Mindy:
You hit financial independence at age 40 with $2.5 million. Do you retire immediately or do you work one more year? Our guest today, Steven, chose to wait and it paid off big time. In this episode, you’ll learn how four more years added a million dollars to his net worth and why one more year syndrome isn’t always fear-based procrastination and the flexible spending strategy that lets Steven spend up to $180,000 per year in early retirement.
Mindy:
Hello, hello, hello, and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my flexibly employed co-host, Scott Trench.
Scott:
Thanks, Mindy. Great to be hybrid-FI alongside you and Steven. We’re excited to welcome Steven today to the BiggerPockets Money podcast. I think this is going to be one of our best shows ever. I’m very excited about this this this interview. Steven has a really, really wonderful story, a really wonderful life, and I think a lot of what he did is achievable and repeatable by the the portion of our audience who are in that engineer, you know, category that can that can bump their income over a 20-year period into that $100 to $200,000 a year range. And I think that this is a really powerful story and example of that.
Scott:
Steven is incredibly detailed with his net worth, income, and withdrawal strategy details several years into his early retirement, and it’s going to be a real privilege to hear those numbers today. You’re going to hear how Steven and his wife designed their specific withdrawal strategy, why they had a five-year cash buffer, and how they use Roth conversions as a central component of their plan. You’re also going to hear about how they manage variable spending between $120,000 and $180,000 per year with a pretty heavy emphasis on optimizing or making sure that they stay below that ACA subsidy cliff for the Affordable Care Act subsidies for their health insurance. So this is going to be a fun episode. We’re going to ask a lot of really tough questions and get into the details. It’s going to be a little bit of a longer one, and again, I think one of our, one of our best ones ever.
Scott:
With that, Steven, welcome to BiggerPockets Money.
Steven:
Mindy, Scott, how are you guys doing?
Scott:
We’re doing great. Super excited to be here. Always a privilege to get to record a podcast and a particular privilege to get to record a podcast with you today and hear this fantastic story. Thank you so much for listening for many years, I think, and, and thank you so much for coming on the show and and reaching out.
Steven:
Yeah, I’m truly blessed and I’m not stressed. I’m just so happy that just this opportunity to speak with both of you all about my story and kind of what I was doing before financial independence and my life during financial independence. And really look forward to getting the discussion on the decumulation phase. I think that’s always like a big interesting topic right now.
Scott:
Let’s go back in time a little bit here and talk about the moment when you discovered you were FI. How did that feel? When was that? What was it, what was your situation like?
Steven:
Basically, I was at the age of 40. Uh, this is 2018, and what I was doing was I’ve always been an accumulator. I’ve saved money, uh, we invested very well just throughout my working years. I found about the financial independence movement by accident. I was talking to my coworkers about a pension that we have, and we were talking about options of, do we want to take the lump sum, or do we want to take the annuity?
Steven:
So I went on, you know, went on Google and just Google, hey, what’s the best option? Lump sum, you know, or or or annuity payment? And it turned me on to a couple of podcasts, uh, Jill Schlesinger, Jill on Money, and Roger Whitney, the Retirement Answer Man. I listened to those podcasts, and then it just got me connected. They had people on the shows, and it got me connected to other members of the FI community, such as Paula Pant and uh, Joe Saul-Sehy, which then I listened to their shows, and then got me connected to more folks and their stories.
Steven:
And then that, you know, that rabbit trail of different podcasts such as BiggerPockets Money, ChooseFI, and all of a sudden, I just discovered, wow, these are people just like me. They like talking about money. You know, they’re not ashamed about it. And I said, wow, and and that’s when I discovered the 4% rule. I looked at our finances and did the calculate quick calculation and said, hey, guess what? Surprise, I’m already at financial independence, and I wasn’t even aware of it.
Mindy:
Was your plan just to work until you were 65?
Steven:
My plan was to work till 60, really, till 59 and a half. And the reason why, 59 and a half, that’s when we can uh, have full access to our retirement accounts. So, you know, I was just one of those, was just doing our typical job of saving and investing, you know, maxing out all our retirement accounts, putting money away to kids’ college savings plan, and also putting money to our brokerage account as well. So, but again, the plan was always to leave work at 59 and a half.
Mindy:
Okay. And what was work?
Steven:
I was an engineer. Uh, I worked in the oil and gas industry. I got an opportunity just to live in different parts of the United States. So, I started off in Texas. That’s where I actually met my wife, and we got, uh, you know, married and and had two kids. After, you know, working in one location there, I transferred off to a different location. Uh, we moved to Seattle, Washington.
Steven:
That was actually a great experience because, you know, my wife, she was a teacher at the time, uh, when we met in Texas, but then we moved to the Seattle Washington area. We had no friends, no family. So the best thing for her was to move into a different role called the domestic engineer. I don’t want to call stay-at-home spouse.
Mindy:
I was also a domestic engineer for a while, and that’s a good way to phrase it because you’re you’re juggling a lot of things and you’ve got some engineering to do in that job. And it is absolutely a job.
Steven:
It is. I mean, let me tell you something, when she switched to that job, I gave nothing but respect for the duties that is. I mean, it is a full-time job. You’re always on duty whatsoever. And so we went from a dual-income household to a single-income household, but however, when we was living there, we were saving more money. And part of it was just because we were doing things different. It’s very beautiful up there in the Pacific Northwest. You can do a lot of hiking, do a lot of biking.
Steven:
You know, I tell everybody my kids were born in Texas, but they were raised in Washington state just because of all the outdoor experiences. We wasn’t going out to eat as much. We didn’t have to do a lot of shopping for clothes because up there, you know, it’s either you’re wearing rain gear or t-shirts and stuff.
Scott:
Let’s put some numbers behind this this story here, right? So, you discovered that you’re you’re FI at 40. You’re living in Seattle, right, the Pacific Northwest at this time. Is that, is that correct?
Steven:
Not necessarily. So, we were there in Seattle area from uh, 2011 to 2018, and then I made my second move with uh, transfer with my company to the Louisiana area.
Scott:
And that’s where you discovered you were financially independent.
Steven:
Yeah, that when I made the second move to this new location, and that’s when I made that discovery at that time.
Scott:
How much wealth or what was your position like when you discovered at age 40 that you were financially independent living there in Louisiana?
Steven:
Yeah. So what we had totally saved was two and a half million dollars. Uh and that’s across uh, 401(k)s, you know, traditional Roth IRAs, brokerage accounts, uh savings, and also uh 529 plans.
Scott:
And let’s talk about how we got there as well. You told us that, you know, when you moved to the Seattle region, that uh, your wife became the domestic engineer, right? So you’re one-income household. What was household income like throughout this journey? How where did it start and where did it kind of end up at its peak during your working years?
Steven:
When we left Texas, making our first move, my wife and I was bringing home about $180,000 a year. I was 135, her was was 45. And then we moved to the Seattle, Washington area, we dropped down just to my salary, about $135,000 a year. And we were there for uh seven years and just through promotions and bonuses and and everything, the salary rose back up probably, you know, uh, at that time, about to uh, 180. And then when we moved to Louisiana, you know, and I worked there for my last four years, my ending salary with my company was around $250,000 a year.
Scott:
And was there anything else that we should know about your financial position? Was this was this generally speaking invested in, you know, in stocks and bonds? Were there other assets that we should consider like real estate or pensions? What what did the situation look like in terms of where that net worth was allocated when you discovered at age 40 that you were FI with two and a half million?
Steven:
It was just pure uh invested in stocks and bonds through mutual funds. So, I’m going to have to make a confession because I might lose my FI card. That wealth was generated through actively managed mutual funds.
Mindy:
You can have actively managed mutual funds in your portfolio. You can have a financial advisor that charges AUM in your portfolio. I want you to know what you are choosing before you choose it. Like, not everybody has time to do these deep dive research into, you know, what they’re doing. And not everybody understands that index funds exist. I didn’t even invest in index funds until like eight years ago. I didn’t even know they were around. Having them in an actively managed mutual fund, if anybody has a problem with him doing that, you can email Mindy@BiggerPocketsMoney.com, and I will tell you my thoughts personally. You’re fine, Steven.
Steven:
Thank you, Mindy, because, and and I will just say, I wasn’t, I wasn’t against index funds. It’s just that one, I didn’t know about them when I first starting investing. And second, the investment choices I had was very limited. So what I just said, hey, let me just take what I have and make it work. You know, don’t seek for perfection, seek progress. Just by doing that, that led me down the road.
Mindy:
Perfect. And I mean, you retired early, so anybody who has a problem with the way you did it can uh tell somebody else. We will be right back with more of Steven’s fantastic story after a quick word from our show sponsors.
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Mindy:
All right, let’s jump back in.
Scott:
We have yet to have our first guest here who is not in violation of some core component of the the pure path to financial independence in some way and there, where the retirement police would not give them at least some minor citation. So, um, I think you’re you’re clear.
Steven:
I guess the other thing I would add too is, so, you know, real estate was a component of generating the wealth, but that wealth was generated through buying and selling of our primary home. One of the things that’s so helpful is that, you know, uh, through my job and through job transfers, they provided a lot of benefits where they would help you sell your current home and also pay, pay the closing cost on that and also pay the closing cost on your new home. It’s very financial incentive, so you really just got to go in and find a house that you can truly afford, and they give you that incentive, you know, there’s like relocation money and and other things as well to get you started. And what I did with that was, hey, let’s make this relocation expense very little as possible, and then I took that and invested into the market, plus the proceeds that we made on all our homes, I invested. So right now, this is, uh, our fifth home that I’m on. So every home that we bought and sold has been nothing but strong profits.
Scott:
We have this, uh, one more year or several more year component to your story. Tell us about, hey, we discovered FI, why do we decide to continue working that extra time, um, before transitioning to full retirement?
Steven:
When I discovered FI, I was, it was nice. I was happy to know that, hey, this is a great option. However, I was in my dream position, in dream job. I mean, I love my job. I love to come to work. I love the challenge and and the opportunity that it provided. So it wasn’t like I was looking to move away from my job. So I just continued to keep moving forward. So this is 2018 when I found FI. In 2020, things changed, and I think everybody can at least remember what took place in 2020 besides the stock market going down.
Mindy:
Did you have plans to retire before COVID happened? Like, did you plan, like, oh, in July of 2020, I’m going to retire, and then COVID happened and you’re like, hm, no, I’m not going to.
Steven:
No, actually I didn’t. Uh, again, uh, when COVID happened, just things at my job changed. You know, all of a sudden, I just wasn’t lit up anymore. That burning desire to continue to put in the effort to come to work was just burnt out. And eventually, by the end of that year, uh, I was more existing versus living. Being in my position as an organizational leader, I said, this is not good. You know, it’s not good for me. It’s not good for my family, and it’s not good for the company and the people that work with me as well.
Steven:
So at the end of the year, that’s when I put my financial plan together. I already knew we can do it, but it’s like, well, let’s let’s put the plan together. It’s time to exit out and go do something different. So this is at the end of 2020 when I made the decision. And I talked to my advisor just to validate what I was going to do. And then after that, I had the had the conversation with the boss at home, which is my wife and said, hey, ready to move forward with this? How do you feel? And she said, let’s do it. And the plan was, let’s work one more year. Let’s work a full year, 2021, then I’ll retire the first quarter of 2022.
Scott:
So you decided 2022 will be the year that you retire. What did you feel like you needed to do in that next year?
Steven:
I need to get myself prepared financially, physically, and mentally. So let’s talk about those three things, uh, preparation. Financially, a, I wanted to go ahead and just pad our finances and savings. Just want to be sure, hey, we had just extra enough. It was in the middle of the school year. We want to move from Louisiana and to Houston, Texas area. I wanted to be sure I keep a job while trying to secure a mortgage in a new location.
Steven:
Now, I know some people say, well, hey, you know, it’s okay if you don’t have a job and they’ll still give you a mortgage. Oh, they won’t. It’s, yeah, you can have millions of dollars in the bank, but if you don’t have income coming in, they can make it very difficult. So that was the financial preparation is to make sure I had a mortgage secured in our new home in Houston.
Steven:
On the physical preparation side, I wanted to make sure my health was intact. You know, I was out of shape, and I said, hey, I need to get myself checked out, have all my cancer screenings, you know, make sure that I’m in a good position to leave because, right now, this company provided great insurance. And I would hate to have some type of ailments and then move into retirement and have that type of insurance. Luckily though, came positive uh, feedback response on my cancer screening, and also, I don’t know what happened, my my body just decided, hey, you know what? I heard you’re retiring. I started losing weight. I had lost over 50 pounds. My blood results came back, like my cholesterol level came back below 200, triglycerides, everything just came back in range, and I just said, wow, this is truly a blessing.
Scott:
We always think that early retirement is the cause of better health after it, but it seems like it was the effect in in this particular case. So, I love the mental and physical preparation here. Tell us about the financial preparation. What was your position like at the beginning of the year? What was it like at the end of the year? And what why did that year make a difference there?
Steven:
Yeah, let me just paint the picture. So at the time that I was about to leave, so one, our assets had built up to be about three and a half million dollars. Again, it was vested across all our different types of accounts from uh, tax deferred, tax free, taxable, and also 529 plans. We sold our home in Louisiana. We were all moved into our new house in Texas with a great low interest rate, so thank God as well.
Steven:
And at that point, during that 90-day sabbatical, I was still getting paid by the company because I haven’t left, I really got a chance to really position all my assets and in particularly the money that’s in our taxable accounts. You know, I was able to get it positioned where we had full enough that I was going to give us a good runway to live off of before we had to tap into our retirement accounts. So to give you some particular numbers, so in that taxable bucket, we had about $1.25 million. $750 of it was invested in equities, and then $500,000 of it was in cash, cash equivalent. If you do that math, our taxable bucket was really a 60/40 split from equities to fixed income. The only difference is, instead of having bonds, we just had cash. And I can get to why I went with that high level of cash because I know that sometimes that’s going to get people kind of wondering like, that’s too much.
Mindy:
Why did you choose to have so much money in cash? Are you spending $250,000 a year? Was this just two years of spending?
Steven:
We want five years of living expenses because our living expenses over uh, the last three years up to when I’m retired, we were spending 100 grand a year. You know, if you took that, you know, $100,000 divided by our investable assets, it was still what, less than 3%? We don’t follow, and I know this is probably about to get some hate mail from this, we don’t follow the 4% rule for withdrawal standpoint. Like I get, when we get into our decumulation, we always go by how much we want to spend. I like to go by dollar amount. And the reason why, look, I understand what the 4% rule, I think it’s a great rule of thumb to get yourself accumulated, but it’s one of those rules that it kind of gets everybody on the same even keel. And what I mean by that is, and I don’t want to get biblical, but when you go to church, people always say put 10% in. You know, if Scott put 10% in, Mindy puts 10%, that’s all that matters because, you know, it doesn’t matter the amount, as long as you put 10% in. And I feel the same way with the 4% rule is that it gets everybody kind of on the same even keel and stuff. I like to just work on, this is how much we want to spend versus, oh, this is how much percentage we’re withdrawing.
Scott:
I love it. So walk me through what this means with the spending. How much did you want to spend on an annual basis? What what did that look like?
Steven:
So we wanted to spend 100 grand. That’s what we spent for the last three years up to my retirement. And that really covered just our basic essentials, our life, going out to eat, taking vacations, maybe one big vacation a year. I mean, we were living, you know, pretty okay.
Mindy:
I have a comment really quick. You said, we went with how much we wanted to spend, which is great when how much you want to spend is less than your 4% rule. And your 4% rule on $3.5 million would be $140,000. So we want to spend 100, that’s great. You’re pulling out less than. I can hear somebody saying, oh, I want to spend $100,000. Yeah, but you only have $500,000. You can’t spend $100,000 and call yourself retired or, well, call yourself retired for very long. But you’re clearly spending below the threshold. In the years that you’ve been retired, have you spent a lot more or have you kept it pretty much at 100,000?
Steven:
After the first year in my retirement, you know, we spent about 105,000. And during the second year, my wife said, “Babe, this feels like a constraint. I know we’ve always spent this and I know I’m trying to manage our expenses, you know, but this is not what retirement should be for us. I like for us to at least feel that we can spend more.” And you know what? She was absolutely right.
Mindy:
Yeah, the 4% rule says she’s absolutely right. What I love about that is that she felt comfortable coming to you and talking to you about money, and I love that you’re having these conversations. Test out your retirement numbers. Oh, you know what? We’ve been spending 100, I want to spend a little bit more. How much did she want to spend?
Steven:
So, we got together, we said, all right, let’s, let’s figure this out. Instead of shooting for a single number, let’s come up with a spending range. Or what we call in financial service, guardrails. You know, and we came up with a a spending number and we and we looked at, okay, what is a known cost? What are some unknown costs that might come up? What are some things or opportunities that we like to do, such as maybe house projects or helping out a family member? But the most important thing is, what are some fun things? So we got more creative.
Steven:
And so we came up with a spending, so a minimum spend was 120,000, but then we said, you know what? While we’re in this phase of life or season of life where we still have our kids at home, they still like us and want to be around us, let’s go up a little more to cover any additional things that we would like to do, plus the variables that teenagers bring, especially when they start driving.
Mindy:
Yeah, I’ve got that teenagers driving phase right now.
Steven:
So our spending range changed from $120,000 a year to $180,000 a year.
Scott:
And what was your asset base at this point in time?
Steven:
Okay, so our asset base, we decumulated, so we came with this range of 2023. Portfolio had dropped because of the bear market and it dropped down to about $3.2 million. When we start to spend this new range, was in our third year of retirement, which is 2024. And by that time, our portfolio got back up to about 3.5.
Scott:
Okay, but we have our early retirement police here. The $3.5 million portfolio at the 4% rule only supports $140,000 a year in spending, not $180,000 a year in spending. So how did you reconcile that mentally and in terms of, you know, how you think about your your your spending relative to your overall portfolio position?
Steven:
The retirement police, you can come arrest me because while we’re in retirement, we’re like, hey, let’s use some skills and passions that we want to do. And we both opened up our own businesses. I started my own financial coaching business after I got a chance to work at a couple of financial firms because I just decided that the financial service industry was not for me, either because they wanted me to be selling insurance or we were focused strictly on, you know, getting more assets under management, which again, either one of those is okay. I have nothing against that, but for me, I wanted to do more financial coaching, planning, and and and advising. And I was able to get all the necessary licenses as well. So I’m, I’m a licensed investment advisor representative. That makes me being a fiduciary, but I can charge a fee for uh, you know, for financial advice.
Scott:
Okay, so you sell one whole life insurance product per year, and that bridges the entire gap between the 140 or 150,000 supported by the 4% rule and the uh, $180,000 in target spending. Is that correct?
Steven:
That’s a little bit of not, man. Between my business, my wife’s business that she started, and I also I started doing some trading online through, you know, doing some swing trading and selling options. We’ve only brought in about 30 grand a year. So that’s about, you know, 20% of our overall spend, which, I mean, at the end of the day, it’s not a lot, but it’s not little either. You know, the money I brought in from my business, man, that funded my Starbucks, you know, crave and everything.
Scott:
Love it.
Mindy:
You’re spending uh, 5.2% instead of 4%. And if you look at Bill Bengen’s original research and his updated research, I mean his updated research says what, Scott, 4.7%? So you’re not that far off, but that’s the safe withdrawal rate based on historical, including, like, the time that it really didn’t work was the late ’60s into the ’70s when we had that incredibly high inflation. All the other times, you could have been taking out 6, 7%, and still had enough money to get you to 30 years of retirement, which is what his original study was. So, I don’t have a huge problem with your plan because you’re thinking about it. When I start to have a big problem is when people are like, “Yeah, you know, I just wanted to spend more, so I did.” You’ve thought about it. You’ve got reasons behind it. Your wife wants to spend more. You have the money to spend more. You’re generating extra income. So the money that you are generating, this, you know, 30-ish thousand dollars a year, on top of your 4% of $140,000, is pretty close to what you’re actually spending. Are you enjoying your life?
Steven:
We’re really enjoying it because when we came up with that spending range, Mindy and Scott, what we didn’t want to do was be held every year like, man, okay, if we’re going to spend 100 grand or 110 grand, that’s all we’re going to do. It’s all we’re going to do. No, it’s like, hey, if we spend 140 this year, it’s still within the range. If we spend 170, it’s still within the range. If we spend 130, it’s in the range. We didn’t want to have to constantly worry about it because it’s like, hey, we’re still good and not coming back and like, oh, maybe we can, you know, cut back or so. Because again, my wife said, she want to enjoy it. I want to enjoy it. I want her to have comfort, because when she’s comfortable, life gets a lot better in my household.
Mindy:
I think all of us can attest to that.
Scott:
I have a couple of more detailed questions here. So, let let’s use this last year, 2025 as an example, right? What did your portfolio look like in terms of stock bond ratio or or asset, you know, the types of things you’re investing in? You said you’re are you still in active funds right now? What what what does that look like?
Steven:
Since I found about index investing, I’ve been slowly moving my mutual funds over to index funds. I still got some, uh, that’s mainly like in our 401(k) and, and our traditional account as well, but usually, you know, low-cost ETFs and also, I would call them mid-cost mutual funds where the, you know, what basis points, you know, that we’re paying is probably about, you know, 25 basis points or so. I guess to answer your question from a asset allocation across all our portfolios, and I mean all our four different buckets of 529s, tax deferred, taxable, and tax free, our asset allocation is a 75% equity and 25% fixed income.
Scott:
Where do you put the fixed income? Is there a specific asset location like in the tax deferred account that you typically hold those?
Steven:
Most of our fixed income is in our taxable brokerage account and also our 529s because our kids are now, at least with my son, he’s in college currently, and so we’re drawing down his 529 plan so we got that mostly in conservative investments as well as as well as my daughter, who’s a junior, she’s going to be starting school soon within the next year and a half. So I want to, you know, make sure that her money is available and safe as well. But between our tax deferred and our Roth IRAs, we’re talking about 85 to 95% equity and very little, you know, fixed income in those.
Scott:
You mentioned this casually, but walk us through, how do you think about tax optimization in the context of your current situation? How are you realizing income and and you said you were doing Roth conversions, I believe? How how does that work and what tax bracket are you optimizing for, generally speaking, in in that world?
Steven:
When it comes to the decumulation, the first thing you got to ask yourself is one, how much do you want to spend? And then second, how can you take out the money at the lowest cost is possible? And that’s where you got to have a good tax strategy. So for us, our plan was, if we’re going to speak for like at least 2025 as an example, we wanted to be in the 12% tax bracket. And the reason why we want to be in the 12%, that’s I would say a very low cost bracket that gives us a lot of, you know, a lot of flexibility to how of our taxable uh, brokerage account money to go farther as well. Because you know, the next bracket up is 22%, so that’s a 10% jump. So we want to stay in the 12%. We also utilize the standard deduction, and using the standard deduction to do Roth conversions as well. Because I don’t want to let that standard deduction to go to waste. I think that’s a great, you know, thing that the government has given us, you know, especially this enhanced standard deduction to say, “Hey, you know, like for 2025, you’re able to put $31,500.” And if you realize that, that’s more than four times that what you can contribute just to a Roth if you’re under the age of 50. Because you know, the Roth contribution amount is 7,000. Well, man, you’re able to put in, we’re able to put in four times as much, you know, doing that through through Roth conversions.
Scott:
That is a wild way to think about it. I’ve never actually internalized what you just said there in terms of the power of Roth conversions in contributing to that, but that that, you know, especially if that 0% tax bracket, but that’s an awesome way to frame it. Yeah, I love it. I I I think that makes a lot of sense and I think that, you know, I I would almost argue that it it seems to me at this point, not not, you know, still still kind of amateur in really understanding optimization for decumulation, but it seems like best practice for me would be optimizing up to that 12% tax bracket on Roth conversions. That would be my my heavy bias going into a decumulation phase.
Steven:
And at the same time, we balance out the amount we convert with also getting some uh, Affordable Care Act subsidies as well.
Scott:
Yep, that was the next piece I was going to ask about, yep.
Steven:
And so what I always put into my tax strategy each year is, what’s the maximum income limit that we have to maintain in order to keep our uh subsidies? So, for example, we’re a family of four, and so the poverty level for a family of four, you know, for last year was $31,400. So you multiply that by four, if I do my public math right, that’s uh, $124. And the other thing that we’re doing is also I fully utilize all qualified tax credits that we have. So we have two kids, so we get child tax credits right now and eventually those two will move into just dependent credits. However, now when they get into college, they also qualify for the AOC, which is the American Opportunity Credit. And that credit is basically $2,500 per year per child. And you can do it over there four years of college. That was our strategy last year was again, pulling money out of our brokerage. We got money coming in from our business, and we also doing Roth conversions just to stay within that 12% tax bracket and still get subsidies as well. That’s been our decumulation process. However, it’s going to change down the road.
Scott:
Yeah. What’s going to change to?
Steven:
You mind if I share something on my screen?
Scott:
Please do.
Steven:
So this is kind of what I call our retirement plan on a page. So originally when we first, you know, these are what we call our our four buckets. So for your audience to understand, what I have showing is just an illustration of four buckets and they’re labeled our tax free, tax deferred, college funds, and taxable. What we do is we have a timeline showing from the time that I retired, and there’s different phases on this timeline at for the different ages of how the money is being uh withdrawn from each of these buckets. So again, in our taxable brokerage account, you know, when I first retired, we had at least 12 to 15 years of runway, which was great. That’s good, you know, so we felt, hey, we we really felt comfortable. So we was pulling some of that down to live off of, and we’re also in the phase of withdrawing money from our college funds from the 529s to fund at least my son who’s a freshman in in college right now. And this is going to be a period between the ages of 48 and 54. I’m at age 48 right now.
Steven:
Now, where things are going to change is, well is this. So originally, my plan was just to withdraw all our money from our taxable account and then still continue to do Roth conversions that we’re doing every year to take advantage of the standard deduction and then pull out on our tax deferred and tax free buckets at age 59 and a half. However, at age 50, a couple of years, my wife and I just realized, both our children will be in college for most of the year at that time. So we decided, let’s scale back on our businesses then. Let’s go do more traveling. And since we’re going to do more traveling and and we have less income from our business, we now have more income room available within our tax bracket.
Steven:
And at the same time I said, “Hey, this tax deferred bucket is just growing astronomically.” You know, it’s at right now our current portfolio value, you know, we’re sitting in January of 2026, all of this is at $4.5 million. And what’s in this bucket is 60% of that.
Mindy:
Nice. So you have been withdrawing from your accounts and you’re still up a million dollars over when you retired.
Steven:
Yep, a million dollars more. And so what we’re going to do is we’re going to put in a 72(t) two years from now and just let it just start trickling out. Just, you know, a little bit of cash. And when I say a little, you know, and and for basically, if say if we’re reducing our business income about 20 grand, let’s just start 20 grand of a 72(t) every year. We may need that money, we may not need that money, but let’s just start trickling it out and to fill up our bracket some more, fill up our tax bracket because we, you know, we don’t want to leave any money, you know, wasted within that 12%. And at the same time, we know now the tax that we have in place are at the lowest they’re going to be. They’re subject to change down the road. I don’t know when. I don’t have a crystal ball, but hey, let’s get a little something of it out right now at age 50 versus waiting until 59 and a half.
Mindy:
I love that, and I love that you are thinking about this. I have a question about your Roth conversions. Do you wait till closer to the end of the year just to see where all of your income shakes out before you do your Roth conversions or are you doing them throughout the course of the year?
Steven:
No, ma’am. I do them at the beginning of the year because if we have a great year, I’d rather that money that’s been converted grow in a tax-free space than in a tax-deferred space.
Mindy:
Ah. Okay.
Steven:
Every month, I check my taxes on how we’re doing each month, kind of give a little estimate. And over each month, I get it more refined and refined as I know what other income sources that we have coming in from dividends, interest, self-employment income as well. And then I’m able to shift around, maybe take some losses on some equities that, you know, are depressed to maybe offset some income to help me stay within that tax bracket.
Scott:
It makes perfect sense why you’re setting up a a 72(t) the way you explained it. But if I were to be a devil’s advocate and say, “Hey, one of the biggest risks I see for someone in your situation is the tax brackets going up over the next couple of years. And in your case, I would imagine you are a a potential candidate for one of those RMD tax bombs down the road. If that’s the case, would you consider changing your withdrawal strategy to be much more, to maybe bumping up to that 22% tax bracket or doing much larger Roth conversions at the end of the year to preempt that problem?” Like, how like do does that worry you at all or do you think about that at all in your situation because of your large tax deferred balance here that’s that’s growing so much?
Steven:
Not at all. I mean, uh, one, if we convert to the 22%, that actually is going to push us out of uh, being eligible for subsidies as well. So so I don’t want to do that. And, and our plan would be when I turn 65, when I’m on Medicare, then we’ll bump up to the 22%. And the other side is, with RMDs, Scott and Mindy, I’ve run the numbers. I looked at it, and I know people make it such a fearful thing like, “Man, you know, you’re going to have, you know, going to be so much, got to get it out. Got to get it out.” Well, here’s where I look at success. If I get to age 75 and I still have maybe two to three million dollars in my tax deferred bucket, the RMD at 75 is like a little over 4%, it’s like maybe 4.06% that’s the life expectancy that you got to pull out. So let’s just call it two and a half million dollars. So two and a half million dollars, so what I have to pull out is a little over $100,000 at that point. I’m actually going to be using that money. I would expect my expenses or so would be high there so. Now, I’ve done some modeling of my RMDs. The financial software said, “Hey, you’re based on this plan, this even modified strategy I’m doing, your RMD is going to be 800, you know, thousand dollars.” Guess what? That’s based on, hey, uh, getting the same rate of return every year for, you know, getting like at least an over 9% rate of return. You know and I know in in reality, your rate of return can go up. We can have 10%, I can have minus 20 or so. But let’s just say it’s half right. Instead of being $800,000 RMD at age 75, I may be $400,000. You know what? It’s just going to be Christmas that year for my family and everybody else. Just dishin’ on out.
Scott:
Your line of thinking here, I think, opened up another question for me. You know, frankly, my question’s premise was wrong entirely, not just because of the the great rationale you just shared, but because of the ACA. That that is actually much more dominant of a concern at this point here because that that going over that cliff is a huge game changer. I mean, it it’s going to cost, it’s going to be probably a matter of $20,000 or so in terms of health care costs for you given the expired enhanced premium tax credits. So the game for 2026 has got to be to stay under that federal poverty line cliff at 400% of the federal poverty line, which I think is 83,720 bucks. Does that change your withdrawal strategy in terms of the timing of your Roth conversions? Are you going to do those at the end of the year to be sure that you can get there, even though your bias typically is to do those conversions at the beginning of the year and have them grow tax, tax deferred or tax free?
Steven:
Not at all, Scott. I’m still going to continue to do it for 2026. And and and because here’s, here’s our limit right now for a family of four for our ACA uh, income, for for I guess what your MAGI, it’s uh, $128,600. And I’m just converting up to the standard deduction of 32,000. So I have probably, you know, what, so what’s that, probably what, $96,000 or something of income or so that I have to, you know, use or that’s my limit that I can use. I got all these different buckets right here of cocktails of mixing different incomes that I can have to to to whip it up for for that income so.
Scott:
I suppose if if in the unlikely event that you had extra income or an opportunity to generate extra income, you could just contribute it to your tax deferred account as well, right? So I mean, there’s there’s that as well to to keep keep that low.
Steven:
Right. And and and the other thing I have is within our taxable brokerage account, I know we didn’t go there, but when I first started our, you know, our early retirement, I had five years. I used to live off of strictly cash my first two years because of the down market of 2022 and all. And since then, we still got almost three years of cash still sitting in there. You know, it’s still getting good interest rates of 4% or more, but I can just use that without selling any equities or so to keep that income low.
Steven:
The real thing though, Scott and Mindy to bring upon ACA uh subsidies is this is kind of like the next step in our plan that we’re going that that we’re going to change. So at age 55, that is the year that hopefully if my kids, there should be both out of college, successful, and off our payroll. So now we drop down to a household of two, and all of a sudden our ACA income limit is compressed significantly. I think right now if, you know, if we were just a family of two, our income limit would be basically $84,000 versus $128,000. So that’s a $44,000 difference of income that I have to stay below. So what I’m going to do is, hey, at age 55, I’ve already had 10 plus years of Roth conversions that I’ve been doing and, you know, a ladder already started. Let me just now put a little spigot on this bucket and start just trickling that just a little bit to help me.
Scott:
All right, we’re going to take a short early retirement and come right back to work after this.
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Scott:
My most important question here before we get out of here. What do you do with your day? Today is Thursday. If you weren’t recording this podcast with us, what was what did your day look like from wake up till till bedtime?
Steven:
Man, let me tell you what, I wake up, I go have coffee and watch the news with my wife until 9:00. And then uh, we would go into our respective gyms. I’ll go hit the weights, play some basketball, come home, have lunch with her, watch the market, look at some things uh on those fresh articles, and then wait for my daughter to come home from high school and hear, find out what how her day go.
Scott:
Living the dream.
Steven:
Man, I’m. I I am. I mean, I’m going to tell you right now, this early retirement thing, you know, again, I’ve been doing it for four years and, you know, now my fifth year, there’s a lot of wins that I got from this. A lot.
Scott:
It’s just awesome to hear that power. That kind of thing being just like a an exclamation point on what sounds like a wonderful day-to-day life, but that’s real meaning and value that you’ve you’ve gotten out of this early retirement for your family and your son. Thank you.
Steven:
Yeah, thank you.
Mindy:
That’s what it’s all about.
Steven:
There’s no money, there’s no bonuses, nothing that can ever take the place of just getting that love and admiration from your children.
Mindy:
Well, thanks for making me cry.
Steven:
Uh oh, I’m sorry. Uh oh. Scott, are you okay?
Scott:
I hope to get there one day, you know, when my, when my three-year-old graduates from from high school.
Steven:
Let me tell you something, you’re doing it right. Uh, congratulations on this new adventure you you’re on, you know, stepping down as CEO and stepping into your version of retirement. Uh number one, you’ve done a good job as well of your company, but I think you’re going to like this new transition as well just to spend quality time with your two kids. You know, your daughters are going to really, really appreciate that. And Mindy, I know your daughters have really appreciated the time and effort that you and Carl spent with them as well.
Mindy:
Yeah, thank you. My oldest one is in college. She’s a freshman too, and uh, she goes back on Monday. She goes back to college. I’m like, oh, I’ve kind of gotten used to having you home again.
Steven:
Yeah, yeah, I my son, he just knocked on my door. He wanted to come in and see me and I’m like, not right now, not right now.
Mindy:
This is a great, a great place to wrap up here and especially now that your son, your son’s back here. And and so thank you so much for joining us here on BiggerPockets Money, sharing such great detail about your journey, the emotions, the mental, the physical, and the financial uh across that and and and and the wonderful outcome that you’ve achieved here in a day-to-day life and and with your family. So congratulations on everything. I hope you enjoy many, many more years of your early retirement and uh uh get to travel the world coming up with the bittersweet departure of your daughter to college in a 18 months here.
Steven:
Yes, sir. Right. Thank you so much Mindy, Scott. Really enjoyed it. Take care.
Mindy:
Steven, thank you so much for your time today. This was a great story and we’ll talk to you soon. That was Steven with his amazing story of how he got to FI and then his decumulation plan, and I love that there is so much thought into his decumulation plan. I love that he’s thinking ahead with regards to his 72(t) and the fact that his children will be out of the house and no longer dependent children and thinking about his Roth conversions now so that he’ll have a bigger Roth bucket to pull from down the road. Scott, I know you’re a big fan of this episode. What did you think of Steven’s story?
Scott:
I loved it. I think I think Steven has achieved what folks who listen to BiggerPockets Money and are interested in financial independence want to achieve, right? This is a guy who who worked hard, built a career step by step, scaled his income. And you know, I hear the retirement police saying, “Oh, you’re in this huge income.” Yeah, like after 15 or 20 years in a career as an engineer, you’re going to probably scale your income into that $150 to $200,000 range. It’s not going to be an outlier outcome for that kind of consistency across a career to field like engineering. And many people who listen to to a show like BiggerPockets Money will be able to achieve that over the course of the 20, not everyone, but many people, many people listening to this will be able to achieve a an income trajectory where their end state income is is that high for a few years.
Scott:
And then I think that the life that he lives now is exactly what I think a lot of people really want. That’s the American dream, I believe, is to be able to do what you want with your day. Maybe earn a little extra income here and there doing something you’re interested in, and spend time with your kids before they graduate and move on, you know, to college or or the real world. And so what what a wonderful story, what a wonderful example of the power of financial independence and the achievability of financial independence. I can’t speak highly enough of Steven and the outcome that he’s achieved for himself and his family. It’s just one of my favorite interviews we’ve ever done here at BiggerPockets Money, Mindy.
Mindy:
Scott, Steven was inspired to reach out to you based on our recent episodes with the different decumulation strategies, and he said to himself, “You know what? I’ve got a slightly different one on that. I’m going to reach out to Scott. I’m going to share my decumulation strategy with you.” I think having that visual bucket was so interesting, and I can’t wait to share that with our newsletter audience in a blog post uh when this episode comes out.
Scott:
It’s really always a privilege when people reach out to us here at BiggerPockets Money, Scott@BiggerPocketsMoney.com and Mindy@BiggerPocketsMoney.com. Um it’s wonderful to hear from folks. We try to respond to every single one of them, and Steven reached out to us and and it was that that’s how we get we’d be able to put this show together. So please, if you’re ever thinking about, you know, reaching out or asking a question or or just want to say hello, we love to do that. That’s why we do this podcast. So please, please feel free to reach out anytime. We do typically, I mean, I don’t know if I hit every single response, but I try to hit every single response that comes in over time. I may have missed one or two, you know, a handful over the years. But but we we respond to them and we love hearing from you guys. Um if you have a criticism or complaint, we have a no email form for that as well at IDon’tCare@TellSomebodyElse.com. Um I believe that’s Mindy’s uh doing there putting that that one up there. But for everybody else, feel free to email us at Scott@BiggerPocketsMoney.com and Mindy@BiggerPocketsMoney.com.
Mindy:
And this is not the only place you can find more financial independence information from Scott and I. We have a Instagram account, Facebook group, we’re on YouTube at BiggerPockets Money. You can head over to BiggerPocketsMoney.com, our new website, for free resources, calculators, and templates to accelerate your FI journey. And don’t miss our weekly newsletter. It is packed with actionable tips delivered straight to your inbox every single week. You can sign up on our website, which again, BiggerPocketsMoney.com. All right, Scott, should we get out of here?
Scott:
Let’s do it.
Mindy:
That wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, until we see you again, penguin.
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