It’s a strange time. War. Inflation. Recession. This is reflected in the stock market:
However, I also think this is probably a great time to retire. Hear me out.
Everything Is Cyclical
Before I liberated myself from formal work back in 2017, I frequently had this thought:
Now is not a good time to quit.
The reason was that the market had been on an epic run. Here is what Mr. Market looked like from the start of this experiment (1/1/2013) to the day I quit (4/13/2017):
But everything is cyclical. I was worried that the markets would tank shortly after I quit and the Sequence Of Returns Monster would rear its ugly head. The worst time to retire is at a time like this when the Sequence Monster will hurt your compounding:
I had nothing to worry about. Mr. Market continued his march up. From my retirement in 2017 through the end of 2021, returns were mostly glorious:
Also, Mindy unexpectedly went back to work which negated any risk.
The Bull Follows The Bear
My general investment philosophy is the more bearish things feel in the short run the more bullish I should be over the long run.-Ben Carlson (Getting Long-Term Bullish)
Markets usually do pretty well after a big decline. This makes sense:
1) The world experiences some form of trauma:
- Financial derivatives crash the market
- A bubble pops
2) Economies suffer and Mr. Market reacts accordingly. Down.
3) Humans solve the problem.
4) Life goes on. Some businesses have failed, but they were weak and may have been artificially propped up. The rest of the world recovers and moves on. This is reflected in the stock market which returns to normally scheduled programming (up and to the right).
The cause of the next correction is impossible to predict. So is the timing. However, I can tell you with absolute certainty that there will be more corrections. Many more.
Finally, you must remember that sequence of returns works both ways. While a big decline early in retirement creates risk, a big run-up at that same point in time will set you up nicely. This is exactly what happened to me. I planned to retire on somewhere around $1,200,000 ($1,000,000 and enough to pay off our house, but not actually pay it off). But then Mr. Market kept going nuts and we topped out at about $5,200,000 in November of 2021. Crazy. Fast forward to today and we’re down $1,350,000, but that means we still have $3,850,000 which is more than triple the amount of my original retirement plan.
Life is good. One more time:
How long will it last? Most modern recessions are short-lived. Post WW2, the average recession is 10 months. But past underperformance is not indicative of future underperformance. Someone once said:
The markets can remain irrational longer than you can remain solvent.-John Maynard Keynes?
Do you still have enough? This exercise assumes that after the decline, you still have enough money to retire. If you thought you needed $1,000,000 to retire, but Mr. Market kicked you down to $800,000, perhaps retiring will give you too much anxiety. Continuing to work and contribute to retirement accounts when the store is on sale isn’t a bad idea.
When is the right time? All of this reeks of market timing! Do you stop working after a:
- 5% decline (every 1.1 years)?
- 10% decline (every 1.6 years)?
- 15% decline (every 2.5 years)?
- 20% decline (every 4 years)?
- 30% (every 9 years)?
(Note: The stats above come from this site.)
Perhaps we should all mostly forget these numbers and quit when emotionally ready. If you’re playing it close to the 4% Rule, tread carefully. Otherwise, let it rip.
I think most (me included, hence this post) spend waaaaay too much time thinking about our numbers. What if we thought about life instead? This is what really matters.
Be flexible and it will be alright.
What Is The Point Of This Post Then?!??
The stock market is the only store when people run for the exits when everything is on sale.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.-Warren Buffett/ Benjamin Graham
I see a lot of folks freaking out when markets crash. If you retired and markets dropped 25% the next day, you have an excuse to freak out, at least a little. For everyone else, this is opportunity. Invest when VTSAX is a little cheaper. Or, retire knowing that Mr. Market is more likely to move up than down in the near term.
More 1500 Days!!!
You can also find me (and the dinosaurs) at:
Mile High FI podcast:
- Facebook: Facebook group and page
- YouTube: My channel is mostly devoted to home improvement, but I have some other material coming up soon too.
- Instagram: Pretty pictures of dinosaurs, sunsets, and nail guns!
- Twitter: Spontaneous, often insane, ramblings
- Coworking space: On the surface, MMM HQ is a coworking space. Look a little deeper and you’ll see that we’re really building community. The members of MMM HQ are some of the finest people I know.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
Are you implying something?
Mr. 1500 Days says
Well, your tile job would get done a lot faster!
This is my best year for investing in terms of dollars invested. I went double down this year. If 2023, continues to be down it, it’s a blessing in disguise for me. I cannot complain. Life is good.
To be honest, if I lost $1.4 million since the beginning of this year, I would not retire.
I would continue to make my wife work and at least pretend like I was working to make up for losses.
I would go back to work to make up for your losses. That’s a huge decline in net worth. If you had a $15 million net worth, losing $1.4 million is OK. But not when your net worth is under $5 million.
I think there is a typo in your Warren Buffett / Benjamin Graham Quote.
The stock market is the only store when people “fun” for the exits when everything is on sale.
I assume it should be run!
Loads of people putting off the ER part of FIRE – https://youtu.be/MpYrlX9mFT0 Folks like us that invested and hit FI sometime between 2009 to 2016 will be in good shape even with a 50% drop…
Danny the Pizza Guy says
Great post Carl, and hope you and the family are doing great! Been thinking about this a lot lately, but for a weird reason. I know many in this community love the Roth conversion ladder (as they should, it’s awesome). However, with the increase in the Applicable Federal Rates (APR) the past year, the 72(t) Early Distribution strategy has started to become more attractive in our scenario (our ages, having a good pot of pre-tax money, and making our effective tax rate a low single digit, if not 0). Seriously considering it, and going to look at the APR’s in the coming months.
Mr. 1500 Days says
Danny! Great to hear from you! Coincidentally, we’ll be in NYC 3 months! Maybe I’ll see you?
I’d be curious to know more about what you decide to do.
Danny the Pizza Guy says
Oh nice! If the stars align, definitely! Going to be out of town the last full week in Feb, otherwise pretty wide open at this point.
I’m curious too haha! Few things going on mid-term and long-term we’d like to do, but would be tough to see the APR’s go down, if they did. Would make for an interesting discussion.
Paul S says
The only issue is the Fed. In past recessions Fed came to the rescue. This time it is tightening and if someone needs to sell investments to live off the proceeds, today would be a scary time to retire. I’d personally continue working in that case. However, if someone can live off dividend income and other cashflow streams, then ignoring the market is totally fine. As you said – it will eventually recover.
Mr. 1500 Days says
Agreed that the idea of selling now is painful. It does seem like the Fed is overdoing it. Also, I’m not sure that tightening solves one of the core problems which is lack of workers. I recently got a quote for a cleaner and the price was $90/hour! Insane.
Perhaps the US needs to revamp immigration policy to expand the workforce?
Is it the lack of workers though, or lack of policies that would stimulate people to go and work? People either want a handout from the government or to be a TikTok superstar, just not to work a regular job.
Brian O says
You have a good outlook on loss, I used to. These days I find myself playing defense, which helped this year as interest rates rose. I am contemplating putting the 1.5 mill in ira into a 7 year cd for income. Seems the losses effect me more these days.