I think this thread is the right spot for me. I knew I didn't want to work until retirement age for the government job golden handcuffs. This year I decided I wanted to push for 5 years when I'll be in my early 40s.
I've got $450k which I hope will make it to the $730-750 range by 2026. I've got a good amount of home equity which will be my move to a LCOL area mortgage free fund. My mortgage is a bit of anchor on my ability to save more than I am now. I'm musing about whether I'll want to keep working parttime past 2026 to add padding to my FIRE number.
Has anyone changed their saving/investing strategy now that 2026 is only 5years out? So far I'm maxing my TSP and IRA the way I always have, but I wonder if I there's a point where I should be doing something different to prepare for FIRE.
Good question, and my answer is...I
have not started moving things into bonds. I'm actually getting more aggressive at the moment. But, our situations are pretty different. You're sitting at 60% to FIRE where I'm more like 25-30%. My inclusion in this Cohort is banking heavily on my current company's stock options paying off in the next 2 years.
But what about when I'm a bit closer? I definitely want to have some sort of protection against down years post-FIRE, and that seems to be the goal of bonds, but I can see that protection coming from a few different options:
- Bonds
- CDs
- Cut Spending
- Grow Past the Loss
I've thought quite a bit about the above and am really interested to hear feedback on my current perspectives. Here they are:
Bonds. Advice seems to be somewhere between 10-30% in Bonds for FIRE, and the last 3-5 years before FIRE is the right time to begin moving investments in that direction. Ideally, bonds allow you to weather the storm of a couple of down years *cough2008-to-2012cough*. Seems like a fairly sound plan as long as the other 90-70% in stocks is growing solidly year-over-year to compensate for your withdraw rate during the good years.
A lot of folks have a lot of concerns about the future of the bond market - concerns I don't fully understand. If I were considering pivoting to bonds in the next few years, I would want to understand those concerns a lot better. At the moment, I think a combination of the other three hedges are more likely to benefit my family and better protect us against down years. If monetary policy changes and bonds become a better overall investment, I may change my opinion.
CDs. I got this idea from Dr. Doom a few years back and I like this strategy. Instead of relying on Bonds in a bad year, have a CD or CD ladder in place to live off of during the down years. This assumes recovery comes in a couple of years, but that is pretty realistic when I look at the last several drops in the market. 2008 meaningfully dropped in Sept 2008 and was fully recovered to those levels in Nov 2010. If I do a yearly withdraw in January, of 2008, then two CDs would have got me through the recession (2009 & 2010) without touching my stash. Even if you go back to the pre-recession peak of Oct 2007, we were recovered to those levels by Sept 2012. That's a meaningful five year stretch, for sure, but the worst of that (2008) would have been compensated by my CDs.
CDs are probably my main plan, instead of bonds.
Cut Spending. My planned withdraw amount is ~20% higher than my expected lifestyle. I've got the added space to compensate for things like repairing the roof and traveling. But I can live the life I want, in my town, for about 80% of what I intend to withdraw. If I'm willing to cut back on eating out, buying people presents, etc. I can probably cut another 10-20% on top of that. There is a lot of decadence in my planned withdraw amount. If the CD Ladder runs out and things are still bleak, I think I can cut spending enough to compensate for the down years.
Take into account that a multi-year recession is something that will cause most folks to tighten their belts, so the opportunities to spend money will likely be less overall and much cheaper if we do still want to participate in them.
Grow Past the Loss. This is the hardest to name, but it breaks down in two ways: (1) stock growth compensating for down years and (2) earning enough to compensate for down years.
(1) Most of the folks around here who retired after 2010 found their stash double in the last decade. Even with April 2020's 30% hit, they were still way, way ahead of where they needed to be to keep their planned withdraw rate. Most of them could have withdrawn 5-6% of their stash in April and still been
under their original withdraw plan. It's bonkers how much growth there has been over the last decade. The policies and political structure that allowed such crazy growth are being double and tripled down on. Beyond that, I am not nearly as concerned with inflation as others are - I understand the logic behind why folks think it'll happen, but after looking into it, I'm convinced we should have seen it by now for the "common sense" logic to be true (but that's a conversation for a different thread!). All that to say, I think it is likely that, if I FIRE in 2026, I'll see at least a few years of significant growth post-FIRE that will help compensate for the down years.
(2) The second piece to this is really unrelated, but I still put it under the same heading: I plan to work on projects post-FIRE and I expect to earn some amount of money on some number of those projects. Writing, exploring hobbies, and maybe even some light consulting with insiders I trust and work with today. This means that some amount of my withdraw amount will be compensated by some level of earnings. Depending on how all this plays out, instead of withdrawing 4-5% a year, I may have years where I withdraw 1% or maybe even a negative withdraw rate due to adding more than I take out. No one knows what the future holds, what motivations I'll have, what opportunities will exist, etc.
These two things go together because it means a withdraw in a down year won't necessarily negatively impact my long-term FIRE strategy. Both growth from the overall market and additions I add in during up years mean I have more wiggle room come the bad years.
In ConclusionYou didn't ask for a book, but you got one. Sorry about that...but this is something I've been thinking about a lot lately. I plan to really start to solidify my strategy I'm about 3-years from fire (so 2023ish). But, being me, I think about these things a lot even now. The above is my feelings today and I expect they will change as the reality of FIRE sets in and the world changes. Hopefully it was helpful to you as you think through these things!
