Retired people of F80.BimmerPost - How did you save for retirement?

[Howard_R]

My advice is forget the stock market blah blah blah. Yes, you can put away whatever percentage of your income into the stock market, and scrimp and save. If you really want to build wealth, invest in yourself. Start your own business - be an entrepreneur. I didn't save squat by putting 10 or 20% or whatever into the stock market. Instead I started a business, and ended up buying another business. Every extra penny went into that business. The beauty of business ownership is that you can write off a ton of stuff. If your only income is a salary, you get to pay taxes on pretty much most of what you earn. If you are running a business, you pay taxes on the profit - expense everything you can, and your tax bill can drop to nothing. Then, when the day comes, you can sell that business for a 7 or 8 figure sum or more. That's how you create true wealth - not from saving and investing. Not saying you can't have a somewhat comfortable retirement doing that, but investing in yourself will pay off way more than investing in some mutual fund or whatever.

[GrussGott]

Originally Posted by Howard_R

My advice is forget the stock market
be an entrepreneur
I didn't save squat
when the day comes, you can sell that business for a 7 or 8 figure sum
That's how you create true wealth - not from saving and investing

ah, gawd dammit, you tricked me into posting

(1.) You're invested in the market, just not diversified and in only one business, yours. This is why I always immediately sell the stock of the company I work for: I'm already invested in it as I work there.

(2.) If market forces change and your business crashes, or the regional economy crashes, or the economy as a whole, you're fucked. You're all in on a single black jack hand; I hope the dealer's card flips in your favor but it might not.

(3.) Assuming it all works, when you sell, what are you going to do with your 7 figures? You'll have to suddenly learn how to manage millions - that usually doesn't go well.

Basically the amount of risk you're carrying is nuts.

[jmg]

Originally Posted by Howard_R

My advice is forget the stock market blah blah blah. Yes, you can put away whatever percentage of your income into the stock market, and scrimp and save. If you really want to build wealth, invest in yourself. Start your own business - be an entrepreneur. I didn't save squat by putting 10 or 20% or whatever into the stock market. Instead I started a business, and ended up buying another business. Every extra penny went into that business. The beauty of business ownership is that you can write off a ton of stuff. If your only income is a salary, you get to pay taxes on pretty much most of what you earn. If you are running a business, you pay taxes on the profit - expense everything you can, and your tax bill can drop to nothing. Then, when the day comes, you can sell that business for a 7 or 8 figure sum or more. That's how you create true wealth - not from saving and investing. Not saying you can't have a somewhat comfortable retirement doing that, but investing in yourself will pay off way more than investing in some mutual fund or whatever.

Good advice. I'm already incorporated so a lot of my expenses are write offs and I have split my taxable income. That's the one piece of advise I can give here. You can lower your personal income tax bracket dramatically and write off a lot of your expenses if you are incorporated. I even rent my home office to my corporation and write off the rent I charge to myself as an expense. A percentage of home expenses can be written off your personal return to offset the rent income. This is also how I can started my own SEP IRA, in which contributions are also written off for my corporation.

[SMGCFP]

This thread is great. It's actually great market research here. There are so many ways to make money work for you. The differing opinions range from doing it yourself, to roboadvisors, to just investing in what you know (your own businesses), to people who value their time so much that they'd rather pay for ongoing advice and accountability.

Bottom line is your values and beliefs will guide you here. What I know for certain is that whatever method you use to accumulate wealth, make sure it works. At the end of the day, if I never run out of money but paid "too much" for advice, who cares? That's the thing I can't get my head around on. Spend whatever you need to (money, time, etc) to make sure you have a plan to accumulate enough where you don't run out.

Consider that even if you pay a professional to invest you in a diversified portfolio of index funds, or even low cost managed funds; that professional is being compensated to advise you and keep you on your plan.

The market hasn't so much as hiccuped in 8 years. This makes more and more people confident that they will have the discipline to stick to their plan when the market drops 20%. (on average it will do this once a year, and hasn't done it in 8 years) The VIX is like 11 or 12 right now. In 2008 it hit 80. It's peace time in the markets...make sure you're confident to stick to your plan when the market corrects.

Grussgott is spot on btw. There are many people posing as advisors of all types. They sell products (some you don't need) and there is a conflict of interest in how they conduct business. You have to learn how to spot them. Their are tons of articles on how to spot them.

I'm am definitely not on this forum to drum up business. I felt that the topic gave me an opportunity to share with you guys what works in all seasons, not just in the one we're in. It's not an investment strategy. It's a financial plan. If you can stick to yours without any help, kudos to you. The statistics suggest otherwise. I'm not challenging anyone's resolve here, I am simply stating that my profession is noble, and to the right type of individual, has tremendous value.

[CanAutM3]

Originally Posted by Domer88

Compatibility of financial philosophy is essential to a peaceful marriage.

I wholeheartedly second this.

I'd say the majority of break-ups of folks close too me have a root cause related to financials.

[Skid123]

Since I am in Bay Area and I heard someone mention starting your own business, I will add that the alternative than being an entrepreneur youself is to follow successful entrepreneurs/VC in your industry and work in startups. This can lead to successful M&A or even IPO. Exercise your option as early as possible if the company looks promising, and either stay or move on to the next one. Of course, this is a gamble but at least you still got paid and don't have any baggage to worry about. Besides, the multi-discipline stuffs you learn at startup will usually benefit later in the career. You can also learn how to build a business if that is your thing.

Keep in mind that you don't have to be the first 10 employees, nor you have to join the next billion-dollar company, to have a chance with the gold rush.

[backagain]

Originally Posted by Howard_R

My advice is forget the stock market blah blah blah. Yes, you can put away whatever percentage of your income into the stock market, and scrimp and save. If you really want to build wealth, invest in yourself. Start your own business - be an entrepreneur. I didn't save squat by putting 10 or 20% or whatever into the stock market. Instead I started a business, and ended up buying another business. Every extra penny went into that business. The beauty of business ownership is that you can write off a ton of stuff. If your only income is a salary, you get to pay taxes on pretty much most of what you earn. If you are running a business, you pay taxes on the profit - expense everything you can, and your tax bill can drop to nothing. Then, when the day comes, you can sell that business for a 7 or 8 figure sum or more. That's how you create true wealth - not from saving and investing. Not saying you can't have a somewhat comfortable retirement doing that, but investing in yourself will pay off way more than investing in some mutual fund or whatever.

"Crunching U.S. Census and survey data The National Federation of Independent Business (NFIB) estimates that 39 percent*of all small businesses make a profit over their lifetime. About 30 percent*break even and another 30 percent*lose money. Moreover, small business owners have personal bills, too. They have to pay for housing, transportation, insurance and energy. They have to put food on the table. So if the business breaks even over its lifetime, that probably doesn’t cut it." - from Lies, Damn Lies and Statistics About Entrepreneurs, https://www.entrepreneur.com/article/238800

When you work in a corp, you also have a salary to take home. So the gap statistically is even bigger. There is a saying that because small businesses overall lose money, we as a society are subsidized by them. So the more small businesses, the merrier.

[JoeFromPA]

This thread is interestingly timely and also I now have a man-crush on GrussGott...just saying.

I'm 34 and just told my financial adviser (yes, I said it) that I want to plan for retirement by 45. My kids college funds are funded, I max out 401k and roth IRA (for my wife), etc. I'm learning how to begin planning to use 401k/roth ira money earlier in life, etc.

I'm not going to give better advice than has already been given - I've been blessed with 14 years of working my butt off and escalating income and no big losses/mistakes. I barely had a portfolio in 2007, so I didn't take a hit then - at the same time, I've never had a leveraged asset bubble like many folks who bought a home well before 2007.

But here's some items I'd share that haven't specifically been called out earlier in the thread:

- Learn what the stock market is and why it works well broadly. It allows people with businesses access to capital that carries no interest simply in exchange for selling ownership of the company. It's incredibly efficient as a market and the demand for return on that capital is something that exceeds similarly risky debt - which is why capital markets/stock markets consistently achieve returns superior to bonds/debt markets.

- Learn that capital and debt markets are skewed in some ways and you will almost certainly never have enough information or early access to an IPO to do well in many environments, which is why broad diversified investing is the best long term bet.

- Learn that tax-deductible interest can be a cool thing if you have significant income, as long as the interest rate is significantly below your likely returns on other investments.

- Learn about managing taxes. If you are in a 30%+ tax bracket and you put $18,000 a year pre-tax into a fund today, and then draw it out slowly in a year where your tax bracket is only 15%, you just massively benefited yourself. The ability to sink money somewhere untaxed and draw it out at your discretion based upon actual needs is awesome.

- Renting can be a good medium term play vs. buying a home, but remember that rent fees increase with inflation whereas a fixed mortgage does not (though the taxes/insurance will). There's alot to balance around buying property, I'm not advocating for it - just understand it's trade offs over a 30-40 year span of time.

- Think about what you want income/lifestyle wise balanced when you aren't saving for retirement, kids, aren't working, etc....for me, this comes out to roughly $120,000 per year or $10k per month. A portfolio of $2.4 million-ish supports that indefinitely, but at age 62-ish Social Security kicks in. So what would I really need from 45-62? It's nuances like this that can make the difference in whether you can achieve financial independence at 45 or 50.

...
Last piece of advise: Read about all the amazing individuals who have retired in their 30s after saving like crazy. They share some great lessons.

[Gibson6594]

Can't believe no one else has said this:

Buy as many F8Xs as possible. They will be collector's items one day.

[jmg]

Originally Posted by backagain

"Crunching U.S. Census and survey data The National Federation of Independent Business (NFIB) estimates that 39 percent*of all small businesses make a profit over their lifetime. About 30 percent*break even and another 30 percent*lose money. Moreover, small business owners have personal bills, too. They have to pay for housing, transportation, insurance and energy. They have to put food on the table. So if the business breaks even over its lifetime, that probably doesn’t cut it." - from Lies, Damn Lies and Statistics About Entrepreneurs, https://www.entrepreneur.com/article/238800

When you work in a corp, you also have a salary to take home. So the gap statistically is even bigger. There is a saying that because small businesses overall lose money, we as a society are subsidized by them. So the more small businesses, the merrier.

The bit of advise that I liked that backagain gave was the way a business could be used to take advantage of tax breaks and taxable income splitting. As an independent contractor, I still get my salary in the form of a 1099 from my contractor, but still retain health benefits and a pension from my contractor while limiting liability using my own loan out corporation that I created. I have a employee contributed pension fund, as well as my own SEP IRA that I contribute to on behalf of myself made by my corporation. That way, I can take advantage of two pension funds. My risk is practically zero since I have very little actual overhead compared to a small business.

[jmg]

Originally Posted by JoeFromPA

- Learn about managing taxes. If you are in a 30%+ tax bracket and you put $18,000 a year pre-tax into a fund today, and then draw it out slowly in a year where your tax bracket is only 15%, you just massively benefited yourself. The ability to sink money somewhere untaxed and draw it out at your discretion based upon actual needs is awesome..

I should really be asking my accountant about this, but while you are here: What are some other ways to reduce taxable income using this method besides pension funds and 401k and tax deductible IRAs? Are there other funds that are tax deductible? I liked the idea of a ROTH IRA being tax free upon retiring, but the salary cap disqualifies a lot of us.

[Aaaaaaaaa]

Originally Posted by jmg

I should really be asking my accountant about this, but while you are here: What are some other ways to reduce taxable income using this method besides pension funds and 401k and tax deductible IRAs? Are there other funds that are tax deductible? I liked the idea of a ROTH IRA being tax free upon retiring, but the salary cap disqualifies a lot of us.

My company recently offered a Cash Balance plan as a way to make pre-tax retirement contributions. Not sure if it's something a self-employed person can take advantage of. Love this thread btw. Basically gave me a good kick in the butt to start leaning about investments.

If I may ask a question. Does anyone have experience with the personal advisor program with Vanguard? As a newbie, it seems like a safe way to start investing and learning.

[ciaranob]

Originally Posted by JoeFromPA

This thread is interestingly timely and also I now have a man-crush on GrussGott...just saying.
...............
- Think about what you want income/lifestyle wise balanced when you aren't saving for retirement, kids, aren't working, etc....for me, this comes out to roughly $120,000 per year or $10k per month. A portfolio of $2.4 million-ish supports that indefinitely, but at age 62-ish Social Security kicks in. So what would I really need from 45-62? It's nuances like this that can make the difference in whether you can achieve financial independence at 45 or 50.

This is indeed key and sort of gets to my previous query that no one was prepared to chime in on

For reference, I really only started putting serious money away in 2002 (ca. 39 years old and had maybe 100K in savings which was seriously scary in respect retirement predictions and remaining work life - woke me up!). However, in the subsequent 15 years through aggressive saving my retirement fund (excluding pension, social security and other income) has grown to north of 3 million - wife's (now retired) north of 2 million and on plan to have another .6 to .8 million invested if I stick to retiring by 58. All involved very little work in respect managing my portfolio on my part but did include Financial Advisor fees that I wish I had not committed to for so long, but honestly, no regrets.

I have a very similar goal to yours of ca. $120K per annum which we now can easily do but also hopefully have sufficient funds to cover life's surprises (the whole debate around the potential need to cover long term care etc) and I have no doubt there will be one or two of those in the next 30 years ! Guess my long winded point is that its never too late to start to be aggressive in your saving (which does not mean giving up a comfortable lifestyle on route).

I was curious as to what our 'peer group' here on BP consider 'safe' in that regard i.e. 2, 5 or north of 10 million to feel fully secure - bit of an arbitrary question I know - possibly driven by that fact that I am def in GrussGott's world in respect being somewhat jaded with my current career and have to admit I might pull the trigger sooner than 58 (but always hard to do when you are earning the max. in your career to date!)!

[gatorfast]

Originally Posted by Howard_R

My advice is forget the stock market blah blah blah. Yes, you can put away whatever percentage of your income into the stock market, and scrimp and save. If you really want to build wealth, invest in yourself. Start your own business - be an entrepreneur. I didn't save squat by putting 10 or 20% or whatever into the stock market. Instead I started a business, and ended up buying another business. Every extra penny went into that business. The beauty of business ownership is that you can write off a ton of stuff. If your only income is a salary, you get to pay taxes on pretty much most of what you earn. If you are running a business, you pay taxes on the profit - expense everything you can, and your tax bill can drop to nothing. Then, when the day comes, you can sell that business for a 7 or 8 figure sum or more. That's how you create true wealth - not from saving and investing. Not saying you can't have a somewhat comfortable retirement doing that, but investing in yourself will pay off way more than investing in some mutual fund or whatever.

lol if only it were that simple. Glad it worked out for you but the reality is most businesses fail. Socking away money in tax advantageous accounts over time may not be as sexy as creating and selling a business but it's an easily accessible thing for most people and creates wealth, especially if you start early. I admire your mindset though. I'm a risk averse accountant so saving it is for me

[GrussGott]

Originally Posted by ciaranob

north of 3 million - wife's (now retired) north of 2 million and on plan to have another .6 to .8 million invested if I stick to retiring by 58.

Appreciate the kind words! FIRECalc says $5M @ $125k / yr in spending for 50 years is golden in every scenario throughout history (and in at least half of them you have good problems to have, like figuring out how to spend more much faster - check out the $125M scenario!). I use $125k for a couple as I think that's plenty for a couple to have fun with, but your spending habits may vary

For us, in about 3 years we plan to hit the road living between New Zealand, Vancouver, Hawaii, and Germany/Europe and then taking side vacations to where ever. We plan to rent some office space in a centrally located US city that's secure and near an airport. We'll keep seasonal clothes there as well as other keepsakes and such and just change out as we fly through.

Anyway, unless you're planning on living fairly lavishly, history says you're golden:

[GrussGott]

Originally Posted by Skid123

the alternative ... is to follow successful entrepreneurs/VC

you don't have to be the first 10 employees, nor you have to join the next billion-dollar company, to have a chance with the gold rush.

and that's just to afford real estate up here HAY-Ooooo

[ciaranob]

Originally Posted by GrussGott

For us, in about 3 years we plan to hit the road living between New Zealand, Vancouver, Hawaii, and Germany/Europe and then taking side vacations to where ever. We plan to rent some office space in a centrally located US city that's secure and near an airport. We'll keep seasonal clothes there as well as other keepsakes and such and just change out as we fly through.

Anyway, unless you're planning on living fairly lavishly, history says you're golden:

Appreciate it - indeed we sound like we have extremely similar goals/plans. Have been lucky to travel my whole life and seen a lot but Kathy maybe half a much - we were never invested in the idea of say a second home with all associated overhead and indeed a bit like you guys, planned instead for a fund to allow us to stay for 3 months here and there (say Tuscany etc. where my family in Europe could visit and in fact New Zealand too, a blind spot for me despite a no. of opportunities to go in the past where I also have 1st cousins I have never visited with!!).

Your plan sounds spot on and congrats my friend - life is forever too short to not try something new.

[trey100]

Good timing on this WSJ article

https://www.wsj.com/articles/indexes...39859?mod=e2fb

[backagain]

Originally Posted by ciaranob

All involved very little work in respect managing my portfolio on my part but did include Financial Advisor fees

I was curious as to what our 'peer group' here on BP consider 'safe' in that regard i.e. 2, 5 or north of 10 million to feel fully secure

Your financial advisor should be the best person to answer that question since he/she knows your retirement goals, spending needs, investment portfolio with its return and risk exposure. You should also be advised whether you are on track to your goal of retiring at 58.

Unless you are being fictitious, I feel you should have got better service with your multi-million dollar portfolio. With that kind of money, you really don't want to shoot in the dark. Good luck.

[Brindle101]

Originally Posted by jmg

I think there is a special demographic here of retirees who can still afford an F8X despite leaving the workforce. To me, that is admirable, as I see too many retirees rely on a fixed income that doesn't maintain the lifestyle that they previously had.

As a youngish person looking ahead towards my future and hopefully fruitful retirement, I'd like to know what is the main contributor to your nest egg? 401k? Real Estate? Passive Income streams (if so, what kind?) Stock market? Investments? Good old simple living? A lifetime of saving X amount of dollars a year (if so, how much or what %, whatever you feel comfortable disclosing). Something I haven't thought of or forgot?

Thanks so much for any insight. Spread your wisdom!

You have to start young and save as much as you can each year.

[RobC2]

Lots of good advice here. I just wanted to add a note about Roth IRAs. Many of us here are likely ineligible due to income limitations. I believe there are still no restrictions on converting to a Roth however. There was (and I believe there still is) a "back-door" method where if you can get it into an IRA (even a non-deductible one) then you can convert it and avoid some of the participation limitations. Of course you will need to pay taxes on it if you have not already. Something to look into.

[JoeFromPA]

Originally Posted by jmg

I should really be asking my accountant about this, but while you are here: What are some other ways to reduce taxable income using this method besides pension funds and 401k and tax deductible IRAs? Are there other funds that are tax deductible? I liked the idea of a ROTH IRA being tax free upon retiring, but the salary cap disqualifies a lot of us.

This is NOT an area of expertise for me, so please consult a professional, but I'll share what I've learned.

Managing taxes is about reducing taxable income and creating shelters where funds can grow with either more limited taxation or tax free.

This includes:

- 401k contributions
- 527 contributions (if appropriate)
- Various health savings accounts or similar
- Interest-based deductions on loans (i.e. you can deduct interest on up to $1.1 million in normal mortgage interest IIRC - so for example I'm using this to help reduce my taxable income on both a primary residence ($360k in loans) and a vacation residence ($496k in loans).
- Side businesses such as a rental property which creates lots of tax deductible normal expenses. For example, my vacation residence serves as a PART-TIME rental property. This makes my utilities, flood and home insurance, and just normal home expenses tax deductible to various degrees. So now more of my income/expenses becomes tax managed.
- IRA contributions
- Roth IRA contributions or back-door roth ira contributions
- Losses on trades....end of year is a good time to sell positions you are holding that are currently in a loss position, as that loss is deducted from your taxable income
- Dividend income is more favorably taxed than normal income. The more you can rely upon dividend income in the future - rather than non-dividend capital gains - the lower your tax bill will be. For example, for 2017, you can receive up to $75k in total income (married filing jointly) and pay no taxes on dividend income. So for example, if you have a $2.5 million dollar portfolio in high dividend stocks you could be receiving 2.5% dividend yields (I.e. $75k) as income totally federal income tax free.
- Certain types of capital gains are more favorably tax treated than others. For example, owning a home. If you buy a home as your primary residence and live in it for >1 year any appreciation is treated as tax free capital gains. There is actually a pretty significant incentive for high income individuals to buy as expensive a home as possible (up to $1.1 million in mortgage) with as low an interest as possible so that you get the maximum tax benefit immediately and higher long term leveraged capital gain. This is complicated whether this is a GOOD move and relies heavily on the potential for appreciation on the property, but from a tax perspective is good.

Sure there are lots more, that's just a few items off the top of my head.