In the past few months, I have been checking my investment portfolio, and seeing it increase. A lot. This has sparked thoughts of retiring much earlier.
After working many weeks in the hospital this winter, I am quite tempted. The thought of staying home, sleeping in, not worrying about COVID exposures from people who can’t be bothered to wear their mask properly–it’s all quite alluring.
Maybe I can think about retiring soon? My nest egg is growing on steroids this year. And yet…
I can’t quite forget all the stories of people whose retirements were postponed, or ruined, by the bursting of the stock market bubble in 2008.
At the time, mostly secure in my work and my youth (knowing retirement was many years off for me), I scoffed at their naivete and poor management. Of course, one should de-risk one’s portfolio before thinking about retiring. Of course, the market can decline precipitously at any time. What were these people thinking?
Now that I am 13 years older, and 13 years more tired, I know exactly what they were thinking: my aggressive, stock-heavy portfolio is doing very well, and my investment totals are close to My Number. Can’t I stop working and start playing now?
Keeping the lessons of 2008 in mind, I know I still have plenty to prepare. With My Number within sight, I need to reduce my vulnerability to a swoon in the stock market. Especially one that happens right before I want to call it quits.
There are a number of different names for slightly different strategies, but the principle is the same: own fewer stocks, and more safe investments. Keep more cash and invest more in bonds.
I can change my asset allocation, deciding that my investments should be closer to 60% stocks/40% bonds from my more aggressive allocation; I can build a bond tent, which is to have more bonds at/near retirement, and then plan to add back more stocks once I’ve weathered the first few years without work income; or I can consider managing my money in buckets, thinking about cash for this year’s spending, short-term investments (bonds) to fund the next few years, and aggressive investments for the longer term, which makes it easier to compartmentalize my portfolio.
Inflation is not dead, not yet.
Even though I know what we spend now to maintain the household, that number will increase over the years.
In the past few years, I have seen our utility bills increase significantly, even though I am pretty sure we aren’t using more water or electricity.
Food prices are also going up; just yesterday, we had reason to compare to the current prices of sardines (!) to last year, and realized they have gone up by more than 50%. These increases may or may not be accounted for in the official inflation measure or consumer price index, but I certainly see them in my checkbook.
The faster prices go up (the higher inflation runs), the sooner my cash reserves will run dry. If this number increases more than our investments do, we may be in big trouble in our old age.
I still have some human capital to deploy.
The biggest hedge I have against running out of money in old age is working a bit longer now.
This preserves my savings and investments for a few more years, letting them compound to a higher level by the time I need them. I can also put away more money into savings during this time.
This is, of course, also called One More Year syndrome.
Many people pursuing early retirement may pooh-pooh the practice, but working one more year (or two, or three) can be an excellent idea.
You can make sure you really, really have enough saved for retirement. Because, in medicine, if you are out of work long enough, you really can’t come back without a whole lot of effort (and money).
You can also make sure you have done all that you want to do in your career. Because, again, once you are out, it’s very hard to come back and finish things up.
I myself am not yet done.
I still a few things I want to accomplish at work; I suspect more professional goals may pop up before I finish. There is no need to hustle myself out of work if it’s something I still want to do–for all my complaining, I am proud to be a doctor and want to do work I am proud of.
I am darned sure that I have not yet covered all of my future financial needs. While my nest egg has been growing tremendously, it still isn’t quite enough to support me in the retirement I would like to enjoy. Working a few more years should get me there, even if the market drops off a cliff in the relatively near future.
On the other hand, the pressure I put on myself to earn, earn, earn, and then save, save, save–it’s gotten much lighter as I see the investment account totals rising. Part-time work and Coast FI is looking more and more feasible in the coming 2-3 years.
We will have to see what the future holds.
Are you making retirement plans? Do you see yourself stopping abruptly, or trailing off? Have you started adjusting your investment assets to make the transition?