharp turn upward.

The ‘90s weren’t all rainbows and IPO unicorns, though. Our local military drawdown closed a major base and downsized thousands of servicemembers. Among other economic shocks, the real estate market shed nearly 50% of its value from the crazy 1989 levels. Meanwhile, we lost over $100K on home equity during the decade. Our home’s value bottomed out at about 65% of the money we’d put into it.

The good news was that those withdrawal-rate studies showed we were financially independent. By this point I was in a tolerable job with less than three years to my pension, so we decided that I’d finish my career in June 2002.

Image of the chart of the stock market's Dow Jones Industrial Average between 2000-2011, showing both the Internet Recession and the Great Recession. | The-Military-Guide.com

It still hurts to look.

When we tried to check our FI analysis with a fee-only CFP, we learned that we’d taught ourselves more personal-finance skills than most CFPs. (Today you can do this even more easily.) Advisors were still skeptical of safe withdrawal rates, and many of them couldn’t even spell ‘SWR’. However, the new FinancialEngines startup used Monte Carlo analysis to verify that were indeed FI. Even if we had a rare failure in its estimate of our success rate, a military pension would cover our bare-bones expenses.

2002:

It might be a surprise for today’s military families to read this, but 2002 was the first year that servicemembers could contribute to the Thrift Savings Plan. All of our savings and investments in the 1980s-1990s were in IRAs and taxable accounts.

In retrospect, the Internet Recession turned out to be a great time to start a military 401(k) of index funds with low expense ratios. However, the economy made investing a painful experience with the worst recession in 20 years. The stock market lost 1700 points after 9/11, and our investment portfolio seemed to be melting down. Amazingly, we still had enough for the 4% Safe Withdrawal Rate to work. Our assets were barely worth 25x our annual expenses, but we knew that we could cut our spending or even find part-time work.

I retired in June with a military pension of $2655/month. That rose to $3647/month in 2018 from its cost-of-living adjustments.

Even better, we finally discovered ETFs & expense ratios. During the market turbulence, we sold our last actively-managed mutual fund (with its 1.4% expense ratio!) and bought ETFs with ERs of 0.25% to 0.39%.

Best of all, we learned about our financial emotional triggers. Our two decades of education and experience helped us sleep better at night and boosted our confidence to stay the course.

2019:

Today, financial independence seems pretty straightforward. The resources are all over the Internet, the tools are more robust than ever, and expense ratios have collapsed even lower. FI is no longer a question of “if” or even “when” but rather “how soon”, and the movement’s focus is shifting to “life after FI”.

After 17 years with our asset allocation from 2002, we’re simplifying even further. We’re moving to a total stock market index ETF with an expense ratio of 0.04%, and we’re still holding on to some B shares of Berkshire Hathaway stock.

We’re minimizing both our dividend income and our capital gains distributions in order to reduce our income taxes. Our assets have grown to more than we ever expect to need, and now we’re tweaking our estate plan to make them even easier to manage.

Life is good, and we’ll enjoy it for as long as we can.

We saved for retirement as aggressively as we could, and our high savings rate overcame a lot of dumb mistakes. We did the best we knew how with what we had, and we got the important part right. Even though our mistakes delayed our financial independence by a year or two, we did it on our terms for our FI lifestyle.

There are many paths to FI, and you certainly want to choose a path which avoids our mistakes. It’s your life energy. Find your lifestyle comfort level (the one you’re willing to work for) and optimize your tactics to get there.

If that last paragraph doesn’t work for you, then it’s worth consulting a fee-only financial advisor. I’m happy to answer questions and help you find whatever type of advisor you want. Take the advice you want, and then manage your own assets as simply as possible.

Your call to action:

You saw it at the top of this post, and we’ll write it again. Focus on the factors within your control:

your savings rate,
your investment asset allocation, and
your expense ratios.

Believe it or not, your savings rate is the most important factor. Sure, you can delay your financial independence with an overly-conservative asset allocation or with high investment expenses. But once you’ve optimized your portfolio, a high savings rate is your accelerator pedal to FI.

Do the best you can with what you have. Work both sides of the savings rate:

cut out the wasted spending and
boost your income.

Like any other worthy goal, financial independence is simple… but not easy. If you have more questions then you can start here.

Posted in Financial Independence, Investing & TSP | 12 Comments

The Best Books I’ve Read This Year (So Far)

Posted on May 16, 2019 by Doug Nordman

I’ve read a number of outstanding educational and fun books this year about financial independence, and if I saved this post for December then it’d be four times as long. I’ll write this one now and follow up with another post later this year.

This list has been updated in May 2021.

As many of you know, I read a lot. No, seriously, A. Lot. I go through over a hundred books a year (print and eBooks) and maybe another 500 hours a year online. (Blogs and other research.) About a third of my reading is fiction, but the rest is non-fiction or self-improvement.

You know how Amazon enables you to compile tons of reports on your spending habits? Yeah, all except for how much you’ve spent on eBooks. That’s the most-requested customer report, but there must be some reason Amazon hasn’t quite gotten around to it yet.

Meanwhile, if hackers really wanted to exploit my credit card, they’d just charge me small random amounts about six times a month for cryptic descriptions like:

AMZN Digital*MW20Q98240 888-802-3080 WA $4.99.

Well, last month racked up 11 charges, but some of those eBooks were pre-orders. I’m almost positive they were all charged by me.

No worries: I used to have a book addiction problem, but now I have enough money to afford it. Besides, I’m still one of our public library’s best customers and a long-time Netgalley member. I can quit anytime I want.

Fortunately for me, when you’re an author and a blogger, people occasionally send you free books and ask you to write about them.

Fortunately for you, I’m only going to tell you about the best of my reading pile.

You can scan the title headers below and read the paragraphs if one piques your interest. Before you buy, ask your library to order the hardcopy or the eBook for you… and then you can decide whether you want a personal copy for frequent reference.

We’ll start with the books which have the most impact for military families, and then expand our view to other topics.

“We’re Talking Millions!” by Paul Merriman

Click on the link to browse.

Mr. Merriman will cheerfully tell you that he’s 77 years old, and “We’re Talking Millions!” is his eighth book currently in print.

He’s worked in the industry for over five decades, and he’s spent the last few decades helping spread financial literacy to new generations. Apparently he’s not aging out of the financial independence genre, and his example inspires me to keep writing.

He’s marketing the heck out of this book, too. I actually received a couple of personal e-mails from him, and then I joined him in an epic phone call. He did an hour-long group call with David Baughier (Fiology), Rich Carey (RichOnMoney), and me in our White Plains Beach cabin in between our surf sessions. I doubt that I’ll ever repeat that conversation with a titan of financial authors.

You… older… readers may remember Merriman’s “Ultimate Buy and Hold” portfolio built from 10 different funds. It’s a challenge to expect investors of any age (let alone new ones) to tackle the construction and maintenance of that asset allocation, no matter how well it performs.

This time he’s replicated the strategy with just two funds: a target-date fund (similar to the TSP’s L fund) and a small-company value fund (like the TSP’s S fund).

That’s the Big Idea. I’ve given away the entire book. If you want the details and the documentation then look for it at your local library. Mr. Merriman says he has enough money and he’s more interested in spreading the word. It’s a fast read at just over 100 pages, and it even has a section for grandparents who want to jumpstart their third generation.

“First-Time Home Buyer: The Complete Playbook to Avoiding Rookie Mistakes” by Scott Trench and Mindy Jensen

Scott & Mindy co-host the BiggerPockets Money podcast and have both written other BP books.

This time they relax a little and have fun with the challenge of buying that legendary first home.

For years, I’ve advised military families to rent or live on base while they’re on active duty. We’re constantly preyed on by realtors and lenders who delude us to spend our housing allowance for “building equity” or “earning passive income.”

Professional real estate investors know it’s more complicated than simply getting pre-approved for a zero-down VA loan and rolling in the closing costs to suck up all of the housing allowance… and even more of your cash flow.

Scott & Mindy teach you the right way to buy a home. It’s not just a home but also a property that can make sense for your finances, even if you have to become long-distance landlords.

The first chapter explores whether it’s even worth buying a house in the first place, and the next chapter immediately addresses the exit strategies. It includes the worst-case example of a family who makes all the classic real-estate mistakes and ends up trapped in a home they can’t enjoy– for decades.

The rest of the chapters guide new buyers through the vocabulary and the process. You’ll also learn all of the marketing ploys and logical fallacies waiting to sucker you into paying more than you should for way more than you need.

I particularly appreciated the last chapter on “First Steps As A Homeowner”, “Your Stupid Questions, Answered”, and “Upkeep & Repair.” The authors even circle back to the family who made all the classic mistakes in the first chapter and show how to do it the right way.

I received a review copy of this book– and now I’m buying copies for my daughter and son-in-law. Mindy & Scott probably knew I’d be that impressed.

And if you’re already a BiggerPockets member who smirks at recognizing the names of newlyweds “Alex” and “Shelby”… this book is for you.

“TRICARE Around the World: Getting the Most From Your Military Medical Benefits” by John Letaw

I’ve known John on Facebook for a couple years, including his group “Tricare Around The World” and another group for Personal Capital Power Users. Now his book explains Tricare for everyone.

He’s living the expatriate military retiree family life in Asia, which has been greatly complicated by the pandemic. It’s also made him an expert on using Tricare overseas, and the good news is that the lockdown gave him plenty of time to devote to the book. His Tricare group gave the draft a good scrub on the Q&A, too.

He simplifies Tricare for everyone (all military families, not just expat ones) by explaining the basic eligibility and enrollment options. Then he dives into the details of choosing among your plans, finding a provider, and figuring out your share of the costs. He follows that up with an entire chapter on Tricare in the Philippines and another on prescription refills during travel. You’ll also become a claims expert from the final chapters.

This is the Tricare book that I wish I’d had the patience (and clarity) to write. It’s well worth the retail price just to search the eBook edition for keywords.

“A Veteran’s Guide to Transition: Active Duty to Government Service” by Thomas Braden

What a niche topic, eh? Yet the transition from active duty to government service generates lengthy discussion (and debunking scuttlebutt) at least weekly in military Facebook groups.

Two of my most frequent reader questions are the military service credit deposit (“buying back your military time”) in the civil service, and whether servicemembers can still receive a federal civil-service pension if they retire from the Reserves or National Guard. (Spoiler: Yes.) From there the confusion runs rampant on submitting an application & resume on USAJobs.gov, or figuring out the ethics rules for the DoD 180-day waiting period after active duty.

Thomas Braden has written a short & sweet guide that you can read in about an hour— and you’ll spend the rest of the week digging into its references as you write your keyword-filled resume for USAJobs. He covers the specific hiring timelines (both in the U.S. and overseas), what resources to use in applying, how to handle the Tentative Job Offer, requesting a higher salary or more benefits, and security clearances. He wraps up the guide with the details of specific retirement plans and perqs as well as possible pitfalls.

By the time you reach the final chapter (page 56) you’re completing the steps of your action checklist.

Military families have needed this guide for a long time. $2.99 is well worth skipping a latte.

“The F.I.R.E. Planner: A Step-by-Step Workbook to Reach Your Full Financial Potential” by Michael Quan

Michael’s blogged at FinanciallyAlert.com for nearly six years, which is over a century of Internet years. He reached financial independence in his 30s, and he’s consolidated over 200 blog posts into his workbook.

Yes, a workbook! After he struggled for a few years to write a self-help guide, a British publisher said they had a lot of demand for a financial workbook. They offered the traditional publishing experience, the graphic artists, and the copy editors– all they needed was his content and presentation. The project was picked up by an imprint of Simon & Schuster, despite the pandemic delays and supply-chain challenges.

Michael’s planner is just under 200 pages with plenty of graphics, worksheets, and journal space. You’re doing most of the work to figure out your goals, your limiting beliefs, and your detailed plan. You’ll want to fill in the print version of the workbook or create your own worksheets & journal.

If you’re a visual learner who’s struggled to read walls of text filled with financial jargon and charts and graphs… you’ll be happy to use this format. The layout, text boxes, and even the colors are inviting. It’s designed to entertain as well as educate, and you’ll pick up the information you need as you figure out your motivation and design your financial-independence lifestyle.

You’ll work through the exercises to find your Why Of FI, and you’ll browse over two dozen case studies of others who’ve carved their path to FI. (Yes, there’s a retired submariner.) Once you find a method that appeals to you, even the net-worth and cashflow worksheets are easy to fill out.

“From Paychecks to Pension: Step-by-Step Financial Guidance for Public-Sector Employees” by Kyle Steele

As Monty Python used to say, “And now for something completely different!”

This one goes way back, and it’s great to see the good guys win.

I first met Kyle Steele at FinCon17 in Dallas, and we both check in occasionally on Dave Jacobson’s calls with the Millionaire Roundtable.

In 2019 Kyle asked me to read his first draft of his book. (It wasn’t pretty, but it looked better than my first draft of The Military Guide.) I was fascinated that Kyle wrote a novel about firefighters who learned financial literacy in between their alarm bells.

The fire chief had a handle on his finances, and he taught the rookie how to start saving for his own financial independence. Their conversations were frequently overheard by an older firefighter whose personal finances were, ironically, a toxic-waste dumpster fire.

It reminds me of the military. There are different uniforms and a different pension, but the leader is still building a team and putting out fires. Along the way he trains and mentors, and you enjoy the ride.

Two years later, Kyle’s just published through Iguana Books. I’ve thoroughly enjoyed watching the manuscript evolve into a polished story. You know how it ends but you’re still cheering for the characters, rooting for the rookie, and hoping that the older guy gets his act together.

Why are you reading about a firefighter book on a military personal-finance blog?

Well, first you’ll enjoy Kyle’s unique personal-finance discussions presented in an entertaining fiction format. Your next career (or your spouse’s) could be in the public sector. You’d have to learn a whole new financial vocabulary (401(k)s and 457 plans) but veterans tend to gravitate toward occupations with teambuilding and taking care of people. As I write this, I know a very senior vet who’s going through a firefighter academy… in their 40s. Hardcore, and they’ve planned their transition through years of preparation during military training and deployments.

Second, you’ll appreciate the book’s advice on running a side hustle when you’re not on duty. (In this case, it’s investment rental properties.) By the time the fire chief retires from the station house, he’s nearly replaced his paychecks with the cash flow of net rental income. It didn’t happen overnight, but the compounding was relentless.

Kyle even describes the military transition into the public sector, where you can buy back your active duty for retirement credit in the public sector. In a public safety occupation like firefighting, you can also tap a retirement account as early as age 50 (instead of the TSP’s typical age 59.5).

Finally, I appreciate the book’s metaphor of financial persistence and patience while I’m reflecting on all the challenges that Kyle’s overcome in the last few years of writing & editing.

“Leading Remote Teams: Embrace the Future of Remote Work Culture” by Alexis Gerst

You’ve probably already noticed that this book doesn’t talk about military personal finance.

However Ms. Gerst is an Air Force officer, a logistics specialist, and a program manager. Like the rest of us, she’s survived the pandemic adjustment to remote work. Unlike most of us, she also made the time in her pandemic life to write the book about it.

Everyone leaves the military someday, and if you start a bridge career then you might want to rewrite your rulebook. I love an independent lifestyle without a commute, and the military transition gives you the opportunity to figure out how you’d adapt to this change.

Ideally you’ll save and invest enough in the military for the freedom to choose your bridge career. (If you even want a bridge career!) Instead of a traditional cubicle in a corporate uniform with boss facetime and rush hours, why not seek remote work? It’s not a fad– Automattic has done it for nearly two decades with their WordPress teams. (Several years ago they sold their office building because nobody wanted to use it.) Startups like InstantTeams are building entire business models on connecting remote workers with corporations for part-time or full-time projects.

If you’re working remotely while your military command deals with the pandemic, then this book will show you how to boost your leadership skills through video, e-mail, and other channels. It might even make you a better team member when you have to get together in person for the mission.

If you’re considering a bridge career after the military, this book explains how to build your remote-work leadership skills now. It discusses teambuilding, trust, and transparency. It shows you how to set the priorities (without endless meetings) and keep the projects moving (without endless meetings).

I’ll end this post with three bonus additions that will be published any day now.

“The Military Money Manual: A Practical Guide to Financial Freedom” by Spencer Reese

Coming soon! I’ve read a review copy, and he crams a lot of advice into less than 70 pages.

The best part of the book is page 3, titled: “If You Don’t Have Time to Read Anything Else.” Spencer lists 10 things to do right now to stop the financial leaks and get your life back on track. The rest of the book helps you figure out your course & speed to financial independence.

As Spencer writes, “This is the book I wish someone had handed me on my first day in the military. As a college graduate and second lieutenant, I had no idea what to do with the money the US government sent my way on the 1st and 15th of every month.”

He has a great blog at MilitaryMoneyManual, and you’ll enjoy the book.

“The No B.S. Guide to Military Life: How to build wealth, get promoted, and achieve greatness” by David Pere

Coming 1 June!

If you enjoy David’s “From Military To Millionaire” podcasts and videos then you know what you’ll find in this book. He’s an active-duty Marine who’s figured out his own path to financial independence, and it involves more real estate along with surfing. He’s not gutting it out to 20, either, and the Marine Corps Reserves will give him plenty of flexibility to reach his FI goals.

“Personal Finance and Investing” by Kyle Landis-Marinello

Coming soon! I’ve read a review copy and it’s full of great tips.

Kyle offers dozens of specific actions to make more money and cut your wasted spending. (You decide what’s wasted.) Once you’re saving more, he explains the easiest ways to invest and grow your wealth. While you’re boosting your financial independence, you’ll appreciate Kyle’s epic stories of his Dad’s amazing financial mishaps.

Kyle’s working on the book’s website, and I’ll add a link here when it’s ready for browsing.

Previously mentioned in earlier editions of this post:

“Playing With FIRE”

You’ll love the book “Playing With Fire”, the companion to the documentary.

“Buy, Rehab, Rent, Refinance, Repeat” by David Greene

BRRRR is still selling briskly.

Chad Carson’s “Retire Early With Real Estate”

Chad’s subtitle is “How Smart Investing Can Help You Escape the 9-5 Grind and Do More of What Matters”.

The Next Millionaire Next Door

Sarah Stanley Fallaw’s update to her father’s timeless classic.

Cameron Huddleston’s “Mom And Dad, We Need To Talk”

Here’s your guide through the minefield of eldercare.

“Everyday Bucket List” by Karen Cordaway

“10 Steps to Bring More Exciting Experiences to Everyday Life”.

[earnist ref=”the-military-guide-to-financial-independence” id=”70177″]

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Posted in Financial Independence, Reviews | 5 Comments

Will Your Retirement Plan Handle Long-Term Care Needs? How Your Genome Impacts Disability, Caregiving, And Estate Planning

Posted on May 2, 2019 by Doug Nordman

Will your retirement plan stand up to long-term care needs?

Do you have an estate plan in place?

These are topics that few of us want to discuss. However, they are extremely important to your family’s long-term stability. Today, we’ll discuss some important considerations for your long-term financial stability— and how you can take action today to start planning for those needs.

[Disclosure: This article is a very personal post, and it’s also part of the Life Uninterrupted campaign sponsored by USAA. The #LifeUninterrupted campaign can help future retirees learn how to transition into retirement without worrying about financial interruptions. You can receive a free, no-obligation retirement review today by calling USAA.]

[Nords note: the site owner receives a fee for posting; however, the opinions expressed in this post are my own. I do not earn a fee, a commission, or a percentage of sales. As usual, all of my writing revenue is donated to military-friendly charities.]

Welcome to another episode in a series of posts about how the Nords family’s financial independence life is changing after more than 17 years. It’s all good.

Over the years I’ve felt frustrated about personal-finance bloggers (you know who you are) who don’t write (or podcast or YouTube) about the tough situations affecting their personal lives and their financial credibility.

Some of us write about our impacts from disease, disability, divorce, and death, but too many are tempted to omit the difficult discussions. Maybe those public figures feel that a few topics are… personal… and perhaps private.

Unfortunately, our (understandable) writer reticence also impacts our financial credibility. If we don’t address the questions then the skeptics will make up their own answers:

“I can’t count on reaching FI by inheriting money.”
“If they can’t explain their math, then how do they know they’re FI?”
“You can’t get health insurance for that.”
“Divorce is expensive. They’ll have to go back to work.”
“I’d be FI too, if I could just buy cheap long-term care insurance.”

… and my personal favorite:
“Of course they’re FI! As long as their lifestyle convinces us to buy enough stuff from their website.”

More of us public figures could be more… public… with these personal issues. As painful as these life problems may be, they also offer a rare opportunity. Sharing the news about our experiences can help people who are also struggling with (and Googling about) similar issues.

Discussing it can be good keyboard therapy.

We could disarm the FI skeptics.

I’m finally able to share a very personal story after years of silence. It demonstrates why quality of life (and the choices offered by financial independence) should be so important to everyone.

I’ve hidden this information for over five years while I was a conservator under the benevolent scrutiny of the Denver probate court. I’ve beta-tested this revelation with family and close friends, along with a small forum of others who have the same situation.

This post will render me partially uninsurable, but I can afford it. The discussion needs to be public, and it’s worth the cost.

A Family History of Disability

Image of Dean & Doug Nordman after Dean's father's funeral in 2002 | The-Military-Guide.com

2002: Dad & me, after Grandpa’s funeral.

We’re all familiar with the “failure probability” of the 4% Safe Withdrawal Rate, yet my genome might turn out to be a much bigger failure probability in my lifestyle.

Most of you know that my father died of Alzheimer’s Disease in late 2017. As Dad’s conservator, I’ve written extensively about the financial aspects of dementia and care facilities. I had to apply for that conservator’s appointment from the Denver probate court in early 2011, and I could have been ~~fired~~ dismissed at any time during the six years that I handled Dad’s finances.

Image of three shrinkwrapped 23andMe genetic testing kits used by our family to map our genomes, which led to my learning that I have two APOE4 genes associated with a higher risk of Alzhieimer's Disease. | The-Military-Guide.com

Three 23andMe kits for our Ohana Nords.

In 2013, as Dad was approaching mid-stage Alzheimer’s, our family mapped our genomes with 23andMe. When the results posted on my 23andMe account, I had to click through about three different warnings. To my surprise, I learned that I was a carrier for cystic fibrosis.

In addition to my parents’ bullets in my genetic revolver, my paternal grandfather also lived with dementia until age 97. (We’re not sure it was Alzheimer’s, and he died of influenza.) My mother and her parents didn’t live long enough to show symptoms of the disease.

I’m still here. Keep reading. You want to know how to handle this.

I’m still unlikely to develop any sort of dementia. Not for another 15-30 years, anyway. (Tick. Tock. Tick. Tock.) As you might imagine, I’ve ~~obsessed~~ read a lot about this.

Remember that people still develop Alzheimer’s even without a clear genetic vulnerability or family history, and it’s just one of several different types of dementia. A few dementia symptoms respond to treatment, especially if the cause is related to blood pressure or medication side effects.

23andMe describes the situation in a number of different ways.

A third of Americans over the age of 85 have dementia regardless of their genome.
A family history means I’m roughly 30% more likely to develop Alzheimer’s during my life.
28% of people with a genetic APOE4 vulnerability develop Alzheimer’s by age 75.
51% of APOE4s show symptoms by age 85.

Of course, these are the people left after the “survivor bias” of heart attacks and cancer. Even elders whose brains show tangles and plaques (during an autopsy) have remained symptom-free while alive. It’s a testament to the brain’s neuroplastic ability to route around damage.

In general, people are fine until age 65. (Seven more years for me!) After that, the odds rise unpredictably.

Human cognitive skills reach their peak before our 70s. Dementia symptoms typically appear in the mid-70s, just like my Dad (age 74). After that, the Alzheimer’s bell curve is about 20 years wide. My grandmother covered Grandpa’s dementia symptoms for several years before her death, and then he spent over 14 years in a care facility.

People who are highly educated or skilled have a measure of cognitive reserve which can hide dementia symptoms for many years. My grandfather, an electrical tech and side-hustle farmer, coped with dementia for at least four years before he finally had to enter a care facility. (He left a trail of financial wreckage that took another five years to repair.) My father, an electrical engineer, did the same for three years until his cognitive neglect almost killed him.

For purposes of this post, let’s consider me highly educated. You can form your own opinion about my cognitive reserve. (My self-assessment may be biased– or oblivious.) Read the related posts below and feel free to contact me with questions. If we’re at a meetup, I’m happy to chat. We need to start the conversations.

Last month I went to yet another memorial service, and I’ve already lost too many family, shipmates, and friends. Of the “big three” causes of elder death, I’m convinced that I prefer dementia over cancer or cardiac arrest. Ironically, dementia can eventually set you free from worry and self-criticism. As I watched my grandfather deal with dementia, I heard Dad’s epic stories of fixing what Grandpa had neglected. Those years were some of Grandpa’s happiest times, although Dad’s caregiver stress was sky-high. Then I watched Alzheimer’s chew on my father’s cognition for over nine years. Once again those were some of the happiest years of his life.

Our caregiver stress with Dad was also sky-high. I’m not passing that on to the next generation.

Do You Really Want to Know?

Yes, knowledge is powerful, and it can help you plan for your future. 23andMe offers an FDA-approved “health predisposition report” for Alzheimer’s.

That knowledge is one of the most controversial aspects of genetics. Current testing for late-onset Alzheimer’s can only show a risk factor without a definite “Yes” or “No”. Some medical scans can show plaques and tangles in the brain, but they don’t always lead to Alzheimer’s.

Your genome loads the gun for your life of Russian roulette. (Hopefully, that gun is a revolver, not a semi-automatic.) Lifestyle pulls the trigger.

You want to keep your fingers outside of the trigger guard.

Image of the actor Clint Eastwood from the movie "Dirty Harry". He's pointing a .44 Magnum revolver at a bank robber, admitting that he doesn't remember whether the gun is empty or has a cartridge left, and asking the robber whether he feels lucky. | The-Military-Guide.com

What’s in your genetic revolver?

The want-to-know question never even occurred to me until I started clicking through the 23andMe disclosures. I’m a nuclear engineer: of course, I want to know my mortality risk factors so that I can mitigate them. As some motivational bloggers say, I want to “Take massive action” and “Crush it!”

Like the criminal told the police officer “Dirty Harry” Callahan: “I gots to know.”

I want to live my best life while I’m still self-aware.

You statisticians may have noticed that homozygous APOE4 people still have a meaningful probability of skipping Alzheimer’s. Ironically there’s at least one anti-Alzheimer’s gene which shuts down the Alzheimer’s genes. Genealogists know it exists, but geneticists haven’t located it yet.

Although people claim that they want to know, they misinterpret the results. Regardless of your APOE4 genes, something else on your genome could kill you first. While you may think your cognition is “safe”, you can still develop dementia without the APOE4 gene. This confusion is so widespread that even the Alzheimer’s Organization discourages genetic testing for Alzheimer’s.

What if “lifestyle” is simply where you were raised? About 4% of humans have Alzheimer’s disease at age 65, and the numbers grow rapidly after that age. First-degree relatives of a person with Alzheimer’s disease have a higher chance of developing Alzheimer’s. Yet 23andMe notes that this may be simply related to family members sharing a similar lifestyle and environment.

23andMe lists other factors correlated (positively or negatively) to Alzheimer’s:

More women than men develop Alzheimer’s.
African-Americans and Hispanics develop Alzheimer’s at higher rates than Europeans and Asians.
Obesity, high cholesterol, and high blood pressure raise the risk of Alzheimer’s.
Type 2 diabetes raises the risk of developing Alzheimer’s.
Green leafy vegetables, fruits, whole grains, and healthy fats lower the risk.
Fewer years of education correlates with a higher risk of developing Alzheimer’s.
Exercise benefits the brain and lowers the risk of developing Alzheimer’s.

Lifestyle Motivation

“When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”

— Samuel Johnson

“There is nothing better than getting shot at and missed. It’s really great.”

— James N. Mattis

We all know we’re supposed to eat more fiber and leafy-green vegetables. More healthy fats. Avoid refined carbohydrates.

We all know we’re supposed to get off the ~~keyboard~~ couch. Exercise. Lift weights. Get more sleep. Meditate. Journal your goals.

Image of the cover of Charles Duhigg's book "The Power Of Habit" to help people substitute new good habits for old bad habits. | The-Military-Guide.com

Click the image for more info.

Is this knowledge really enough to persuade us to live our best lives?

As the TV psychologist says, “How’s that workin’ for ya?”

It’s the ultimate cognitive dissonance. We all know what we’re supposed to do, and we all judge others for not doing it… while we’re not doing it either.

That’s how I lived until I clicked on my 23andMe APOE results. Unlike my first 53 years of my life, I suddenly had a very specific reason to change my behavior.

I didn’t stop the riskier behaviors because they might be bad for me. (If that logic worked, I would’ve stopped decades ago.) Instead, I changed my behavior (one habit at a time) because I now have a very clear picture of the person I want to be. I’m not rigid and perfectionist, and I still eat a cookie once in a while… as long as it’s not a habit. I know that my good habits keep me on track the other 99% of the time.

Good lifestyle habits help mitigate risk factors. Good habits also help keep you on track when you’re losing your cognition.

Good habits do not come from good intentions– they come from the hard work of daily small behavior changes. This applies to financial independence as well as your health.

Here’s another example of my lifestyle motivation.

My parents were social drinkers. Before Dad developed Alzheimer’s, he’d have a drink before dinner… and top it up with dinner… and maybe top it up after dinner. He had it under control.

I (secretly) joined that drinking club at age 13. I majored in it at college and during active duty. (You’ve heard the term “drinks like a sailor”? ) I eventually got it under control. By age 35 40 45 I’d drunk more than my lifetime quota of alcohol– and most of your lifetime quota too.

When Dad developed Alzheimer’s, his drinking habit was already firmly established. He just couldn’t remember how to stop.

He’d have a drink before dinner… and a drink before dinner… and a drink before dinner… and a drink before dinner. He’d pass out after a pint of bourbon and dinner never happened. The next day maybe he’d eventually eat lunch (once his stomach settled down). Maybe he’d do chores or hike his favorite national park. (Or maybe not.) Later on, he’d have a drink before dinner…

The alcohol eventually burned an ulcer through his duodenum. When a neighbor drove Dad to the emergency room at midnight, he was inebriated and incoherent and suffering incredible pain. When Dad lost consciousness and the CAT scan finally saw the problem, there was no dinner in Dad’s stomach… but his peritoneal cavity was flooded with Wild Turkey.

Dad was, to put it politely, a malnourished bag of bones suffering from withdrawal. He went from the ICU to the care facility and he never had the chance to drink alcohol again.

I’d known for decades that I should probably drink less, and by my late 40s, a couple of beers had adverse effects on my reflexes and my sleep. Still (for whatever reasons) I never quite got around to changing my behavior. My habits were firmly established.

A closeup image of spicy nachos with a cold, frosty mug of beer to show how advertising triggers the urge to drink alcohol. | The-Military-Guide.com

Eh, coffee for me please.

Yet when I got “the call” from Dad’s hospital (at 3 AM), I knew I was finally done with alcohol. My good intentions gained a much stronger motivation to build my new sobriety habit. It took a few years to stop being triggered by beer commercials or the smell of spicy food, and now I have better associations.

I’ve become someone who doesn’t want to pay any potential price for drinking alcohol, especially if it becomes a habit.

Police officers at sobriety checkpoints love hearing that my last drink was 27 February 2011.

As one APOE4 person says:

“My quality of life has improved and money has become less important to me. I am actually glad to discover that I have the APOE4 gene because I avoided becoming complacent in my retirement.”

Caregiver Motivation

I thought I understood ”caregiver stress.” I had no idea.

I served for 20 years in U.S. Navy submarines. I thought I knew stress, but with Dad, we leveled up for over six years of chronic (and acute) caregiver stress.

It started with finding a care facility in the 96 hours before he was discharged from the ICU. (I lived in the hospital for three days, napping in the “visitor” lounge.) It continued when the long-term care insurer denied the claim. (We appealed and won.) It elevated many times during the next nine months of legal petitions to be appointed his conservator. Our caregiver years were relatively trouble-free (compared to most families) yet the stress never went away.

In early 2019, 16 months after Dad’s death, I still felt flashback echoes of that caregiver stress. It was the first time since 2011 that I didn’t have to prepare his income-tax returns or submit a conservator’s report to the probate court.

When you have Alzheimer’s, you can still feel physical and emotional pain. You just can’t remember it, and that’s why my father and grandfather were so happy in their dementia.

But caregivers can’t avoid the constant physical and emotional pain. Caregiving for a loved one with dementia is brutal. Dad had an old will and an old medical directive and ample assets, but even with those resources, our care was still an ultramarathon of stress and emotional pain. If an elder has no assets or will or medical directive or estate plan or powers of attorney, then it’s almost impossible to be their caregiver.

The Nordman caregiver stress stops with me. I’m not dumping this on another generation.

Insurance?!?

Welp, this post renders me ineligible for some types of insurance.

No worries: I either don’t need the coverage or we’ve self-insured for it. Bookmark this post, because someday you might want to review these tips too.

Technically, the Genetic Information Nondiscrimination Act protects American citizens. Health insurers are not allowed to use genetic information to decide about our eligibility or our coverage.

However, (as that link mentions), the act does not apply to the U.S. military or the VA. It does not apply to disability insurance, long-term care insurance, or even life insurance.

Depositphotos image of a stethoscope on top of a pile of $20 bills to illustrate the impact of your health on your insurance premiums. | The-Military-Guide.com

Your health affects your premiums.

Insurers may learn about your genome anyway. Oncologists will routinely screen the genomes of cancer patients to identify the optimal chemotherapy. (Genetic screening also flags the cancer drugs which will kill you with an allergic reaction.) Your APOE4 information may end up in your health record without your consent or even awareness.

When I retired from active duty, we canceled my life insurance. (My spouse and I already had enough assets.) I don’t carry disability insurance. (I don’t need the income.) I won’t inflict long-term care insurance on my caregivers. (We have enough assets, and they don’t need the stress.) We carry Tricare health insurance, but we don’t even bother with dental insurance. We’re also comfortable with concierge medicine.

When my father died, I inherited his assets (and some insurance). It amounted to nearly 15% of our net worth, but the money doesn’t change my life. It won’t make my spouse and me any more financially independent than we already are, but it should cover a few more years of our long-term care.

More importantly, our daughter has immediate access to those inherited funds through Fidelity’s durable power of attorney. Caregivers suffer enough stress without having more financial stress.

By the way, we’re not going to make control-freak jokes about “Long-term care insurance by Glock”. (Submariners have a notorious reputation for that.) My father and grandfather enjoyed some of the happiest years of their lives with dementia, even though it wasn’t the life they would have chosen. I’m certainly interested in palliative care, yet I think that I’ll always be curious about the next sunrise… even if I can’t remember them. I’ve enjoyed over 6000 days of financial independence to develop that habit.

Disability Planning and Estate Planning

Image of Chelsea Brennan's "In Case Of Emergency" binder to organize your personal and financial information for your loved ones in case of your disability or death. | The-Military-Guide.com

Click on the image for more info.

When my father developed Alzheimer’s, he only had a minimal estate plan in place: a will and a medical directive. There was no plan for his disability… not even after his own father dumped that problem on him 20 years earlier. My father had six solid years of cognition after his father died, and yet he somehow never got around to putting the plans in place.

When I started handling Dad’s finances, my knowledge of disability planning for my spouse and me was even worse: only our “In Case of Emergency” file of logins & passwords. We had an estate plan, but it was legally useless for our disability.

Managing Dad’s assets for over six years gave my spouse and me plenty of opportunities to reflect on our plan. Despite our conclusions, it’s still taken months to put it into place.

When dementia appears, it’s too late to do the disability or estate planning. (Besides, once dementia starts, the word “No” is the easiest sentence in their vocabulary.) Lawyers and notaries won’t endorse a new general power of attorney, and existing general POAs become invalid with mental incompetence.

If you (or a loved one) end up in dementia or in a coma, then you can’t count on a general power of attorney. You might be able to rely on a durable POA (depending on the financial institution) and you should be able to depend on a revocable living trust.

You can always hire a lawyer and petition your local probate court for appointments as guardian and conservator. In our case that cost over $10K and several months of paperwork. It included an interview with a professional conservator (“Why should the court let you be your father’s conservator instead of hiring someone like me?”) and a criminal background check.

The real caregiver stress started with the conservator’s appointment. Many financial institutions either ignored the appointment or misunderstood it. (Pro tip: transfer the funds out of those corporations as soon as you can.) The probate court required annual reports and updates for every major change.

Again, this time the Ohana Nords caregiver stress stops with me. My spouse and I have spent hours researching and updating our disability plan. We’ve been married for over 32 years (and we’ve known each other for nearly 40) but the discussions have still been a little intense and revealed some emotional surprises.

It’s not just confronting your own vulnerability and mortality. No matter how ready you are, the legal hoops are darn hard to jump through. Even when you want to do the right thing (and when you trust your caregiver) it’s still too hard to create the paperwork. It’s prudent legal practice to protect well-meaning people from their own mistakes, but it’s just too hard.

I used to think that people couldn’t confront their disability planning. Now I know that many of us make an attempt and then simply give up in the face of legal bureaucracy.

The good news is that we finally worked through all the difficult conversations. Our daughter agrees with her part in the plan, and we’re drawing up the paperwork. We’re using an interesting combination of a revocable living trust, a pile of durable powers of attorney, and a couple of joint checking accounts. I’ll write another post about that when it’s in place.

Your Call To Action

3500 words. Got it. Now what?

I’m trying to boost a long-overdue intergenerational discussion. Hardly any of us mention our aging elders and their dementia challenges– yet when one of us shares a story, everyone in the room has a story too. Feel free to add yours to the comments below or in one of our Facebook groups.

Help other generations join the conversation. Even Gen Z is dealing with grandparents or parents who are living with dementia. I’m happy to talk through your questions and your problems.

In my next 25 years, long-term care expenses are going to level off or drop. Medications and care techniques are improving every year. There’s even the promise of caregiver robots. (Don’t laugh– I’m an angel investor, I’ve done the due diligence, and I’ve made meaningful investments in medtech.) We can track the care options.

Whether or not you decide to research your genome, learn how to live your healthiest lifestyle. If something bad happens, you want to know that you tried to mitigate it.

Carpe every diem. Regardless of your genes or your lifestyle, nobody knows how much time we have left. Would you prefer to live in the moment without worrying about the future? Would you stay in a terrible career out of a scarcity mentality and from fear of the unknown? Are your relationships sucking away your life energy?

Or would you rather save for financial independence and plan for your future with people who share your goals?

The next time we’re hanging out together, you can bring along this Alzheimer’s scorecard and see how we’re doing. One popular dementia check is drawing an analog clock face and showing the hour & minute hands at various times. (“Grandpa, what’s a clock face?”) Another spot check is spelling a two-syllable word backward– in your head or out loud to your skeptical potential caregiver.

Feel free to bring along your favorite adult beverage, and I’ll stick with my cup of coffee, thanks.

USAA’s “Life Uninterrupted” Campaign – Get a Free Retirement Review

My next post about our Nords family FI life will have a lot more info about our disability and estate planning, but you can explore your options now.

My father had 20 fantastic years of financial independence, and he lived his best life for all of them… until he couldn’t. He still had enough assets to have great care for the rest of his life and even left a legacy for his heirs.

I’m following Dad’s FI example, although my spouse and I aren’t so concerned about leaving a legacy. We’re putting the plans in place for our daughter and son-in-law to step in (if necessary) while we work on our own best lives. My spouse and I can easily expect another 30 years, and I’m highly motivated to stay cognizant for all of them.

What will your #LifeUninterrupted look like? Have you planned for doing the things that make you happy without worrying about finances? There are lots of advice and planning tools, and a fee-only advisor can help you pick your path.

You can start with USAA’s free retirement review. Simply visit the USAA website and set up a free, no-obligation retirement plan review. You don’t even have to be a USAA member to participate.

The USAA financial advisor can help you review your retirement plan and potentially help you identify coverage gaps or areas you may need to address, such as long-term care insurance, an estate plan, life insurance, increasing your retirement savings, paying off debt, etc. Your review will be tailored to your specific situation, goals, and needs. Click this link for a free retirement review from USAA.

Or I’m happy to answer questions and help you find whatever type of advisor you want.

My final advice—manage your own assets as simply as possible—especially if you want to make it easier for your heirs (or successor trustees) to manage them for you.

[earnist ref=”the-military-guide-to-financial-independence” id=”70177″]

Posted in Insurance | 2 Comments

Our Retirement – The Spending Smile Of Financial Independence

Posted on March 12, 2019 by Doug Nordman

Disclosure: This article is part of the Life Uninterrupted campaign sponsored by USAA. The #LifeUninterrupted campaign is designed to help future retirees learn how they can transition into retirement without worrying about financial interruptions. You can receive a free, no-obligation retirement review today by calling USAA.

Note: We are receiving a fee for posting; however, the opinions expressed in this post are my own. I do not earn a commission or percentage of sales.

After over 16 years of retirement, we’ve verified that we’re not spending fast enough. We have enough assets and income for the life we want, and for the rest of our lives. According to the statistics of the 4% Safe Withdrawal Rate studies, you’re likely to share the same experience. This post will help you figure out your retirement “Life Uninterrupted.” In other words, I’ll walk you through our 20 years of financial independence, how our spending had changed through the years, and how our retirement has remained on track the entire time – without financial interruptions.

If you would like a free retirement review from USAA to see how well you are on track, you can visit their site and schedule a free review.

In an earlier post, I promised more details on how our family financial independence life will keep getting better in 2019, and we’ll start by digging into our FI spending trends.

We have 40 years of spending history, so I think we can draw reasonable conclusions. I hope to collect at least another 40 years of data.

Track Your Spending and Cut the Waste

Image of Navy officers Marge and Doug Nordman in formal dress at the Navy Ball at the Naval Postgraduate School in Monterey CA. It was the start of their journey to financial independence. | MilitaryGuide.com

Starting the FI journey in 1987 fashions. Don’t judge.

I started budgeting in college when I finally got tired of running out of money. (“And this time I really mean it!”) A few years later when my spouse and I married, she elevated our skills to an Olympic level. I focused on the details by closely tracking our spending. Today our Quicken database has nearly 27 years of data in over 150,000 transactions.

While I dig into the numbers, my spouse is the big thinker in our couple. She usually pulls us back from my microscope to ask thoughtful questions.

Once we had a good track on our expenses, it was easy to find the waste. After a few thoughtful discussions, we were routinely aligning our spending with our values. (Pro tip: each of us has a monthly personal allowance for guilt-free spending with no judging.) Our savings rate shot up and we were on the road to financial independence.

Our “Why?” of FI was to regain control over our time (and our lives). We didn’t know how long we wanted to stay on active duty, and we were taking it one obligation at a time.

Today that’s still our “Why?” We don’t know how much time (or lives) we have left, and we want to make the best of both.

Financially Independent: Now What?

Image of Marge, Doug, and Carol Nordman in Waikiki Hawaii on the pier of the Atlantis submarine ride. | MilitaryGuide.com

Starting our FI life.

By late 1999 we’d saved and grown our investments to reach the tripwire of the 4% Safe Withdrawal Rate. (Hey, it was the peak of the Internet bull market. Millions of people reached FI that year.) It was also the first time in my military career when I was confident of earning a military pension. (That was not at all assured during the 1990s drawdown, because I’d fallen off the career track and then failed to promote.) Since I had less than three years to go in a billet which did not suck, I decided to hang on for the pension.

Financial independence paid another unexpected dividend: my spouse decided to leave active duty for the Reserves. Her last active-duty paycheck was in early 2001 and I retired in mid-2002.

It was an “interesting” time to stop working: the Internet recession was in full roar, and (in retrospect) the markets bottomed in October 2002. By that point, of course, everyone was convinced that the stock market and the economy were both going to zero.

We had done our reading and our analysis, and we were pretty sure we had enough investments for the lives we wanted. We started withdrawing money at the 4% Safe Withdrawal Rate.

Are you on track for financial independence? Get a free retirement review from USAA. You do not need to be a USAA member to take part in this offer.

16+ Years of FI Spending

2003 was our first full year of FI spending.

Before then, we did what every newly-FI person does: we reviewed every penny of our assumptions to make sure we’d caught all of our mistakes and still had a sustainable plan.

We rebuilt our budgets from zero. We reviewed every monthly bill, and we made a lot of phone calls to ask for our “retiree discount.” We had more time to find online bargains and shop at garage sales. We also kicked our do-it-yourself skills into high gear: more home-cooked meals and more home maintenance & repairs. We did our own chores and yardwork (and got plenty of exercise). We drove our (used) cars a lot less, but we still drove them into the ground.

Image of Carol Nordman at her Navy Reserve Officer Training Corps commissioning with Marge and Doug Nordman. Carol is in dress uniform and is removing the tape over her ensign's rank insignia. | MilitaryGuide.com

Joining the family business.

Yet we maintained the parts of our lifestyle that we’d worked for. We ate out whenever we wanted, and we still enjoyed plenty of travel and other entertainment.

Life went on, and it was very good. We navigated our daughter’s teen years and she started her own path to FI. We endured the Great Recession, although our investment portfolio briefly dropped over 50% from peak to trough. We explored new interests. (Surfing and taekwondo.) Since I’m an engineering nerd, we built our own photovoltaic array and our own solar water-heating system. We survived our 40s, and now we’re in our… high… 50s.

I tracked every penny of our FI spending in Quicken up through 2015. In 2016, I delegated that task to Personal Capital (we only use Personal Capital to track investments and spending, we do not use their investing service). We spend very little in actual cash, so we still have a close track on our spending.

During our first decade of retirement, we knew that a bad bear market could derail our 4% SWR and kill our investment portfolio. We had contingency plans for the worst-case scenarios, but we never needed them. Now after 16 years, it’s clear that we are no longer vulnerable to the dreaded sequence-of-returns risk.

The Retirement Spending Smile

Image of reseaercher David Blanchett's plot of changing retiree spending (the "smile") from Michael Kitces' post describing the results. | MilitaryGuide.com

Click the image for a bigger version.

Michael Kitces was one of the earlier researchers to popularize what financial planners had observed for years: retirees start their spending at a sustainable rate, but then it declines.

A couple of years later, Wade Pfau’s analysis verified the conclusions about retiree spending. Researchers have shown that retirees start with a go-go lifestyle, later ease back to a slow-go phase, and eventually settle into a no-go routine. The majority of end-of-life spending (the other side of the smile) is for medical care.

We’ve been a very active family for our first 16 years of retirement, and we’re doing everything we’ve wanted to do. More importantly, we’ve continued our laser-like focus on cutting the waste. Today our bare-bones living expenses are the lowest we’ve ever had. We could live extremely frugally if necessary, but otherwise, we have more money for more lifestyle!

Last year we finally finished 16 years of Roth IRA conversions to pay lower income taxes and avoid mandatory distributions. Thanks to the analysis of Personal Capital, this year we’re moving our investments from expensive sector exchange-traded funds (with expense ratios of 0.25%-0.39%) to a total stock market ETF (0.04%), which will save us thousands of dollars a year.

One of our 12-year-old cars started racking up the repair bills, so we upgraded to a used Nissan Leaf– which recharges its battery from our solar array and will cut our gas bill by $400/year.

At the same time, we’ve optimized our entertainment spending. I’ve joked about “Travel while you can,” but we’re going to keep going as long as we can.

Retirement travel is actually cheaper than work vacations. We roam for months instead of weeks, living like locals and avoiding the tourist crowds. Travel hacking (airline miles and Space A military flights) has reduced our airfare while AirBnB and VRBO let us rent cheap apartments (with kitchens) for months. (We were travel hacking before it was cool.) We’re paying off-peak long-term prices instead of living like two-week millionaires at a resort hotel.

Our saving & investing has paid off. How has all of our optimization affected our retirement spending? I’ve spent about 10 man-hours crunching the long-term numbers, and I was surprised to see the big picture.

“Let’s Look at the Graphs.”

[Note: “Comparison is the thief of joy.” I’ve indexed our actual spending to a starting value of $100, and we show actual spending as a percentage of the value of our investment portfolio. Instead of being distracted by how much we spent or our place in our journey, you can compare these ratios to your own numbers and your own progress.]

In these graphs, our expenses are compared to only our investment portfolio. That’s all we were able to rely on when we reached FI, and it’s turned out to be more than enough. We weren’t counting on home equity in 1999 because the Hawaii real estate market had declined nearly 50% from its 1990 peak. My military pension came three years after 1999, and our rental’s cash flow began much much later in 2008.

In 2019 this all seems pretty straightforward in hindsight. 20 years ago? Not so much.

We did not have any crystal balls in 1999, and we certainly didn’t have any in 2001 when my spouse decided to leave active duty. We made those decisions for a better quality of life because we had enough investments for the 4% SWR.

The 4% SWR’s 80% probability of success came through.

The first graph shows 16 years of retirement spending. The orange line is indexed to a starting value of $100 and has risen over the years to $132. The blue line starts at the same origin but assumes that our spending grows at the 4% SWR’s rate of inflation. After 16 retirement years of the Consumer Price Index (the same inflation index as the military pension and Social Security), our spending should be at $136.

We wandered above and below that 4% SWR curve, yet we still ended up on the low side.

Image showing actual retirement spending compared to retirement spending at the rate of inflation. The actual expenses tracked fairly closely to the projected expenses. | MilitaryGuide.com

Orange (actual) is pretty close to blue (the CPI trend).

In 2004-05 we were spending on home improvement projects like our photovoltaic array and our solar water heater. We were also ramping up our taekwondo training and doing more travel during school holidays.

We spent 2008-2011 coping with the Great Recession. Humans are not 4% SWR robots, and we traveled to less-expensive locations because we felt uncomfortable about partying like it was 1999. By 2011, though, our daughter had started college. We ramped up our lifestyle with home improvement and even more travel.

How did that affect our withdrawal rate?

Again, this graph indexes our first full year of retirement to the 4% SWR. The black line shows our actual spending divided by our investment portfolio’s value. In 2006-07 our withdrawal rate dropped below 4% because the value of our investments grew much faster than our spending. That went the opposite direction in 2008-12 as our investments took much more of a beating than our spending.

The blue line shows what our withdrawal rate would have been if we rigidly spent the 4% Safe Withdrawal Rate by starting at a 4% withdrawal and raising our spending by the rate of inflation. The graph’s variation is caused by the changing value of our investment portfolio, yet everything recovered and converged back to that 4% line by 2017. Now it’s trending down below 4%.

We’ve been withdrawing from that investment portfolio for over 16 years and two very scary recessions. Despite the volatility, it’s doing just fine. We know our expenses will be lower in 2019, leaving more in our investments to grow even faster.

The Go-Go Years

We’re having as much retirement fun as our bodies can handle. (I don’t surf 20-foot waves anymore, but 10-15 feet is still fun.) Our retirement spending is in the middle of Michael Kitces’ “go-go” years of the retirement spending smile. We’ve kept it up for over 16 years and our investments have done just fine.

Although our total spending has tracked the 4% SWR, our non-discretionary spending has dropped dramatically since 2003. We have lower utility bills, lower insurance expenses, lower vehicle expenses, a lower interest rate on our mortgage, lower expense ratios on our investments, and a much lower income-tax bill. We’ve raised our family and our daughter is off our payroll. We’re eating healthier while spending less. Even home maintenance (and improvement) is cheaper.

I haven’t had a haircut since early 2002. ~~We’re really racking up the savings on that one~~.

Controlling the essential expenses has given us a lot more to spend on entertainment.

Yet even our entertainment is less expensive. I’ve bought all the surfboards I can handle. (Surf wax is cheap.) Empty-nester travel during shoulder seasons costs less than family summer vacations. Travel hacking has dramatically improved, and these days we enjoy the occasional first-class lie-flat seat. (A sleeping bag and a yoga mat on the deck of a military cargo jet is still the ultimate aircraft lie-flat experience.) We can see plenty of room to ramp up that lifestyle.

More importantly, my inflation-fighting military pension now protects us from volatility risk and sequence-of-returns risk. The CPI has gone up a total of nearly 40% since we retired, but our annuity income has also risen by nearly 40%.

The Slow-Go Years

Image of comic-strip character "Ol' Surfer Dude" from Doonesbury comic strip. | MilitaryGuide.com

Doonesbury’s “Ol’ Surfer Dude” rocks.

We’ve already verified that our current lifestyle expenses are sustainable, and I’d like to think that I have another 30 years of travel and surfing in me. I’ll let you know how that goes.

In the meantime, we’ve won the financial independence game. The major risks have already been covered, and now we’re just running up the score.

Social Security is on the horizon if we need it. (We won’t need it.) We can finally afford the opportunity cost of our rental property. My spouse’s Reserve pension starts in 2022. Philanthropy and estate planning are in progress.

Our No-Go Years

I don’t have a clue on that part of our lives, except to hold it off as long as possible. There are a few surfers in our lineup who are in their 80s. I know of a couple of famous surfers who were paddling out in their 90s. I may not be popping up on a longboard, but if I can’t paddle a stand-up board then I’ll still be out there in a kayak.

When my father passed away in 2017, he passed on an inheritance (and some life insurance) to my brother and me. We’ve invested that in a total stock market index fund to self-insure our long-term care expenses. We expect at least 20 years of growth out of that fund before we’ll even think of using it.

USAA’s “Life Uninterrupted” Campaign – Get a Free Retirement Review

As I was researching and writing this post, I’ve realized that we’re years ahead of USAA’s new “Life Uninterrupted” campaign.

We saved for retirement as aggressively as we could, but we were keenly aware of the line between frugality and deprivation. (The former is challenging & fulfilling and you feel like you’re winning, while the latter is painful and unsustainable.) When we declared our financial independence, it was at our desired lifestyle with much more than a bare-bones survival budget.

It’s also a highly individual choice! These days the FI community is exploring categories like FreedomFI (a year off from work), leanFI, BaristaFI (part-time work), fatFI (you know that one), and even MOFI (“morbidly obese” FI). You’ll find your lifestyle comfort level– as long as you’re willing to work the months of life energy to afford it.

I’m a nuke and a hardcore spreadsheet nerd, so we didn’t seek much help from financial advisors. However, we spent many hours reading everything available in the 1980s and 1990s. When the Web exploded in the 21^st century, we finally found our communities and crowdsourced even more advice. Today’s tools and retirement calculators are more widely available and better than ever before.

If that last paragraph doesn’t work for you, then it’s worth consulting a fee-only financial advisor. You can start with USAA’s free retirement review, or I’m happy to answer questions and help you find whatever type of advisor you want. (Interestingly, USAA recommends hanging on to your TSP account for as long as you can.) Take the advice you want, and then manage your own assets as simply as possible.

Most significantly of all, you’ll stay invested in an asset allocation which will at least keep up with inflation. This means that your own retirement spending smile will gradually drop your initial 4% SWR to an even more sustainable rate. Once you get there, you’re practically bullet-proof for life.

Your call to action:

Take a look at the related links down there,
Visit that USAA Life Uninterrupted link or give them a call, and
Start planning your retirement lifestyle.

[earnist ref=”the-military-guide-to-financial-independence” id=”70177″]

Posted in Financial Independence, Military Retirement, USAA | 5 Comments

“I Inherited Money And Now I Can’t Blog About Financial Independence Anymore”

My blinding epiphany of the blatantly obvious

Immediate actions

Follow-up actions

Who does what?

The first (business) day after death

The next three weeks

The inheritance paperwork details

ANB Bank

Lessons Learned

Disclosure

Your call to action

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The 1980s-2000s: How I Wish I’d Invested Back Then

1982:

1986-87:

1992:

1999:

2002:

2019:

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The Best Books I’ve Read This Year (So Far)

“We’re Talking Millions!” by Paul Merriman

“First-Time Home Buyer: The Complete Playbook to Avoiding Rookie Mistakes” by Scott Trench and Mindy Jensen

“TRICARE Around the World: Getting the Most From Your Military Medical Benefits” by John Letaw

“A Veteran’s Guide to Transition: Active Duty to Government Service” by Thomas Braden

“The F.I.R.E. Planner: A Step-by-Step Workbook to Reach Your Full Financial Potential” by Michael Quan

“From Paychecks to Pension: Step-by-Step Financial Guidance for Public-Sector Employees” by Kyle Steele

“Leading Remote Teams: Embrace the Future of Remote Work Culture” by Alexis Gerst

“The Military Money Manual: A Practical Guide to Financial Freedom” by Spencer Reese

“The No B.S. Guide to Military Life: How to build wealth, get promoted, and achieve greatness” by David Pere

“Personal Finance and Investing” by Kyle Landis-Marinello

“Playing With FIRE”

“Buy, Rehab, Rent, Refinance, Repeat” by David Greene

Chad Carson’s “Retire Early With Real Estate”

The Next Millionaire Next Door

Cameron Huddleston’s “Mom And Dad, We Need To Talk”

“Everyday Bucket List” by Karen Cordaway

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Will Your Retirement Plan Handle Long-Term Care Needs? How Your Genome Impacts Disability, Caregiving, And Estate Planning

A Family History of Disability

Do You Really Want to Know?

Lifestyle Motivation

Caregiver Motivation

Insurance?!?

Disability Planning and Estate Planning

Your Call To Action

USAA’s “Life Uninterrupted” Campaign – Get a Free Retirement Review

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Our Retirement – The Spending Smile Of Financial Independence

Track Your Spending and Cut the Waste

Financially Independent: Now What?

16+ Years of FI Spending

The Retirement Spending Smile

“Let’s Look at the Graphs.”

The Go-Go Years

The Slow-Go Years

Our No-Go Years

USAA’s “Life Uninterrupted” Campaign – Get a Free Retirement Review

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