Career — Page 2 — My Money Blog

Savings Rate vs. Income Bracket: How Impressive Is Your Savings Rate?

Posted on September 27, 2021 // 20 Comments

One of the criticisms of the pursuit of financial independence is that it is “only for the rich”. Certainly, having a lot more money coming in every month should make it easier to set some of it aside. However, you might also observe that most people with higher incomes have higher expenses – bigger homes, faster cars, fashionable clothing, and so on. What if everyone is basically running on a hamster wheel, regardless of income?

In other words, a 0% savings rate:

Well, according to this Economic Policy Institute analysis based on the Federal Reserve Board’s Survey of Consumer Finances and other data from 1989-2013, this is not far from the truth for everyone up to the 90th percentile of households:

This Mother Jones chart converts the percentile numbers into annual household income:

This chart shows the problem with any statistics about “average savings rate across all households”. While the average savings rate might be 10%, it’s basically zero for 90% of households while over 50% for those making over $750,000 a year (some of whom are making far, far more than $750k a year).

If you are making over $200,000 a year, then you shouldn’t be too proud that you are maxing out your 401k at $19,500 a year in 2021. If that’s all you are saving, that’s less than a 10% savings rate and you are barely average. If you’re making over $300,000 a year and only maxing out your 401k and your IRA every year, then you’re saving much less than your income bracket peers.

However, the most intriguing discovery to me is that the savings rate for those making $150k to $200k annually is essentially the same (zero) as everyone making $40k, $75k, and $125k a year! Within that wide range from $0 to $200k a year, it turns out to be pretty close to a hamster wheel! If you have any sort of significant savings in this income bracket, you should feel a little better today. Why does every household earning up to $200,000 a year, feel a need to spend nearly all of it on average? Perhaps in this range, you still believe that you are receiving “value” for that additional spending in terms of comfort, security, convenience, and/or happiness. If you can afford it, you really want it.

Let’s roughly estimate an ongoing 40% savings rate of your annual income as being on pace for truly “early” financial independence. (This assumes relatively constant income, not a big windfall.) Someone making $100,000 would have to spend as if they made $60,000 a year. I don’t see why this is impossible, as someone making $60k also spends $60k.

If people spend what they earn, why can’t they just pretend they earn less? If only it were so easy. So many of our choices are rooted in deep psychological desires, a combination of evolution (nature) and our childhood experiences (nurture). We are social, comparative creatures and have so many cognitive biases they barely fit on a huge infographic with tiny font. As Morgan Housel explains in The Psychology of Money:

Doing well with money has a little to do with how smart you are and a lot to do with how you behave.

As the data shows, for 99% of the population, anyone saving 40% of their income is a rare bird. While it is a more impressive and rare feat to see someone making $50k and spending $30k while putting $20k a year into productive assets, than for someone making $250k and spending $150k, you don’t get extra points for difficulty level! You should still work on increasing that income.

Bottom line. The average household earning between $0 to $150,000 per year spends nearly every dollar they year, but so does the average household earning $150,000 to $200,000 a year. Why is this, and what can we learn from it?

[Hamster wheel image credit]

Filed Under: Career, Frugal Living //

Last updated: September 27, 2021

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Are You Unknowingly a Time Billionaire?

Posted on April 30, 2021 // 1 Comment

The 2021 Berkshire Hathaway shareholder meeting is streaming live on Yahoo Finance this weekend, and I am reminded of a lesser known quote from Warren Buffett about what is truly valuable. I believe he has said this elsewhere, but I found it repeated in a 2020 commencement speech (YouTube link) at the University of Nebraska:

There is nobody I would rather be than a young person graduating from the University of Nebraska today. […] I would say this to the current year’s class: ‘I would love to trade places with any of them.’ They feel they’re going out into an uncertain world and all of that, but there’s never been a better time.

During a Tim Ferriss podcast, investor Graham Duncan discussed the concept of a “time billionaire” and how it is hard to understand the magnitude difference between a billion and a million.

Graham Duncan: I was listening to a guy introduced a speaker a while ago. And he was saying people don’t really understand the difference between billionaires and millionaires. He said a million seconds is like 11 days. A billion seconds is 31 years.

This means a 20-year old is technically a time multi-billionaire. If you’re in your 40s or even early 50s, the odds are likely that you still have a billion seconds left as well. Have you considered how valuable that is? One of the richest people in the world would gladly trade places with you. I’m betting that nearly anyone with a billion dollars would trade it for a billion more seconds.

This Pomp Letter article and Wealest article both expand upon this idea of appreciating the value of time, including how young people should use this time to their advantage. Don’t take for granted the ability to throw yourself at something nonstop. I think short periods of crazy 100-hours-a-week focus is underrated. Take your shot. If you fail, so what?

If you fail, you have nothing, which is the same position you’re in right now.

You have no mortgage to pay, no family to support, and nothing to lose.

This makes you powerful. Your upside is many times greater than your downside.

Also mentioned is the Life in Weeks calendar from WaitButWhy.

Time is a limited resource, and just like with money, you have to spend it wisely and consciously. Don’t waste it without intention. Look at how many hours we spend on consuming media, via Visual Capitalist.

Bottom line. We can look up to certain wealthy people for knowledge and wisdom, but there are other important resources beyond money. Yes, it’s a cliché, but it is still so easily forgotten in this busy, competitive, stressful world. Many of us are extraordinarily wealthy in time, wealthy in love and relationships, and/or wealthy with a healthy mind and body. Someone out there would pay billions of dollars for what you have. I must remind myself to appreciate my wealth in all forms, and use it intentionally. I worry about running of out money, but also running out of time.

Filed Under: Career, Happiness, Time Management //

Last updated: April 30, 2021

Free Character Traits Test: Identify Your Signature Personality Strengths

Posted on April 19, 2021 // Leave a Comment

I’m now in Week 5 of the free Yale Happiness Course, which focuses on finding things that truly make you happy, as opposed to the 5 Surprising Things That Don’t Make You As Happy As You Think.

For example, instead of equating a “good job” with high income, you should redefine a good job as one that allows you to express many of your “signature personality strengths”. When regularly using their specific signature strengths in daily life, people reported higher levels or happiness and lower levels of depressive symptoms. In another study, being able to use your strengths at work resulted in higher productivity and job satisfaction.

In the early 2000s, something groundbreaking occurred in the social sciences: Scientists discovered a common language of 24 character strengths make up what’s best about our personality. Everyone possesses all 24 character strengths in different degrees, so each person has a truly unique character strengths profile. Each character strength falls under one of these six broad virtue categories, which are universal across cultures and nations.

How can you identify your signature personality strengths? The VIA Institute on Character offers a free Character Strengths Profile that takes about 10 minutes and will list your strengths from highest to lowest based on your self-assessment answers. Here are the six broad “core virtues” and the 24 character traits that they measure:

Wisdom: creativity, curiosity, open-mindedness, love of learning, perspective
Courage: bravery, persistence, honesty, zest
Humanity: love, kindness, social intelligence
Justice: teamwork, fairness, leadership
Temperance: forgiveness, humility, prudence, self-regulation
Transcendence: appreciation of beauty and excellence, gratitude, hope, humor, spirituality

Everyone likes a nice graphic, so here’s one that adds a short explanation (source .zip file):

Character strengths are the core personality traits that define your unique identity and make you feel authentic, alive and engaged in life. Your free Character Strengths Profile below lists your strengths from highest to lowest based on the positive qualities that are strongest in you! Research shows learning about your strengths and how to express them can make you happier, less stressed, more productive at work and better connected to others. Interested in exploring the best parts of yourself? Check out our personalized, in-depth Total 24 or Top 5 Reports and use your strengths to build your best life.

Out of my top 5 character strengths, two were from Temperance, two were from Wisdom, and one was from Courage. The self-assessment does require you to be honest about your weaknesses, even if it may not feel great to admit them. I didn’t pay for a premium report, but I printed out the results and hopefully can incorporate them better in my daily life.

This activity reminds me of the #1 Thing People Regret The Most On Their Deathbeds:

I wish I’d had the courage to live a life true to myself, not the life others expected of me.

Filed Under: Career, Happiness //

Last updated: April 19, 2021

Scott Galloway’s Algebra of Wealth (or: How To Become Rich)

Posted on February 25, 2021 // 1 Comment

Scott Galloway shares in The Algebra of Wealth his thoughts on how to achieve financial security (be rich). You should read the entire thing, but the ingredients in his formula are Focus, Stoicism, Time, and Diversification. I’m only including a few notes and personal interpretations here.

Focus. If you want to get rich, you have consciously take action to make it happen. It rarely happens by accident. Look for a good wave to ride when you are young. Look carefully for the right life partner.

Successful people often unwittingly head fake young people with the humblebrags of “follow your passion” and “don’t think about money.” This is (mostly) bullshit. Achieving economic security requires hard work, talent, and a tremendous amount of focus on . . . money. Yes, some people’s genius will be a tsunami that overwhelms a lack of focus and discipline. Assume you are not that person.

Stoicism. Develop some self-discipline and character. Be generous and helpful to others. This will help you spend less money.

Determine what you can and can’t control. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security. Our society of superabundance makes this difficult. Billions of dollars are spent every year on schemes to manipulate our natural impulses into spending more money, consuming more fat, and believing everyone around us is more successful than we are. The upgrade from economy to premium to business to first class to private jet can seem like an investment in yourself — it’s not. The most powerful forward-looking indicator of your financial freedom is not how much you earn, but how much you save.

Time. Steady improvements over time can supercharge your results. Don’t focus only on the short-term. As the saying goes, “Time in the market is more important than timing the market.”

Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships.

Diversification. Never expose yourself to a fully catastrophic loss. Make sure you can walk away to fight another day. If you do it right, you only need to get rich once.

Diversification is the kevlar that protects you — with it, bad decisions will still hurt, but they won’t prove fatal. Diversification, in other words, is your bulletproof vest. […] That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.

There is no simple step-by-step plan to become financially independent, otherwise everyone would be rich. Luck matters too, but working on all of these factors helps maintain maximum exposure to good luck.

Filed Under: Career, Entrepreneurial, Family, Inspirational, Investing, Retirement //

Last updated: February 25, 2021

Money and Happiness: Happiness Keeps Increasing Past $75,000 a Year

Posted on January 25, 2021 // 4 Comments

Did you know there was an iPhone app called Track Your Happiness? The app basically does what the name suggests:

A few times a day, you’ll get a notification and be asked some questions about your experience at that moment. The idea is that by measuring your experience at many individual moments, you’ll get an accurate picture of your life and the determinants of your happiness.

After collecting over 1.7 million data points from 30,000+ app users, here is the research paper Experienced well-being rises with income, even above $75,000 per year by Matt Killingsworth, published in the Proceedings of the National Academy of Sciences (PNAS). Thanks to reader Al for the tip. Taken from the “Significance” section:

Past research has found that experienced well-being does not increase above incomes of $75,000/y. This finding has been the focus of substantial attention from researchers and the general public, yet is based on a dataset with a measure of experienced well-being that may or may not be indicative of actual emotional experience (retrospective, dichotomous reports). Here, over one million real-time reports of experienced well-being from a large US sample show evidence that experienced well-being rises linearly with log income, with an equally steep slope above $80,000 as below it. This suggests that higher incomes may still have potential to improve people’s day-to-day well-being, rather than having already reached a plateau for many people in wealthy countries.

Here is a chart from the paper that illustrates how “experienced well-being” keeps increasing with log(income).

Why do I keep making log in bold? Because even though it was a long time ago, I still remember something about logarithms! The only two charts in the paper emphasize the nice line before and after the $75,000 income marker. This might confuse a quick reader to think that happiness keeps increasing linearly with income. In reality, here is a graphic (source) that shows the difference between rising linearly with n vs log(n). The relationship between happiness as income increases looks like the red line below.

If you read the entire paper, this is addressed (emphasis mine):

When interpreting these results, it bears repeating that well-being rose approximately linearly with log(income), not raw income. This means that two households earning $20,000 and $60,000, respectively, would be expected to exhibit the same difference in well-being as two households earning $60,000 and $180,000, respectively. The logarithmic relationship implies that marginal dollars do matter less the more one earns, while proportional differences in income have a constant association with well-being regardless of income.

In order to match the amount of happiness increase from $20,000/yr to $60,000/yr income, you would have to go from $60,000 to $180,000 year, or then $180,000 to $540,000 a year, and so on. Here a quick sketch that I made of this (gives me a reason to use my new $34 knockoff Apple pencil).

That… sounds pretty reasonable, doesn’t it? Happiness increases with money quickly at lower incomes, and as your income grows the incremental increases are smaller (but still goes up a bit). If you make $150,000 a year now, getting a $25,000 annual raise will still make you little happier, but nearly as much as someone earning $50,000 a year now.

If the past research said that you got zero additional happiness past $75,000 year, that would have been the surprising thing. If happiness forever increased directly in proportion with income, that also would have been surprising.

Filed Under: Behavioral Economics, Career, Simple Living //

Last updated: January 25, 2021

Big List of Free Consumer Data Reports (2/2): See Your Confidential Rental History, Insurance, Retail, & Employment Data

Posted on January 11, 2021 // 12 Comments

mag Updated for 2021. Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes your housing, insurance, and employment history. You can request a free copy every 12 months of what these databases have stored about you and are telling prospective landlords, insurers, or employers.

Again, you may not need to check all of these, and many may not even have a file on you anyway. But for example if you are a renter then you’d want to make sure your rental history is clean and correct, or if were applying for life insurance you might check your medical reports.

Based on my situation, I have checked the following reports out of the ones listed below – CLUE Auto, CLUE Property, MIB.com, Milliman IntelliScript.

Rental History

Realpage (LeasingDesk) Consumer Report. Provides tenant screening through their LeasingDesk product, including “the industry’s largest rental payment history database.”

RealPage.com report request page
866-934-1124

CoreLogic SafeRent. SafeRent provides both tenant and employment screening data, including information regarding landlord tenant and criminal public court records. One free report every 12 months.

CoreLogic.com report request form
888-333-2413

Experian RentBureau Rental History Report. “Every 24 hours, Experian RentBureau receives updated rental payment history data from property owners/managers, electronic rent payment services and collection companies and makes that information available immediately to the multifamily industry through our resident screening partners.”

Experian.com/RentBureau report request page (see bottom right; PDF form)
877-704-4519

First Advantage Resident History Report. Tenant and employment background checks. One free report every 12 months.

FAdv.com report request page
800-845-6004

Contemporary Information Corp. CIC provides background checks on prospective tenants and/or employees and contractors for landlords and management companies. Keep records of any rental evictions.

CICReports.com report request page
800-288-4757

Tenant Data. Provides tenant history reports, including any reported damages, unpaid balances, evictions, lease violations, noise complaints, or unauthorized pets.

TenantData.com Tenant History report request page
800-228-1837

Screening Reports, Inc. A national provider of background screening service to the multi-family housing industry.

Screeningreports.com contact page (see bottom)
866-389-4042

TransUnion Rental Screening Solutions. SmartMove provides tenant credit, eviction, and background checks.

MySmartMove.com FAQ page
SmartMove will disclose the contents of a criminal and/or credit report retained by SmartMove to an individual who requests a copy of their report. To verify your identity and obtain a copy of your report(s) or dispute any information within that report, please contact customer service at 866-775-0961.

Auto and Property Insurance

C.L.U.E. Personal Property Report. A division of LexisNexis, CLUE stands for Comprehensive Loss Underwriting Exchange, which collects information that is used to calculate your insurance premiums. This report provides a seven year history of losses associated with an individual and his/her personal property. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name. This also means you can find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.

LexisNexis.com CLUE report request page
866-312-8076

C.L.U.E. Auto Report. This report provides a seven year history of automobile insurance losses associated with an individual. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

LexisNexis.com CLUE report request page
866-312-8076

A-PLUS Loss History Reports, subsidiary of Verisk. ISO stands for Insurance Services Office, A-PLUS stands for Automated Property Loss Underwriting System. Auto and property loss claim history.

Verisk.com report request page
800-627-3487

Drivers History. Owned by TransUnion. Collects driving violations.

DriversHistory.com report request page
855-694-1555

Insurance Information Exchange (IIX), subsidiary of Verisk. Provide reports including your motor vehicle records and driver history, including any traffic violations or related criminal history. May require proof of adverse action to obtain free report.

IIX / Verisk.com report request page
866-560-7015

Utilities

National Consumer Telecom and Utilities Exchange. NCTUE tracks when people don’t pay their phone, cable, or utility bills. One free report every 12 months.

NCTUE.com report request page
866-349-5185

Retail

The Retail Equation. Tracks product return and exchange abuse at retail merchants.

TheRetailEquation.com request page
800-652-2331 or returnactivityreport@theretailequation.com

Gaming

VIP Preferred. Tracks consumer data regarding check-cashing at casinos.

VIPPreferred.com request page
800-638-4600 x140

Medical History

MIB (previously known as Medical Information Bureau). Run by 470 insurance companies with a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” They record information of “underwriting significance” like medical conditions or hazardous activities. If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record.

MIB.com report request page (see bottom)
866-692-6901

Milliman IntelliScript. Tracks your prescription drug purchase history. “Milliman IntelliScript will have prescription information about you only if you authorized the release of your medical records to an insurance company and that company requested that we gather a report on you.”

RXHistories.com report request page (see bottom)
877-211-4816

Employment History

The following companies all offer background screening services for employers. Most will not have any information about you unless you authorized a potential employer to run a background check on you (probably during the application process). Some will not provide you information unless there was adverse action. Otherwise, you can get one free copy every 12 months.

The Work Number (division of Equifax). They also keep historical income records.

TheWorkNumber.com report request page
866-604-6570

Accurate Background, Inc.

AccurateBackground.com “You may contact our Client Services team at 800.216.8024, or send an email to customer_service@accurate.com. Please include your full name and the search reference ID, if available.”
800-216-8024

American Databank, LLC.

AmericanDatabank.com report request page
800-200-0853

Backgroundchecks.com.

Backgroundchecks.com report request page
866-265-6602

Checkr

Checkr candidate portal (access report here).
Checkr also powers the free background check at BetterFuture.com
844-824-3257

EmpInfo

EmpInfo.com report request page (scroll down to FCRA section).
Generally won’t have a report on everyone, only for people specifically requested by an employer.
800-274-9694

First Advantage Background Check. Tenant and employment background checks. One free report every 12 months.

FAdv.com report request page
800-845-6004

HireRight, recently merged with General Information Services (GIS)

HireRight.com report request page
800-381-0645

Info Cubic.

InfoCubic.com report request page (PDF form)
877-360-4636

IntelliCorp

IntelliCorp.com report request page
866-202-1436

OPENonline

OPENonline.com report request page
888-381-5656

Pre-employ

Pre-employ.com report request page (scroll down)
800-300-1821 (ext 139)

Professional Screening & Information, Inc.

PSIBackgroundCheck.com report request page
877-235-7574

Sterling (acquired EmployeeScreenIQ)

SterlinkBackCheck.com report request page
888-889-5248

PeopleFacts

PeopleFacts.com report request page
800-600-8999

Truework

TrueWork.com report request page.
833-878-3967

Reminder: Also see Part 1: Big List of Free Consumer Reports with Your Credit, Banking, and Payday Lending Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

Filed Under: Career, Insurance, Real Estate //

Last updated: January 11, 2021

Three Pillars of Self-Determination: Autonomy, Competence, and Community

Posted on September 14, 2020 // Leave a Comment

After reading the book Sapiens about how the history of our species affects our everyday experience, I found the related book Tribe: On Homecoming and Belonging by Sebastian Junger. Again, our genetic material hasn’t had enough time to change much from a human living 10,000 years ago, when all humans roamed together in nomadic bands of around 30-50 people. Humans today still retain a strong instinct to belong to such small, social groups that work together toward a common purpose – “tribes.”

What happens we can’t live in tribes anymore? Why does living in our modern, affluent society actually lead to higher rates of depression and suicide?

First agriculture, and then industry, changed two fundamental things about the human experience. The accumulation of personal property allowed people to make more and more individualistic choices about their lives, and those choices unavoidably diminished group efforts toward a common good. And as society modernized, people found themselves able to live independently from any communal group. A person living in a modern city or a suburb can, for the first time in history, go through an entire day—or an entire life—mostly encountering complete strangers. They can be surrounded by others and yet feel deeply, dangerously alone.

In contrast, when a large-scale catastrophe occurs, rates of depression and suicide actually drop for a while, perhaps because we again feel united and connected with others.

[Researcher Fritz] was unable to find a single instance where communities that had been hit by catastrophic events lapsed into sustained panic, much less anything approaching anarchy. If anything, he found that social bonds were reinforced during disasters, and that people overwhelmingly devoted their energies toward the good of the community rather than just themselves.

The book includes many examples of how this need for true community is behind many societal problems. This also fits in with self-determination theory:

The findings are in keeping with something called self-determination theory, which holds that human beings need three basic things in order to be content: they need to feel competent at what they do; they need to feel authentic in their lives; and they need to feel connected to others. These values are considered “intrinsic” to human happiness and far outweigh “extrinsic” values such as beauty, money, and status.

Here how Wikipedia describes these three pillars:

Autonomy – Desire to be causal agents of one’s own life and act in harmony with one’s integrated self. (This does not mean you want to be alone.)
Competence – Seek to control the outcome and experience mastery.
Relatedness (Community) – Will to interact with, be connected to, and experience caring for others.

We want to help others. We are perfectly willing to sacrifice to do so. But we also want to be in a trusted group that would also risk themselves to help us. These smaller groups that extend past your nuclear family are a common element of Blue Zones.

What would you risk dying for—and for whom—is perhaps the most profound question a person can ask themselves.

A lighter version might be, how many people do you know that would be willing to commit real, significant sacrifice to help each other?

In the big picture, our country is struggling because we don’t feel united as one team. In the small picture, this is a critical part of “retirement planning”. Many people derive both competence and community from their work, and you will have to replace that to create a happy post-work life. (Similarly, if you hate your work, you probably don’t find community and competence there.)

Filed Under: Book Reviews, Career, Family, Retirement //

Last updated: September 14, 2020

68 Bits of Unsolicited Advice by Kevin Kelly

Posted on May 7, 2020 // 1 Comment

The best thing I read this week was a “Things I’ve Learned…” list called 68 Bits of Unsolicited Advice by Kevin Kelly – a very interesting fellow (see his bio, about me pages) who must have secretly figured out how to freeze time given all the things he does! I’m most familiar with him as the editor of Cool Tools.

Certain items on the list will sound familiar and only a few are finance-related, but chances are you’ll find something new that clicks. Here’s a small selection:

– When you are young spend at least 6 months to one year living as poor as you can, owning as little as you possibly can, eating beans and rice in a tiny room or tent, to experience what your “worst” lifestyle might be. That way any time you have to risk something in the future you won’t be afraid of the worst case scenario.

– Don’t be the best. Be the only.

– Perhaps the most counter-intuitive truth of the universe is that the more you give to others, the more you’ll get. Understanding this is the beginning of wisdom.

– Separate the processes of creation from improving. You can’t write and edit, or sculpt and polish, or make and analyze at the same time. If you do, the editor stops the creator. While you invent, don’t select. While you sketch, don’t inspect. While you write the first draft, don’t reflect. At the start, the creator mind must be unleashed from judgement.

– Following your bliss is a recipe for paralysis if you don’t know what you are passionate about. A better motto for most youth is “master something, anything”. Through mastery of one thing, you can drift towards extensions of that mastery that bring you more joy, and eventually discover where your bliss is.

Definitely something to bookmark and read again.

Filed Under: Career, Entrepreneurial, Inspirational //

Last updated: May 7, 2020

Open Enrollment Checklist: HSA, HCFSA, DCFSA, Disability Insurance, Life Insurance

Posted on November 6, 2019 // 7 Comments

maxben

We just finished our open enrollment paperwork, and like many other workers we faced a long and confusing list of instructions. They tried to distract me from the increased health insurance premiums by adding a bunch of optional “perks” like universal life insurance and paid identity theft protection. Christine Benz has a thoughtful Checklist for Open Enrollment Season. Here are my own thoughts as I went through the options:

Health Savings Accounts (HSA). Doesn’t “triple tax-free” sound good? HSA contributions are tax-deductible (pre-tax money), they grow tax-free once there, and your withdrawals are tax-free when spent on qualified healthcare expenses. However, you have to be enrolled in a qualified high-deductible health plan (HDHP) to be eligible, which means your higher out-of-pocket costs might not offset the cheaper premium plus upfront tax savings. Depending on your estimated healthcare costs, tax rate, and how much your employer pays, you may be better off with a traditional HMO or PPO plan. A bit of math will be needed.

In order to maximize the HSA’s long-term advantages, you will also want to treat the HSA as an investment account. This means you’ll you need to cover the higher annual out-of-pocket costs yourself and still have money left over to fund the HSA.

Healthcare Flexible Spendings Accounts (HC FSA). I’ve said it before, but these can be a bureaucratic mess. The benefit is “use-it-or-lose it”, but for me it has been “use-it-and-lose-my-mind”. Third-party benefits administrators have given me several bad experiences with submitting my receipts and ensuring they are approved. If it takes me an hour to submit/check/argue/re-submit/check a $50 medical expense, then in my opinion the tax savings of $10 was not worth it at all. But if I don’t follow through, I lose the entire $50. Asymmetric risk in a bad way.

There are also some finer details if you want to have both an HSA and an FSA (look up limited-purpose or post-deductible FSAs).

Dependent Care Flexible Spendings Accounts (DC FSA). These are better. You can have both an HC FSA and a DC FSA as they cover separate things. If you have eligible childcare costs (or adult dependent care), it is quite possible you reach the $5,000 annual maximum. I usually wait until I’ve already paid out $5,000 in preschool tuition, and then I just submit a single receipt for a potential $1,000 tax savings (assuming 20% tax rate on $5,000). Now that’s a good per-hour rate.

Employer-sponsored disability insurance. The best thing about group disability insurance through your employer is that it’s easier to qualify and the cost may be subsidized by your employer. However, if you switch or lose your jobs, you might lose your group disability insurance at the same time. This won’t happen with your own portable plan. Specialized workers can purchase riders that will pay out as long as you can no longer perform your specific occupation (as opposed to any lower-paying job). However, it’s so easy to put this off that getting some employer-sponsored disability insurance can be a good first step.

Life insurance. A common offering is a year of your salary in life insurance. Beyond that, you should always compare with an individual term life insurance plan. That way, if you have a special medical condition that makes your private premium somehow crazy expensive, then you can always fall back on the group plan. For most healthy folks, finding your own portable term life policy will be cheaper and it won’t go away if you lose your job. If you get a 20-year level term policy, your premium also stays fixed for those 20 years. No surprise increases.

Other benefits. The menu seems to expand every year. 401k investment advice. Commuter benefits. Student loan repayment assistance programs. Accidental death and dismemberment (ADD) insurance. Critical illness insurance. Long-term care insurance. Identity theft insurance If it’s free, I’ll take it but in general I decline the ones that require a premium.

Filed Under: Career, Insurance //

Last updated: November 6, 2019

Maximizing Retirement Time: Being Flexible in Both Work Income and Spending

Posted on August 15, 2019 // 9 Comments

When it comes to Financial Independence Retire Early (FIRE), many people get turned off because they define retirement as “never, ever working again for money”. Financial independence fits better with my goal of spending the most of your limited time on Earth aligned with your values.

If the idea is to maximize your independent time, then you have to accept that luck matters. This chart from Michael Kitces explores equally likely scenarios from someone spending down a $1,000,000 portfolio of 60% stocks and 40% bonds.

Equally likely:

Ending up broke or feel alarmingly like you are headed towards broke.
Ending up with many, many times more money than you started with.

Is retiring as soon as you reach the 4% rule too risky because you might run out of money? Or is working longer for 3% too risky because you might have wasted years of your life working when you didn’t need to?

Let’s look again at some charts from Engaging Data. Here are sample results for the early retirement scenario at 4% withdrawal rate at age 40 ($40k from a $1m 65/35/5 portfolio, retirement horizon 50 years, female longevity table).

Red – Alive, but ran out of money.
Light green – Alive, with less money than you started with.
Green – Alive, with between 100% and 200% of what you started with.
Dark green – Alive, with over 200% of what you started with.
Grey – Dead.

Here is retired at 40 with a lower 3% withdrawal rate ($30k from a $1m 65/35/5 portfolio, retirement horizon 50 years, female longevity table):

Notice at even with the riskier 4% withdrawal rate, you have roughly a 60% chance that your portfolio never goes below the starting balance for as long as you are alive. That means you just spend your 4% every year and it just replenishes itself over and over. Sure, the 3% chart looks safer as there is no red “failure” area. But is that chance of failure worth working maybe another 10 years to go from 25x expenses (4%) to 33x expenses (3%)?

If your portfolio value drops early in retirement, flexible withdrawals are one important tool to improve your portfolio survival odds. However, what about flexible income as well?

What if you retired earlier so that if things go well, you get more retirement years, but if things go bad, then you fall back on some part-time back-up work? Your main risk is of poor returns in the first 10 years of retirement or so. You would accept the chance that you might have to do a little work again to prop your portfolio up during that time. A good part-time job would have the following characteristics:

Scales up and down easily. Ideally, you could spend 10 hours a week, 20 hours a week, or 40 hours a week on it as necessary. This could mean hourly shift work or flexible self-employment.
Higher-paid skilled work that is at least partially satisfying. Unskilled work will be the easiest to obtain, but the pay will be low. Uber/Lyft driver, food delivery, home health aide, retail, warehouse, etc. You want something where your special skills are compensated accordingly.
Minimal maintenance. For some jobs, if you aren’t constantly putting in hours, you’ll become obsolete and won’t be able to start back up again. There may be professional licenses to maintain, etc.

Here’s a brief list of ideas:

Healthcare. Many positions in the healthcare field can be part-time and hourly, from doctor to nurses to technician positions.
Elder care. This may be related to healthcare, but the overall aging population is another trend to consider.
Accounting. An accountant or someone with similar skills can usually find work during tax season, assisting other accountants.
Tech. There is often consulting or project work available, if you keep your contacts and skills up-to-date.
Passion work. Turn your hobbies into work. You could be a travel guide, taking people on hikes, tours, kayaking, etc. Carpentry projects could turn into an Etsy store. If you like to fix things, become the neighborhood handyperson.
Real estate. I tend to break up residential real estate investing into two parts – the actual ownership and the property management. Property management is basically a part-time job which you can do yourself, and the effective wage can be quite high if you are skilled at managing tenants. (The catch is that you can also lose money if you are unskilled at it.)
Teaching and kid-related. People are having fewer kids, but spending more on each one. Sleep training consultant. Potty training consultant. Academic tutoring at any age. Sports coaching at any age. Chess coaching. Language coaching. Musical coaching. These all command premium hourly rates.

I am a conservative person at heart, and I know that I would worry about my family’s finances if my portfolio dropped significantly from my retirement date. Therefore, I am both using a conservative withdrawal method and maintaining a semi-retired work schedule for the time being. I don’t have the luxury of a full traditional retirement, but I like the balance so far.

Bottom line. Living off of an investment portfolio of stocks and bonds depends a lot on luck. One way to deal with this is to be flexible with your withdrawals. Good luck means spending more, bad luck means spending less. This flexibility may allow you to retire earlier with a smaller portfolio balance. However, you could also plan for a little work income to offset early bad luck with portfolio returns. If you instead have early good luck with market returns, then you’ve just won many more years of free time.

Filed Under: Career, Investing, Retirement //

Last updated: August 15, 2019

Boeing Engineer: From Dream Job to Nightmare

Posted on June 4, 2019 // 8 Comments

The most depressing thing I read today was Former Boeing Engineers Say Relentless Cost-Cutting Sacrificed Safety at Bloomberg Businessweek.

If you want to know why I am not part of the “I love what I do and I’m going to plan to work forever” crowd, this article pretty much sums it up. As someone who has an engineering background and has actually done work inside some of their facilities years ago (but never worked for Boeing), I also felt Boeing had the reputation of hiring the best aerospace engineers and thus made awesome airplanes. As a kid, that was a dream job. C’mon, you get to make airplanes!!!

Yet somehow a company renowned for its meticulous engineering installed software that drove the aircraft into the ground while the pilots searched desperately for answers.

Why? The answers to all your questions is money. At Boeing, the bean counters won and the engineers lost. It wasn’t overnight, but it like many things it seems gradually and then all at once. Even though the FAA basically let Boeing police itself, the FAA has still had to forcefully ground two of Boeing’s planes in the last 6 years. The last time a plane was grounded before that was 1979. The worst part is that they still don’t seem to understand their mistakes.

The relentless message: Shareholders would henceforth come first at Boeing. The important thing was not to get “overly focused on the box,” Hopkins said in a 2000 interview with Bloomberg. “The box”—the plane itself—“is obviously important, but customers are assuming the box is of great quality.” This was heresy to engineers, to whom the box was everything.

I can’t imagine how disheartening this would be to a Boeing engineer or factory worker. Their obsession is why the airline industry has become so commonplace and successful. We trust that we will land safely. They built up a great reputation. Now it appears that Boeing executives started trading that assumption of quality (reputation) in exchange for short-term profits (while firing many of the engineers). The product that they helped create had defects that killed people. Worker morale must be at an all-time low.

This is why building up a certain level of financial independence is important. Sure, your job right now is great. The pay is great. You’re building something cool. You like your boss. There is no end in sight, so why not buy the huge house, luxury car, and new boat? If you have the dream job and your specialized skills are highly valued, enjoy it but remember that if done properly you only need to get rich once! A dream job can turn into a nightmare. Read this article and watch out for those bean counters. I’m so thankful that I never have to answer to one again.

Filed Under: Career //

Last updated: September 18, 2019

The Most Common Sacrifices Investors Make to Reach Their Financial Goals

Posted on March 26, 2019 // 3 Comments

According to a Wells Fargo/Gallup survey of U.S. investors, 78% say they are at least fairly disciplined in reaching their financial goals. About 50% of investors say they will have to sacrifice a “fair amount” or “a lot” to reach their financial goals, while the other half only expects to sacrifice “only a little” or “nothing”. Investors are defined as adults with $10,000 or more invested in stocks, bonds or mutual funds, either within or outside of a retirement savings account.

In what areas do they expect to sacrifice? Here is a chart showing the most popular ways in which the polled investors say they have and/or expect to sacrifice to reach their personal financial goals:

Filed Under: Budgeting, Career, Family, Retirement //

Last updated: March 26, 2019

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