Living 'like' a millionaire

A popular expression I used to hear a lot when I was in the service was "you're never going to get rich working for the government". I'm sure other work sectors share the same sentiment. But just saying it, even believing it, doesn't make it true. A good paying job along with the ability to invest in the government's TSP program are the right ingredients for growing rich. Furthermore, a military retirement provides an amazing opportunity to live like you've become rich.

We're presented with the lifestyles of many media starlets and assume their glitz and glamor is what being rich must be like. We believe being rich is having enough money to spend lavishly and enjoy the best of everything. In reality, most wealthy people (subtle change in terminology since our goal is usually wealth - the accumulation of money and resources in order to eliminate worry about your financial wellbeing, instead of becoming rich - the ability to wastefully spend money in order to exhibit a certain social class) don't spend money in a wasteful manner. In the book “The Millionaire Next Door” published in 1996, we learned that the average American millionaire does not make frivolous purchases, avoids debt, and isn't concerned with displaying a particular status or lifestyle.

I just read this post from a question-and-answer website called Quora:

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What is it like to be a millionare?

I reached this at the age of 30.

Honestly, things didn’t change much as a whole.

1. I still live in the same city, although a different house now. Not a mansion, but I went from living in a house of roughly 1k sq ft to 3.3k sq ft. Not a big jump at all and my house is modestly priced ( any average American family could afford ).

2. I bought 2 new cars because all I ever drove before were used junkers. They weren’t lambos or Mercedes. It was a Honda and a Toyota.

3. I went on a few vacations, but only because I hadn’t before in my life. I didn’t country hop or take a year long sabbatical. I went to a few places and stayed about a week in each.

4. I still worked. Though not a job, but as a consultant to the job I left.

5. I ate out more, only because I hated to cook. Of note, these weren’t fancy restaurants, but more like restaurants chains we all know and eat at.

6. I did feel more secure, which made me more confident. I knew I could buy anything I wanted and do anything I wanted, without asking or planning it out. I also knew no one could come take my cars or home (banks ) if I didn’t pay a bill.

7. It did allow me time. Time to relax and think about who and what I am. What my real goals in life are and what I want my life to really be.

The biggest change has been #7.

When you live the rat race and have to stress out about bills and issues, you don’t have a lot of time for yourself. That has been the biggest change.

Everything else, seems the same though.

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I love this answer. It helps confirm the assertions made in The Millionaire Next Door book.

I read blog posts and listen to podcasts from many individuals that are pursuing, or have achieved, a financial state where they consider themselves FI or FI/RE (financially independent / retired early). In simple terms, they save a very large percentage of their income so the interest compounding element of investing has several decades to perform its magic. The goal is for this nest egg to grow enough so they are able to withdraw their annual living expenses from their investments without the need to continue traditional employment. The withdrawal rate cannot exceed 4% of their investment portfolio in order to virtually remove the risk of their investment fund from ever running out of money. So, if you had $1M in a low-cost index investment fund earning the average annual market return of 8-9%, you could withdraw $40k each year for the rest of your life while your $1M investment is maintained. Looking at it in reverse, if you determine you need $40k per year to cover your living expenses, you multiply that amount by 25 to establish your target investment level needed to reach FI/RE and reassess your employment arrangement.

Being a retired O4 with 26 years of service, I receive 65% of my base pay rate at the time of my retirement. Using the FI/RE methodology, a civilian would need to have around $1.5M invested in order to withdraw 4% and match my annual pension. For this reason, I feel we get to live like millionaires, in particular the respondent to the question above.

But of course we don't actually have that money privately invested. Military members only began having the option to invest a non-matched portion of their pay into the TSP very late in my career. I was already investing money into a Roth IRA by this time, so I did not even consider additional investments into the TSP. (Advice to younger self: you can set more aside for retirement). If I were to pass away, my heirs would not benefit from having such a large sum of money within an investment. My wife would continue to receive a decent amount of my pension for the rest of her life, along with the term insurance payout that would makeup for the reduced pension income. My children would not be eligible to receive any portion of my pension, but my IRAs would provide some financial support.

I am extremely grateful for the flexibility my military retirement affords me and my family. For the past year and a half, I’ve had the tremendous opportunity and good fortune of being able to step away from my post-military career and enjoy the benefits of #7. Like a millionaire.