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?
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.
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?
All of the issues you bring up here can be summed up in one concept, trying to time the market. Since timing the market is something you can’t do anyway, no reason to sweat it. Make your plan and go with it. The market will still continue its ups and downs whether or not you FIRE. So don’t let the ups and downs influence you. Your plans should take into consideration that the ups and downs are expected. That’s why there is a 4% withdrawal rate. The 4% takes into account the ups and downs so you don’t have to. Go out and live your life, FIRE or not, here we come.
Dr. Cory S. Fawcett
Prescription for Financial Success
Thanks for the comment Dr Fawcett. You are absolutely right. A recent conversation with a nervous early retiree prompted this post. Uncertainty is part of the game and good planning that includes diversified investments and a disciplined withdrawal rate smooths extreme conditions beyond our control.
Tommy
Tommy
I think Social Security goes to 75% in 2034 not 2026 but needless to say that isn’t good-especially as waiting for a higher benefit is hard enough. Government has overpromised on Medicare and SS and solution is inflation and higher taxes. That is a reason to have Roth investments and equities. I am also more inclined to more foreign investments for diversification as well. As far as fixed income with potentially higher rates I would be laddering 3-5 year CD’s and roll them if and when rates rise. I think bond funds aren’t helpful.
Thanks for the comment and insights James. (Appreciate you letting me know about my 2026 typo).
We followed their rules with SS/M withholding our entire working lives. It’s something that must be shored up. There are trillions in Fed Treasury IOUs that SS has for the surplus SS $ that has been spent to cover general fund shortfalls. When I hear about the pending 75% funding status I wonder if that includes those IOUs or are they saying wo/saying, forget about the IOUs, they never intended to pay back the SS money spent elsewhere on anything but SS over the past decades.
Tommy
Great points you bring up Tommy. There will always be something to worry about or an excuse not to go for it and retire if that’s what you want to do. Its can be easy to keep saying “just one more year” and keep working out of fear. Like you mention, get all the facts together and run the numbers to see where you are really at. And don’t forget you can adapt to a changing economy or circumstances. Just because you can spend 4% a year, doesn’t mean you have to if you don’t have a need or desire to do so. You might not need any new appliances, house or car repairs, or even an expensive vacation in any given year. Plus you can always do some part time or contract work here and there which could greatly help your numbers.
Thanks for the comment Arrgo. I was mentally prodded into writing this after having a discussion with an acquaintance about retiring this year and their fears. You hit the nail on the head, there’s always unknowns or things to worry about that can be used as excuses not to retire. Especially when walking away from the only way of living we have known for most of our lives.
Tommy
I think people who are reading sites like this and are of the FIRE philosophy are of the subset that can handle a lot of life’s obstacles. These are people that by nature are conservative (some too a fault) and typically don’t pull the trigger to retire early until they have pretty much run multiple different scenarios into the ground. This subset also tends to be much better handling money and more flexible than the general population. Flexibility I think is the key. If you happen to have a poor sequence of returns early on, you can tighten the belt some and not have to take out the excess money you normally would have. The one big unknown is healthcare. Who knows what premiums will do and what happens to Medicare. But even that should not cause one to delay retirement otherwise you will always have an excuse never to retire.
Thanks for the comment Xrayvsn. I totally agree with you, many readers of posts like this are already FIRE aware. But I do hope that FIRE posts come to people who are investigating a change in their financial philosophy too. I know from my conversation with the soon to become a retiree that sparked this post had never considered doing any research outside of what they hear from their financial planner or 401K administrator. We humans sometimes overlook all the resources we have available and then allow fear or excuses to stop us from moving forward. You nailed it, the skills that those of FIRE obtain does allow us to be flexible when dealing with the unknowns that will come with early retirement.
Tommy
Retiring early stirs anxiety and worry for me. Lots of what ifs boggle my mind. If you are someone who wants to retire early but have even a small amount of doubt at the back of your mind, then don’t do it. Trust your doubt; maybe it is the nature that is telling you to wait for more time. But if you are confident and you think you can face various retirement challenges, such as healthcare, then maybe you should go for it! By the way, great tips Tommy. You made me think twice; I am sure others did too!
Thanks for the comment Leandro. You’re right, it’s important to trust your gut. But then it’s all about taking action to see if what you are feeling is truly warranted, not just our fear that surfaces when facing all the possible unknowns that comes with early retirement. Nothing wrong with taking more time to really work through things and feel confident about making the move.
Tommy
That’s really informative and helpful
Thanks for the comment 60+. Glad you enjoyed it.
Tommy