Checking In With Alan Lastufka and Early Retirement
Thoughts on the beginning of Year Three.
Last year, I interviewed musician/YouTuber/author/entrepreneur Alan Lastufka about his experience with early retirement. This year, Alan suggested we check in and update the conversation. Our lightly edited interview is below.
ND: How does it feel to be beginning your third year of early retirement? Are you still glad you did it?
AL: It feels great, yeah. I definitely don’t miss any of the old day jobs. Any time it snows or the news reports a heavy traffic jam, I’m thankful I don’t have to bother with any of that now. And sometimes I get nostalgic for my last job, running DFTBA Records, but then I remember the stress, the paperwork, and all the tedious stuff that offset the fun stuff, and the nostalgia fades.
I’m surprised how quickly my days filled up with things to do. I think I’d have a hard time re-adjusting to a regular nine-to-five now. When would I exercise? When would I catch up on the news? When would I find the time to read the latest Stephen King tome?
I’m so glad, and thankful, for this time.
I think the only downside after three years has been a loss of identity. I’m no longer the “DFTBA guy” or a YouTuber. So when I moved to Oregon this year and started introducing myself to the new neighbors, being the 33-year-old retired guy was my new identity. It’s just one that’s so foreign to so many people that it takes a bit of explaining.
Did you stick pretty closely to your budget last year? Were there any unexpected expenses?
The budget was completely thrown out the window last year. I ended up selling my house in Montana and buying a new build in Oregon, a move that was not planned going into the year. My girlfriend and I moved so she could be closer to her family and friends, and I have a few friends here as well, so the move made sense. Thankfully the housing market was on fire in Montana, and I put an offer in on a new build before the first stud went up, so I got in before the housing market took a similar climb here.
Unfortunately, the builders hit a snag with two contractors and we ended up staying in a hotel for three months (at our expense) while the new house was delayed.
So the move was no doubt the largest unexpected expense, in addition to the hotel costs it included sellers and buyers’ fees, new appliances, installing a backsplash… all the expenses that come along with a new house. Thankfully, the market timing meant I sold my Montana house for about $50,000 more than I purchased my new Oregon house for, and that money covered all moving expenses.
What about any unexpected income (or net worth) gains or losses?
Unlike the huge unexpected expenses, there weren’t a lot of unexpected gains. The markets did well. But my conservative investments lagged (as conservative investments are wont to do). And while I sold my Montana house for a tidy profit, that was almost all lost to moving expenses.
Overall I saw a net worth gain of just over $18,000 in 2016. Which is not bad with an earned income of $0.
What about passive income?
Passive income is still covering and exceeding my budgeted spending. So it’s still doing well!
The bulk of my passive income is currently investment income. Literally 90 percent is investment income. This takes the form of dividends, capital gains distributions, and some returned principal. The other 10 percent is royalty income from music projects, t-shirts I’ve designed, and other merch.
I used to have a bit of rental income as well when I owned my Montana house, but when I sold I opted for larger, but fewer, rooms in the new house. So no more occasional roommates or the income that comes with them.
Is anything surprising you, financially? Or are you able to anticipate the majority of your income and expenses?
In 2016 my investment income fell by $10,000, which was a surprise. I went from $36,129 in investment income for 2015 to $26,977 in investment income for 2016. The main culprit here was the Vanguard LifeStrategy Moderate Growth (VSMGX) mutual fund, which also happens to be my largest single investment, accounting for about 50 percent of my taxable brokerage portfolio. I knew the distributions for this fund varied from year to year, but it just so happens that 2015 was its largest distribution in a decade, and 2016 was its smallest distribution in a decade. So over the years the average should fall somewhere between these two extremes.
To help improve cashflow for future years though, I sold 20 percent of my VSMGX holdings (10 percent of my portfolio overall), and reinvested that money in higher paying, steadier dividend stocks. VSMGX yielded a distribution last year of just 2.3 percent, and this new basket of investments averages an annual dividend yield of 6.4 percent. This should improve cashflow by about $590 per month over VSMGX’s worst year, given the 20 percent of VSMGX I sold.
Expenses remain fairly steady. There’s always the occasional “unplanned” expense, but ironic as it sounds, you learn to plan for those. Nothing lasts forever; eventually you have to replace the hot water heater, the tires on the car, the refrigerator, etc. You can research how long those things typically last, spread that cost out over the years, and then plan for it (for example, the average hot water heater needs to be replaced every 7–10 years, and costs $900, so save $100 per year for when yours goes out).
Of course, money is fungible and you don’t actually have to have a “hot water heater replacement” line item in your saving plan. Just recognize that the cost exists and will eventually need a chunk of your savings. Having that $900 set aside will turn what would normally be an emergency into a slight inconvenience.
I personally keep a “slush fund” buffer of $5,000 in my checking for just such inconveniences. And I refill it by decreasing fun purchases when needed.
This year, you’re setting yourself a tighter household budget. How did you make that decision, and where did your budget numbers come from?
To keep my early retirement sustainable indefinitely, I decided to live solely on the investment income I received in the previous year. This way I will never have to sell a single share of stock for living expenses, and because dividends historically have gone up quicker than inflation, I’ll be able to maintain my current lifestyle, and even improve it, over the years.
In 2015 I received $36,129 in dividends and capital gain distributions as mentioned before. Therefore, I had about $3,000/month to spend in 2016. However, in 2016 I only received $26,977 in dividends and capital gains distributions, so this year I only have $2,250/month to spend.
Thankfully, my needs and basic wants only cost me $1,527/month. That number includes everything from property taxes and utilities and groceries and health insurance to Netflix and Amazon Prime and Adobe Creative Cloud (which is technically a business expense when I make freelance income to write off against it).
This gives me a nice cushion of about $700/month for other stuff. Books, new CDs, renting movies when there’s nothing to watch on Netflix, Hulu, Prime, or YouTube… and additional investing occasionally.
I’m able to keep my needs and basic wants costs so low because I have no debt, and I own my home. Aside from property taxes and a modest HOA fee, I don’t have any housing costs, which is typically the highest expense most people have in their budget. Add to that paid-off school loans, a paid-off car, and an Amazon Rewards card that gives me 5 percent back for any purchases I make on the site (which is paid in full every month, of course), and I’m definitely making Dave Ramsey proud.
Just a quick note for those doing the math at home: investment income is currently not taxed at all if you’re in the lowest income tax bracket, which I have been the last few years. Whether or not this law stays on the books, I don’t know, but that’s why I am currently able to spend 100 percent of the investment income I receive.
Do you think you’re able to spend less because you don’t have a traditional job? (No work clothes, no commute, etc.) Or are you spending more?
It probably ends up being a wash, for me. This won’t be true for everyone. While I don’t spend money on work clothes or a commute, I do spend more time on my treadmill desk throughout the day, which wears down and needs to be replaced (and those things aren’t cheap). I spend more time working on creative projects, most of which are collaborative and I pay a team of people who work on them with me (for example, at the end of 2015 I released an EP of original songs that required a producer, a mastering engineer, and numerous music video directors). These are things I’d do less of, or not at all, were I wrapped up with a full-time job.
And then there are the costs you don’t immediately think of… because I’m home all day instead of at work, my utilities are higher, I’m using more electricity for lights and the computer and the treadmill and the TV, I’m cooking more meals at home, using more gas on the range stove, I spend more on gas/electricity to heat/cool the house to comfortable day-time temps when I could ease off of those if I were at work all day, etc etc.
How are you spending your time these days? Is it different from last year?
2015 and 2016 were almost all about music. I was writing and recording with my friend/producer Christian Caldeira. 2017 is all about writing my first novel.
I’ve been published before; in 2008 I signed a book deal with O’Reilly Media to write YouTube: An Insider’s Guide. That was a great experience, the O’Reilly staff was very supportive, they paid for featured displays in Barnes & Noble stores across the country, and the book was used in numerous university programs teaching online video.
But it wasn’t the “next great American novel.” It was basically a how-to book.
My dream had always been the great novel one.
So late last year I started developing an outline and hired a book coach. Once the outline was complete, I sent it to a professional developmental editor so she could double-check my work before I got started writing. She, much to my surprise, found no issues with the plot, characters, or pacing, so this week I dug in and started writing Chapter One.
At my current pace, it’ll take me about three months to finish the first draft of the book. Then it goes to beta readers, I revise, back to beta readers, I revise again, then off to line editing and copy editing before publication. All of which will cost a couple grand. I’ll be hiring professionals at every step, both because I want to produce the best possible book I can, and because I can afford that type of support if I choose to redirect my music production budget from previous years to manuscript editors instead. Readers can follow the process at AlanLastufka.com.
On a related note, I’m very excited about your book! First and foremost to read what you’ve written, but also because you’re blogging every step of the process just a few months before I will need to do most of the same work. Following your lead and learning from your experiences will be very valuable. There are tons of “writing tips” and “publishing tips” out there, but most are vague or clickbait-y so I haven’t found them to be very useful overall. And because we’re friends, I can reach out to you for more information if needed, where I can’t do that with other publishers.
I will absolutely tell you everything I’m learning, because it is A LOT. (And also fascinating.)
What are your other long term goals, both financial and personal?
Most of my financial goals have been met. Nine years ago, I was $30,000 in debt and struggling to make it from paycheck to paycheck, usually borrowing $20 or $30 from my mom to make it to payday. After being threatened with a lawsuit from Sallie Mae for nonpayment of my school loans, I wrote out a list of goals. The list included the basics, from making a budget, paying off my credit cards, paying off my student loans… to huge, unbelievable goals like paying off my car, buying a house, paying off that house, and eventually living on nothing but investment income. I actually wrote that down back in 2008 and taped it to the wall above my computer monitor so I was forced to look at it every day.
Two years ago I crossed off the last item on that list and threw it away. I don’t know if I would have eventually reached this point without the success of my previous company. But I do know I was on the right track with that list and would have worked it as long as I could, taking it as far as I could.
It’s all about maintaining now. Which is mostly hands-off. I still get the urge to splurge every now and then, and sometimes I still do. But I am all too aware of the stress and dread of living broke, and I will not allow myself to fall back into that trap.
As for personal goals, I’m still working on my weight loss. I’m down 50 lbs from my heaviest, but have a bit to go before I’m considered “healthy” by most standards. I’m also very excited and nervous about the response to the novel I’m working on, coming off of DFTBA Records and my YouTube success I have a bit of a larger audience than most first-time novelists, so if the book is bad, it will be a very public — rather than private — failure. And, as always, I hope to spend more time with family and friends.
Last year I asked you what advice you had for people who were considering early retirement. This year, I’ll ask you what advice you have for people who have recently started early retirement. What should they be doing this year?
If we define “early” retirement as anyone younger than, say, 50… then my advice would be to remain vigilant with your spending and your investing. You’ve achieved something most only dream of, you don’t want to lose it to a bad money manager or a poor risky alternative investment. You have a long retirement to fund! Stick to mostly mutual funds and investments you understand. And know this — no one will care more about your money than you. I do not use a money manager or investment “guy”, I do all my own research and investing.
Most of your peers will still be at work, so I hope you’ve developed, or begin to develop, some dedicated hobbies. Hopefully inexpensive ones. I enjoy reading. I enjoy listening to and collecting music (even the rarest of the rare pressings are still relatively affordable and available with a little internet hunting). I enjoy video games and watching movies. All of which are cheaper than, say, collecting cars or international travel or regular expensive dinners at an upscale restaurant.
I also advocate for keeping your mind sharp. The hobbies will help a bit with that. But I find working on my various creative projects and occasionally taking a freelance gig here and there are really beneficial. They’re personally rewarding projects to work on, and the freelance gigs can even bring in a little bit of extra spending (or saving) money.
And lastly, find some kind of exercise you enjoy. You don’t want your body falling apart prematurely because you now have the luxury of lying in bed or on the couch all day. I have a treadmill desk that allows me to walk and write/surf the web at the same time. I walk a minimum of two miles a day there. Wii Fit has some fun video games that keep you moving and feels like playing. Or join a gym, which comes with the additional bonus of socializing, if you find cabin fever setting in.
The above should help you enjoy all of this extra time now that you have it, and will keep you enjoying it for decades to come.
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