I should’ve listened to my intuition, even back then. When I retired early at 38, I hesitated to roll my 401K into an IRA because I suspected the tax benefits might not materialize. I was right. As a few financial professionals have put it, I had a perfect storm of bad luck. The penalties and lost opportunities cost me tens of thousands of dollars at the very time when I needed every dollar. Now that I’m over 59.5 years old, I can withdraw from my IRA without penalty, but there’s too little remaining to make any action worthwhile – unless another storm of bad luck strikes me. As with any financial action, caveat emptor rules. Let the buyer beware.
Do they even teach caveat emptor in high school? They did when I was there. They may have even taught it in junior high. Caveat emptor roughly translates as, “Let the buyer beware.” Just because the brochure and the sales pitch sound appealing, keep in mind that your situation may make those benefits moot.
Saving and investing are vital in today’s society. The arithmetic makes it clear, the earlier a person can invest, the longer compound interest can work in their favor, and the easier it is to retire early or at least benefit from the increase in assets. Investing, however, is not just about saving. Personal finance is about saving and withdrawing; because, if there is no withdrawal, then the money effectively has no value. That’s why buying stocks versus bonds versus real estate versus commodities versus any of the variety of investments is also affected by how to turn that investment back into currency. Are there penalties? Are there hurdles? Are there delays?
I’m coming up on the seventh anniversary of My Triple Whammy. As a series of unconnected misfortunes diminished my fortunes, I started selling stocks and taking on debt. Surely, the market place was rational enough that the investments would recover, or I’d get a good job, or I could sell my house, or…something, anything would save me. My Litany of Optimism remained a unrequited effort. I had two accounts to draw from, a regular portfolio and a rollover IRA. It hurt, but I stepped up my business to full speed, decreased my already frugal lifestyle, and nibbled away at my conventional stocks. That lasted a while, but that while was shortened by that perfect storm blowing away the three most promising pillars of my diversified portfolio.
Then came the day when I had to start selling stocks in my IRA, and withdrawing those finds. Investments that had been in a tax-deferred account were sold, hit with income tax, and hit with an early withdrawal fee. Money that I saved for later in my retirement was doubly decreased by policies that discouraged withdrawals. Those policies proved that an IRA is not the same as a rainy day fund, unless I was old enough. The extra insult was that, had those same stocks been in a conventional account, instead of being taxed as income, I could’ve balanced losses and gains to decrease my annual income taxes. What remains is less than a year’s living expenses instead of potentially several or at least a few years of funding a frugal lifestyle.
I say potentially because the proper analysis would take too much time and effort, and be too emotionally painful, with the only outcome being the ability to report an exact figure in this blog. It wouldn’t recreate the money. It wouldn’t give me the opportunity to rewind and restart knowing what I know now. Do we ever get that chance? Some lessons we learn and share for the benefit of others because it is too late for our older selves.
IRAs, rollover IRAs, 401Ks, Roths, like so many ideas they were developed with good intentions, intentions that are probably better met than not. People work hard at developing these investment packages; but none of them are panaceas. Life is too uncertain to fit nicely into something that works for everyone. Each represents doing something rather than nothing. Too many people do nothing, spending more than they make without investing any of it. The book that’s the basis of this blog is Dream. Invest. Live. because in today’s society it is usually necessary to bridge the gap between dreaming a dream and living a dream with something like investing.
If My Triple Whammy hadn’t happened, my projections were that I wouldn’t need to withdraw from my IRA until required to do so at 70.5 years old. Waiting that long would’ve allowed for 32 years of compounded interest, a very nice resource for late in life.
If. If. If. Every plan is based on Ifs. Every plan is based on assumptions, both explicit and implicit. Guess how long you’ll live, short or long. Will you have any extraordinary luck, good or bad? Will the politicians change the policies between now and when you need or want the money? Counting on Social Security runs into similar issues. Even if its finances are stable, will a later administration or congress change the rules of the game?
“I am altering the deal. Pray I don’t alter it any further.” – Darth Vader, The Empire Strikes Back
As I get older, I notice that my intuition has been right more often than I thought. Maybe that’s selective amnesia, but I recall the distinct moment when I was considering the possibilities. I was 38 years old, visiting home, and sitting in our family’s basement TV room. My Dad was somewhat proud that I’d retired so young. My Mom thought it meant something was drastically wrong. I’d deposited the retirement savings that had been managed by Boeing. Setting up the accounts with Schwab (which was a much younger and innovative company then) I had the choice of putting it all into one account, or separating it into a conventional account and a rollover IRA. (The Boeing funds were separated in a way too complicated to deal with here.) The thought came to mind that a regular, conventional account was the way to go, but the big “should” echoed from conventional wisdom. I listened to the collective should and not to my intuition.
My apologies to my intuition, which this week has been sticking its tongue out at me and saying “I told you so.”
My Semi-Annual Portfolio Exercise is largely a review of what remains. Almost all of it is in my IRA. As my business improves, I’m already planning on generating enough surplus that I can begin investing again. That’s something I look forward to because I still have dreams, look forward to a better life, and realize my money can make money for me, possibly faster that my business can.
And, I buy lottery tickets because the lesson I learned about extraordinary bad luck is that I could also have extraordinary good luck. Stay tuned. And, caveat emptor.