How to Have FUN on Your Journey Toward Early Retirement

by NEW YORK DIGITAL NEWS


The FIRE community is notorious for chasing early retirement at all costs. Many search for creative ways to earn more money and spend less of it, only to end up hating the journey. If you’ve ever felt burnt out or discouraged on the road to FIRE, you’re in for a real treat with today’s episode!

Welcome back to the BiggerPockets Money podcast! Today, we’re joined by Mark Trautman from Mark’s Money Mind. Early on, Mark decided that he was going to live life on his own terms. So, he and his wife worked their way out of debt and adopted the motto, “Make some, save and invest, and live on the rest.” After maximizing their 401(k) contributions, investing their money in other retirement accounts, and diligently saving each month, Mark and his wife were able to retire by the time he reached age fifty.

We wish Mark’s story ended there. A few years later, however, his life was turned upside down after the death of his wife. While grieving the loss, Mark needed to adjust how he used his nest egg going forward. By implementing smart Roth conversion strategies and opening a “fun bucket” account, Mark was able to not only minimize his tax liability but also find new ways to enjoy retirement. Stick around for a true masterclass on how to relish the journey to FIRE!

Mindy:
Welcome to the BiggerPockets Money podcast, where we interview Mark Trautman from Mark’s Money Mind and hear about his money story and how he found balance on the journey to fire. Hello, hello, hello, my name is Mindy Jensen and with me as always is my fair and balanced co-host, Scott Trench.

Scott:
Great to be with you and always on another Level recording podcast with you, Mindy.

Mindy:
Sometimes these are really spot on and sometimes these are super spot on, Scott, I love it. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want retire early and travel the world, going to make big time investments in assets like real estate, start your own business or follow a commonsensical path that will get you to FI and support the good life on the way. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, Scott, Scott, we have a new segment on the show called The Money Moment that helps you on your journey to financial independence with a money hack tip or trick. Today’s money moment is do you need a new major appliance but you want to save some bucks? Stores like Lowe’s and Home Depot have a scratch and dent section where you can get your brand new appliances at a discount. Why? Because it has a minor scratch on it. Maybe it’s got a minor scratch on the side, but if you pick right, nobody will ever know because who sees the sides of the appliance. Do you have a money tip for us? Email [email protected].
All right, Scott, today we’re talking to my friend Mark Trautman. I met him at CampFI a hundred years ago and he is a wealth of information about all sorts of things regarding financial independence and money in general, investments in general. He is a delight to talk to and I’m so excited to bring this show to our listeners.

Scott:
Well we learned a lot from Mark today. He’s absolutely brilliant and very sophisticated, very technically sharp with money. Had some setbacks and I think some really good and some personal loss and I think had some really good perspective on both the journey to FI and what to do with FI once you’ve gotten there.

Mindy:
Yep. I think this show is the kind of show that you should make plans to listen to once on your drive in and then listen to it again when you can take notes, because there’s a lot of things that Mark shares that you’re going to want to write down. Mark Chapman runs the website, Mark’s Money Mind, where he writes and educates about, well, money. Today he’s on the show to talk about his journey to financial independence and finding balance along the way. Mark, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today.

Mark:
It’s great. I’m glad you invited me and I’m looking forward to it.

Mindy:
Mark, let’s start off with your money story. Where does your journey with money begin?

Mark:
Well, it’s a long one because I’m 57, so there’s quite a big timeframe in there, but basically my wife and I stumbled upon the idea of financial independence before it was a thing. So this was back in the mid 80s. And we did a lot of the wrong things initially. We had credit card debt, we had paid for our wedding with credit cards. I was leasing a car. There were a whole bunch of errors that we were making. And then eventually I read a book, The Wealthy Barber and The Millionaire Next Door, and those two books were very influential in our shifting to a money mindset that made more sense for us. So we got out of credit card debt, we started saving, I think the Wealthy Barber talks about saving 10% of everything you make. We decided to make that 20%.
So that was one of our big benefits right there out of the gate after we paid off our credit cards. And then also when I got a job, I started working on Wall Street in 1987 during the stock market crash. As a matter of fact I was sitting on the margin desk when that happened, so that was an enlightening event. But about three years later I was, so I moved from company to company, but three years later I was hired by a chief financial officer to come in and help work on a mutual fund as a security analyst. And he said, look, I’m giving you a big raise to come over here and I highly recommend you max out your 401(k) and you’ll benefit from this later in life. And he’s also suggested investing 100% in equities, which I did.
And then I went home and I said, Marge, do you, and that’s my wife’s name, Marge, do you have one of these 401(k) things? They sound interesting. And she’s like, yeah, I think we have one of those. And I said, well, you need to max that out too. So basically when I got my new job, I did not suffer a reduction in pay because of the boost. So it was a way to max out the 401(k) without really taking a hit from a net paycheck standpoint. And that decision alone made us both 401(k) millionaires when we both retired. So that was probably one of the biggest influential events of my life. And then there was another funny one. We were big skiers. We would go to Vermont and ski every weekend and we were reading this magazine. Our vision was we could retire in Vermont and just buy a little house and ski every day, and how do we do that?
We came across a ski magazine and somebody actually found this article, because I referenced it in a blog post and somebody actually dug up the article. And it’s called Bums Rush. It was in Ski magazine in March 1989. It was this couple living out of their car and they had this motto, earn little, spend less, invest the rest. And the light bulb just went on and we’re like, whoa, that’s it. That’s all you really need to do, except for we’re not too keen on this little part. So we said, well, let’s switch this around to make some, save and invest. So put savings first and live on the rest. And then we basically just live by that motto going forward. We were never Uber savers. We saved in the neighborhood of say 30% was I guess our average over our lifetime, so we weren’t like 50%, 70% savers.
We did have pretty high incomes, not crazy high, but pretty comfortable incomes. So it was basically just do that. Fast-forward 20 plus years and there we were, financial independence, and then actually found the financial independence community after I retired and said, hey, there are other weird people like us out there.

Scott:
Can you give us an idea of the relative scale of your incomes and your savings during this two decade period to financial independence?

Mark:
This was back in the 80s. I think we both started off, I think my first job was like 25,000, but when I made that move, I got a raise from, I think I was up to 36 at that point, but my move went to 50. So that was that $14,000 increase was what that manager said, hey, look, bank that. At the time the max was 12,500. Ultimately I grew into an income of the low 100s over time. I was a portfolio manager of a mutual fund, but not the kind that you hear about on TV that are making millions of dollars. I would say my base salary was somewhere in between 125 and 150 for most of my career. And I would occasionally get some small bonuses along the way. My wife was in and out of works, so she worked very diligently before our daughter was born and shortly after our daughter was born making high, close to $100,000.
But then stopped working and actually we ended up doing a live-in flip, which we didn’t even know that was a thing, but that’s what we were doing. And she quit her job and became the GC for that project. So she was not making that her entire life. And then once we moved to Colorado in 2008, she got a job here locally just making, I think it was like 25 or 30,000 initially and eventually grew into the 40s, but nothing significant.

Mindy:
How did you discover this without all of these blogs to tell you what to do, Mark? I doubt your story because I’m the live and flip queen and you didn’t do a live and flip before I did.

Mark:
Yeah, I did, because I’m older.

Mindy:
You’re only just older than me. You didn’t become FI without reading Mr. Money Mustache. Come on, Mark.

Mark:
I actually house hacked too, which is funny looking back, we did a whole-

Mindy:
You can’t house hack if you didn’t read Brandon Turner’s article.

Mark:
I know. So what happened was as we were trying to get our credit card debt under control and so forth, we were renting an apartment that was a really crappy place, but we had fixed it up and it was pretty nice. But my mother-in-law had a recent divorce and got the house in the divorce, but no stipend or anything like that. So she really needed to sell the house. It was a big house. So we said, well, we could move in with you, pay you some rent, help you get this house ready for sale and then you can cash out and potentially have some resources to live off of, because basically it was social security and the equity in the home was all she really had. So when she sold the house, she was quick to say, oh, I’m just going to buy another house. I’m like, whoa, whoa, whoa, don’t do that. We’re going to buy a house. Why don’t you come live with us? You put the down payment on the house and then when you move out, we’ll pay you back.
So effectively we took the mortgage out on that house, I think it was 279,000 in our house. She put $100,000 down and this was back in the day where you had to roll your gains over, otherwise you had to pay tax on it. So that was the old rule. It wasn’t the 25500 exclusion like it is now. So basically she had a pretty smart accountant that said, well, she is technically going to buy the house and then gift you your ownership share back and use it against her lifetime exclusion. So therefore it goes as a gift to her, but there’s no tax consequence. She had a reported gift tax. So it was basically a house hack where we got a free down payment, we made the mortgage payments, and then when she moved out, we just refinanced it. But that was our attempted house hacking without knowing what it was.

Mindy:
I love everything about this story because you did it on your own. I was of course joking about not really doing any of this because you hadn’t read somebody else telling you what to do. I want to point out that there’s a lot of creativity, legal creativity within the financial space if you just do a little research, dig into the tax laws and look into what is accomplishable if you just think outside the box. And here Mark had nobody telling him all about the live-in flip and he just did it anyway. And he had nobody telling him about house hacking. I actually house hacked too back when it was called having a roommate, and I lived with my brother, and that’s all house hacking, is just a cute name on top of being called having a roommate or owning extra properties.
And you became financially independent before Mr. Money Mustache ever did his blog. And that’s just you being frugal and saving because some guy told you to invest in your 401(k) and you don’t have to follow these specific rules because somebody else said something. If something feels right, if you want to try this road or try that road, that’s how we get all these fun little terms, because somebody tried it and threw a catchy name on it. I love that you’re doing all of this stuff, because that’s just who you are.

Scott:
Could you give us some sense of the summary of the journey here? You started in, you said 1987 on the desk on Wall Street. What year did you retire and what did your portfolio look like at that point in time? Besides the 401(k) and this house move, were there any other consequential moves that you made?

Mark:
From the real estate perspective, all we really did was primary homes. We never owned rental property or anything like that. The second home we did was a foreclosure and it was a live-in flip. That was the one where I said my wife was the GC for two years, and it was this crazy pie in the sky idea that we’re going to buy this 5,000 square foot house because on paper it was super cheap per square foot and we were going to make it into this colossal party house. And it ended up being like six bedrooms, five bathrooms with a pool and three acres. And it was basically two houses attached to each other, colonial and a cape. And we lived in one side and renovated one side and then switched. And at the end we’re like, we were fine with one of those sides, we don’t need both. So we ended up selling that.
But so we did make a few good steps on the real estate side, but it wasn’t through rental real estate. The rest of it has all been just financial assets. So between the 401(k) and then also saving in our brokerage account when it was over and above the limits of the 401(k) contributions and more lately it’s been converting from traditional to Roth and so forth. But basically I retired at the end of 2015 at the age of 50. And the goal was not a number, it was an age. I had an age goal. I said, I want to stop working when I’m age 50, when I look back now based on what I live at. And I say I now because my wife did pass away, but when I look at what I live on now, my financial independence number was probably in my mid 40s somewhere. I just wasn’t really aware of it. I wasn’t calculating it. I was focusing on I want to stop working at 50.
Actually in 2008 when I was, what? 43, I went in and actually quit my job to move to Colorado. And I had said to myself, I wasn’t really thinking financial independence at the time, I was just thinking I didn’t want to live in the New York City area anymore. I wanted to move to Colorado. My daughter was in 3rd grade, this would be the time to do it. I wasn’t really sure what I was going to do, but I knew I’d have enough leeway to make that decision and figure it out. And we always said, well, we can move to Crested Butte and Ski for a year, and if we don’t like it, I don’t think we’ll turn around and say, well, that wasn’t a good idea. I think we will have fun doing it. And actually when I went in and quit, kind of using the JL Collins F-you card, which I didn’t know that’s what it was at the time.
But they said, whoa, wait a minute, can you keep managing the fund for us from out there? And I said, yes, but under these circumstances, I only want to do certain things and I don’t want to do other things. And so I basically kept doing that until 2015. And actually just ended up padding the resources. I’m further along in more comfortable financial independence figure than I was say in my mid 40s. I live probably a nicer lifestyle than I would have if I truly stopped in my mid 40s. And so when I did retire, it was 100% equity. I wasn’t thinking about sequence of return risk, I wasn’t thinking about any of this stuff. I was like, it just looks like a pretty good amount of money. I should be good. Then I started diving into big earn and the 4% rule and all these things and saying, whoa, maybe I should scale it back a little bit.
Now I’m like 80, 20 and I’m comfortable with that. And actually the income from my portfolio exceeds what my annual expenses are. So effectively it’s in essence a perpetual portfolio at this point.

Scott:
Mark, how old are you now?

Mark:
I’ll be 58 in October.

Scott:
Awesome. And what is a day in the life for Mark? We’re recording this on Tuesday, August 1st. What’s a Tuesday in Mark’s life?

Mark:
It was one o’clock when we started and I took my shower at noon after eating a late breakfast and drinking my coffee and reading the Wall Street Journal, which is something I do every day. I just really like to keep tabs on what’s going on, not because I trade or anything, I don’t do any of that. I’m a pure index fund investor, but I do get my news from that source. So that is what I do every morning. But usually the mornings are coffee, Wall Street Journal, listen to a bunch of podcasts, think about, well, what am I going to do for the day and then the afternoon’s up to me. So that’s my life. And then I do a lot of traveling and campfire events and financial independence events. I’m going to Bali with Amy Minkley and her crew this year. So doing a lot of things like that in the community.

Scott:
Mark, you also look like you’re in fantastic shape. What do you do for fitness out here in Colorado?

Mark:
It’s funny, I have a friend, Roger Whitney, who’s the Retirement Answer Man podcast host. I don’t know if you know him, but I’m also part of his rock retirement group. But we have a challenge this year, myself and him, in that we are going to row 2000 meters a day every day for the entire year. So that’s 730,000 meters. I don’t do it religiously every day, but every day I do row, which is most days is 5,000 so that I can stay ahead, especially if I’m traveling. So that’s one of the secrets, is just getting on the rower every day for half an hour. Walking my dog. So having a dog who walks me, which is great. And then living in Crested Butte, Colorado where there’s plenty of hiking and biking and stuff like that, it’s pretty easy to be active.

Scott:
Anything to do in the winter?

Mark:
Oh yeah, avid skier. That’s why I live in ski town.

Scott:
Awesome. So that’s I think a pretty good picture of your life. There’s traveling, great healthy outdoor activities and all that stuff. And then you’re still really engaged in the financial independence community. It just sounds like such a wonderful way to spend a lot of days. So let’s talk about the transition between working. I would love to hear about two transition points as well in the context of that. So we know what life’s like now. What was it like in the year leading up to the move to Colorado and then again in the shift from the negotiated work environment that you created when you moved out to Crested Butte and then the transition to full retirement?

Mark:
It’s interesting, I was working in the money management field. I was the equity portfolio manager. I was the only equity guy in the company and everybody else was in fixed income and they were primarily mortgage backed securities. So this was going back to 2006. And we would’ve these board meetings and I would get up there and do my little thing about here’s the equity fund and this is what I did and so forth. And then they would get up and talk about their fixed income fund. And around that time I was just like, this doesn’t sound great, these mortgage situation and all these types of loans that they had in their portfolio, and they’re talking about CDSs and how they’re AAA even though underneath are not really that great. And I was like, this doesn’t really sound that great.
And here we have this house that we’ve just completed that’s way too big for us. I said, let’s just sell that house. It’s not right for us. And my wife said, well, what do you think we should do? And I was like, well, we can look around and see if there’s another house or we could just rent. So that’s what we did. We sold our house in 2006. We rented. And it’s funny, the person that bought it, he still owns the house, so obviously he’s made it work, but it was a countrywide 9010 piggyback loan. And when you’re in New York and we’re in New York, you actually sit across the table and I’m looking at all the documents and I’m like, this is why we’re selling the house. Because look at this. The person was, I think 25 years old, had just started his own business.
And I’m like, what is he doing buying an 850,000 house? But he still owns it and obviously he’s done well. So good for him. But it was just like, this is the kind of loans that they’re giving out today. And my wife was working in the mortgage industry as well, and they were seeing liar loans and all kinds of crazy stuff. So anyway, so we sold the house, moved into a rental, was like, well, our daughters at that point, first and second grade, and we’re not really sure we want to live here. Taxes are super high. We were living in Warwick, New York where taxes are extremely high. I think our taxes were close to 25,000 a year or something like that. It was just insane. And we were just like, you know what? If we’re going to make a change, let’s do it now.
So basically I just walked in and quit, thinking maybe they would make a deal or something, but we had this discussion, if they may say, pack your bag, see you, leave, give me your computer kind of thing. They didn’t, but that was the shift in mindset and we’ve always lived life on our own terms. And I think that’s one of the benefits, especially after my wife has now passed away, that I’m fortunate that we did, that we lived this life of balance the whole way. So then we moved across to Butte and I did the work that I had to do. I wasn’t working more than I needed to, living almost like a semi-retired lifestyle but still getting paid and then eventually just said, all right, I really don’t need to work anymore. And so I think I’m done.
And there were some situations at work that I was not, personnel situations that I wasn’t as keen on that I just said, I’m think I’m done.

Mindy:
You’ve mentioned the word balance several times, which is a little close to home for me personally. People in the FI community seem to have this all out race to get to FI and they don’t save 10% or 20% of their income, they save 75% of their income. And it seems like it’s this push to get to FI and they don’t really enjoy the journey. I know that that’s true for me and my husband and it’s true for a lot of people. I’ve heard from a lot of people recently saying, I didn’t enjoy the journey and now I have this rather large pile of money and I don’t know what to do with it. How did you find balance on your way to FI?

Mark:
Well, I think the benefit was not knowing about FI. Because I think if I did have all these podcasts and all these people to compare myself to, we probably would’ve been saving at a very extreme rate. We actually raced cars for a period of time. We would not have been doing that because that was not an inexpensive hobby by any means. We would certainly not have been doing that. We also would go, it’s funny, because I read the book Die With Zero, and he talks about this island, St. Barts. Well, that’s where we used to go all the time for vacation. That was literally where our family went on vacation every single year. Now we did it economically off season and so forth, and we found really good deals, but we certainly weren’t skimping on where we were going and we would fly first class and the way we were doing that was using points. So we were doing the whole points thing.
At the time United was flying direct from New York to St. Martin and you could buy an economy seat for $300 round trip and then use points to upgrade to first class. And it was a really good loophole at the time. You can’t really do that as much anymore. But we were living a great life. We look back, my daughter who’s now 23, we look back and we had some really good times and I tell people that my wife passed away two years ago now. She was diagnosed with cancer about four years ago. And had we not done all of those things, we would’ve missed out on a lot of life events that we couldn’t go back in time and replay. And frankly I’d be sitting on just a larger pile of money I think of what is it? Scrooge McDuck from Bug’s Bunny sitting on a huge pile of coins and bills and whatever.
But I’d be the most depressed person I think you would know, because I would’ve missed out on all these things that I can’t go back in time and replace. I suggest to people, hey, it’s great to go for financial independence. You can do it. You don’t have to do it in five years or 10 years. Enjoy the ride, because you can’t replace that ride down the road no matter how much money you have.

Mindy:
Okay, so the enjoy the ride comment is really, really powerful. However, what about people who have a terrible ride? You alluded to personnel issues that you weren’t so keen on and we’ve all worked for that horrible boss where you’re just like, I can’t believe I have to go in and face this person again every single day. So how do you balance I hate my job because of personnel issues with I don’t necessarily want to do this death march defy, to quote Carl?

Mark:
For me it wasn’t, and I want to set the record straight, I did not hate the people I worked with, so I don’t want anyone if they’re listening thinking I hated them.

Mindy:
No, that’s me projecting, I hated the people that I worked with at that one job.

Mark:
There were certainly some things that I was asked to do that I didn’t want to do. For instance, they were like, you should create this new fund because this is the hot new thing of the day. And I was like, no, I’m not going to do that. I don’t agree with that. If you want someone to do that, you need to hire somebody else to do that. And I really just towed the line. And even so I was managing a large cap, blue chip, dividend fund basically is what it was. And I was at the board meeting in 1999, if you remember what happened in 1999 when the internet stocks are all the rage. I had board members telling me, just buy anything, all this stuff is going up, just buy anything.
And I was like, no, that’s not what we’re doing. That’s not what our prospectus says. And frankly, I’m a larger shareholder than you are, so I have more skin in the game and we’re not going to do that to any of the shareholders. And I was proven right, but I had to be willing to basically be walked out the door and say, see you later. I feel like because when you’re in this position of not necessarily financial independence, but a situation where you have a financial wherewithal behind you, you can make decisions that other people might not make because they’re worried about the next paycheck. I was never worried about my next paycheck. So I basically would push back and it never really came to bite me.
So in all these situations, it really just worked out because, and frankly, I worked for a small company that was privately owned and the owner of the company would frequently tell me, I’m so glad you just tell us how it is, because we would’ve made a lot of mistakes if you didn’t say that. So thank you for doing that. And oh, by the way, here’s a few shares of the company as a result or whatever. It would benefit me more than it would hurt me. And I just tell people that if you have the financial backing, you can make your own path. And if that path that you’re on doesn’t look good, choose a different path.

Scott:
It seems like your story and you’re obviously a highly competent person and you have very clear values and are not afraid to speak your mind. And you had the basic financial position and strength to be able to say, this is how I feel about it, no, at various times in your career when those things came up. And I think all of those things are interrelated, right? It’s so much easier, or you can have that confidence to speak up and say, no, we’re not going to do it that way, when you’ve been saving for a decade and have built a strong financial position and know you’ve got a strength and a career and you save that money and don’t spend it and blow it on things when you have the character to begin with in the first place.
It seems like these basic principles, it seems so obvious, so easy, the way that you’ve gone about building your financial position over a few decades and were able to retire early. Why don’t you think this is more commonplace? Why do you think you were the exception, one of the rare folks who was able to do this early when maybe some of your peers making the same income as you maybe weren’t able to achieve the outcome you’ve been able to create financially in life?

Mark:
Well, I think it’s being willing to walk a different path and being different than others. That’s the first thing, because all of my friends from back then we’re all spending all of their income, especially people that work on Wall Street. It’s crazy. You think people on Wall Street would be financially savvy. I would say it’s actually the opposite, they always believe there’s more money around the corner and I wasn’t like that. And we were willing to just be different. We were willing to just say, no, we’re not going to go out to that fancy dinner. We don’t need fancy clothes or fancy watches or whatever. We’re just willing to do what we want to do and walk this different life. I think that is one thing you need to be is independently minded.
But I think that again, not having as much information I think was almost a benefit because today with so much information, I think you’re comparing yourself to others. And I think that’s a mistake, because we never really compared ourselves to others. We just compared ourselves to how are we doing today relative to how we were doing a year ago or two years ago or five years ago. And that was our benchmark. We were never comparing ourselves to other people. And frankly now that when I did retire, a bunch of my friends from back east who couldn’t retire because they were continually increasing their lifestyle along with their paychecks, were like, you were telling us this whole time how to do this and none of us did it and we can’t believe you actually did it. And I was like, yeah, it’s not rocket science.
I really believe that if you save, and my daughter, we instituted this with her when she first started earning money, was save 20% of everything you earn and just get used to it. And if you do that, I think as a bare minimum, you’re going to get there eventually. It’s just a matter of when. If you want to make it 30%, great. I’m hesitant to suggest people do 50 or 70 or 90 because I think you’re potentially giving up too much life to do that. Unless you just have big windfall or you have a ridiculously high income, then maybe that’s a different story. But for the average person, I think I’ve been there, it’s fine to retire at 50. It’s fine to retire in your mid 40s. You don’t have to do it in your 30s or 20s.

Mindy:
That’s right. You don’t have to retire in your 30s or your 20s, but if you do want to retire in your 30s or 20s, then you’re going to have to have a much higher savings rate than 20%. You’re going to have to have a 75, 85, 90% savings rate and you’re going to have to have a super high income. You can’t be making Mark’s $23,000 a year starting bonus or starting salary back in the day and save 80% of that. That’s not going to get you to early retirement at age 28.

Scott:
So mechanically once you retired, how did you begin actually spending down the portfolio and harvesting the wealth that you created? As I understood it, you had a couple of big great housing moves, the 401(k) balance, and did you have any after tax accumulation, cash pile, other dividends, income? How are you financing this?

Mark:
Because if you talk to people in my age bracket, you’ll find that many of them have a very high percentage in tax deferred traditional type accounts. That was me. I did have somewhere in the neighborhood of 85 to 90% of my assets, our assets really, but mine now that I’ve inherited my wife’s assets in traditional 401(k), traditional IRAs from previous employers. I did have, or we did have some money in cash as well, and also smaller Roth IRAs that we were converting a little bit over time. But actually I avoided drawing down my portfolio for the first two years, and I’ll tell you how I did it, because I was afraid to take the money out and how was I going to do this? And there was money in the Roth. There was a runway of a couple of years in the brokerage account and cash and so forth that I could tap.
But even that I was afraid to do. So what I ended up doing was we had this classic car I mentioned we used to race cars. I did have this car in the garage that was worth a bunch of money and I didn’t really need it anymore and wasn’t driving it on the racetrack or anything, became a collector car. So I sold that, which basically paid for my first years or our first years of income. I avoided drawing down in year one by selling this asset that I didn’t really count. I don’t count it in my financial portfolio, a car, even the equity in my home, for instance, I only look at the financial assets. In year two I did own a very tiny piece of that company I worked for, but it was a private firm. I never counted it because I never knew if I would be cashed out, who knows if the company will last, will it be worth anything? I don’t know.
They did end up calling me and saying, we’re going to cash you out if you’re up for it. I was like, yeah, I’m totally up for it. And that was a little less than year two’s required income. So it was not some big windfall kind of thing. We actually did own a second home in Crawford, Colorado, so it’s over the hill from us. And we did end up selling that in 2019. So that helped with the aspect of not having so much in or having so much in our traditional bucket that was a little more difficult to get to. So that has somewhat bridged the gap that access, actually now access is not an issue for me because an inherited IRA you do not have a 10% penalty. I would have to pay the tax on it if I were to withdraw from that. And my inherited Roth IRA from her is fully accessible without penalty. So that age 59 and a half thing is not as difficult for me now, but I’m actually not even really tapping into those too much.
I’ve been doing really big Roth conversions. We were expecting to do many Roth conversions between when I retired until RMD age and at the married filing joint tax bracket. But when she passed away, all of a sudden you become single tax bracket, which is half as much. So in the year that she passed away, we’re still considered married filing joint. So I went up to the top of the 24 with a really big conversion. And then in the following year, my daughter was still considered a dependent, so I was eligible for qualifying widower, which is basically the same tax bracket as married filing joint. So I did another really big one. And then for the next two years, I’m still going to go up to the top of the 24, which is half as much for me as a single, but still a pretty decent bracket.
But I am walking away from ACA credits by doing that because I’m trying to get ahead of having so much money stuck or not stuck, but in the traditional bucket where RMDs are going to get out of control down the road. Roth conversion strategy is big on my mind now, how best to do that to reduce my lifetime taxes as opposed to my this year taxes.

Scott:
That answered that question extremely thoroughly. And what obviously shows financial wherewithal and savviness and sophistication that is way beyond what my capability set in terms of planning for [inaudible].

Mark:
Well, so I will tell you for fun, I did get my CFP after I retired because I just wanted to learn more. And I was again scared about should I really stop working and if I don’t stop working, what am I going to do? And I said, I really like personal finance, maybe I’ll just sit for the CFP. I did take the exam, I passed it, and because of my history in the financial industry they gave me credit for all the hours that you need. So actually I do have my CFP, but it was primarily for a personal learning experience. I don’t practice or anything like that, but it is where some of the knowledge base does come from.

Mindy:
Okay, Mr. CFP, mechanically if I were to want to do this rollover Roth conversion stuff, I shouldn’t use those words, Roth conversion, do you wait until the end of the year just in case you made some income? Do you do it throughout the year? Do you do it at the beginning of the year?

Mark:
For me, I almost purposely don’t make any income because I want to prove a point that you can actually live on your portfolio. So it’s funny because I go to all these campfires and people are like, I don’t know anyone who’s living really on their portfolio under the 4% rule. I’m like, well, I’m living on a withdrawal rate rule, it’s not quite 4%, it’s lower than that, but I am living on my portfolio. It is doable. I almost feel like an obligation to prove a point that it can be done. So as a result of knowing I’m not going to have any income, I target, I calculate how much do I want to convert in a year? What are the pros and cons of doing that? Because like I said, if I convert, any dollars I convert, I’m basically walking away from ACA subsidies. So I view that as an additional tax. What is that added on to my tax bracket equate to?
And so therefore, at what tax bracket do I want to go up to including walking away from the subsidies? So for me, I do it in two pieces. I do a pretty good amount at the beginning of the year, and then I’ll do a true up at the end of the year. And for me, I have this little bit of a benefit in that because I have an inherited IRA, I can actually take a withdrawal from the inherited IRA and withhold, you could technically withhold 100%, but Vanguard, which is where that account is, will only let you withhold 99%. But I can basically calculate what my tax liability is going to be in December and then do that withholding because the IRS as long as it’s withholding, considers it as paid evenly throughout the year. So I don’t even need to make estimated taxes.
I do estimated taxes on the state side, but not on the federal side. And I just do a withdrawal to withhold enough to pay my tax obligation. And I do all that in the fourth quarter. So the true up of the Roth conversion and the withholding calculation that I need to do to make sure I’m not going to be penalized.

Mindy:
So for those of us who aren’t CFPs ourselves and got lost in what you were saying, but understand that it’s very important and we would need to do this when the time is right for us. Would we connect with a CFP to help us with this or would we connect with an accountant to help us with this?

Mark:
Hopefully the CFPs understand this. So a CFP could help guide you, but a CPA would be the one that would actually make sure that you’re doing it all correctly and so forth. And actually finding a team that is a CFP and CPA combined might even be more beneficial to doing that and making sure you’re doing it correctly. It’s not really that difficult, especially if all you’re focused on is the tax code that pertains to you particularly. It’s easier to understand it just like Brandon the Mad Fientist goes down rabbit holes with that. It’s not hard to do it on your own and there aren’t really too many levers to worry about other than really figuring out the whole ACA aspect because that can come back to bite you a little bit if you’re not aware of that.
And frankly if you go over into the next bracket, it’s not like all of your dollars are taxed at that next bracket, it’s just the incremental dollars that are taxed. So yeah, it’s great to be right up to the edge on your tax bracket perfectly, and you can do that with different software out there that there’s public free software tax planning software out there that you can use to make those calculations. But again, if you go over a little bit, it’s only that extra dollar or two that’s going to be taxed to that. But do need to think about things like is net investment income tax going to come into play? Are you walking away from capital gains at a 0% tax bracket? There are some other levers that you do need to pay attention to.

Scott:
How do you handle health insurance, Mark?

Mark:
I purchased my health insurance through the ACA, and Colorado has its own plan. Actually it’s interesting because my wife was working when she was diagnosed with cancer just at a local, she worked for the police department, wasn’t making much money, but it did come with pretty good benefits. And frankly, she could actually stuff all of her paycheck into a 457. So that was actually our access to, because when she planned to leave, we had full access to the 457. So that was another little quiver in our packet there, I guess you would say. But she was staying for the healthcare primarily. And we ended up actually going on COBRA, which in hindsight was a mistake I think, because we were afraid of rocking the boat as far as her doctors were concerned. And I think it was fear that was unnecessary.
We would’ve been fine if we just immediately switched over to the ACA, it would’ve been a lot cheaper. That was also when there were specific rules about, she was actually laid off, so she was considered unemployed and receiving unemployment benefits. And if you recall back in the COVID times, there was a special carve out if you had received unemployment benefits, no matter what your income was, even if you made a million dollars, you were considered to receive full subsidy from the ACA. We should have taken advantage of that. We didn’t. We would not only not have had to pay COBRA, we would not have had to pay really anything on the ACA either. And I think it was just a fear that the ACA wasn’t going to be as good, but what I found out is it’s actually better than what her insurance was through the employer, which was a small municipal government. I think don’t fear the ACA. It actually is really good coverage.

Scott:
So what’s next for you here?

Mark:
Well, so what I’ve been doing is I really do like, I read Jordan’s book Taking Stock and Die With Zero, and really thinking about how can I move forward after my wife has passed away and really enjoy life. And what I found is that spending money on experiences and I am learning how to spend, that was a whole nother little piece that I’ve been working on, and I have this thing called a fun bucket, and if we have time I can talk about that a little bit. But basically I have found that enjoying experiences and enjoying them with your social network is really where I get the most joy right now. And I think most people do if you do that, combine experiences with social aspects. I was just on a cruise to Alaska with 50 friends a couple of weeks ago. I do a whole bunch of campfires. I love those.
Actually that community has been so good in economy as well and things like that. And as I mentioned, I’m doing the FI freedom retreats with Amy Minkley in Bali this year. There’s a bunch of us going over to that. I just find traveling around with friends and of course living in a ski resort and recreational community, and there’s always plenty of people willing to come and hang out here too. So that’s what the focus is. And a lot of it is also with my daughter. She really enjoys hanging out with me, which is great. So getting those experiences, memory dividends, lifetime memory dividends, and putting them in the memory bank, I don’t think any of us would be disappointed in having those down the road.

Scott:
I’d love to hear about the fun bucket and then I’d also love to hear about if any of this savviness with money and financial planning is rubbing off on your daughter and a summary of how she’s doing.

Mark:
So the fun bucket actually came out, I was at a campfire in California and I was staying with a friend ahead of time, and he was asking me, so how’s it going with drawdown and all that? I’m like, yeah, well, I’m working on it and I don’t really draw that much. It was sub 2% at the time. And he’s like, dude, you need to start spending some money, because you’re just going to end up stacking it up and you’re going to turn around and you’re going to wish you had done more. And I was like, yeah, but I don’t know. It’s hard to get comfortable with pulling that money out. He’s like, well, you need a fun bucket. I’m like, well, what is a fun bucket? He’s like, so if you think about I retired in 2015, had the wind in my back, you’re always worried about sequence of return being a bad sequence. Well, not only was it not a bad sequence, it was a really good sequence.
And he said, look, you have a lot of cream on top of the cake, just peel some of that off and stick it over in a fun bucket and just allow yourself to spend on things that you wouldn’t ordinarily do. So I said, that’s a pretty cool idea, maybe I’ll do that. I moved some money over into this separate online savings account labeled fund bucket, and it’s for all these things that you would normally not be comfortable doing, but you’re saying, hey, it’s pre-funded. It’s sitting over there, that’s what it’s for. You need to spend it. And I actually put a timeline on it. I put four years worth of, and people ask me, what’s the number? I’d rather talk about it in percentages. It’s 20% of what my normal annual expenditures are per year. And I did that for four years.
So let’s say you were making 50,000, maybe it’s $10,000 a year for four years or 40,000, you can change the numbers however you want, but that’s basically what it works out to. And so it’s things like, well, for instance, the Bali trip when it came up, I was like, I’m in. And Amy’s like, well, do you want to know how much it is? I was like, no, I’m in. Or this cruise, which was crazy expensive, it was a really expensive high-end cruise. And I was like, nope, I’m going. No question. That’s what the fun bucket is for. Normally I would’ve stressed about it. I don’t know if I want to take this money out of the portfolio and so forth. And it’s also for little stuff like, if I get an email from an airline that says, for $400 you can upgrade to first class, I’m like done. Or I never fly, I always fly nonstop. I never stop it. I know that’s a sore point for Mindy, but I always fly nonstop.
I also fly whenever I feel like during the day, I don’t do early flights. I’ll do flights that make sense for me. When we go out to dinner, I’ll pick up the dinner tab sometimes. Just like, no, don’t worry about, fun bucket. And people are like, oh, I feel bad. I’m like, no, it’s fun bucket. And they’re like, oh, well that’s cool. What else can we do on your fun bucket? But that’s what the fun bucket was about. It was to retrain myself how to spend and it’s worked. And actually what I found was I thought, so what I do is I will reimburse myself from the fund bucket, I spend on my credit cards as all of us travel hackers do, and I can reimburse myself from the fund bucket. What I’ve actually found is that I’m finding that I don’t even need to reimburse myself always from the fun bucket, but having the money in the fun bucket has allowed me to make that decision even though it really actually fit in my normal spending pattern. So it was just a way to retrain myself on how to spend.

Mindy:
How much did you say you put in the fun bucket initially?

Mark:
So in percentage terms, it is around 20% of my annual expenditure amount. And I pay myself a paycheck every month from my financial independence portfolio. And this was over and above that. So think of it in terms of let’s say you spend $100,000 a year. It’s $20,000 a year times four years. And then as that depletes, I’ll re-up it down the road at some point. I haven’t had to re-up it yet. Because I actually opened it two years ago, and I’m actually only at about one year’s worth of spending, even though I’ve spent the equivalent of two years, I just haven’t had to withdraw the full two years because a lot of that fit into my regular spending pattern.

Mindy:
So are you going to increase your spending to increase the withdrawal rate of your fund bucket?

Mark:
Well, I will tell you that this cruise that we went on was, so my daughter to go with me, it was a seven-day Alaska cruise on a very high end cruise ship. And it was $18,000 I think for two of us. And then on the cruise you save a little bit if you sign up for the next one. So we actually signed up for a Mediterranean cruise next year. I’m going, my daughter’s going and my mother’s going, mother’s paying her own way, but our room for that one is 11-day cruise going from Greece through Croatia to Italy, and it was 20 grand. It’s not small, but if that money was not sitting there, there’s no way I would’ve just said, yeah, sure, let’s do it.

Scott:
That’s awesome. So speaking of your family, is there a FI tradition getting started in your household and your family?

Mark:
Right, that was the second part of your question. So yes, my daughter has come down to two CampFIs. She was at Rocky Mountain last year and she actually spoke with me. And so that is up on the YouTube page for CampFI. So you can see our speech there. But basically was talking about how we talk about financial matters in our household, how that’s translated and some of the things she’s learned from us. And what the moral of the story is, she learned from modeling, not from preaching. Really what we do is what translated into her path. And she is also just graduated from CSU with a master’s in accountancy, so she’s got the right brain for all this stuff. But she did come to CampFI this year as well in Colorado and brought a friend. And so yeah, she’s definitely on the path.
And I actually teach a financial literacy class in the high school that I was asked to create about seven years ago now. So she was in that class as well when she was in high school. So she’s definitely drinking from the Kool-Aid.

Scott:
That’s wonderful to hear. We’ll have to have her on the show at some point if she’s interested. So I would love to hear about her journey and how that’s going.

Mark:
Well, one of the benefits in a way is that she started, we actually contributed to her 529 account and had her understand what that account was the whole way through. So really once she was in middle school I think. And we have an only child, so it was a little easier. I do preface it with that. So we mathed out what did we think a state school would cost when she turned 18, and we mathed out. We think it’d be about $100,000 worth of contributions, and we’ll see how that goes. It was $500 a month from the day she was born every month through her 18th birthday. So that’s like $108,000 I think in contributions. But there was also really good market returns during the time. So there was actually quite a bit of money in that account more than it would cost to go to a state school.
And we basically sat her down and said, hey look, this is a pretty good amount of money. You could go to an Ivy League school. It may not quite pay for that, but that you would’ve to figure out the difference. Or if you go to a school that costs less, this is your start in life. So she chose a state school and actually the 529 ended up paying for five years of school, including her one-year graduate program and she still was left with over half the money. And so that was her start in life. And then also originally we started with the UTMA account, which I wouldn’t necessarily suggest, before we figured out the 529 thing. So it was basically 50, 50 between UTMA and 529. The 529 basically was used to pay for school and she ended up with the UTMA, which basically turned into a regular brokerage account.
But over the years as she was earning money, starting I think at age 15, we would move money from the UTMA account over into a Roth IRA to the degree that she had earned income. So she’s been doing that since she was 15. So now she has a pretty sizable Roth IRA and this brokerage account and did not have to pay for school. So she’s got a pretty good start.

Mindy:
Just even starting off without having to pay for school, graduating without student debt is a huge leg up.

Mark:
For sure.

Mindy:
Nevermind all that other extra money, not extra money, additional money. There’s no such thing as extra money.

Mark:
She did ask, am I cost FI yet? I said, well, I don’t know if we’re quite there yet.

Scott:
Well, mark, thank you so much for sharing your incredible wisdom and savviness and technical expertise on managing a FI portfolio here with us. Thanks for sharing the principles that got you there and for the wonderful success story from a financial independent standpoint that your approach has been. So really appreciate it. And where can people find out more about you?

Mark:
Well, first of all, thanks for having me. I really appreciate it. I’m pretty active on Facebook just under my name Mark Trautman and that’s with an A, T-R-A-U-T-M-A-N. On other platforms it might be @marksmoneymind and for my blog it’s marksmoneymind.com. I like to joke that I write about as much as Brandon the Mad Fientist. I think we’re in a competition for the least number of posts. But I would like to post something about the fun bucket and I think I’m kind of obligated to do that. So I want to get that out there at least. So maybe there’ll be more on that there.

Mindy:
Do it. If you get that article out before this episode comes out, we’ll link to it in the show notes.

Mark:
Cool.

Mindy:
And if you get it out after this episode comes out, we’ll link to it in the show notes afterwards. Just send me a link.

Mark:
And if anyone is interested in that financial literacy class, a lot of people ask me for that. I actually put it out there as opposed on the website that you can see the entire course. It’s basically, it’s not a paid course or anything like that. It’s totally free. Anyone can go view it. It was basically what I recorded in 2020 for COVID, so I couldn’t go in the classroom. I just put up all of those videos from 2020 and all the handouts of anyone’s interested in basically a seven-week financial literacy course directed towards high school students, but pretty much anyone, adults go through that too. So it’s free, anyone can see it. It’s just easier to put it there than to email it out to people that ask for it.

Mindy:
And we will definitely link to that in the show notes. Awesome, Mark, thank you so much for your time today. It was great to talk to you and we’ll talk to you again soon. All right, Scott, my mind is blown. That was Mark Trautman from Mark’s Money Mind, and holy cannoli, all of those things he was telling us at the end. I’m going to need to go back and listen to this show and take a lot of notes. What did you think?

Scott:
I think that despite the personal loss that Mark had with his wife passing a few weeks ago, I think that this is a fellow who really has attempted and done a really good job of living his best life inside of his values. Being consistent and conservative and disciplined with his finances. Is extremely confident as an individual with how he thinks about money, building wealth and designing his life. And I think that’s an example of a great way to go about it and to go about trying to optimize for that happy, wonderful life. I think it’s funny to a certain extent that he has to make an actual point of not earning money, because he prides himself on being this expert in the financial independence space.
And so makes a point to not charge anything even though he got his CFP license and clearly loves talking about all of this financial planning stuff and could easily get paid for doing stuff that he likes to talk about anyways. I love the fact that he travels to these CampFIs and has to make a point to spend more because he’s reflecting on some of the good advice in Die with Zero. I just think it’s a fantastic story here and someone to learn from. I think a lot of listeners would do well to follow a lot of the stuff that Mark’s putting out and learn from him.

Mindy:
I like what you said, Scott, he’s living inside his values, and that seems to be something that he has done his whole life. He knows what he wants, he doesn’t waiver from that and that gives you ultimately what Mark has so far, a life well lived.

Scott:
And there’s just fun in there. This is not a all out, intense effort to pursue financial independence and wealth creation. This is a guy who raced cars and went to St. Barts and had a great time. So again, I think there’s a right way to go about it and if you have a competence set and ability to earn income, the discipline and those kinds of things that Mark has had, thinking about how to emulate some of the things he’s done might be a wise approach.

Mindy:
I completely agree.

Scott:
I do want to point out one thing before we get out of here though. I’ve observed a large number of people who are financially independent and they’ve all got an ace in the hole, right? Mark’s no different in the sense that he doesn’t live off of a 4% rule with a 60, 40 mixed stock bonds portfolio. He had the car that he sold and he had this, that, and the other thing associated with his first couple of years for income generation in the path to FI and has a much more conservative overall portfolio. I think it’s just another example of, hey, this FI concept, the 4% rule is the beginning of the end of the journey to financial independence. And even though it’s technically the right answer, we continue to see examples of folks who need a little bit extra on top of that to truly feel comfortable and secure as a financial independent person.

Mindy:
And honestly I don’t know that we’ll ever be able to convince everybody that 4% is the way to go. I know that 4% is the way to go.

Scott:
We haven’t convinced anybody that the 4% rule is the way to go. Again, I can’t think of a single example of someone who has retired of the 4% rule and nothing else. Has no other ace in the hole, no other cash position, no other actual backup plan there.

Mindy:
Well, I understand that mathematically it works, but even though I do this every day, I don’t really want to put all my eggs in that 4% basket.

Scott:
That’s right. I just continue to observe that in discussion after discussion after discussion with financially independent folks that everyone agrees with the math and not a single person lives it in a literal interpretation of it.

Mindy:
Yep. That’s okay though. It’s your life. Live it the way that you’re comfortable. 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 and I am Mindy Jensen saying bye-bye apple pie.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench. Produced by Kailyn Bennett, editing by Exodus Media, Copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.

 

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