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.
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!!!
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