Is it really so bad to FIRE during a recession?

[LRS]

I think it would be worse to retire just BEFORE a recession. In that case, you'd go off thinking your nest egg would be X, and then whammo...10% less immediately.

This is exactly what happened to a friend of mine. She quit at 62 assuming that her modest pension (cola=2% per annum) and social security (this year's cola=2.4%), augmented by modest savings (she's a simgle woman who did clerical work) combined with a frugal lifestyle, would be sufficient to last her the rest of her life.

If inflation had stayed in the 3%-4% range, she could have. But the unofficial inflation rate is about 8%, more if you factor in gas. She sold her car, trimmed all her expenses to the bone, and she still thinks she may have to ask her kids for money. It's killing her.

This isn't a case of a doctor wearing belts plus suspenders (in the financial sense), just a lower-middle-income single women who thought she could get by by living very frugally, and not making it. But I think the assumptions she made apply to all of us. Inflation and unexpected changes in our worldview (like the price of gasoline doubling or tripling) are what sinks retirements.

I've pushed back my retirement a couple of times ... now my husband is planning on retiring at age 58 (5 years) in order to get his full pension and benefits, and I am planning on retiring in 6 more years, to get my full pension. It's a huge setback for us (although we'll still be fairly young). I am not a doctor, miuch of my net worth is invested in real estate which has stagnated, and my investment funds are not doing great. I'd rather retire later and try to live off my pension for a few years in order to let my investments and real estate rebound.

 

[Helena]

Maybe better to retire in a recession than a little while before a recession--we all seem to be more realistic and cautious than when I first started reading these boards about four years ago.

I retired early a year ago... and never looked back.

I am completely out of debt [house, car, everything]
so my part-time self-employment pays all the bills,
while my nest egg still grows.

The hardest decision I have to make now.... is where
to go for lunch.


~

 

[Ed_The_Gypsy]

Rich, you worry too much. You can survive personal disasters that would reduce many of us to armed robbery.

 

[Rich_by_the_Bay]

Rich, you worry too much. You can survive personal disasters that would reduce many of us to armed robbery.

But...

Ah, I know .

 

[citrine]

I say go for it Rich....this is what you have worked for so hard all of those years!
Hang out on the beach, with your grandkids, your wife......you will never get these moments back again!
There will always be something screwy going on with our economy and it is never a "good enough" time to retire......it just has to be the good enough time for YOU to retire!

 

[retire@40]

I retired early a year ago...my part-time self-employment pays all the bills.

If being part-time self-employed still qualifies someone to be retired, then I've been retired for a while now and haven't even realized it.

 

[Marquette]

If being part-time self-employed still qualifies someone to be retired, then I've been retired for a while now and haven't even realized it.

Well, if you're part-time employed then that also means you're part-time retired... and a good case study for the 3rd edition of Bob's book!

 

[Helena]

If being part-time self-employed still qualifies someone to be retired, then I've been retired for a while now and haven't even realized it.

I am retired from my long time corporate job... and my part-time
self-employment is more like a glorified hobby, so it's fun, and not
like a real job... except it does bring in enough $$ to live on every
month.

~

 

[Milton]

only someone who really, really wants to be a doctor and stay one would go through so many years of schooling and wade through so much [-]bull caca[/-] nonsense in order to become one. In contrast, any retard with a BA from Clown College State University can work for megacorp.

In the great majority of cases, that's entirely true. But unfortunately there are a some dubious, proprietary, for-profit overseas medical schools that cater to applicants rejected by more reputable institutions. And no one says that a medical school grad has to go through the extra work necessary to become qualified as a specialist; some are happy just to work as GPs.

BTW, no disrespect intended to Rich or our other physician friends out there. I should also note that for every one dubious medical school in existance, there are probably at least 10 dubious law schools.

 

[CuppaJoe]

I plan to retire within the next year so most likely will retire into a recession. But as Finance_Dave says it’s better to know in advance. I try to rely on the ideas of spend-down plans like FIREcalc that the plan will work in good times and bad. So with the bad years up front I’m less likely to double or triple my assets. My mom used a spend down plan; at the end of her life she was just this side of going broke but had children to fall back on. Honestly, I was a little disappointed that she didn’t need financial help from me!

Rich, it sounds like you will be more than okay financially. If that were the only consideration, maybe you would retire now. Looking forward to hearing your continuing story.

 

[Lsbcal]

...So we are very vulnerable to inflation, especially in the next few years. ....

As you can see, the perfect storm for us would be 1) plummeting US dollar 2) high inflation 3) low market returns. It would seem that something approaching that is occurring.

...
6) extra cash on hand for emergencies
7) overweight portfolio in international, commodities, oil, to help mitigate decline of US dollar

Bosco, since you are vulnerable to inflation I'd think in the fixed income area you would want to have plenty of TIPS when real rates get up to more normal historic levels. Just a thought.

 

[bosco]

Bosco, since you are vulnerable to inflation I'd think in the fixed income area you would want to have plenty of TIPS when real rates get up to more normal historic levels. Just a thought.

I am very leery of US-denominated bonds, since I need to spend the returns in Canada. Given the massive debt and fiscal irresponsibility of the US government, I am unwilling to risk very much of the portfolio on any fixed-income instruments denominated in US dollars. The currency just doesn't seem very stable to me vis-a-vis a resource-based economy like Canada's. In addition, I have significant US-denominated pension income which causes me to be highly exposed to currency risk as it is.

However, Canada has a TIPS equivalent, and I do have some of those in my allocation, as well as international and emerging market bonds.

If there is a flaw in my thinking--I'm all ears.....

 

[Lsbcal]

Bosco, sounds like you have thought this through for your situation. Commodities (natural resources included) have been on a tear recently. But these things generally don't go on forever as there are natural counterforces like recessions for instance. I wouldn't personally bet too heavily against the dollar or overweight commodities. I have had about 1/3 of our equities in international funds for a few years now but am glad that at this time DODFX is hedging the Euro. I just practice moderation myself, no home runs but no strikeouts either.