Getting Our Financial House In Order

How we look at retirement and the top changes we've made in the past 2 years

The ultra-wealthy often establish a Family Office which handles the family’s investments, tax and financial planning, and so on. Oh yeah, that’s a real thing people!

Photo courtesy Tierra Mallorca on Unsplash

The main goals of these offices are to grow wealth and attend to the various financial, education, and lifestyle needs of said uber-rich family. (I assume they also employ a cleaner who knows where to bury the bodies should the need arise #RichPeopleTrophyHunting).

That kind of sounds like what I’ve been doing for our own not-so-uber-rich family since I retired nearly two years ago. (Sans the cleaner services, which we outsource to a guy named “Mike”).

Looking back, here are some of the top things our Family Office has done since its de facto establishment in 2022.

We started a Solo-401k

Prior to my retirement, we had:

• A 401k through my employer

• A SEP IRA for my wife’s consulting business

With no earned income after retirement, I could no longer leverage the excellent tax efficiency of my 401k. My wife does have earned income, but her SEP IRA just wasn’t very tax efficient, only allowing business-side contributions capped at around $12k per year.

Switching to a Solo-401k allowed her to make both personal and business contributions. Since we are over 50, we’re allowed to make catch-up contributions to 401k plans. This increased our total retirement contributions by $30k and simultaneously reduced our taxes by… well.. a lot!

We left our mega-bank for a brokerage firm

Even after the run up in interest rates in 2022 and 2023, our mega-bank was only paying a fraction of a percent on our deposited funds. My wife and I would sometimes look at our interest-checking account (which contained thousands of dollars) and joke, “oh look honey, we earned 12 cents this month! I’m so glad we’re paying $25 a month for advantage checking!” So we left.

We settled on Fidelity as our one-stop shop for all of our retirement, brokerage, and cash management accounts and we haven’t looked back. An added benefit of having everything in once place is that we can instantly see our performance across all portfolios broken down by capital appreciation and dividends / interest.

Since we travel a lot, it is also a bonus that Fidelity offers ATM fee reimbursement worldwide.

We consolidated all of our old retirement accounts

We’ve worked at a lot of companies. We had legacy retirement accounts all over the place. Some accounts were invested in lifecycle funds. Some sitting in cash. And some were just extremely difficult for us to understand *what* we were invested in, and how much we were paying in fees.

Consolidating retirement accounts was sometimes easy, and sometimes a bit painful. In some cases, it was a click of a button, and in others we paid thousands in surrender charges. It was worth it, because it was critical for our plan that we gained transparency and full control of our investment portfolio.

Once we had full control, we simplified our investment portfolio

Some of our legacy IRAs were invested in more than 20 different mutual funds, many with high expense ratios. In some cases there were management fees stacked on top of that. Today, we maintain a fairly simple approach to investing our money:

• We invest in a Total US Index, a Total International Index, and a Total Bond Index. We also have a smidge of Small Cap Value.

• We’re currently allocated to about 60% stocks, 25% bonds, and about 15% in CDs and Money Market funds.

• Our investment fees are, on average, less than one tenth of one percent.

Disclaimer: I’m not your financial advisor :) This is what we’re doing, and not necessarily what you should do.

We created Roth IRAs and defined our rollover strategy

We’re a little heavy on the CD / Money Market allocation because we need to guarantee our living expenses for five years while we do rollovers from our traditional IRAs to our Roth accounts. When my wife’s consulting business finally shuts down, we will live off of our savings while doing the rollovers. This strategy has several benefits:

• Because we’re living off savings, the rollover will generate a taxable event to the tune of about 8.4%, which we consider to be a very low tax rate in retirement.

• The rollover itself is considered income, and thus, qualifies us to use the ACA and any relevant tax credits.

• Roth contributions are accessible, tax and penalty free, after 5-years. This allows us to draw from our retirement funds (if we choose) well before age 59 1/2.

• The more tax-efficient rollovers we do, the less relevant Required Minimum Distributions (RMDs) will be in the future.

• Roth IRAs are treated very favorably by the tax code for our heirs - who can withdraw the money tax-free for up to 10 years. (Dear Kids, the dog is getting most of the money incase you’re getting any ideas that might require a call to “Mike”).

We’re factoring Social Security into our retirement income

I read alarmist articles that Social Security won’t be a thing by the time we are eligible to receive it. While I’m certain there will be some changes, I can’t foresee a politician being in office for very long who wants to do away with it altogether. Seniors vote, which implies to me that any changes are going to disproportionately affect young people… who don’t vote. Please vote, young people.

One of the benefits of retiring early after 50 is that we have all of our credits. Our projected payout from what is basically a kick-ass annuity that adjusts for inflation is pretty darn good. We’re still doing the “when to take it” math. The conventional thinking is to have the lower household earner take benefits at 62, and have the higher earner wait until 70. We have time to decide and see how things play out. It’s not always a math-decision for us.

We started the process to obtain dual citizenship

We’re realistic. We understand that the stock market is volatile. The bond market, traditionally a ballast for market volatility, has had its own issues in the past couple of years. We do worry about sequence of return risk, especially with markets at all-time highs.

We considered annuitizing a portion of our wealth to provide an income floor, something guaranteed in case when we encounter another deep recession.

We ultimately landed on a strategy of geo-arbitrage - spending much of our “go go” retirement years slow traveling to low cost (but really awesome) countries. We love to travel, but travel is expensive the way most people do it.

In our working lives we are forced to be “2-week millionaires” - paying high-season rates for transportation, food, and lodging.

Geo-arbitrage is different:

• You are a traveler, not a tourist.

• You rent for a month at a time, lowering your lodging costs dramatically.

• You slow down, cook a little, learn the train system, join a gym, go native.

• You hit that museum on a free-admission Sunday because you can.

If we’re going to ride out a recession, we may as well do it in a cool, low cost spot that we can fund through dividends alone.

Since my wife is eligible for Italian citizenship by descent, we have opted to pursue dual citizenship for ourselves and our children, allowing us to take advantage of the best that the US and Europe have to offer without being subject to the Schengen Rule. This has the added side benefit of giving us the choice to establish residence in Italy and access universal healthcare for which they are ranked among the best in the world.

We’re considering changing Financial Independence / Retire Early to Financial Independence / Recreational Employment

As our kids reach the age where they have to start thinking about their future, we are helping them research a lot of cool jobs. Some of them look so cool that we’ve even entertained trying them ourselves. My wife and I rushed into tech careers without much thought. It’s been financially rewarding, but not always meaningful, work. It’s appealing to think about maybe taking on part-time work; something totally different than our cubicle days (but, only when we want to).