Reader Profile: JM

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader JM. He provided a commentary on his finances as follows:

I'm an almost typical middle class central New Jersey kid born 1960, Dad was a master bricklayer, Mom a homemaker and RN, but, they divorced at my age 5. My Mom and I moved in with a Great Aunt and eventually to a small one bedroom apartment. Mom remarried at my age seven, but now with now three "step siblings" that Step dad supported, times were never easy from a money standpoint.

My Dad always helped out, paying weekly child support of $23.00 for years, providing other monetary support for me and staying close to me in a fantastic father/son relationship. Living quarters were tight though as stepbrother and I shared a small 10x12' bedroom for a few years and Mom/Step dad slept on the living room floor. We escaped many weekends to the Catskills of New York State for recreation and open spaces. No A/C in the second floor apartment of eight years meant a few humid summer nights snoozing on the cool front porch. One bathroom and one car were the neighborhood norms. I never thought WE were wanting for anything. Mom's called out the window (instead of cell phones) at dinner for their wandering sons playing ball in the alleys, we were blessed to have FREE TV with as many as eight stations broadcasting from NYC.

Step dad then contracted acute Leukemia at my age 13 and was dead in nine months (my age 14) leaving a widow and stepson along with three biological children. Mom, seeing that it would take almost 40%~ of her salary to afford private tuition versus public high school (not wanting me to be exposed to the race riots, substandard education and poor public high schools of the mid 70's) decided that we'd move to upper New England - Maine to be exact, for the "good life".

She remarried a year later, to a fine gentleman who had eight children though, so again, money and life's luxuries would never be the norm. We heated the house by cutting and spliting about eight cord of wood each winter and my stepdad's salary barely covered the bills for his ex wife and children. Eating wild game/locally caught fish meant a lower grocery bill. Mom's $1K~ month salary payed the bills - barely. We lived in a modest yet comfortable New England "Cape Cod style" home on a an acre of land that is stilll home 36 years later to my Mother and Stepfather.

I went to public high school, unenthusiastic about my studies but, by age 16 thorough graduation in 1978 very willing to work 8-40 hours a week during school, vacations, and summers to help with my expenses and learning the skills of work. I played JV baseball and varsity too but work was what thrilled me the most. Unfortunately, having a barely over 2.1~ high school GPA meant few colleges were interested in me as a student.

I eventually settled on a small (1000+ students, just over 250+ full time) state university 60 miles from home - University of Maine @ Machias, it's forte' being the eastern most university in the United States. I lazily made it through my freshman year unenthusiastic again with freshman studies but managed a 2.6 GPA. By my sophmore year of 1980, I focused on the workings of my Business major and picked up a double major in Recreation Management - meaning a larger course load, less "easy electives" yet, something that finally interested me. I also was a "walk on" for the school's last year of varsity (DIV III) baseball and enjoyed my personal last hurrah of hardball, batting a modest .200 and starting only one game of the season at catcher - my favorite position because of it's leadership responsibility and view of "the game".

By 1982, I completed my double major and graduated with honors in a recession only surpassed by the current one this century. 177 resumes sent, only a few interviews but, a secure position one month before graduation for $3.35 an hour with commissions possible from Radio Shack - the old Tandy Corporation. Overtime too!  I felt lucky, graduated with no college debt/loans (I emancipated at age 19 for the benefits of financial aid/grants as my "exemption/deduction" meant little to parents who already had enough children to deduct on income tax), working part-time during school and full-time in the summer to pay for school/personal expenses and with a little financial help from Mom and Dad too, I managed to save over $1000 by graduation in 1982, and owned two "paid for" cars, though they were a combined 25 years old.

At age 22, life was to begin again. I wasn't "cheap" but was raised and stilll am "frugal". So a week after college graduation, I began work for Radio Shack and within two months was the top sales trainee in New England, earning a promotion and management responsibility of my first store in just four months. The store was was "broke" and I "fixed it", returning it to profit in just over 60 days. 65+ hour weeks were the norm. I then moved to computer sales, back to retail management and by age 25 was averaging about 60 hours work a week/$36K~ a year (this was 1985) running the last of my three stores in the state of Maine. Tandy matched 40% then 60% of up to 15 % of gross pay deposited in the stock savings plan and I added about another $125~ a month to a high yield money market account. By age 24 I was had over $15,000 put away. I took a car loan in 1983 for 48 months but, leery of debt like my parents had been, I paid off the loan in 19 months. I had to beg the local banker for a VISA/Mastercard and by the second visit to the bank, I got a card with a $500 limit. Financiallly, I felt great!

RS had great plans for me but, I decided it was time for something different, to give back, to serve and find a career self-fullfilling. I applied for and against the odds, (about a 12 1/2%~ percent chance), was accepted into the Air Force as a Staff Sergeant with an assignment to Officers' Training School in the summer of 1985. A 45%~ pay cut awaited too! I berely met the challenge against some of the country's best and brightest officer candidates and was lucky to graduate in the bottom 20% of my class as an 2LT Administrative Officer assigned to Keesler AFB in MS, with a follow on assignement to Vandenberg AFB, CA.

I "cut my teeth" with various positions of increased responsibility but, seemingly the Air Force felt my business acumen was a strength so my assignments were managing people, programs and money. I had two commands at a young age and was selected for the prestegious Education With Industry Program at the end of Desert Storm in 1991. Along the way, I married a California gal after living for 2+ years in a $8K mobile home that I paid off in two years and sold for $7300.

Marriage to my new wife meant travel to Europe, courtesy the United States Air Force as our Honeymoon - to my assignment in southern Italy. Along the way, I always remembered my Dad, never making more than $20K a year in his life but, paying cash and "paying yourself first" by saving something every paycheck.

I became a client of a firm that catered to military officers and was saving/investing almost 25% of my pay by my seventh year of service. We had over $100K+ of liquid assets by 1990 and about $225K~ when the Air Force Reduction In Force of 1992 selected me for separation after 7 1/2 years as a mid grade captain. I was making about $45K a year. My wife worked "on and off" since we moved almost annually. The Air Force had paid for much of my professional education, about 70% of my MBA and cut a check for about $24K~ at separation.

I started receiving $990~ a month unemployment. I continued on as an inactive reservist for another 7+ years. Of course it was 1992 and yet another recession loomed. Jobs were hard to find, careers even harder, and after little luck job searching, my wife and I decided to take the plunge as "self-employed". I became an independent contractor for the investment firm that had helped me so much: USPA&IRA. We settled in Vacavillle, CA and I studied hard getting licensed, trained and learning the art of cold and warm calling to get the attention of potential cleints. 6 1/2 day work weeks again became the norm and the expenses of running a business had us in a $12,500~ defecit in only a few months. Commissions were slow to build. My bride took a $6.50 an hour assistant manager clerical job that paid for the rent and the local phone connection - much needed so I could make calls to clients and potential clients from home, instead of the office a few miles away - quality home time so to speak.

I worked hard and by the end of year one, I showed a $4500~ profit for almost 4000 hours of work! But, the pipeline was full of clients referring potential cleints and by the next year - my first "full year" I showed a profit of almost $190K~ and was the number one revenue producer in the world for the small company that was my parent broker. Two more hard years of work grew my income and along the way, I always maxed my Self Employed pension, our IRA's and saved additional dollars. Paid estimated taxes on time and usually more than needed.

My wife joined me in the business near the end of year one so we could have some more "time together". By the end of 1996, our liquid net worth soarded to over $750K~ and I took the challenge of managaing a new office in Central Texas, outside of Fort Hood. Modest success ensued but, I realized my work ethic was far greater than the folks I hired and trained. My income dropped a bit, to the "mid-hundreds" but, the low cost of living, debt free lifestyle (we rented homes quite cheaply) and internet bubble moved our portfolio to over $1M, all before my 40th birthday.

Unfortunately, the marriage didn't survive and in late 2000, I wrote a check for about $425K, plus turned over title of the new car to my now ex-wife. In addition, I decided that my work ethic would better be served directly serving clients - instead of management, so I again moved my business, this time to Tacoma, WA to serve our firms growing list of "high net worth" clients. I had net worth of about $750K at this time.

Tremendous success ensued as my income approached $450K by 2003. It remained in the high two to mid three hundred thousands annually and I continued to live a modest - $60K~ or so a year lifestyle. Still frugal but, never wanting for anything. Inflation bonds, SEP-IRA, stock mutual funds, money market accounts, etc., I saved/invested all I could (often over $100K a year) while paying up to $150K a YEAR in federal income taxes. Business costs exceeed $50K a year. Do the math.

By 2007 the parent company, going through internal changes and seeing me as one of the top earners of the corporation in the world, decided that reducing "trailing commissions", in my case amounting to over $100K+ annually, along with other commission schedule changes would be a better "motivator" AND soon after they decided to terminate the contracts of those high earners like me in masse. So at age 47, but, always knowing the end in the financial services industry could come at any time, I was unemployed.

I had started slowing down my work schedule in 2006, to a leisurly 35-40 hours a week and now had amassed just over $2.8M+. Some of that money wasn't in "constructive receipt" so taxes were still owed on it (deferred compensation for instance) but, I had always figured, $2.65M~ was my target to be "all done" as far as earning/saving money and work. Most of my peers lived "up" to their income and scrambled to other brokerages/firms for work, I decided - to retire, at age 47! I had over $800K~ in cash, and the interest rates of 2007, still  in the 4%+ range gave me plenty of monthly capital. In addition, through a large class action lawsuit, I was deemed to have been illegally separated by the USAF back in 1992 ("reverse discrimination") and was awarded a full 20 year military retirement as a Captain. So a pension, modest but, a pension none the less and medical care awaited. Why work?

I built a small but very comfy townhome with many amenities for about $250K~, paying cash for it all - outside Portland, OR but, in income tax free WA state. I rearranged my portfolio becoming very conservative and cautious, for example: putting all my tax deferred (SEP-IRA/IRA) monies into a variable annuity with an income for life rider. I booked large tax "losses" during the market meltdown of 2008 but, my true cash losses were far smaller. Paid the taxes on the deferred income and built a very tax efficient portfolio.

Today, I typically show "income" of less than $45K~ annually and pay federal taxes of only $4500~ or so. No state income tax. Modest property tax of $2200~ a year. I travel, play competitive ASA mens' softball - with folks far younger than myself. Live near the lake and milllion+ dollar homes but being 3/4 a mile away, I don't have those kind of taxes/maintenance/housing costs. Now, I'm a bit "looser" with the cash but, my net worth, even in this awful market and ultra low interest rate environment remains between $2.4 - $2.5M. Whole Life Insurance I purchased young is "paid up", the "deferred variable annuity" promises me a lifetime of income that can only grow, never drop. Some I bonds STILL pay over 8% annually, tax deferred. Stock mutual funds in a managed account (at a .5% annual fee for rebalancing, oversight, etc.,) should provide inflation proof growth. Stilll large amounts of cash allow liquidity and a sleep factor.

I have my health and am blessed. Literallly, the "milllionaire next door". At almost 52 years of age, I couldn't imagine life being better! It wasn't luck, nor inheritance, nor "hitting it big". Education, hard, HARD work, living well below my means and avoiding debt were the keys to making it happen. I am making up for "lost time" now. And loving it!

Comments

[Mike Hunt]

Hi JM,

I really, really enjoyed reading your profile. It's funny because I've spent some time up in Maine (interesting and tough place to live), and I've also thought about living in Vancouver, WA to enjoy not paying state income tax while doing tax free shopping over the border in Oregon!

My question to you is how much investment income are you regularly earning each year and how does this (plus your pension) compare with your annual expenditures? Are you continuing to save money each year, and if so what % is that of income?

That seems like an important thing to understand before retiring.

Thanks again,

-Mike

[Mike Hunt]

One more thing, I did notice income is $45K per year but that didn't seem right on a large portfolio hence the reason for the question above, and also I did want to know how that related to annual expenses...

[RichUncle EL]

Great Story

I guess your a natural salesman as making over 200K in sales back then is a feat not many could accomplish. Question-2.5 million X 3% should net you 75,000 in income annually. Why such a big difference between 75K and 45K? Is the difference being reinvested? Do you ever give to charity now that you are retired and can afford to?

[Therm]

Wow, that was a GREAT story. Best profile yet. It's very inspiring. Hey, no kids? Plan to remarry?

[Melissa]

I enjoyed this profile very much.

What made you study business?

How did you choose your investments? Did your education in business help?

[ed]

Great story. Got me fired up!

[[email protected]]

I loved the fact that you learned from those lessons you experienced as a child and actually saved money and went to college. In other words, you didn't give up. So many people who often feel like they've lived with less, throw caution to the wind and run up all kinds of debt and don't do much of anything of value with their lives except live paycheck to paycheck and spend more and more. This was a really inspiring story, thank you.

[JeffinWesternWA]

Hey folks, the "portfolio is VERY tax efficeient". Dividends are "maybe" $5K~ a year on the non-tax deferred portion. No capital gain distributions to report due to tax loss carryovers. I bonds are tax deferred and many earn in excess of 8% as I write. Almost $700K~ is in the annuity IRA so that's deferred too. Small benificiary IRA of $35K is deferred. Yields on cash are about 1%~ so the cash income is low. It once was about $40K~ annually four years ago! Really just the Air Force Force pension, taxable dividends, interest income, VA disability (50%) make up my "income". So taxable income is under $40K! Portfolio is over $2.5M+ again. More than enough for 1/2 a life of work and the years I plan to still live. Guess I gotta spend more? I give to charity. Primarily the USO, Red Cross and Humane Society. My expenditures? Modest; my biggest expenses are dating and travel! (Those are $1-2K a month). Lol but, it's true! My education DID help in business but, ya get out what you put in. I recommend for financial reasons a student today "cut their teeth" on community college, then find a state U that matches their interests and major. Get a minor too. Work never hurt anyone and puts money into perspective. It's NOT who I am, just a tool from what I've done. I'm lucky AND blessed. No kids. Marriage: gotta find the right lady who can keep up with me. Run, bike, hike, wall climb, travel, wine taste, craft beers, softball et all :) "Inquire within" with an email addy, I'll get back to ya:) Thanx FMF and readers for the opportunity to tell my story. All the best! "JM"

[jim]

An interesting story. Congratulations on your financial success.

Did you sell insurance products? Seems you are savy on whole life and variable annuity and so I'm wondering if thats the kind of thing you sold.

You must be fairly sharp given that kind of job history and business success. But your 2.1 GPA in high school was below average even for 1978. I'm curious: Why do you feel your high school grades were below average? Did not not feel motivated or were you distracted by things going on in your life or something else?

[Old Limey]

Great success story!
It's sad but DIVORCE seems to be an epidemic that can often destroy the American Dream for an awful lot of people. I am thankful every day that I have avoided it and am just a few months away from being very happily married for 56 years. Now that we are 77 and 78 respectively and my wife recently gave up her driver's license we are more dependent upon each other than ever before.

Fortunately for JM he is a real go-getter and has overcome some major setbacks in his life. He reminds me somewhat of my son who was born in 1963 and is my complete opposite. He also was very active in baseball and football and played catcher and defensive back and led a very exciting life starting with his own heavy metal rock band, lots of hot women, skydiving, and car racing, before eventually filing for bankruptcy (unknown to me), but he bounced back without asking for any help, and is now doing well as a sales manager for a large international company and getting close to his first million.

[Bad_Brad]

Sounds like a true American story. Went in one direction full speed ahead until that path was closed off, then reinvented yourself to go full speed in another direction. Multiple times. And found some level of success every time. And after about 30 years, you have a nice chunk of wealth built up which gives you freedom to do what you want to do with the rest of your life.

Kudos to you.

And also a couple of great reminders to the rest of us:

* We must be aware that things change, what we do today to pay the bills may not be available due to changing circumstances in the macro or micro economy
* We must realize that when circumstances do change and we lose a job, it's not an end, it's a beginning, it's a chance to reinvent ourselves

[Nate]

Very well said Bad_Brad :-)

JM what was the best investment you ever made out of curiosity (besides lots of HARD work haha!)? Do you ever plan on working again (starting a business etc.)? Sounds like you are just living in the moment now and seeing what comes your way  And that sounds wonderful. Enjoy!

[JeffinWesternWA]

To the posters, I was licensed in various states to sell ALL types of insurance products. Investment wise also and a principal of the firm I contracted with. It is NOT as simple as buy term and invest. There are many scenarios where PERMANENT insurance is a cost effective tool. Not all the time nor for everybody. Been told I have an IQ just south of 130~ but, I guess the high school GPA was from lack of interest and outside activities (works, girls, sports, partying...)Old Limey is right, I AM a go getter. Now: hot women, swimming w/ the sting rays, driving NASCAR, jumpin outa airplanes, seeing the lavas of Etna, etc., is what I do. I'm blessed AND lucky. NO desire to go back to work (I've had 6 digit offers) nor start/run another business, that was my past, I'm "tired" :) and no time! Best investment was simply "starting EARLY"... compunding is THE best investment. Global stock owning mutual funds in the early-mid 80's and I bonds last century come to mind for products. Along with a variable annuity w/ guaranteed principal and a high (7%) LIFETIME w/d rate. Costs, sure all investments have them, often in life, you pay for what you get. Three great dates lined up this weekend and some sights to see. ....Godspeed!

[J]

I agree it was a testimony that if you work hard in life and make good decisions financially one can come out with a big healthy nest egg.

He also states that he is now enjoying his life after 52 years and "making up for lost time". Makes me think that perhaps one should try to balance life and work better. You may not end up with as big a nest egg in the end, but you may have saved half of it by avoiding divorce.

J

[Mark]

@J: Just balancing work and life might not be enough to avoid divorce.

I personally split up at a cost of $2 million (her half) and I can assure you it had nothing to do with work-life balance. Actually the opposite - if I had been working harder, perhaps I would not have noticed that my wife and I were no longer suited to each other. Many go-getters and hard workers remain married, blissfully ignorant of each other.

[J]

Mark

I can definitely see your point. As someone who has been with my wife for a total of 10 yrs (5 married) I am truly blessed to be with someone who shares my life goals and values.

It seems to me that most people don't realize that choosing your partner wisely is the SINGLE most important BUSINESS decision one can ever make.

Choose wisely my friends.

[Elizabeth]

Great and wonderful and inspiring profile!

[Luis]

Who do you have to thank for the values of hard work, dedication, etc. instilled in you?

See! You weren't always in the third quintile :'p