Like the protagonists of Damnation Alley (a contender for best science fiction film of 1977), you will face in your career a long, deadly journey across hostile terrain in a vehicle that hopefully will allow you to reach your personal goals. I recently attended an excellent retirement planning seminar which described many of the things I should have been doing over the past decades. This seemed like sub-optimal timing: like explaining to someone how to drive after the trip is virtually complete. How better it would have been to outline some key features on how to engineer your Financial Assault Vehicle in your 20-30s, where you can take advantage of lessons learned and the compounding of time to have far greater impact. In that spirit then let’s set out some tools for younger engineers that may not have had some of these aspects explained to them to date.

To illustrate these concepts, we’ll do a walkaround of the magnificent Landmaster vehicle from Damnation Alley. Like you and your assets, the Landmaster is a rugged, multipurpose and resilient vehicle capable of handling all manner of threats. Like us, it faces challenges at times – internal and external, but with a flexible approach to problem solving and access to scrapyards it can convey its cargo to a refuge. These observations and lessons learned are from my experience with a specific country and company, so they may or may not be broadly applicable, but should be useful for those folks navigating similar terrain. Let’s step through each of these seven aspects of the Landmaster, with some actionable tips.

Your Landmaster

1.  Deadly Mutant Scorpions etc.

The post-apocalyptic wasteland that the Landmaster, piloted by Major Denton (George Peppard), must navigate is littered with hazards: mutant creatures, the environment and of course humans. Similarly, the biggest threats to our journeys will likely be human such as bitter ex-spouses or sketchy salespeople. However, by far our biggest antagonist will be…ourselves. We may be thrifty or not, impulsive or not, high income earners or not – but regardless of the strengths and weaknesses, there is only so much perspective an individual can have. Note the Landmaster has no rearview mirrors – similarly we inevitably all have blind spots as well. We therefore need aspect #2, which is:

2.  Command Module and Co-Drivers

The Landmaster has the ability to transfer control between the two drivers by means of a simple lever, allowing smooth and continuous operation while one needs to eat or rest. You may be a diehard DIY and want to make all of your own decisions, fearing errant counsel or not wanting to burden spouses, other family members, friends or advisors with requests for input. But left solely to our own devices, any of us may well veer off course. It would be preferable if we have someone we trust that understands our objectives that we can check in periodically with, to simply confirm things are proceeding appropriately, or suggest course corrections if applicable.

In my case, I am historically impulsive e.g. prone to making dumb stock or large item purchases if there is too much money in my “emergency fund” (EF). Systems of checks and balances, with accountability partners or cooldown periods before big decisions are made using this EF would have cut these errors down. For me, the psychological hazards and fewer reliable “veto” co-drivers make me philosophically lean towards those who go slim on the EF. In our engineering works, we never issue deliverables without a second set of eyes checking these decisions and products. The same might apply to expensive life decisions.

Exception: it seems one should never ask for or give people advice on whom to date or marry or not, even if others ask. You’ll either be right or wrong, and the advisee will probably resent the advisor either way.

3.  Housing Module

Should one Rent or Buy to satisfy the need for shelter?

Trick question, since the answer is “it depends on your circumstances and objectives.” However, one aspect that is more black and white is that regardless of your direction, strive to not over-consume what you choose to live in. The back half of the Landmaster has racks for sleeping for the crew and a bathroom suitable for one shower a week per person whether they needed it or not. Seems sufficient to cover basic needs.

Let’s posit we avoid spending an extra $100 a month for more square footage than we need, rent or buy, with resultant heating, air conditioning, cleaning as well that really provides no marginal benefit to our happiness. Invest the savings and from 25 to your late 50s, that might accumulate to over $100,000, even after accounting for inflation. That is basically the average savings of an American for retirement. Considering the mean savings for retirement is even less (about half have no savings at all), resisting housing costs past the “enough” level means if people could just fit themselves into housing without an excess of consumption for a savings of a couple hundred dollars a month, they’d be far ahead of the pack. Thus be wary of and resist up-selling. The back end of the Landmaster was good enough housing for its crew and its journey…though attrition admittedly helped.

4.  Multiple Drive Options

The Landmaster can be driven from the front or rear transmissions, and has rotating sets of triple drive wheels to negotiate smooth or rugged terrain; even water. In a similar fashion, one’s approach to investment assets benefits if there are a variety of options. Having more degrees of freedom lets one minimize taxes, provide liquidity and maximize benefits. Let’s dissect a few features of these “three wheels” and provide some actionable tips:

4a. Tax-Free Growth (e.g. Roth 401k or IRA) Wheel

Placing after-tax money in a Roth IRA account gives one a great deal of flexibility. Growth accumulates tax-free, and there are no required minimum distributions as there are for a traditional IRA or 401k. In an emergency, one can also withdraw contributions, and in some selected cases earning also, early from a Roth IRA with no penalties. Withdrawal rules are more restrictive with my company’s Roth 401k plan. There are also restrictions on taking money out from a Roth IRA plan depending on how many years you have been enrolled. So here are two specific “lessons learned/actionable steps” that could have improved my flexibility, and might improve yours:

4.a.1: Start a Roth IRA early in your career, say at age 22. This starts the “clock” for when you would be able to withdraw funds. Say your employer has a Roth 401k with good investment options you contribute to, but one black swan day in your 30s you are let go, and darn it, you have a cash crunch you can’t overcome with better methods. Rolling your company Roth 401k to your Roth IRA then may allow you access to more Roth funds earlier than age 59 1/2 without penalty. Without having the existing Roth IRA at that time would require starting the clock after you separate, which might not help you in the short term. Disclaimer: the best treatment of Roths is to not touch them at all, but having that Roth IRA clock wound up in your back pocket that you can roll other 401ks into seems like a advantageous way to prepare more options and negotiate rocky outcroppings.

4.a.2: Use Midcareer Windows for Roth/Traditional Optimizing: The Landmaster is articulated, with a  joint in the middle that allows the vehicle to flex. In my career I had several periods where I had such joints, transitioning from one job to another or pursuing a graduate degree. If these intervals would have been better anticipated (and in most cases could have been), I would have done well to shift the contributions between Traditional and Roth 401k/IRAs, roll 401ks to IRAs or make Traditional/Roth IRA conversions, to take advantage of different tax rates between years or place more assets under my control. If you can prepare a sober assessment of the year ahead in the fourth quarter of the previous one, intelligently choosing which plan to contribute to or perform a conversion, this may harvest tens of thousands of benefits down the road. In a similar fashion, I haven’t made a wise examination of Health Saving Accounts (HSAs) either in advance each year, which deserves more investigation. An advisor that can help you make a “plan of the year” could well be worth the fees. Disclaimer: I am not a financial advisor, and I do not recommend any in particular – I’m simply someone that pays a lot of “stupid tax.”

4.a.3: Backdoor Roths: The Landmaster is equipped with a large rear door/ramp, sizeable enough to deploy its motorcycle for scouting purposes.There may be years where your income is too high to contribute to a Roth IRA.  So take a look at the backdoor Roth option, and there is even for some company plans a “mega-backdoor” strategy, which sounds tremendous if for no other reason than the name (sadly not available from my company plan). Basically for several years until I discovered this I put $5500 into my taxable accounts, unsheltered by taxation on its growth, which could instead have been directed into a backdoor Roth where the growth would have been tax-free. Take $5500 growing at a real (after inflation) rate of 4% over fifteen years and then take out federal + state taxes on the capital gains, and looks like for each year I missed that opportunity, it could cost me or heirs around $1000+, which could have been easily avoided. Ouch. Take a look out the backdoor if it applies.

** Post-Post Postscript: for another “wish I’d done Roth things differently” perspective, check out this article from Tanya at Our Next Life. She’s a fine writer.

4b. Tax-Deferred (e.g. Traditional 401k or IRA) Wheels

Tax-deferred accounts, where one contributes tax-free but is then taxed when withdrawing, have their advocates as well. Like renting or buying, the choice of which makes best sense for you is “it depends,” but what asked to choose between the two, my answer is “Yes.” Regardless of Traditional or Roth however, there are two actionable steps that you could take advantage of:

4.b.1: Fat Tires – Magnitude: the average Joe would say invest 15% of your income into a 401k. But that’s not the individual limit – in 2018 it is $18,500; more if you are 50+. If you have other needs taken care of like housing and your modest expenses, why not try to max those contributions out? Use the game of trying to maximize your 401k as a way to simultaneously whittle down your expenses to rational levels, and exercise your ability to fend off hedonic adaptation.

4.b.1: Fat Tires – Timing: I like to front-end load my contributions to the 401k. Perhaps you can hit the annual limit and in theory raise the percentage of savings even further (following some Shockingly Simple Math Behind Early Retirement). Example: the contribution limit per month of my company’s plan is 75% of your income, so I set it at that, and once it hits the month where the $18.5k is filled up, it stops taking that amount out – effectively providing a nice apparent raise in your net paycheck midyear. So this accomplishes a few things – provides you with confirmation you can live on much less, and then gives you a fat bonus for the rest of the year! Two nice psychological effects. Check with HR to make sure the company matches are equivalent however you contribute though.

4c. Taxable (e.g. typical brokerage account) Wheels

There is a lot of debate about the appropriate sequence to contribute to and then withdraw from the various accounts: Tax-Free/Tax-Deferred/Taxable. Bottom line is, if someone asked postapocalyptic wanderers if they should have one wheel or three for each set of the Landmaster, they would say “three please.” Some Traditional for tax deferral in your high-income years, some Roth for tax-free use or endowment, some taxable brokerage accounts for liquidity and flexibility. Assign and manage the size of the different wheels appropriately, but have several if you are given the opportunity.

Another advantage of having several wheels/buckets is that you may be able to adjust asset allocations (types of investments you hold in each) between them in an intelligent fashion to minimize tax consequences.

The advantage and danger of the taxable accounts is that they are relatively liquid with many investment options, which, much like large EFs, can lead to it being easier for the impulsive or unwary to make bad decisions. More on that later when we talk about J-MV.

5.  Multiple Attack Options

Once you’ve got your multiple drive options sorted out, you’ll have multiple ways to harness these to attack your objectives throughout your career – using cash flow from income, dividends and capital gains from taxable accounts, withdrawals from retirement plans, etc.

Two specific suggested action items from the seminar I attended were:

5.1 Call Out Your Targets

If you can name beneficiaries on your accounts, that money will pass to them with less hassle and probate taxes than the same amount would be distributed through your will. Do update your beneficiary designations at appropriate intervals so you don’t leave large sums to someone you fell out of favor with.

(Better yet for life satisfaction – don’t generate those sorts of relationships)

5.2 Charge the DAFcannon

Donor-Advised Funds are a clever way to front-load tax deductible contributions in your high income years and then perform the distributions to suitable organizations later. Contribute and get the tax break when you have more income, then manage the fund and enjoy the impact when you have more time.

6.  Reconnaissance Equipment

The Landmaster had a guidance system that, once the waypoints were plotted, would guide the driver and inform them when they were drifting off course such that only minor periodic corrections were required. In an analogous fashion, you may want to develop your financial plan and review the progress periodically, understanding that hellstorms and financial markets will introduce manageable disruptions.

Engineers love spreadsheets of course, so having net worth statements and projections usually start there, but higher tiers of software using Monte Carlo statistical analysis are also available. These are quite entertaining for sensitivity analysis. Professional financial advisors generally have access to these tools that acknowledge and illustrate the many possible outcomes in given years with a Bayesian perspective. A useful list of some of the financial/retirement calculators can be found here. Vary your drive and attack options and see what you’d have to do to meet your goals, updating the projections and plans regularly with a light touch on the steering wheel and throttle (unlike J-MV).

7.  Don’t Overdo the Jan-Michael Vincent-ing

In opposition to the steady hand of Major Denton (representing a conservative speed limit with an equity/bond portfolio comprised mainly of index funds) was the rather irresponsible Jake Tanner (Jan-Michael Vincent), whose major responsibilities were to take risks, abuse the Landmaster and look good on a motorcycle. The movie is clearly a poor lesson for anyone since most of Jake’s gambles did not have serious negative consequences. For your own ventures however, consider limiting the amount of time you spend motorcycling around mutant scorpions – or as a friend advises: “Don’t hang ten in the danger zone.” Engineers, bolstered by their uncanny knowledge of physics that may greatly exceed that of the average person, sometimes think this accuracy in that field translates unerringly to the financial markets. Turns out physics do not apply there; as a result in my youth I got burned with disproportionate investments in individual stocks (thanks Mirant, so long Traditional IRA). So take risks if you like, but it would be advisable to keep them at or below the “sleeping point,” where if you lose a big chunk of your portfolio or arm (say, <5-10%) it doesn’t significantly impair your voyage. You have plenty of time – grind out progress reliably like Major Denton or the Wisconsin Badgers would.

Summary

Thank you for taking this tour of the Landmaster; a metaphor for engineering a vehicle for a solid, strategic assault on your objectives. Hopefully there are a few actionable items laced in here that one could implement in the mid-career years, before one reaches the retirement seminars and asks “Damnation, why didn’t they tell me sooner?”