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My Disappointing Retirement Financial Plan

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The Numbers are in and for what I paid I am less than amazed. My Disappointing Retirement Financial Plan results are mostly due to there being a huge disconnect between the financial planning industry and those who live a frugal lifestyle. I also see another trick being deployed. One that even the new fiduciary rules to protect investors can’t stop. This trick makes a big difference in the retirement financial plan calculation results as to the likelihood of long-term funding success.

The results were a little delayed as they had to be reworked. Due to what they call a misunderstanding in our projected funding needs.

This misunderstanding occurred even though I carefully printed out our yearly budget needs.  It included everything from day-to-day living expenses to travel and gifts. They took it upon themselves to add considerably to it. All because of what they said are normal spending trends.

I had to remind them that I didn’t make a huge salary during my career and was able to retire early at the age of 51. I think I understand what OUR NORMAL spending model is and that is the one that counts.

I had also included some one-time planned expenses for a home remodeling project, a trip to Hawaii this year, and replacing our primary car within the next year or two. That too was used as a basis to create a higher yearly expense-need. Which was added to our budget as “normal” for retirement spending.

Financial Industry Disconnect with Frugal Living

Retirement Financial Plan ResultsThere is a disconnect between what the financial planning industry sees as “normal” and the way we live in our frugal lifestyle. That disconnect along with the deployment of their new trick caused our retirement funding results to only have a 55% success rate of not running out of money during our retirement.

Their “Normal Spending” misunderstanding added an extra $12,000 a year to the budget. An over 23% increase. That was then also indexed for inflation over our retirement in their final retirement financial plan success calculations.

After some back and forth I agreed to allow them to replace the $12,000 with $3,000 to be added to my budget as a worst case scenario. They reran the retirement financial plan calculations that was then reviewed at a later date.

My Disappointing Retirement Financial Plan Results

I had mentioned in a recent post “Is it Worth Paying for a Financial Planner?” that I had paid $1,100 to have them look at everything. Then for them to come-up with a comprehensive retirement financial plan when looking at mine and my wife’s combined portfolio. My expectation was that they put a plan together that is better than I could on my own.

In the end I felt let down and disappointed. It was for the most part ho-hum and as far as I am concerned any investment actions and moves that were recommended to be taken now should have been covered under my existing wrap-fees that I pay for my portfolio management.

I have under 2 years left on my SEPP 72t arrangement  that sends me a check each month to fund a large part of my early retirement.  I knew that there would be reasons to delay making any major changes or plans until after that expires.

That said here are the high-level highlights of my retirement financial plan:

Once my SEPP is over and IRA withdrawals are penalty free, finalize set-up for my retirement income structure.

Stagger the risk of our accounts to set up a steady income stream while protecting against market downturns.

The target amounts listed below can be adjusted if income needs change (i.e. sell to downsize our home). The structure below is in place so if our portfolio suffers a loss, we can draw down cash and give our investments time to recover.

  • Keep 1 year of withdrawals in cash.
  • Keep a 2nd year of withdrawals in short-term bonds.
  • Invest 5 years of withdrawals in a medium term portfolio. Use this account to replenish cash as it is withdrawn (interest, dividends & systematic selling).
  • Invest remaining funds for the long-term.
Sigh………

There were some investment change recommendations and a call to have me put my cash reserves under their control. I could request cash from them as needed and they would send me a monthly check to cover budget expenses above what my 72t funds me with.

That was recommended to get us used to living on a budget and used to living within a monthly allocation.

HELLO! I think we can handle that just fine.

I more or less paid $1,100 to tell me what I could have done myself. The juicy details that I had hoped these professionals would have supplied are on hold for a couple of years until after my SEPP 72t ends.

After adjusting their $12K budget misunderstanding my final results now show a 78% success rate of retirement funding. However as I will explain below that is because of their little trick that seems hard to get them to shake.

Financial Advisor’s Retirement Financial Plan Trick

So what is the trick? Their retirement financial plan trick is this. Everyone will live to age 100. Or at least that is the only way to run the numbers. Also assume maintaining the same spending rate with inflation until the end.

OK, I get it. I understand why that might be the advised way to run everyone’s numbers. In reality I think it only causes many financially responsible people to delay retirement and/or over-save for retirement.

I say financially responsible people because those who haven’t saved much are so far off from having enough for a fully funded retirement that it doesn’t matter what age is used.

Use Realistic Longevity Numbers

With the first run of our numbers and their mistakenly inflated budget I pointed them to what I had supplied about family longevity. My father had the record age for men in my family at age 70. We have an issue with cancer that seems to run in the family. On my mother’s side men were even worse off but for reasons related to WW2. So longevity unknown. The Federal actuary table  predicts for me age 81 which I think would be a fair number to start with and to round-up from.

My wife’s grandmother and great-grandmother on her mom’s side lived independently until just before age 90 and both passed soon after with a few months in nursing care. On her father’s side her grandmother only lived until her early 80s. The Federal actuary table predicts for my wife age 84. Far from age 100.

With a corrected budget model already in place and having them rerun the numbers with age 90 for me (of which I believe is a stretch) and 95 for my wife our calculated success rate through over 600 investment cycles on their proprietary calculator now came up at 100%.

What about keeping a constant spending rate?

The other trick is taking a stance that spending will stay at the same level plus inflation throughout retirement. I truly believe based on what I have seen with our parents and grandparents that spending significantly drops as we age. A study by Ty Bernicke, CFP  fully details this issue. Our world shrinks and we just don’t feel like putting up with all the BS or health issues to travel. People also don’t seek out entertainment like we do when we are younger.

There is something to be said of medical cost rising and filling that decreased spending void but that isn’t a sure thing. Someone could also make the case of including a new Global Warming homeowner’s insurance policy cost to our budget or any other guess at what other future costs will come to us in retirement requiring us to pad our savings even higher.

Is There Any Value to my or anyone’s Retirement Financial Plan?

I think there is some value because it does add a second set of eyes and a professional view of what we want to do. I run my numbers through the free online Monte Carlo type retirement calculator FIRECalc  using different retirement lengths, spending, and investment strategies and see very promising numbers. It uses over 100 investment cycles in its calculation.

  • When paying for a retirement financial plan we also must have some financial sense so that CFPs don’t take the road of applying generic social norms to spending if we are people who aren’t into unbridled consumerism.
  • We have to be proactive and challenge any CFP assumptions that may automatically be taken that are not necessarily true for us. In my case age 100 calculations.

I believe when digging through my retirement financial plan results that I can see some value even though nothing specific is being detailed or established for another couple of years.

That said, I don’t feel that what I did get warrants a $1,100 price tag. I will definitely not be paying them again for another retirement financial plan anytime soon and will argue that much of what they did tell me should have been covered under my wrap-fees. I explained my feelings over the results and they are keenly aware that I know enough that they cannot just meet with me on auto-pilot

Final Thoughts

If we are going to pay for a retirement financial plan then it is important to understand what our retirement lifestyle is really going to be. I have a few years of early retirement under my belt so I could easily call-out my financial advisor on their spending assumptions and calculation errors.

Having a realistic grasp on life longevity is another key factor for a solid retirement financial plan. Too long and even though it is a nice thought it may cause delaying retirement or other changes that negatively impact our retirement plans. Too short and without careful monitoring we can run out of money before we run out.

I am not taking a position that CFPs default to age 100 in their retirement financial plan calculations because of some sinister plan. Although it has crossed my mind that having as much money as possible for as long as possible under CFP control does reap higher yearly wrap-fees for the financial planning industry.

Developing a retirement financial plan is serious business but not an exact science. There are many unknowns. It should be based on sound personal details and logical assumptions.

In the end it will be up to us to make it work and will need constant monitoring over the years.

Have you ever paid for a retirement financial plan or plan to in the near future?

Is fear a good retirement saving motivator?

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Is fear a good retirement saving motivator? I began to think about the power of fear and how it can influence every aspect of our lives, both good and bad. Obviously a rational dose of fear can keep us from doing something stupid and dangerous. However irrational fear may hold us back from reaching our full potential in whatever we are doing or trying to accomplish. Either way fear is a powerful and primal emotion. That is what has me wondering, is fear good for motivating us to save for our retirement?

Is fear a good retirement saving motivator? If so, What Fear?

Is fear a good retirement saving motivator?I think our retirement fears can be a good retirement saving motivator as long as it is balanced. By that I mean a healthy balance of fear of the worst and fear of not being able to have the best that we want and have planned for. Fear as a retirement saving motivation should be seen as a Team that has a good balance between Offense and Defense.

  • Offense – All the things we want to accomplish in our retirement. To Score The Dream
  • Defense – All the things that we do not want to happen in our retirement. Defend against a negative outcome.
Fear – Team Offense

Anyone planning for their Retirement should understand that the best retirement plan is about what we are retiring to. We should understand what that is and what it will take to fund that dream retirement lifestyle.

My offensive fear was that I wouldn’t be able to live my life on my terms. I wanted to retire early and often. I wanted to only pursue opportunities that I had interest in and was passionate about doing. To do that I wanted which meant being able to leave my corporate career with its 24 X 7 demands. It had inflexible and restrictive work requirements. I wanted a life where I could have uninterrupted time for my highest priorities that are about spending more time with my family and changing to a passion-driven lifestyle.

I also wanted to do all of this while I was young enough to fully engage in everything that I wanted to do. I have hobbies, volunteering, and travels I want to fully experience. My fear was that I would either get my ticket punched to leave the planet due to all the stress or wait so long that age related health issues would keep me from what I wanted to accomplish.

My offensive fear motivated me to save so that I could live the lifestyle that I wanted to live in retirement and retiring early enough to fully enjoy it.

Fear – Team Defense

The other side of retirement planning is saving enough to have a retirement far better than just existing. Having a healthy fear of running out of money or not having any in the first place is a strong retirement saving motivation to do something. Having the fear of ending up old and/or in poor health and unable to support ourselves should be everyone’s fear.

Worst case scenario stuff – Lingering away in a nursing home and not a good one either because of a lack of funds or running through all our money and then ending up there anyway.

Fear of not having enough money down the road many years into retirement in later life is a defensive team fear.

Balanced fear is a good retirement saving motivator

Surely retirement saving needs to look at both sides. Without the defensive fear I would have retired too early and without a clear way to fund late life needs. A strictly defensive fear mindset means I may have stayed in a unfulfilling and demanding career far too long and delayed living the life I wanted and was saving for. I would have retired with regret of a life spent poorly. Balance is important.

Our fears shouldn’t keep us from living our lives, making plans, dreaming, setting high goals, and moving forward. Fear is only bad if we let it stop us from reaching our full potential. Metaphorically cowering in a corner is not the way to let fear rule us. We have to recognize it and take the necessary course of action. In this case the motivation to stay engaged with a retirement savings plan that covers everything that we need to cover.

Closing Thoughts

I believe a little fear goes a long way. I left a comment on a blog post that had me wonder and inspired me to write this post. It was a great read by Yetivesting, What Motivates You To Save. 

So let me ask you, is fear a good retirement saving motivator?

Are your retirement saving motivations more strongly fear-team offensive, defensive, or balanced?

Early Retirement is like leaving the Casino when ahead

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My Father-in-law told me, Do Not Let Greed Delay Your Retirement, Early Retirement is like leaving the Casino when ahead. My father-in-law passed away suddenly a year ago and today has me remembering his wise advice. His is a cautionary tale that stuck with me and contributed to my own early retirement story. I was still several years away from my early retirement goal and my father-in-law had only been retired for a couple of years when he offered his advice to me.

Early Retirement is like leaving the Casino when ahead – Odds Favor the House

Your Employer Can Change the Rules

My father-in-law worked for United Airlines on their Ramp Services Crew. His career was about loading bags and freight with a mind to keep the plane’s cargo evenly distributed, de-icing planes in the winter, and everything else that they were to do. 30 years into his job that provided awesome travel benefits he could retire with a full pension, his 401K, and a bunch of United Airlines stock given to employees instead of salary raises. As he explained, only after you retired could you cash out of that stock and diversify (before new rules about employee stock holdings).

At age 58 he was still healthy and although he had plans of retiring and traveling the world on the retired airline employee travel benefits he decided that by staying a few more years he could build up more savings and collect higher social security later on.

A few years pass and some freight shifts during loading a plane and injures his back. After medical treatment and some rehab he returned to work but his back was never the same. He hung in there a few more months until he hit 35 years of service and retired.

Aside from health issues associated to his back injury something else happened during those last months while he was getting ready to retire. United Airlines filed for bankruptcy. His company stock representing years of raises was all but wiped-out overnight. You don’t get a warning so you can quickly retire and sell your stock (that would be insider trading). So he counted his blessings and retired with his pension. Soon afterward United Airlines ditched their pension and handed it off to the PBGC which came with a reduced monthly benefit.

Your Health Can Change

6 months after retiring he found out he has bladder cancer. After surgery and other cancer treatments it was successfully removed but left him tethered. He needed to always be close to a rest-room which made the thought of traveling less attractive to him. Still feeling blessed for beating cancer he couldn’t help but to think what if. “What if I had retired when I was 58 with my 30 years? I would have been able to sell that stock and travel as we had always planned.” What if indeed.

As he told me, “I got greedy and should have left the casino when I was ahead”. Ahead in both retirement money and health. He knew of my early retirement goal and then warned me, “Don’t Let Greed Delay Your Retirement because your future is unknown”. He then said he didn’t believe in crying over spilled milk but knowing what he knows now he would have left as soon as he could. The old hind-sight dealio for him but great advice for me to chew on.

Cancer would have still visited him but they would have had a few healthy years to get out and do all the traveling they had long-planned to do.

Leaving the Casino When Ahead

I did take his advice to heart. We don’t know what our future holds for us. Early Retirement is like leaving the Casino when ahead. If you stay too long or linger eventually the House will win. The “House” or “Casino” is the system of life in the modern world. The system where we work doing things other than what we really want to do by trading our time for money.

We choose financial responsibility as our game of choice which is our gamble to winning a chance to have as much time as possible HAPPILY LIVING free from needing to work.

We gamble that financial responsibility will pay off and we will be able to follow our passions and our interests before our slowing through aging, decreased health and then leaving the planet with our inevitable death.

With the anniversary of my father-in-law’s passing it is something that I have thought a lot about lately.

Do Not Let Greed Delay Your Retirement – The Temptation for More Money

There are the internal factors like greed and fear at work tempting us to work longer, save more, and delay our retirement for more money. There are also the externally applied messages to feed our greed and fear.

  • Messages telling us we need huge sums to retire with the same lifestyle we have when working.
  • Messages telling us we need to delay retirement to get bigger Social Security checks.
  • Messages telling us we need to plan on funding retirement until age 100.

Early Retirement is like leaving the Casino when aheadThese generic messages can cause us to look at what we have and decide to risk doubling down to have even more. Gambling our decreasing time for more money. Some folks pull it off but many lose. The odds favor the house. Life is finite. We burn through our time no matter how much is left, great or small. Most people have to burn through their time because they don’t play the game well (spending foolishly instead of saving/investing, heavy debt, making bad financial decisions) or have a long run of bad luck (poor work opportunities or underemployed) where the cards never came up for them. However if we do play well and have luck fall our way then we should resist greed or fear and know when to leave the casino when ahead.

Early Retirement is like leaving the Casino when ahead – Know When Enough Is Enough

This article isn’t about being financially reckless and pitching a career without first having done all that needs to be done to fund our retirement. Beating the House and winning with early retirement means we had just enough good luck and have played the game well through practice, commitment, and learned skills. We gambled with our earnings by saving and investing instead of seeking instant consumerist gratification. Gambling that we are going to hit the jackpot of retirement and have a greater tomorrow. If we are fortunate we will have retirement earlier than most who are spending time in the casino.

With the constant generic messages of needing more and more to retire comfortably we should take that in stride and run our own numbers.

Everyone’s retirement lifestyle and lifespan is different.

We can’t exactly pinpoint our lifespan but we do have clues.

  • Our relative’s health and lifespans
  • Our current health
  • The actuarial lifespan estimates

We can account for the chances of longevity and hedge that bet either with our investment bucket strategy or by throwing in a QLAC if we want a longevity annuity.

Knowing how much we need to live our retirement lifestyle and how much we have wisely invested tells us whether we should exit the casino. It allows us to put our winnings to the test and know when enough is enough. I like to use the free Monte-Carlo type Retirement Calculator by FIRECalc. We can’t know when enough is enough until we finish running our own unique and specific numbers.

Having the right focus isn’t greed

Some believe that people who become frugal and super savers are money focused and greedy. I think they miss the point. If there is greed to be found in financial independence and retiring early it is in our wanting to cherish our time and not waste any more than we have to stuck in the rat race. We are time focused not money focused. Time is what we all gamble with. Greed comes into play when we lose sight of that and stay in the Casino far longer than we need to.

Final Thoughts

I miss my father-in–law. My father who I also greatly miss had passed away years earlier at an age below actuary lifespan estimates. Both of them succumbed to a form of cancer. Another piece of the casino’s bad luck that many of us may have a run of.

I have got a few calls lately from recruiters wanting to pitch opportunities that are aligned with the encore career I retired from not long ago. I admit the temptation of earning some extra cash and its high paying salary. I am all about retiring early and often.

It stokes some interest but only until I think about this game of chance I would again be playing. Re-entering the Casino and gambling my time for extra cash. Doing something that I am not passionate about and the entire time hoping I will still have time tomorrow to follow what my passions and interests are, living life again on my terms. I retired from that work for a reason because it no longer interests me. Why gamble with my time?

Once we know when enough is enough and have the smarts to leave the Casino while we are ahead we get the other prize brought by our won financial independence: Removing money from our life’s decisions. We can make decisions made at our spirit, our heart, our soul’s level.

Do you have any thoughts about Early Retirement is like leaving the Casino when ahead?

Voodoo Retirement Planning

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It is far too easy to fall under the spell of seeing exactly what we want to see and enter into Voodoo Retirement Planning. Especially if we are short of generally accepted retirement savings goals and really want to retire or stay retired. Voodoo Retirement Planning is any retirement planning strategy perceived as being unrealistic and ill-advised. OK, I am taking the definition of Voodoo Economics and applying it to retirement planning. I just like the sound of it and who can resist saying or writing the word Voodoo.

As I posted earlier I am in early retirement and I have paid my financial planner. Paid him to create my ongoing retirement plan. I should get the results in a couple of weeks. I could research and lay out something myself and believe me I do all the time. But I decided to pay for professional advice because it is far too easy for me or anyone to enter into Voodoo Retirement Planning.

Voodoo Retirement PlanningPlease let me explain.

With Voodoo Retirement Planning there will be just enough factual truths to make people miss the dangers. There is no magical voodoo retirement plan that can safely allow anyone to retire on insufficient funds for a lifestyle that will cost more than the acceptable withdrawal rate. There is a lot of information available from all kinds of sources. How that information is presented and how we accept it plays into how far we go into uncharted or ill-advised strategies to make things work for us.

That “acceptable withdrawal rate” also adds to the allure of the Voodoo Retirement Planning spell. Experts can’t even agree what that safe withdrawal rate is. Most say it is 4% with yearly inflation adjustments. While others claim it should be 3%. Then there is the argument that by foregoing yearly inflationary increases it can easily be up to 5%. The latest is that it can’t be a “set it and go” withdrawal rate. It must be adjusted each year based on portfolio performance. Any confusion in acceptable retirement planning practices can be used to add legitimacy to a Voodoo Retirement Plan.

The Signs of Voodoo Retirement Planning

First off. If we have enough financial knowledge and we find that our gut feeling is it is too good to be true. Then it probably is. We must activate our skepticism and tread carefully. Go in with open eyes, not blindly in a zombie trance toward an easy meal. That said there can be just enough truths to a Voodoo Retirement Plan to lure anyone in.

Changing Portfolio Return Assumptions to Meet Targeted Needs

Voodoo Retirement Planning starts here and it is backwards to what should be done in a sound retirement plan. Sound plans start with what your portfolio can safely support. Support funding for a long amount of time. Or at least just long enough. If our targeted and needed retirement funding will need a 7% withdrawal rate from our portfolio. Then changing the portfolio investment return assumptions to generate +7% to create our retirement plan is a potion for disaster. It is no more than voodoo magic. Magic giving the false illusion of it being a sound plan. It is a Voodoo Retirement Plan based on wishes instead of sound estimates.

Whether it is a 5% or 10% total portfolio withdrawal rate wanted to get the desired retirement income amount, reality should dictate what the sustainable withdrawal rate and strategy should be. If that reality is not enough. Then we have to adjust our lifestyle cost or contribute more to the portfolio before fully retiring.

Over allocation of high risk investments to hit Voodoo Retirement Plan return assumptions

To get the returns to make taking a high withdrawal rate appear legitimate. Voodoo Retirement Planning will make the case for having too much invested in high risk assets. Asset investment diversity gets overlooked for the case of higher gains. Using long-term trends may make sense when looking at overall market performance for these high risk assets over very long periods of time. However if our retirement falls in a long bad market cycle or cycles. Then those long-term trends mean nothing to us. We or should I say our portfolio is the living dead as far as retirement funding goes. Nobody wants to hear the portfolio cannot support what we need to retire on. So the pitch is the fund can grow itself with a very high risk investment strategy.

Using historical returns to lock-in a strategy and return assumptions

Historical return statistics are great for seeing the past performance. But that doesn’t mean they will repeat in exactly the same fashion during the years we are in retirement. Voodoo Retirement Planning will embrace the stats that support the unrealistic income needs. As an example, look at government bonds. Historically it will come up that they return 5% to 6% a year. But there is no way we can expect that today or even in the near future. Using assumptions like that in our calculations to support a higher withdrawal rate is going to kill a portfolio. The same goes for short history stats for hot new asset classes. Some may sprint within just a few years to a fast start with high growth. However jumping on new asset classes using those figures to make our going forward portfolio return assumptions is a crazy-scary plan.

In Closing

We need to create a sound retirement plan while living with unreliable financial return assumptions. To do that we should run multiple diversified asset classes with reasonable return scenarios through our calculations to understand all the different possible outcomes to our retirement plan.

By doing this we can test our plan to give us a higher feeling of plan confidence. We can gauge what our retirement funding risk really is. It also allows us to create worst case contingency plans to counter bad portfolio return cycles that may/will come up.

I also feel that for some people there is a huge benefit, myself included, in having a second set of eyes. Eyes belonging to someone professionally trained in financial planning. With a trained brain to recommend the best retirement plan. In my case it will add a lot a comfort in knowing that we aren’t under the spell of some bad Voodoo Retirement Planning assumptions.

Voodoo Retirement Planning can be very tempting. It is nothing more than telling us exactly what we want to hear. Not based on sound, fully factual, or sensible assumptions.

Have you ever been tempted by a too good to be true voodoo retirement plan?

Down Market Crushing Early Retirement Dreams

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Is the start of 2016’s down market crushing early retirement dreams? I am seeing a shortage of upbeat early retirement posts lately. In fact I can even see from the hits on the Leisure Freak site that the number of people searching for early retirement information has trailed off since Friday January 15th’s big market selloff and resulting 2.39% drop in the DOW.

Obviously it is a total bummer seeing portfolios hit so hard in the historically damaging start to a new year. But investing is for the long haul and if we had a plan it should have been one to get through market bumps.

Oh no. Not Again

This certainly reminds us of what it felt like at the start of the 2007 market fall. A lot of us held on to the hope that the real estate bubble couldn’t really destroy the world’s investment markets. Many financial professionals were saying just that, telling us that there is nothing to worry about at that time. Saying that the mortgage and real estate market represented only a small percentage of the economy. Little did they know. If my memory serves me right the markets did continue to drop into the toilet through Feb 2009. This is different this time. At least the job numbers look good and other than the oil sector corporate profits have been mostly up.

Sometimes when a long and happy rapid recovery takes us back to record market highs like we experienced in the past few years we forget that what goes up eventually has to come down.

The New Fear – Oil and China. Its always Something

Just as now where it is the fear of oil’s drop and China’s slow-down causing concern, those who are on the edge of portfolio panic have forgotten just the opposite. Forgetting that this recent drop will eventually find a floor and begin to rise again. As long as you have planned your portfolio and investment strategy to be aligned with your risk tolerance and your early retirement goals there is a way to reverse this down market crushing early retirement dreams funk-feeling.

Fighting the Feeling of the Down Market Crushing Early Retirement Dreams

I do get it. My portfolio has taken a beating. I just spent a few hours analyzing all the various funds my financial planner has me in and some were real stinkers. One in particular was aligned with the oil and gas industry for diversity reasons a couple of years ago. That one is down 52% from the first of 2015. Because my portfolio was set up to provide income there were a number of funds paying a decent dividend or interest rate but they seem to have had some big downside in this recent market drop. Sadly my Overall portfolio is down 9.3% after considering my 72t payments and wrap fee from the first of Jan 2015 to Jan 15, 2016.

I should be feeling the down market crushing early retirement dreams funk but I know there is more to this than looking at the portfolio balance numbers from a year ago and comparing to now after the ugly market conditions.

Still Getting Dividends and Interest.

If anything, getting income from my investments is a psychological boost and buffer against feeling the sting of the down market and portfolio decrease. Some of these fund dividends and the interest is harvested to replenish the cash bucket of which pays my 72t payment each month. Other fund’s dividends are reinvested. Those reinvested dividends are buying in at a lower cost now and will generate even more dividend income.

Cash Bucket Cushion.

My early retirement lifestyle is funded from my portfolio. I have enough cash along with the dividend and interest earned to continue sending me my 72t monthly check for all of 2016 without having to sell any assets. That is another important buffer against feeling the down market sting. I also keep additional cash in my credit union savings account to use for any additional needs if they arise. Cash isn’t making much income but it isn’t at risk of taking a 10% to 40% hit either during spooked market conditions.

Don’t Let the Down Market Crush Your Early Retirement Dreams

I was set to retire early in 2008 and the down market at that time delayed my early retirement dreams by another year. When I retired early in December 2009 the market wasn’t much better and jobs were still being eliminated. The unemployment numbers were very high. Eventually I decided that it was time to begin the retirement dream. If you are feeling like your dream is being crushed then by all means delay things until you feel the time is right. Whether you delay or not here are a few things you can do to get over the down market crushing early retirement dreams funk.

Run the Numbers:

I don’t know if the market has found its bottom and we can rebuild from here. It could just as well be a false bottom and we are in for more downside. Take your portfolio numbers and run them against a good retirement calculator. I like to use FireCalc with its Monte Carlo approach. Run the numbers again with a reduced portfolio amount. You can play with this and see what would happen if the market did drop another 10% right after you retired. Get comfortable with your situation. If all looks good then relax. No crushed retirement dreams. If they don’t look good then consider a slight delay as I did. Just don’t panic and do anything harmful to your portfolio. It may be a good time to seek financial advice from a CFP.      

Look at Your Portfolio as Buckets:

In preparation of your early retirement you should have a strategy for funding your new retirement lifestyle. Look at the different phases of your retirement and how you will fund them as buckets. The first years are bucket one. Then there is the intermediate years and finally the many years out bucket. If you have no idea what I am talking about I have a page with a very simple bucket strategy example.

If you have the first years funding figured out and have cash set aside then stop worrying. You can retire and let the other buckets ride until you need them and hopefully the markets have returned to sanity by them. If you haven’t done this then start setting a funding strategy now and once you feel it is safe move forward. Again, if you have concerns It may be a good time to seek financial advice from a CFP.

Reassess your Investment Risk Tolerance:

If you can’t sleep at night or have thoughts of financial dread you may be too aggressively invested for your risk tolerance. Everyone is different. There is always risk in investing but there are ways to dial it back a little. Less risk of loss means less gains but don’t let your fear of missing out on big gains overshadow your risk tolerance. Make necessary adjustments and if you have any questions seek the advice of a trusted CFP.

The Last Word

Don’t allow the down market to crush your early retirement dreams. Think at worst there is a slight delay to retiring early. It’s best to get your investments and comfort level aligned before you retire.

Are you feeling the down market crushing early retirement dreams funk?

Has Your Early Retirement Number Changed?

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If you are still on your financial independence quest have you checked your target lately? Has Your Early Retirement Number Changed? As we approach the end of the year many of us in the FI space will be taking a look at our portfolios, budgets, and making plans for the coming New Year that is just around the corner.

It is a time when we look at our net-worth and gauge our progress. Assessment and adjustments are always necessary. That should include applicable changes based on your answer to the big question. Has Your Early Retirement Number Changed?

As we are on our Financial Independence journey we pay off debt. We cut all spending waste from our lifestyle and budget. We set an early retirement number as our target. A number based on what we know at the time. But nothing is static and our number will be changing.

Why Has Your Early Retirement Number Changed?

Allow me to show how and why my early retirement changed in the 10 years of my FI quest before I retired early the first time. I was 40 when I decided in 1998 that early retirement was my new quest. I fully committed to it. I set a budget, maximized my savings rate and investment strategy. Based on my vision of my early retirement lifestyle cost (which was a total reflection of my new frugal living lifestyle) I set my savings target. That was my basis for early retirement number one.

We Set Our Early Retirement Number Based on What We Know Today.
  • When I started my FI quest in 1998 the standard opinion was you could safely withdraw 8% to 10% of your portfolio in retirement.
  • I had around $100K in my 401K. My company pension had a projected lump sum value of $250K in 10 years (30 years of service/age 50). Which is when I wanted to retire.
  • My promotion to Lead Engineer put my Salary at $68K. My retirement lifestyle vision based on how we liked to live was generously estimated at $40K a year once we retired.
  • All I had to do to get that $40K a year early retirement income was to have a total of $500K.  Of which I could safely withdraw 8% a year from.
  • I already had $100K and a lump sum pension that would be worth $250K (if I could stay employed there another 10 years). I needed to save another $150K over the next 10 years to make my $500K total early retirement number.
  • Without even considering any gains all I had to do was save $15K a year from my $68K salary. Hopefully an increasing yearly salary. Sounds easy. But that $68K salary was before taxes. I had 3 teenagers at home with pending educational cost coming. We understood that in our plan things would get easier toward the end of the 10 year plan. With kids moving out and their tuition was paid off so that we could catch up any needed savings.
Random Acts of Life is why our early retirement number changes.

Without going into great detail as the story is well-known we had some economic changes that cycled through the 10 years of my FI quest. The Tech bust of 2000-2002, the great recession 2008-2010, and on top of that other things happened:

  • My company was bought out and nearly bankrupted. The pension fund was raided and depleted causing an eventual freeze but in the meantime more and more people were being removed from its roles through new maneuvers or due to lay-off before reaching pension eligibility.
  • Interest rates dropped to zero and now the opinion was you could only safely withdraw 4% of your portfolio in retirement.

All of these bad things happened and a version of them will cycle through again during most people’s FI quest. You should be able to see why your early retirement number will change so it is important to reassess and adjust your number based on what you know today.

Has Your Early Retirement Number Changed for the Better?

For those of us who stick to our plan and continue to invest during down market conditions our early retirement number can change for the better.

  • The lower interest rates allowed me to refinance my mortgage and lower the payment by nearly $400 a month.
  • The lower bond interest rates meant my now underfunded pension’s lump sum was higher than the earlier estimated $250K the plan I had initially counted on.
  • I paid off all my kid’s education and two weddings and was debt free other than the mortgage that was around $100K now.
  • My retirement lifestyle vision just happened to stay at $40K a year to fund it. Some things cost more but others cost less over the 10 year period. I didn’t have to fund a higher lifestyle cost than I initially planned for.
  • Doing the math my new number based on a $40k early retirement funding amount and a safe 4% withdrawal rate would make it $1M. That was double the target number of $500K that I had started my FI quest with.
  • With all that had happened in the markets even with my saving well more than the $15k a year my total available portfolio was far short of $1M.
Assess and adjust.

Smiley Face is a Leisure Freak. Has Your Early Retirement Number ChangedI stayed in my career another year and increased my savings in non-retirement accounts. I then came to the decision that enough is enough when I didn’t like the direction the company was going. I retired early at age 51 and still well short of $1M. I then set my new number and was going to make that work.

It is important to reassess and adjust your number yearly.

I retired early with a lower number than what the new conventional 4% wisdom’s math would dictate so after assessing my target numbers I made another adjustment to a lower retirement funding budget of $33k which was slightly higher than a 4% withdrawal rate because I knew a few things.

  • One thing I know is that early retirees don’t just sit the sidelines and never again engage in paid endeavors again. We have too much energy and ambition. I knew I was going to retire early and often pursing opportunities of passion and interest.
  • The $33k a year took care of everything but some travel and a few other wants in my retirement lifestyle. Surely even in a recession (2010) and scarce jobs I could make $7k a year doing something I would enjoy doing to make up the difference.
  • A new pension freeze was going into effect so the amount would never grow. Why not take what is left of my pension benefit out of their cookie jar and put it into mine so I can invest that money now and have the chance to grow it.
  • Life is short and it was time to enjoy myself doing what I wanted to do.
Changes and Advances in Retirement Planning

We have the brains to look at our early retirement funding and see there is more than one way to look at things. All of which can change our targeted early retirement number.

  • The 4% withdrawal rule allows for increasing the yearly rate by the inflation amount.
  • The 4% withdrawal rate was related to 30 years of withdrawals at that rate plus any yearly inflation. I happen to BELIEVE that I will collect my Social Security benefit in my older age (far less than 30 years into my retirement) thus reducing the 100% reliance on my portfolio and most likely lowering below a 4% withdrawal rate at that time. Running the numbers through the FIRECalc showed I was on track.
  • Interest rates have nowhere to go but up. This may change the whole dynamic of safe withdrawal rates and thus impacting your early retirement number.
  • Inflation impacts different things differently. Right now fuel and electronics are way down. Health care is way up. It all depends on what you include in your budget. I was able to pay off my mortgage during my encore career before retiring early for a second time. However my budget remains at $40k because my health insurance has taken its place amount-wise in my budget.
  • I retired early and increased my wealth or net-worth which impacts what my ultimate early retirement number and funding withdrawal rate is.
New Changes In Retirement Saving and Funding

New ideas, products and rules means our numbers can change from what we first decided. New alternative retirement funding options like the QLAC longevity annuity brought to us by the US Treasury in 2014 makes it logical to be able to withdraw more than 4% in your early retirement years. I am still researching the QLAC waiting to see where interest rates land and will decide on it once I turn 60 (3 years from now). The QLAC also helps with RMD withdrawals at age 70 ½ so it’s an interesting option.

In Closing

Has Your Early Retirement Number Changed? You won’t know until you include it in your yearly FI assessments. If you find it has changed then make necessary adjustments. If it has changed for the better because your early retirement lifestyle vision’s cost has lowered by now having lower cost projections then change your number and possibly move up your freedom date. It’s always nice to beat your early retirement number but it’s not worth staying in the rat race any longer than you need to if your goal is to get out while you are healthy and still young enough to enjoy it.

So tell me, Has Your Early Retirement Number Changed?

Do you reassess your target amount yearly?

Take the First Step, Choose Financial Independence

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Take the First Step, Choose Financial Independence and early retirement. If you have found this page then I have to assume you have taken that first step toward financial independence. You are now taking your next steps by looking for ideas, advice, and directions from those who have made the same decision and journey before you.

                The journey of 1000 miles begins with a single step. Lao Tzu

You first step is a life changing choice. Taking control of your financial life now for a better tomorrow. It doesn’t matter how much money you make. This choice will no doubt benefit your future self regardless of how far and how long you are on the journey.

 

Once You Choose Financial Independence

Remember why you made this choice.

The first step, choosing to take the journey toward financial independence and freedom is usually born out of crisis or hardship. At least that was my case. No matter what your motivation was for making this choice I suggest you never forget it. Write it down, this is where I started a journal and progress tracking notebook or what I called my journey-journal. You want to recall your FI decision-trigger and any feelings and emotions behind it.

If you are not someone with a high income and a lot of spending waste to cut from your lifestyle then this is a journey over time and having your FI decision-trigger available in memory and readable may help keep you motivated during any low points on your way to the goal. Everyone hits a pot-hole or two on their financial independence journey. It will take sustained dedication to accomplish your goals and win the prize.

Have a vision of your destination, your goal.

This journey is difficult enough with a plan so don’t think you can just wing it. What is it that you want? For me I wanted to retire early when I was 50 and be free to even take on other opportunities that I could retire again from when I felt it was the right time, you know-retire early and often. I wanted to live a free life where I would never NEED to work but be open to it if I wanted to. Again, I logged this in my journey-journal.

What is interesting is as you are on your journey some of your vision may change and impact your plan for the better (easier) or make it a little tougher. In any case you need to understand and account for that.

Step back and look at your vision from a high level planning perspective. This is not where you plan on saving “X” amount and then walk away from your career. Believe me you will be planning that but at this point you don’t know what “X” amount you need to have saved until you know what your lifestyle will cost.

The journey is about more than money

Your journey and destination is about more than numbers. It is also about your dream lifestyle, passions, health, family, friends, and the freedom to live life on your terms. Once you identify these desires my advice is to include as much of them into your current life now while on your journey as you can because by doing so you get a clearer image of your destination lifestyle and costs.

I had trouble with some of that as it was impossible to have a balanced work and personal life in my first career but do what you can. If anything else my inability to get more personal life desires made me more motivated to succeed. There is a lot of living to be lived during your financial independence journey.

Set into action a sustainable plan.

Everybody starts their first step from a different place. You may have a large amount of debt to pay off or you have a lower-income and live paycheck to paycheck. Establish YOUR strategic plan that will work for you and takes care of what you need to take care of.

I tracked all of this in my journey-journal. I was old-school using a notebook. First page was my FI decision-trigger and lifestyle vision page. Once you open the journal the left side was journal entries and the right side page was monthly budget, debt repayment, and savings tracking.

The left side is also where I recorded mistakes I made, any obstacles or hardships that came my way, and changes in my plan or assumptions. Many things will change while on your journey because life is happening. Mine covered 11 years in all and during that time my son passed away, my two daughters went to college and then married, there was a grandchild born and we along with some of our desires changed too.

All of this is part of the journey and will alter some of your plans. Keep track, make necessary changes or corrections and stay the course. Learn from your mistakes and any obstacles you overcome. If you need to change your plan then do so. That is far better than abandoning it before you reach your destination.

Final Thoughts

The financial independence journey you have chosen will change you for the better. You will find a balance of living in smart-frugality and ramped-up savings and will see that your intentional lifestyle focusing on what is truly important and the things that brings happiness will end up being what your FI and early retirement lifestyle will be.

Take the time while on the journey to step back and take notes about what you are feeling and seeing along the way. This shouldn’t be a journey of total sacrifice but a smartly planned one where you continue to live a rewarding life.

You will find that it is just a change of mindset with calculated actions to break the chains of consumerist and employment slavery.

Can you remember what your FI decision-trigger was?

Road Trip Mindset on my Journey to Financial Independence

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I love a good road trip. The way I define a good road trip is I am going somewhere I really want to be. I am excited about the destination but I don’t have an unrealistic timeline to get there. On the other hand. Taking to the road with a mindset that I have to frantically beat the travel, traffic, and distance odds to get there by a certain time is not a good road trip. Because anything that delays me or gets in the way of a tight arrival time leads to high frustration and stress.

You see I believe in enjoying the ride. Taking my time to see the sights and just relax into every turn of the highway. I have an idea of when I want to reach my destination. I even have hotel reservations along the way for those longer drives to get there. So there is no need to drive all day and night or to full fatigue and road weariness.

There is a PLAN but all within a reasonable timeline based on the reality of the distance. But I also planned for some sightseeing detours, some padded time for the surprises or the unexpected. All of which can be either good or bad, etc.

If only I had this same good road trip mindset on my journey to financial independence and my first early retirement. Maybe then my last few years of career number-one and my life back then would have been so much more enjoyable.

road trip mindset on my journey to financial independence-Enjoy the rideI am a patient freak. I did have a 10 year early retirement plan. The problem was I let the job drag me down in the final years. All of the corporate bull crap and ridiculous demands consumed me.

I should have just stayed focused on my plan and the parts of the job that I actually enjoyed.

I was fully engaged in my plan. But the plan was all about the financial aspects of the financial independence journey. You know. The saving and investing, budgeting and smart spending. It was obvious I needed the job to reach my financial goals. But with my focus on the destination I didn’t consciously plan for the pot-holes, flat tires, detours, construction cone-zones, encountered road-rages, and everything else the career highway can and will throw at me.

Maybe it is because I am older now. Maybe it’s that I was able to have an encore career where I followed my passions and interest. Maybe it’s my second early retirement that has made me wiser.

Now that I am in the final two months of my early retirement side hustle. I can see clearly where I went wrong before.

If I had kept a road trip mindset on my journey to financial independence and early retirement I would have:

Realistic Time-Frame –

Given myself enough time to get there. I did pretty well here. I had a 10 year early retirement plan. I can see if I had tried to cram all I needed to accomplish into a shorter than realistic time horizon how I would have been even more stressed and frustrated. There is a lot of financial ground that needs to be covered to get to the FI destination. In fact I was stressed when I decided I wasn’t ready to pull the plug-in my tenth year of my plan. I stayed another year.

I let a delay bum me out. That final year was less than enjoyable. I have only myself to blame.

Enjoy The Ride-

During the last few years of my first career my company was going downhill. There were constant layoffs, increased responsibilities and never-ending demands. That is exactly what I still think about first when recalling my career there. In that is the problem. I forgot to focus on what I liked about that career and job. I was still spending part of my time doing those things I enjoyed. But instead I let myself be consumed by everything that was wrong with what was happening.

Not every journey is going to be traffic free or without its obstacles. But there is always a lot of nice cruising to focus on. I should have concentrated on the parts of the job that I still enjoyed. Remembering that having a job is just as much a part of the FI journey and needed to reach my destination as all the financial plans that I made.

Plan Time to Sight See–

I knew I was going to live a “retire early and often” lifestyle where I would pursue opportunities of interest that were aligned with my passions. Although I poked around looking at areas I would target I was over-consumed by my current job. I planned on retiring first to decompress. Then start identifying my passions and the positions I would look at in detail.

A better plan would have been to take the time to identify these things and do in-depth looking around before leaving. Even if taking some time off was on the table. This knowledge would have helped cement in my mind my future direction. It would  have been adding something else to look forward to.

Split the Trip–

Once I reached that certain date to secure what was left of my pension benefit I should have considered splitting the journey. Split it by making a change to a new opportunity. One that was aligned with my passions before reaching full financial independence or early retirement readiness.  Even before meeting my pension eligibility date it would have been a good time to think about an internal company transfer to a different department and job. Instead of driving straight through a plan at the same company or job that was no longer enjoyable no matter how much I focused on the parts I did like. I should have made a move to something that could be.

This is the “Life is short” move. A job was still required to reach my destination. But if while sightseeing I found the perfect gig I could have decided to take it then and used it to finish my FI journey. I see where I could have tried harder to do this and at least saved myself the misery of year number eleven of my ten-year plan.

I certainly think much more highly of my encore career that I retired from because it was aligned with what I wanted to do and my passions.

Conclusion

Life is short. Do what you can to enjoy the ride by having a road trip mindset on your journey to financial independence and early retirement.

Are you enjoying your ride to Financial Independence?

Is Wealth a Number or State of Mind?

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Is Wealth a Number or State of Mind? I don’t consider myself wealthy but I am financially free enough to retire early and live life on my terms. A little while back the US Government enacted some tax increases on those it considered as the top 2% of earners and pegged the low-end of wealth at $250K for a couple. Even more tax increases were enacted for those in the $400K income range and above. But is that a true measure of wealth?

As I have always said, It’s not what you earn it’s what you keep that matters. People who make a lot of money but have high debt and an undisciplined spending habit won’t be feeling wealthy. Certainly the government has put a number to wealth but the number itself can’t be a true measure of wealth.

Is Wealth a Number or State of Mind: How do I define wealth?

I suppose I define it like many people do. Having an abundance of valuables, money, etc. but in the back of mind it’s always those millionaires and billionaires I read and hear about. The rich and famous, movie and rock stars, the big money CEOs and Wall Street movers and shakers.

So subconsciously I too have a soft number that I associate to wealth. I really never gave it much thought until today other than I never think of myself as wealthy. However something happened to make me think I was wrong and that I am actually wealthy. Wow, I said it out loud as I typed it here and it feels pretty darn good.

Financial Freedom Wealth Through Frugal Living is at Odds With What We Equate to Wealth

Is Wealth a Number or State of Mind

I think what caused me and I am sure others who are working toward financial freedom or those who are financially free to not consider themselves as wealthy is we tend to live a frugal lifestyle. We don’t make the big bucks and the only way to get to this point is we cut spending, payoff all debt, and increase our savings rate.

The less we need to spend to live our choice lifestyle the less it takes to pay for it. The flaw that I and I am sure others out there in my same situation have mistakenly embraced is that we compare ourselves to those who we subconsciously equate to wealthy and we are nowhere in the same ball park.

That is a mistake because wealth can’t just be a number. Wealth must be a state of mind. Once I realized that I can live life on my own terms where my needs are financially covered by my portfolio and I could pursue opportunities of passion I should have also realized I just became wealthy.

Wealth is Having All That You Need and Really Want

It has nothing to do with how much my account has in it. It has to do with the fact that I have enough to be content with what I do have. Once I reached the point where I didn’t feel like I was deprived of wants and needs I was wealthy. Once I could focus on what really made me happy like family instead of serving a heartless corporate monster and career I was wealthy.

Now there are a lot of people who have far nicer homes, cars, vacations, you name it, than I do but they aren’t necessarily wealthy. If they are enslaved by their money and lifestyle costs then they can never reach a wealth state of mind. That is far worse than my living a wealthy and free life and not being aware that I was wealthy. Wealth is YOUR state of mind and can’t be something you compare to others.

She Said I was a very rich man

So what happened today to make me ask myself is Wealth a Number or State of Mind? I had a conversation with a nice woman who moved here from Armenia. I have never met anyone from Armenia before and we talked about our families, how I just returned from a vacation with my daughter’s family including a 2 and a half year-old, where we have lived and traveled and want to travel. Just life stuff.

At no time did she ask or did we discuss our occupations or my work or early retirement status. She then asked me how many grandchildren I had and I told her 4 with another coming in December. She looked at me and said, you are a very rich man. Initially I was taken back and then I thought for a second, yes, yes I am.

How about you. Do you consider yourself wealthy when looking at where you are in your life and your financial freedom status? Or do you think there really is a number before you can consider yourself wealthy?