No, I didn’t Win the Lottery, But…
by Steve*
When it comes to reaching major and minor life goals and all of its forms, achieving milestones is a must strategy to keep your motivation fresh and energic. But what if you discovered a milestone that you never expected, such as winning the lottery, getting that hot job or being accepted at the college of your first choice?
I had one such wonderful experience that I want to share. I hope you enjoy it so much so that it will encourage you to list your milestones, and go for it.
Last year, 2017, for the first time, I reached a six-figure annual income twice over. Yeah! $200,000+! I never came close to earning $100,000 from a salary during my entire working years. This huge income increase was NOT from working and I had never planned on earning a high income.
How did this happen?
I achieved this milestone as a result of a comfortable nest egg that Dan, my late hubby, and I grew slowly and steadily for 35 years. The total accumulation of my wealth produced 3/4 of the $200,000 income last year. Long before 2017, my wealth originated from:
- a lifelong habit of living below my means,
- staying married to a wonderful man for 40 years, and
- both of us constantly saving from our meager public educator’s salaries.
Last year’s booming stock and bond market investments did the rest of the heavy lifting. Isn’t this how investments are supposed to work and to keep a keen eye on expenses? I kept my ER embarrassingly minuscule.
My (30/70) BORING portfolio returned 9.0% in 2017 (Click here for my 2017 report). No surprise as it is an all Boglehead portfolio in which I only paid .07% in fees, a mere $1,100.00 (more about the devastating effect of fees at the end of this blog post). So as a result, my portfolio’s growth and my:
- teacher’s pension,
- Social Security, and a
- Veteran’s Administration’s service-connected compensation benefit (from wounds suffered in Vietnam in 1968) took me over $200,000.
BTW, I do NOT have a lucrative pension. It is only 49% of my teacher’s salary, my VA compensation is $417.15 per month, and my SS is only $418 per month because of the Windfall Elimination Provision (Starting in 2020, I pay $319.00 a month for Medicare my take-home SS benefit is $119.50).
Income and Capital Gains Taxes!
Taxes affect everybody except the unfortunates who are chronically stuck at minimum wage and hamburger flipping type jobs with no opportunity for gainful employment. In my lifetime, my income taxes were never a concern because of my low tax rate. Interestingly, being a middle-income earner has one advantage, we don’t have to look long for tax reduction rules–our lower tax bracket incomes and taking advantage of tax-deferred retirement plans did the trick.
Required Minimum Distributions (RMD)
This day has finally arrived that I must take money out of my IRAs. I have been putting it off and putting it off because to do so is a taxable event. Now I find myself in a double whammy. I’m considered a high-income earner and as a 70-year-old starting my RMD this year, taxes may become an issue. I know why those wonderful high earners talk so much about taxes! (And I thank the high earners for paying the majority of taxes to keep the government functioning). However, income taxes from working will be higher than income taxes from RMD distributions. My minimum RMD will be about $35,000 added on to my pension and Social Security. My VA compensation is tax-free. The hit may not be as significant to my tax bill as I originally thought.
The usual tax savings for retired is to donate to worthy causes, invest in tax-efficient index funds, have a Roth IRA, don’t trade frequently, created a side business so we can itemize. I also invested in solar energy and purchase solar panels, two electric cars and took advantage of those energy-efficient tax breaks in recent years.
I am not worried about income taxes as it is another skill I will discover just as I learned to invest as a 55-year-old. I am always learning something new, so I will now learn about saving on my income taxes in my 70s. I am not a “late bloomer” for nothing!
I am confident that I will easily pay income taxes owed even at this high income. For one thing, the stock market isn’t going to boom every year, thus, my income will not be over $200,000 every year either.
Keep Investment Costs Low is ALWAYS an Advantage, a HUGE ADVANTAGE to anybody without an expensive financial adviser
Paying extremely low investment costs will also help me have plenty of money to pay Uncle Sam. I calculated that in the last 15 years, I had saved about $215,000 just in portfolio costs alone by being a DIYer (I calculated an annual hypothetical 1.35% ER and comparing it to what I actually paid in all those years! Yikes!). My savings alone paid for a new Tesla, new Nissan Leaf, solar panels and a kitchen remodel.
As Jack Bogle, founder of Vanguard, said over and over, costs matter, even if you don’t earn a high income. Your competent and ethical fiduciary fee-only financial adviser can be costly, the 1.0% AUM is a killer when compounded over many years, IMHO. Use a financial adviser for a couple of years just to learn from them, and then become a DIYer.
Now go save yourself some money, and you too can become a high earner IN RETIREMENT!
Steve’s Bio
*Stephen A. Schullo, Ph.D. (UCLA ’96) taught elementary students in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers. Because of his negative experience with annuity agents, unions, and his school district benefits personnel over the most horrific tax-deferred plan in history, the 403(b), Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) newspaper for 13 years.
So he became a 403(b) activist and talked to anybody who listened about reforming this terrible plan. He simply wanted to inform his colleagues that districts and the insurance industry are looking out for their best interests, and not the teachers. The media began listening for the first time in the entire history of the 403(b) plan commonly known as the TSA in 1998. From 1961 to 1998, nobody in or out of education ever talked about this terrible 403(b) specifically with k-12 school districts. I kid you not!
Consequently, he was thrice featured retirement plan advocate for reformed 403(b) plans for public k-12 colleagues that were in the Los Angeles Times and U.S. News and World Report. He co-founded an investor self-help group (403bAware with a colleague, Sandy Keaton) for teacher colleagues. He also wrote 7,000 helpful posts in three online investment forums since 1997. Frequently quoted by the media, testified at California State legislative hearings and honored with the “Unsung Hero” award by United Teachers Los Angeles (UTLA) for his retirement planning advocacy.
For the last eleven years, he continues to serve on LAUSD’s Retirement Investment Advisory Committee (RIAC) as a “Member-at-Large” and former co-chair. The committee monitors the district’s 457b/403b of 55,000 former and current LAUSD employees, worth $2.5 billion in total assets. Lastly, Steve and his late husband, Dan, were featured participants for the award-winning documentary, PBS Frontline: The Retirement Gamble, aired April 23, 2013.
Steve is the author of two books, “Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN!“, a story of how a handful of LAUSD educators struggled for years to improve the 403(b) to no avail. But we never quit! We were instrumental in LAUSD’s implementation of the new 457(b) plan and earned a very rare “Plan Design” award.
Steve is the co-author with his late husband Dan of a book on learning the investment process from the ground up, Late Bloomer Millionaires. It’s a heartfelt story about two ordinary chaps and how they discovered investing and money management without a professional financial adviser. They list all of their successes and massive mistakes and they still retired earlier than most Americans.
For a copy of both books, email Steve at steve.schullo@latebloomerwealth.com and he will happily email you both books, FREE with no obligation except to read them and get informed, in a pdf file format.