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Rethinking Work in Early Retirement // Contingencies, Sequence Risk and Fail Safes

We have said from our second post ever that our vision for early retirement has never included mandatory work. And we’ve been more vigilant about this fact than probably any other in our early retirement plan. We’ve shifted our investments, we’ve changed our timelines, we’ve debated when to give notice, but we’ve never wavered on the no mandatory work idea. It’s why we call what we’re working toward early retirement, and not just financial independence. Partially because we’re already sort of FI. But mostly because we’re not just looking for a more flexible life, we’re looking for a life with no need for a paycheck, one where any work we do can be entirely for the love of it or for fun, never out of necessity.

You already read the title of this post. You know where this is going… but there’s some explanation before we get there.

Recently we took a deep dive into the employment data, and concluded that early retirees with significant gaps in their work history simply can’t bank on being able to go back to work. It’s a hard pill to swallow, but we’d rather go into our early retirement with a clear-eyed view of our options than to believe that going back to work is a realistic contingency plan.

We have other contingency plans in place, of course, but just as we don’t want to be forced to work, we don’t want to be forced to put those other plans in place either — that would mean downsizing our house, selling our rental, or any number of other choices we’d rather make on our own terms, not because we have no other reasonable option.

The First Contingency Plan

Our primary contingency in early retirement will always be to cut back our spending. Let’s say the markets underperform, or we have a large, unexpected expense or three. Our ER numbers are built on a spending plan that we can cut back by almost 50 percent if we have to, and still be fine. At that level, we’d still be able to pay for our property taxes, insurance, utilities, health insurance, and other necessities, along with a scaled back level of groceries and some tiny bit of wiggle room. And thanks to the years of heavy work travel, we have a lot of points banked, and we might even still be able to travel a little. But mostly we’d focus on living the mountain life if that became necessary, squeezing every drop of fun out of our local region.

That, to us, is the real value in living in a place we love — it may come at a higher price than other places, but there’s so much free stuff to do (hiking, mountain and road biking, backcountry skiing, climbing, mountaineering, paddling, etc. — plus a library!) that we can still live a plenty joyful life even if our budget shrinks significantly. (And yes, some of those activities require gear that isn’t cheap — we’ve already invested in that stuff. But you could tweak the list to focus on the truly cheap activities: hiking, sledding, bouldering, swimming, non-specific biking, etc. And the library stays on both lists!)

Avoiding Contingencies In the First Place

It’s a fun thought experiment to contemplate all the things we can still do around here without spending much, but then my risk-averse side comes in with that hard-to-shake question:

Doesn’t needing to fall back on a contingency plan mean that the first plan failed? Shouldn’t we be able to head that off before we need to trim our spending? Instead of creating more contingencies, how can we make our primary plan more fail safe? 

And it’s an important question. Because while we might be happy cutting our spending for a year or two to ride out a grumpy market, it’s hard to imagine that we wouldn’t go into year three or so thinking something along the lines of, “Really? This is what we worked so hard for for all these years? So we could watch all our pennies and avoid all spending?”

So lately we’ve been talking about ways we can bolster our primary plan, and make the need for our many contingencies a more remote possibility. Which brings us back to: Work.

OurNextLife.com // Early Retirement and Financial Independence Blog | Working in Early Retirement | Portfolio Preservation | Increasing the Odds of Early Retirement Success | Reducing the Need for Contingency Plans | Peace of Mind

Sequence Risk: Why the Early Years Are Most Important

Everyone who invests in the markets will have some good years and some bad years. The idea that the timing of those ups and downs impacts you more or less depending on where you are in your retirement is called sequence risk, and the risk that you’ll run out of money is highest if you have negative market returns in the earliest years of your retirement. (Kitces has also written that the sequence of returns matters a lot in the accumulation phase, but that’s a different subject.)

This example from NerdWallet, of three brothers who retired at different times and each spent $60,000 from their $1 million portfolio per year, makes the point well:

NerdWallet.com // Sequence Risk Example

NerdWallet example

Despite having the same starting portfolio balance as his brothers and having the same spending, brother 2 is essentially wiped out 15 years into his retirement, all because he retired with bad timing, around the 2000 crash. Given that we’ve declared to the world that we’re retiring by the end of 2017, come hell or high water, we need to accept that we could potentially fall victim to bad timing, too.

Want to geek out over more sequence risk numbers? S&P has a great example, and so does MFS. Stanford even has regressions built into theirs.

Standard CW for Sequence Risk… and Its Shortcomings

Sequence risk is nothing new, and if you’ve been reading up on FIRE for more than five minutes, you’re probably familiar with it. Likewise, the conventional wisdom for riding out bad markets, especially in the early years, is well-trod territory. Most advice focuses on two key actions:

Keep a sizeable cash cushion — 2-3 years worth of living expenses seems to be the consensus

Invest a portion of your portfolio in bonds — 20-30 percent satisfies most experts, more if you’re over age 60

That’s solid advice, and we plan to follow it — in fact, we’re already mostly following it. We don’t yet have three years of expenses in cash (we’ll focus on building that up next year — this year we’re still focusing on taxable assets that can grow), but we have a good-sized cash cushion, and we definitely have a sizeable portion of our portfolio invested in the Vanguard total bond market index fund (VBTLX).

But the conventional wisdom is imperfect. It’s still conceivable that a bear market could last more than two to three years, or at least that it wouldn’t have regained its previous high points by the end of three years. The S&P was at about 1400 in April 2008, and didn’t get back to that level until the second half of 2012. So if you’d shifted to your three-year cash cushion when the markets started falling in spring 2008, you would have depleted it about 15 months before the markets could be considered to have rebounded, and that’s not even accounting for inflation. You could sell off bond shares during that time, but that would start to get scary — a depleted cash fund and dwindling bond shares put you completely at the mercy of the stock markets.

The Other Option: Reconsider Work

The biggest reason we’re reconsidering the role work could play in our early retirement is sequence risk. We aren’t worried about hitting our magic number — we continue to get farther ahead of schedule. Rather, we’re starting to ask, Could we increase our odds of success by putting off touching our portfolio for a few years?

Never mind that that would defer for a few years the tough emotional choice of selling off assets we’ve worked hard to save. Thinking about work differently could make a huge difference in whether we successfully bridge the gap between our early retirement date and age 59 1/2, when we can tap our much larger tax-deferred nest egg.

We started out this post talking about not wanting to have to rely on contingencies, and then shifted to talk about sequence risk, but both topics are potentially answered by the same answer: Finding a way to generate enough income for the first two to three years of our early retirement to cover our expenses, so we can delay tapping into our investments.

That delay would allow our portfolio to add two to three more years of growth, or — worst case — to avoid being further depleted if a bear market hits at that crucial early stage of our retirement. Those extra couple years of growth could easily make the difference between being flush for life or having to burn through our contingency plans to avoid running out of money.

Still at the Question Stage

Right now we’re just thinking about this question. We’re not making plans to find work after we retire next year, and we’re definitely not planning to stay in our careers beyond 2017. But we’re starting to ponder what post-retirement work that could pay all the bills for a few years might look like. Freelance work? Contract work that’s similar to the work we do now? If we do this at all, and if so what we do — it’s all TBD. But you know we’ll write about it when we make our decision, so stay tuned. :-)

Your Turn!

What role do you envision for work in your FIRE plan? We know some of you are planning for semi-retirement instead of full retirement — is that to avoid having to save the whole 25x magic number, or to cope with sequence risk? Anyone else planning to work a little after pulling the plug in response to sequence risk? Or think we’re overthinking it all as usual? ;-) Share away in the comments! We’d love to know what you think!


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139 replies »

  1. My FIRE plan doesn’t necessarily consist of my giving up work, completely anyway. I think that for me, knowing that I could drop everything at a moment’s notice because I have the passive income to do so is just as exciting as the thought of actually doing it! The key thing will be whether or not I’m doing something I enjoy. Or whether I could start to do something by taking a pay decrease, working less, those sorts of things. I’m not really sure what I would do if I completely gave up work, so I almost feel like I’ll need something to keep me busy haha! This would also give me a reasonable chance of avoiding the sequence risk you talk about. Think your table highlights just how badly it could affect retirement plans!

    • I think if you’re not desperate to stop working, then you definitely put yourself in a stronger financial position since — as you said — you can keep working, even if that looks different from your current work. And if you don’t have a clear vision for exactly what you want to do in ER, then why not keep making some income and hedging your bets against sequence risk? :-)

      • It is indeed very important to keep inflation in mind!

        I factored that in by taking my “real” expenses, i.e. in current GBP, and converting them into “nominal” expenses in 25 years; based around 3% annual inflation. So I run the numbers assuming the market returns 4% nominal and have a target in nominal, inflation-adjusted expenses / SWR. (And am saddened by the number of years of saving required; need to up my savings rate game. ;))

      • Okay, super! And that inflation may end up being higher than reality in plenty of years, so that’s an extra safety buffer. And yeah, I know it’s daunting in the early stages to think about how much you have to up your savings, but just think in baby steps and it’ll happen. ;-)

  2. I am at FI now but I have chosen to do just “semi-retire” for a few reasons. We still have a child in school (senior this year!) so we are not heading out on travel adventures for at least another year. My doctorate allows me to teach online for universities as an adjunct and that has been great! I also teach online for a few school districts (that are part of a bigger network here). This allows me to put time in to the retirement system still as well (since I am 5+ years from being able to really “retire” and collect my pension). I also still do some consulting work but I will definitely cut that out (for the most part) as we head out west next fall. I don’t mind being able to choose the work I do whatsoever. It hardly feels like work then! (But I am getting more strategic in the work I choose too.)

    • It seems like you have a pretty sweet gig worked out, Vicki! I totally get why it makes sense to keep working a little, and love what a flexible situation you’ve worked out — and how picky you can be about the work you do! Though I also hope you can work less next year! :-)

    • If things are going well and you are enjoying your job, I think its a good idea to keep going for a while. Nice to have some extra security these days and build up your finances a little more as we never know what can happen.

  3. I am planning for semi retirement. I want “freedom” earlier while my hypothetical children are still young, so I’m settling for having only 150-200× expenses saved plus a paid off home. I might do part time contracting work in my industry the first couple years to test the waters, but I also expect my post-“retirement” activities will be income generating, albeit modestly so. SO plans to continue his career in one form or another so at least one of us should be bringing in an income at any point in time.

    • Having that much saved plus a paid off house will put you pretty darn close to “real” retirement! But I love your plan — if you’re able to do part-time contracting in your current industry (we’re not so sure we could in ours), then going for a semi-retirement approach is kind of a no-brainer! And especially if your SO plans to keep working, you’ll definitely keep yourselves in a strong position re: sequence risk!

  4. We don’t take our FI plans quite that far in terms, at least not yet. I plan to still work in some form or fashion to bring in some money. Whether it’s writing or doing other jobs that are available. I think anyone that is looking to retire early they should at least consider working on a contract basis a little each year so there’s not the resume gap, they can keep connections and they can stay up to date on what’s going on in the industry. If you’re looking at the possibility of 60+ years of “retirement” that’s an extremely long time. Making an extra $5-10k per year could be easily doable depending on the industry that you’re in and that would go a long way toward building in some additional safety since every dollar you can earn reduces your nest egg requirement by 25 assuming the 4% SWR. The benefits of still working at least a little bit every year far outweigh the drawbacks.

    • Hi JC — Hope things are going well with your new baby!! I’m hoping that the fact you’re commenting on blogs means baby is sleeping a lot and you’re getting moments to breathe here and there. :-) You make a ton of great points about the value of continuing to do some work in ER — one of these days we’ll do a math breakdown on all of that. The flipside is that working could push us into a higher ACA bracket and make our health coverage more expensive, but that’s assuming we’re also tapping our portfolio, which would be less necessary depending on how much we can work. Stay tuned. :-)

  5. Hi ONL, I appreciate the thought provoking post! Coincidentally I published a post today on the four main reasons I plan on working past FI, one of which was to avoid sequence risk. Retiring early leaves too much time and uncertainty otherwise, so building cushion is necessary. Thanks!

  6. We’d probably do a semi-retirement at first, taking part-time contract/freelance work for a couple years. Our living expenses are quite low, so we wouldn’t have to work much to cover them. One ER variable that’s hard for me to calculate is how much our kids will cost as they grow up. Anyway, I love that you “overthink” everything. It’s hugely beneficial for the rest of us to think through our plans!

    • Thanks for the validation on the overthinking — haha. :-) I think you guys will be in such a strong position for FI — being able to work minimally to cover your expenses without tapping into your investments will give you so much peace of mind! And I know kids are a big variable, but I have total faith, given how you guys operate, that you’ll find a way to contain those costs and teach your kids the right money values. :-)

  7. As you know, we’re looking for more of a Lifestyle Change, rather than Early Retirement, so just because we hit our FI number, that doesn’t mean we’ll necessarily pull the rip-cord, give the finger to the corporate life, and jump out into the wild blue yonder, screaming like a maniac the whole way down. :)
    We’ve taken steps towards that Lifestyle change already, and OMG, even though we’re a little tight until October financially (sort of, but not really) it has been an amazing summer so far. The kids get to sleep later, my schedule has dramatically improved, family dinners, and more free time after work. It’s amazing, but my happy life has gotten happier!

    If the teaching thing pans out and we can jump ship out of Houston to another teaching job, that’s the way we’ll go. If not, I may take on a BLM or similar type job that pays peanuts but would soften the transition to our Lifestyle Change. I think that oculd be fun for a few years, and they’re generally out West so it could hit a couple of items we want anyway.

    Otherwise, if we go the move and no job route, we’re both still open to part time work, adjunct teaching, who knows, but work just the same. If things got really dicey, an immediate $12k to free up in the budget would be our “allowances”. Talk about a buffer, that’s like a quarter of our yearly budget!

    We have plans in place and are amenable to working or making lifestyle changes (bye allowance) if need be, when we do leave the corporate world.

    • When you jump out into the wild blue yonder, screaming like maniacs, will you please capture it on video??? Hahaha. I’m SO happy to know that you guys are having an awesome summer! What a great effect of Prof SSC leaving her cushy but demanding job for her dream teaching job! It seems like you guys have so many possible options open to you — I’m sure whatever you end up doing will be great. Though you know I vote for a big move out west! :-)

  8. I’ve always assumed I would keep tinkering with something. Hubs certainly will – he has very little desire to 100% retire, early or otherwise.

    Since I really enjoy what I do, and it’s something that lends itself to freelancing and consulting, I could see myself just doing that.

    I’d also like to diversify into real estate, so hopefully we’ll have a few paid off properties generating some income.

    Plus, you know we’ll all be blogging millionaires by then! ;) (I kid, I kid. But maybe a couple of extra dollars from some online ventures.)

    • We’re totally jealous that you guys are completely game to keep working — we want to get the heck out ASAP. :-) But if you have the option to keep doing something you love in a part-time capacity, that’s pretty much the ideal situation. You can protect your investments while still getting some enjoyment out of the work. Sweet gig, my friend! :-)

  9. Our biggest goal is not being dependent on a paycheck for now. I envision “semi retired – self employed” for a few years before going completely retired.

    The sequence example is a tough one to plan for. 100% out of your control, the cash buffer is a great start. I would probably pick up side jobs to minimize the blow if the markets went south early in retirement

    • You’re totally right — it’s impossible to predict the sequencing issues, and also impossible to control for them. I think our big concern is that it could be especially tough to pick up side jobs if the economy is tanking, if we don’t already have those side gigs going. It all argues in favor of keeping a continuous stream of work going rather than having to scramble!

  10. Another way to face headwinds of sequence of returns is to have a more conservative withdrawal rate if you are able. Of course that requires balancing expenses versus assets accumulation. We sit on the side of having enough assets along with additional income stream to support a WR that will start at 2.9% when we hit FIRE and move lower as an additional income stream comes on line. It is just our conservative nature to do it this way. We also know if markets get utterly horrendous we have room to scale back on expenses and further manage the situation. We also don’t include college expenses for our kids in our portfolio of assets or net worth. That is a distinct bucket and allocated for already.

    Our profession does not allow for part time work very easily and certainly not where we plan to relocate to at FIRE. Thus we don’t envisage returning to work in terms of the type of work we currently do.

    Our goal is to truly pull the plug and fully embrace the experiences that await.

    • I’m continually envious of the pension that you guys have — that will help a lot to smooth out the market bumps! We’ll have rental income, but of course that can fall prey to market whims, too, and we could have vacancies or have to lower the rent if the market declines, etc. But agree with you on lowering the withdrawal rate if possible! Like you guys, we think it would be tough to work in our fields on a contract or part-time basis (maybe not completely impossible, but hard), so are having to think about redefining what our post-ER work could entail.

  11. Our original retirement plan required that I find employment of some type that would at least cover medical insurance premiums for me for eight years (until I reached Medicare age). Our initial thoughts were that by avoiding having to pay out medical insurance premiums, we would dramatically reduce our monthly outgo while providing better medical coverage for me, and if worst came to worst I could COBRA out for the last eighteen months before I turned 65. With the adoption of the affordable care act and the elimination of pre-existing condition exclusions, the option to just purchase good medical insurance privately became available and we started to seriously consider non-employment for me. We’re a year and a half into it, and we’ve learned a lot. Medical costs are staggering, and without pensions and social security we would change a lot of decisions we’ve made. I would most likely have had to take social security at 62 because we would need the income, we would have a much tighter budget and a more spartan existence, I doubt we would have paid cash for a home, etc. Having full medical coverage, even at $945.12 per month, has made a tremendous difference in the amount of money we need for emergencies, since we would be covered for an expensive accident or illness (even with the copays). While the monthly cost is high, the peace of mind is definitely worth the investment. I had intended to go back to work part time, even if there were no benefits, just to stay active and keep my hat in the ring, but with each passing month I found ways to save money that made the possibility less and less likely, and I ultimately decided this time with Mr. AR is so valuable I don’t want to miss any of it to make money for someone else. Self employment of some type, particularly if we could do something together, would be a nice diversion, but since our income stream is reliable it’s not something I give much thought to. When I actually retired, a lot of the plans we made changed. Whether their implementation became impractical, or they were unreasonable to begin with, or the reality of retirement was markedly different than we anticipated, or most likely all of the above, I’ve found it’s best to remain very flexible. I could not have anticipated a lot of what’s occurred in the last eighteen months! Many good surprises and more than a few challenges, but one thing I know for certain: I would take every possible step to avoid going back to work for someone else. Every day that my time is my own is a precious day, and I will continue to make whatever financial adjustments are necessary to keep it that way.

    • I have learned so much from you and your retirement process over time, and I have to add this one to the list! As much as it chills me to think about paying that much for health insurance each month, I can absolutely appreciate the point about the peace of mind being worth that cost. And we feel similarly about not wanting to work for others, so would definitely be thinking of any post-ER work as being for ourselves… as for what that could look like, we haven’t gotten that far! But thank you as always for the continual reminders that we can’t plan for all this stuff, and most likely our best laid plans will all need to change! Staying flexible throughout every stage of retirement will be so, so important!

      • You are so much more prepared than we were, I can’t imagine a situation where you’d have to radically change your plans. Even an extended market downturn would be survivable unless it went on for years and years, in which case so many other factors would come into play it’s difficult to determine what the final outcome would be. We are so much more comfortable than I thought we’d be, and I had a lot of doomsday scenarios in place! I’m not certain that’s the best use of anyone’s time. Plan for the worst, hope for the best, and you’ll end up somewhere in between. You can always make more money, but you can never make more time. Do everything you love while you’re healthy enough to enjoy it. There are no guarantees in anyone’s life except that one day it will end.

      • Thanks for saying that. :-) Like you, we’ve certainly run through those doomsday scenarios, and in the end, we hope to never need them! I agree all the way — plan for the worst, hope for the best! And don’t waste precious time fretting about all of it!

  12. So this thought crosses my mind from time to time, but I think that the 4% rule with some flexibility to do 3% (or less) really hedges against the sequence risk. In the example you presented and other articles I have read, it seems that the folks are using numbers that go against the Trinity Study data – withdrawing higher than the safe withdrawal date. I think we all have a tendency to overthink this stuff, especially is we are super responsible financially and the prospect of early retirement is an option. But, if you have cushion built into your numbers like you said, I think you will be fine. It’s always good to have a few different contingency plans. At the same time, it seems to me that actually walking away from a successful and lucrative career completely requires a tremendous leap of faith especially when you consider that we might be near the end of a historic stock market run. I think if you are set up to have plenty of flexibility in your spending so as to never go above the 4% value of your portfolio (so even when it drops you aren’t exceeding that percentage level), you are fine. Again, that example showed the same level of spending regardless of the total portfolio value.

    • Totally true that the example uses more like 6% not 4%, but even with that rate, two of the brothers are sitting pretty while one is screwed. It’s a good thought exercise to think through potential challenges that could come along. And given the lingering questions about future market returns and whether they can match historical returns, it does seem safe to say that we should all be able to live well on 3% of our porfolios, instead of having to rely on 4%. But that’s a math discussion for a different day. :-) As you said, it’s a HUGE leap of faith to walk away from a lucrative career, and we want to be sure we aren’t being boneheads about it. Haha. But as with everything, flexibility is key!

  13. I don’t think I’ll personally be able to survive working for the man until I have 25x expenses, but that’s just me – my personality. That NerdWallet example isn’t the best because they are pulling 6% from their portfolios which I KNOW you guys won’t be doing. But it does paint a picture for sequence risk.

    If you guys are already FI now (25x expenses) and are working another 18 months just for cushion, you’ll easily be over 30x expenses from my calculation and therefore you have very little to worry about :)

    • The NerdWallet example definitely does NOT use the math we’ll use — we’ll actually be a lot closer to 2% withdrawal than 6% they use. But it’s still a good illustration of sequence risk and what a difference market timing makes. Our current definition of FI isn’t 25X, but rather “Could we survive on that amount?” So our remaining work time is to get to 25X of ideal spending, up from 25X of survival mode spending. :-) And I don’t blame you for not wanting to work all the way until 25X! If we were less far along, we’d definitely be exploring other options — but since we’re so close now, it seems dumb not to just go all the way!

      • Yes if you are close, then it probably makes sense to just stick it out where you are especially if you are making good money. And I think it would be more conveinient than trying to go through the hassle of working somewhere else possibly for less pay.

  14. It’s good you’re thinking of all of this stuff now instead of while you’re in it. I don’t want to fully retire, but I would hope to pursue passion projects that could generate income, and if something was every too stressful or just felt like it because something I had to do instead of want to do, I’d try to think of something else.

    • Haha — I sometimes wonder if it’s a blessing or a curse, constantly thinking through every possibility. :-) Let’s just go with blessing… And I love your idea of pursuing passion projects that make some money. The beauty of FI is that you can do the stuff you want to do and worry less about how much it pays — we’re definitely looking forward to that, and feel so privileged to get to think through this question!

  15. If I were planning on retiring early, work would still be part of my plan. I think it’s so important to find a way to monetize your passions, interests, or hobbies. With so many location-independent side income streams, I don’t know why people wouldn’t want this in their toolkit. Even one or two tutoring sessions a week (in person or online) can cover an entire category of expenses.

    • I feel like you should caveat this comment to reflect your super hustler nature. “Signed — Ms. Can’t Stop the Hustle.” Haha. You are clearly a monetizer by nature, which is awesome, whereas I am super averse to putting money pressure on anything I love (why you see zero ads here). So while I love the *idea* of monetizing passions, I also worry big time that the second dollars are attached, all the passion will disappear quickly. I know that’s not normal, and just me being weird, but that is a legit concern for me. Still, for anyone else, I think your advice is absolutely perfect. :-)

  16. As you know, we’re pursuing semi-retirement because of our debt. We need to escape from full-time work, but there is no way we can save anything close to those “magic numbers.” Instead, we will pay off all of our debt (including mortgages), let a small 401k grow over the next 20-25 years, and just earn enough to pay for low living expenses.

    In calculating basic living expenses without any debt and adding in the income from our one rental property, it becomes clear that we really don’t need that much money from employment. Between Mr. Smith and I, we will be able to drastically cut back on work and have more time for living life. It’s the best solution for our situation and it’s flexible. We can adjust how much we will work in the future, based on our progress over the next 5 1/2 years.

    In considering contingenies, you could always work part-time doing freelance work for a few years to transition into early retirement, and add to that cushion you’re worried about protecting.

    • And as you know, I love the plan you guys have put together — I SO admire that you aren’t letting debt stop you from envisioning a life with more joy and balance! Your approach sounds just right to me. And your idea of freelancing for a few years makes total sense — the trick now will be to figure out what that actually looks like, since we don’t work in jobs where going from full-time to freelance would work especially well. Another question to add to our ever-growing list! ;-)

  17. I view the greatest danger right now to be a bout of huge and unexpected inflation that decimates your financial asset values right after you retire without the corresponding ability to earn a lot more money through higher wages. For that reason, I suggest replacing all your bonds with short term TIPS, which also offer some deflation protection with their minimum redemption floor of $100 par value

    • That’s an interesting strategy. In our case, I think we’re comfortable have our first line of defense being the ability to dramatically cut our expenses, as well as having a rental property that diversifies our income. But keep putting these ideas out there — everyone has a different comfort level with risk and a different approach to mitigating it!

  18. This is something I’ve thought about a lot and my feelings about it change daily. On the one hand, it would be nice to call it quits entirely on a set date. On the other hand, easing into retirement sounds appealing, since I don’t have any grand plans for ER anyway.

    Working in accounting, it wouldn’t be hard to find a part-time bookkeeping/accounting job to cover my expenses. My current employer also allows us to work less than 100% (with salary adjusted accordingly). So, while I’ll likely be in a position to retire entirely in 10 years, I’m hoping to have the means in 7-8 years. If that’s the case, I’d definitely look into reducing my status to 60% at that point so that I don’t draw down my balance but also don’t have to continue to put money into my investments. Even now I could live well on 60% of my salary — I just couldn’t save very much of it. Then at the 10 year mark I can retire for good.

    At the same time, like you, I plan to have at least 2 years of expenses in cash to help weather any bear markets. I’d also like to use a SWR of 3% instead of 4%

    This does raise an interesting question: Factoring in sequence risk, how much is enough without lowering your SWR? 25x expenses may not be enough.

    • Haha — I can definitely relate to your changing thinking about this! I love the way you’re thinking about reducing your time before full retirement. This is almost embarrassing to admit, but it hadn’t even occurred to me that we could maybe do that next year, especially if year-end bonuses this year exceed expectations. Sort of a stepped-down ER approach. And your Q about SWR is a super good one. I don’t actually think 25x is enough, and while we don’t have a specific number in mind, I can definitely see us buckling down and trying to spend as little as possible once we actually start drawing down our investments. We’ll just be heavily motivated to preserve that principle until we see major growth over time that reassures us that it’s okay to spend!

  19. Oh you know how wishy-washy we are! Secretly, I still hope we can be completely FI by the end of 2022 or somehow amazingly wealthy on passive income. I really don’t want to build in a plan to work or make money in the older years. I want to be DONE and figure out another way around a low market. :)

  20. There certainly something scary about a resume gap or letting certain skills lapse as some industries “lock the door behind” many o’ folk that dare leave it. Resumes don’t tend to “age well” in certain said industries as well. I realize that at my age ( 45 )…once I’m out…”all sales are final” so to speak. Of course ask me again on Friday and answers may vary/be much bolder. :)

    • Haha — we know about those answers varying! :-) But yeah, it for sure feels the same for me. I will become obsolete about five seconds after leaving, and even though I’m still in my 30s, I definitely see that I’d be quickly replaced by someone younger and cheaper. So we don’t take leaving our careers lightly!

  21. If we chose to work in retirement, it would likely be due to sequence risk in select years, probably at low pressure seasonal (fun!) jobs instead of the daily grind.

    • I love that philosophy in general. The tough thing is actually getting a job in those down market years since higher unemployment tends to go along with market crashes.

      • Our intention is to keep our expenses low enough that we would not need high skilled (or high paying) jobs to take the pressure of our portfolio. If both of us could pull about $10k per year, we would be just fine. Rental Property management might be a good one in down years since rental demand seems to go up! With your skills you could edge into the financial planning market!

      • I feel like “keep expenses low” is the magical answer to everything. If you can live on very little, then you can earn very little and be totally secure and insulated from the markets. I hadn’t thought about property management — that DOES seem like a good option if you don’t plan to travel too much. And I would love to do financial planning — but it actually takes tons of coursework that I don’t feel like paying for! ;-)

  22. Our post FIRE plan has some work in there. Mainly for the reasons quoted above
    1- Avoid sequence risk
    2- reach semi – FIRE sooner (a post is sitting gin draft mode since ever)
    3- get more legal pension – if some left by then
    4- avoid being bored
    5- pay for the kids education. On average, they would go to college till 5 years after the current FIRE date I have in mind

    It would also feel weird to start selling assets at that soon… That is what I consider building up a DGI portfolio.

    • All good reasons to keep working at some level! I think it will be interesting to see what we come up with as post-FIRE work so that it still *feels* much different from our career (to make it all worthwhile) but pays enough to address these concerns.

  23. I fully intended to retire early and often so the possibility of working in retirement doing what I had interest in doing /learning was always on the table. Not “Having to” or “Needing to” work instead of the “Absence of” work is my definition of retirement. I just follow my passions and when they change I retire again. I have had success with a couple of runs and even a 2nd early retirement from an encore career.
    I do believe there is discrimination against people with long employment gaps. I have overcome that by being honest and explaining what I did during my personal sabbatical in a positive view. Basically owning my decision to live the way I have chosen in FI. It is after-all a very positive thing. If they take a negative view about it then I don’t want to be part of their organization/company.
    Obviously taking time away from some skill sets may leave me obsolete in the tech world. If I really want to remain in that field I would need to keep skills fresh during my sabbatical.
    If I felt I “had to” return to work as a contingency I would definitely stay passion focused instead of falling again into the rat race career-mindset rut.
    I have been out of tech over a year and have no interest in returning. I have turned down many requests for interviews. I haven’t any big early retirement employment thoughts for the future but I am open to them if they come. It is an adventure.

    • I think it’s crazy awesome that you’ve been able to make your vision work. We both definitely get the heavy sense in our sectors that we couldn’t come back after even a short absence (more true for me than for Mr. ONL), but I get pangs of envy whenever I hear people in other sectors being able to take breaks and come back to work. I keep hearing horror stories of HR reps getting tons of resumes for any old position, so the chance of actually getting to explain the gap can be slim — but yet you’ve managed to do it and make it work. So great.

  24. Who knows what writing/content/media will look like by the time I hit 65! Hopefully I’ll still have the option of freelancing and working as much as suits me. It’s just so hard to tell. Things changed so much in the 5 years since I graduated, and I have another 30 odd years till I stop work.

  25. One of our contingency plans, and probably also a year or so very early in our retirement, is to generate income without going back to work while also increasing our adventure. We feel this would be even more fun than hunkering down and taking advantage of all that our area has to offer. If feasible at the time, we plan to rent out our house for a year (we live in a great location with relatively high-rent that didn’t falter much during the last recession due to all the tech jobs) and during that time we would could do some combination of: go on a multi-month bike tour; rent in lower cost area we’d like to explore nationally and/or internationally; visit/stay with friends and relatives we haven’t been able to spend time with while working; or buy an inexpensive travel trailer on Craigslist load up our bikes and skis and hit the road. We’d be pseudo-homeless for a year, but the rent generated from our house would significantly decrease the amount needed from our savings so they can grow or recover, and we’d be having fun all the while.

    • I love that idea! We’ve thought about doing that, too, though I’m on the fence about actually renting out our house. :-) But all of the stuff you’re talking about doing sounds so perfect! I vote for the big bike and ski roadtrip — haha.

  26. I’m working towards semi-retirement. Partially because I started late on the investment horizon and want to keep letting that sucker grow. And partially because the life I want to live includes doing the work I value at my LLC. The lifestyle I’m working towards is only working at my own business for 20-30 hours a week and only taking on the type of clients I want. This is not the type of work that makes you rich, but that is the lifestyle I want. Currently, I’m trying to build up a nest-egg to leave the full-time gig work I do and focus on that balanced life. It will take a few more years. Thankfully, I have almost mastered the skill that will double my income in the gig. This will turbo-charge my investments and get me so much closer to the LLC lifestyle.

    I definitely worry what not working at all would do on my ability to earn any money later should something happen – including my desire to work for its own sake.

    • I love the vision you’ve created for yourself — and the steps you’re taking to make it a reality! I’d love to know one day what your work is, if you’re ever up for sharing that. ;-) But everything you’ve talked about sounds like it gives you that healthy balance — a moderate amount of work for income and fulfillment and still lots of free time. Can’t wait to watch you achieve all of this!

  27. Just my $.02, but I think your concern regarding early retirement and considering the risks associated with sequence of returns is very appropriate. I don’t think you’re alone in your concern about the markets being overvalued. However, I personally think that bonds are also far from safe.

    Consider, if interest rates stay low, that portion of your portfolio will not even produce the 4% yield assumed by 4% SWR research, let alone grow with inflation. You will be losing on that side of your portfolio from day 1. If rates go up to more historic norms, the bonds you hold will lose value as people could simply buy new bonds with higher yields. Thus you are stuck with low yield bonds or have to sell at a loss. If rates go down, that is traditionally good for those holding bonds, but there is little room for them to drop further and so it is both unlikely and even if it happens holds little upside. This basically produces a lose, lose, lose scenario for the “safe” portion of your portfolio.

    Current challenging market conditions, both stock and bond, are a big factor in our plans to continue to work and make some money after reaching FI. We will gradually transition from full-time work to more of a semi-retirement.

    • Totally agree with you — We aren’t comfortable relying on *any* of the old wisdom and think those of us looking at early retirement now are facing a different ballgame, especially over the long term. So yeah, we’ll keep a cash cushion and have our bond index funds (not actual bonds — we actually see a meaningful difference here), but we think we need to do more to keep other streams of income flowing. The rental house will help, but isn’t the answer all by itself. Conclusion: *some* work in retirement — now we just have to figure out what would be worth doing so it doesn’t spoil our vision for our post-career lives! :-)

  28. 25% VBTLX at 2.4% current nominal yield gives you 0.4% real return.
    3 years worth of expenses (12% or portfolio) in cash at 0.5% nominal return gives -1.5% real return. If we’re really generous and get 6% real return from equities, then the portfolio expected real return is 3.7% real. That’s cutting it really tight. If equities yield only 4% real in the near-term (2% inflation, 4% real, 6% total), which is what some analysts predict due to slow earnings growth and record price level, we’re down do 2.44% expected real portfolio return. That’s not going to sustain even a 3% withdrawal rate due to equity risk. Risk reduction costs a steep price in expected return.

    • All great points! We’re not fans particularly of the 4% rule, so aren’t relying on that to sustain us. We’ve always had a plan for retirement with multiple income streams, including rental income, and our projections are based on VERY low return percentages, so we’re not relying on the (we think) unrealistic 9-11% that we see others projecting out.

      • Great! If you got rental income on the side, that’s the best way to generate stable income as a base. Then it’s much easier to adjust the withdrawal rate in the equity/bond portfolio in case things go sour. Good luck! :)

      • Thanks! Yeah, we did a big post a few months back showing how we model our projections –- though with fake numbers –- and it shows our asset depletion strategy. Quite different from the 4% rule, but helps us sleep at night because it’s way more conservative. Plus the rental income, of course. :-)

      • P.S. We were just discussing your comment in more depth and wondered if you’ve written all of this thinking up as a post. If you haven’t, you should! Super good points that a lot of people would benefit from!

  29. No work is *planned* for us, but that doesn’t mean it won’t happen. I think you’re right that taking several years off will make it tough to re-enter the job market at the capacity that you’re currently at, but that doesn’t necessarily mean that there won’t be other opportunities – perhaps BETTER opportunities – when that time comes, either. Arguably, you probably don’t want to re-enter the job market at our current level anyway because that’s precisely what you’re working so hard to get away from.

    I know I don’t.

    I can see us picking up odd jobs here and there, doing occasional remote work, but nothing too intensive at this point. Like you, we plan on having at least three year’s of living expenses when we call it quits at the end of the year, so that will enable us to keep our investments calmly and consistently growing throughout the years of early retirement.

    — Oh, and I’m totally writing this blog comment from the office of our client before they get in this morning. Yeah, total rebel I am. ;)

    • Yay for comment rebellion! :-) You’re for sure right that we don’t want to come back to the job market at anything like the pace we’re working now, but it would be a stone cold bummer to have the skills and knowledge we have now, and be forced one day to do something entry level just because we hadn’t kept our skills current. Truly fun work would be a different story, but if we really *needed* the money, it sure would be hard NOT to think about what our effective hourly rate had once been (is currently) and how much of a pay cut we’d be taking. Not that we wouldn’t do it, just that it would be hard not to be bummed about that. ;-)

  30. I have been struggling with how to plan for the Sequence of Returns (SOR) Risk for a while. For background, I am 47, still working full time but plan to be leaving the work world at the same time you are, end of 2017. Technically I reached FI 1.5 years ago but it is exactly this SOR risk that has kept me working. I’m way too risk averse to take the “I’m sure it will be fine” approach and so this issue has plagued my thoughts on how to absolutely minimize the risks. Here are my thoughts from my reading and research:

    1. I am using one of the “lower” SWR = 3.5%

    2. I hit the magic number 1.5 years ago for my SWR to meet our expenses. However, I didn’t even consider stopping full time work. Mentally I am “pretending” that I was retired 1.5 years ago and am using those numbers as my withdrawal rate going forward. BUT, I’ve kept working and contributing for the last 1.5 years and will continue to do so through next year. Basically I am adding to the nest egg during my first “3 years of retirement” hoping to get past the early SOR risk (which is highest and most concerning in the first 10 years of retirement) and in fact adding more cushion.

    3. The SWR is based on using a % of assets in year one of retirement as your fixed spending indexed to inflation through retirement. As a result the SOR risk threatens the balance of your nest egg. I am shifting that risk to my annual spending by using a 3.5% of assets EVERY year rather than fixed spending. If the market is down, my spending will go down accordingly. This actually completely removes the SOR risk to your nest egg and you should NEVER run out of money but the risk on an annual basis is that you have to be able to cut your spending down for the years of a bear market. You can further buffer this by setting a cap on spending in good years. Maybe use the first year SWR calculation as the maximum you would spend so that in really good market years you don’t really inflate your spending. For bad years, you would then have more leeway to NOT drop your spending completely in line with the market drop. Firecalc.com has a great option to try spending based on an annual % and even allowing you to put a floor on the drop in your spending to a percent of what you spent the year before. Unfortunately I can’t find a way to cap your spending as an option to see how that works out. (I can’t really see spending $600,000 in the really good years 20 years from now! LOL)

    4. Like you mentioned in your post I’m using another standard SOR risk reduction technique : I have been gradually shifting my asset allocation to less equities (60%) and may be at 55% by end of next year.

    5. I am now trying to educate myself on creating a “TIPS ladder” for income generation in retirement, which, as I understand it, would allow me to worry less about the SOR market fluctuations.

    6. Also considering/evaluating the idea of buying a small immediate annuity to pay guaranteed income annually at a rate to meet our most basic expenses in case “the worst” happens. But I REALLY, REALLY have a gut negative reaction to this idea since annuities generally carry too much cost for the guaranteed component. Still thinking about it and need to get comfortable with the pros and cons.

    Sorry for the long winded post. I have followed FIRE blogs for years including MMM, WCI etc. but this is the first time I have ever posted anything. This is a topic that I think has really not gotten as much attention and press time in the FIRE community and it was a bit of a struggle piecing together my approach above. So for the first time I felt it was worth sharing my thoughts. Happy to hear the wisdom and recommendations of this brilliant community. I would easily change my plan if anyone has some good advice. Love your blog and your style. You ask some of the more meaningful questions and are clearly very insightful about the issues beyond just the numbers! Keep up the good work.

    • Hi MFOV — I’m honored that you left your first ever comment here! :-D What a wonderful compliment.

      And we’re totally with you on NOT embracing a “everything will be fine” mindset. To us, it makes no sense to save for all these years and work so hard at it just to feel tons of money stress in retirement! Something tells me you can relate. ;-)

      I think your overall plan makes tons of sense, and as a risk-averse person too, I relate to all of your thinking. I’d likewise bristle at all the strings on annuities, but I understand why you’d consider one. And I think your approach to SWR makes tons of sense — we don’t plan to use an SWR strictly speaking, but will definitely do something similar in terms of calibrating our spending downward when markets are down, and capping our spending even in flush years. I’ve never understood the thinking that you should be able to take some set amount out and expect your portfolio to maintain its value, even in extended bear markets.

      Thanks again for chiming in and making us your first! :-)

  31. I think contingencies are important, especially with how the world is today. Also, presidential elections usually have an impact on the market so that is also something to consider. I like that you guys are thinking through everything :) Keep up the awesome work!

    • What’s funny is that we always planned to wait until 2017 to quit, because we knew the next president would have an impact on our health care options especially, and we wanted to be sure we were prepared for whatever changes happen. And that was before we had a clue what a crazy presidential year this would turn into. I hear the cool kids aren’t talking about moving to Canada anymore, it’s all about New Zealand… ;-)

  32. “P.S. We were just discussing your comment in more depth and wondered if you’ve written all of this thinking up as a post. If you haven’t, you should! Super good points that a lot of people would benefit from!”

    Wow, that’s one of the nicest things we heard as feedback so far! We didn’t think we want to include links to our own blog; that’s sounds too much like advertising. But now that you asked for it … ;)

    We wrote a few blog posts about the sustainability of the 4% rule, part 2 dealing with bonds (April 27). There’s also a general intro (April 15), part 1 dealing with equities (March 24, never mind that part 1 came before the intro :) ), part 3 dealing with some statistical issues in the Trinity Study we didn’t like so much (May 12), and part 4 is still in the works. Now that you remind me, it’s time to start number-crunching again!

    We are also working on a very comprehensive study with our own simulations (as opposed to cFIREsim) on safe withdrawal rules with a lot more robustness analysis. Something like a much improved version of the Trinity Study with more bells and whistles, tailored to the FIRE crowd. Should be up and running later in the summer.

    We also wrote about how bonds can be very risky in the long-run: “When bonds are riskier than stocks” on May 19.

    We also plan to publish another interesting piece on bonds in the morning today “Lower risk through leverage” (July 20), dealing with the low bond yields. One way to get around the steep opportunity cost of bond investments is to buy bonds on margin (through bond futures, sounds scarier than it is, haha), thereby avoiding the opportunity cost all the while doubling, tripling or quadrupling the power of diversification inherent in bonds.

    Check it out and please let us know what you think! Thanks again for your kind, kind words. That made our day! Also please accept a return compliment about your own blog. You are not just very prolific writers, but the posts are also so inspiring, with great insights that generate such lively discussion. Thanks for taking the time to answer all the comments! :)

    • Awesome! We’ll definitely check those out, and I’m sure lots of others reading here will find those useful, too. I know we always appreciate reading different views on conventional wisdom, and a thorough breakdown on bonds sounds super interesting. (I know lots of FIRE folks avoid bonds like the plague — haha — but I know lots of us on the more conservative end of the investing spectrum keep a healthy allocation in them!)

      Definitely let us know when your analysis of your simulations are up, and we can share that with folks here and on Twitter. :-)

      And thanks for the nice compliment! The discussion that follows the posts is the best part, so we wouldn’t miss it. ;-)

  33. I’ve been thinking about this post for the last two days! All your points are right on about sequence risk and contingency plans, and I totally hear you about “working so hard for THIS?” if the markets don’t cooperate and we have to put those plans into place. We’re already spending at that optimal point where further cuts are undesirable (and I gather you are, too). If things start looking financially unsustainable, I’d probably prefer to just do some work rather than cut back on expenses.

    But something’s not sitting right with me about the approach here. It feels like it’s coming from such an extreme place of risk aversion, rather than a genuine desire or interest in the potential work prospects. You’ve already got a rock solid plan in place, financially. It’s possible, of course, that we’re about to live through some of the worst times in history to be an early retiree, but for the majority of potential scenarios, you’re already very well covered. That’s the whole point of all the modeling and projecting and simulations.

    In reaching FI, you’ve bought yourself the freedom to do whatever you want with the coming decades. You’ve said before that you’ll likely be doing some type of “work” or projects in the future; why not expect that some of those will earn some amount of income in the future, and treat that as your additional risk mitigation?

    Maybe (hopefully) your experience would be different, but I found it very difficult to juggle the FIRE dreams we were pursuing with part-time work in which I wasn’t 100% invested. I might feel differently a few years down the road, but at least for this first work-free stint, the last thing on earth I want to be doing is contract and freelance work. It seemed like a good idea and a great risk mitigator, but it ended up being really unsatisfying.

    My take is that if you would do the freelance work and contract work you mentioned for free, because you enjoy it and that’s the FIRE dream you’re pursuing, then absolutely do it. But if you would be adding non-desirable work into your life as just one more hedge against disaster, that seems over-the-top to me in light of your extremely strong financial plans.

    • Thanks for this, Matt. This is all stuff we (especially I) need to hear. I am the first to admit that I’m super risk-averse in most things — or at least I need to know that I’ve anticipated all potential risks and have a plan in place to deal with them. (Would you be shocked to know we have go bags in both cars and the house, I am a first aid kit master, and I leave super detailed itineraries with loved ones when we go into the backcountry?) ;-) If our portfolio lost 40 percent of its value tomorrow, and our home did the same thing, things would get really tough — or, scratch that, things would get tough if this all happened AFTER we retire. And given where we are in current economic cycles, that’s not unthinkable. So contemplating work post-ER is one more way of mitigating that risk without forcing us to liquidate assets that I think I’d be super anxious to lose. And the total truth is that I do get too precious about the creative stuff I am super excited to do in ER, and I don’t want to put money pressure on it even a little bit. And the “fun work” that we’d be happy to do simply doesn’t pay enough to make it worth doing as a hedge against sequence risk. (Minimum wage at full time gets you, at very best in the U.S., $30K a year, but in most places it’s more like $16,500. And that’s full time!) I really value your experience that it was hard to do contract work after you’d quit your job, and I’m positive I’d feel the same way — and doing work I resent after we already have a cushion is certainly not where I want to be. So it’s all good stuff to think about. I don’t see myself ever becoming a “we’ll figure it out” type of person, but there must be a way to embrace a little bit more of the risk, at least so we don’t spoil the fun of ER. ;-) Thanks very much for the thoughtful input! Loving your Slovenia pics. xoxo

      • Haha, I love the “go bags.” That’s one of those things that was on my to-do list for years but never happened. I did at least buy a bunch of emergency water supplies when that New Yorker article came out about the earthquake that will wipe out all of the Pacific Northwest some day.

        My stomach turns at even the thought of a 40% downturn, though that’s certainly possible given today’s valuations. I get your point about not wanting to put money pressure on passion projects, but I’d keep in mind that their expected value is probably positive. That would be a potential backup in the event of a major market downturn — even if you prefer not to think of them as income generators.

        I don’t necessarily agree that fun work can’t hedge against sequence risk. Sure, it’s not going to make up for the hundreds of thousands of dollars we could lose in the markets in a single year, but even $10k or $15k of income would cover a meaningful portion of our annual spending — thereby reducing our withdrawal rate substantially during a downturn. And there’s nothing to say your fun work couldn’t make more than minimum wage!

        I definitely see a role for some work in RE, as you know. Even now, I’m still doing a few hours a month of career coaching type stuff, which is nice for income and my own enjoyment. The time and energy commitment is much lower than contract work, so it feels like a good balance. It could also feasibly cover for the gap in my resume if things got so bad that I had to apply for real jobs again. But I still think that scenario is unlikely :)

      • That New Yorker story scared the bejeezus out of me — get your evac plan together, man! :-) And you’re totally right — there will be some money in the creative stuff, even if we don’t do it for that reason. And small amounts of money will make a difference — especially given that I will definitely be quitting with well over a million air miles, and Mr. ONL not too far behind… so we will be able to travel no matter what, which is most important to us. That’s cool you’re doing some career coaching on the side! I’ve thought that the type of work I might do would be executive meeting facilitation, which would be VERY part time and pay a high hourly rate (plus paid travel — you know I want to get to million miler, which I won’t hit before we quit!) — and that’s work I think I would enjoy, though it would impose on our calendar.

  34. This subject is interesting to me because it’s closer to my goals than my other posts. We have worked hard for the past few years paying for Retirement, Expenses, Debt… and as of next year the house will be paid off and we will be debt free. At that point we will only have Retirement & Expenses so we will drop the extra hours we needed for debt repayment… Then as the years go on and we no longer need to fully fund the Retirement accounts our hours will drift down until they only cover Expenses. … And presumably someday we won’t be working at all, and then we start to draw from our Retirement funds.

    While we may not have perfect jobs the real issues created by working are the relentless hours. Working 50plus hours a week now, and then 30 per week as of next year, then 20 as of 10 years later, then finally 10per hour at about the 55 years old mark seems like it’s really a reasonable way to create a great life.

    We could, theoretically, make full retirement in 15 years and set the world on FIRE… but I often wonder to what end. We are home bodies, so no real urge to travel or be exciting so I think staying in ‘contact’ with the world at large is no bad thing.

    • I think the vision you’ve put together sounds pretty great, especially knowing that you aren’t filled with wanderlust to travel the world. I think if staying home makes you happy and you can tolerate the work, then you’ll give yourselves maximum financial security this way. Congrats on being so close to debt-free!

      • It’s always possible that experiment will prove me wrong… but we are betting that the jobs, which are decent enough, are essentially benign and that the issue is just the sheer volume of hours and stress required. I’m thinking you can do nearly anything for a dozen hours a week or so and use it as a way to keep grounded in society as a whole.

        And of course, your point is that it’s hard to enter the work force again… this way, we don’t really leave it.

      • I think that’s a great way of looking at it. I do think your point about staying grounded in society is a hugely important one, and something our community should talk about more. I think without work providing the excuse to learn new technology, a lot of us will quickly feel out of step!

  35. Sequence of return risk is on of me main concerns about our upcoming retirement. We have bonds, and a cash cushion since we sold the house and intend to keep money liquid assuming we’ll have a permanent living situation sometime in the future.
    BUT, I’m still thinking about it and not convinced bonds or cash cushion really solves the problem, it just derisks your portfolio, (and reduces your theoretical gains). Like you alluded to, our main backup plan will come from flexibility and the ability to reduce expenses or earn more income.

    • We tend to agree with you — a diversified portfolio only solves part of the problem, but doesn’t stop you from needing to take funds out of the portfolio when times are bad, unless you keep an overly large cash cushion, which is bad for its own reasons. So yeah, finding ways to keep some income coming in makes sense for a lot of reasons!