A Lot Has Changed

I'm back!     

Since my last post about 10 years ago:

• Divorced.  Bought ex out of military pension and split the assets.  Fortunately, no kids in the divorce.  I took all the illiquid assets (real estate) and sold them before the COVID boom.
• Remarried and now have 1 son and temporary custody of our adopted son's half-brother.
• Retired from the Navy as a Navy CAPT (O6).  Awaiting first retiree paycheck and VA disability payment.   I'm due to hear back from the VA in the next two weeks and get my first retiree paycheck in 6 weeks.  I suspect my net retirement pay (27.5-year Navy O6) and VA disability should be about $107K after all taxes, etc.  Well short of my initial goal of $125K in passive income.
• Resettled in Ann Arbor, MI.  We bought in Michigan with the hope of staying here for my second career and potentially longer.
• Treaded water on net worth (basically the same where I was when I got divorced).  However, outlook is good going forward.

As I move forward, I will talk about my journey.  My biggest personal finance experiences defining future commentary:  

• Finishing my current role as estate executor for late father's estate.  Among the things estate executor duties have taught me is that my wife and I have too much stuff.  
• Negotiating the hi-wire of a 3-year ARM.  I made a strategic bet that interest rates would be down 3 years from now and locked in our mortgage at a 2 to 2.5% lower interest rate than what was available in the 7 to 7.5% interest rate for fixed rate mortgages.  However, it comes at a cost if I get it wrong when we refinance in 2026.
• Career reset.  While I have spent most of my energy lately on our family's move to Ann Arbor, MI, and serving as an estate executor, i've started applying for jobs.  
• With the divorce, growing our home (remarried, 2 kids) and resettling to an expensive area, i'm no longer retiring at 51 but will be working into my sixties.  Fortunately, my military pension is giving me some freedom in deciding what's next.
• Re-evaluating financial goals.  We've had a lot of inflation since 2013 and my original goal of $125K in passive income probably won't cut it.

I look forward to connecting with you via my articles.  If you have questions and would like to hear more from my perspective, please comment and subscribe.

Screen Shot Reflecting Performance of my LendingClub Peer-2-Peer Lending Account and General Attributes to Lending Success

I have been lending at this site since late 2008.  My year-over-year statistics include:

	Balance Jan 1st	Balance Dec 31st	Account APY	Notes Sold
2009	$125.72	$1,516.71	7.70%	4
2010	$1,516.71	$2,729.71	9.49%	16
2011	$2,729.71	$5,964.22	10.98%	41
2012	$5,964.22	$9,044.87	11.45%	172

You may wonder why there is a large difference between what LendingClub advertises as "Net Annualized Return" and my self calculated account APY.  I believe the principal reason for difference between these two is that LendingClub's calculations do not factor in FolioFn fees and loan losses incurred when selling loans at FolioFn.

I attribute my success at LendingClub to:

1.  Multiple years of lending at Prosper before opening my LendingClub account.  I lent about $5500 over several preceding years at Prosper and had a net loss of $50.  Over my time at Prosper, I learned a few lessons about risk-return.  I no longer use Prosper.

2.  Over 90% of loans originated are to borrowers whose projected revolving debt balance (after loan) is no more than three times their income.  This requires one to trust the marketed loan purpose at face value... (e.g. debt consolidation loans end up being used 100% for debt consolidation).

3.  Most of my loans are to borrowers reporting over $3000 per month for income.  I feel that the these borrowers have a greater latitude for paying basic living expenses and then having room in their budget for debt payback.

4.  I have ALWAYS sold non-performing notes.  Over 90% of the time, I sold notes that were no more than 15 days late in payment.  Most of the time between 2009 and Nov 2012, I sold notes in the hours between the time I discovered their monthly payment was was late and the time at which the note changed to an "in grace period" status.

5.  In November 2012, I noticed that the FolioFn trading platform was performing poorly and not displaying notes very well when users attempt to sort notes by Yield to Maturity.  Because of this, a number of my notes "in grace period" did not sell very well.  While I experienced some short term disgust with the FolioFn platform, it did prompt me to start selling notes well prior to them entering "in grace period" status.  Now, a majority of the notes I sell are those notes that have had a greater than a 35 point credit score drop since the loan was originated.  I typically sell these notes for around 0.99 to 0.995 cents on the dollar and eat the additional 1% FolioFn fee.  I would rather sell loans prior to a delinquency than have them age to an "in grace period" status and have to deal with the inadequacies of the FolioFn note trading platform.  If FolioFn is acting up (as it has in the past), it could cause notes that would normally sell to age and result in delinquency statuses of 17+ or 31+ days.  Notes that age to delinquency statuses of 17+ and 31+ days have required me to discount them 25-75% in order to get them sold.

Is My Retirement Goal Attainable? Under Current Assumptions, We Fall Short Unless We Invest More in LendingClub Peer-to-Peer Notes.

The banner on my website clearly states a goal of mine to retire in 2025 with passive income in the amount of $125k per year.  Since 2004, this goal has shifted from retiring at 47 years of age to 51 years old.  I made this shift on my banner around 2010.  My earlier aggressive goal was likely based on a confidence in the real estate market in 2004.  That confidence in real estate remains, but now to a smaller extent.

To retire at 51 years of age, I assume that I serve 29 yrs in the military and retire as an O6.  This is a big assumption in that this would require a promotion from O5 and my wife to tolerate another 12 and a half years of my service.  I believe the is not that much of a stretch since we are getting to the point where she will homestead and most of my follow on assignments are likely possible in the DC beltway (where wife wants to homestead until I retire).

Assuming I make it to 29 yrs of service and retire as an O6, I should net $64,109 per year after taxes and survivor benefit premium payments.

The wife is civil service and if she homesteads after our next assignment and stays in her current line of work, we're looking at an additional $7,023 per year for her pension after taxes and survivor benefit premium.

We have three investment properties now, two of which are paid off and another one that will be paid off within the next 20 months.  In 20 months, these properties will be bringing in a net of $15,463 a year after taxes, insurance, maintenance and management fees.

Totaling these three items gives us a net of $86,595

$64,109     29 yr military pension

 $7,023      17 yr civil service pension

$15,463     Investment Property Income

$86,595     Projected Net Income in Retirement

Now, this leaves a passive income shortfall of $38,405.

A retirement at 51 yrs of age does not permit including distributions from 401Ks and IRAs.  We do not save a lot into these investment vehicles because we have been focusing on paying off real estate and generating free cash flow.  At the age of 51, we should have about $290k or more in these retirement investment vehicles assuming a conservative 4% annual return rate.  

Now, what other assumptions are we making and where do we think we'll end up in meeting our goal of $125k in passive income?

We are saving $600/month in our dividend reinvestment plans.  Assuming a 8.4% annual return, we are projected to accrue $233,387.  Assuming our current portfolio dividend rate of 2.6% remains the same, this would bring in about $5,158 per year after taxes.

We are also projected to invest $4k this year and $2k in each subsequent year in LendingClub peer-2-peer notes.  Over the past four years, we have netted a 45.85% return before taxes at LendingClub.  In our first year, we netted 7.7%.  In 2012, we netted 10.98%.  Assuming an optimistic 12% annual return, we should end up with about $103,637 in this account.  In 2025, this should give us about $8,208 per year after taxes.

Between our dividend reinvestment plans and LendingClub, our projected net income in retirement grows to:

$86,595     Income from Pensions and Investment Property

 $5,158      Dividend Reinvestment Plan Income

 $8,208      LendingClub Note Income

$99,961     Projected Net Income from Pensions, Investment Property, DRIPs and LendingClub

This leaves a shortfall of $25,039 per year.  We project that we'll have the ability to accrue an additional $529,227 in savings by May 2025.  Assuming we spend $400k on a condo in Northern Virginia and later convert it to an investment property, this should net us about $12k per year in income after management, home ownership association fees and taxes.

$99,961     Projected Net Income from Pensions, Existing Rental Property, DRIPs and LendingClub

$12,000     Income from additional investment property

$111,961  

This leaves about $129,227 left over in accrued cash that can be invested.  Looking at three different courses of action:

1.) Investing in stocks at 2.6% brings our retirement income to:  $114,817

2.) Investing in real estate at 6% rental yield (current yield on our three properties) brings our retirement income to:  $117,544

3.) Investing in more LendingClub notes at 11% note yield brings our retirement income to:  $122,195

If we retire in May 2025, we will fall short of our goal, somewhere between $2,800 to $10,813 per year.

How will we make up this goal?  

If we execute course of action #3 and work an additional four months investing those earnings in additional LendingClub notes, we could meet our goal and retire in September 2025.

If we execute course of action #1, it would take an additional three years of work to accrue a 2.6% dividend paying portfolio large enough to fill the income gap.  I'm only assured an additional year of service since O6s are required to retire at 30 years of service.

If we execute course of action #2, we could likely attain our goal but it would require us to retire one year later in 2026 and roll all subsequent earnings into a combination of LendingClub notes and stocks. 

Lending Club Peer to Peer Lending Account Performance

I have been on Lending Club since Dec 2008.

Since 2008, I have had the following net account performance (after loan sales and transaction fees):

2009:  7.7% return.  One month with a losing record.
2010:  9.5% return.  Zero months with a loss.
2011:  11.0% return.  Zero months with a loss.
2012 thru 30 Sep:  9.6% return.  Zero months with a loss.

I personally believe that I have not lost money in Lending Club because I do not hold loans until default.  Instead, I sell the loans at a discount in the first two weeks of loan delinquencies.

What is My Military Pension Worth? Posting Also Useful to Potential Civil Service Pensioners or Others Trying to Monetize Passive Income Stream(s)

Many of you may want to know what your civil service or military pension is worth today. Some may even want to try and monetize other passive income streams. Determining the value of a pension or other income stream is either a two step or one step process. It's one step if you're in (or near) day one of retirement or just established a passive income stream. It's a two step problem if you still have a number of years to work.

Well, I want to know what my military pension would be worth today if I enjoyed a successful career and retired as a Captain / Colonel after 30 yrs of military service. This situation would give me $7763 / month which would be 75% of my base pay (ref: 2012 pay table, O-6 over 26yrs).

Here’s two methods to determine the value of my pension (Method #1 using a basic calculator, Method #2 using a finance calculator).

Assuming a personal discount rate / IRR of 0.3% per month (equal to 3.66% APY) and a life expectancy of 30 years (360 months) past my retirement date.

1. Using a simple calculator with an exponential “^” function (minimum requirement)

(a) First find the present value of an "immediate annuity." Using the formula

PV immediate annuity = [ 1 – (1 + R)^-n] (P/R)
R = interest rate in decimal form
P = payment
N = number of periods

Filling in numbers you get:

PV immediate annuity = [ 1 – (1 + 0.003)^-360] (7763/0.003)
PV immediate annuity = [ 1 – 0.3401] (2,587,667)
PV immediate annuity = $1,707,601

This is the present value of the stream of pension payments the day I retire. This equation alone may suffice if you're at retirement or very close to retirement age.

However, I have 14 more years to work till retirement. To get the Present Value today, you have to discount the value determined above ($1,707,601) over the time I have left till retirement (14 yrs or N = 168 periods).

Present Value With Zero Payments Formula:

PV = FV (1+R)^-N
PV = $1,707,601 * (1+.003)^-168
PV = $1,707,601 * 0.6046
PV = $1,032,356

$1,032,356 is what my retirement is worth to me today assuming a discount rate of 0.3% per month or 3.66% APY.

2. Using a financial calculator like a Texas Instruments BAII, you get a two step problem.

Step 1:

a) Assuming a 3.66% discount rate (~ 0.3%/month)
b) Assuming 30yr life expectancy once I hit retirement

N = 360 months
I/Y = 0.3%/month
PV = $0
PMT = $7763/month
FV = ?

Plugging into a financial calculator, you get a future value of $5,019,873. Now working backwards in step 2:

N= 528 (360 months for length of retirement + 168 months left till I retire)
I/Y = 0.3%/month
PV = ?
PMT = $0/month
FV = $5,019,873

Solving for PV you get $1,032,286

The difference between the financial calculator method and the basic calculator method is simply due to round-off error. The biggest determinant in figuring the present value of any stream of income is what interest rate you use for your "discount rate." Your present value (PV) will be smaller if you use a discount rate higher than 3.66% APY or 0.3% per month. I figured that 0.3% per month is reasonable and close to what one can get on medium to long term bonds.

Keywords / phrases: how much is an annuity worth

My Net Annual Return on Lending Club Account Up from 9.5% in 2010 to 11.0% in 2011

I have been originating (peer-2-peer) loans at Lending Club since Dec 2008. Since starting, I have issued 371 loans, of which:

56 loans fully paid off
0 loans late, default or charged off

In 2009, I made a net 7.7% return on my investment (after fees and note sales). During 2009, I only had one losing month where I had a monthly annualized return of negative 5.24%.

In 2010, I made a net 9.5%. My worst month had a monthly annualized return of 0.89%.

In 2011, I made a net 11.0%. My worst month had a monthly annualized return of
7.54%.

Lending Club says my account has a net annualized return of 13.87% and total interest earned of $905.74. Each of these are way off my actual return. My net earnings are actually some $200.65 less than what Lending Club advertises. The problem with Lending Club is that it doesn't fully factor in all fees and losses incurred in the sale of notes.

Overall, with exception to Lending Club not having "net earnings" and "net annual yield" displayed on its account dashboard, I am satisfied with Lending Club.

I attribute my greater success in 2011 to increasing my risk tolerance in notes that i'm willing to fund. Since 2009, I have been aggressive to sell notes before they hit 16 days late. By doing this, I book small monthly losses on some notes vice periodic large losses on defaults. Additionally, it is best to do small loans of
$25 since more people have funds available and are willing to risk buying small late loans. I will continue to execute this strategy and pursue lending club notes above 14%.

My note filter is:
Interest rate: Excludes A and B rated notes
Term: 36 and 60 month
Funding progress: 10% or more
Max loan amount: $25k
Exclude loans invested in: Yes
Max debt-to-income: 20%
Months since last delinquency: 12 months or more
Inquiries in the last 6 months: 3 max
Min length of employment: 1

In addition to this, I am reluctant to fund notes where the monthly income is less than 1/3 of total revolving credit balance. I exceed this sometimes when I believe that the individual is truly going to use the money for debt consolidation.

Veteran's Day Promotions for Active Duty and Military Veterans: 25 Free Things on Veteran's Day and Veteran's Day Weekend

From free food to free entry to our Nation's parks, here's a summary of freebies for Active Duty Military and our Nation's Veteran's this Veteran's Day Weekend.

1. Applebee’s – free meal, Friday, Nov. 11. Last year, Applebee’s served 1,024,000 million free meals to military veterans and active servicemembers. Applebee’s is again offering a free meal to military veterans and active-duty service members on Veteran’s Day, Friday, Nov. 11, 2011. There will be 7 entrées to choose from. Military ID or proof of service required. Find locations here.

2. Chili’s – free meal, Friday, Nov. 11. Chili’s is offering all military veterans past and present their choice of one of 6 meals. This offer is available during business hours on November 11, 2011 at participating Chili’s in the U.S. only. Dine-in from limited menu only; beverages and gratuity not included. Veterans and active duty military simply show proof of military service. Visit their website to find locations.

3. Golden Corral – Free meal, Monday Nov. 14. The 10th annual Golden Corral Military Appreciation dinner will be held on Monday, November 14, 2011 from 5 pm to 9 pm in all Golden Corral Restaurants nationwide. The free “thank you” dinner is available to any person who has ever served in the United States Military. If you are a veteran, retired, currently serving, in the National Guard or Reserves, you are invited to participate in Golden Corral’s Military Appreciation Monday dinner. For more information visit there site. Special thanks to Golden Corral: To date, Golden Corral restaurants have provided over 2.5 million free meals and contributed over $4.3 million to the Disabled American Veterans organization.

4. Hooters – Free Meal, Friday, Nov. 11. Hooter’s is serving up a free meal to military veterans all day on Veterans Day. Offer good for all veterans and active duty military personnel. Choose one of the new specialty items on the Hooter’s menu. Offer valid at participating Hooters only; open to all active duty and military veterans with valid military ID or proof of military service. Drink purchase required. For more information, visit their site.

5. Krispy Kreme – Free doughnut. Available only at participating Krispy Kreme stores. Offer available to all active-duty, retirees & veterans on Friday November 11th. Be sure to call ahead to verify your local Krispy Kreme is participating.

6. McCormick & Schmick’s Seafood Restaurants – free lunch or dinner, Sunday Nov 13th. McCormick & Schmick’s is celebrating their 13th annual Veteran’s Appreciation Event on Sunday, November 13th. Veterans will be able to choose a complimentary lunch or dinner entrée. Veterans must provide proof of military service. Be sure to contact your local McCormick & Schmick’s as this is valid at participating restaurants only. Also, Space is limited and reservations are highly recommended. For more information visit here.

7. Outback Steakhouse – A week of Free Bloomin’ Onions and Cokes Monday Nov. 7 – Friday Nov. 11. Outback Steakhouse is honoring America’s military veterans by offering active duty military and veterans a free Bloomin’ Onion and a Coca-Cola product during the week leading up to Veteran’s Day. This offer is available to Military Personnel who have one of the following forms of identifications: U.S Uniform Services Identification Card, U.S Uniform Services Retired Identification Card, Current Leave and Earnings Statement (LES), DD form 214 Veterans Organization Card (i.e., American Legion and VFW), Photograph in Uniform, Wearing Uniform. For more information, visit here. The Outback understands commitment. For the past two years, The Outback, with the help of their patrons, has donated $2 Million to Operation Homefront, a non-profit organization providing everyday and emergency support for active troops, wounded warriors and their families.

8. Subway – Free Six Inch Sub. Select Subway locations offer a FREE six inch sub to military veterans on Veteran’s Day. However, Subway restaurants are franchises, so this offer may not be available everywhere. Please call ahead.

9. Texas Roadhouse – free meal, Friday, Nov. 11. Offer varies by location; our local Texas Roadhouse is offering a free meal from opening until 4pm. Other locations may vary in offer, hours, or availability. Call ahead to your local restaurant for more information.

10. T.G.I. Friday’s – Buy one get one free Nov 11-14. At participating locations for anyone with an old or current military ID. November 11-14.

11. Uno Chicago Grill, Friday, Nov. 11. Uno’s is offering a free entree or individual pizza with a purchase of an entree or pizza of equal or greater value. Offer good for all military for veterans and active duty military. ID or proof of service required: Show up in uniform (if your service permits), provide military ID, show a picture of yourself in uniform, or have other ID showing proof of service.

12. Home Depot and Lowes Coupon Updates. Home Depot and Lowes 10% Military Discount Available Everyday.

Home Depot: The Home Depot(R) is offering all active duty personnel, reservists, retired military, veterans and their families a 10 percent discount off their purchases in honor of Veteran’s Day. The offer is valid on purchases of up to $2,000 for a maximum of $200 and is available at The Home Depot stores, The Home Depot Design Center locations, Yardbirds and EXPO Design Center(R) locations. The 10% discount is available everyday for active duty and retirees, but not all veterans. Home Depot makes this offer available to all veterans on most military holidays. You can also find Home Depot discounts online.

Lowes: Lowe’s Companies, Inc. will offer all active, reserve, honorably discharged, retired military personnel and their immediate family members a 10 percent discount on in-store U.S. purchases made during the Veterans Day holiday. The discount is available Nov. 7 – Nov. 11. The discount is available on in-stock and special order purchases up to $5,000. To qualify, individuals must present a valid military ID or other proof of service. Excluded from the discount are sales via Lowes.com, previous sales, and purchases of services or gift cards. Like Home Depot, Lowes offers this discount daily to active duty military members, but not to veterans. However, they extend the offer to military veterans on military holidays.

13. Anheuser-Busch Parks. Anheuser-Busch Parks offers Active Duty Service Members free admission for them and up to 3 dependents to any of their parks once a year. Throughout 2011, members of the military and as many as three direct dependents may enter SeaWorld, Busch Gardens or Sesame Place parks with a single-day complimentary admission. The Here’s to the Heroes program is only available to Any active duty, activated or drilling reservist, or National Guardsman. Eligible parks include: Adventure Island, Busch Gardens (Tampa Bay or Williamsburg), SeaWorld (Orlando, San Diego, or San Antonio), Sesame Place, and Water Country USA. Not valid at Discovery Cove and Aquatica. Christmas Town at Busch Gardens in Williamsburg, Va. is not included as part of this program. For more information and to register, visit: Free admission summary, and ticket application.

14. Colonial Williamsburg Free Admission. Colonial Williamsburg offers free weekend-long admission tickets to active-duty military, reservists, retirees, veterans, and their immediate dependents from Friday, Nov. 11 through Sunday, Nov. 13th. The complimentary ticket incudes admission to Colonial Williamsburg exhibition sites, art museums, and most daytime programs, as well as free parking and use of the shuttle bus system. Tickets are only available at on-site ticket sales locations. Tickets are also available to families of deployed servicemembers. Tickets available on the following dates: Nov. 11-13.

15. Historic Jamestowne – Free Admission. The National Park Service commemorates Veterans Day with Fee Free days at Historic Jamestowne November 11-13. Free admission for everyone. See events calendar.

16. Knotts Berry Farm Military Tribute Days – Free Admission. Knott’s Berry Farm has an annual Military Tribute event in which they offer military members past and present by offering free park admission. This year the Military Tribute Days run from November 1 – 24 November (Thanksgiving Day). Veterans or current serving military personnel plus one guest get in FREE with proper ID presented at Knott’s turnstile (DD214, Veterans Administration Hospital ID or Active Military Service ID). Purchase up to six additional tickets for just $17 each. More info.

17. Fee Free Day at National Parks. To honor America’s service men and women, Secretary of the Interior Ken Salazar announced that areas managed by the National Park Service would not charge entrance fees for Veteran’s Day weekend – November 11-13, 2011. Over 100 national Parks will be participating in this event.

18. San Jacinto Monument and Museum (La Porte, TX). November 7-13: Free admission to the theatre, Observation Floor, and (on November 12-13) the special exhibit to all veterans and their families. More info here.

19. Bed and Breakfast for Vets In the third year of the program, B&Bs for Vets has organized over 485 (and counting) participating Bed and Breakfasts and Inns across the US and Canada which will be offering veterans a free night’s stay on November 10th, the night before Veterans Day. This offer is available to both active duty military members and veterans with ID, but space is limited. Each Inn and B&B has at least one room available for this promotion and reservations must be made directly through the participating Inns and B&Bs. For more information visit B&Bs for Vets.

20. Sam’s Club® locations nationwide will distribute 36,000 Hugo® canes free of charge on November 9th, 10th, 11th, 2011 to U.S. military veterans in need of mobility assistance. Limited quantities available, while supplies last. Sam’s Club® Membership is not required, but proof of military service may be required. For more information, visit HugoSalutes.com.

21. Here are some additional Veteran’s Day Discounts. In all cases, be sure to provide proper ID or proof of service. In addition, some of these stores are franchises, so verify participation before assuming the discount is in place.

Free Car wash. Thousands of car washes around the country are offering vets a free car wash on Veterans Day. Find a list at Grace for Veterans, which helped veterans receive 101,537 FREE Washes on Veterans Day in 2010.

Amazon.com – Discount “Veterans Day Honor” MP3 album download. This downloadable album includes 12 songs as performed by the military bands and ensembles of the U.S. Armed Forces. Visit Amazon on Veteran’s Day to download the album.

Netflix – One Month Free Trial.

Sport Clips – FREE haircut to active-duty military & veterans. Offer only available at select locations. Please call to verify local participation.

Tim Hortons – all US locations are offering a free donut to all veterans (check out the Star Spangled donut!).