Saving Myself
I LIKE TO THINK that what happened to me in my mid-40s wasn���t a midlife crisis, but instead a midlife reinvention.
I transformed myself physically and mentally. I lost 20 pounds. I took up CrossFit. I learned how to shoot guns and began participating in���and winning���pistol competitions. I spent a considerable amount of time evaluating every aspect of my life. I thought long and hard about what made me happy and what didn���t. I pledged to purge everything that no longer provided me joy. My beloved Welsh Corgis made the cut. My husband didn���t.
Getting divorced after nearly 20 years of marriage wasn���t as traumatic as I expected. I���d felt trapped in a loveless relationship for years. For more than a decade, my husband and I had lived like college roommates rather than life partners. We went on separate vacations. We kept our finances separate. We had few friends in common. Everything, from our taste in music to the hobbies we pursued, was completely different.
As part of the divorce settlement, we agreed to sell our home, along with almost everything we���d acquired over the previous two decades. In a matter of a few days, I went from living in a 3,000-square-foot, completely remodeled home to inhabiting a 600-square-foot apartment that hadn���t been updated in at least 30 years. The few pieces of furniture I needed were purchased off Craigslist.
Even though nearly every aspect of my life had been disrupted, I found myself happier than I���d been in years. But one stress weighed heavily on my mind. Financially, I had no idea how I would negotiate the second half of my life.
In 2013, when my divorce was finalized, I���d been working for the same employer for 15 years. I was making $57,000 a year while residing in an area of the country where the cost of living was 30% higher than the national average. I knew almost nothing about managing money or investing.
I walked away from my divorce with a used car, two dogs and about $80,000 in cash from the sale of our home. I���d managed to retain the full balance of my 403(b). I did, however, forfeit half of a small state pension-plan benefit that I���d become vested in decades earlier.
I spent the better part of the next year getting comfortable juggling my day-to-day finances. I started tracking every dollar I spent, a habit that remains with me to this day. I keep a small notebook detailing my income, as well as every expenditure, no matter the size. By late 2014, I was comfortable that my income and spending habits were in equilibrium. I had more than enough each month to cover rent, utilities, insurance and food. I was able to cover any discretionary expenses that arose. I decided it was time to start educating myself about investing and retirement planning to ensure I���d continue to have a financially stable life.
I soon found myself spending all my spare time learning about personal finance. My reading list included Women and Money by Suze Orman and The Millionaire Next Door by Thomas Stanley and William Danko, as well as the annual financial guide that morphed into HumbleDollar.com. I listened to Dave Ramsey podcasts every night before bed. I read blog posts by Mr. Money Mustache. I poured over the vast amount of information posted on the Bogleheads.org forum.
It wasn���t always easy to decipher the information I was taking in. I often felt overwhelmed and risked analysis paralysis. I knew I needed to develop a plan to make small, systematic changes in how I managed my finances.
My journey begins. I started 2015 with a resolution to put my financial house in order. The first step was to calculate my net worth. With no debts, the calculation wasn���t difficult. The total value of my retirement accounts, my cash savings and my car came to just over $250,000. I felt good knowing that, at age 47, that figure meant that I���d exceeded the median net worth for my age group.
Next, I reviewed how my retirement funds were invested. I was vested in a Teachers Insurance and Annuity Association of America (TIAA) 403(b) plan. Every month, my employer contributed an amount equal to 10% of my salary to the plan. Between 1998 and 2004, all my contributions were directed into a guaranteed return account. I assumed that investing my funds safely���the account was guaranteed to earn a minimum 3% annually���was the best way to ensure that I���d build a sizable nest egg.
In 2005, a TIAA representative convinced me that I was invested far too conservatively for my age. The rep suggested that I consider contributing to a mutual fund account. Starting later that year, I chose to direct new contributions into a stock index fund.
When I reviewed the performance of my 403(b) account in 2015, I wasn���t unhappy with the rate of return I had been earning. My money had been growing, albeit at a slow pace, for 17 years. I was, however, convinced that I needed to invest in accounts that would deliver higher returns over the long run. I also knew I needed to start contributing a larger percentage of my salary toward my retirement savings, so my nest egg would grow faster.
The final component of my financial roadmap was to establish a specific goal. I knew that, without a target to strive for, I���d be more likely to fail. I decided to aim to have my retirement account on its own reach $250,000. I planned to get there by steadily contributing a portion of my salary to a stock-based mutual fund. Starting in 2015, I set aside $500 a month from my paycheck and invested it in a growth-stock index fund. The money my employer contributed to my account was split between a 2035 target-date retirement fund and an international growth fund.
As my account balance grew, I was motivated to save even more. Soon, I was contributing $1,000 a month. By 2016, I was setting aside almost 50% of my paycheck each month. Living frugally became a game���one I enjoyed playing. I borrowed books from the library rather than buying them from Amazon. I made my lunch every day so I wouldn���t be tempted to eat out. My entertainment was limited to those shows and movies I could watch for free using my Amazon Prime membership.
I also began taking on freelance writing assignments as a way to supplement my income. The amount I earned varied wildly. Some months I brought in nothing, while other months I earned an extra $400 or $500. By late 2016, I���d achieved my first financial goal. My retirement account hit the $250,000 mark for the first time.
Eyeing retirement. When I turned 50 years old, in May 2017, I began thinking seriously about how much longer I wanted to work fulltime. In the course of my personal finance education, I���d been introduced to the financial independence-retire early (FIRE) movement. I���d read stories of people who stopped working long before their 60s.
I began to think it might be possible for me to leave behind fulltime employment when I turned 55. At that time, I���d be eligible to receive an early retiree health insurance plan through my employer. That benefit meant I���d have the freedom to take a part-time job without worrying about having access to health care coverage.
I felt confident I could continue the pace of my savings for another five years. Even though I didn���t particularly enjoy living in an apartment, I was resigned to staying there a few more years. I didn���t foresee any large expenses that would hinder my ability to keep saving a large portion of my salary. I decided my second major financial goal would be to have enough financial stability to shift to part-time work at age 55.
For the first time in my adult life, I felt like I had a solid financial plan and a lofty goal to go along with it. I took comfort in knowing that, when I turned 55, I could always reevaluate my situation. If I needed to, I could continue to work fulltime until I reached financial security.
A change in plans. Life throws everyone curves and, for me, 2018 was a year of major upheaval. Unlike 2012���when I���d purged my life of everything that left me feeling empty���2018 was a year overflowing with happiness. I brought home a new puppy. I moved out of my rundown apartment and became a homeowner again. And the change that brought me the most happiness? I got remarried.
The financial plans I���d put in place as a single woman were suddenly no longer applicable. The flow of money previously directed to my retirement account was rerouted to a mortgage company. Overnight, I went from being a one-person, two-dog household to a member of a two-person, four-dog family. I questioned whether my goal of early retirement was still achievable.
My husband, who is 13 years older, was already retired when we married. We both looked forward to the day I could stop working. We were eager to relocate to a different part of the country, since both of us were growing weary of Pacific Northwest weather and politics.
In 2019, we visited two locations we were considering for retirement. We were priced out of the housing market at our first pick. Our second choice, a 55-plus community just outside Phoenix, still had homes available in our price range. We put in offers on three houses before landing one. The community had everything we were looking for: multiple recreational facilities, easy access to medical care, and a thriving group of active retirees. I also felt good knowing that, if I later needed a part-time job, there were employment opportunities available in the community.
Purchasing two homes in less than a year put a serious strain on my limbic system. I took some comfort in knowing that both of our homes were modest structures. Each had been built in the 1980s. Neither had been significantly updated or renovated since being constructed. As a capable do-it-yourselfer, I wasn���t put off by the prospect of investing a bit of time and energy into fixing up the houses.
Buying two homes just a few months before housing values began increasing at a record pace turned out to be one of the most beneficial���and luckiest���financial moves I ever made. Both homes have appreciated between 25% and 30% since 2020. It remains to be seen how much we���ll walk away with when we sell our Portland home. But we���ll easily recoup the down payment and likely pocket a tidy profit.
Where I stand. In late 2021, I transferred 40% of my total retirement portfolio into the TIAA Traditional account. Because of the way the account is structured, some of my money is guaranteed to earn just 1%. But most of it is set at a guaranteed return of 3%. The actual crediting rates are consistently higher than these minimum levels. The remainder of my TIAA account balance is invested in a couple of stock index funds. My state pension fund is guaranteed to earn 7.5% annually.
Should I choose to annuitize my TIAA Traditional account, I���ll have numerous options when it comes time to draw money out. I can take interest-only payments or monthly lifetime payouts, or I could systematically withdraw all the money over 10 years. While the annuity option doesn���t come with a guaranteed annual cost-of-living increase, the fund has typically increased the payouts it makes to recipients, including a 5% increase for 2022.
I���m hoping I won���t have to touch any of my money prior to age 65. When I stop working, my husband and I plan on living on his retirement income. We���ll also have the proceeds from the sale of our Oregon home. Should we need it, I can claim my Social Security benefit at age 62. My husband is delaying his benefit until age 70.
When I reflect on my personal finance journey, I ponder the things I would have done differently. I wish I had fought to retain my state pension rather than forfeiting half to my ex-husband. I wish I had started contributing a portion of my paycheck to my retirement plan when I was in my 20s, instead of waiting until I was in my 40s. I wish I had invested in more aggressive mutual funds at a younger age.
But I can't change the past. The roadmap that led to where I am now is filled with twists and turns I never saw coming. I also know I can���t put a price on happiness. At this moment in my life, as I sit at my kitchen table writing and watching our four dogs frolic in the backyard, I���m as content as I���ve ever been.
Kristine Hayes is a departmental manager at a small, liberal arts college. She��enjoys competitive pistol shooting and hanging out with her husband and their dogs. Check out Kristine's earlier articles.
I transformed myself physically and mentally. I lost 20 pounds. I took up CrossFit. I learned how to shoot guns and began participating in���and winning���pistol competitions. I spent a considerable amount of time evaluating every aspect of my life. I thought long and hard about what made me happy and what didn���t. I pledged to purge everything that no longer provided me joy. My beloved Welsh Corgis made the cut. My husband didn���t.
Getting divorced after nearly 20 years of marriage wasn���t as traumatic as I expected. I���d felt trapped in a loveless relationship for years. For more than a decade, my husband and I had lived like college roommates rather than life partners. We went on separate vacations. We kept our finances separate. We had few friends in common. Everything, from our taste in music to the hobbies we pursued, was completely different.As part of the divorce settlement, we agreed to sell our home, along with almost everything we���d acquired over the previous two decades. In a matter of a few days, I went from living in a 3,000-square-foot, completely remodeled home to inhabiting a 600-square-foot apartment that hadn���t been updated in at least 30 years. The few pieces of furniture I needed were purchased off Craigslist.
Even though nearly every aspect of my life had been disrupted, I found myself happier than I���d been in years. But one stress weighed heavily on my mind. Financially, I had no idea how I would negotiate the second half of my life.
In 2013, when my divorce was finalized, I���d been working for the same employer for 15 years. I was making $57,000 a year while residing in an area of the country where the cost of living was 30% higher than the national average. I knew almost nothing about managing money or investing.
I walked away from my divorce with a used car, two dogs and about $80,000 in cash from the sale of our home. I���d managed to retain the full balance of my 403(b). I did, however, forfeit half of a small state pension-plan benefit that I���d become vested in decades earlier.
I spent the better part of the next year getting comfortable juggling my day-to-day finances. I started tracking every dollar I spent, a habit that remains with me to this day. I keep a small notebook detailing my income, as well as every expenditure, no matter the size. By late 2014, I was comfortable that my income and spending habits were in equilibrium. I had more than enough each month to cover rent, utilities, insurance and food. I was able to cover any discretionary expenses that arose. I decided it was time to start educating myself about investing and retirement planning to ensure I���d continue to have a financially stable life.
I soon found myself spending all my spare time learning about personal finance. My reading list included Women and Money by Suze Orman and The Millionaire Next Door by Thomas Stanley and William Danko, as well as the annual financial guide that morphed into HumbleDollar.com. I listened to Dave Ramsey podcasts every night before bed. I read blog posts by Mr. Money Mustache. I poured over the vast amount of information posted on the Bogleheads.org forum.
It wasn���t always easy to decipher the information I was taking in. I often felt overwhelmed and risked analysis paralysis. I knew I needed to develop a plan to make small, systematic changes in how I managed my finances.
My journey begins. I started 2015 with a resolution to put my financial house in order. The first step was to calculate my net worth. With no debts, the calculation wasn���t difficult. The total value of my retirement accounts, my cash savings and my car came to just over $250,000. I felt good knowing that, at age 47, that figure meant that I���d exceeded the median net worth for my age group.
Next, I reviewed how my retirement funds were invested. I was vested in a Teachers Insurance and Annuity Association of America (TIAA) 403(b) plan. Every month, my employer contributed an amount equal to 10% of my salary to the plan. Between 1998 and 2004, all my contributions were directed into a guaranteed return account. I assumed that investing my funds safely���the account was guaranteed to earn a minimum 3% annually���was the best way to ensure that I���d build a sizable nest egg.
In 2005, a TIAA representative convinced me that I was invested far too conservatively for my age. The rep suggested that I consider contributing to a mutual fund account. Starting later that year, I chose to direct new contributions into a stock index fund.
When I reviewed the performance of my 403(b) account in 2015, I wasn���t unhappy with the rate of return I had been earning. My money had been growing, albeit at a slow pace, for 17 years. I was, however, convinced that I needed to invest in accounts that would deliver higher returns over the long run. I also knew I needed to start contributing a larger percentage of my salary toward my retirement savings, so my nest egg would grow faster.
The final component of my financial roadmap was to establish a specific goal. I knew that, without a target to strive for, I���d be more likely to fail. I decided to aim to have my retirement account on its own reach $250,000. I planned to get there by steadily contributing a portion of my salary to a stock-based mutual fund. Starting in 2015, I set aside $500 a month from my paycheck and invested it in a growth-stock index fund. The money my employer contributed to my account was split between a 2035 target-date retirement fund and an international growth fund.
As my account balance grew, I was motivated to save even more. Soon, I was contributing $1,000 a month. By 2016, I was setting aside almost 50% of my paycheck each month. Living frugally became a game���one I enjoyed playing. I borrowed books from the library rather than buying them from Amazon. I made my lunch every day so I wouldn���t be tempted to eat out. My entertainment was limited to those shows and movies I could watch for free using my Amazon Prime membership.
I also began taking on freelance writing assignments as a way to supplement my income. The amount I earned varied wildly. Some months I brought in nothing, while other months I earned an extra $400 or $500. By late 2016, I���d achieved my first financial goal. My retirement account hit the $250,000 mark for the first time.
Eyeing retirement. When I turned 50 years old, in May 2017, I began thinking seriously about how much longer I wanted to work fulltime. In the course of my personal finance education, I���d been introduced to the financial independence-retire early (FIRE) movement. I���d read stories of people who stopped working long before their 60s.
I began to think it might be possible for me to leave behind fulltime employment when I turned 55. At that time, I���d be eligible to receive an early retiree health insurance plan through my employer. That benefit meant I���d have the freedom to take a part-time job without worrying about having access to health care coverage.
I felt confident I could continue the pace of my savings for another five years. Even though I didn���t particularly enjoy living in an apartment, I was resigned to staying there a few more years. I didn���t foresee any large expenses that would hinder my ability to keep saving a large portion of my salary. I decided my second major financial goal would be to have enough financial stability to shift to part-time work at age 55.
For the first time in my adult life, I felt like I had a solid financial plan and a lofty goal to go along with it. I took comfort in knowing that, when I turned 55, I could always reevaluate my situation. If I needed to, I could continue to work fulltime until I reached financial security.
A change in plans. Life throws everyone curves and, for me, 2018 was a year of major upheaval. Unlike 2012���when I���d purged my life of everything that left me feeling empty���2018 was a year overflowing with happiness. I brought home a new puppy. I moved out of my rundown apartment and became a homeowner again. And the change that brought me the most happiness? I got remarried.
The financial plans I���d put in place as a single woman were suddenly no longer applicable. The flow of money previously directed to my retirement account was rerouted to a mortgage company. Overnight, I went from being a one-person, two-dog household to a member of a two-person, four-dog family. I questioned whether my goal of early retirement was still achievable.
My husband, who is 13 years older, was already retired when we married. We both looked forward to the day I could stop working. We were eager to relocate to a different part of the country, since both of us were growing weary of Pacific Northwest weather and politics.
In 2019, we visited two locations we were considering for retirement. We were priced out of the housing market at our first pick. Our second choice, a 55-plus community just outside Phoenix, still had homes available in our price range. We put in offers on three houses before landing one. The community had everything we were looking for: multiple recreational facilities, easy access to medical care, and a thriving group of active retirees. I also felt good knowing that, if I later needed a part-time job, there were employment opportunities available in the community.
Purchasing two homes in less than a year put a serious strain on my limbic system. I took some comfort in knowing that both of our homes were modest structures. Each had been built in the 1980s. Neither had been significantly updated or renovated since being constructed. As a capable do-it-yourselfer, I wasn���t put off by the prospect of investing a bit of time and energy into fixing up the houses.
Buying two homes just a few months before housing values began increasing at a record pace turned out to be one of the most beneficial���and luckiest���financial moves I ever made. Both homes have appreciated between 25% and 30% since 2020. It remains to be seen how much we���ll walk away with when we sell our Portland home. But we���ll easily recoup the down payment and likely pocket a tidy profit.
Where I stand. In late 2021, I transferred 40% of my total retirement portfolio into the TIAA Traditional account. Because of the way the account is structured, some of my money is guaranteed to earn just 1%. But most of it is set at a guaranteed return of 3%. The actual crediting rates are consistently higher than these minimum levels. The remainder of my TIAA account balance is invested in a couple of stock index funds. My state pension fund is guaranteed to earn 7.5% annually.
Should I choose to annuitize my TIAA Traditional account, I���ll have numerous options when it comes time to draw money out. I can take interest-only payments or monthly lifetime payouts, or I could systematically withdraw all the money over 10 years. While the annuity option doesn���t come with a guaranteed annual cost-of-living increase, the fund has typically increased the payouts it makes to recipients, including a 5% increase for 2022.
I���m hoping I won���t have to touch any of my money prior to age 65. When I stop working, my husband and I plan on living on his retirement income. We���ll also have the proceeds from the sale of our Oregon home. Should we need it, I can claim my Social Security benefit at age 62. My husband is delaying his benefit until age 70.
When I reflect on my personal finance journey, I ponder the things I would have done differently. I wish I had fought to retain my state pension rather than forfeiting half to my ex-husband. I wish I had started contributing a portion of my paycheck to my retirement plan when I was in my 20s, instead of waiting until I was in my 40s. I wish I had invested in more aggressive mutual funds at a younger age.
But I can't change the past. The roadmap that led to where I am now is filled with twists and turns I never saw coming. I also know I can���t put a price on happiness. At this moment in my life, as I sit at my kitchen table writing and watching our four dogs frolic in the backyard, I���m as content as I���ve ever been.
Kristine Hayes is a departmental manager at a small, liberal arts college. She��enjoys competitive pistol shooting and hanging out with her husband and their dogs. Check out Kristine's earlier articles.The post Saving Myself appeared first on HumbleDollar.
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