Reader Case Study: Astronomer and Actor Turns 60 at a Turning Point
Erik is a true Renaissance man who turns 60 this year and finds himself at a turning point. He has a PhD in Dramatic Art, a Master’s in astronomy and an MFA in acting. Erik lives outside of Boston and currently works at a world-class scientific institution focusing on a large data archive for astronomy and astrophysics. In his free time, he builds telescopes, writes poetry, listens to jazz music and spends quality time with his cat, Oort Cloud. He comes to us today because, in his words:
I feel stuck. I’ve been at my current job for 13 years and have no place to go but sideways: at the facility where I work, if one lacks a Ph.D. in physics or astronomy, there is only so far one can go.
As he nears retirement, Erik is also contemplating a move to a more rural location that would give him access to dark skies–a need for every astronomer.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send to me requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight and feedback in the comments section.
For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.
The Goal Of Reader Case Studies
Reader Case Studies are intended to highlight a diverse range of financial situations, ages, ethnicities, geography, goals, careers, incomes, family composition and more!
The Case Study series began in 2016 and, to date, there’ve been 59 Case Studies. I’ve featured folks with annual incomes ranging from $17,160 to $200k+ and net worths ranging from -$317,596 to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight and trans people. I’ve featured men, women and non-binary folks. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa and France.
I’ve featured people with PhDs and people with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.
The goal is diversity and only YOU can help me achieve that by emailing me your story! If you haven’t seen your circumstances reflected in a Case Study, I encourage you to apply to be a Case Study participant by emailing email@example.com.
Reader Case Study Guidelines
I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn. There’s no room for rudeness here–the goal is to create a supportive environment where we all acknowledge that we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Erik, today’s Case Study subject, take it from here!
Hi Frugalwoods. I’m Erik. Looked at objectively (I think — I’m told I’m very hard on myself), I’m a 59-year-old “permanent student” (though not in school at the moment, I’m thinking about getting a degree in mathematics, and I’m always studying something!) and poet/caver/would-be telescope maker/intellectual omnivore with, really, no career to speak of. I have had more of a semi-random chain of jobs of checkered interest since getting my Ph.D. in 1992 … kind of a “drunkard’s walk” of work.
Most of my advanced degrees are in Theatre, but I also have an M.S. in astronomy. When I was a kid I wanted to be an astronaut or an astronomer… or the next Edgar Allan Poe! My march to science, however, was knocked askew when I tried out for a play (in order to look more well-rounded on college applications) and discovered that, for the first time in my life, I was getting attention from the opposite sex. This was the most powerful hallucinogen imaginable for the young man I was at the time, and its effects lasted for many years — through an MFA in acting and a Ph.D in Dramatic Art.
So, now, here I am: I have training as a stage actor but haven’t acted in 25 years. All told, by this time I probably should have been a (perhaps tenured) college/university professor teaching theatre; however, after one year as a college instructor, I allowed personal matters (my first divorce) to kick me out of the quest for a permanent academic post, and as a result I have mostly worked in IT. I believe this (devolving upon IT as a “second career”) is a not-uncommon scenario for people in the arts and humanities.
I’ve been married and divorced twice; my 2nd ex-wife is my best friend. She and I have sometimes (OK, often) discussed a future where, if neither of us winds up re-married, we buy land together and build individual “huts” on it — with a connecting tube so cats can go back and forth, of course.
Erik’s Current Job and Home
In 2008 I moved from Brooklyn, NY, where I had a lousy job with four hours a day of commuting, to the Boston area to take a job at a world-class scientific institution. I work in a large data archive for astronomy and astrophysics.
This is something like a return to my childhood dream of being an astronomer, but I only support the science. It’s sometimes a bitter position where I get to watch others do the things I once dreamed about. My work includes writing programs in Perl to provide various forms of access to the data, writing some database backed webpages, and classifying papers from astronomy journals (with respect to how they use the data). It sounds cool.
I have a loony black cat named Oort Cloud — I named her for a theorized (by astronomers, that is) cloud of cometary bodies in the Solar system that has never been observed. The joke is that Oort Cloud the cat, who is shy, has “never been observed” by cat sitters. She keeps me alive with her cuteness and weirdness.
I’ve spent most of my life in perpetual monetary woes, but recently a couple of raises at work + an inheritance from my father has lightened that somewhat. I read too much. I write poetry. I study everything that I find interesting. My goal is to do “citizen science” in astronomy (this is the main goal — I have lots of others too: learn German/Spanish/French; learn to play the piano, etc. etc.). The overwhelming passion of my life has been knowledge — I haven’t had all that much luck with other common passions.
What brings you to submit a Case Study?
In general, I feel stuck. I’ve been at my current job for 13 years and have no place to go but sideways: at the facility where I work, if one lacks a Ph.D. in physics or astronomy, there is only so far one can go. I’ve made some effort to find another job, but I got a late start as an IT person and am now pretty … uhm, superannuated for a field where youth and energy are emphasized. I started encountering ageism in my 40s. I have never been good at job searching. And now I’m making excuses… 🙁
More specifically …
When I am outside and look up at night, I can’t see the stars, apart from the very brightest ones and the Moon and planets; furthermore, I have no backyard, no place to set up my telescope even if I could see lots of stars. I live in a one-bedroom apartment, and the light pollution here in metro Boston is horrible. It’s difficult for me to convey how distressing this truly is for me, and how important it is that it change, and soon. I’ve reluctantly lived in large, light-polluted metro areas for decades, because that is where the work is — and my lifestyle has been, I’d say, that of a permanent graduate student: renting apartments, furnishing them sparely and cheaply, and buying too many books.
I don’t so much mind the crummy furniture as I do being stuck in suburbia far from being able to see the Milky Way, far from mountain or forest trails, far from quiet nights with fireflies, crickets and sweet air. I can’t say I care much for the bulk of western civilization, so my ideal situation would be a cabin/house somewhere in the country, with a good view of the sky, with (very importantly) a space I can use for a workshop for more telescope building — and, ideally, with a fireplace. My dream is being able to see the stars whenever I want, and be able to work on astronomy projects (the “citizen science” I refer to above) and write.
I often think about moving abroad to Germany or France or, closer to home, to Mexico. I am afraid I don’t feel very connected to my country any more.
What’s the best part of your current lifestyle/routine?
I enjoy a certain style of freedom: I’m single, with no children and (whether due to the rumored coldness of Bostonians or my own misguided hermit life choices) no real social circle. Apart from work, I do what I want to do when I want to do it. If I want to take up drawing, or playing the piano, I do it. If I want to stay up until 3 in the morning listening to avant garde jazz in my boxers, I do that (as long as I’m on headphones — I live in an apartment!).
What’s the worst part of your current lifestyle/routine?
The distance from peace, quiet, starry nights and nature (and caves! plus, New England caves are kind of gnarly, and even those are far away from the Boston area). If I’m going to be a hermit, I’d prefer it to be in a place that’s at least pretty, or in another country entirely. I also have no place to work on telescopes and other projects, which is a huge constraint on what I want to be able to do. I am finding it extremely difficult to pay attention to the things that matter most to me.
Oh, and if I never have to hear a pair of Bostonians communicate using their car horns ever again, it will be too soon.
Where Erik Wants to be in Ten Years:
- I have more money now than I have ever had, but… that’s not saying a lot!
- I am convinced that, for a 59-year-old, I’m in a terrible financial state. Am I?
- In ten years I would like to be in a not-terrible state. I would also like to know enough to be able to assess my situation with more specificity and skill than I can now.
- I want to be at least semi-retired and spending the bulk of my time doing things that are important to me.
- I want to be able to travel internationally when I want, without worrying about the money.
- I want to be able to really do the art and science projects I come up with, not just dream about them.
- In 10 years I will be 69 years old, and I would like to have been retired for a few years — or, if not, doing something I truly love and that hardly feels like a job.
- My psychiatrist keeps telling me he envisions me as an eccentric bookseller, and I keep telling him that health insurance + enough money to live on are important to me! 😉
|Erik’s net income||$4,022||Salary minus health insurance, TIAA-CREF deductions, taxes, etc.|
|Ex-wife’s phone payment contribution||$80||We share an AT&T account. Long story.|
|Item||Outstanding loan balance||Interest Rate||Monthly required payment|
|Auto Loan (University Credit Union)||$7,020||4.99% interest||$176.43|
|Platinum Rewards Mastercard (University Credit Union)||$792||(I can’t seem to find this)||I could pay this off right now|
|Item||Amount||Notes||Interest/type of securities held||Name of bank/brokerage|
|TIAA-CREF||$247,892||This is my retirement account through my employer. They put in 12% of my salary annually.||Currently in money markets for safety||TIAA-CREF|
|Beneficiary IRA||$117,776||Another part of the inherited stuff||I let LPL Financial do the investing. Here’s what it’s invested in:
||LPL Financial. It appears I pay them an annual maintenance fee of $40.00. That’s all I can find in terms of fees.|
|Money Market account||$104,210||Part of what I inherited from my Dad||OK, this is a little weird, but … I consult with a friend of mine on
stock stuff, and last March, when the market went flop due to COVID
pressures, etc. he had been advising me to move stuff to safer places
for some time. So I took everything that’s there and put it in money
markets, which earn zilch but are safe. And it’s sat there ever since.
I did much the same with the TIAA-CREF funds. I’ve been waiting for
him to say it’s okay to move stuff back.
|Savings account||$61,503||0.1% interest||University Employees Credit Union|
|Checking account||$23,461||0% interest||University Employees Credit Union|
|Vehicle make, model, year||Valued at||Mileage||Paid off?|
|Hyundai Elantra 2012||$3,770||56,341||No, the amount I owe is listed under “debts”|
Credit Card Strategy
|Card Name||Rewards Type?||Bank/card company|
|HUECU Mastercard||none||University Employees Credit Union|
|Food – Groceries||$275|
|Food – Doordash, et al||$144|
|Car Insurance||$134||Safety Insurance|
|Pet (veterinary)||$68||(very much an estimate)|
|Gas (car)||$30||I don’t drive much|
|Duolingo (language learning app)||$10|
I know there are other things, but I don’t keep granular enough records 🙁
Erik’s Questions for You:
- How do I get from where I am to where I want to be?
- How do I assess my current resources? I am wondering if I am slightly unusual in that I am just me. That is, none of my assets go toward anyone else (such as children’s educations, etc).
- Do I have enough resources to make a start?
- I don’t know how to figure out how much money I need; I’ve never been good at money matters. In some ways I suppose I am already frugal: I certainly don’t think I have spent as much on furniture and clothing as many other people do … but on the other hand, I could certainly stand to lose my book addiction! And do I really need Netflix, or any of the other things I’m subscribed to?
Liz Frugalwoods’ Recommendations
I want to start off by thanking Erik for bringing his Case Study to us. I think a lot of folks will see themselves reflected in his story, which makes today’s conversation all the richer. Before we dive into Erik’s questions, I want to reassure him that he is not in as dire a financial situation as he assumes! I think that with a few crucial changes, Erik can right some financial wrongs and set himself on a great financial trajectory. Ok, let’s get to it!
Don’t Forget About Social Security and Medicare
Two key variables Erik didn’t mention are Social Security and Medicare. Since Erik’s been working for decades, he should qualify for Social Security.
I recommend he calculate his expected monthly Social Security payments by following these instructions on how to retrieve his earnings tables from ssa.gov (the government’s Social Security website). Knowing the dollar amount he can expect to receive in Social Security every month will form a crucial baseline for his retirement budget. Note that Social Security benefits increase the later you start taking them.
Next up, Erik should be eligible to receive Medicare at age 65. He mentioned his concern with having affordable healthcare and so it’s good news that he’s just five years away from Medicare. I suggest he go through these steps on the government’s Medicare website to determine his eligibility and anticipated premium amount.
The most significant changes I’m going to suggest for Erik relate to how his assets are invested and managed.
The Bad News
Unfortunately, moving his investments out of the stock market and into money market accounts caused Erik to miss out on one of the greatest bull markets in history. Sadly, I imagine his sold those equities as a loss and then proceeded to miss out on doubling his money. While there’s nothing to be done about it now, I want to highlight this as a cautionary tale. This is why I recommend, over and over again, to invest your money and LEAVE IT INVESTED. Very few people make money by pulling their money in an out of the market. A lot of people make money by leaving it invested for decades. That is how investing works and it’s the only way to go.
While Erik’s friend was correct that yes, the markets initially flopped a bit due to Covid, they then proceeded to grow astronomically. Kiplinger put it best when they said:
As a trying and tragic 2020 comes to a close, the stock market provided one of the year’s few silver linings.
I’m going to use a few graphs to illustrate why it’s best to invest and stay invested for decades, no matter what happens to the markets on a given day, week, month, year or years.
Here’s a graph from Macro Trends showing the Dow Jones Industrial Average’s performance from 1980 to the present:
As you can see, the market fluctuates up and down, up and down, but overall, on the whole, over time, it goes up. I like to remind myself of this with the following:
Gotta gotta go down to go up.
Anytime you feel that twinge of panic and want to sell your stocks? Just remember: gotta gotta go down to go up.
For an even broader view of the market’s performance, check out this graph from Morningstar:
As we can see, from 1870 to the present day, the market experiences dips, depressions and recessions, but eventually, it rebounds.
I like Morningstar’s assessment of the pandemic crash, as follows:
This historical stock market return data provides clear evidence that market crashes aren’t as unique as one might have thought. The term ‘black turkey’ is more apt, since they appear every so often—and this year’s coronavirus-caused crash is only the most recent example.
Given what this data shows about the regularity of market declines, it’s clear that market risk is about more than volatility. Market risk also includes the possibility of depressed markets and extreme events.
These events can be frightening in the short term, but this analysis shows that for investors who can stay in the market for the long run, equity markets still continue to provide rewards for taking these risks.
Does this mean that the market will always and forever rebound and continue to go up? Maybe yes, maybe no. All we have is historical data and past performance is not a promise of future performance, but it is a guide.
Here’s another explanation of what the pandemic did to the market, from CBS News:
It was one year ago that the terrifying free fall for the stock market suddenly ended, ushering in one of its greatest runs. On March 23, 2020, the S&P 500 fell 2.9%. In all, the index dropped nearly 34% in about a month, wiping out three years’ worth of gains for the market.
That turned out to be the bottom, even though the coronavirus pandemic worsened in the ensuing months and the U.S. economy sank deeper into recession. Massive amounts of support from the Federal Reserve and Congress limited how far stocks fell, and by August the market recovered all its losses.
As time passed, the quick development of coronavirus vaccines helped stocks shoot even higher. So did growing legions of first-time investors, who suddenly had plenty of time to get into the market using free trading apps on their phones.
It all led to a 76.1% surge for the S&P 500 and a shocking return to record heights. This run looks to be one of the, if not the, best 365-day stretches for the S&P 500 since before World War II. Based on month-end figures, the last time the S&P 500 rose this much in a 12-month stretch was in 1936, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Hence, the pandemic ended up ushering in the greatest market rise in the 85 years. Unfortunately for Erik, what this means is that he missed out on what will likely be the greatest market growth period of his entire lifetime.
To put an even finer point on it, I want to share one final graph, also from Morningstar:
Morningstar’s concise assessment wraps us up perfectly:
The market downturn caused by the COVID-19 pandemic was one of the most severe in recent history, but it also proved to be one of the fastest recoveries. This episode reinforces two important lessons for long-term investors:
- Don’t panic and sell stocks when the market crashes.
- It’s very hard to predict how long the stock market recovery will take.
Ok, everybody got it? BUY AND HOLD. Do not panic sell stock EVER. Gotta gotta go down to go up.
The reason I’m spending so much time on this is that I want everyone to feel that they have an understanding of how investing in the stock market works. The best primer on investing I’ve ever read is the book, The Simple Path To Wealth by JL Collins, a version of which is also available on his blog’s “Stock Series.”
But the past is the past and what’s done is done. So what should Erik do with his investments now?
Is the Stock Market a Magical Unicorn of Free Money?
Nope! You could invest all your money today and lose 60% of it tomorrow. There is real, genuine, actual risk in investing in the market and it’s not for everyone. Some folks prefer to keep their money in savings accounts because they cannot handle the fluctuations of the stock market. I am not telling Erik (or anyone else) to toss all your money into the market and assume you’ll be a billionaire. I am outlining the historical trends of the market and explaining long-term investing. You will have to do your own research to figure out if investing in the market makes sense for you. I link you now to this article on the worst market timer ever. Closing quotes:
Losses are part of the deal when investing in stocks. How you react to those losses is one of the biggest determinants of your investment performance.
Saving more, thinking long-term and allowing compound interest to work in your favor are your biggest accelerants for building wealth. These factors have nothing to do with picking stocks or a complex investment strategy. Get these big things right and any disciplined investment strategy should do the trick.
Get Rid of the Money Market Accounts
A money market account is essentially a savings account. Erik is correct that money markets aren’t risky, but they also offer very little reward since the interest rates are typically below 1%. This would be ok if he planned to spend all of his money in the short term, but this is not so great if you’re planning to use your money in the future. Erik’s retirement should, in my opinion, be invested in something that’s going to make him more money over time.
Let’s take a closer look at each of his accounts:
1) Retirement account through employer, TIAA-CREF: $247,892
- Erik should investigate the investment options available with this account, other than money markets.
- At age 60 and–assuming he’s in good health–Erik potentially has 40 years of life ahead of him. He may want to get his money working for him so that he’ll have enough to carry him through retirement and old age.
2) Beneficiary IRA:
- I suggest Erik roll this over into an account that he controls. I strongly, strongly, strongly suggest he move away from using LPL Financial to do his investments for him because, frankly, they’re screwing him over. If it were me, here’s what I would do:
- Call Vanguard and tell them he has a Beneficiary IRA with another company that he’d like to roll over. I’m saying Vanguard because Erik already has an account with them.
- Explain that it was inherited from his father and ask Vanguard what they suggest he roll it into.
- The reason–and need–for this conversation with Vanguard is that Beneficiary IRAs have some quirky and specific rules governing them. Vanguard should be able to help him figure out what he can (legally and profitably) roll it over into.
Get Rid of LPL Financial
While Erik notes he’s only paying LPL Financial a $40 annual maintenance fee, he’s actually losing a fairly exorbitant piece of his inheritance to them by way of Expense Ratios. This right here is one thing that I–pardon my vitriol–really HATE about traditional financial advisors. They conceal their fees under the guise of “investing in your best interest” and “monitoring the global markets to keep you competitive” when in fact? They’re just taking your money.
What Is an Expense Ratio?
Expense ratios are the fees you pay for the investments you hold, which are listed as a percentage. You want a low expense ratio, so that you’re not losing a ton of money to fees. Many a shady stock broker has raked in millions by charging high fees. When choosing a brokerage and a fund to invest in, it’s imperative to evaluate the expense ratio. Why on EARTH they can’t just call them “fees” is beyond me. Oh wait, I know why, because then people would realize they were getting screwed.
The bad news is that the stuff LPL Financial has Erik invested in has criminally high expense ratios:
- The MFEGX (MFS GROWTH CL A) has an expense ratio of 0.87%
- OPPAX (INVESCO GLOBAL CL A) has an expense ratio of 1.06%
- MWEFX (MFS GLOBAL EQUITY CL A) is at 1.16%
- MFIOX (MFS INCOME CL A) is 0.76%
- …ok I got too depressed googling these expense ratios and just stopped, but we’ll assume the rest are as astronomical
For comparison, Fidelity’s Total Market Index Fund (FSKAX) has an expense ratio of 0.015% and Vanguard’s Total Market Index Fund (VTSAX) has an expense ratio of 0.04%
I realize that these percentages sound meaningless and similar, but they add up to real money when you’re talking about hundreds of thousands of dollars.
To figure out how much Erik is losing to fees, I used this handy mutual fund calculator from Nerd Wallet. I input the total amount Erik has in his Beneficiary IRA, along with the expense ratio of 1.16 and learned that he’s losing around $1,366.20 PER YEAR in fees to LPL Financial, plus the $40 annual fee they charge for a total of $1,406.20 annually.
By comparison, if Erik had his Beneficiary IRA invested in Vanguard’s Total Market Index Fund (VTSAX), with an expense ratio of 0.04%, he’d spend $47.11 annually in fees, which is $1,359.09 LESS than he’s currently paying LPL Financial. Again, you might cry “small potatoes!” But, over the course of an investing lifetime, which in Erik’s case could be another 40 years, that’s $54,363.60 he’ll save if he switches over to a fund with a low expense ratio (and it would actually be even more money saved because as your money grows, the expense ratio gobbles up more and more).
3) Money Market Account: $104,210
If it were me, I would invest this money into something that delivers a return. In order to better understand his options, I recommend that Erik read the book, The Simple Path To Wealth by JL Collins (a version of which is available on his blog’s “Stock Series.”) Investing would allow the possibility for Erik’s money to grow over time, as opposed to stagnating. Might he lose money in the market? Absolutely! Did we just do a ton of cool charts and graphs about how the market behaves over time? We did. I will note it’s convenient that he already has an account with Vanguard…
4) Cash (checking and savings account): $84,964
In some instances, I would say this is too much cash to have on hand (because checking/savings/money market accounts aren’t earning interest and aren’t keeping up with the market), BUT, in Erik’s case, he may actually want to keep this money liquid.
The reason I say this is that he expressed interest in potentially changing jobs and/or moving. And if there’s one thing that moving always is, it’s expensive. Given the potential for change and volatility in Erik’s near future, I think it probably makes sense to keep this money liquid at present. Once he settles down after moving/changing jobs, he might consider investing a chunk of this.
It’s prudent to always keep an emergency fund in a checking/savings account, but beyond that, he could consider investing it. Again, not investing money = the opportunity cost of losing money over time. An emergency fund is typically three to six month’s worth of your expenses. In Erik’s case, since he’s not 100% sure of his monthly expenses, he should round up to be safe. Monthly spending of $2,946.58 x 6 = $17,679.48, so let’s say round that up to $20k for safety.
Move The $84K An Account That Earns Some Interest!!!
I gotta say, I am super unimpressed with Erik’s University Credit Union. Their credit card offers no rewards and their savings account offers the tragic interest rate of 0.1%. I mean seriously, Credit Union, what are you doing here? Nothing helpful. While no one is going to get rich on the interest earned from a savings account–that’s what the stock market is for–you can at least earn a tidbit.
An account I like is the American Express Personal Savings account, which–as of this writing–earns 0.40% in interest (affiliate link). If Erik put his $84,964 into this account, he’d earn $340 PER YEAR in interest as opposed to the $0 he’s earning with his current checking account. Again, these percentages all seem sort of small and meaningless, but they add up over time.
Erik, pay these off today! With $84k in cash, there is no reason to carry a $7,812.35 debt load. Pay off the car and the credit card right now (seriously, this minute) and don’t go into debt again.
Erik noted that his credit card earns no rewards, which is sad times! There are tons of no-fee credit cards that offer awesome travel or cash back rewards. As long as Erik can commit to paying his card off in full every single month–with no exceptions–he should consider getting a card that earns him some rewards! Here’s a post I wrote about how to do this: The Easiest $486 I’ve Ever Made: How To Use Cash Back Credit Cards To Your Advantage.
And here are a few cards for Erik to consider:
1) Blue Cash Everyday® Card from American Express offers a hierarchy of cash back percentages:
- 3% Cash Back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%)
- 2% Cash Back at U.S. gas stations and at select U.S. department stores
- 1% Cash Back on other purchases
- Earn 20% back on Amazon.com purchases in the first 6 months of card membership (up to $150 back)
- Earn $100 back if you spend $2,000 within the first 6 months of card membership
- Unlimited 1.5% cash back on all purchases
- Earn $200 if you spend $500 or more in purchases within the first three months of card membership
- 3% cash back on dining and entertainment
- 2% at grocery stores
- 1% on all other purchases
- Cash back won’t expire for the life of the account; no limit to how much you can earn
- Get $200 if you spend $500 on purchases within the first three months from account opening
- 5% cash back on travel purchased through Chase
- 3% on dining at restaurants and drugstores
- 1.5% on all other purchases
- No minimum to redeem for cash back, rewards do not expire as long as your account is open
- Earn $200 if you spend $500 in your first 3 months from account opening
(note: these credit card links are affiliate links).
Erik’s Question #4: I don’t know how to figure out how much money I need
Part of this answer stems from figuring out how much money he spends. It’s impossible to calculate what you’re going to need if you don’t know what you’re spending. A person can live happily by spending $45k per year; a person can feel that they need to spend $2M per year to live happily. In order to figure this out, I recommend Erik start tracking his expenses in a serious way. He has the basic outline of his expenses, but he noted that he doesn’t track his spending on a granular level. I use and recommend the free expense tracking software from Personal Capital because, well, it’s free and it works and it’s easy to use. Here’s a more detailed explanation of how I use Personal Capital (note: these Personal Capital links are affiliate links).
This is imperfect, but, I’m going to use Fidelity’s (oversimplified) rule of thumb to give Erik some context:
Fidelity’s rule of thumb: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
By that metric, Erick should have 8 times his salary saved at this age, which would be $393,792 ($49,224 x 8). At present, his assets stand at $554,841.69, which means he’s in great shape! One of the major caveats I have is that Erik’s rent is really really really inexpensive. This is awesome! However, it does give a distorted sense for how much money he might need in retirement should he require long term care, a nursing home, a home health aide, etc.
I’m a big fan of online calculators and I suggest Erik play around with Engaging Data’s Post-Retirement Calculator to determine whether or not he’s likely to run out of money in retirement.
I think his ability to retire will hinge, in part, on what his Social Security benefits are and if he’s willing to remain as frugal as he is now.
Career and Lifestyle: Get to Dark Skies!
I’ve spent a lot of time on the mechanics of Erik’s finances and I want to close with a discussion of his lifestyle and career. I hear, and understand, his desire for a quieter, more rural area with dark skies (hmmm, sounds where I live….. ) and I want him to be able to do that.
I envision several options:
1) Stay at his current job at least until minimum Social Security age, which is 62, but ideally a bit longer. The reason I say “longer” is that Social Security benefits increase with age (and depend on the year you were born). In other words, the longer you wait to start collecting Social Security, the greater the amount will be. Focus on saving money and researching places to move after retirement.
2) Determine if the rural land arrangement with his second ex-wife is a real option. If they want to do this, they should probably do it sooner rather than later. At the very least, if they want to do this, I’d start researching locations and land prices ASAP. Building from scratch on rural land is more expensive than buying an existing rural home, so they may want to reconfigure their thoughts on that. There’s a reason why we didn’t build our rural house. The cost of putting in a well, a septic system, a driveway, running electricity and internet to the house… there’s a huge list of expenses with rural building before you even consider the cost of the home itself.
Of course, the more rural you’re willing to be (i.e. no running water, no electricity, no internet), the cheaper it is. I will note that there are quite a few unique properties in Vermont with multiple homes on them–Mr. FW and I seriously considered buying an old commune that had several buildings on the land, including an awesome yoga yurt (I really wanted that yoga yurt… ). In looking around, they very well might find something already built that’ll suit their needs.
In terms of employment, could Erik work remotely for his current employer? Say from a yurt in the woods of Vermont? I mean, I’m sure there are other states they could move to, but Vermont has some really dark skies… ;). If remote work is not an option with his current employer, another idea would be to….
3) Start job searching at universities in small towns with rural adjacent communities.
Universities often value age and experience in a way that tech employers don’t and, since he has so much experience, he might be able to easily parlay that experience to another university. There are plenty of world-class institutions close to dark skies and cheap housing…. Dartmouth College, Middlebury College to name a few. But seriously, there are plenty such institutions around the country, not just in New England.
The caveat here, yet again, is that Erik’s rent is so low that I kind of doubt he’s going to be able to find something as cheap to buy or rent. It’s also not the greatest time to be buying a house, since the housing market is white hot at the moment, but the middle of the country might have deals. Alternately, continuing to rent might be a great strategy. There’s no rule that a person needs to buy a house in order to be financially stable. Erik is a very financially stable renter and that might be a great long term strategy for him.
4) Erik mentioned the possibility of living abroad and, in my opinion, he should travel abroad but not move abroad. Seems it would be far easier and less expensive to find a better location fit in the US and then do extensive travel abroad.
- Calculate his expected monthly Social Security payments by following these instructions on how to retrieve his earnings tables from ssa.gov
- Determine his eligibility and anticipated premium amount for Medicare by following these steps on the government’s Medicare website
- Stop taking investing advice from his friend. While I have no doubt Erik’s friend is well-intentioned, his advice caused Erik to lose out on the greatest stock market increase in 85 years. If Erik had remained invested in the market, it’s possible he’d have double the amount of money he does today.
- Move his investments out of money market accounts. And fast. Every day of delay is a day he’s missing out on potential growth in the market.
- Call Vanguard (because he already has an account with them) to discuss his options for rolling over the Beneficiary IRA into a Vanguard account. Be explicit about the type of IRA this is and ask for a menu of options for the rollover. Google every term you’re unsure of (that’s how I learned all of this!). Then, roll the account over and FAST. The faster Erik can get away from LPL Financial, the better off his investments will be for the long term and the less money he’ll lose to fees.
- Keep the $80k in cash for now, but consider investing what’s not needed for his emergency fund in the future, after any potential move/job change has settled out. Move this money into a savings account that earns interest, such as the American Express Personal Savings account (affiliate link).
- Pay off the $7,812.35 in car and credit card debt immediately.
- Get a credit card that earns either travel rewards or cash back (affiliate link). There’s no reason to use a credit card that doesn’t earn rewards (as long as you can pay it off IN FULL every single month. You don’t pay the “minimum amount due,” you pay the full balance every month).
- Start tracking his expenses using either the free service from Personal Capital or some other systematic approach (affiliate link). No more guessing!
- Start researching universities in rural areas with dark skies. Apply for open positions and see where that takes him.
- Have a serious conversation with ex-wife #2 about the potential of going in together on rural property and land. If that’s the path, start researching and do it soon! Explore the feasibility of either: a) remote work with current employer; or, b) employment with a rural-adjacent university.
- Enjoy and keep us posted!
Ok Frugalwoods nation, what advice would you give to Erik? We’ll both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk.
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