I did it. After so much consternation over the status of the market and my own preparedness for leaving an admittedly good job, I made the decision to join my husband in Early Retirement. Though sometimes I still tell myself that it could be a sabbatical if it needed to be. I’m not sure if that is to massage my ego as a fallback position in case all these calculations and plans of mine are wrong and history is wrong and we end up in a Japanese-style 30-year market downturn. I’ll admit, my decision was more of an emotional one in the end. If I had kept working, I would have had better numbers. But I greatly dislike my career field. While I wouldn’t be opposed to making more money at some point, I have no desire to make it as a corporate minion that adds no value to the world, except for my own bottom line.
So how did the numbers look?
While I had been planning for a 3.5% withdrawal rate from my invested assets, at the time of my retirement, I am estimating that with inflation and the market downturn, I will be withdrawing at a rate of 4.5% annually. Retiring with higher than the 4% “rule” might seem crazy (again with those emotions), I have many reasons why I felt I could still retire right now. Many of my reasons align with the FI Tax Guy’s article, The Four Backstops to the Four Percent Rule.
Mortgage & Home Equity
Every payment to my mortgage builds more home equity I could use at a later time. I don’t currently count my home equity in my Financial Independents resources. At some point, we will downsize from the two-story, 5 bedroom we live in now to raise our four little tax write-offs, but I don’t know when or how beneficial it will be to my financial picture when it happens. For that reason, I’ve left it out of my planning projections. But it is still there, and it will become more valuable as I chip away at that mortgage.
My current Financial Independence Retire Early (FIRE) plan estimates a static annual spending for all time. Now. While I am responsible for the care and feeding of 6 human beings. I really do expect my expenses to go down as I launch my mini Mr & Mrs FIFs. Sometimes I daydream about only having to feed two people. Can you imagine bringing home groceries for only two people? If you don’t have to imagine it, it must be glorious. Beyond that, I also believe I’ll be able to manage my expenses as necessary. I may be starting at 4.5%, but I don’t expect to stay there.
Future Cash Flows
I expect future cash flows, which include Mr. FIF’s military pension and Social Security to cover ALL my spending needs in roughly 20 years. So while I might be planning to live forever, my portfolio only has to live for 20 years. Also, both of these future cash flows are inflation adjusted. While planning 20 years ahead for Social Security benefits is difficult, I use 70% of what current benefits would be as my planning number and I’m comfortable with that.
Did I mention I plan to live forever? I do. Mr. FIF exits the picture at 95 though, when I account for survivor benefits I would receive from his pension and Social Security. Though, a recent longevity calculator, www.livingto100.com, told me I would die around the same time as Mr. FIF, at the young age of 86. Mr. FIF could quite possibly outlive me, making it to the ripe old age of 91. After I got over my shock and ah, I started to accept, we might not live forever. We might not even live the 20 years that we need our portfolio to live. But of course, I won’t change my plan for immortality.
The Stock Market is Down
No seriously, it is. Which means? It will go up… with any luck, before I actually withdraw anything! I do not recommend your retirement plans be based on luck. But with lower valuations that come with a bear market, expected returns do go up. For a far more technical discussion of this topic, I turn to Big ERN and The 4% Rule Works Again! I intend to use cash, iBonds, and bond funds before tapping into my equities while I await a recovery.
Worst Case Scenario
Then there is the line I always tell myself, my worst-case scenario of going back to work is the same as every non-retiree’s everyday life. I’ll likely do some kind of fun part-time work before I worry too much about a full-time gig. Either way, I do have some amount of confidence in my ability to earn more money if it is required.