How to Create a Sense of Psychological Security on the Road to Early Retirement?

[nico08]

I ultimately want to retire early. I am 41 years old. I probably need to work another 7 to 13 years.

I have a lot of anxiety about losing my job (and not being able to find another one), becoming disabled or having some other financial setback and not being able to meet my minimum expenses. I am single, so I do not have anyone else to rely on if I have an employment loss or other setback. I do have an emergency fund and I have some form of group-based long term disability insurance.

I have a fairly modest single residence home that is mortgage free. Using a safe withdrawal rate of 4% for my current retirement savings, I would have about a $16,000 withdrawal rate annually. My property tax, property insurance, utilities (electric, gas for heating, cable, internet, landline, water, sewer, garbage pickup, cell phone) will end up costing about $13,000. I will have a small defined pension benefit of about $12,000 (which was COLAed, but the state removed the COLA, and that is currrently the subject of a class action legal appeal) that will start 20 years from now and I will will be eligible for social security (if it still exists) in a reduced amount in about 20 years.

I know that the $13,000 annual expense does not account for food, car insurance and maintenance, car gas, entertainment, clothes, home repairs, health insurance, vacation or hobby expenses.

I am just trying to figure out how I can get some sense of security from knowing that at least my most basic needs will be covered if I loss my job (and am not able to find another one), become disabled or have some other financial setback and not being able to meet my minimum expenses. If I had a real sense that, even if everything went bad with work, the economy, my investment rate of return, etc., I could still have most basic needs covered, then I think some of this anxiety would go away and I would then be more productive, effective and optimistic.

How have others gained a sense of security from knowing that their savings/investments toward early retirement, while not complete, still have created a psychological advantage for them?

Thank you for your advice.

 

[W2R]

Sorry to hear that this is becoming a problem for you, as it was for me. When I was saving for ER, I had a sociopathic nightmare of a supervisor who had it in for me, and my job felt very insecure to me. There aren't many jobs for aging oceanographers that pay well. So, my first goal was to set myself up so that I could support myself with a minimum wage job if necessary.

Buying a modest home and paying it off in four years (as quickly as I could manage it) really helped. At least I knew that I wouldn't lose my home, should I lose my job. Sounds like you have already done this.

Meanwhile lots of LBYM really helped me to feel more secure. The objective for FI is to be able to generate the income necessary to live, and the more frugal one is, the less is needed for FI. Also, the more LBYM, the more one can save. Don't spend a single penny that isn't necessary, and examine those expenses you do think are necessary to see what can be eliminated. Can you live without cell phone, or without heat/AC during part of the year? Maybe you can reduce your expenses even further. At some point, spending and income you can generate will be equal, and at that point you are FI.

End of the story: my supervisor was promoted (!) out of my chain of command, and my best friend became my supervisor, about a year after I paid off my house. By that time I was FI and simply padding my nestegg, while waiting to qualify for official retirement and thus group medical in ER. So, everything worked out.

 

[nico08]

Sorry to hear that this is becoming a problem for you, as it was for me. When I was saving for ER, I had a sociopathic nightmare of a supervisor who had it in for me, and my job felt very insecure to me. There aren't many jobs for aging oceanographers that pay well. So, my first goal was to set myself up so that I could support myself with a minimum wage job if necessary.

Buying a modest home and paying it off in four years (as quickly as I could manage it) really helped. At least I knew that I wouldn't lose my home, should I lose my job.

Meanwhile lots of LBYM really helped me to feel more secure. The objective for FI is to be able to generate the income necessary to live, and the more frugal one is, the less is needed for FI.

End of the story: my supervisor was promoted (!) out of my chain of command, and my best friend became my supervisor, about a year after I paid off my house. By that time I was FI and simply padding my nestegg, while waiting to qualify for official retirement and thus group medical in ER. So, everything worked out.

Hi W2R:

Thank you for sharing your experience and your good advice. I guess I need to hope for the best, and plan for the worst (continue to LBYM, etc.).

 

[W2R]

Hi W2R:

Thank you for sharing your experience and your good advice. I guess I need to hope for the best, and plan for the worst (continue to LBYM, etc.).

No problem. I'm just sorry you are going through this. I would suggest hitting the LBYM really hard. Question every cent you spend. You can reach FI, and then have that security while you continue to work (while possible), padding your nestegg, after that.

 

[GandK]

My husband and I are looking at the same timeline for FIRE... somewhere between 7 and 13 years. The closer we get, the more excitement and anxiety I have. :-/

 

[REWahoo]

midnighter, what you are fretting about are the risks almost all of us take by virtue of being alive. Rather than focus on the fact you have no one else to support you if you fall on hard times, try to focus on the fact you won't have the burden of supporting a spouse and children should you fall on bad times...

My point is you are dwelling on the negative rather than giving equal time to the fact good things happen as well as bad things. Yes, you need to take reasonable steps to prepare for a possible job loss such as emergency savings, retirement savings, LBYM, disability insurance, and educational pursuits leading to career diversification. But there are limits to what any of us can do to influence fate.

We all have a choice in how we view our half-full glass. One view is much more enjoyable than the other.

 

[W2R]

midnighter, what you are fretting about are the risks almost all of us take by virtue of being alive. Rather than focus on the fact you have no one else to support you if you fall on hard times, try to focus on the fact you won't have the burden of supporting a spouse and children should you fall on bad times...

My point is you are dwelling on the negative rather than giving equal time to the fact good things happen as well as bad things. Yes, you need to take reasonable steps to prepare for a possible job loss such as emergency savings, retirement savings, LBYM, disability insurance, and educational pursuits leading to career diversification. But there are limits to what any of us can do to influence fate.

We all have a choice in how we view our half-full glass. One view is much more enjoyable than the other.

Yes, but isn't this worry a good motivation for LBYM to the point of FI? Why not use this anxiety for her own benefit, reaching FI faster than otherwise. Also, doing something about whatever makes one feel anxious seems to be a great coping mechanism.

Those who are not worriers by nature just don't get it.

 

[Mulligan]

Midnighter, I have been single for the last 15 years before I retired (and still am). I was fortunate enough to not be smart enough to think about becoming disabled before I made it to the finish line. Come to think about it, if I had become disabled, I would have been in deep s##t. Psychologically, I only worry about things I can control. The fact that you are so cognizant of potential problems should reassure yourself you will be fine. Is your pension projection based on walk away today, or based on working "x" amount of years more? Does the WEP figure into your SS, or is your pension a state ss/pension combo?
FWIT, I have a very nice pension, and that really is my only source of income as the WEP will knock my modest SS to about $100 at 62, so it will only cover the "flomax" or "lipitor" if needed. The reason I mention this, I could worry to death that they whack my pension to an unlivable level, but why ruin my retirement over worrying about something I cant control? I in fact doubled down on my pension by spending about $100,000 to buy 4 more years to retire even earlier, which was most of my money. Right or wrong, I made my bed now I am going to lay in it, with no regrets. I try to be prudent and save about 25% of my pension each month, but I will never accumulate enough assets to soley live on.
Continue to take comfort in the fact that you are being prudent and rational in your preparations for retirement. Everyone has worrys. I could in theory lose my pension, but people with no pensions, with 2 million in the bank have worries too. Withdrawal rates, out living assets, stock market collapses, low interest rate environments. Keep your head up and push a head. Dont forget to live a little " in the moment" and remember we all dont make it 80 let alone 60.

 

[REWahoo]

Yes, but isn't this worry a good motivation for LBYM to the point of FI? Why not use this anxiety for her own benefit, reaching FI faster than otherwise. Also, doing something about whatever makes one feel anxious seems to be a great coping mechanism.

Sure. But you can still be motivated to LBYM to the point of FI without wasting a lot of mental effort worrying about things over which you have little control.

Those who are not worriers by nature just don't get it.

Thankfully, apparently not.

 

[MichaelB]

I am just trying to figure out how I can get some sense of security from knowing that at least my most basic needs will be covered if I loss my job (and am not able to find another one), become disabled or have some other financial setback and not being able to meet my minimum expenses. If I had a real sense that, even if everything went bad with work, the economy, my investment rate of return, etc., I could still have most basic needs covered, then I think some of this anxiety would go away and I would then be more productive, effective and optimistic.

How have others gained a sense of security from knowing that their savings/investments toward early retirement, while not complete, still have created a psychological advantage for them?

Thank you for your advice.

This is a difficult topic because it is partly emotional, but you can deal with it by quantifying it. You can calculate a "worst case" scenario. How much is your minimum budget, and what is a low portfolio return. Combine the two and you know how much you need just to get by. Once you reach that number you know that risk has been dealt with, and you can set your sights on another target. You can add emergency funds for health and major home repair. The important step is to not think about risks in abstract form but express them in $$, then set financial targets to deal with each, one at a time, until you reach the point where you have effectively dealt with your financial risk.

 

[NW-Bound]

Midnighter, you are in much better financial shape than most people, including older workers. With a house paid for, a nice portfolio, a pension, gee, I think you already have to hide this from people you know for fear of envy.

Yet, the more we know about the perils in life, the more we fret. I tend to be a worrywart myself. So, I constantly ask myself what is the worst thing that can happen to me personally.

Having an uncurable cancer would be top of the list. Can't do anything about that! Even billionaires like Steve Jobs couldn't help themselves.

So, on the financial side, I ask myself what would happen if my networth drops drastically that I have to cut way down on my living conditions? Just from researching RV'ing as a mode of travel, I have found out that some RV'ers live full-time for dirt cheap, and they have a great time to boot. For example, search for "Kevin and Ruth" to learn about a couple who live well on $1K/month.

While I am not as resourceful as many people who can live on much less, I think if it comes to that, I can learn, adapt, and manage. I start to worry less about "lack of money".

It does not mean I do not want more money still. Hence, by self-analysis, I have called myself Scroogy.

 

[pb4uski]

Your worries are typical, but it seems like you have planned for them as best as you can.

You have disability insurance coverage that would provide for you if you were to become disabled.

The only thing you can do to prevent losing your job is to do a good job and be more valuable to your employer than others, not make (big) waves unless truly necessary, keep up your skills in your chosen field and your network of colleagues in your profession up-to-date, etc. Mostly common sense stuff.

You are saving and building a nestegg to provide for you in the event you become temporarily unemployed and for your retirement and you are LBYM.

You are doing everything that you can do that is within you control. What is beyond your control is the risks that we all live with, so lighten up on yourself.

 

[nico08]

Midnighter, I have been single for the last 15 years before I retired (and still am). I was fortunate enough to not be smart enough to think about becoming disabled before I made it to the finish line. Come to think about it, if I had become disabled, I would have been in deep s##t. Psychologically, I only worry about things I can control. The fact that you are so cognizant of potential problems should reassure yourself you will be fine. Is your pension projection based on walk away today, or based on working "x" amount of years more? Does the WEP figure into your SS, or is your pension a state ss/pension combo?
FWIT, I have a very nice pension, and that really is my only source of income as the WEP will knock my modest SS to about $100 at 62, so it will only cover the "flomax" or "lipitor" if needed. The reason I mention this, I could worry to death that they whack my pension to an unlivable level, but why ruin my retirement over worrying about something I cant control? I in fact doubled down on my pension by spending about $100,000 to buy 4 more years to retire even earlier, which was most of my money. Right or wrong, I made my bed now I am going to lay in it, with no regrets. I try to be prudent and save about 25% of my pension each month, but I will never accumulate enough assets to soley live on.
Continue to take comfort in the fact that you are being prudent and rational in your preparations for retirement. Everyone has worrys. I could in theory lose my pension, but people with no pensions, with 2 million in the bank have worries too. Withdrawal rates, out living assets, stock market collapses, low interest rate environments. Keep your head up and push a head. Dont forget to live a little " in the moment" and remember we all dont make it 80 let alone 60.

The pension is a vested deferred defined benefit pension. I put in 10 years of government service, vested in the pension, and left for a private sector job about five years ago. The state government pension is separate, and not affected by social security.

I do not know what WEP means.

 

[nico08]

Yes, but isn't this worry a good motivation for LBYM to the point of FI? Why not use this anxiety for her own benefit, reaching FI faster than otherwise. Also, doing something about whatever makes one feel anxious seems to be a great coping mechanism.

Those who are not worriers by nature just don't get it.

Yes, I am a worrier by nature. Sometimes it is an asset and sometimes it is a liability.

 

[easysurfer]

Midnighter,

I think that you are on the right track and remind me of myself a few years back in a similar situation. You've already "checked off" that you've accomplished some of the essentials, such as having an emergency fund and a mortgage free residence (it's a good feeling knowing that as long as you pay your property taxes, no one can kick you out of the roof over your head).

In my case, starting from about 10 years before I FIRE'd I was itching to go as my w*rk environment was pretty bad. What kept me sane and on target was keeping track of my financial situation and ask my self, "Can I do it if I FIRE? Can I do it?" as that was my sense of security knowing that I was proactive in building my own parachute away from w*rk.

 

[nico08]

The pension is a vested deferred defined benefit pension. I put in 10 years of government service, vested in the pension, and left for a private sector job about five years ago. The state government pension is separate, and not affected by social security.

I do not know what WEP means.

I just read on the Social Security website that WEP stands for windfall elimination provision. The state government pension is from New Jersey, so I don't think I am affected by WEP and will obtain the most Social Security benefit that I am entitled to.

 

[Koolau]

In the for-what-it's-worth department, I read a statistic that only 8% of the stuff folks worry about most will ever happen to them. Don't know where this comes from, but it helped me through some rough patches pre-FIRE. Still does.

In your case, I would consider your retirement "stash" to be your emergency back-up. IOW you already have an emergency fund, but, if you happen to be unemployed for a lengthy period, you DO have you retirement stash to fall back on. Not a pleasant thought to delay retirement even further, but much better than the guy who only has an emergency fund and no back up to that.

I guess it's all a matter of perspective. As someone mentioned, you are much better off than most. I realize that doesn't allay all fears, but it should give you some comfort to know.

I'll throw out one other "practical" suggestion for you. On several threads over the years, folks here have credited choosing the right life-partner as the key to their early-retirement success. I wouldn't suggest that's the only reason to look for one, but it sure can help. Yes, it increases your responsibility, but it also increases your back up. Plus it can be quite enjoyable to share a life. Probably not telling you anything you haven't thought of 100 times. Just another FWIW.

As the resident pessimist - see my tag line - I feel your pain.

 

[Chuckanut]

Good Topic! Having made the decision to retire, all sorts of spooks are coming out of the inky shadows to raise doubts about the decision. Most of them are 'What if??" questions. My biggest fears are health related problems (and the expense that comes with them), and fiscal irresponsibility of the Federal government resulting in high inflation that will destroy my life long savings. Other than that, I am a very happy camper!

 

[FIREd]

Planners tend to be worriers.

I used to constantly worry about the impact of a job loss, illness, disability, lawsuit, on my FIRE plans. I tried my best to protect ourselves from such eventualities: adequate emergency fund, health insurance, disability insurance, and umbrella insurance.

Plenty of other things could still go wrong, however. But at some point, you will have to accept that being alive carries plenty of risk. So prepare the best you can, cross your fingers, and hope for the best.

 

[brewer12345]

All you can do is layer in as much of a safety net as you can set up and then let it go/give it to God. Like everyone, at some point you pays your money and you takes your chances.

I think it is helpful to remember that everything does not have to follow according to your current plan in order for life to be great. 4 years ago I was expecting to retire at 40, stay where I was and have a stck of cash. Today I have relocated more than half way across the country, make a lot less money, and will probably not retire until I am 45 or older. You know what? I am way happier now than I was 4 years ago. And if I ha to make big changes to my life in order to make it, I would. You would do just as well, I am sure.

I think you have taken all the precautions I can think of except two:

- Go set up a HELOC. Most banks will do this for free and you can set it up and never draw a penny from it if you do not wish to. When the commode hit the windmill, being able to raise a big wad of cash in a hurry at nomina cost to me was a huge relief.

- Have you considered updating or augmenting your skills? One of the best ways to protect your earnings power is to spruce up your skills and perhaps get some marketable letters after your name. Many employers will even cover some or all of the expense.

 

[NW-Bound]

I have a lot of anxiety about losing my job ...

...not being able to meet my minimum expenses...

...I have a fairly modest single residence home that is mortgage free. Using a safe withdrawal rate of 4% for my current retirement savings, I would have about a $16,000 withdrawal rate annually. My property tax, property insurance, utilities (electric, gas for heating, cable, internet, landline, water, sewer, garbage pickup, cell phone) will end up costing about $13,000...

...I know that the $13,000 annual expense does not account for food, car insurance and maintenance, car gas, entertainment, clothes, home repairs, health insurance, vacation or hobby expenses...

...In your case, I would consider your retirement "stash" to be your emergency back-up. IOW you already have an emergency fund, but, if you happen to be unemployed for a lengthy period, you DO have you retirement stash to fall back on. Not a pleasant thought to delay retirement even further, but much better than the guy who only has an emergency fund and no back up to that...

Let's say somehow you cannot find a job in your current field. So, with a house paid for and low debt, to fill the time you can take a low-paying job, even a part-time one, to avoid tapping your retirement fund to allow it to grow. The plus side of some of these jobs is that they appear to be low-stress. For example, whenever I go to Trader Joes, I find the workers there to be helpful and in good spirit. Didn't ask, but I would suspect many were part-timers.

The worst case is you have to do ESR like that for a long period. So, if the job is low-stress, it may even be better for your health.

When my wife first quit her job, and had not figured out what she would do, she was interested in a part-time job at the local public library. Turned out that we did not need the money, and she has been happy being a house wife (she cooks good and healthy meals for me), so did not take that job, but it was a potential opportunity.

I think if one plays out the worst case scenario in his head (OK, just reasonable ones, and not calamitous, because no one can plan for that), and thinks of some potential solutions, it helps a lot.

 

[Amethyst]

Great idea. I really need to do this while rates are low. Is there any effect on one's credit rating from having an untapped, active HELOC?

Amethyst

A:

- Go set up a HELOC. Most banks will do this for free and you can set it up and never draw a penny from it if you do not wish to. .

 

[Lagniappe]

Midnighter,

I was very close to where you are a few years ago. A planner by nature, I developed seven or 8 scenarios - bare bones to living large. I color coded expenses (in order of importance) so in each scenario, I could see at a glance how much was covered. So, for example, my bare bones budget might have all expenses covered, while the scenario representing my current expenses might have mandatory expenses in green but everything discretionary still waiting to be funded. Over time, watching more and more expenses go green both helped me feel less anxious and kept me motivated. Knowing at a glance that if I lost my job tomorrow, most of my mandatory expenses would be covered helped me to stay (relatively) calm through all of the job and market turmoil in 2008 and 2009. And knowing just how much more I would need (from a part time job or additional savings) to attain the lifestyles in each scenario helped me make the decision to move to another location to reduce my expenses.

 

[Moemg]

I planned everything for our retirement and researched it to the tenth degree but I was blindsided by a few awful things that occurred that cut my net worth by a lot and stomped my plans .So in my mind the clue to less anxiety is to know that you have the resilience to handle whatever is thrown your way .It might not be the retirement you had planned for but it will still be a retirement .

 

[nico08]

Midnighter,

I was very close to where you are a few years ago. A planner by nature, I developed seven or 8 scenarios - bare bones to living large. I color coded expenses (in order of importance) so in each scenario, I could see at a glance how much was covered. So, for example, my bare bones budget might have all expenses covered, while the scenario representing my current expenses might have mandatory expenses in green but everything discretionary still waiting to be funded. Over time, watching more and more expenses go green both helped me feel less anxious and kept me motivated. Knowing at a glance that if I lost my job tomorrow, most of my mandatory expenses would be covered helped me to stay (relatively) calm through all of the job and market turmoil in 2008 and 2009. And knowing just how much more I would need (from a part time job or additional savings) to attain the lifestyles in each scenario helped me make the decision to move to another location to reduce my expenses.

Hi Lagniappe:

This is a good plan of action. I can try and create different spending scenarios as well as defining expenses as discretionary or mandatory. Then, as net worth increases, I can see the progress I am making toward covering discretionary expenses. This should create some sense of psychological security. Thanks.