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Welcome to Making a Millionaire. Megan & Patrick thought that they were living the American Dream. But then, disaster struck. Can we help them build a better relationship with money?
Learn more about how you can incorporate millionaire habits into your own life and master your money mindset. Cultivating a healthy relationship with money doesn’t need to be difficult, but just like any other habit, it must be practiced and perfected over time.
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Brian: Welcome to Making a Millionaire. This is where we help our guests build their Great Big Beautiful Tomorrow. I’m Brian Preston joined by Mr. Bo Hansen.
Bo: That’s right Brian—I am so excited. This is a show for millionaires and millionaires in the making and we are so excited that today we get to sit down with Patrick and Megan. Guys how are y’all doing this morning?
Patrick: Doing great.
Megan: Happy to be here.
Bo: Well thank you all so much for coming and letting us be a part of your financial journey. For the folks out there though that don’t know who you guys are—give us a quick—quick rundown—who are you—where are you from—what’s your backstory and then how do we get here to where we are today?
Megan: Sure. I’m Megan—I’m 45 years old—my husband Patrick—we’ve been married for 20 years. We have lived all over the place. We started out in Florida—prior to that was Georgia—we’ve been to New York—now we’re back in King, Georgia. So we bounced around a lot. We’ve gotten through—I think—the worst of the messy middle and now we’re hoping to kind of figure out the coasting plan to get us to the finish line.
Bo: Messy middle—me—you got some kids in there?
Megan: Yeah—we got a couple of kids—a daughter 16 and a son 14. They’re doing great.
Brian: Oh nice.
Bo: Teenage years are awesome—right—that’s like a super easy thing as a parent.
Megan: Honestly—compared to the toddler years I’m liking it.
Brian: So—I like the sound of that—that sounds awesome—awesome.
Brian: All right—so—two kids—16 and 14—what do you guys do professionally—what—what are your vocations?
Patrick: I’m a civil engineer—work for a municipality.
Megan: And I’m a pharmacist.
Bo: Awesome. And have you done those—jobs for your whole career?
Patrick: No—I started—I graduated civil engineering—worked land development in Florida. Then 2008—that fell apart a little bit. So did a complete career change and—worked for a railroad as a locomotive engineer—oh wow—in Upstate New York. And then came back down South. So now I’m back to being a civil engineer.
Bo: Now you say fell apart—is that because of—the Great Recession—fall time?
Patrick: Land development in South Florida fell apart bad. It was a hard—hard time to do that.
Megan: Yeah—that hit us hard in a lot of ways actually. But we had been homeowners at the time and our property had lost about 85% of its value—
Brian: Oh wow—
Bo: Oh wow—yeah—
Megan: We went from $285,000 and ended up at selling for right around $69,000—
Brian: Oh wow—
Bo: Okay—so let’s rewind a little bit. But before we get to 2008—and because it sounds like that had a big impact on you guys—right—tell me a little about your financial backstories—growing up—what was—how—what was money in your life growing up—did you—what kind of upbringing you have—what kind of familiarity—education—how did you guys learn about money for the first time?
Patrick: So I grew up in Peachtree City which is a suburb of Atlanta—nice middle class—well at my time it was a nice middle class neighborhood. It was a great area to grow up in. Single family—mom—worked for Delta—half of the—half the folks down there—that’s right. Know—we had a modest lifestyle—but we lived within a fairly narrow budget. But—I never really felt in—in want of anything.
Bo: Did you understand money and how it worked and were you part of that process when you were in the household or when did you—when did you figure out money for yourself?
Patrick: We learned to live within budgets—here is your allowance—this is what you will have—this is all you will get and you must make your decisions accordingly. You can ask please and thank you but this is the budget that you were allotted—do your best with it. And that’s how I learned to budget and save for what I wanted. And—you know—it worked well and that was how the whole family worked. We have a certain allocation and you stay within it. A lot of us—I said—we’re Delta kids and we had certain things in common—hey let’s go to Spring Break in Honolulu because we can fly for free. Yeah—that’s awesome. And so I—that—that didn’t cost us money but it certainly felt good.
Bo: What about your background with money—what about your upbringing—what was your relationship with money like early on?
Megan: I grew up moving all over the place. We started out in Southern Illinois—went to Seattle—and did some Georgia—all around Virginia.
Bo: Military or what was moving you guys around?
Megan: My dad’s job was some of it—my mom’s love of home remodeling was a lot of it. She was a flipper before that was a thing.
Brian: That’s awesome.
Megan: And so that was a lot of it. But I—my earliest memories—they’ve always been thrifty. My mom was—I mean you don’t shop on that first three racks in the store—you’re going to the back of the store—you’re finding the clearance racks—you’re looking for the deals. So there was always a strong emphasis on value for what you paid. And then we landed for high school and middle school years in Marietta, Georgia—just north Atlanta suburb. And—when my dad was in his 40s he got laid off—a similar story to your father I believe. And that definitely shaped us. I was going into college at the time and the big emphasis with my parents was—you have to get something that’s going to be a dependable job that you can count on—that there’s a high demand—none of these rainbow unicorn dreams for you—get serious. And luckily I was a pretty practical kid—it really wasn’t a huge hardship. But it definitely steered me into—to pharmacy—pharmacy—because you’re always going to need a pharmacist—right.
Bo: Yes—exactly.
Megan: And it’s been—yeah—and it’s been a great career for that. And the other thing I really wanted is I knew when I had kids I wanted to work part-time and not fall behind. And pharmacy would allow me that—so that—instilled—decent income. I just love that—beginning with the end in mind—think about the life you want to have and then pursue a vocation that does that. I wish more young people—and we were fortunate enough to do it in Georgia—both of us got our degrees on the HOPE Scholarship which was a beautiful thing. So we graduated without any college debt.
Bo: Amazing.
Brian: So that was a big—big help.
Brian: Any—any regrets because we’ll have younger people watch this too—you know—you—it sounds like you were told be practical with your college degree—get something—in your own words—not the unicorns and rainbows. It was there something you left behind to pursue the more conventional path of—of pharmacy?
Megan: Yeah—there was. When I—when I was at UGA—I took—an honors astronomy class and that lit a fire. And then they offered to take me down to the SETI lab over the summer to be an intern and I was a pharmacy intern instead—you know. So it—but now—
Brian: Can I pick on you a little bit? I took astronomy at Georgia—did you—because I thought it was going to teach me where the stars were and how to go outside at night. And I was like—this was going to impress the ladies. But here’s the reality—this is why I’m picking on you—astronomy at Georgia is actually a very math-based course. Now fortunately I was very math-minded so I did good at it. But it was not—it was not the rainbows and unicorns that I thought I was signing up for. So—it was—so you—even your rainbows and unicorn choice is very math-minded. So you just have a very analytical brain—it sounds like.
Megan: Yeah—and I will say—it was somewhat a rainbow unicorn class because the woman who introduced the two of us—I met her in that class so it was in the stars if you will.
Megan: That’s awesome.
Brian: All right—so we’re—okay—so fast forward now—you guys make it through childhood—you make it through University of Georgia—it sounds like—greatest university—Georgia Tech—but I’m—we’re gonna need—I’m just—that’s wonderful—we love Georgia Tech too. So you guys make it through college and you get married. Tell us a little bit about how did you navigate finances early on in your marriage. You said you’ve been married for 20 years I think. What was money like early on and then tell us the story of how we got from where you were then until where you are now?
Patrick: Well after graduation I moved to Florida and after about a year living down there working as a civil engineer—I bought my town home. And then—we went to our mutual friend’s wedding in Jamaica and hit it off. Megan was working in—North Georgia at the time and she had her own home. And so—wow—both of you homeowners super early ages as single individuals—right—that’s great. And so that was a big tip off to each of us that the other was responsible.
Megan: And I remember—well I remember one of the financial gurus back in the ’90s—one of the things that she had said was that out of all the decisions you’re going to make in your life—one of the most important financial decisions other than your career path is who you’re going to marry. Yeah. And so—yeah—I will say that seeing—we met freshman year of college and I wasn’t interested because I didn’t know where this boy was going. And I was a—he was—it was a tech—but a lot of people fail out of tech anyway. Six years later—I did not fail out of tech—six years later when we met and got—became reacquainted—at that point—yes—he had a career—he had a home. I’m like—it put a slightly different light on things. So there was some tequila anyway—it was lovely the way the weddings go.
Patrick: And I was quick to move into a house because it was one of the subdivisions our firm had designed. So I was kind of entry level into that. And so that was my big push. And—the prices of everything—we’re just going through the roof. So I wanted to get my foot in the door and that’s why I was pushed to get a town home early on. Yeah.
Megan: And so then we started dating and I ended up moving down to Florida to join him—found a job down there. He proposed in November and we eloped two weeks later to get in on the tax year—
Brian: Financial—a little bit—a little bit—
Megan: So—yeah—we had an actual wedding later but—you know—we got the paperwork done.
Bo: Did the family know that y’all did this—eventually—
Megan: Mine—mine knew in advance but—yeah—others found out a little later.
Brian: But I don’t know—I don’t know because—you know—now that I’ve gotten older and I have a daughter who—who’s in her 20s—I don’t know how I’d feel about that. Even being a financial mutant—but I think you have to respect the game. I mean that is—that’s pretty impressive.
Megan: Well and you have to market it to your audience. My grandmother didn’t like that we were living together and weren’t married—so talking about the tax—getting married—and—you know—I get that there’s other things with relatives. But I really do believe—at least I’m going to take you with your word—that you probably were thinking—hey we could go ahead and get a tax deduction.
Patrick: We were both pretty high income earners for our age and getting married didn’t help—so—yeah.
Bo: So you get married and you guys immediately start—saving money—building for the future. You—you—obviously you’re in real estate—did you start investing in real estate—how did you go about building towards the future?
Megan: Well we were both already saving into our—retirement plans at work. We both started doing that—not maxing—now I don’t remember the exact percentages—but we both graduated knowing that time was money—get in. And—so then we got married—we did quickly decide that it was a all-in-one-pot family lifestyle and that I would be stirring that pot. And—so we—we didn’t really start investing in real estate on purpose. But what happened is we were in the town home and—I actually sold my house in Georgia—we threw that money into the town home to pay it down. Because again—the common belief then was to pay off—get out of debt—get out of debt. And I knew that we wanted to have kids and I was going to go part-time then. And so I thought—well if we pay off the mortgage then that gives the room in the budget for me to go to part-time. And the mortgage rate wasn’t all that great. Sure. Yeah. And so then—what year was this—
Patrick: We got married in ’04.
Megan: So—yeah—and we bought again—so we—we were in the town home but it wasn’t an ideal place to start a family. And it—two bedrooms are upstairs—the master was downstairs and it just wasn’t ideal. So we started looking for homes thinking—family—and again—he was developing things. And so we found a house in 2006—six—right—that was the $285,000—
Patrick: Yeah—it was a couple blocks from his work—it like—oh this will be perfect—the seventh home built in the subdivision—sure—that sounds a great way to make money because you get in early and then they keep raising prices and you get some built-in equity.
Megan: That’s what was going on then too—people who didn’t live through it don’t realize—how everybody—this will never—they’re not making more land—not making more land—go—everybody’s retiring to Florida—everybody coming to—yeah—there’s going to be people. So we thought—well we’ll buy this and we’ll put our—our town home on the market. And we did that and then we got a contract. And about then the bubble started to—not burst but things were slowing down. And then people backed out of their deal on the town home. Then we had—yeah—so then we were sitting with two houses. And again—luckily—we were—the town home was paid off—it was paid for—it wasn’t completely paid off—we had a small mortgage on—yeah—okay. And so we were paying the two. Again—it was not hurting us terribly because we had a decent income and we didn’t have kids yet. But—we finally did sell it but not quite as much as we thought we were going to get. And then we—we had our daughter in 2008 and then things just really went south with the house.
Brian: Well and that’s where we kind of—we—we paused there and then we moved on to catch the rest of your life. But I do want to hear because when I was reading through the notes in preparation for today—I kept noticing a little bit of a cloud over your brilliant story. We’re going to get into your accounts and your numbers in here in a minute and y’all have done very well. But sometimes when I was looking at your questions and concerns—I said—it was more of the Eeyore side of things that had a little downer on it. What and I—and that’s why I wanted to lean into this house purchase or maybe I should talk about the house disposal. Because give us the rest of the story. What happened? You bought it for $285,000—you had trouble with the town home but it sounds like you eventually did get that sold.
Megan: We sold it.
Brian: What—how did—how—what happened to this house in Florida?
Patrick: We—we paid it off because again we were still thinking that we were going to be there long term.
Brian: Okay. You paid it off by 2008?
Megan: Yeah—I believe.
Brian: Okay—so—wow—y’all really—y’all threw the kitchen sink at it.
Megan: We were both working full-time and—yeah—and—yeah—we threw everything—I took the proceeds from my house in Georgia—had put that to the town home and the town home—so we rolled that into this house and then we just hit it hard. We were still contributing to retirement but not maybe maxing out—but it was our number one goal was to get—
Brian: So let’s repeat that—you paid off a $285,000 house within two years of owning it.
Megan: That’s—that’s pretty amazing from a cash flow perspective alone. I mean that—that’s a lot—I graduated pharmacy in ’03—so that was—yeah—about—I know you were rolling in other assets from proceeds from previous houses—but still that’s—that’s—that’s substantial—multiple six figures.
Patrick: We were celebrating when we got out of it—we were like—we thought that was great and amazing. And we paid it off a little bit before the market burst. And at the time when you look at the returns on real estate in Florida at that time—the returns were just amazing. And so that felt like the best investment you could make at the time. So we were in on it and excited.
Bo: So how did this go negative though? What actually led to this creating this Eeyore cloud that—that you’ll have over your financial life?
Patrick: Well—I said—I was pretty much in the thick of it as a civil engineer doing real estate development. Instead of everybody calling me five times a day—the phone went quiet. And then I had to start calling and asking about—you know—where do you want to go with this project—this town homes you want to build—what’s going on with it. And that—fewer returns. Then we had to call about collections a little more. And nobody came in the—and projects just started either dying—closing up. And so—
Brian: Your working capital—meaning your—your—your employment—was now in jeopardy.
Megan: Oh—absolutely.
Brian: And because of—of this. And now—but this also had an impact on your personal finances because what happened to the house?
Patrick: Well—I said—I think we were the eighth home to be constructed in the subdivision—around 50. And when the market—when the market blew up—the—the builder bankrupt—went bankrupt and the neighborhood never got completed. There’s still lots there today.
Brian: Wow.
Megan: There—they’re finally starting to get—but I—you know—there’s still places there that haven’t been developed. The other thing was—he was getting nice bonuses every year from this firm and then all of a sudden he came home one day and I still remember—he’s like—they’re starting to talk about maybe asking everybody to take a 20% pay cut so we can keep everyone on payroll—but you know—and so that might be coming. And that’s when we’re like—ooh—you know—again—this is—all right as we’re thinking about starting our family and this is a situation we didn’t think would ever happen—completely blindsided. Maybe a little—markets here and there have a fall in real estate value a little bit here and there—but an utter collapse was just unthinkable.
Megan: And I think the fact that we did understand this at the time—value of money—it made it—we knew we were young—we knew we were in our years that we were supposed to be building—not having tons of our equity just vanish overnight. And so it still stinks. I mean it shapes everything that we still do. Because—
Brian: You sold the house for what—
Megan: We sold it for—well we had—a deal to sell it for $85,000 and the appraisal came back I believe at $70,000 or something—it was right in there. And—we—the house was paid off so it wasn’t—it wasn’t an expense thing. Why were we selling the house? It was more because of his career prospects than anything.
Patrick: Had to get somewhere else. A lot of other firms were actually closing up their shops and we hadn’t been laid off or anything yet—but it was—we were worried. And again—we—at that point we had our daughter—we had family was all in Georgia. So we had an opportunity to go back to Georgia and we thought—you know what—that just seems like a safer bet for us. So the house—now you bought it for $285,000—what was the most it was ever worth—do you—I mean if you—
Megan: $285,000—but then—
Brian: You sold it for $75,000?
Megan: Yes—right in there—yeah.
Brian: Okay—so I can see how that—so that $200,000-plus kind of haunts you. Plus your—the career decisions you had to make—it’s what ended up ultimately leading him to go to the railroad too.
Megan: I mean it was just it shaped us. The Great Recession was a kick in the teeth.
Brian: I want to—I’m going to come back to the emotional impacts of that because I’m hoping by the end of the time y’all leave today—I can give you some guidance of somebody who—not only—we lived—by the way—we had that conversation because we—I hired Bo who came on the scene in 2008. And I’ll never forget that—that—that—that year was horrible—in itself. And—and—you know—because markets were down—you know—40%–50%—
Bo: Oh yeah—
Brian: Our investments—salary—and—you know—so everything was off. And I remember I came in—I had the exact same conversation with Bo. I was like—hey you’re not going to lose your job—I’ll just go ahead and put your—put your mind at ease—you’re awesome—I love you. But I can’t—take any more of this myself. So we might get to a point that I have to cut your pay.
Bo: You—you remember that conversation. And I used to go home and look out my back window and go—you know—I’m sure I could plant corn right there and I can probably feed my family.
Brian: So I don’t know if—if any of you are—are younger and you weren’t around during that—it was unique. And—and everybody back then—pre-2008 to 2011—really—the collapse of real estate—everybody used to say—go buy as big a house as you can afford because they don’t make more real estate—so this is going to be the best thing. And then we quickly see—trees don’t grow to heaven. And—and it was an accounting and reckoning that came in. So that—that’s the backstory. You kind of walked us through where—let’s talk about where you guys are today—right. Because it’s much better. Obviously that was a fairly traumatic thing for you guys to go through early on in your marriage—early on in your family. But when we fast forward to today—things look a little bit different.
Bo: You guys were kind enough to share with us some of your account statements. We want to kind of just go through your net worth statement—sort of state of where you are right now. And you can see that right now when we look at your total net worth—you have a net worth a little over $2.1 million—of which about $1.8 million of that is liquid invested assets. So you went from—uh-oh—2008—what is going to happen to us—to now—multi-millionaires. That’s incredible. So we got to pause there for a moment and say that is amazing. So here you guys are in your mid-40s with a—$2 million-plus net worth. What are your financial goals—what are the things that you want to work to from this point? Because you’ve obviously had that experience—here’s where you are now—now where are you guys going?
Megan: Well I—because of that experience—I think our number one goal has always been security. We just want to be sure that no matter what the world throws at us—that we’re still rocking and rolling and doing all right. And that we’re never a burden to our children. And that if our parents need help—we—we—we’re there—we just want to be able to support people who supported us—with a focus on stability.
Patrick: Focusing on stability.
Megan: But also we’ve gotten to a point where we’ve worked really hard and I’m also—I went through thinking—all of the savings that we did to get those numbers—that there’d be a time we could maybe ease up the gas just a little bit. And so I’m also at a point where I’d like to see that happen. And so I’m trying to decide—can we ease up the gas without jeopardizing that security? And—
Bo: How do you guys define security—what does security from a financial standpoint—what does that mean to you guys? Is it a—is it a number—is it all CDs—what does security mean to you?
Patrick: The ability to basically take a hit financially—you know—that—real estate issue that we had always haunts us every now and then. But it doesn’t end in retirement. I mean we—we looked—still at Florida and see the news and that homeowners associations—dues are going through the roof—hurricane insurance—going through the roof. Yeah. We’re in south Georgia now and we had a hurricane—who expected that in south Georgia. We did not—we thought—
Megan: North Carolina are getting hit—you know—something like that. Or—you know—out in Los Angeles—huge fires. Though—you have a steady stream—plan for retirement which is great—but then in retirement—bad things can still happen. That’s right. And I don’t want something bad to happen to the point where we have to go back to work after we’re retired. So just enough of a buffer while we’re retired to—I said—take a hit. We’ve always been able to weather the storms because we’ve had income still coming in. And so when I start thinking about—man I’d love to—you know—kick back and go travel and enjoy what we’ve saved—when I think about a big hit coming and us not having that regular income to fall back on or—hey I’ll go pick up an extra job—I mean I guess I could do that in retirement but I don’t want—but the desire is not to—the desire when you step away—to be able to stay stepped away.
Patrick: Yeah—focus on the kids—hopefully some grandkids—and it’s said—I traveled a lot due to his Delta upbringing—I have not. I would love to see more of the world. And so that—and when we were in our early 20s—we could always lean on our parents if we had to. That was the last resort—we can lean on our parents. But now that we’re at a certain age—it’s more like the parents need to lean on us.
Megan: They’re not wealthy but they’ve always been supportive and know—there was always an open door if we really had to have it. And so—yeah—and we’d like to be able to give them that security that they provided us when we were young. We’re more the safety net now instead of the parents.
Brian: Yeah.
Brian: So security—potentially easing up—were there any other goals—that—that the big ones?
Megan: Those are probably the biggest. I mean obviously—want to get the kids through college and make sure that we haven’t—you know—that we’re setting them up for the strong start that we had. Again—we were really beneficial that we graduated without any college debt. The money that we had saved through working through college—we were able to use for those down payments on our first homes that we got early. And that—that helped us again weather that—that storm that we hit. So I want to make sure that the kids are—are set up for that too without enabling them to just kick back and think—well mom and dad are—not—do nothing—right—warm buffet—is—yeah—we’re not that kind of wealthy—we’re just—you know—
Brian: I love it. And when do you think you—you all want to leave the workforce? What’s the goals here? You told me you’re in your mid-40s—
Patrick: Yeah—I originally thought when I was 50—that was based on the job that I used to have. But again—a couple years ago we moved and—I have a job now that is a lot less stressful that I really enjoy. I feel like I’m serving the community well. And I—I could see doing it for a long time—I mean easily into my 60s.
Brian: Oh wow.
Megan: But I would probably like to retire around 60—just so that we could start traveling more while we’re still young.
Brian: Love it.
Patrick: And I enjoy my job too—very fortunate after a lot of tough jobs to finally get to one that I like. And I don’t know—mid-60s—it depends on where insurance and Medicare and all that—early 60s—
Bo: So tell us—do you have an idea—when you get to retirement—when you want to live that lifestyle—how much is that going to cost? If today you were in your mid-60s—how much would it cost you to live the life you want to live on your terms?
Megan: I—was—guesstimated around $8,000 a month I think—great—$8,000—that gives that a travel budget—that—so we’re thrifty—so I—I—I could probably make it on a lot less but I’m hoping that—
Brian: Well—Financial Independence isn’t always about making it on a lot less—it’s about living the life you want to live. And that’s the difference. So that’s—
Bo: So let’s talk about—your accounts and—and what you guys have been doing to build towards this goal. And let’s kind of see—is it—is it realistic—is what you’ve laid out possible. So—and also the ease up—can we ease up. Yeah—is that something you can do. So—obviously when we look at your accounts—Megan—you have a rollover IRA—pre-tax money—you have a large Roth IRA. I was excited about that. How’d you get that? Is that—is that a one time you bought Nvidia or Tesla or just discipline?
Megan: It was mostly discipline. It was because—when—again we had been saving for that house and we paid the house off. After that I started just saving the money in a cash savings account—basically knowing that I was going to want to cut back and have kids—we’d have a little bit of a cash buffer. Well then he ended up—we left the job and then he decided he wanted to change career and went back to school for a year. During that year we had no income. So we took that year to do a big rollover and we rolled a lot into a Roth—and I—did a conversion—did a conversion—used the cash that we had saved—when I was—we were living off of it but we also used that to pay the taxes. So we were able to roll the whole thing over and pay the taxes out of something that we’d saved on the side.
Brian: Even a financial mutant—at hard times—I mean your income is down—jobs are changing—there’s an opportunity there—had to be—there had to be some silver lining to that cloud.
Bo: Well you know in The Millionaire Next Door—one of—one of the things that Dr. Stanley says is—one of the traits of millionaires is they recognize market opportunities. And even though you were in this spot—you found the silver lining. In Millionaire Mission you talk about silver linings and you found that. That’s huge. And because of you recognizing that—even that downtime—here you sit now with half a million dollars. And as a couple—y’all have close to three-quarters of a million dollars of Roth money. That’s—that’s—that’s going to help out with the retirement—
Megan: What we’re hoping—yeah—we’ve been big fans of Roth for a long time.
Brian: Over—lining very thin—we don’t like to choose favorite children on our different account structures—but definitely the Roth would be at the top of the list. And so we see your retirement accounts—you have a 401(k)—your current 401(k) that looks like it maybe just started out. And then you have an old 403(b) with about $270,000. Any reason why you’ve left that in the 403(b) structure as opposed to rolling it into your new 401(k) or IRA rollover?
Megan: The paperwork headache. I called them—I looked into it—they sent me this form—they said that he would have to have it notarized—because as my spouse he—they had to make sure that he was aware I was moving the money. And then—they sent me—you know—18 pages of teeny tiny print. And I’m like—it’s fine—I just left it. That’s the main reason. So—and the investments in there have been doing I think okay. And I don’t know—I need to take care of that.
Bo: That’s—so that’s one thing. It’s not something a must-do but you could obviously—obviously the more consolidated you can have your picture—especially if it’s inside the same tax buckets—the little bit easier just to manage and navigate through time.
Bo: And then—we have now—Patrick moving on to your accounts—you have two HSAs—HSA number one—HSA number two. Walk us through why we have two separate HSAs—do you know that—do you want—I think you’re going to have to help me out on that.
Megan: All right I stir that money pot. That’s because the way his—he had one job that allowed for an HSA. And—they separated it. There’s $1,000 or so that they won’t invest—they said they have to keep that—keep that cash in cash—and then the other part is the invested part. So that’s—there—two parts of that. And then we were only eligible for that HSA for about three months before there was another career change. And so it was very sad because I was looking forward to that HSA the whole time—for years—and we finally got a job that had one. And then now we’re back to 403(b) I believe so.
Brian: Because I did have a chance to review y’all’s tax return. And I was excited when I saw the page in there for the health savings account. And I saw there was an employer contribution of $333 but it didn’t give you guys credit for any contributions—
Megan: The reason we didn’t—and I didn’t think we could—is because we had had an FSA that year—a flex spending account. And so I—was—everything I was reading said it was—with the prior job—so the first job we had that year had the flex spending account which we had contributed to. We went and started the HSA—the company contributed without us even asking. So there was no contributions into the health savings because of that—that year. And that’s why I didn’t think we—I mean—
Brian: So excited—there was a financial mutant—I was like—and I knew it was already going to be prorated because I knew that there was—y’all weren’t going to be able to take the full HSA deduction. But I was trying to get you something.
Megan: I was too Brian—I really was—I wanted it so badly. And then what’s really sad is that his job now—it looks like we would have—be able to contribute to an HSA because it’s a high deductible plan. But our actual family max is over the limit—I guess—so it doesn’t qualify contributions. And so we were so close again—I—I’m calling HR—I’m like—hey this looks like a high deductible plan—can we have an HSA. She’s like—we don’t do an HSA. I’m like I’ll do one on my own. She’s like—no it doesn’t qualify. And I was like—
Brian: Yeah that is—by the way—when—when you structure health insurance—it is something we always make sure—is that are these HSA eligible? Because there’s so many plans that get so close but there are one or two ticks off on one of the coverages or the deductibles. So if you work for a company—I would advocate—because there’s nothing—there’s—because that’s something I would advocate and ask them—hey why—why are we doing this—why not choose the—the option that makes this HSA eligible?
Bo: So then Patrick—obviously—you have—two retirement assets—you have a rollover IRA—pre-tax—that has about $315,000. You have a Roth with almost a quarter of a million dollars in it. And then you have a 457—which is great—you know—super unique retirement account that you’re able to access earlier than traditional 401(k)s. And then you guys have some brokerage assets held inside a revocable trust of about $260,000. Where—where did that money come from? Are you guys in step seven of the FOO and saving after-tax?
Megan: Pretty much—yeah—we’re—we’re at step seven. Because we skipped ahead and did that paying off the low interest—but we’re back—we’re back where we’re supposed to be. And—yeah—so we’ve—we’ve been saving into that because—again for a while when we were in our prior jobs—we both thought retirement would be sooner because we were going to burn out earlier. Sure. And so we thought we needed to save into the brokerage account to have that as a bridge.
Bo: And then it sounds like you also—there’s some pensions there in the background for you?
Patrick: That just started with me yes.
Bo: Okay—tell us a little bit about what—what that looks like.
Patrick: Oh yeah. As part of the railroad—I paid into Railroad Retirement and was invested in there. Which is—Railroad Retirement is an alternative to Social Security. And part of the reason for me going to the railroad in the first place was Railroad Retirement. It’s—security—security—security. We were looking for security and we thought—well we don’t—Social Security is going to be there—but maybe Railroad Retirement will—will still be around. And so that—so it’s either Railroad Retirement or Social Security. And Railroad Retirement paid more and it’s solvent. So that was a big bonus for me. Yeah. So—did that and I’m invested in it. But now that I’m back—I’m with a municipal—employer—I’m back to Social Security but I now have a pension. And after 10 years I’ll be vested in that. Man—it feels like we’ve hit every retirement option.
Bo: Yeah—all you’ve done—every possible account combination—every number—account—yeah—we’d love to see that simplified a little bit. So the idea of rolling things over definitely is—and so those pensions are going to be about $2,100 a month in benefit. So if we’re thinking—again we’re just kind of doing some mental accounting here—you’re going to have an $8,000 burn rate—we’re going to have some Social Security coming in for both of you guys—going to have $2,000 in pensions coming in monthly. You’re already starting—in terms of security—we’re starting to kind of stack it up—right. It’s feeling pretty good.
Bo: Primary home worth $333,000. You’ve done great saving for the kids—you have two 529s—one with about $100,000—one with about $124,000 there.
Megan: Yeah—those grew a little faster than I expected. We started that again—the day that the children were born—they got their first lump sum put in. And yeah—they’ve really performed. And then we moved back to Georgia where again—we went through school on the HOPE Scholarship and we’re hoping that the children will as well. And so now I’m actually a little concerned I might have over—might have overfunded.
Bo: Well if you’ve overfunded—this is the best time to be alive to overfund a 529 because they keep giving more and more opportunities on what you can do with those assets even after college. So we—we’ll talk about that as well. So that’s good. So obviously—here’s where we are—sort of state of the union—net worth right now—present day.
Bo: Well let’s talk about how we’re growing that through time because clearly you could not get to this place unless you guys were fantastic savers. And when we asked you—hey tell us a little about what you’re doing from a savings standpoint—you kind of walked us through your savings plan—right. And it sounds like you’re both maxing out Roth IRAs—it’s—$7,000 each—$14,000. 457 for you Patrick—we’re maxing that out at about $23,500—which is a 30% contribution rate which is amazing. And then me—Megan—your 401(k)—we’re doing about 5%. Talk—walk us through that—what’s the thought?
Megan: Yeah—my company doesn’t guarantee matching because I’m part-time. It depends on the number of hours I get in for the year if they will match up to 5%. But only if I get over a certain number. So I’m trying to do that 5% just in there just in case. So I hope I get—because I—the match isn’t guaranteed. I’d rather—we’ve been putting more into his retirement where there is a guaranteed match.
Brian: Love it. Now I’m going to go ahead and say the obvious—it shows right here that y’all are saving approximately 29% of your gross income.
Megan: Is that true?
Brian: Yeah—that probably is true. But this doesn’t even tell the whole story because I—I—I wanted to wait until we got to this page—that after-tax account that’s close to a quarter of a million dollars. You’re like—yeah we’re throwing—we’re in step seven—we’re putting—so is there additional savings every month that’s going into that account too?
Megan: Not regularly—okay. When we sold our house in New York a couple years ago—we took some of the proceeds of that and put that in there. Because—because we—the house we bought in Georgia was less expensive. So when we have little windfalls—that—I tuck that in there. But again—now that we’re not planning on necessarily retiring that early—it didn’t seem quite as—you don’t see a lot of money going into that account then—
Brian: Not a lot—
Megan: That’s great. That’s—and by the way—this—unless we need to—that’s why we’re here—you know—we talk about 25%—it’s really the number. And since you already have—multi—you’re—you’re close to multiple seven figures—you—you’re already kind of over. The reason we’re doing that—the whole time he was at the railroad—he had no 401(k) or any other retirement—was just the railroad. And so I constantly felt like maybe we were under-saving those years because we were getting about 19%—I was maxing my retirement account—catching up for lost time—right.
Brian: Okay. But then I’m like—maybe I don’t need to catch up for lost time. That is a good question—I love it. Do I need to catch up?
Patrick: 529s—we were living in Upstate New York at the time so it really had good tax advantages—New York being a high tax state. And also at the time—if they wanted to stay close to home in New York—those schools are much more expensive. So we had a very rigid savings plan in that 529. Now we move—now here—we still have a lot of savings—it’s just instead of 529s where it’s not as needed anymore—we put it more into our—going towards retirement—into your bucket.
Bo: I love it. So obviously—well tell me this—would it be accurate for us to say—this is probably a conservative estimation—there’s probably not going to be a year you save less than this. This would probably be the lower end of what your true savings would be in any given year.
Megan: I don’t see any changes. Yeah—this would be our plan going forward. If anything I guess it would go up because when we get to 50 we have those catch-up contributions—right. So I guess—so the answer is yes—this is conservative—this is—this is probably the baseline—right—this is probably the baseline.
Bo: Well when we look at your account structure—we think about the three buckets—you know we talk about how we build moving towards financial independence—you guys have done a great job building up your three buckets. You can see that of all of your assets—you’ve got about 44% in tax-deferred—because of those decisions you made when you had the opportunity—you have about 41% in your tax-free bucket and you have 15% in your after-tax. The beautiful thing is that if you can build those three buckets—when you get to retirement—you decide that you’re ready to start living off these assets—you get to pick and choose what you pay in taxes. Maybe I pull some out of my 457 or maybe I pull some out of my IRA rollover and then I pull out of my Roth or I pull out of the after-tax account. You get to be in control of your financial situation. One of the things you guys have said is—my goal is security and certainty and stability. One of the things that’s uncertain is—what does the tax future for Americans look like? You guys are in a great position that with this account structure—even if taxes go up or down—you’re able to optimize based on whatever the tax policy is in the years you retire. So again—you’re—you’re moving towards stability—you’re moving towards security—which I think is incredible.
Brian: Yeah—I mean y’all are on the way to being tax-free millionaires. I mean think about that. You will—you will hit Roth—at a million dollars. I don’t know how I’m ever going to spend any of those tax-free dollars because they are my favorite. But—you know what—they’re actually great from an estate and legacy building way as well. That’s why it’s—it’s the dirty—dirty little secret is that—is your favorite account and then it’s the least account you want to get rid of because it does have such legacy benefits as well.
Bo: All right—so obviously we know where you are today and we know what your savings strategy looks like. And so you said that—our goal—we like our jobs—we’re not trying to get out of the workforce super soon—our goal is to retire around mid-60s—early 60s. We want to retire around the early 60s. Okay. So what does that mean—what’s your number—have you done the exercise working through what our number is?
Megan: I have. I use this great course that I found online—little nerdy spreadsheet—little nerdy spreadsheet—I have a couple of nerdy spreadsheets actually. But—the thing is—is that I can play with the numbers and make it say anything I want it to say—whether—if I tweak the—you know—the—what returns we’re going to get or what kind of inflation we’re going to see or again—can I live—can we live on $3,000 or $5,000 or do we need $10,000. I spend a lot of time on that spreadsheet but didn’t necessarily give me quite the certainty and clarity I was hoping for.
Brian: Because—you—you just said something and it hit me and I’m trying to figure out the dynamic between the two of you because I—I feel a little—it’s not a conflict but it’s just that it’s—it’s incongruent. You said it was actually you Megan that said that you want to potentially know if you could ease up because you want to travel more—do more. But I can’t help but notice—I feel like you’re also the—the gas pedal to increasing savings or—are you kind of in conflict with yourself or is this something—but do you see I’m just trying to figure out what your real goal—because it sounds like you’re trying to get more but—and even the spreadsheet that tells you—hey I’m doing great—you’re trying to find excuses—yeah but I can get it to say anything.
Patrick: I think part of that is that the cloud—at least for me—the cloud of 2008—is always going to be there. We were doing the right thing—we were doing what we were told—we were doing really well—and then you lose what—75% of the value of your home. So even when you’re doing the right thing—there’s still that cloud of—is something weird going to change in the future that throws all of your assumptions out the door.
Megan: And the other thing for me is that I said I do kind of head our family finances—that’s the role that I take. And so I take a lot of responsibility in that—you know—he makes the money—he puts it in the account and we have a great life that we built with it. But if that goes south—I’m going to take a lot of responsibility for that because I have been planning and telling him—hey knock that savings up to this—you know—that’s kind of—I’ve been leading that charge. So I—I want—I think this is—
Brian: Because we’re about to give you some results but I think before we do that—we need to clear the air on some of the mindset issues. Sure. Because us humans we have this tendency where we like to anchor towards—especially negative situations—you know. And y’all had—I mean—and it makes complete sense. You’re not only—was your financial capital crushed but you also had a lot of career stress. And I—I know—I mean I—I dealt with that some and I told you about my conversation—is that that can just—just echo throughout your head and—and create all kind of weird dynamics for the future—your outlook. So let’s kind of—let’s peel back the layers and talk about that period of time a little bit because I want—I want to change—see if I can shift your mindset. You guys lost around $200,000 on that house transaction. Now I can’t fix the career stuff—it sounds like you’ve done that Patrick—you’ve moved—you know—you’ve changed the—but I want to try to reshape how your mindset works towards that $200,000 loss—is because you’re remembering that loss as this catastrophic thing. But if I challenged you and I said—hey let’s first talk about your behavior—even if—because you feel like I felt like there was regret that you paid it off. Now look—I wouldn’t have had you pay it off as fast as you did—but I—I—I do want to ask you the question of—because this is a philosophical thing—I had a lot of neighbors in my neighborhood that even took out home equity lines and then walked away from the house. You guys—personally as a couple—was—even if you had not paid off this house—were you going to walk from this house or would you have paid it off—would you—
Megan: We would have—because the idea of walking away would have been a bigger failure. And so I couldn’t have told my parents—yeah I just walked away—there—there would have been—I would—
Brian: I completely—and I—I—resemble you and that’s why I knew—the first bridge I want to get you past—is that you were never morally going to walk away from that debt anyway. So all you did was you prepaid the negative equity anyway—you would have—you would have ended up in the exact same place. So I think you can free yourself from—if you have any regrets about prepaying—yes—there were some opportunity costs potentially—but I think you would have still paid it off—you would never have walked away from the—the debt. There—there was one other thing that happened—is that when we sold the house—we actually sold it to a coworker of mine. And that helped a little bit with the sting—I knew she was getting a good home and a good deal. And she was not in a—she was a single mother—not in a position otherwise—if the market hadn’t crashed—she would not have been buying a house at the time. And so at least even though we had to sell—we were able to sell it to somebody who I knew needed it. And so that—that helped a little too.
Patrick: So—go ahead and—when we were living in New York—we’d look at Zillow and Realtor.com every once in a while to see—is it back to what we paid—it took over a decade for it to recover. And so that was the other thing—well should we have held on to it and tried to rent it. And at the time we weren’t in that mindset either but we considered all of those things. And—and then again—no it would have taken over a decade for it to regain its value—a long time—that would have been an anchor—an even heavier anchor I think around us had we kept it.
Brian: So here’s the other thing that I want to help—hopefully change y’all’s perspective on—is that—and I do this with clients that we—that I’ve been fortunate that I’ve been managing money since—since—since the ’90s. And I have clients that—that we’ve had here at the firm since 2002. And I—I try to remind them that—that 2008 crisis where—you know—portfolios lost 25% and—you know—and you struggled with it—is I want you to look—I always say—look at the chart now of where 2008—how it—it in relative form to your total portfolio—it’s a blip. And I would challenge you guys because I was—Megan and I were talking about—then I brought Bo in on the fold—is that last year—we estimated—it was hard because you have so many accounts in different places—last year in 2024—it was a pretty good year for the investment marketplace. Y’all made—from our estimation—probably $250,000 going—you know—from—she’s like—oh—let me know—better than us—but I was trying to estimate it. Yeah—I might know what we made.
Bo: I love it by the way—you—you hit the jackpot by the way because she—she—financial mutant and y’all are—y’all are balancing—and last two years are both around $200,000 each year. So think about this $200,000 loss has just got this hangover effect—it’s this cloud that’s hanging over you. But yet now you guys are running soon-to-be multiple seven-figure portfolio and it is so successful that for the last two years—it has—it basically overwhelms the loss of that one year. You guys are doing incredible things. And that’s why I—you know—a lot of people think when you hire a financial planner that we are—and I heard you—I couldn’t help but chuckle because you said—you used to listen to a female commentator back in the ’90s. You probably—I know who it is—I can kind of guess who it is. And her big thing was—she said no to everything. And I think that—that gave—you know—a lot of people think when you hire a financial planner—we are the brake to all life choices—we’re going to say no—no—no—save—
Megan: She’s still in the back of my head saying it all the time—
Brian: I will tell you—as a financial planner—and Bo can echo this—our biggest thing—especially with a couple like you—is I’m going to try to unleash you in retirement to where you don’t feel this—this doubt or concern because you’re way too far from it now. Because you guys are 15 years from where your actual retirement is. But if you—once you’re a real retiree or even within 5 years of—of landing this airplane—I’m going to start doing Monte Carlo simulations so you see this in thousands of—of simulations run on your annual portfolio—and to give you the peace of mind. And you’re going to see—holy cow—86% of the time I’m going to be okay. You guys might be 95% of the time you’re going to be okay—just to give you that peace of mind. Then I’m going to say—okay now what are we doing—are we making more memories—are we spending more money. Because you guys are way too hard on yourself. I love what you’re doing. And I love that Bo’s about to unleash on you what is—you know—what we think your future potentially could look like. And even better—even if you pulled back a little bit on the savings—you have so many opportunities here. But you got to forgive yourself because you’ve done some incredible things. And I don’t want that one period of time to define—that one loss to define all your wins.
Megan: Yeah—it—it was—so—it’s—so hard because it was—we were young—it was a very—you know—formative experience. And again—we thought we had graduated from college—we had these great jobs—we knew what we were doing. And then life just slapped us down. And it was not a gradual transition there either was. And so—yeah—we—we’ve been fighting—and that’s—you know—to get over that. So—yeah—we’re hoping that we’ve done enough. But it’s—
Patrick: And it sounds—always that little voice—the thing you’re concerned about—I mean obviously you had the traumatic experience that happened but you’re like—what about the unknown unknowns. I mean you just mentioned all the crazy things going on in the country right now today over the past year—what if one of those things happens to us—how can we have confidence—
Brian: They didn’t say—what if one of their question was—what if all these things happened to us—all at once. Because that’s the part—I found myself—I was trying to look in my notes—I don’t have what you actually wrote us—I—because I—I can’t pull it up on this pad. But y’all threw out—I mean it was hurricanes—HOA fees are going up—insurance is going—I mean it was—it was like everything and anything all at once. And I was like—whoa—I mean this is—this is really throwing the kitchen sink in a different way.
Bo: But I want to put your mind at ease. You’re not unique in that mindset—that a lot of financial mutants—especially financial mutants who have come through some sort of traumatic experience—bring that baggage along with them. And no matter—we can tell you all the time—oh it’s going to be okay—it’s going to be okay—but it doesn’t make that feeling go away. So what we try to do is we try to remove emotion from the equation and how can we be pragmatic and practical and logical—arriving at a really good level of confidence with the plan that we have. And the way that we do that is through—these really conservative assumptions. And we say—hey if we build out a plan that works and everything that we do in this plan is so—so conservative that it’s going to be hard for it not to turn out better than it is—then we can begin to have some—some breathing room. Because if I would have asked you in 2009—right after this took place—hey guys—would you believe in the year 2025 we’ll be sitting here together and you guys are going to be multi-millionaires—would you have been able to—say—so things turned out better even than you thought they would have. And I think what’ll likely happen—and this is the case for most financial mutants—if you are conservative—your assumptions—that’s what happens. And so we decided—we decided we want to put together a plan to show—okay—what is your portfolio path—that’s what we call it—what does it look like if we just continue saving the way that you are.
Bo: So right now today you guys have $1.8 million. We just uncovered that you’re saving about 30% of your income. We said—hey what if we assume no pay raises—no increases—no bonuses—and we just save at that level for the remainder of your working career. And then we said—hey what if your portfolio only returns 6% annualized. Now do you know what you have been annualizing over the past—I believe around 8%—around—around 8%—
Brian: That’s—we actually—you really do know all your numbers—I love it—I don’t—
Bo: You know—we actually—synthesized your current portfolio—now—started this in 2006 by the way—it’s been going the entire marriage. But I love it—your portfolio—portfolio changed through time but your portfolio snapshot today—if we just back-tested over the last 15 years—you’ve annualized a little over 9% per year with the current portfolio. But obviously—as you know as you age—your risk tolerance changes and that sort of thing. But we said—let’s go really really conservative and say—what if we just had a 6% rate of return. And we think 6% is incredibly conservative. Well just with that behavior right now today—you start at $1.8 million—we estimate that just doing what you’re currently doing—by the time that you get to age 60—your portfolio will be worth almost $5 million.
Megan: Now that’s a nice number.
Brian: I already know you’re going to say it because I know you’re financial—what—but Bo—$5 million in the future is not going to be the same as today—and you would be accurate in that. So if we just assume a 3% inflation rate which aligns with historical rates of inflation and we say—okay—what could a $5 million portfolio really generate for us in today’s dollars—you can see that we could count on an annual cash flow from that portfolio—about $130,000 a year—meaning we brought back to today’s dollar—
Megan: That—pre-tax or is that—
Bo: That—that’s—would be—total income—you have to factor in taxes—right. So that would be before you take taxes out. But remember—you’re building your three tax buckets—so it’s not like that’s $130,000 income—close to tax-free—you can pull it—a Roth and pay zero taxes. Right. That’s kind of the thing that—that you get to do. So $130,000 per—and by the way—this is—this assumes a 4% withdrawal rate. So the idea behind that would be—you start retirement with $5 million and you pull out the equivalent of $130,000 in today’s dollars every year. And when you guys leave this Earth at the end of your plan—you leave behind $5 million—this doesn’t assume getting into the principal—getting into the interest—
Brian: Oh wow—
Bo: You guys said—hey we need about $8,000—and I’m not great at public math but I think it’s like $96,000—we need to spend $96,000. And we just showed you the portfolio will generate about $130,000—not including pensions—not including Social Security.
Megan: That feels a little more secure.
Brian: Why—when I was looking at y’all’s situation—I was like—and by the way—that’s 60. Even if we back this up to 55—we’re still exceeding—not taking into account Social Security and pensions and the other things. I mean you guys might be closer—I’m not saying what—I like about financial freedom is—you don’t have to actually retire if you love what you’re doing and you get purpose out of your—you know—your—your work and how you spend your time. But I do think 50 might be closer to the actual flexibility point.
Patrick: And that’s actually what security really does mean to me is the—the security to know that if my—would still be okay—
Brian: You own your time—you’re choosing to work—not because you have to work—that is definitely financial independence.
Bo: And so if you had a portfolio that could generate $130,000-plus—in addition to pensions—in addition to Social Security—you would argue that that would be at financial independence—at that level of income—you guys agree with that—great. So then the question becomes—okay—well can we ease up—what if we were to back it down—is the question. So we said—hey what if they just got really excited and they said—you know what—all we’re going to do is we’re just going to max out a Roth IRA. We’re not going to do anymore—we’re just going to do $7,000 and we’re going to assume that the government doesn’t even increase the limits—it’s just going to be $7,000 for the remainder of our working career. And we’re not even worried about catch-ups—we’re just going to do $7,000 a year until we stop working. Now I—I will tell you—the financial mutant in me says—please get the free money though—there’s a reason it’s step number two in our Financial Order of Operations—have to create the theory to have the conversation. Because you have built out the portfolio so well and because it’s able to compound upon itself—if all you guys did was have a 10% savings rate—which is just essentially maxing out your Roth IRAs—you would still be on track by age 60 to have almost $4.4 million. And again—if we’re thinking about—the income that that would create—that’s about $115,000 a year—plus the $2,000 a month pension—plus Social Security. So—if you desired to back down your savings to just Roths—the picture looks—wow—pretty good—right.
Megan: Mm-hmm.
Bo: But then we said—what if they get real crazy—what if they just decide—leave here—wow these guys are awesome—we’re not going to save any more money. What if we just cut off the saving and all we did was just consume what we have right now and let our money work for us—what does that picture look like. And you can see that even without saving another dollar—you guys have done the hard work that if your portfolio could only earn 6% annualized over the next part of your working career—by the time you get to 60—you could still have a $4 million portfolio—without saving another dollar. And that $4 million portfolio would generate for you about $107,000 in annual income. Now you got to factor in taxes and that sort of thing but that’s without—now if—if—if I’m going to ask you to give me a probability—I’m—I’m thinking of a percentage—I’m going to give you a probability—what is the probability you do not save another dollar for the remainder of your career?
Megan: Zero.
Bo: That’s easy—zero—zero—right. It’s a zero. So I want to pause there for a moment because what we did is we—we started with what we think is an unrealistic expectation—we just kind of backed down to what we would call unrealistic conservatism. When we put that out there—the 3D glass display—exactly what it is. And we always start with the doomsday—that’s where we like to start because if you start there—when you get to down to earth or if you even get to dream—it gets real excited because we’re going to show you that in a—in a moment. But give us some feedback just seeing these numbers and based on your savings—an income somewhere between $107,000 to $130,000 a year in today’s dollars—how’s—how does that make you feel?
Megan: I feel pretty good about that.
Patrick: Yeah—yeah—I feel great about that because that says to me—maybe we can pull back and start making more of those memories now with the kids while we still have them in the house—which is one of my—it’s one of my goals. I just didn’t want that goal to bite me in the butt later.
Patrick: So—and for me it’s—there—we have so many different little accounts—457—401(k)—403(b)—529s—two of those—and here—pension and there—it’s hard to grasp—are we doing enough when it’s in—in 10 different—12 different accounts. It’s nice to see it consolidated.
Bo: One of the things that we love—most people fall into that situation—they’re like—I’ve got all these different instruments and different pieces working together. Well what we love in our day job when we work with clients—we get to actually sit down with them—is we get to show information like this. Don’t think about your account and your account and this one and this one. If you think about the whole picture—is it all working together cohesively towards one common goal. And the common goal you’ve told us is security and stability—not security in your—your 457 or in your 403(b)—but for the enterprise—for the Patrick and Megan enterprise—are we moving towards the ultimate goal that we have. And what this shows me is that you are.
Bo: Now I just told you—we were—this was a very conservative—right—this is—okay what if we were to back down to savings and what if we were to only annualize 6%. We thought we would not be doing you a service though if we didn’t show a realistic expectation of what it realistically probably could look like based on the way that you guys actually save. So we said—we know that over the last 15 years your portfolio has annualized like 9-plus percent. If you look at the way it’s currently structured—well maybe you decide that—you’re going to change your risk profile and you’re going to back down the aggressiveness of your portfolio as you age. Or maybe you decide you want to hire a financial advisor and there’s going to be some fee associated with that. We said—what if you just made 8% annualized—not 6%—but 8%—how does that change that with the same savings—look at what happens. Yeah—you start today with almost $1.8 million. By the time you get to 60—just saving the way that you’re saving today—no pay raises—no increases—no bonuses—and if the market were to be kind and generate an 8% rate of return—which is more in line with what you’ve actually seen in your portfolio—now your portfolio by 60 is worth almost $6.4 million. And a $6.4 million portfolio at that time could generate almost $177,000—remember that—more than y’all make. And that doesn’t take into account Social Security—pensions—
Megan: We wouldn’t have to fly coach—right—that’s—
Brian: This provides the opportunity where you get to do what you want to do the way that you want to do it.
Bo: So a lot of very bad things have to happen for your plan at this point to not work. You have to stop saving and the market has to not perform at minimal levels of viability. You guys are well on your way to financial independence without having to make any crazy wild adjustments. It’s more about continuing to do the things that got you from where you were in 2008 till today and from today into your Great Big Beautiful Tomorrow.
Patrick: It is helpful to see everything condensed into one number because we have—I said—so many little accounts—it’s—doing well—that’s doing well—that’s doing well—but if you put them together—is it doing enough. And I think that’s the hard part for me is—how do you condense it into a number you can see. Yeah. And—yeah—that helps a lot.
Brian: Now I will tell you because we—we always talk about there’s three components to wealth—there’s the make wealth phase—there’s the maintain wealth and then there’s the multiply wealth. You guys crushed the make wealth phase. You didn’t even give yourself enough credit as you’re doing. I think on the maintain—I would say part of this is—is just making sure—because with y’all’s risk profile—you do want to make sure you—you take into account what y’all perceive as—as—you know—concerns with the portfolio and get a good asset allocation that reflects your desires. That’s all going to go into the risk mitigation of that. Because that’s why we do have diversification. I’ve seen so many people on social media saying—just do VOO for life or just do—you know—any type of index fund—which you—you guys have tons of index funds which we love index funds. But index funds don’t have to only be equities. And I noticed y’all do have some bonds and other things but it would be just making sure you’re keeping an eye on—on that asset allocation. Yeah.
Megan: And that’s definitely been something—again that I’ve been struggling with because I don’t know as much about—I’m comfortable with the—the ETFs—the—the—you know—stocks—the—the VOO—you know. But I don’t know as much about bond funds. My parents were all—CDs are the way to go—that’s how they—you know. And so they’re not any help in that guidance either. And so—when I look at the different buckets and I’ve heard—oh there—you should put different types of assets in each one. And I’m like—I don’t quite understand—there—is this—CFA—a dividend fund or not—or—is—so that’s—
Brian: And that gets into portfolio theory which is so interesting—is because you would think—you know—you—let’s just keep it simple with just stocks and maybe a few bonds. But there’s actually when you add even some additional diversifiers—real estate—you know—international—you’ll have some of that as well. Some of the things that even though they might be perceived as risky because they’re diversifiers—they can actually help balance out the asset allocation and the—the portfolio for years to come. There’s nothing but blue sky for you guys. That’s why I get so excited because—by the way—this would be—y’all would be such fun people because I can already tell you—y’all—y’all have such heavy brakes—you need more gas in your life. You really do. And that’s what you need—somebody that’s every year—coaching you—is—hey let’s look at the portfolio—let’s—run it back through the Monte Carlo simulations to—to stress test this thing—tell you your probability. Because you need that to free yourself to let go of—of—of all the numbers. I mean you really are the meme with the numbers scrolling around in space all around you at all times.
Megan: Yeah—no—I think—I think you’re absolutely right. I mean again—our whole past has been—save—save—save—save—save—save some more—you know—because you need it—you’re going to need it. And I am worried that we’re going to get to retirement and then someone’s going to be like—you should spend some of that. And we’re going to be like—how about some rice and beans—that’d be great.
Bo: Well that’s one—that’s one of our favorite things that we get to do as financial advisors is coach our clients through that. Hey—it’s okay if you take that trip. Hey—it’s okay if you help your child with the down payment on their house. Hey—it’s okay if you upgrade the car—whatever that thing is for you. We’ve stress tested the plan—we’ve modeled it—we’ve put it in there—it’s okay. And by the way—we have the portfolio designed that if the 2008 happens again—you’re going to be prepared for that. You’re going to be well-weathered to be able to do that based on the plan and the strategy you have.
Bo: You guys said something—you said early on in our life we felt like we could depend on our parents but now it’s on us—we’re doing this alone. And you’re like—hey I know equities but I don’t know bonds and I don’t know asset allocation. You’re saying all the—key words of that might be the time that it does make sense to have someone partner with you so you don’t feel like you’re doing it alone. So as you navigate towards your retirement—you’re not just doing it with two people who have only ever retired one time—you’re doing it with someone who’s walked through hundreds of retirements and seen hundreds of different success stories. I think you’d be a prime candidate for you guys.
Megan: No—well we—we’ve definitely considered that. We worked with an advisor about five years ago who did help us at least get our wills and powers of attorney—all that set up. But then we kept them and after a while they weren’t doing much for us because it was kind of—said it and forget it. And so then we thought—well we’ll pull away from that and maybe when we’re like 5 years out from retirement—we—we’ll go back in. But then again—as things have grown—then I have worried—maybe sooner would be better because it is hard—it’s just gotten so complex.
Bo: Sure. Yeah—so it’s hard—numbers are big now—right. 10%—I owe on $100,000 is different than a 10%—I owe on a $2 million portfolio.
Bo: But what we want to do is we want to put you guys—because it was great—you put some stuff in there. So again—our—the theme of this is—how can we put your mind at ease—how can you have security. And we just—you gave us—we just labeled this—these are my keep-us-up-at-night questions—these are the things that we struggle with. And we just want to say—if you were to give us a phone call and ask us these things—how would we respond to you. The first one is—what if the market doesn’t perform as well. Well one of the things I don’t even know if we need to talk about that at length because we just showed you in the iteration where the market—where your portfolio only makes 6% annualized—your portfolio—the—based on the dollars you have and the way that you’re saving—it’s still a success. So you’ve built a plan around the very viability of the plan being—the market underperforming. So if the market just average performs or if it outperforms—you’re on easy street. So I think one of the ways that you offset the mindset of that is—plan for the worst—start with the doomsday plan of the three—the plan—right. And then—and then what happens is—as you iterate and check it through time—okay—well last year we said the market would only make 6% and it made 23.5%—okay that’s—that gives us a few years—that gives us a few years—that gives us a few. So that’s how we walk through—okay what if the market doesn’t do as well. We do not—in our opinion—we do not care if 2025 outperforms 2024. What we care about is over the long term—for our clients—for people that are investing—do they have a rate of return that will allow them to reach their goals. And we just showed you that even if something is low as 6%—you still reach your goals.
Brian: Well I think—those first two questions are somewhat related to each other—market doesn’t perform well—market loses 50%—you just went on different degrees—how—and timing—and timing though. There is that concern that I tell you—an advisor—when I’m working with retirees or people close to—you know—landing the airplane at retirement—if I—if the market loses 50%—you shouldn’t lose 50%. That’s why we do have asset allocation—as we’re not swinging for the fences anymore. You’re—hopefully—going to only have—you’re going to lose 20%. And then I’m also going to make sure I structure your portfolio with somebody who spends—you—where you’re—this is why we always say—the cash reserves—we like 3 to 6 months until you get close to retirement. Now all of a sudden we’re going to boost that up to 18 months for some people—36—depending upon their risk profiles. But I always look at clients’ portfolios and I say—look—we’re going to have an extra bit of cash for you. We’re also going to have bonds and other super conservative and even some alternative asset classes that are going to be—you know—much safer or not as volatile as equities. I bet I can get you close to 10 years worth of cash flow before we’d have to sell any of those stocks that are down 40%–50%. Because yeah—a portion of your portfolio might be down 40%–50%—but we won’t have to touch that for 10 years. And from our experience—I mean—diversified portfolios—typically—we’re back to making money within two to three years from those horrible events of 2008 and beyond. Because real estate does have U-shaped recoveries—meaning you get crushed and then it might take years for the markets. Historically—stock market—typically has V-shaped recoveries because what happens is that value gets disconnected from the prices that people are charged. And so the markets are pretty dynamic and efficient and trying to fix that. So you see much faster corrections whereas real estate—because they’re illiquid investments—you have to get capital markets—you know—funding for real estate—you can have land just sit there for years on end because banks don’t want to take the losses. There’s all kind of weird dynamics that happen with real estate that cause it to drag bottom for—and have that U-shaped recovery.
Bo: Well that’s a perfect segue—the next question—what if our home value drops again. And this will sound insensitive—I don’t mean for it to—but I was thinking the same thing—I know what you’re going to say—so what—so what—you’re living in this house—right. If it’s your home—does it matter—you know—Warren Buffett gives the example of someone standing on your street—if you had a neighbor yelling out—hey I’ll pay you $10 million for your home—I’ll pay you $10,000—if he threw out a number that was way too low—you just won’t sell it. If he throws a number that’s way too high—then you might consider selling it. But if you’re living there—it’s a use asset—does the value of your home really matter to your financial viability?
Megan: And I guess in the past—our—our moves have been based on career changes. But if we’re in retirement—then you’re right—we probably don’t have quite that need to—
Brian: And you got enough that that’s going to be—I mean—if you look at the value of your house in relationship to your net worth—what are we talking about here—it doesn’t—I mean we’re—we’re talking about rounding—it’s more emotional for you guys—
Megan: Because house—what—
Brian: No—I’m not—I’m just saying that in relative to your total assets and—and net worth—it’s just—it’s—it doesn’t move the needle that much. So even if it went down 20%–30%—it’s just not changing—your kitchen’s still going to cook dinner—you know what I mean—no matter what the value of—of the home is.
Bo: How do we disaster-proof our retirement? We’ve already talked a little bit about that. One of the ways we prepare for folks getting into retirement—we want you to have tons of liquidity so that no matter what the market does—you are covered there. Appropriate asset allocation is the other reason—way—right. If the market goes down 50%—your entire portfolio—you should not be going down 50%. And the appropriate asset allocation will do that—the appropriate risk mitigation inside of the portfolio. And then one of the ways you disaster-proof is—and look I hate to say this but it’s just a reality—you kind of over-save and over-prepare. We showed you—you know what I mean—we showed you that just based on what you’re currently doing—you are on the trajectory where if the market performs relative to the way that your portfolio has been performing—it’s—$170,000 of income on top of pensions—on top of Social Security. Well one of the ways you disaster-proof is—you’re not going to need all that. And so we have clients all the time that will retire and they’ll get into retirement and they’ll be—guys if I would have known it was this easy I would have retired forever ago. I keep spending all this money—the portfolio keeps getting bigger and bigger and bigger. Well that’s what happens when you have a portfolio of assets that more than sustain the lifestyle that you need. That’s kind of what you guys are already on track—you’ll have an army of dollars that’s probably going to work harder than you—as you saw. So—you know—even—no matter what’s going on out there.
Brian: And then I thought I liked the next one—then I know we get to a segue here—buying a new car. If I had to guess—probably your advisor is going to be the one that’s telling you—please go buy a new car—more than you will. And this is—this is—once again—a challenge to you guys as you leave here. Bo and I forever we called ourselves tightwads. And you guys probably at some point in your life and right now you might still resemble this—you call yourself a tightwad. I think I like thrifty but okay. But you will get—you realize you reach a point once you start seeing your assets start growing and your money does work harder than you can—you really just can’t take it with you. And I would—I would challenge you to make sure you’re honing in. And this is why—you know—when I—when I wrote Millionaire Mission—those last two chapters were really about how I view money and I want people to know what I now know once you get wealth—how do you maximize it for the memory building—for making sure that you don’t have regrets at each decade that you’re alive. I’m not saying go hog wild—you know—for all my 20-year-olds or 30-year-olds. But I—I do want people after you’ve made the discipline sacrifices and have started building the money—I don’t want you to feel like you have to keep living off of—that—that way that made you wealthy.
Megan: Okay—how—how dangerous is lifestyle creep then if we were to let up the gas—because it looks like we probably could—and start spending more. How—at this point in our life—is it lifestyle creep at this point though? Is it—because—I don’t want to get—I’m saying that we could easily—you know—$8,000 be great in retirement. That’s based on what we’re spending now and us having a little extra for travel. But if we start living it up now—what if we want to live it up well in those go-go years—because those are the first few years you retire.
Brian: It’s not uncommon for my clients to actually do spend more money than—than they were even making because I want them to go maximize. Now we stress test it every year—we’re going and making sure and laying it next to and saying—hey what’s the probability that this thing keeps rocking and rolling. And if we have good years—last year—you know—market made 20-plus percent and most of our clients—you know—had made—you know—double digits for sure. And we’re like—yeah let’s go—that’s the year—let’s go buy the car—let’s go on the trip. And then we’ll come back next year and see what we need to adjust. Because human nature is—when markets get their teeth kicked in—we all pucker up really quick and we all quit spending money. That’s actually why markets go down and everything—because everybody does the exact same thing. We’re such herd animals that we all shut it down together. So you’re going to be okay because I don’t—when we do all these analyses—with 4% withdrawal rates and even with the stress test—it cracks me up because I know that they’re all ultra-conservative just by anyway—because they don’t reflect—they assume everybody’s just spending robotic every year the same way. And I—I don’t know a single client—including myself—who does that because we all shut it down when things get scary and we self-regulate that way. So you’re going to be okay. And so I get excited—you probably should buy new cars. How old are y’all’s current cars?
Megan: My last one I had for 13 years but my current one is 3 years old.
Brian: Okay—a new car—3 years old—the new car—I got it used but yeah—how about you Patrick?
Patrick: Nine years old.
Bo: Okay—I love it. So don’t—don’t feel guilty for buying a new car. Lifestyle creep is not bad—lifestyle creep when it goes unchecked can be bad. But lifestyle creep is what we all ultimately want. None of us want to be living the same life at 60 that we were living at 20. I mean we might want the same health and that kind of stuff but we—hopefully our lifestyle does increase. That’s why most of us desire to have a better lifestyle in the future than we had today and a better one today than we had in the past. That’s the idea of our money being a tool—allowing us to really enjoy the things that we want to enjoy and do with it—things we want to do. So it’s not bad—lifestyle creep is an okay thing—just too often people let the cart get way ahead of the horse.
Brian: Come on—bougie this thing up—let’s get y’all living up—we’ve been—bedazzling for 20 years—so—yeah—that—that’s—that’s a big mind shift—love there but—love it—it could be fun. I will tell you because my wife and I—I remember we did this—this is probably 3 years ago—we need to do it again—we did a 5-year travel goal. We did it as a date night and it’s kind of fun because—this is—money is not sexy by itself but I think when doing money as a planning tool in a relationship to kind of figure—daydream on what y’all want to do in life—that—that could be incredibly fun. I remember those conversations when we were first married and—or even dating—what we thought our life would be and—you know—
Megan: Well in the beginning it’s probably also—you’re restricting—you’re like how can we be more disciplined. Now let’s flip the script—how can we live more abundantly and do the things that really give us value and bring happiness—sounds like fun—
Patrick: Patrick says I’m in—I’m in—
Brian: It’s hard to get his in sometimes—this is really good.
Megan: So—well he—probably because you’re a good brake—I can already tell—you’re very persuasive—all he has to say is one little negative thing—I’m like—you’re right—we should stop right now—so yeah—
Bo: Another—another reason why having another voice help you guys could be an incredibly valuable thing to do.
Bo: Another one of your keep us up at night questions—this isn’t really keep me up at night—this is just—what—what if we overfunded the 529s. Do you—so first of all—if the kids go to school in Georgia—HOPE Scholarship—it’s a good chance you could have overfunded the 529. So I want to say this—back to—what if we have too much money—that’s what I—that I want to reframe that—what if we have too much money for this goal that we have established.
Megan: What that highlighted to me was when I started feeling that about 529s—it made me start thinking about—maybe our retirement’s on the same track. And then I was—so I was worried—maybe we are saving too much—maybe we’re not living enough for today because I don’t want to get to that point and look back and be like—man we should have gone on that riverboat cruise or we should have—you know—done more traveling or taken the kids to Disney and stayed at the top resort instead of the value resort. And I—so when I saw their 529s that were looking—maybe those have been—under—overfunded—I’m like—what if that’s a symptom of a bigger problem. And so that kind of got me thinking about all of this.
Brian: You’re probably nibbling on something that—that from—from a mindset issue that I would lean into. And what—what I love about—about spending is—you don’t have to spend more all at once—you don’t have to spend more forever. It’s just—that’s a great—the Disney example—okay book a Disney trip and stay in the nice resort one time and see if you like it. You may decide—I didn’t like that as much—I would rather go do a different trip or stay a different—doesn’t happen—it’s just—that’s what—that’s why I always tell people—I worry about people who go bougie too soon. You guys are not going to do that. So if you do kick it up on vacations—you go on a cruise and you stay in a suite versus—you know—just piling everybody in one room.
Megan: We went on a vacation last month with the kids and it was a cruise and all four of us were in an interior cabin—
Brian: See what are y’all doing—I mean that—that was—y’all probably—were the interior cabins are so cheap—it probably—your grocery savings were the cost of the cruise. So we—we—that is not a vacation—that was just you reallocated what you spend on daily life to staying on an interior room of a cruise ship.
Megan: Because 20 years ago we lost a lot of money—right—
Brian: Before I give you guys your homework—any other questions for us—anything else that we could speak to that’d be helpful for you guys to hear?
Megan: Okay—actually yes I do—with the steps of the FOO—that maxing out that retirement step—maybe that’s a step of the past for us then—or—
Bo: I think it’s a step where you guys—it is not required anymore for you to reach your financial independence goals. So you are probably in step seven where you get to determine—is 25% saving something that we must be doing or have we defined now that we can actually back it down below 25% and we’re still going to be okay. All right—here’s your homework list. All right—homework—only one logistical thing for you guys—consider maybe consolidating your 403(b)—paperwork—but it’s there—a lot of paperwork but it’s not incredibly complicated. Once you get that in one place—it does become a little bit easier to wrap your heads around. Maybe roll it into your current 401(k) or your IRA rollover—you can decide which one makes the most sense. I put a homework on it—review your asset allocation—is the risk profile of your portfolio—does it match where you guys are presently. Do you find yourself—if the market were to go down 20% over the next year—would you freak out?
Megan: See—that’s thing—it doesn’t bother me now because I know we have time—I know we’re still—you’re still working—we’re still working—yeah—the day we stop working—everything is going to switch for me—yeah—
Brian: And I—I’m sorry to interrupt but as we get closer to retirement—I do feel we’re going to look for more professional help on management. Sure. Because it is very—how do you do the glide—maintenance—yeah—the glide path—the maintaining—we’ve figured out obviously but—yeah—the gliding into retirement is definitely a different—that is on the horizon—is getting help once we’re closer.
Bo: Wonderful. And then the big one—the big homework for you guys is—you got to talk about what life do you want to be living today. We’ve already defined the life you want to live in the future and the steps—the minimum level of steps that are required to get there. So are there things today that you want to be doing—are there experiences you want to be having—how do you want to be saving—what are the ways you want to use your dollars today so that when you do get to the future you don’t look back and have regrets. Now we’re not telling you to stop saving money—you can keep saving as much money as you want. If you want to save 40%—that’s great—
Megan: My kids are probably watching thinking—yeah keep saving because we’ll inherit that someday. What they’re thinking—my son’s thinking that—my daughter’s thinking long term—but—that’s hilarious.
Brian: Well it’s funny you say that is because I—I always remind people—you know—it doesn’t matter if you’re looking at Millionaire Next Door—you look at our own research from our—our clients—even Ramsey Solutions in their research—somehow it always comes up that—that those millionaires are usually first generation out of the—you know—they—they found it. But you know—the sad part of that stat is—and—and we’ve seen this too—is that typically the wealth disappears by the second generation—70% of the time. And—and then by that—that third generation—meaning the grandkids—it’s 90%. So we—hopefully this scarcity that y’all have given your children—you know—lifestyle with the interior cabin and stuff—is going to pay dividends and maybe they break that chain. But I will tell you—historically—your kids will have no trouble and your grandkids will have no trouble spending all this money. So you might as well—take some time yourself—make some memories—get to see this stuff and enjoy it as best you possibly can. And that’s why I added a Brian—honorable mention homework—okay—of forgive yourself. I want y’all to look at—I want you to get rid of that Eeyore hangover cloud from that real estate collapse and let it go. I mean because it is—I—I don’t know how many more Disney things I could put in there with let it go and everything else. But seriously—forgive yourself because y’all have done so well. And I don’t want that one negative thing to define you on a career and a life of success. I mean that is something to be celebrated. And I’m—I’m super happy for y’all’s abundance.
Megan: It’s—it’s one of the reasons we wanted to come on the show too is to show people who do have problems when they’re young—that you can overcome them. I mean it did take work but—and it still stings—it will—but you can—you can overcome things—job losses—are—you know—chain—moving all over the country and—
Patrick: That’s the thing—yeah—we talked about how we daydreamed when we were first getting married—none of those things were on that list—oh we’re going to change—yeah—complete career paths and go move three states away and all the things that we’ve done—you know. And yet still—all at—the story has turned out even better than you thought it would.
Megan: It has—yeah—
Brian: Isn’t that amazing. That’s why I’ll close it out with this—is that I—and this is why I wrote an entire book full of mistakes that I’ve made. And you guys have been very transparent—thank you for—for being willing to come on—share all of your success but also be open about the things that—that keep you up at night. And I would encourage everybody out there to know—you don’t have to be perfect—nobody is perfect. And you can make lots of mistakes but if you just get the basics—and that’s one—one of the reasons I wrote Millionaire Mission—that’s why we designed the Financial Order of Operations—a little bit today—that small decision today will have huge results in the long term. So don’t sleep on it—make it happen—you can build your abundance.
Brian: If somebody wants to sit down and be a part of Making a Millionaire—where—where can they go?
Bo: If you would like to be a guest on Making a Millionaire—you can go to moneyguy.com/apply—or you want to check out any of our free resources—you go to moneyguy.com/resources. Guys—thank you so much for coming on the show.
Megan: Thanks.
Patrick: Appreciate it.
Brian: We have a blast creating this type of content. I’m your host Brian Preston with Mr. Bo Hansen—Money Guy Team out.
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