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For early retirees, what are your safety nets?
Old 08-09-2017, 09:40 AM   #1
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For early retirees, what are your safety nets?

We have just achieved FI in a few months, based on the 4% rule. We may retire in 2 years, anything could happen, so that is not a definite date. However, for a relatively financially conservative person, I will not retire solely based on the 4% rule, regardless of the soundness of the rule. I need some safety nets, backup plans, margins, buffers, or whatever you call them.

At this time, the only safety net that I can partially count on is the social security (not included in my FI calculation). Since I only worked for about 19 years, my SS in 10 years will be average, it is still something that may help us in 10 years or so.

The other things that I may think of:

(1) Pension, we have no pension.
(2) Children, I asked my children when they were in high school if they would support us in case we are in financial trouble. They said yes. But I would not count on that.
(3) Back to work. I am an academics. There is no way to go back to work with a comparable salary once I quit. I cannot think of being a Walmart greeter in my late 70s, even if Walmart has not be replaced by Amazon by then.
(4) Work for a few more years to build a 25% buffer in my retirement portfolio. This may be doable, but I really want to get out as soon as feasible.
(5) Inheritance, definitely no.

For early retirees, do you have some safety nets in mind when you decided to retire?
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Old 08-09-2017, 09:51 AM   #2
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My first safety net is realizing that 4% is not a rule at all, but a finding in a study that historically has worked over a 30 year period. It may or may not work in the future, over longer periods. So I had no plans to ER at 4%.


Beyond getting to a much safer WR--I'm around 3%--my safety net is luxuries in my budget I'd be willing to live without if things got tougher. This includes my house, which I'd be willing to downsize if needed.

Returning to work is another possible safety net, but after 6 years my skills in my field are too far outdated, so I'd be looking at a much smaller income. I preferred to work a couple years longer to greatly reduce the chance that I'd ever have to return to work, because I'd probably need to work 5 years or more to make the kind of money I was making.
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Old 08-09-2017, 09:52 AM   #3
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We always tracked expenses carefully so I had more than a decade's worth when we retired. I knew housing was big - so paid off the mortgage first. Health care is non negotiable. Next on the list - travel and dining. Both those are very much under our control and I know we can turn the dial sharply if we had to. Groceries? We can also eat less well if need be while still being healthy. So safety net is knowledge and having levers I know I can control. And having enough saved so that there is major headroom from current spending up to 4%.
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Old 08-09-2017, 10:04 AM   #4
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Quote:
Originally Posted by flyingaway View Post
.... For early retirees, do you have some safety nets in mind when you decided to retire?
Sounds like you are in your mid 50s.... if so, then I think 3.5% or 3% WR target is better than 4%. SS isn't a safety net... it is part of the plan... though some people haircut it 25-30% since after 2034 or so taxes collected will only be 75% of benefits.

Another safety net is trimming expenses... in ER we spend a lot on golf and travel that we could trim back necessary. Another safety net... probably a last resort... would be to sell our real estate and rent or do a reverse mortgage.

Nope... actually burdening our kids with supporting us would be the last resort. If it ever comes to that then while we will be miserable I'm sure that the rest of the world will be in a lot of hurt too.
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Old 08-09-2017, 10:09 AM   #5
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OP, in academics with no pension? That seems unusual. Every professor or teacher I know has a pension.

I guess our safety net is EE and I bonds we've had sitting there for about 25 years. EE bonds earning 4% and we don't touch them. I bonds are on and off, but we leave them alone. We estimate 3 years of saving as a safety net, which seems like a lot. I must have Chicken Little in my DNA.
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Old 08-09-2017, 10:13 AM   #6
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Since I never include my future inheritance or the value of my home in my NW calculations for purposes of determining my SWR, I guess those would be a part of any "safety net" that I might tap into should the need arise. FIRECalc tells me that my annual safe spending level would rise by about $12k/year if I included those amounts (conservatively estimated) as future lump sum additions to my NW, but of course there are large error bars on that figure considering all the unknowns.
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Old 08-09-2017, 10:14 AM   #7
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It's been said many times: "it's all about bringing expenses in line with available resources". So, I agree with others, that the best safety net for me is the "slack" in my budget and my confidence that I could cut it back fairly significantly, if absolutely necessary (I don't have any pensions either). Also agree with PB4Uski that SWR highly depends on age (expected remaining years), so if you are only 50, then 4% may be a bit aggressive.
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Old 08-09-2017, 10:17 AM   #8
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For early retirees, do you have some safety nets in mind when you decided to retire?
No pension, very little Social Security, children won't be asked to help, and we don't play the lottery, so no safety net at all. IMO, our biggest risk is not the market, it's me doing something real dumb, and I don't rule it out. As I age I need to make the portfolio safer from myself.

My only fallback is back to work.
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Old 08-09-2017, 10:18 AM   #9
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I guess our safety net is EE and I bonds we've had sitting there for about 25 years. EE bonds earning 4% and we don't touch them. I bonds are on and off, but we leave them alone. We estimate 3 years of saving as a safety net, which seems like a lot. I must have Chicken Little in my DNA.
Sorry for the digression and you probably know this, but EE bonds stop paying interest after 30 years, so you'll need a backup plan soon.
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Old 08-09-2017, 10:20 AM   #10
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  1. Expenses
  2. Expenses
  3. Expenses

.....in that order.
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Old 08-09-2017, 10:24 AM   #11
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Sorry for the digression and you probably know this, but EE bonds stop paying interest after 30 years, so you'll need a backup plan soon.
Thank you for the reminder. I try to forget about those bonds, I better pay attention!
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Old 08-09-2017, 10:26 AM   #12
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You asked your children when they were in high school if they would support you if you go broke? Who does that? I'm curious why you even consider that to be an option.

You haven't mentioned health care and in this day and age..4% is really pushing it IMO.
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Old 08-09-2017, 10:27 AM   #13
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My back up plan to to get a job as a porn star. May have to dye my hair and suck in my gut.
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Old 08-09-2017, 10:32 AM   #14
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I don't rely on 4% rule. Just use it as a data point on when retirement MAY be possible.
My safety net includes:
- Running Firecalc and I-ORP under many assumptions to get comfortable that we'll be ok under any situation I think is reasonable to assume may happen. We rerun these tools yearly to ensure our path is still looking ok.
- Analysis of 5 years of expenses so I have a great handle on total expenses and how much we can easliy cut back if needed to make ends meet.
- If all goes to heck and I need more money, I'll be happy to work at Walmart in my 70's (or anywhere else that will have me).
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Old 08-09-2017, 10:49 AM   #15
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My back up plan to to get a job as a porn star. May have to dye my hair and suck in my gut.


1. Cruise Ship Giglio.
2. SS at 70 covers enough plus some.
3. Daughters townhouse has a basement.
4. Switch back to cheap beer.

In that order.
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Old 08-09-2017, 10:51 AM   #16
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I will be reaching FI in a couple of months, and have thought about safety nets like crazy as hoping on investments consistently making me enough is way too stressful.
1) downsize
2) new house will have a rental suite in it, or have the ability to add it.
3) plan a budget and stick to your budget.
4) build a spreadsheet, track your finances, review annually.
5) things like travel come from your savings, not from your budget. i.e.) have the money set aside, so you aren't paying off your trip with next months food budget.
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Old 08-09-2017, 11:02 AM   #17
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OP, in academics with no pension? That seems unusual. Every professor or teacher I know has a pension.

I guess our safety net is EE and I bonds we've had sitting there for about 25 years. EE bonds earning 4% and we don't touch them. I bonds are on and off, but we leave them alone. We estimate 3 years of saving as a safety net, which seems like a lot. I must have Chicken Little in my DNA.
We do not have a pension. We have both 403(b) and 457(b). But I only knew that we can contribute to both in about three years ago. Paid lots of unnecessary taxes before.
(I worked very hard and did not pay any attention to my finances until about 5 or 7 years ago. A good outcome is that I did not do anything in either 2000 or 2008, because I knew nothing about investments).
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Old 08-09-2017, 11:17 AM   #18
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Everyone can have the safety net of reducing spending. So a good budget and a plan to cut out certain things in a down turn is good to have.

Next I have enough cash to take me through 2 years of spending.

I've also arranged things so that I don't need to withdraw from my DC accounts as I have a small DB pension and I own an income property that cover my expenses.

I have also contributed to both US and UK SS systems so that I will get two SS pensions.

I'm also consulting part time and putting the max into a solo401k.
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Old 08-09-2017, 11:21 AM   #19
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Reduce expenses, sell some real estate, inheritance, cash balances. Haven't started CPP (SS) yet but that would be immaterial.
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Old 08-09-2017, 11:29 AM   #20
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Our plan includes SS at a 30% haircut. I don't call it a "safety net," but rather a potentially conservative element in the plan. Others include the ability to downsize the home or reverse mortgage, and cut discretionary expenses like travel and home improvements.

Also, we are currently underspending by about 30% relative to FIRECalc 95% as a kind of "reserve" for some potential risks to the plan like LTC, longevity/inflation beyond what's in the plan, and financial assistance to my in-laws who are in their mid 80s and have essentially no assets left.

I suppose going back to work is always a possibility, although certainly not in the job and pay scale I had before. But that would only be necessary if all of the above goes wrong, which is highly unlikely. More likely, the kids will make out like bandits.

Being a burden on the kids or the state is not even a consideration.
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