Ditch That Nine to Five Now, While You Still Can!
By Roger Nusbaum, AdvisorShares ETF Strategist
Yahoo Finance posted an article about a couple from Lake Tahoe who in a similar vein as Mr. Money Mustache are retiring at very young ages; 38 and 41. It is quite clear they have a good bit of money, although not disclosed, and are very smart. If you spend just a couple of minutes on their blog however it is also clear that they have a lot going on such that like Mr. Money Mustache and his wife it seems like they have figured out how to monetize a few things and are simply ditching their nine to fives believing they have enough set aside. Far from my being critical it is great that they have figured out how to get by financially without being in jobs they apparently don’t like. One of their motivating factors is the potential for one them to have physical problems based on parents’ health issues.
However, it feels like they are underestimating the impact of an unfortunately timed bear market. Coincidentally I just had a conversation about this with a client. We’ve talked here before about sequence of returns and the luck of when your first post-retirement bear market comes along. Without attempting to predict anything, it would be prudent for anyone planning to retire in the next couple of years to prepare for a bear to come shortly thereafter both emotionally and from a planning and allocation stand point (maybe set aside a little more cash to draw from).
Anyone thinking of retiring very young needs to consider what they are giving up in Social Security. Social Security is derived based on someone’s highest 35 earning years. So retiring at 40 might mean 15 years of zero earnings going into that formula. The Tahoe people won’t really get anything from Social Security unless of course what I perceive as “having a lot going on” results in w2 or 1099 income. The Social Security angle shouldn’t necessarily dictate what someone does in this regard but thinking you have $2000/month waiting for you only to find out too late that it is just a fraction of that would be a bad situation to be in.
Here’s another post from Marketwatch written by Darrow Kirkpatrick who retired in 2011 at 50 and offers a few observations. The back drop here is that he was somewhat successful but is clear that his not a dotcom millionaire, he has a few things going on including blog income but maybe not as many things going on as the folks in Tahoe or Mr. Money Mustache (my perception). He is very candid about what he and his wife have done to cut expenses and seek out the lifestyle that is best for them.
The article has a lot of good ideas including:
But the fact remains: no matter your income level, if you want to maximize your freedom in life — working or retired — you need to plan on providing mostly for yourself, rather than relying on others, including the government.
The latest is that 2035 is when Social Security will be forced to reduce down to about 75% of expected payouts and while that leaves a lot of time to fix it, there is no way to know if they will or if they do “fix” it, whatever they come up with might means some folks still come up short.
Finally, Bloomberg posted a downbeat article about retiring later, dying earlier and being unhealthy in between. For all the woe is me articles like this, I feel compelled to point out that for many people, it is within their control to address and hopefully mitigate scenarios like the one Bloomberg portrayed. We all know the importance of saving money, Nassim Taleb has often said that everything we need to know about finance, we learn from our grandmothers including the need to save money. I would also argue that everyone knows they should live below their means. We know that very few people do, but I believe they know they should.
Everyone also knows they should exercise and consume less sugar. We know many (most?) don’t exercise and that sugar consumption is quite high but they know about these things.
As Kirkpatrick says above, we need to rely on ourselves for not putting ourselves in a position to have a chance at accumulating something of a retirement fund but also giving ourselves a chance to age successfully. Personally I find it very empowering and encouraging that obstacles very often behavioral and thus something we can work to overcome.
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