BiggerPockets Money Podcast - 244: Finance Friday: Why a $1M Retirement Goal Isn’t Far Fetched For Late Starters

Episode Date: October 29, 2021

Retirement planning can be complicated when you have so many options to choose from. Do you stick with the Roth IRA, the 401k, the Roth 401k, your employee pension plan, or solely invest in stocks and real estate? With all these different types of accounts and their numerous benefits and drawbacks, it’s easy to get stuck financially stalling.  One person who has been able to optimize his retirement plans, is Matt, pilot and soon-to-be captain, delivering cargo around the United States. Matt bought a home in high-appreciation St. Petersburg Florida, where his home has already gained a fair amount of equity. Although he loves the ability to rent out his home and create cash flow, Matt doesn’t like staying on dry land for too long. He’s going to captain his own home; living in a houseboat and renting out his primary residence to lower his living costs even more. Matt talks through questions he has about his 401k, Roth 401k, Roth IRA, and other retirement accounts. Even though Matt feels he could be optimizing his finances for faster retirement, both Mindy and Scott agree: if he keeps doing what he’s doing, he’ll reach his fifty-year-old retirement goal, without any change to his current lifestyle. In This Episode We Cover Deciding between the 401k, Roth IRA, Roth 401k, and other retirement accounts  House hacking and taking advantage of low-interest, owner-occupied loans  Whether or not an employee pension should be thought of as a guaranteed retirement  Living on a boat to save money on housing costs and maximize cash flow How to plan for retirement when you have an age limit for your job Employee stock purchase plans (ESPPs) and when to invest in one And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 244, Finance Friday edition, where we interview Matt and talk about the best investment vehicles for your dollars. I'm already at 37, and I'm really only starting to save for retirement until about a couple years ago because I had this late start because this career field is really, really hard to get into and you don't make any money for a long time. And then you have these huge student loan debts. And when you finally get to a decent airline is when you can finally start getting ahead. It took me till, you know, I was 34, 35 to get to that point. So I have this late start, but I would like to, the goal is to try to be minimally financially independent by 50. Hello, hello, hello.

Hello, my name is Mindy Jensen. And with me, as always, is my co-pilot. Got Trent. Oh, we're just winging it with these intros today. Oh, God. Oh, that was terrible. It was actually very good. Scott and I are here to make financial independence less scary, less just for somebody

to introduce you to every money store. Because we truly believe that financial freedom is attainable for everyone, no matter when or where you're starting. That's right, Mindy. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, actually, whether you want to retire early and stop traveling the world, because you're a pilot that travels all over the world,

go on to make big time investments in assets like real estate or start your own business. We'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Thank you for the assistant. there, Scott. That was a good change-up. Yes, today's guest is a pilot who currently, literally, travels the world on his day job, and he is wondering where his money could be best spent. So Scott and I give him some suggestions for what we would do if we were in his position.

Yeah, I thought this is a great show. And I think that a lot of people, maybe if you've been listening to the Money Show for a couple of years and you've begun to pay off all this, like, like most of those debts or get back to zero, have a house, home equity or, you know, and some home equity in it, some retirement accounts. You know, it's hard to self-actualize that, oh, I'm over this hump in the journey that is wealth building. And now, instead of working against me, you know, the compound effect is going to work for me, right?

I've paid off all those debts. I've got back to zero. I've got my emergency reserve. I got a financial foundation. Now it's not another 20 years to build a million dollars in net worth. It's considerably less if average historical returns continue with that, which I think is the only reasonable way to really plan around a lot of these things. You know, you have to have a margin of safety with that.

But at some point, you have to invest with the expectation that's going to grow. And I just think that Matt is going to experience so much of that over the next three to five years that he's going to blow away some of his financial goals and kind of redefine what's possible for him in his life over the next decade or so. Yeah, you know, I think you're totally right, Scott, the slog, which we have mentioned on this show several times before, the period of time where you are starting your wealth building journey and you're just really waiting for compound interest to kick in is it can be like, oh, am I doing everything right? Yeah, Matt says, oh, I'm wanting to do this the fastest way possible. Well, the fastest way to a million dollars is to win the lottery. We don't talk about that because that's not really all that easy to do.

So instead, this is the second best way. Investing in real estate, investing in the stock market, consistently, and over a long period of time will get you to your goal. Most likely. No guarantees. Scott, should I talk about what my attorney makes me say? The contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor Bigger Pockets is engaged in the provision of legal, tax, or any other advice. you should seek your own advice from professional advisors, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly

where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in a needle.

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Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest-impact titles. Lately, I've been listening to Bigger Leeners Stronger for Fitness, the anxious generation for parenting perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress,

Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Matt is 37 years old, single with no plans to have any children, and makes a great salary. He contributes to his 401k, his Roth IRA, and his HSA, but is wondering where his investment dollars can be best put to use. Matt, welcome to the Bigger Pockets Money podcast. I'm super excited to go through your numbers. Hey, thanks for doing this with me. I know it took a long time to get this worked out. Okay, let's remind everybody what part of the world you live in.

St. Petersburg, Florida. Okay, so that's a relatively low cost of living area. It's not like a New York City or a San Francisco. Right. Okay. Well, let's jump into it. Where is your money? How much money is coming in and where's it going?

So my base income is $100,000 a year. But with overtime and bonuses we've gotten, I'm really more on track for 110. And my expenses, I just bought a house in January. The mortgage cost me $13.50 a month. Gasoline is about $100 a month. Insurance is 100. Utilities in the summer on the high side is about $250. I spend about $100 a month on groceries.

It's not very much because I'm never in town. And then the flip side of that, restaurants I spend close. to a thousand. It was more like 860 when I looked at the previous month. And I've got about 150 on an entertainment line there. And then I have a boat in the marina, which costs me 470 a month. I don't have any student loans. Those were all paid off in 2016. And I don't have any car payments. I have two trucks, a 94 Bronco and a 92 Ranger. That's it. So how does that, how much does that all add up to in terms of monthly spending? 3380 a month.

3380 a month. And on that, on that income, how much is actually take-home pay that's going into your bank account? So the, I have the, I have a total of 3380 expenses and a remainder of 1950. So I have to get a caculate. I can't do that in my head. Okay. Well, well, so you're saving 1950 a month. That's how much is accumulating on average.

Right. Yeah. Okay. Perfect. And we have, we have no debts. Let's go through investments then. So I am maxing out my 401K. We have a company, a Roth 401K also.

So those two combined are maxed out, which is one of my questions down the road. So that's getting 19.5 a year. My HSA is getting maxed out. And we have a company ESOP, employee stock ownership program that just started this year, I don't have a whole lot of faith in it, but supposedly in five years it will be worth 260,000. Of course, if the value of the company stays the same, I'm not really counting it, but it's supposedly there. And then I have about $6,000 in crypto, and that started at around $900, I think. And the home I purchased in January, I owe $227, and it's supposedly worth around $295.

but I purchased it for 240 because this city, even though it's low cost of living, it's exploded like the rest of this country. Awesome. What, how would you pay all of that in terms of net worth? I have, when I added all that up, it was about 181,000. So 10% of my net worth is savings and cash, and then 3% is cash for my next down payment on my next. home purchase or multiplex or whatever.

32% of it was in retirement accounts. 39% of it's in this house, this real estate, and then the remainder is 16. It's other like crypto. And then this boat I purchased for really, really cheap and I'm going to make money on it. It's kind of one of my things. I like to work on stuff and flip it.

But that's it. Yeah. Awesome. So how much total cash do you have? 23,000. 23,000. Okay. And then what's, so what's the goal? What's the best way we can help you today? So I'm at a point right now where I'm maxing out the 401k. I'm maxing out the HSA and I have extra cash left over. I've bought my first home. It's going to be rented out by January and I'll move on to the boat.

But then I'm going to have this extra cash. And I don't really know where to go next other than it seems like my two options are a brokerage account or just keep doing more real estate. But, um, and the other question is with the 401k and the Roth 401k, I don't really know how I should allocate those funds between those two. And I've read and read and read and I just can't get to a consensus on how those should be saved, uh, allocated towards each other. You know, should I put 50, 50 between Roth and the regular 401k? Or I, I just, I can't figure out a direction.

to go from here because I am accruing more cash and I just, you know, I don't know what to do with it. The reason that these challenges, these questions are hard is because there's no right answer to them. It just depends on what you, what you want with your strategy, which I, which I think is, I think it's great. I think that a lot of people struggle with this. Like, is the Roth or 401k better, right? Well, let's start with that, a quick example of that to help you kind of, to help frame the kind of decisions that that entails, right? I'm 31. I imagine. I imagine. I, out my Roth IRA and I put no money into my 401k. So all of it is, every dollar I can is going into the aftertax account. And I earn a high income. But the reason I do that is because I believe

that tax brackets are likely to rise over the next couple of decades before my hit traditional retirement age. And I believe I'm going to accumulate a large amount of wealth. So I'm going to remain in a high tax bracket even after I retire from wage paying work. So that's one framing of the discussion. Someone who would be contributing to a 401k might be earning a high amount of income right now and expect to retire, but only spend $30, $40, $50,000 a year and withdraw a lower amount of taxable income on a regular basis with that. So that's an example of framing the discussion about like, what's the right answer? Well, it depends on whether you believe tax rates are going to go up or down, whether you think you're going to be in a higher or lower income tax

bracket at retirement age than you are right now. So that's why it's such a hard question with that. With that framing, I think we should come back to like what are some goals? Like, where would you want to be in five, 10 years? Do you want to be financially independent? Do you want to and retired at that point? Do you want to, you know, be entrepreneur, building a business? What does that look like for you? No, I'm, you know, I'm pretty happy with my career. a pilot. I get to fly all over and it gives me a lot of joy and I don't really have any desire to retire early, but I would like to have the ability to because this is a wild industry and you really can't count on it. It's not that, as you know, with last year. So the goal is to

become financially independent by ideally 50. I think it's a hard number to get because I'm already at 37 and I'm really only starting to save for retirement until about a couple years ago because I had this late start because this career field's really, really hard to get into and you don't make any money for a long time and then finally, and you have these huge student loan debts and when you finally get to a decent airline is when you can finally start getting ahead. But it took me till, you know, I was 34, 35 to get to that point. So I have this late start, but I would like to, the goal is to try to be minimally financially independent by 50. And I I figured, you know, based on my expenses now, I was looking at, I think 1.25 is my number,

assuming a 3.5% withdrawal rate on it and researching what the withdrawal rate should be to make sure it lasts forever. It seems like that's a pretty safe, conservative number. And that's kind of the target right now. And because I don't really have that many expenses, is I think my pay is only going to go up. And soon, I'll be upgrading the captain, which is about a 35% increase in pay. And that's just going to keep going into retirement accounts or wherever I decide to invest it. So I think I'll have the ability to do it if I, you know, just don't start spending more as I make more, which I'm pretty good at. Yeah, I think that's super realistic with a lot of this.

And, you know, on the surface, we can get into the details there with a little bit. One additional question I have is on the housing situation. Do I hear you're going to move from the house to a boat? And is that going to realize a large amount of drastic reduction in cost of living to a certain degree? Yeah. Yeah. So I've actually been living on boats for the last six years. And I finally sold my last boat in October and bought this house in January because I said,

okay, I need to start getting some appreciating assets here. So I sold the boat, got this house. Long story short, I don't like living in houses. A couple months into it, I decided I'm moving back onto a boat. So I'm going to rent this house out and move on to the boat. And it's definitely going to save me a lot of money because the boat's paid for its cash. And I got that boat for really cheap because I work on stuff myself. And when I do sell it, I know I'll make a lot of money on it.

but it currently only costs me $470 a month. So the house, the home expense, living expense, just for where I'm living, is going to go from $1350 to $470 a month. When you go to rent this house out, will the rent cover all of your expenses? Will the rent cover have you run the numbers with regards to vacancy and property management and things like that? You're a pilot, so you're not home a lot. I think that having a property manager in your particular situation is going to be the best bet

just because you're never you're never home. Right. Yeah, that goes without saying. It's impossible when I'm on the other side of the planet for 20, 20 days. I've got to have management. So I started at the mortgage expense of 1350 and kind of worked my way up from there. So, you know, I know just coming from bigger pockets and just researching real estate and rentals and things like that, I'm setting aside 10% of the rent for.

management, 10% for maintenance, and 5% for vacancy. And I know down here that's pretty conservative, but that brings me up to $1,800 a month, which would be the break-even point. And I'm pretty sure I can rent this house out for $1,000 to $2,000 a month. So that's upwards of $200 a month income there. How close is it to the airport? Could you rent it as a crash pad? Not really. And this isn't really a place for a crash pad. It's not really a big hub. So it really wouldn't do that well.

I'm actually going back and forth between doing long-term renters or Airbnb. I think I'm being pushed in the direction of Airbnb because of just the ridiculous return on investment I'm seeing with other friends doing it. So I think I'm going to give that a go. But as my backup plan, long-term renters, it's going to cover it. and even maybe make 100 or 200 a month profit. Is your principal interest mortgage payment, does that cover, does that also include PMI? Yes.

Okay. And the PMI could go away. It's only like $68 a month. Okay. Okay. Not a huge poll there. Are you considering doing this multiple times or just this once with this property? No, actually, I want to keep doing this.

I'm saving up for another down payment. I did this house with 5% down, so I would like to make the next one 5% down, so I have to wait a year. And this January will be one year. So it's kind of like I want to get this house on it, you know, moving on its own, and then I can focus on the next purchase, whether it's a multiplex or another house, probably a multiplex, ideally. But right now everything's so so ridiculously expensive. I don't know what to do. I'm kind of holding off right now. When are you expecting the 35% pay increase?

Well, that's associated with getting a captain upgrade. And right now, it's not in stone, but I can see the light at the end of the tunnel. So I'm estimating first quarter of next year. Okay. So within a year or two. Oh, yeah, yeah. Okay. So, and one last observation before we get into kind of submit, well, I should have

probably many more. I'll probably say that six times. But you're on the expense profile, I didn't notice anything for, like, large one-timers, like insurance for the car payment or CAP-X for, you know, I have to go and buy a new car or whatever that is. Do you have an allocation bucket for those types of things in your expense categories? No, because I don't, I mean, I have two trucks. One's a 94 Bronco and a 92 Ford Ranger. They're both paid for. I do the maintenance on them. I work on them. So the expense on is really, really low.

And even though they get horrible, well, the Bronco gets horrible gas mileage, again, I hardly drive them because I'm never here. So the car expense is pretty negligible as far as I've concerned. Because I just will never buy a new car or something even less than 25 years old. It's just not my thing. They're boring. Okay.

So what I'm hearing is we're going to save $2,000 a month pretty consistently after maxing out the 401k and the HSA and taking care of another another number of other buckets and that's going to stack pretty consistently at you know to 25 the tune of 25 thousand dollars annualized there's going to be a big change when you move on to the boat there's going to be a big change when you get the salary increase with that and so a year from now you could be on a run rate basis saving four five six thousand dollars a month is that is that right yeah after maxing out the four the 401k and or roth IRA right And I have my six-month buffer, and I also have a six-month buffer for this house when it becomes rented out, which is in its own separate bucket.

And then if we extrapolate, that's going to, you know, that should continue to increase over the next five to ten years, that average savings rate, depending on how what, you know, you can spend a portion of the increases and all that kind of stuff. But you should be able to continue increasing that. You know, if you go from 25K a year in cash savings right now to 60, you know, you should be able to annualized a year from now, the 65, 70, 75, 80. And so the challenge is turning that into 1.25 million in the next 13 years by age 50. Or quicker.

And if you're going to do, and your approach that you're willing to do is buy and rehab and position real estate investments for rental income and wealth building and or stock investing with that. Is there anything else that you're willing to consider or do like entrepreneurship or is it going to be mostly those two? I don't know if the motivation is there to add a side hustle or anything like that in addition to the real estate thing. You know, on my 10 days off a month, I just want to check out because after 20 days of work, I need it. And it's hard to run stuff or it's hard to find something I'm interested in running remotely. which is really the only option I see that I have.

So I really don't see anything like that happening. The only thing I have coming down the pipeline is upgrading to captain and getting that pay raise. And then also getting hired at a much bigger, more well-paying airline, which could be, I mean, some of these guys at some of these airlines, they make $2,000, $400,000 a year. It's just, it's insane. So if I can get hired there, obviously, you know, it's not a problem. I'll get there. But it's not a guarantee.

You know, those guys are all at the top of the pyramid and everyone's fighting for those jobs. So I can't really count on it. But, yeah, so you don't need all that to hit your goal, I don't think. I just was wondering if there was anything extra. So I think you're going to crush that goal or you have a very fair shot of crushing that goal over the next decade or so with what we currently got here. I agree. I think that we talk to people who start at zero and negative net worth and get their intimately. 10 years and you've got 181 with a lot of income potential coming up.

A question that I have about being a pilot, I'm not a pilot, I don't know anything about it. Is there any opportunity to do private flights on your off days? And I mean, I understand wanting days off, but like you have 10 days off. Maybe you do a day of flying for, that's a good income generator. I'm not sure how that pays. So generally, airlines don't like you working on your time off because it affects the total flight time you've done for the year for which there are limitations federally. Okay. For example, we can only fly 1,000 hours a year.

And if you have another job that affects that total number, then your airline you currently work for gets mad because then you can't work anymore when you get, you know, let's say you get, you hit the number by November and you're a pumpkin for the rest of the year. So that's kind of out of the realm of possibility. However, there is a potential job I may get as a captain on a Tiki boat, downtown St. Pete, working for a friend kind of on the side, just doing something on the weekend. It looks fun. I'm working on my captain's license for that. Your boat captain's license. Right, right.

It looks fun. So that's something I may get into. I don't really know how much it makes, but it'll be something. I need a bartender license for that one, too. Yeah, that'll be a lot of fun. See, that's the kind of side hustle you want. It's something that you would just go do anyway, even if you weren't getting paid for it. Right.

Okay, so flight, extra flight is out. I didn't realize that it was only a thousand hours a year that you could fly. What about age limits? I know you can't fly after a certain age, right? Like 70 or something? 65. 65. Okay.

So you have 30. years, 28 years left to fly, if you so choose. Are there part-time pilot options for once you

hit your your fine number and you still like to fly, but maybe you don't want to do it 20 days a week? Are there part-time options too? Okay, so you've got... More of a corporate situation.

The world is really your oyster here. Let's go back then to the HSA, Roth, IRA. Roth 401 option. So right now you're able to income limit-wise, you are able to contribute to your Roth IRA. And I would recommend, if I was in your position, I would continue to max that out

for as long as you possibly can. The reason being you are going to get a 35% bump in pay, which will put you at around 135. 139 is when you start to not be able to contribute to your Roth IRA anymore. Mindy, I bet he has a Roth 401K. Is that right, Matt? So I have a 401k and a Roth 401k with the company.

And then do you also have a Roth IRA outside of that? I opened a Roth IRA, a regular IRA, and then I also opened a brokerage account. But they're all very new. There's not a whole lot in there. And that's where everything's going to start going and maxing those out. I need to double check this. I should know this. But I think you should check with a CPA about whether you can do the Roth 401K,

max the Roth 401k and open a separate Roth IRA incremental to that. Okay. That didn't even cross my mind. So, okay. So I would check on that one. Yeah, I think you can. Yeah, I don't think you can do that. Probably not like the end of the world or anything like that.

But I think that because you have a Roth 401k option with your work, and you're either going to stay there or move on to a major airline with your career, that the Roth 401 option will likely be available to you for the duration of your career or until the government says you can't do it anymore. That said, I would, I also still like the Roth IRA personally and, and max that personally instead of the 401K. Okay. Because, again, as I discussed, I like the, I like that.

There's no right answer there. There's no wrong answer. It's just a matter of what you believe is going to happen over a long period of time and government policy in your income. Right. Well, another reason I wanted to, sorry, I didn't mean to interrupt. Go ahead. No, this is your show. I was going to go on another rant about what I said earlier.

So we could skip that. The other reason I opened up the, I opened up with Vanguard and it just, it seems like I can get much more exposure to better investment funds than what the company can provide me. and when I move on to the next airline, then I can dump all that into there. And there's some things that I think I want to invest in that I can't get access to through the 401. Okay. So I'm still trying to figure out specifically how I want to allocate these things

and what the best direction is with that. Does your company offer a match? Yeah, 2.5%. On how, up to how much? 100%. Okay. So in that case, you know, it's a moot point. And this is just like a racket in the finance industry is these company funds, they all charge ludicrous fees, in my opinion.

But the fact of the matter is you're getting a match, which is going to offset a lot of that. So when you move companies or if you move companies or in a future date, you can always rule the IRA at your company over another one. But every dollar you contribute there is getting a match. Every dollar you contribute in your in your Vanguard fund off. that that's on a different platform is not getting a match. So I think it'll be hard, even if the fees are high, for that math to work out poorly, if you're able to then roll the funds over in a future year to another IRA. Yeah, I did take a look at the expense ratios on,

I was in a target date retirement fund that they just put you in automatically, and I was getting killed on the expense ratio for that. So I moved into a bunch of Vanguardi, UTF funds and it's like 94% stocks now, but it's, it's an overall 0.17 expense ratio, which it really, really lowered it a lot. So that's about as far as I've gotten with the 401K and Roth 401K investments. That's great. That's lower than the fees I pay in my 401K, or Roth 401K, sorry, Roth 401K, more specifically.

But for that, I used Bloom. That wasn't, I had some guidance from Bloom. I don't know if you're familiar with Bloom or not, B-L-O-O-O-O-M. and they basically sign into your account and see what funds you have available. And you answer a questionnaire to get a feeling for your risk appetite and what your goals are. And they go in, they see what funds you have. And a few days later, they come back and give you recommendations. And you can go and do all the switches yourself.

And it wasn't my own smartness that got me down to 0.17. That's awesome. They should get these Bloom guys on the show at one point. It was pretty cool. I like it. And they tell you when you need to rebounds. They just told me I needed to rebalance it, so I did. And what does Bloom cost you?

I think it was like $26 a year. Oh, okay. I mean, that's why I gave it a shot because it was inconsequential. Kind of no-brainer. Yeah. Yeah. Okay. Tax season is one of the only times all year when most people actually look at their full

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Right now, you, and I looked it up, you can have a contributions to a Roth 401K and a separate Roth IRA. I love that you have a lot of income potential coming up. I want you, if I was in your position, I would be maxing out the Roth IRA every year that I was able to. Back on episode 200, we talked to Kyle Mast, who said that he thinks with all of the the money that the government has been writing in stimulus checks, they're going to be now looking for ways to fund that and cutting out the Roth option is a really easy way for them to generate more income, generate more tax revenue simply by removing this way to avoid paying taxes.

So my suggestion would be to look into the Roth 401k at 100% of your contribution limits, which are 195 for this year. And I think they're going up next year, but don't quote me because I haven't looked that up yet. But I should because it's almost next year. I would. So we're going to forego the reduced taxable income in an effort to reduce the taxes on paying down the road, essentially. Down the road, yeah, because you are.

Yeah, that's the bet I make personally with it. But it is a, it's an unknowable bet, right? So just, I just want to always couch it with like, that's what I think is the right, is the right bet for me personally. And I would all things I know so far about you think that that's your income's likely to rise. You're likely to create a real estate portfolio to some degree. Your inflation is likely. The government is not likely to reduce tax brackets, all that kind of stuff. So that's for all those reasons I like the Roth, 100% better than as a put in 401k, 0%.

when the option presents itself for me. Right. Gotcha. So I have a slightly different take. I'm older than both of you. I have a fully funded retirement, traditional retirement. And I also have a lot of stocks that I have been trying to sell, individual stocks that I have been trying to sell and move into an index fund.

So I have, for the past several years, been contributing to my, traditional 401k, my pre-tax, in an effort to reduce my taxable income so that I can sell those stocks and pay less in capital gains or none in capital gains. However, now we are looking at where the balance of our wealth is and it's really heavy in a pre-taxed accounts. So I am now looking towards next year at maxing out the Roth 401k option instead of doing the traditional. It's a moving target as you grow older. It's very different. You know, I have had different experiences where, you know, for a Roth 401K, if I had a Roth 401k a few years ago,

that would have definitely been what I was doing because my taxable income wasn't such that I needed to really reduce it, you know? You can't, how low can you go? Well, it's cool. we have this discussion a lot and a lot of people get really hung up on this because, you know, and it's not really a high stakes decision for them. For you, I think it is, I think it is like a major consideration with this. I think that that's, you're in this, in this kind of sweet spot where that that 401k versus Roth option is, is a big challenge because of your

income profile and its trajectory and how much you're saving and your current wealth profile. So I think it's, I think it's like one of those, it's one of those ones that we, we talk about that length sometimes. And folks, it's like, you shouldn't even be doing anything. in your retirement accounts right now, you should be house hacking or figuring that out. Right. You've already got all that. And so I think that it's fun to get into that debate in the right context with it, which is, I think, your situation.

Yeah, it's definitely, I've had a lot of conversations with different friends trying to do exactly that, figure out what the best way forward is. And we just never really can come to a consensus. It's kind of just throw, flip a coin and just go for it at this point. And that's where I think a lot of people are coming at, you know, who which one is I don't really know, but with the Roth option potentially going away, that is where I would concentrate now because then, you know, you can reduce your taxable income down the road. Although, I mean, really when you're making $400,000 a year, what does, you know,

what does reducing your taxable income by $20,000 really do for you? Right. You know, not that much. Okay. So you said another thing you want to be doing is saving up for your next real estate purchase. and you want to move into a boat, which sounds super fun. I'm jealous. Although I don't want to live.

I live in Colorado. I'm not going to live in a boat. If you live in a warmer place, it's a way more feasible. It just got down to 67 this morning. I was freezing. Oh, no. 37 this morning. Okay.

So I feel compelled to say that when you buy a property as an owner-occupant, you're attesting to the mortgage company that you're going to live. in it as your primary residence, it typically comes with a one-year owner occupancy requirement. So now that I have told you this, you can start saving up for your down payment on your next property. You can start looking. Maybe there's a really awesome duplex that pops up. And I'm assuming you have a real estate agent? Did you like the one that you worked with in January? Oh, yeah. Yeah, he's awesome. Great. Then I would tell him, hey, I'm in the market again. This is what I'm looking for. If you see something pop up, let me know.

Oh, he knows. I'm on a few different email listings of different things I'm looking for between multiplexes and single family homes. And even though I bought this house, I stayed on the email list because I just want to keep my finger on the pulse. And I've been watching. And he knows my plan. So I bought this house with 5% down. The plan is to buy the next house 5% down after a year and then move into that house. and I would like to get a fourplex closer to downtown, but, you know, they're few and far between. So maybe triplex or even a duplex.

But that's the idea, is get a multiplex for the next one. And that's kind of the goal for next year. Okay. And what would you do with the boat once you buy the new property? Is that something that you could rent out or would you just sell it? You said you bought it low and you've been rehabbing it. Well, so I can. live on it right now and I'll be living on it full time in January and even if I bought a let's say a

fourplex next year I would still technically have three rents coming in to cover the expense for a year and then after a year I can technically get the fourth one in in that fourplex so it will technically it will be my I will have the fourth unit for a year because you have to It has to be your primary residence. So that will be my primary residence for a year. And because my primary residence is not the boat. Right now, it's this house. It's just a boat that's in the marina.

And I just hang out there for 10 days a month instead of the boring house. So the plan is to just, I mean, you could take the boat out of the picture. And basically, I'm going from this house to a fourplex that I purchased next year where I'm in one of the units. Right. Okay. I was just wondering if you were going to try and rent out the boat as well. Are you willing to? I don't think I can.

Are you willing to repeat this activity every year for a number of years? Yeah, I think that's the goal. I said, let's just try and get one per year for five years. And then at five years, let's see how things are going. With average appreciation, this alone will propel you past your $1.25 million goal. If you're able to do this seven times between now and the next thing, 13 years. Yeah, that's been kind of an eye-opener because I purchased this house for 242 in January, and I was just kind of poking around looking at Helox where the bank gives you their own

personal opinion of their valuation of your house without even doing an appraisal. And they think it's worth $295,000 already. And there's comps in my neighborhood that are going for over $300. So it's been pretty eye-opening how crazy fast this is exploding. But yeah, I think I'm just going to keep doing one per year and put the least amount of cash up front I have to. And slowly but surely, I think it'll come around the corner here and I'll get to where I'm going. Well, that's going to work. I don't think slowly but surely. I think quickly and certainly you will get to where you want to be. It's excited. I think, you know, it's hard to start off in the beginning and you're not really

seeing a whole lot of improvement. And I had this very, very late start because of the massive of student loan debts. And essentially my 20s were just the total lost decade. And I had years where I made 10,000 in one year as this kind of pilot. And even as a regional pilot, back then, we only made $25,000 a year. So it's been this late, late start. And I'm just trying to figure out, okay, what is the quickest way to get there? Because I've started way late.

No, I think that that's like the, that's the journey in our. version of capitalism in this country with it is it's very hard to get things off the ground. But I think what you're where you're at right now is, you know, clearly a number of euros went into getting you to this very clean position that you're in right now with a clean balance sheet, a property, a $100,000 income and the home. And now, depending on how you allocate that and how long you sustain that increase in cash flow and where and how you apply it, I mean, it's going to be out for the races. three to five years, you might have a $500,000 to $750,000 net worth with the trajectory you're on.

If you have a couple of house hacks and get a big income increase, have these continue just investing on a regular cadence inside of your 401K or Roth IRA. And then also, you told us you might have another $260,000 in employee stock. Employer stock options with that. That's a tricky one. Yes, I'm not counting on it. But we'll see what happens for that. That'll be a nice bonus.

Yeah. I mean, so this game plan is definitely going to work. Not definitely going to work. It is highly likely to work, in my opinion, with this. And I don't think it will take you 13 years to realize your goals with that. I think that with inside of three to five years you're going to look up and be like, I'm way over this hump. I may not be completely financially free in three to five years, but I'm going to be on the other.

I'm going to be coasting nicely toward the other side of this, this equation here. Yeah, well, that's nice to hear from you guys. Is that what you think, Mindy? No, that's exactly what I think. I think that when you look at the wealth, what's the word I'm looking for? The wealth, like a typical wealth growth,

it's hockey stick. It's very flat and slightly increased and slightly increased, and then all of a sudden it takes off. And I think you've done your slog of a little bit more, a little bit more, a little bit more, and you're about to hit the stick itself, the handle of the hockey stick itself. Simply because you've got such low expenses, you're, you know, when you first look at this, you're like, wow, $800 a month in restaurants, but you're a pilot.

You're not around. You're in, I mean, you live in a hotel, right? Yeah, basically. So, yeah. So that is not really conducive to cooking a whole lot. And you don't get to choose which hotel. The airline says you're going to stay at this one tonight, right? Right.

So, are boats allowed to have ovens? Yeah, there's an oven on it. Okay, so you can't cook on the boat. Oh, yeah. And also, you know, it's, it's, I, health, healthy eating is big on my plate too. So, I mean, I could save money in the food department and eating out, but I just, I refuse to budge on that. So eating can get pretty expensive when you're looking for healthy stuff on the road, too.

But it's, that's just an expense. just dealt with, you know, but other expenses, it's hard to keep your expenses low when you have the income you have and, you know, not fall to the trap of buying this or that or this or that or a nicer boat or a nicer whatever or a nicer car, you know, but it's definitely helping. I could see that because of the money I'm able to save and just, you know, keep the blinders on and just keep going forward. Yeah, well, when you buy this next house hack and get your massive raise that you're anticipating in the next year, you know, like, you probably could spend a little bit more on

this kind of stuff. Because again, you're, you're, I can just see, or I have this picture in my mind of you going through this huge slog to get to where you're at. And again, you're going to get on this other side of that. And like, you can ease up, I think, in a year or two, you know, inside the next six months, if a couple of these, these projections come true. And you're still going to be able to accumulate a tremendous amount of wealth with a lot of this stuff. So there's something to think about on their... It is. That's a huge mental shift that needs to happen. Well, I don't know if it needs to happen. But, you know, when I grew up, my dad was an airline pilot. And in the first 10 years in my life, we were pretty well. But he worked for Eastern Airlines and they went bankrupt and he

lost his pension. And they didn't have 401ks back then because it started, I think, in the mid-80s. So in 92, he lost it all. But then he started a business and it went on for about 20 years. So we weren't poor, but we weren't wealthy, like rich airline pilot wealthy. So, you know, I've always had to pay my own way through everything and, you know, moved out when I was 20 and was going to school full time and flight school. And it's so I've always been, it's just the way I've been raised in the last 20 years. I'm just kind of like scared to spend too much money. It makes me nervous. Well, I think I think you're going to find yourself in good shape.

in inside a year or two and and you know you don't have to but uh that you know at at some point when you're making 150k and do it have two house hacks and are well in your way with the retirement accounts there's there is permission uh to spend some of that surplus with it um all right all right so bronco gets a paint job yeah something to think about i think i think you should keep grinding for a little bit longer here but you're you're close to the inflection point i think um based on what I'm seeing here. That's awesome. That's motivating.

Earl Shive will paint any car, any color for 99.95. You didn't grow up in Chicago, obviously. I think he's nationwide. But yeah, oh, it looks like he painted it with a broom. Exactly. Yeah. But, yeah, get a spray job. Yeah, I think your expenses being so low, your savings rate being so high.

I think you have, you will have to do. something very wrong on purpose to derail your plans. I think you're just in that period of slog where it's just waiting for the compound interest to jump in and shoot you to the moon. And another house hack, I mean, if you can get a three or fourplex, that'll kind of take care of it. I mean, what's your monthly spending $3,300 a month with a house hack? And your other house hack and, you know, maybe one more house hack and you're going to be done. It means he's been in 2000 a month once it was under the boat. Oh, that's right.

That's right. Yeah. So I don't know. I do know. I do know that you will do. I mean, if you really, really, really want to mess it up, you'll have to take, you'll have to take action to mess it up. otherwise it's just going to keep going. Is there anything else that we can help you with today that you have questions about

or areas that we didn't cover? No, I mean, I think, you know, even with saving up for down payments on houses that I'll still have leftover cash and it'll probably go in a brokerage account, but that's kind of getting into the nitty gritty of, you know, what should I be investing in? And that's just going to take, I think, more reading and more research. But it's, and just, you know, one thing at a time here, just trying to just figuring it out. Yeah. Great problem.

You're saving too much money. You're saving more money than you know what to do with. No, you're not saving too much money. I'll do it while I can because, you know, I think what has lasted in my memory is my dad losing his job at 55 when he was going to retire at 60 and lost his whole retirement. So it's, you know, when it's good, it's good. But it just like that, it can end overnight. But inside of five years, you're going to have multiple real estate properties, multiple stock funds, probably one, you know, probably options in one of your companies that you're going to work for, that you're going to work with this. And I would imagine a pretty solid emergency reserve. So great to learn that lesson,

but I don't think that's going to be your situation that you're going to find yourself in. Unless, you know, we enter a depression, in which case everyone's going to be in the same place around it. It's going to be a relative game. And you're still going to have real estate assets and stock assets and savings and those types of things. Yeah. Yeah. I think that's definitely what set us on our trajectory is. And when I say us, I mean, my brother and I, my brother's the same way. But, you know, when you watch your parents lose their job right before retirement and lose their whole retirement, and now they've got to build a business, it really sticks with you. Yeah, that's got to be really rough.

So what happened with the pension? I mean, you pay into a pension, right? You do, yeah. And it's based on the survival of the company. And the company went bankrupt and closed their doors. And they got rid of the pension along with it. I mean, the pension benefit guarantee corporation comes in and helps. you. But, you know, it was, for example, his pension was supposed to be $6,500 a month back in

1995, and it turned into $800 a month. Then he starts collecting Social Security and it cut in half to $400 a month. So it really wasn't, didn't really guarantee anything. Wow. Okay. If you're listening to this and you have a pension, take note. Oh, that's why I don't trust the ESOP, the employee stock ownership program. You know, I'm rolling my eyes at it because I see what happened with my parents. It's directly tied to the performance of the company. So I'm just flat out not counting it. Now, no, I want to caveat that with, I think some pensions are more safe than others. For example, I would imagine that a military pension, just for folks listening here,

that's, there would be an exception, I think, where you'd hope that would be pretty, pretty stable for some of that. And that would be something that you could bank on. But if you're in a state that like Chicago and you're, you know, a pensioner there, that, that's something to really worry about with this kind of stuff or, you know, a company pension plan, not something to totally bank on with this kind of stuff. I totally agree. You know, I think for the federal pension, for military to fail, I mean, the whole government would have to completely collapse.

So, and then we got bigger problems. Much bigger problems. Yeah, I can just, I just hear someone listening saying, oh, my, you know, we've definitely had episodes where me and Mindy have said, oh, that pension's like a million dollar asset for this individual. And it is, I think, if you're a military, but it's probably worth some discount on that if it's a private company or a poorly funded state, for example. Right, right. I completely agree.

Okay. Well, let's look at this employee stock purchase plan. Do you currently own any of it? Do you have to be there for a certain amount of time before you can own it? Is it vested? So they just started paying out this year. and I think right now there's about 10,000 in there, but they're going to pay out over the next five years. And then once it's all paid out, it'll be roughly 260,000.

And then from there until retirement, 65, I can't really touch it. What is the word payout mean in this case? There, it's go, money is going into an account, a managed account. And it is vested basically. It's mine. But I don't get to withdraw until retirement age. So is this, is this, are you, are you being granted stock in the company? Is that what's happening with this?

Yeah. Yes. Yeah. Okay. So you're being, okay. So you're not purchasing it. It's just being given to you. Correct.

And is that, does that stock give you rights to income, but profit interests in, in the, in the business? I don't get anything out of this thing until I'm retired. What I can do in 10 years or I think 11 years is I can convert it to cash, but I still can't pull it out of the account until I'm retired. Oh, interesting. So if I don't feel the company's going to survive or they're Rocky, I can convert it all to cash and let it sit there. And it won't, it'll lose value because of, you know, inflation and stuff

because it's just going to sit in account and cash. but it might be better than nothing. So I have to kind of reevaluate at that point in time what's going on with the airline. This is a strange. I never heard of this. Yeah, yeah. I don't want to get too into it in case someone's listening. But long story short, if it's there, great.

If it's not big deal because I'm not counting on it. Yeah, that's the best way to handle this. Do you have to continue to be employed by the same airline in order to reap this benefit? Uh, no. So once on whatever's in there is vested. So if I don't make it to five years, if it's say, I don't know, 100,000 is worth and because I leave in a couple years, that's vested. Okay. Okay. Well, that's, that's interesting, but I think your, your plan to not count that at all and just that's bonus if you get it is the best option. Right. And I'm not paying for it. So it's kind of one of those things, you know, you don't get

anything for free. So again, it brings me back to I'm not counting on it. Yeah. I think that's the best plan. Anything else we can help you with before we kind of wrap up? No, I think that's, you guys have answered all my questions. You have any for me? No, I think. Yeah, where can you fly me to? Well, you're going to have to box yourself up because it's just cargo.

What's the Tiki Boat Company? I'm not going to fly in a box. It's, I can't remember. Tiki, I think it's just called Florida Tiki Boat. If you look up Tiki Company down in St. Pete, downtown St. Petersburg, you'll come up with them. All right. Okay, Matt, thank you very much for your time today and for sharing your numbers with us. I thought this was very interesting.

And I have every confidence that you are going to crush all of your financial goals, literally crush them and be like, wow, I can't believe way back there was my goal because I'm all the way up here. I really think that you're doing great and you just have a ton of potential. That's great. I'm glad I was able to do this because you think you're on the right path, but you kind of get yourself down. So it's good to hear that from you guys. Yeah, love it. Okay. Well, Matt, thanks so much and we'll talk to you soon. Hey, thank you. Okay, Scott, that was Matt the pilot, flying high with his fabulous financial journey.

What do you think of his numbers? Well, what I think of his numbers, I think they're fantastic. I think his numbers are very realistic. I think he's going to crush him. And I just want to highlight the fact that, you know, yes, this is this is a single guy who's going to, who's effectively spending $2,000 a month on his personal expenses with that. So, I mean, when you have that strong of a financial foundation and the fundamentals are in place, I make six figures and I spend $2,000 a month, you know, that's that's the game, game over right there. You just let that fly for a few years and you're going to, you know, become pretty wealthy pretty quickly with the compounding of, you know, if you do even halfway decently on your investing returns. Stack in house hack, serial house hacking. stack in, you know, a sophisticated retirement account approach and stack in a couple of big bonuses from a career that can offer significant upside. And sky's a limit. All right.

I'll stop with the airline puns now. Oh. I didn't even catch that last one. Okay. So we have four lovers that we recommend people pull to reach financial independence. Spendless than you earn. Check. Earn more income.

He's on his way to earning more income. So we'll check that anyway. start a business, not something that he is interested in and with good reason. He's got work limitations. He would not want to run afoul of his employer's federally imposed work limitations. And the fourth one is invest in the stock market, invest intelligently in stock market and real estate. And that's what he's doing. So he's pulling three of the four levers.

it seems like he's pulling them fairly seamlessly. It's not a huge burden to him to not be able to spend every dime that he makes based on some of his past experiences with money, which always have a huge impact on your current relationship with it. So I really just think that he's in the middle of his slog, and I'm super excited for his trajectory. And I would like to check in with him in about a year to see if he's done his, gotten his pilot or captain's license,

and the requisite bump in pay and see what he's doing with that money. Yep. Completely agree. Okay. Scott, should we get out of here? Let's do it. From episode 244 of the Bigger Pockets Money podcast, he is Scott Trench,

and I am Mindy Jensen saying we'll chat again, friend.