For early retirees, what are your safety nets?

[523HRR]

For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.

 

[RobbieB]

I have no safety net. My fixed expenses are so low I don't need one.

 

[Danmar]

For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.

Best? Not sure. Why wouldn't a flexible spending plan be equally good and have the advantage of more spending in good times?

 

[hesperus]

3 years expenses in cash should cover us, as we carry no debt and have not taken SS or small pensions yet. Further, we could reduce expenses, sell a vacation home, tap a life insurance policy. If a market downturn went into five years or longer, and our dividends took a big hit, I'd be sweating on the equity portion of the portfolio.

 

[flyingaway]

For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.

That means something very serious, i.e., changing an early retiree to a regular retiree by working a few more years.

By the time we have satisfied the 3% rule, we would find that we just need the 4% rule (being older), LOL.

 

[RunningBum]

That means something very serious, i.e., changing an early retiree to a regular retiree by working a few more years.

By the time we have satisfied the 3% rule, we would find that we just need the 4% rule (being older), LOL.

You got it. That can take quite a few years for many to achieve. 3% isn't a given requirement. 3.5% may be fine. 4% certainly could be fine too, though it's not as certain, especially if you don't have too much slack in your budget. You have to make your own decision. I think you have to ask yourself if the stuff hits the fan, especially early in your retirement, are you okay with eating out less (or not at all), simpler vacations (or not at all), etc, or is it worth working longer to make sure you don't face that? Some people want to get out, no matter what. Others don't want to be faced with a Spartan retirement.

I quoted 3% as what I did, not as a recommendation. I had other reasons for retiring when I did, wasn't just holding out for 3%. But I don't think you should blindly look at 4% as golden, especially if it's a minimalist plan.

 

[Scuba]

Like many here, we have some safety nets. How conservative one wants to be vs how soon one wants to retire is a balancing act. We ER'd at 56 & 57.

In our case:
- Short-term bonds & cash plus dividend & interest income that will carry us for at least 3 years with no principal reduction
- HELOC at below 4% rate that we can draw on in poor market conditions if need be
- Modest pension that we can start anytime but it continues to grow if we hold off.
- Social Security - not sure when we will start it, don't need to decide now
- Lots of equity in home (seven figures) so this is our LTC insurance
- About 45% of our spending is fully discretionary and could be eliminated or reduced temporarily.
- Worst case, we could relocate to lower COL area or less expensive home in same area, just not oceanfront.

For us, the biggest uncertainty is healthcare costs. We have a pre-ACA grandfathered plan that may not last till we can go on Medicare. We're both very healthy now but who knows what the future will bring? If our healthcare costs skyrocket because one of us is seriously ill, presumably we'd be cutting down on travel, wine & entertainment so those cuts would help fund the higher healthcare costs, at least we hope so!

 

[Out of Steam]

1. Part-time work
2. Downsize and cut other expenses
3. Move to a lower cost area
4. Return to full-time work
5 Take Social Security at or shortly after 62

 

[aja8888]

Well, if my portfolio crashed to zero (it once started there), I have a few years in cash to weather the storm.

Plus, we both collect SS and that would cover about 2/3 our current expenses.

We have a paid for house which could be converted into cash that would supply about 15+ years of rent expense.

Then there is the willing and able daughter to take care of us (hey, 1 out of 4 is OK).

Then there is Medicaid.

 

[NW-Bound]

Did I read that right? You have 99x your expenses? Wow. Belt, suspenders, and super glue. Lol.

People who do not have $5M to live on $50K/yr need to think outside the box.

Lost your belt and have no suspenders? Join a nudist camp.

 

[dunkelblau]

Did I read that right? You have 99x your expenses? Wow. Belt, suspenders, and super glue. Lol.

Yes but it's based on my past-decade average living expenses which have been very low and may rise once I stop working. Plus it's hard to predict long term healthcare costs, both my own and from possible filial responsibility. So far I've been lucky, one of my in-laws is seeing this scenario unfold right now.

FWIW I think I'd use crossing 25x in a stressful job to try to negotiate changes that may slow down reaching 33x but make it more pleasant. May not happen in a strict up or out culture, but management was surprisingly receptive where I work. This may be why it's not so easy/urgent for me to up and quit now.

 

[flyingaway]

I have read all the comments. For me, I think I will see what will be my exact situation when I am 55 in two years. It seems working one or two more years may be the easiest safety net.

 

[Senator]

I have a surplus of income, plus free healthcare. I spend quite a lot, and can cut back if needed.

I still have SS and a small pension (monthly $1262.01) to draw at some point. Plus dividends.

In the meantime, I still do my own rental management and maintenance to build capital. At some point, I want to buy a waterfront home.

 

[brucethebroker]

1. Part-time work
2. Downsize and cut other expenses
3. Move to a lower cost area
4. Return to full-time work
5 Take Social Security at or shortly after 62

+1.
Well stated: classic re-wording of increase income (1, 4, 5) and cut expenses (2,3). KISS.

 

[YVRRocketSurgery]

Simply, I'm saving more than I need and can adjust spend.
My savings & investment target is to be able to support the missus and I travelling 6 months per year.
Fallback 1 is my wife's income/nest egg.
Fallback 2 are government benefits.
Fallback 3 is to travel less than 6 months per year.
Fallback 4 is our home equity.

 

[Red Badger]

Most of these back-up plans will not help in the really bad situations. Economic Collapse, Government Collapse, Zombie Apocalypse etc.

This is where your metals portfolio kicks in. Mine is invested in lead. Mostly 9MM and .357 magnum.

 

[flyingaway]

This is where your metals portfolio kicks in. Mine is invested in lead. Mostly 9MM and .357 magnum.

I was thinking the other day if medical insurance gets too expensive, these things could be useful.

 

[MarieIG]

I would rather work slightly longer at a younger age, than risk having to seek work later on so, I guess my safety nets would include:

a) work slightly longer to build up retirement accounts and SS;

b) cash buffer;

d) DH will have subsidized (very good) health insurance through union; our cost and taxes will be deducted from his pension check before it it deposited;

c) DH's non-COLA pension (but his deposit will increase when I hit Medicare age since the cost of his health insurance will decrease);

d) DH is working to at least the minimum age to get 100% x his yearly accruals to avoid deductions from his pension (the plan is for him to take joint and survivor 100%)

e) I will be able to trigger a small annuity payment (I would take joint and survivor 100%);

f) Taxable accounts - be flexible with withdrawals;

g) My retirement accounts - not huge, include 401(k) (I started working late due to six kiddos) & non-deductible IRAs:

h) DH's 401ks (he has two on through company one through Union, neither huge because he did contribute that much); to get DH to contribute, I told him he could use his second 401k as his "fun money account". This year I have him maxing out his fun money account. DH's second 401(k) has the ability to be rolled into a life time payment - we are considering this but would put off triggering this;

i) DH's annuity - which was fully funded through his employer/union. We can take just the profits off it until the year he turns 70 1/2 at which point we can roll it into an IRA which would also require the RMDs, or annuitize.

j) paid off house;

k) my inheritance (which still needs to be better organized);

l) some SS - postpone DH's as he was the higher earner;

m) move to a lower COL area to reduce property tax and income tax.

 

[Red Badger]

I was thinking the other day if medical insurance gets too expensive, these things could be useful.

They are true multi-taskers... One could use them to trim medical expenses by, oh, one hundred percent. Or, they could be used in an aggressive side hustle to raise some quick cash.

 

[Out of Steam]

+1.
Well stated: classic re-wording of increase income (1, 4, 5) and cut expenses (2,3). KISS.

I'm more comfortable with cutting my own expenses than asking my wife to reduce hers.

She'd like to buy/lease a luxury brand car for her next vehicle. As for me, I'd happily drive an 8 year old minivan if that's the cost to get out of the rat race.

 

[UnrealizedPotential]

My monthly income exceeds my expenses by $900 to $1200 is my safety net. That 9K to 12k a year gives me flexibility and confidence I wouldn't other wise have.

 

[aja8888]

I'm more comfortable with cutting my own expenses than asking my wife to reduce hers.

She'd like to buy/lease a luxury brand car for her next vehicle. As for me, I'd happily drive an 8 year old minivan if that's the cost to get out of the rat race.

An 8 year old minivan is still considered "new" to most folks here.

 

[flyingaway]

I would rather work slightly longer at a younger age, than risk having to seek work later on so, I guess my safety nets would include:

a) work slightly longer to build up retirement accounts and SS;

b) cash buffer;

d) DH will have subsidized (very good) health insurance through union; our cost and taxes will be deducted from his pension check before it it deposited;

c) DH's non-COLA pension (but his deposit will increase when I hit Medicare age since the cost of his health insurance will decrease);

d) DH is working to at least the minimum age to get 100% x his yearly accruals to avoid deductions from his pension (the plan is for him to take joint and survivor 100%)

e) I will be able to trigger a small annuity payment (I would take joint and survivor 100%);

f) Taxable accounts - be flexible with withdrawals;

g) My retirement accounts - not huge, include 401(k) (I started working late due to six kiddos) & non-deductible IRAs:

h) DH's 401ks (he has two on through company one through Union, neither huge because he did contribute that much); to get DH to contribute, I told him he could use his second 401k as his "fun money account". This year I have him maxing out his fun money account. DH's second 401(k) has the ability to be rolled into a life time payment - we are considering this but would put off triggering this;

i) DH's annuity - which was fully funded through his employer/union. We can take just the profits off it until the year he turns 70 1/2 at which point we can roll it into an IRA which would also require the RMDs, or annuitize.

j) paid off house;

k) my inheritance (which still needs to be better organized);

l) some SS - postpone DH's as he was the higher earner;

m) move to a lower COL area to reduce property tax and income tax.

I completely agree that working for a few more years solves every potential problems related to safety nets. I am going to work for at least two more years after FI, hopefully I will have some good safety nets by then.

 

[RAE]

We a couple of safety valves, but after 7 years of retirement we have not had to use them yet, and don't anticipate having to use them anytime soon:

- sell the lake home and invest the proceeds for extra income
- eliminate or shorten our annual winter stay on the Gulf Coast

Beyond those two, we could reduce expenses on other things if necessary, as I am still saving a little bit of our monthly income each month (I have a small pension, plus a small monthly withdrawal from our 401k).

The one thing I won't compromise on is taking care of our health (not just health insurance, but also eating high quality food and living in a place where we can exercise and generally live a healthy lifestyle).

Going back to work would be an absolute last resort, and I hope I never have to go there. I would much rather reduce expenses than do that!

 

[kcowan]

We would move fulltime to our condo in Mexico and our budget would drop in half. This would enable us to live on our pensions. We could cut out our annual trip to e.g. Europe and further cut our spending. We could reduce our quality of wine. We could reduce our quantity of wine. We could buy local Mexican liquor for $4/litre. We could reduce our cars from 3 to 1.

After doing all that, we would still have a pretty good life.