Having sold both of our former homes, one that had served as a nice cash-flow vehicle but resulted in no capital gains, and the other a completely renovated flip project with a lot of capital gains (but no taxes since it served as our primary residence), it was time to reassess our financial position and how we planned to continue pushing toward retirement and freedom. Our cash flow position was as good as we could get it: primary residence paid in full with no mortgage, no credit card or loan debt remaining, two incomes, and minimized spending. Our largest expense at this point was food, about $800 per month, and unless we were willing to start our own farm, cut out more meat than our typical 3 vegetarian days a week, and/or skip out on buying organic, free range, grass-fed, blah blah blah; we were as good as we were going to be. As it was, we could invest over half of our income!

As for an investment plan going forward, we now had a sour taste in our mouth from our rental experience. Admittedly, this was partly on my shoulders after ignoring the property for so long. Regardless, years of collecting a few hundred dollars a month profit seemed to be outweighed by barely escaping with little to no capital loss on the property and the associated headaches. It seemed that dropping money in the stock market with it’s 8%-ish annual payback was just as lucrative and without the headaches. We had also changed our priority from wanting to truly get rich with multiple cash flow properties to only wanting the freedom that came from retirement and a simpler life.

Something I had learned over the past couple of years was that I truly enjoyed the renovation process. There was something very rewarding about reviving properties and bringing them back to life. Rather than consider rental properties, going forward, if we looked for real estate, it would be to flip. Cash in, cash out, and no tenants! But while we were looking for potential flip projects, I didn’t want to be in a holding pattern; how could I continue moving toward retirement?

If you’ve read my other blog entries, I probably sound like a broken record: Mr. Money Mustache, Warren Buffet, and JL Collins had already shown me the path… total stock market index fund investing. I wasn’t going to get stuck in that holding pattern again, waiting for a great real estate deal to come along. It was time, with no bills and a healthy income, to invest all I could in total stock market funds. While we already had a nice sum in Vanguard’s VTSAX, Admiral Shares of their total market fund, an exchange traded fund (ETF) that also followed the total market was available at a lower expense, VTI (0.03% vs. 0.04%). We set up our after tax brokerage account with Vanguard and sent them our entire checking account minus $1000 and purchased a bunch of VTI.

Turning attention to pre-tax investing and my 401k… Rewinding for a moment to the early 2000s, my previous employer had started a 401k plan for me with 3% of my income being invested into the plan. I largely ignored this until a few years after changing jobs when that former employer contacted me, requesting to move the funds out of their plan. I transferred that money to Principal, where my now current employer’s 401k was, and where I had also been investing a measly 3%. The combined balance looked alright, but was still only about a year’s salary. Around 2009, my current employer hosted a couple of webinars to educate employees on the benefits of a 401k and their matching plan, so I increased my contribution to 6% of my salary so I could receive the full employer match of 4.5%. A few years later in 2015 following a Mr Spendypants relapse (https://fthattreadmill.com/2021/06/03/oops-i-did-it-again/), I finally started getting serious, and increased my contribution to 10% of my salary. Fast forward back to 2018 and it was now time to really push it into overdrive…

I looked at my account with Principal, and moved all my retirement funds into their Fidelity 500 Index Fund that followed the S&P 500 with only a 0.02% expense ratio (this is similar to a total market fund index, but focuses on the 500 largest companies). While most people would consider my 10% contribution to be very aggressive, the US tax laws in 2018 allowed up to $18,500 annually, which was more than my 10% savings rate. I calculated how much more I had to invest to reach that max threshold by the end of 2018, divided it by the number of pay periods left, and increased my contribution to max it out! By the end of 2018, I had hit the $18,500. In 2019, the government raised the maximum contribution to $19,000, so I recalculated my contribution so that over the coming year, I would again max out my 401k contribution.

Throughout 2019, we looked at a few investment properties as potential flip projects. We called on a few of those, but any that we called on already had higher offers than we were willing to bid. All good! In retrospect, I’m not sure I really wanted another project. As much as I had enjoyed the renovation projects of 2017/2018, it was nice to have a reasonable schedule and our lives back! How nice it was to spend Saturday nights hanging out with friends rather than installing cabinets until 11 PM. We continued living our frugal lifestyle and saving money, and any time our checking account hit $10k, we’d move a chunk over to our Vanguard brokerage account to buy more VTI. At this point, we were saving and investing about half of my income plus all of my wife’s income.

At this point we had money spread out across my 401k, my wife’s rollover IRA from a former employer, our after-tax brokerage account with Vanguard, a checking account, and my company stock. I felt like we were doing well to set ourselves up for life after an early retirement since we had money both in IRAs, which we couldn’t touch until 59 ½ years old without penalty, and also had some after tax savings between the brokerage account and company stock. Turns out, we were missing another option.

It was around this time that I learned I was able to invest funds from my health savings account (HSA) into stocks assuming I met a minimum threshold ($3000 if memory serves correctly). Money in an HSA can only be used for medical expenses before 65 years of age, but you can put money there tax-free and let it grow! Like funds withdrawn from a 401k, you are responsible for income tax if you withdraw for non-medical after 65, but this is as good as another 401k, providing a tax free nest egg for medical expenses!

Over the past couple of years, I had only used my HSA to hold about $2000 to pay for medical bills with tax free money, but with this able to be a tax-free investment vehicle, it was time to crank that up too! My maximum annual contribution was $7000, so I reset my contribution from my paycheck so we could max that out in 2019.

By the end of 2019, it was time to reassess our savings and where we were on our financial journey to retirement. First, the big question… how much is enough? A question for the ages, but one that has been answered time and time again, at least for those heavily invested in the total stock market. I’ve written about this before and it’s been covered by many financial bloggers, but put it succinctly, it’s called the 4% rule. The rule says that whatever your financial needs are per year, that should equal 4% of your total investments. To calculate, multiply annual expenses by 25, and there’s your target number to retire (https://fthattreadmill.com/2021/07/08/why-cant-i-be-rich-part-3/). Our annual budget showed we only needed about $25,000 per year, so that meant we should have at least $625,000 to retire. Shit! Not yet, but getting close!

Digging out my crystal ball, I needed to see how quickly I could get there. For 2020, the maximum 401k investment bumped up again, this time to $19,500, but this year was special because later in the year I would turn 50 and could add another $6,500 as a “catch-up contribution”! Since we were so close to our retirement number and the market had been climbing quickly, I decided to front-load my 401k. In other words, put in the $26,000 as early and quickly as possible. Given the savings rate I was allowed in my plan, I would get there around late-April. I also kept the higher savings rate on my HSA to maximize tax-deferred money.

The other bit of uncertain retirement capital available was my company stock. Following the most recent revaluation in 2019 (an annual occurrence), it was now worth almost triple my initial purchase price, and after posting another great year in the books, we all were looking forward to the 2020 valuation coming up in April. A few of us guessed it could go up another 20%, which if it did, would put me right on the cusp of my retirement number! If the stars aligned just right, I may be able to retire at 49, right after I finished loading my 401k and HSA and IF the company stock price jumped again as expected.

As the first couple of months ticked by, it felt like an eternity. I started planning all the great things I would have time to do; learning new things, writing a blog, playing guitar and writing music, home projects… But as I was anxiously awaiting word of our new stock price, another curve ball hit us all in March 2020. Yes, the dreaded novel coronavirus was here. Stock markets tumbled. Everyone went home. We were scared to go to a store and buy groceries. Schools were closing. Of course, when word finally arrived of the new stock price, it had significantly dropped rather than seeing the increase hoped for. Frankly, it didn’t matter since my other stock investments including the 401k had dropped almost 25%! I was way off my retirement number now. But, there was a silver lining.

For starters, I still had a job and a solid income. As a consultant, I was working from my home office 2-3 days a week already, so another couple of days per week at home was no big deal. In fact, I enjoyed it and felt like it was a bit of an introduction to retirement. No more shitty commute plus I got a couple more hours of sleep each week! Besides these benefits, even though the market had crashed quite a bit, I was only half way through front loading my 401k for 2020. We all know the phrase, buy low and sell high. I was now buying into the market at a price we hadn’t seen in almost three years, save for a brief dip in late 2018.

Despite being locked into a job for longer than I wanted to be, I had much to be thankful for.

And I was.