Category Archives: Retirement Doubt

Is The Market Drop and Inflation Crushing Early Retirement Dreams? It doesn’t have to

Financial Plan, Retire Early, Retirement Doubt,

I am starting to think that the recent investment market drop along with inflation are crushing early retirement dreams. That thinking is based on the questions I get and the change in certain Leisure Freak site page visits. There are certainly valid retirement fear-inducing concerns. I’m reminded of my own crushed early retirement dream in June 2008 when the great recession was doing its damage. Just as I was ready to take the leap, the world decidedly shifted against me. The world today has certainly shifted and any early retirement plan needs to shift too. Here’s what I did back then and what we’re doing today. 

Is The Market Drop and Inflation Crushing Early Retirement Dreams? It doesn’t have to

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Should The Double Whammy Of A Market Drop and Inflation Be Crushing Early Retirement Dreams? Not Necessarily

For anyone who has been working and saving for their early retirement goals, this new environment has to feel like a kick to the groin. That’s how I felt 14 years ago too. Conditions were different but just as challenging to one’s psyche. 

For those who recently pulled the retirement trigger, sleepless nights and visits to a trusted retirement calculator may become frequent. We’ve all heard the cautions of how detrimental a market correction during the first years of retirement can have on portfolio longevity survival. Inflation just adds to it.

I’m not a financial planner nor pretend to be one. I’m sure my own CFP will have plenty to say in our next meeting based on historical and technical data. What I’m sharing is what worked and works for us in hopes of adding a little calm to an otherwise difficult period in an early retirement dreamer’s timeline.

Pulling The Retirement Trigger When Things Looks Bleak

Just as when I reached my planned early retirement at age 50 in 2008, there was no real indication of a market bottom or economic certainty in sight. Yes, it was crushing early retirement dreams, but not totally. It only changed my plan. 

The new economic conditions were beyond my control. The first step was getting myself over the disappointment and setting my head right. It takes a clear mind to realize and accept that the long-time plan based on before times economics was over. Then setting into action a new plan. 

Count my blessings – 

As today, there was a lot to be economically ticked off about. My portfolio was heavily diminished, my job was a daily soul crushing grind, and I worked hard over many years to ditch the rat race on my terms. The new terms then weren’t great, but I was still very blessed. 

  • A life that prioritizes family.
  • I still had an income source. 
  • Portfolio to replan upon and build on.
  • Zero debt.
  • Known lifestyle budget, roof over my head, and food on the table.
  • Still able to influence my own destiny.
Keep my mouth shut – 

I decided that my best course of action was not to show any of my cards. Keep quiet and leverage income, working conditions, and departure timeline to my advantage. The goal was to retire young for more freedom and purpose on my terms regardless of the economic challenges. I did delay my early retirement by a year and a few months. 

Restructure finances – 

It was obvious that selling beaten down assets to fund retirement in the near term wasn’t going to be smart. Although I still invested in my stock and bond allocation to take advantage of cheap prices, I reduced the percentage and increased cash reserve allocations for short-term retirement funding needs. We also refinanced our modest mortgage to a slightly lower interest rate for the balance owed but re-extended out for 30 years to reduce monthly payment obligations. The thought was we could leverage lower monthly outpay obligations now to assist in increasing cash reserves. Then we would voluntarily increase mortgage payments when economic conditions improved.

Delay retirement, not cancel –

Most importantly to tame my disappointment, I was able to delay and not cancel my early retirement plans. I didn’t know when, but holding my future in my hands allowed me to mentally accept the conditions. As I became more comfortable with my new plan’s progress, I used my growing confidence to leverage concessions and pay increases from my employer during a time when they were used to brutally acting like they held all the cards.

Position For Retirement On A Fixed Income That’s Portfolio Fed

Now that we are again in a new economically challenging environment that appears to also be crushing early retirement dreams for some people, the actions taken when I retired early over a decade ago have smoothed some of the financial pain of today. However, it still needs work to fine-tune.

Get where I need to be – 

We use a portfolio bucket strategy to fund our early retirement. Because the memory of the recession burned deeply in my mind, I’ve always maintained a higher cash and near-cash bucket than most people to fund short-term retirement income needs. However, I did allow myself to reduce it in the past couple of years as we grew older and are closing in on Social Security and Medicare age. At this time we have redirected all dividends and interest to cash instead of a portion being used to reinvest. The goal is to avoid asset depletion until market conditions become more favorable or certain. That and fully bridge the gap to when we start collecting Social Security and when we can ditch my costly health insurance plan for Medicare.

Inflation – 

This has been an interesting mind warp. We were young parents during the go-go inflation of the early 80s. A lot of what we learned trying to save money and survive on a low income frugal budget then has come back easily today. Coupons, sales, discounts, purposeful essential spending, upgrading to a smart thermostat, decreased water heater temp, shorter showers, DIY repairs, frugal cell service, shopping used items at places like Goodwill, driving less-bicycle and walking more, etc. It all adds up and makes a difference. I actually enjoy saving money. 

Sell unneeded stuff –

I always find it amazing that some of what we have and don’t use is needed and valued by someone else. I have been using Craigslist to sell small things and although it isn’t a big cash influx, it does fill a gas tank now and then. 

Increase lifestyle funding – 

Our monthly IRA distributions have followed a modified version of the 4% rule. That rule allows for inflation adjustments, but in this 7% to 8% inflationary environment, does the market diminished portfolio agree? We did slightly bump up distribution amounts but less than the going inflation rate. The difference is made up in spending reductions and emergency fund cash savings when necessary. 

Earn income –

I’ve always believed that retirement is the absence of needing to work, not the absence of working. As of now, there is no job I am interested in learning or doing, unlike there was in my earlier years of retirement. I was a little too successful in working through my bucket list back then. What I do today is keep an open mind and ear. One never knows when a perfect opportunity will present itself. It takes being open to the idea so that I can see it when it comes.  

Realize we’re not alone, pay it forward and offer unwanted things for free – 

Most people are experiencing the pain of inflation and budget strain. In my search for things to sell-off I’ve also found things I just need or want gone and offer it as free. I see it as a trade. If you want or need it, come and get it at no cost. I in turn won’t have to pay for it to be hauled away or dumped. I also price my things to sell at a low cost. I’d rather sell something quickly to someone who can use it than to drag it out over a longer period of time or get into a trolling haggle. Everyone is looking for a deal to get by.  

Figuring our way through these economic headwinds isn’t easy, but nothing worthwhile ever is.

I don’t know when inflation will relax or when the market finds its bottom and stages a reality based comeback. I do know that it will happen at some point. Retirement means being in charge of our own finances and proactively doing what is necessary. 

My task is to stay calm and position myself the best I can to continue funding my early retirement freedom into and beyond our full blown old-fart retirement. This is all just another hiccup in the financial independence journey. The key for us is to maintain a lifestyle that is still enjoyable during this choppy economical episode of time.

Inflation and a dropping investment market is a challenging time. But completely crushing early retirement dreams doesn’t have to be accepted without a fight. We do have to understand our own risk tolerance and make decisions based on what we believe is the right move for us. The last thing someone should do is enter into retirement feeling they may have made a big mistake. 

The goal is to assess the current situation, make necessary adjustments, and move forward confident in our decisions. Then keeping an eye on conditions that necessitate path corrections going forward.

How I Overcame Being A Retirement Scaredy Cat

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Recession, political jackassery, market insanity, pandemic, inflation, supply chain, extreme weather, war, the list goes on. It seems there’s always an outside crisis beyond our control. Turning even rational and money wise people into a retirement scaredy cat with worries about the negative impacts to retirement success. 

After decades working and performing to earn income, fearful thoughts about retirement are natural. It doesn’t only come into play when making the decision to retire. It can creep in during retirement, causing us to pull back from well planned and wanted retirement experiences. Here’s what calms my inner retirement scaredy cat.

How I Overcame Being A Retirement Scaredy Cat

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Shooing Away The Retirement Scaredy Cat  

I was all set for an early retirement at age 50, but then the great recession set in. My numbers were diminished and barely worked out through the retirement calculator, causing hesitation in my pulling the retirement trigger.

It took me another year to finally jump. It was time that I needed to figure things out and find a way to overcome my retirement fears. As the years have passed since my sacred retirement day, I’ve come to rely on what gave me the courage to retire during a recession to shoo away the retirement scaredy cat whenever it sneaks in.

Developing and then believing in my good money habits.

People who are savvy about personal finance have an advantage. Good money habits are actually skills to navigate through volatile financial times. Realizing that I wasn’t just retiring to let life and my finances run on autopilot is one of my biggest fear erasing assets. I’ve already a proven track record of having a solid relationship with money to get to this point of retirement. Something that even when there is chaos beyond my control around me, I could rely on it to guide me successfully through it.  

Understanding what I was retiring to was far better than what I was retiring from.

I didn’t give up something I valued more than my retirement. Knowing that whatever unforeseen risks were involved, it is worth it. Some early retirement scaredy cat thoughts were centered on walking away from a long held career and paychecks that took decades to develop and hard work to achieve. 

I did have to give myself this pep talk many times before ditching the rat race. I found that this mental nag quickly decreased after retiring and actually experiencing how to live without a job title. The knowledge that I value my retirement also aids in my desire to remain retired on my terms and keeps me focused on everything it takes to have a successful retirement.   

Figuring out if things went to hell financially that my scorched earth minimum retirement budget wasn’t all that bad.

Setting and living within a well planned retirement budget includes covering essential costs, but also a lot of what makes retirement the reward we hope it to be. Setting cashflow threshold triggers for budgetary counter measures delivered anti retirement scaredy cat assurance. 

Budgets require monitoring and any hints of cash flow or earnings shortfalls means cutting back BEFORE things become critical. Setting and seeing the minimum survival budget during any serious downturn along with aligning the portfolio to support it can provide fear crushing retirement confidence. I always feel that even my worst day living on a restricted survival budget would be  better than my best day wasting my precious time working in a job I’d rather not be doing.

Realizing that the worst that can happen is unretiring and chasing dollars again with a job.

I had always planned on being open to taking on paid retirement opportunities if they checked off my want to learn and do boxes. So it wasn’t a big stretch to accept that the worst that could happen is my having to temporarily accept working again based on salary. 

What I didn’t know before I retired was that when you are in a retirement mindset, working can be enjoyable. My retirement gigs that focused on interests and passions have shown me that. Even taking on a part-time gig that brings in a small cash flow increase could plug any budget holes to likely solve a crisis caused retirement funding shortfall.

Having a phased financial plan for retirement: All on my own, Medicare, and later Social Security.

I used to write technical requirements as an engineer. It was easier to comprehend and understand when details were displayed in organized chunks. It made sense to do the same with my retirement funding plan. Breaking down the necessary financial requirements for the years being 100% on my own before I could receive my long earned Medicare and Social Security benefits. This chunking helped to easier visualize retirement funding success and tame retirement fears. 

The plan also included all of the likely activities and possible paid opportunities that I would be more likely to have in the earlier years than the later years. It recognizes that aging plays a role in retirement spending and activities of interest. This approach makes it easier to track funding success and make adjustments as time passes in retirement. 

 

There are many ways to calm the inner retirement scaredy cat. The one thing that always enters my mind when it silently creeps in is the reality of time. Spending our valuable time is unavoidable and we are only given so much of it. It’s of unknown quantity other than knowing that it decreases daily. Sometimes that is all we might need to tell the retirement scaredy cat to scat, this isn’t your home.

Pandemic, Inflation, Busted Supply Chain, Still A Great Time To Be On FIRE

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It’s no wonder that I run into people delaying their early retirement. But for anyone with personal financial discipline, this is still a great time to be on FIRE and pulling the retirement trigger. There is a lot of gloom and doom to go around. At least that’s what some people focus on and it sure makes for headlines. In these times we certainly have much to be concerned about with a pandemic, rising inflation, and the occasional shortages of things we want or need. There’s a lot that is and can go wrong. But for those striving for financial independence and early retirement who are stuck sitting on the fence because of everything going on, there’s no better place than FIRE to be in or making the moves necessary for being there.

Pandemic, Inflation, Busted Supply Chain, Still A Great Time To Be On FIRE

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Why This Is A Great Time To Be On FIRE

First off, I do think a lot of things are getting too expensive. However when I look around, for all the boo-hooing about gas prices and the high cost of goods, there has been no shortage of road traffic or store checkout lines. Apparently people are still willing to spend the money. The environment is so unlike the days of the great recession when I retired at the age 51. People then changed their spending and driving behavior. As long as there remains unbridled spending, it looks like things aren’t really as dire as some fear mongers hope to exploit or the fearful to allow to hold them back. Once consumers get to changing behavior, supply issues will change too. Here’s why it’s a great time to be on FIRE while things work out. 

Safety during a time of pandemic

In this strange new world, safety to the loudest among us seems to be defined only by a gaggle or person’s own perception. Whether it’s a workplace manager, co-worker, or some random person who shows up to express and inject themselves into everyone else’s life. 

When it comes to personal safety, people can believe what they want to believe. Smoking or riding a motorcycle without a helmet for instance. I happen to believe based on medical advice and something called scientific evidence that handling rattlesnakes is dangerous. I quietly live my life, keeping it to myself while avoiding contact with rattlesnakes. But in this new world if questioned or cornered and I mention that to a card carrying member of the religious serpent handlers, they just might loudly call me a godless heathen and angrily condemn me as sheep while trying to toss me a snake. 

During this pandemic, aside from those who we commend for choosing to because of their heightened sense of duty, many other folks were and are forced to endure unsafe conditions. Whether of their own desperate financial situation or bullied into it. 

  • Being on FIRE means being able to decide for yourself: When and where we go, what we do, and who we do it with. 
  • Being on FIRE means never having a need to yell and scream about our own safety decisions and viewpoints nor put up with anyone else’s efforts to force us to their “beliefs”. 
  • When on FIRE we’re able to tell someone demanding that we unsafely bend to their beliefs to piss off when necessary. We have the resources to live our lives without crying, pathetic whining, claiming victimhood, or blaming others for the consequences of our own decisions. We have what has been referred to as “F you money” and just don’t have to put up with unsafe conditions or other people’s BS.

Others can go ahead and feel free to handle all the rattlesnakes they desire. I’m on FIRE, so that’s a hard NO for me.

Spending relief in these inflationary times 

All the hand wringing about inflation has been more meh than a problem to our frugal lifestyle early retirement budget. Why? Because we have flexibility and time to manage it. FIRE takes having disciplined spending. It also requires patience and planning. All are great skills to have and use in these inflationary times. Taking the time to search out deals, alternatives, and of course just making due when things are tough to find or are too expensive. In retirement there’s time and usually no need to hurry. 

We refuse to blow money needlessly driving around. 

My wife and I enjoyed plenty of bicycling this summer that benefited both our wallets and health. We limited our driving and although fuel prices bite the big one, we just refused to buy a lot of it.

We set limits to what we are willing to pay for things. 

Nine years ago I paid $2,300 to have the exterior of my 2 story 15XX square foot house painted. When bids to repaint came in at $7,400 and $10,200 this past summer I just asked them to please leave. Their rebuttal, this the pandemic inflationary price reality that it now cost. Well here’s my reality, I’m not paying that. I just started painting it myself and staying the same colors. I painted a few hours a week in the final couple of warm months and will pick it up again in the spring to finish. This way I budget for both the cost of paint and not making it a giant PITA. 

If inflation is keeping anyone on the retirement fence, consider the possibility that these inflated prices are here to stay. 

Even when supply chain relief comes, nobody should assume business will lower prices. People have shown what they are willing to pay and continue to keep buying. When it comes to pricing, capitalism is sticky that way and instead of lowering prices they will likely pocket profits. Fence sitting hoping to wait out inflation means spending far more in time of a finite period called YOUR LIFE. 

There are lots of ways to save money on groceries and other necessities. Cutting the cord and moving to low cost wireless has never been easier and done without sacrifice. You also will have the time to learn and tackle DIY projects. 

FIRE portfolios are fat!

Even my less risk-averse investment portfolio is splitting the skinny jeans it was wearing. Prices are up and so are our long-term investment returns. We all know that a portfolio valuation today isn’t guaranteed to remain that way. That’s always a retiree’s focus when number crunching their long-term lifestyle funding needs. Having a fatter portfolio makes this a great time to be on FIRE because it provides options. 

If today’s economic challenges cause anyone retirement pause, maybe consider rebalancing or restructuring the portfolio. High inflation environments make holding too much cash a money loser as far as purchasing power over time. But cash still has its role. Consider establishing a portfolio bucket strategy to smooth concerns. Although cash earns very little in interest, you are locking into portfolio profits already earned. Look at cash as retirement funding insurance.

Plenty of paid work opportunities for a perfect retirement gig

I know that I am always preaching this, but retirement is the absence of needing to work, not the absence of work. When I ditched my career at the age of 51 in 2009, I fully intended to embrace that definition of retirement. I called it a retire early and often lifestyle. Even during the recession I was able to work in areas of interest and passion. Those retirement gigs were far more rewarding than my long career had ever been. 

There are many opportunities for those of FIRE to entertain and leverage to their advantage with today’s Great Resignation environment and an active Antiwork movement. It’s not just me seeing this. A trend has been seen of people unretiring. The perfect camouflage to cloak your retire early and often intentions while business is eager to hire. 

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There’s always going to be craziness and uncertainty when it comes to early retirement.

What makes this a great time to be on FIRE is that it prepares us to handle it all. Personal finance patience and discipline that are learned on our FIRE journey are the necessary habits and skills to be successful. 

Hopefully I’ve provided some inspiration here for anyone struggling to decide on their next FIRE related steps. I don’t know what will happen in the future and I’m not a financial planner. Just someone who retired young during the great recession and shares my observations and tips based on my 12 years of early retirement experience. I do recommend that before you make any big financial or retirement decision, especially if unsure and still on the fence, check your numbers, and consult with a certified finance professional for advice. 

FIRE Choke? How I Accounted For The Risks Of Early Retirement

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FIRE is hard to accomplish, not impossible. For many the dream of financial independence and retiring early is extremely alluring. Enough to motivate us to accomplish the necessary personal finance goals and overcome the hurdles of a system that wasn’t intended to allow escape from. It is something to be proud of and celebrated. Then just as it’s right in front of us we can find ourselves unable to pull the trigger, we FIRE choke. Fear of taking that last step is common. 

I wasn’t blind to the many risks of early retirement and covered it in my plan. Yet I still experienced anxiety from the enormity of my retirement move. It’s all too easy to focus on the celebrated sunny day images of early retirement and overlook or underestimate the probability of storms. That is until it’s all on the line at crunch time.

FIRE Choke? How I Accounted For The Risks Of Early Retirement

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Avoid FIRE Choke: Dealing With The Risks Of Early Retirement 

The risks of early retirement are real. They must be recognized and accounted for in any early retirement plan. Even if we’re fortunate enough to never actually experience them, without understanding how we would counter them can cause expending too much energy and time worrying about “what if”. 

I had delayed my early retirement by a year because the recession came right as I hit my goals. It ruthlessly moved my target further away from me and set me back. But later when all signs pointed to being good to go, my recent memory of the recession’s last minute target devastation caused me a little battle with FIRE choke. It would have been much more paralyzing had I not accounted for all the risks we’re warned about. 

Market Risk

Investing over the long-term usually favors the investor. Retiring early means relying on our portfolio over a much longer period of time. But using a retirement calculator that accounts for multiple historical return cycles isn’t a guarantee that we won’t enter a risky run at the wrong time or for a devastating prolonged period of time. It was something I had to mentally deal with.

My counter to relieve some of the market risks of early retirement was with diversification and rebalancing allocations as necessary. I had the stock to bond ratios to support my investment risk tolerance. Along with enough cash to get through any bumpy markets. After my recession experience I wanted a recession hardened portfolio. Now 11 years into my early retirement I have to say it has worked flawlessly. The portfolio also proved less worrisome when I saw during the pandemic market drop that my portfolio allocations did their job. 

My tip- To reduce the market risk worries of early retirement pick a portfolio allocation, diversification, and cash holding strategy within your risk tolerance that relies on data. Don’t bounce around based on emotions. Especially those driven by fear or greed. I’ve heard too many stories of folks jumping in and out of their strategy and causing damage to both their portfolio and retirement.

Health Insurance- Medical Costs

Medical cost is something that causes many to FIRE Choke. Retiring early before Medicare eligibility can make retirement healthcare pricey. I had earned a retirement health insurance benefit. My short-term healthcare was covered. But my company had been merged with those that had an adversarial attitude toward earlier earned benefit promises. Although benefit cuts made before I retired were worrisome enough, I had to counter concerns about how much worse it could get over time. I retired 14 years before I would be Medicare age. When I retired the ACA was being worked on, nowhere near passing into law. 

With my early retirement at the end of 2009 I had a monthly health insurance premium for my wife and I of $475 with $25 copays. Now in 2021 I pay $1472 with a midrange deductible before an 80/20 payout begins. If it becomes too unaffordable my “plan B” is to structure my income to use the ACA.

My tip- What I did to calm the risks of early retirement medical cost concerns was to double my medical budget of insurance premiums plus out of pocket costs when running my numbers through the retirement calculator. In hindsight my doubleling was not enough to cover my full pre-medicare 14 year period. I recommend using a projected budget that uses double current healthcare costs for the 1rst 7 years of early retirement. Then trippel it for any remaining years before Medicare. See how your retirement calculation works out for the years before Medicare and after.

Remember, it’s just long-term projections in a calculator

I had to plug in a higher withdrawal amount into the FIRECalc calculator than I was planning on using. What I was looking for was my retirement funding success rate. I ended up initially with a higher portfolio withdrawal rate than the recommended 4% but post Medicare it will be lower. 

No More Paychecks Syndrome

The one joy of employment is getting a paycheck. Then doing our thing of managing the budget plus putting some aside to pay ourselves. Knowing that paychecks end when we walk off the job can mess with our head. I planned to get around this by having my IRA account holder directly deposit a monthly check into my bank account. 

My tip- Create your own paycheck scheme. I went from bi-weekly work paychecks to once a month distributions for my bucket strategized IRA. I had the retirement distribution deposited into a savings account and I then make bi-monthly paycheck transfers from that. 

Thoughts Of Needing More Money

One of the risks of early retirement is not having enough money. Even when the numbers check out it’s easy to succumb to thinking to maybe playing it safe and accumulate even more. This is a common FIRE Choke. Putting retirement off for another year or longer of portfolio padding. Both the fear of running out of money or being greedy and thinking more is always better than anything else can cause us to choke and derail retirement plans at the last moment. 

My tip – Retiring on our terms means picking the day we toss the job for the adventure of retirement freedom and owning our own time. When the thoughts of needing more creeped into my mind, I reminded myself that time is finite and not guaranteed. My father in-law shared through his own experience that retiring early is like leaving the casino when ahead. I used that metaphor to quiet the more money seduction.

Be Mentally Ready

Most importantly is planning to be mentally ready to retire and walk away from the only life you have known. It might not be the life you enjoy, but it’s the devil you know. Even if all the other bases are covered, not being mentally ready means none of it will matter. FIRE Choke is then inevitable. Even if we were to power past that, there would be no mental peace about the decision to retire early if our head isn’t right. There are plenty of nonfinancial aspects that we need to account for to avoid mentally regretting our early retirement decision.

My tip- Plan to deal with separating your identity from what you did for a job, expanding your social life, defining an ever changing purpose, and transitioning from saver to spender of your portfolio. Much of this requires being aware of it before retirement. But most will have to be fine tuned on the fly after entering retirement. So finally, give yourself time to work through it. 

 

There are many reasons why we may question our decision to retire early once the goals have been met and our plan looks solid. Dealing with issues that range from fear to greed are common. We just need to be aware of them and address them logically. If we can’t account for them in a reasonable way and there’s still mental reluctance then maybe it really isn’t our time to take the leap. There’s no shame in that. Afterall, we’re the ones that have to live with ourselves and the outcome of our decisions. 

How I Knew I Had Enough To Retire Early

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Many people want to retire early to live a life free from the rat race. It takes having a certain mentality and the financial means to pull it off. Even with meeting those requirements on paper, it can be difficult to really know when we have enough to retire early and make it work over the long-term. 

I was mentally ready and willing to ditch the career at age 40. But it wasn’t hard to figure out then that I didn’t have the means to do it. At that time in 1998 I only had around $100,000 in my 401K ($160K converted into today’s dollars), some debt, and no idea how to fund our lives without my demanding career. So began an early retirement plan and the 10 year journey to get there. Then came questioning my readiness until the moment I knew I did have just enough to retire early. Enough in more ways than one. 

How I Knew I Had Enough To Retire EarlyImage Source

Once I Knew I Had Just Enough To Retire Early It Was Easier To Jump

Knowing that you have enough to retire early is a lot tougher than knowing you don’t. It was obvious when I first started my early retirement journey to see there was no way to pull it off. But as financial goals are met and numbers vastly improve, the real math and mind warp begins. 

The Mechanics Of Knowing I Was Good To Retire When I Did

I Became A Budget Master

I wouldn’t have been able to call it time to retire without first knowing exactly what our preferred lifestyle would cost. We had years to dial it in. I knew how much I not only needed to fund our lives but how much I wanted. 

I Cleared Date Milestones

When I started my FIRE quest I knew when I would qualify for some retirement benefits at my job. My 10 year plan revolved around hitting those milestones for a pension and retirement healthcare. Even though during my 10 year plan the company was taken over through a merger and the company promised retirement benefits were heavily diminished, I still cleared the date milestones to get what was left that I’d earned. Other milestones to consider are bonuses, meeting 401K thresholds or company match payment dates, stock option vesting, or other beneficial age based milestones. 

I Tracked My Portfolio And Retirement Calculator Results

I tracked my early retirement portfolio chances through the FIRECalc retirement calculator during my 10 year plan. Talk to 100 people about what kind of a calculated success percentage they need to feel comfortable pulling the retirement trigger and you’ll get 100 different answers from 85% to 200%. Everyone has to make that decision. I was satisfied with 90% and up. 

Settling The Mental Conflict Of Taking The Retirement Leap 

Reversing Decades Of Conditioning 

We are preconditioned to always want more. Better grades, bigger degree, more pay, higher career position, newest doohickey, the list goes on. Our dreams can even become inflated. I knew I was mentally ready to retire after years of reversing that conditioning through frugal living and distancing my identity from what I did for money. It was easy to walk away and made it easier to get through my retirement transition. 

Trusting The Numbers And Accepting Calculated Risk

It’s easy to submit to doubt when breaking norms. There’s a feeling of safety in conformity and portfolio overkill. For anyone who doesn’t equate retirement to a traditional or particular age, or having a million dollar plus portfolio, actually knowing you have enough to retire goes far beyond running numbers. It requires trusting the plan, your calculated results, and believing in your own ability to adapt and be flexible as things change going forward. There is always risk for those who don’t have the benefit of an extremely fat portfolio. I was mentally ready and willing to accept that risk for the reward it offered.  

Acknowledging The Work And Lifespan Tipping Points

I was there, I knew I mentally had enough to retire early. I was at the working tipping point when the job became less attractive than the income and portfolio padding it provided. The little voice became louder that there must be something better than this. Then the lifespan tipping point of years slipping away. Years that can’t be bought back. 

I Still Had A Hiccup

I had done everything right and still had to make an adjustment until I could confidently know both financially and mentally that I could retire early. 

The recession set in just as I approached my planned early retirement date of October 2008. It sent many of my financial goals into retreat. Numbers can look good one day and bad the next with market volatility. But the recession’s subsequent and prolonged market drop was off the charts. I delayed retirement a year until I felt the market drop had bottomed out and my calculated success rate returned within an acceptable range. That and a little mental push, courtesy of new asinine executive directed policy and work changes coming. I had enough!

 

Seeing what we need to see to know we have enough to retire early is going to look different for everyone. It’s like beauty. It’s always difficult to explain but we know it when we see it. The same applies to knowing it’s the perfect time to retire on our terms when we’re truly ready both financially and mentally to take the leap. 

Milestone Reached: Entering New Early Retirement Phase

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When I decided to retire early I always considered my plan to be one of phases. Where milestones would be reached and planned financial strategies would become available to implement. Each early retirement phase brings decisions that would need to be made based on relevant current data and the realities of real time. We’ve never had a million dollar portfolio to draw from so planning is essential. In my wife’s and my early retirement we have just reached another early retirement plan milestone. We have now both enjoyed our 62nd birthday. Here’s a glimpse at our early retirement phase approach.

Milestone Reached: Entering New Early Retirement Phase

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Using An Early Retirement Phase Approach

Early Retirement Age to Age 59.5 Phase

Key to early retirement is how to fund your new lifestyle. Once the paychecks stop the money has to come from somewhere. In our case almost all of the money was in tax deferred retirement accounts. For our situation we rolled our 401ks into IRAs.

For my retirement at age 51, penalty free pre age 59.5 IRA withdrawals required my using the SEPP 72t loophole. I would use that until age 59.5 for monthly distributions to cover my part of our split budget. Because these distributions are meant to be uninterrupted for the longer of 5 years or age 59.5, when doing my “retire early and often” thing I would reinvest any retirement job earnings back into our net worth. I retired during the great recession and this went far better than anticipated. My earnings reinvestment included mortgage payoff, taking advantage of 401K opportunities, and adding to our Roth holdings. 

My wife retired on her 58th birthday after meeting her 20 year work anniversary. She received a couple of small perks for hitting that 20 year milestone from the local bank branch she worked for. Instead of using age 55+ 401k penalty free distributions she simply set aside enough cash in a savings account to cover her part of the budget until reaching age 59.5. This way she could avoid retirement account taxes/penalty issues for the first 1.5 years of her early retirement.

Age 59.5 to Age 62 Phase

In this early retirement phase my SEPP 72t would end and we both could then freely establish a monthly penalty free distribution rate from our IRAs based on budgetary and actual real time portfolio numbers. This phase still requires 100% reliance on our portfolio to continue funding our early retirement lifestyle and takes us to the age of Social Security availability when new decisions would be made. 

Age 62 to Age 65 Phase

This is the early retirement milestone we both have recently reached, my wife last December and myself this June. When to start Social Security benefits takes the consideration of financial, longevity, legacy, and emotional issues. We don’t know how long we will live, how solvent Social Security will be long-term, or whether financial markets will act historically. 

Based on what we know today and running our numbers through both a retirement calculator and Social Security calculator we decided to start my wife’s early age 62 reduced Social Security benefit. As the top wage earner between us and the way survivor benefits work, my plan has always been to wait until at least my full retirement age of 66.7. With my wife being the lower wage earner, starting her Social Security now allowed us to reduce her monthly IRA distribution by 66%. The smaller IRA distribution and her Social Security together covers all of her budget. I continue funding my part of the budget from my IRA distributions.

Age 65 to 70 Phase

With the age 65 milestone early retirement phase comes Medicare. For our entire retirement I’ve had to pay for retirement health insurance costing me in the 30% to 35% of my overall budget. Our Medicare should greatly reduce my budget and retirement funding needs. At this point I feel we will no longer be early retirees and just traditional well practiced and experienced retirees. 

This is also a phase where I will make my own Social Security decision. Either take it at full retirement age or delay until age 70. My FRA Social Security estimate would cover 75% of my budget as it is today and my budget should actually be lower after Medicare. Once beginning Social Security I will need much less dependence on my portfolio for lifestyle funding. 

Depending on portfolio performance we will also begin financial planning that looks at looming RMD–Required Minimum Distributions during this phase to have time to strategically prepare in advance. 

Age 70 and Beyond Phase

I can only hope to have RMD problems in our last early retirement phase. Meaning there is a good sized portfolio left after decades of retirement. When this time comes we will do as we have done. Evaluate the reality of the real time and deal with it strategically. If still in our current home we will also start to consider what’s next. Our 2 story home sitting on a quarter acre in Colorado at 6,200 feet in elevation might be more than we will want to stay into older age. This is a phase where the reality of our own aging will play a major role.

It All Seems So Simple Now

When we were still working and planning for early retirement it sometimes felt scary. We get conditioned after decades of employment and paychecks. There can be fear of walking away and giving it up, even for the freedom that early retirement offers. All of the unknowns and cautions thrown at us can be intimidating. Especially when looking at it financially covering 20, even 30 plus years of our lives. But by chunking our retirement plan into retirement phases it makes it easier to mentally visualize and financially plan for. At least it has for us. 

Echoes of 2008: Will COVID-19 Change Your Retirement Plans?

Early Retirement Lifestyle, Retirement Doubt, Retirement Plan,

I’m hearing echoes of 2008 when the great recession was being fully recognized. If you are feeling angry, concerned, depressed, or worried about your coming retirement or its lifestyle, then congratulations are in order. You’re ahead of the population who have no plan and no options. I retired early just over 10 years ago and remember clearly how this can feel. The 2008 recession happened just as I hit my early retirement target. This time around the question is, will COVID-19 change your retirement plans? 

Although the financial collapse of 2008 and this pandemic both come with the tag of “unprecedented”, this is different. There are just as many unknowns and it may take years for things to appear anywhere near normal. But this worldwide event isn’t just about financial and employment turmoil hitting people and the economy. It’s also our physical health, even life and death.

Echoes of 2008: Will COVID-19 Change Your Retirement Plans?

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Should COVID-19 Change Your Retirement Plans?

It was an agonizing decision in 2008 when I decided to delay my early retirement. A delay that lasted a year. Things were still uncertain when I finally announced my retirement at the age of 51. But I was confident it was the right time to walk away. Where some of what I faced then still applies today, there are also new COVID-19 challenges to one’s retirement plan to consider. 

Employment –

The 2008 recession brought many layoffs. I began vocally angling for layoff selection so that I could collect a severance package and spearhead my retirement. They would instead choose to financially devastate other employees who needed to work and then pass all their work to me. I should have kept my eagerness to leave to myself and just under-performed. But at that time I had a misguided notion of workplace legacy that prevented me from doing that. So I used my time to continue saving and investing. I also looked for signs that the market had bottomed. That bottom happened in March 2009, but it took another 6 months for me to feel comfortable with that assumption. 

Healthcare –

Timing retirement for healthcare was crucial to my plan. I earned a retirement healthcare benefit where I could buy into the employee plan after 30 years of service. Leaving at my planned date or delaying retirement had no impact on it. I do pay a hefty price for my retirement healthcare and could save money with the ACA. But I have stayed with my old employer plan since it’s a “use it or lose it” benefit and the ACA has been under constant political threat.

Portfolio –

In the 2008 recession my portfolio took a big hit just like everyone else. I was diversified with a mix of stock and bond funds. But there was no safe haven from the recession’s crippling grip. It was depressing to finally get to my target and then watch my portfolio damaged by the recession. I kept running my numbers through a retirement calculator to build retirement funding confidence. Almost all of my retirement portfolio was in 401K, IRA, and Roth accounts. 

I had always planned on rolling my 401K and IRA funds into a SEPP 72t IRA retirement funding account to receive pre age 59 ½ penalty free distributions. While I was still on the job I would monitor the SEPP 72t calculated formula interest rate to assure distributions would meet retirement funding needs. As interest rates drop it takes much more to be tied up in the SEPP 72t IRA to get the desired retirement funding. 

Debt –

I was debt free in 2008 other than my modest mortgage. As interest rates continually dropped I used the delayed retirement time to refinance at a lower mortgage rate. The bank only saw me as someone still working for a long time employer. Not someone who was just waiting for the right moment to ditch the rat race.

The refinance lowered my monthly payment and at that time they offered no fee refinancing. The reduced mortgage payment allowed me to set aside more each month in my retirement savings as I waited for signs to pull the retirement trigger. Having a lower mortgage payment  also lowered the amount I would need each month from my portfolio once retired. 

Retirement Lifestyle – 

My job was far from flexible, I was required to be on site as a lead engineer supporting a billion dollar revenue generating operation with 24X7X365 pager obligations. I understood what I wanted to retire to, looking forward to a more flexible retirement lifestyle. I was upset about how the recession impacted those plans as much as any financial concerns. 

My plans included what I call retiring early and often. There were a lot of opportunities I wanted to pursue aligned with my interests and passions. I see retirement’s definition as the absence of NEEDING to work, not the absence of working. The timing of the recession and job retraction added challenges to that portion of my retirement plan. 

Some of my plans regarding my local community were being changed on a monthly basis. There were numerous business closures, places that I frequented and had built relationships with. Some of my more idealistic pursuits or retirement dreams were shattered with their closures. It required me to constantly change my retirement lifestyle goals and accept it as part of the flexibility I wanted to embrace.

In an environment where jobs and money are tight there are other dynamics that came into play. For example, I planned on being more free to travel. Checking travel rates during the recession showed that everything was discounted, making our travel more affordable. I’m an automotive enthusiast and it’s a big part of what I retired to. People thought the world was coming to an end in March 2009. On a panic sale I was able to purchase a car at a huge discount that I had been researching and chasing after for over 3 years. Where recession challenges presented themselves in some parts of my retirement plan others opened up.

New Pandemic Issues That Should Be Considered Within Retirement Plans

I used my early retirement delay to better position myself financially. But also just as important, to better position myself mentally for the new landscape that I would be retiring in. There are parallels with what’s happening now. But answering the question today, should COVID-19 change your retirement plans, has different nuances worth considering.

Safety –

COVID-19 is highly infectious and dangerous. I didn’t have to worry during the 2008 recession that staying on the job could kill me. When looking at the public who are now out and about, there is a high percentage who don’t take COVID-19 seriously. I have to believe that will be likewise in the workplace once it opens up. If I felt my work environment wasn’t safe I would have done things differently than I did when it came to my retirement delay decision. 

This safety issue is also paramount to retirement lifestyle plans. Just going out to the grocery and recreation, let alone travel, carries health risks. Finances aside, if I was able to ride this out with a work from home position I certainly would again delay retirement. For the already retired like myself, this atmosphere today is nothing like my pre-COVID-19 retirement lifestyle. I was amused to read that some felt this has been a taste of early retirement. But I see little difference to what one’s restricted lifestyle would be today after pulling the retirement trigger or working safely from home in this environment. Except for delaying retirement and working from home offers the opportunity to safely live this pandemic restricted lifestyle with a paycheck. 

Opportunity –

Do you even have a choice to stay on the job longer until things pan out? So many people are already being cut loose and collecting unemployment benefits and stimulus. If in this boat, I would think keeping my mouth shut about retirement plans, collecting unemployment, and looking for non-existent equivalent jobs as long as possible would be the strategy to use in this pandemic restricted environment. Even if that meant using some retirement savings to subsidize unemployment benefits until they run out. Only then quietly officially retiring.

If still working, then another reason to maybe keep quiet about retirement plans is there might be recessionary cutbacks in business going forward. This reduced business environment may last a while. Some companies may offer retirement incentives or packages to reduce employee headcount. If you are on the fence it may benefit you to wait and see what happens.

Pandemic Portfolio –

Diversification still matters. I found at the pandemic market’s lowest point in March 2020 that my recession hardened portfolio suffered far less than the S&P 500, DOW, or popular all stock market index funds. Thankfully the market has recovered a bit since that low. But as we’ve witnessed, the slightest hint of coronavirus economic bad news roils the market. That said, during this no end in sight pandemic until a vaccine is available world, I believe in having a sufficient cash bucket within my portfolio. No telling if that recent market floor will be breached and it being long lasting. 

My early retirement story is nothing spectacular and 10 years into it I’m still not old enough for Social Security. But if today I was under age 59 ½ relying on the same early retirement strategy as I was in 2008 then I’d be in real trouble. When looking at today’s super deflated 72t calculated interest rates, it would be difficult for all but those retiring early with million dollar IRA portfolios to rely primarily on a SEPP 72t strategy. Interest rates will have to rise before that can be a viable early retirement strategy for most people today.

Social Life – 

With this pandemic we have all now seen how isolation feels. Along with asking yourself, should COVID-19 change your retirement plans, we all need to ask how we plan to stay engaged in a world pandemic environment. Many people find out at retirement that our social life for the most part revolves around our work. It took me a lot of concentrated effort to expand my social circle beyond work after I retired. I see that everything I did to grow my social network when I first retired would be near impossible to do in this pandemic environment. 

It’s very important when deciding whether to retire now or delay to consider social engagement. If you’ve already built a large local non-work related social circle then this won’t be a major consideration. But if your social life relies on your work pals, I can say from experience that work friends can quickly fall away after retirement. The dynamic of our shared workplace experience ends and that primary bond breaks once we retire. 

We Have To Navigate the Circumstances

This pandemic has not only challenged many retirement plans financially, it has also disrupted retirement lifestyle plans. In the end, a successful retirement is more than just the numbers. What we retire to is just as important to consider in our plan. To avoid retirement regret and second guessing we also need to retire with confidence. That takes looking at all angles using what we know today and what we can logically assume going forward. 

Would my leaving on my long planned for target retirement date in 2008 have caused early retirement failure? I will never know. I do know that other than giving up a year of retirement freedom, my delay didn’t hurt me. It gave me time to get over the shock of an unprecedented world event and time to dig in mentally to what I really wanted. 

I had worked very hard to meet a 10 year early retirement plan. But instead of retiring on a predetermined date, I retired when it was the right time to retire given current unprecedented circumstances. What matters is that I successfully overcame recession related challenges and met all of my early retirement lifestyle desires.

It’s Up To You To Answer The Question

Should COVID-19 change your retirement plans? If you are among the fortunate to have any say in the matter, take your time and look at all the angles before deciding. Explore ways to leverage any opportunity to better your situation. Then jump in with both feet and feel confident in your decision. 

Early Retirement Hindsight: What I Would’ve Done Differently

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I feel truly blessed to have been able to pull off an early retirement. I take great pride in being able to take the leap at the age of 51. It came after a long career with a less than a 6 figure salary. Still, after experiencing early retirement for many years and knowing what I know now, I often think about what I would have done differently. Allow me to share my early retirement hindsight.

Early Retirement Hindsight: What I Would’ve Done Differently

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My Early Retirement Hindsight – The Things I Would’ve Done Differently

I Would Have Set Aside More Cash

It took time to get my retirement footing even with all the research and planning I had done. I retired with just a bit over $20,000 in non-retirement account cash available to me. It was my emergency fund, there in case I had lost my job. That certainly wasn’t an issue anymore with retirement. Looking back at my financial journey, my desire for investment growth had me underestimated how much having sufficient cash reserves can calm one’s retirement transition. Believe it or not, retirement can mess with your mind after spending decades in the rat race trenches.

Everything worked out but in early retirement hindsight I would’ve had $40,000 in cash to get through my retirement transition. It isn’t even about spending it. Instead it’s about knowing it was easily available if I needed it or wanted to spend it without having to liquidate investments.

I Would’ve Prioritized Mortgage Payoff

I never gave early mortgage payoff a thought before retiring. It did get paid down over the years and I refinanced it for the lowest payments possible. I simply figured it best to direct any extra money toward retirement savings and planned for a retirement that included a manageable mortgage payment. We rationalize that we will get better returns than the mortgage interest we save with payoff. That is until we don’t and invested money goes negative as it did when I retired in 2009.

I did prioritize mortgage payoff a few years after my first early retirement by directing the salary of my encore career to it. Years have passed since that payoff date and it still makes me smile. I underestimated the benefits. Yes, we can expect over time, investment returns to exceed mortgage interest. For some people the tax deduction also comes into play, or it used to. But in the end, without a mortgage payment you not only save that interest but you need less in your retirement budget. That means less taxes paid year after year. So much of our having a great retirement is mental. Being mortgage free certainly adds another level of mental freedom.

I Would Forget Any Notions About Loyalty & Leaving A Career Legacy

In early retirement hindsight I really messed up here. I stayed dedicated to the company and job to the bitter end. Even at the detriment of my personal life in the last years. I had built a legacy of good work and accomplishments and didn’t want to slow down and possibly tarnish it. Simply put, as far as the corporate world goes I was a dumb-ass. Nobody really cares and the memory of our efforts quickly evaporate once we are out of sight. We falsely build up in our minds the importance of leaving a workplace legacy because we are in a relationship with the company and our team of coworkers. But the reality is the relationship is just business and survival.

During a time of constant layoffs that were supposedly performance and economic based, I should have said screw the legacy and proactively made myself an attractive candidate for a severance package. All it would have taken was dragging my feet a bit and using the word “NO” when approached with asinine demands a few times. There were certainly numerous opportunities for doing that. In hindsight, had I done that I would have built up my earlier mentioned cash reserve deficiency and put an even bigger skip in my early retirement rat race escape.  

I Would Have Gained Pre-Retirement Side Gig Experience

I have had a couple of really enjoyable retirement gigs. But there is one that got away and I wonder, what if? I certainly had a passion to do it and was qualified as it wasn’t anything super technical that required advance skills or education. I was dismissed as a candidate because I was overqualified based on my career and I had no real experience doing it. In early retirement hindsight I wish I had slowly scaled back my career effort and responsibility to make time to do part-time work in this different field before I pulled the retirement plug. It’s probably easier to get a foot in the door part-time while still working. I should have been more selfish with my time and personal desires. I regret not having been able to pursue this target of interest and passion even if in the end it didn’t work out or lasted long.

Looking Back At What I Think Went Better Than I Thought It Would

Embracing Frugal Living – This not only got me to early retirement but has proved a blessing for a great early retirement lifestyle.

Retirement Gigs – When you spend decades in the rat race it is all you really know. I can’t explain how different, rewarding, and enjoyable it is to work doing something you really want to do for only as long as you want to do it.

Social Expansion – Putting in the effort to increase my social circle beyond work is one of the most fulfilling parts of my retirement. Connecting to my community has been an important key to retirement happiness.

My 72t Strategy – I funded my early retirement with an IRA using 72t for penalty free monthly distributions. It is seldom talked about and when it is there’s many cautions. I couldn’t have done what I have done without using this backdoor retirement funding approach.

 

I am sure there are a few more things in hindsight that I could come up with that I would’ve done differently in this early retirement adventure. There are always ways to have done something better. I can say that I have absolutely no regrets about retiring early or what it takes to do it. When breaking the work-to-old-age norms there is always risk. But done right or as close to it as possible, it is 100% worth taking the risk.

Creating A Recession Hardened Retirement: You Know Another Will Come

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We love to run our numbers through Monte Carlo retirement calculators because nothing causes a retirement bummer like money trouble. Who doesn’t like the feeling of using historical investment cycles to validate our retirement plans? But another historically repeating economic cycle is often forgotten, especially when things are looking so good. It’s the dreaded “R” word- Recession. Chances are that we will have the displeasure of going through some recessionary periods during our retirement. They come in different flavors and can strain both our portfolio and well-being regardless of what the calculator results said. It’s a common retiree fear. That’s why I have thought lately about what it takes to have a recession hardened retirement. I believe it’s impossible to be totally recession-proof because anything can happen. But hardening our retirement to resist a recession’s damaging effects to our overall retirement into the future is worthy of looking at.     

Creating A Recession Hardened Retirement: You Know Another Will Come

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What We Can Do For A Recession Hardened Retirement

There were plenty of lessons learned after the Great Recession that is officially listed as lasting 1.5 years from December 2007 to June 2009. All I can say about that is the Great Recession’s official end was nowhere near the breakeven point for our portfolios, the job market, or anything else.

A quick look at Dow Jones Industrial numbers shows it at 13264.82 on December 1, 2007 before going into an extended free-fall and didn’t get close to that number again until December 1, 2012 at 13101.14.

The S&P 500 in December 2007 was 1468.36 and didn’t approach that number again until January 2013 with 1426.18.

Stock Market recovery took 5 years before reaching breakeven. That’s 3.5 years after the recession’s official end of June 2009.

List of recent history’s recessions and their official lengths:

By looking at our history of other recessions we also get a quick glance at recession frequency. I’m sure if we took a deep dive into investment loss to recovery, it took much longer to reach portfolio breakeven than the recorded official recession timeframes.

  • Roosevelt Recession 13 months: (May 1937 – June 1938)
  • Union Recession 9 months: (February 1945 – October 1945)
  • Post-War Recession 11 months: (November 1948 – October 1949)
  • Post-Korean War Recession 10 months: (July 1953 – May 1954)
  • Eisenhower Recession 8 months: (August 1957 – April 1958)
  • Rolling Adjustment Recession 10 months: (April 1960 – February 1961)
  • Nixon Recession 11 months: (December 1969 – November 1970)
  • Oil Crisis Recession 16 months: (November 1973 – March 1975)
  • Energy Crisis Recession 6 months: (January 1980 – July 1980)
  • Iran/Energy Crisis Recession 16 months: (July 1981 – November 1982)
  • Gulf War Recession 8 months: (July 1990 – March 1991)
  • 9/11 – Dotcom Recession 8 months: (March 2001 – November 2001)

These lessons play a part in a recession hardening retirement strategy.

Lesson #1- Investments can fall for a long time and take even longer to recover. When it comes to retirement, portfolio recovery is what really matters to retirees.

Lesson #2- Stay invested no matter how bad things look, and by March 2009 of the Great Recession it looked really bad. Markets do eventually recover and those who fought the urge to run eventually ended up whole.

Lesson #3- When income and portfolios get slammed, debt still needs to be paid. Thinking you can sell leveraged assets during a recession to cover your keister is near impossible when nobody is buying anything that isn’t extremely discounted.

Lesson #4- Investment diversification reduces risk but won’t eliminate risk. Every asset class – stocks, bonds, housing and commodities all took massive hits. But not all at the same severity.

Lesson #5- Experts really don’t know everything. Most dropped the ball in calling the Great Recession. Recessions seem to come from some financially linked dirty corner that isn’t regarded as being economically dangerous until it’s too late.

Recession Hardened Retirement- defense wins championships

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Preparing For The Best WHEN The Worst Happens

Defense Wins Championships

Everyone loves to score. Having investments gain in value gets all the attention and makes us cheer. But a recession can also score big numbers against us if we don’t have a good defense. Concentrating some of our resources on defense may lower what we score during good offensive runs, but it prevents the opposition, in this case a recession, from out scoring us. The goal is to win.

The Need For Cash

Having a portfolio full of cash isn’t going to earn enough to keep up with inflation. But having enough cash to get through a recession and spare us from selling too many stocks or bonds at a big loss is a good defensive move. If Social Security and other guaranteed income like a pension or annuity pays all or most essential retirement living expenses, then less cash is needed for a recession hardened retirement. For retired people like myself with several years to go before Social Security, the portfolio carries the entire load. Having enough cash to play portfolio defense is a hardening move and is also an important element of a retirement bucket strategy.

How much cash to hold depends on your portfolio size, the amount of your retirement budget that depends on the portfolio, your age, and your risk tolerance guided investment allocations. You do not want to over play your cash defense. You still have to score points by investing to win the long game. I recently increased my portfolio cash holdings for various reasons. I took it to an amount that still allowed overall portfolio performance to meet my retirement funding needs. As it turns out, it also recession hardened my retirement portfolio. Always run your numbers through a good retirement calculator. Adjust your cash holdings for the right balance of defense and offence to meet your long-term and recession hardening strategy.  

The Need For Investment Diversification

While stocks score all the points when they have opportunities to score, not all stocks are the same nor move in the same lockstep. Broad diversification in stock asset classes across different industry sectors reduces risk. Bonds also play a huge role for portfolio diversification. Not only for their fixed income (although usually unable to outpace inflation), but they offer lower volatility than stocks. Bonds were still hit during the Great Recession but not as severely as stocks. According to the Allegiant: Minimizing Portfolio Losses: Lessons of Diversification July 2017 study, diversified stock and bond portfolios recovered faster after the Great Recession than an all stock portfolio. Since having a diversified portfolio should recover faster it reduces the amount of portfolio defensive cash needed to wait out post recession portfolio recovery in our recession hardened retirement plan.

Great Recession Diversified Portfolio Recovery Details

Stocks/Bonds Maximum Loss Time to Breakeven
20/80 9% 22 months
40/60 23% 25 months
60/40 35% 37 months
80/20 46% 42 months
100% Stock 55% 59 months
Stick To Your Investment Strategy and Stay Invested

One of the biggest investment risks we face during a recession is behavioral risk. Everyone behaves differently in a crisis. A recessionary financial free-fall certainly triggers crisis behavior. Trust in your plan and stick with it. Don’t allow your emotions about current events dump it. Selling low is a sure way to feel the pain of a recession for years to come.

Whatever your plan’s stocks/bonds/cash asset allocation was set for, make sure to rebalance on a regular basis. During the Great Recession, stock vs bond allocations required rebalancing. This not only maintained our plan’s allocation positions but we benefited for the long run by moving our higher flying bond assets into the depressed price stock market.

Avoid Debt and That Other Debt, Service Contracts

In a booming economy when everything looks so good it’s easy, even for retirees, to take on easy money. Taking a defensive mindset thinks first that borrowing money that looks affordable now may not be if a recession hits. Debt limits our budgeting options and can be difficult to clear. It isn’t just the standard new car loans or charging a vacation that should be avoided. But also those 2 year interest free home window replacement, kitchen update, or flooring deals you want to go with.

There’s also those internet, cellular, and cable/satellite TV contracts that will still be binding if a recession hits. It’s ok to grab these deals, but only if you have the cash reserves to clear them or could have paid cash for whatever it is you feel you need in the first place. It’s easier on our portfolio and our mental state to get through a recession when all we have to concentrate on is our day-to-day living costs instead of paying debts from yesterday.

Create A Rescission Hardened Retirement Plan during the Good Times

The time to rebalance to get the diversification and cash allocation to fulfill our recession hardened retirement plan is before the feces hits the fan. Experts won’t tell you with any advance when a recession is coming. Take profits and make your portfolio rebalance before you need to. Once the experts admit we are headed into, or already in a recession it will probably be too late.

Stacking An Offensive Bench

Anything can happen and recessions are seldom the same. Since their severity can be anything from mild to “OMG” the worst in history, having some additional offensive plays is something to consider. If our defense begins to struggle against a recession onslaught we can do things to add a little more scoring power to our offence.

Additional Income Streams

Picking up extra income through a retirement job should be on the table. As we learned in the Great Recession, when companies were dumping employees left and right, finding a job was difficult. It took great time and effort. It’s important to maintain our professional network and connections. I landed my encore career during the Great Recession’s recovery through LinkedIn. Staying in contact and active within our professional/social circle can be a huge advantage. We should also gain and maintain payable skills we wish to use. Another option is starting a side hustle working for ourselves. Starting a small business or contracting is another way to make and offensive move, from Lyft/Uber to handy-person services. Passive income can also come from renting out a room in our home.

Make Adjustments To Our Cost Of Living

Most retirees I know have already cut waste from their lifestyle. However, there is always places to scale back to reduce our living costs to better match our recessionary income needs. Choosing to make temporary budget cuts to our hobbies and other perks of retirement should be on our offensive bench. We can always add them back in once a recession and financial recovery is complete.

 

Everything here are things retirees should consider doing regardless if there’s a recession threat or not. In using a recession as a way to visualize and test for the worst economic situation that will happen during our retirements, we can see how our retirement plan holds up. It’s all about creating a retirement plan that we can be confident will last as long as we do.

Just When You Thought It Was Safe To Retire Early

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You finally made it after working hard, planning, and saving for it. The beautiful scene is everything you imagined. You’re at the edge, wanting to jump in, and everything seems to be perfect. Maybe too perfect. You take a quick look around and see something. What’s that shadow? Is that a fin? There’s something out there lurking about. Your emotional response is that it looks threatening. Second thoughts enter your mind as you back away from the edge and you ask yourself, is it really safe to retire early now?

Just When You Thought It Was Safe To Retire Early

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Is Now The Time, Is It Safe To Retire Early?

All indications look perfect. Record breaking market conditions have provided portfolios that show full retirement funding success. The economy is firing on all cylinders. There is even record low unemployment rates where there are more available jobs than people seeking them. That means finding a retirement job should be easier to land, if you ever want one. But there are also those shadows and fins you thought you saw. Signs that maybe this isn’t a safe time to retire early and a retreating delay is in order.   

Those Shadows and Fins Lurking in the Distance

Social Security and Medicare

Big news came out recently about our government mandated retirement plan that we paid for over the past decades. Social Security will take in less than expended by 2034 and Medicare will hit that status by 2026. What if our elected officials do nothing to fix this? They say 2034 is when Social Security collections would take in only enough to pay about 75% of promised Social Security benefits. But what about Medicare? I guess we don’t know about that yet. They better figure it out. We held up our end of the bargain. What if they don’t fix things? What if they do things like a billionaire corporate fat-cat would do, just claiming a kind of bankruptcy to keep themselves and their special interest clients solvent. Could their fix be throwing the middle class under the bus, stealing our long paid for retirement benefits?

Another Housing Bubble

We all know what the last housing bubble did. Is it possible that it happens again? Just when we are feeling happy about our recovered home value and overall net worth we have to worry about this again. The littlest economic bump in the wrong direction could push many homeowners into default. If there’s enough of them, there goes all that home equity that has put a skip in our step. Hopefully it doesn’t trigger another BS recession. It wouldn’t be a big surprise either since regulatory guard rails established to avoid a repeat financial meltdown are being rolled back.

Overpriced Stock Market

The Portfolio has never looked this good. But all the talk of an overpriced market and impending major correction could wipe that smile off of our face and wipe out our investments. Just when we are depending on it to fund our retirement. Then what?

Trade Wars and Other Economically Tied Political Moves

One thing is for sure, this White House is all over the map picking winners and losers. Business and the market prefer stability in the government’s direction and decision-making. Possible Trade Wars are bad enough. But there’s all this ticking-off world allies while embracing world enemies thing too. Will a stupid political move cost our economy and our retirements? Is all this America First, aka America Alone policies just negotiation tactics or damaging long-term economic policies?

ACA Still Under Political Threat

Just when ACA was left somewhat intact after their destabilizing tweaks and left to limp along,  more threats to kill the ACA spring into the news. It’s still the law of the land, but its future demise would be very concerning if the ACA is your path to job-lock freedom. Can we trust them that they actually replace it with something better? Nobody in Washington has been caught lying yet, have they?

Growing Inflation

So far the Federal Reserve has been successful in slowly guiding the economy back to normalcy. Interest rates needed to adjust upward and there has been a disciplined approach. But what if they blow it? Could living costs rise far higher than our portfolio can support? Could raising interest rates drastically lower stock values?

You’re Wondering If It’s Safe To Retire Early? Well, It’s Never Absolutely Safe!

Early retirement isn’t a safe move because of its audacity to buck the status-quo work until old age system. It’s goes against the traditional norms and everything that a capitalistic consumption driven society demands. One where it’s all about productivity and spending. There will always be something lurking in the distance as far as early retirement is concerned. We need to plan for that and avoid putting ourselves at unnecessary risk. Sometimes we will see it coming and we can avoid it. While other times it can sneak up on us. We keep our eyes open and deal with it as we have done with any problem.

History shows that financial markets are cyclical and will always have periods when it moves up and down, sometimes moving extremely. When the worst happens with markets, real estate, business, stupid government policies, etc., we need to have a plan to outlast the down times. It’s always there and may happen multiple times during a long retirement. What goes up will eventually come down, sometimes falling quick and hard. The reverse is also true. But after a big fall the climb back up usually takes a lot longer. We must cover our bases.

Rely On The Facts As We Know Them, Take Positive Action

All we know is the data we have now.

Current and historical data helps us understand whether we can or should jump into early retirement. Set aside emotion and fear while sticking to the facts and data available.

Worrying about what the government does or doesn’t do is a waste of our time.

Don’t just worry, vote for PEOPLE aligned with your values. Stay informed so you can make necessary moves to counter stupid government decisions that negatively impact future and current retirees. If you believe in keeping the promises of our paid-for Social Security and Medicare benefit then vote for PEOPLE who support protecting and stabilizing it. As far as retirement goes, early or not, everyone who cares about retirement security should care about the only retirement plan that works for ALL Americans.

Stay as healthy as you can.

Healthcare is a huge retirement budget allocation. We all know what we need to do. Eat right, stay current with medical/dental checkups, and get moving off of our keister. As for health insurance, go with our best option available to us now and if things go south, we do what we have to do.

Alter your retirement income calculation inputs for different outcome scenarios.

When running your numbers, change some of your inputs, like using a 25% reduction in your expected future Social Security benefit. Pop up your spending calculation to cover an increase in healthcare cost until your Medicare kicks in. Use a monte-carlo retirement calculator that includes historical data.

Our home is a place a to live and a hedge on inflation.

If the real estate market tumbles it isn’t a retirement killer if you have planned to stay put. If a move is in your plans, then only do it if the market conditions are favorable. If conditions aren’t favorable then plan to wait until it is or look into alternatives, like rental strategies.

Our investment portfolio should be diversified.

There are a lot of things that can bounce the market downward. Look into setting up a retirement income bucket strategy. That way you have the cash needed to get through market downturns and you gain a little peace of mind in the bargain.

Our Valuable Asset

Know that our biggest asset is the financial smarts and discipline that got us to this point where we can even consider early retirement. It’s that skill set that will get plenty of use if something really does come threatening to take a bite out of our retirement.

Is it safe retire early now?

Photo Source

Take An Objective Look

If we look out there a little closer we may just find that the shadow and fin we saw was only a non-menacing dolphin and nothing to fear afterall. Sometimes, especially when making a big move, we can’t be sure what we are looking at from a distance, so we see the worst case. We let fear overrule facts, or the lack of clear facts. We can unnecessarily allow emotions to delay and at worst ruin our plans.

When I retired early during the recession in December 2009 everyone was screaming shark. But after already delaying my retirement by a year I then had a clearer view to see the shadows and fins differently. I made some best to worse case calculations. I then optimistically and confidently jumped in even with the future unknowns. It was the best financial and lifestyle move I have ever made. I knew it wasn’t absolutely safe to retire early, but I did it logically, based on the data at hand.

 

Caution is always good, but not if all we do is freeze and do nothing. We should instead understand the risks and do everything we can to avoid or counter them. Sometimes that might mean taking a step back until we can get a better view of what’s lurking about. If your numbers look good, don’t waste your valuable time worrying about what-ifs. Plan for them and move forward by taking necessary actions to attempt de-risking any threats. There will always be shadows and fins lurking about. Are you ready to enjoy what you’ve worked so hard to achieve? Are you ready and willing to jump in?