What do you really want to do with your life? What’s the big, scary thing you’re not sure is possible?
Family skiing in Tahoe
When you hear a financial advisor talk about a client success story, or see a commercial on TV, it usually follows the script of:
Save a lot of money
Invest well with the financial advisors help
Retire and spend time with grandkids
Maybe the insurance company commercial throws in a little life or disability (quacking duck) insurance, but you get the idea.
Yes, this story works. It works for most people. In fact, this is the story that is most likely to work for the most number of people. It’s the Utilitarianism of financial advice.
It’s also the most basic form of financial advice. It doesn’t require any complexity or creativity on behalf of the financial advisor.
For the last decade or so, we have seen many people take this to the extreme and pursue FIRE (Financial Independence, Retire Early). If you have a high enough household income, save a TON, invest well, you can greatly accelerate item #3. Why wait until you have grandkids to retire? Why not do it sooner if you can?
But I don’t like this advice for my clients. Yes, the math works, but there is an inherent assumption that you need to sacrifice now to be happy later. The more you sacrifice now, the sooner the happy later arrives, but there remains a pervasive implication that you won’t be happy until you are financially independent. And this just isn’t true. This is where I help my clients.
How do we make life today better without sacrificing your long-term financial independence?
This is not an either/or proposition. It is not save now/ enjoy later vs spend now/hurt later. It is possible to find a middle ideal, but this takes more work and creativity from people and their advisor. These are some of those stories…
Family golfing together
All three client situations share a similar foundation. A husband and wife, both working in tech with a high household income, plus some equity compensation. In all three cases, even though they are not yet financially independent, the clients and I would consider them a success. They are living their ideal life.
Quitting a stressful job you hate without the next job lined up.
Steve and Leslie
Leslie worked at one of the BIG tech companies in the Bay Area. She originally worked at a different big tech company, but her division was acquired and she ended up at one of the BIG ones. Steve was at a start-up for a while, got some options that probably won’t ever be worth anything, then moved to another post-IPO tech company, so at least the RSUs he gets are worth something.
Steve and Leslie had been saving well from their two-income household for many years. They had a couple kids in pre-school and Leslie was starting to dislike her job. The stress on her and the family of four was starting to feel tight. They wanted to know if Leslie could take a break; quit her job without the next job lined up.
I helped Steve and Leslie understand that if we reduced Steve’s 401k contributions a little, they could probably live off Steve’s take-home pay for a year or two without much impact on their long-term financial independence. The key was that they had saved up so well over the prior decade plus, they didn’t necessarily need to add to their retirement accounts, they just needed to let their investments grow another decade or so. If they could avoid taking money out of investments, they would likely be fine, even if they weren’t adding as much.
After a few years, with some investment growth and Steve’s income going up a little, Leslie is never going back to work and everyone is happier for it.
At this point, the kids are in elementary school, Steve will probably work until the youngest is out of the house, but Leslie is now at a work optional point of her life. Yes, saving well while they were both working provided flexibility for their desired lifestyle as they got older and their family grew.
Sometimes, just letting your investments grow will be enough to take care of your long-term financial independence.
Working towards what you think you should be doing, then realizing what you really want to do.
Sam and Pearl
Sam worked at Netflix and Pearl worked at Meta in the Bay Area. They were both using the mega backdoor Roth 401k to save about $150k/yr for retirement. By selling Pearl’s RSUs, they were building up a taxable investment account as well. Sam had been contributing to the Netflix Stock Option Plan for years.
Sam and Pearl wanted to remodel their home, adding a bedroom and other extra space. This would allow each of their two children to have their own room and still have an extra room to serve as a home office/guest room. The original plan was to stop saving into the Netflix Stock Option plan, since they didn’t need the extra money for long-term investments, and divert that savings into cash to fund the remodel in a few years.
One of the questions I asked at the time was, “If we save aggressively for the next few years, do you want to remodel this house or buy a bigger house down the street?” The point of my question was determine if they wanted to keep their specific home and go through the temporary pain of a remodel if they could find a bigger house in a similar location.
If you can identify WHY you want a certain thing, you may be able to figure out easier ways of accomplishing the thing that makes you happy.
A few years later, the savings strategy worked and they were ready to start the remodel. They found an architect, but just before making a deposit and submitting plans to the city, they asked for a meeting with me. For a few years, in the back of their minds, they had been thinking about that question. They now had the extra money, they could consider moving to a new home instead of remodeling.
It turns out, they wanted to buy a new home…in San Diego. They visit often and had occasionally talked about moving to San Diego once they retired. But it took a while for them to embrace the idea that they didn’t need to wait until retirement to live in a place they loved.
Now they live in a house with no mortgage and Pearl will probably stop working in a few years. Sam plans to work while the kids are in school, but still be able to retire between 52-55.
The lifestyle you really want is closer to possible than you realize.
Rachel and Evan
Rachel and Evan have worked in tech and/or finance for years. They have a furry family of big dogs and they love skiing and spending time outside in the mountains in Tahoe. They own their home on the Peninsula in the Bay Area, and have been renting homes in Tahoe via ski leases for quite a while. They have dreamed of buying a second home in Tahoe that could fit their big dogs, but aways felt constrained they couldn’t:
Stop working to live in the mountains yet.
Afford both a home in Tahoe and their current home in the Bay Area.
This is where most people who follow the Utilitarianism financial advice they see advertised on commercials would stop. They can’t move out of their current home until they have enough to retire and buy their new home. OR they need so much extra money to buy the second home without taking any money away from their retirement.
With my help, they found a middle ground that allowed them to prioritize their happiness and enjoy life now. They didn’t need to wait until retirement to buy a home in Tahoe.
In addition to saving well in retirement accounts, they had also been building up a healthy taxable investment account. This had been funded from their take-home pay and selling RSUs throughout the years. This money was primarily earmarked to fund retirement before age 60. We ended up using a chunk of these investments to make the down payment on a house in Tahoe. They did not need to sell their home in the Bay Area. They had the income to afford both mortgage payments and support their regular lifestyle.
The creative part was that they do not plan on working long enough to pay off both mortgages. We are using a 30 year mortgage to keep the fixed monthly payment in Tahoe as low as possible. They created a scenario that they could afford both homes and continue to save for retirement while they were both working. They transferred some of their investment risk from their diversified taxable investment portfolio to a single home in Tahoe. This was an increased risk. Any singular investment such as a property or single stock is riskier than a diversified portfolio.
They did not follow the conservative path. They took a prudent risk that prioritized their happiness and well-being over increasing their net worth or retiring as soon as possible.
After their first winter, they told me they were able to go skiing 100 straight days while working full time. They had plenty of space for the dogs and a home base ready when they needed to come into the office in the Bay Area. Eventually, their most likely future is that they will need to sell one of the two homes when one or both decide to stop working. But for now, they can continue to enjoy Tahoe while working full-time and making life in both locations as comfortable as possible.
As I wrote out these three client success stories, I originally thought I was writing with a theme that you don’t need to wait until retirement to be happy. I’ve mentioned this idea to clients that I don’t like hearing anything along the lines of “I’ll be happy when….” I prefer to help clients figure out what lifestyle they would like now and help them get there, without sacrificing their long-term future. It is rarely an either/or scenario, it usually comes down to a good understanding of priorities and values.
But in these stories, it probably does a better job displaying that as a financial advisor, my default assumptions are not maximizing your net worth or helping people retire as soon as possible. That’s the issue I have with the commercials on TV. I fundamentally believe there is more to helping clients than saving up as much as possible, focusing on investments, and then retiring. For some clients, this ends up being the path we pursue anyways. I have helped some clients achieve FIRE. I have helped other clients make risky bets in hope of maximizing their net worth down the road. But the decision making process to get there was based on their desired lifestyle, not my default recommendations to all clients.
Do you ever feel like you know you are doing what you should be doing, but in the back of your mind you wonder if you could do what you really want to do? Does it feel too crazy or too risky? I help my clients resolve this tension between what they think they should be doing and what they really want to do.
Let me know if you want to take that big, scary leap towards your best life.
If you have any questions, please feel free to email me at aaron.agte@graystoneadvisor.com or schedule a meeting.
Aaron Agte, CFP®, founder of Graystone Advisor, is a fee-only Financial Planner located in Foster City, CA, serving clients virtually in the Bay Area and across the country. He specializes in helping families with stock options, RSUs, and other equity compensation.
@AaronAgteCFP