Is This Down Stock Market Problematic as an Early Retiree?

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Is This Down Stock Market Problematic as an Early Retiree?

A down stock market? Is that true?

Yeah, unless you haven’t been paying attention, the market’s been on a not-so-fun ride lately in the direction that most folks tend to fear.

Most of last week was a stressful week for investors.

By the end of the day Wednesday, 02/23/2022, all gains in the S&P 500 since 06/21/2021 had been completely erased.

Thursday and Friday produced a pretty big uptick but not enough to compensate for the downward spiral the beginning of the week had caused. Who knows where we’ll be by the time this week gets underway?

As my favorite podcaster, Clark Howard, likes to iterate, “The stock market hates uncertainty.” And with this Russia/Ukraine situation, there’s been a lot of uncertainty.

If you’re still actively contributing and investing in the stock market, whether through a 401(k) plan, Roth IRA, or other means, this is something to be excited about rather than scared to see.

I’d rather the stock market be in the toilet every time I contributed… I love buying at a discounted price! You get a lot more for your money that way.

“[Be] fearful when others are greedy and [be] greedy only when others are fearful.”

Warren Buffett – Berkshire Hathaway, Inc. – “Chairman’s Letter – 1986”

But what about early retirees living off their portfolio? Should they be worried?

If you’re already retired, this can be scary if you’re drawing on your portfolio. When the market continues to climb as it essentially has since 2009 (minus the big dip on 03/20/2020), it’s exciting that you can continue to draw and spend yet magically your net worth is GROWING instead of shrinking.

As I write this though, on Friday, 02/25/22, our net worth is $1,578,368. It hasn’t been this low since April 2021. To put that in perspective, our net worth was $1,705,107 on January 1. It’s dropped over $126k (a 7.43% decrease) in less than two months… hoofa!

As a side note, I track and post our monthly net worth updates on my creatively-named Net Worth page. I use the free tool Empower (formerly Personal Capital) to easily track our investments, asset allocations, net worth, and more. Try it out and see if you love it as much as I do!

But if these crazy downturns continue, can this be the end of our early retirement? Can we even sleep at night with this down stock market flaunting its devil horns?

The answer is… it’s not a problem. It doesn’t bother me in the least.

Prior planning prevents crying during down stock market situations

I tend to look at the market once a day just out of curiosity, but it doesn’t concern me. Sure, I’d love for the market to continue to grow week after week without ever dropping. Since we’re mainly living off our portfolio, that would absolutely help us with the sequence of returns risk.

And if we had some more available cash, I’d love to buy at these cheaper prices. I just bought VTI at $214.47/share at the end of January with the remainder of our investable cash.

But other than that, I’m not worried because this is exactly the reason we put a plan in place BEFORE we retired. It’s too late to do this during volatile times like we’re having now, but preparation before the wild ride is what’s important.

We have a bucket strategy set up that helps us mitigate a risk just like this. I’ve written a couple of posts on how we structured this (The Breakdown of Our Net Worth Savings & Investments and The Drawdown on Investments – Our Game Plan), but since they’re a few years old, here’s the gist:

Essentially, we have different buckets of money in place with different purposes to help carry us in the case of a bear market. We try to balance these in a way that keeps us comfortable with the security of not needing to pull out the principal from our stock portfolio in a down stock market while still leaving the bulk of our portfolio to grow.

Our buckets are currently as follows:

1) Cash bucket

At the beginning of each year, we start with one year’s worth of annual expenses (plus a little wiggle room) in cash. This equates to about $50-55k that goes into our online savings account at Ally Bank.

Right now, it’s not earning much (0.5%), but it’s a lot more than it would accrue in a regular checking or savings account. And remember, this bucket is strictly about keeping the risk down- this is the money we’ll be using all year long.

I then have an automatic push of our monthly “allowance” from Ally to our checking account at Schwab. This is the account we live off of and use to pay off our credit cards every month and other bills.

Currently, we also have $20k in Series I Savings Bonds that we couldn’t pass up with the 7.12% return offered. We’ll continue to watch the rate to see what it does in the near future to help determine if we’ll keep these longer than a year or not.

2) Income bucket

We then have a 5-year bond ladder built using BulletShares fixed-income ETFs. Each of these investments contains about $50-60k in them.

  • BSCM Invesco BulletShares 2022 Corporate Bond ETF
  • BSCN Invesco BulletShares 2023 Corporate Bond ETF
  • BSCO Invesco BulletShares 2024 Corporate Bond ETF
  • BSCP Invesco BulletShares 2025 Corporate Bond ETF
  • BSCQ Invesco BulletShares 2026 Corporate Bond ETF

These are corporate bond funds that earn significantly more than if the money would sit in a bank account but less than the stock market tends to yield over the long run. This money will be needed over the next 1-5 years so I don’t want it to be at risk of a down stock market. That means lower risk than the market but also less of a return.

This is really the biggest key to our bucket strategy and also the big variable as to how many years’ worth we’ll have on hand.

At the end of each year, the bond fund matures and goes into Ally to become our cash bucket for the year. If the stock market is good, I’ll then sell some of our stock and buy another ETF for the tail-end of the ladder. Easy peasy and that’s what I’ve been doing over the past few years in the bull market we’ve had.

But if we’re in a down stock market scenario, I don’t necessarily need to do that. I can technically just not do anything more at that time and buy another year’s worth at another point in time, whether that be later in the year or even a few years down the line. This bucket essentially gives me a 5-year buffer of flexibility to allow time for a down stock market to recover.

This obviously cuts into a portion of our portfolio having the opportunity for more growth (for instance, if I did 3 years of these bond funds instead of 5). However, I’m willing to sacrifice that for the comfort of knowing that we won’t have a big worry in the case of a massive down stock market that drags on for years.

We also own a little less than $100k of Vanguard Real Estate ETF (VNQ). When we sold our last rental property in early 2021, I moved our proceeds over to VNQ. This REIT gives us a lot of the benefits of owning real estate without the headaches. It’s also a nice hedge against the stock market.

3) Growth bucket

Everything else stays in this bucket. The growth bucket is something we don’t need to touch for years, so the ups and downs of the market don’t bother us. We’re accepting of these peaks and valleys with the assumption that the stock market will grow over the long haul resulting in a good return.

Currently, we’re holding:

  • Vanguard Total Stock Market ETF (VTI)
  • A few fun stocks we held onto such as Amazon, Google, and Disney

VTI is by far the largest percentage of our total portfolio – our current position is valued at over $1 million. This is because I believe that owning a low-cost total stock market index fund like this is the smart move over the long haul. This was an eye-opener I had after reading JL Collins’ amazing book, The Simple Path to Wealth.

That said, I’m counting on the other buckets to help smooth the ride along the way.

This is far from the only way to set up a bucket strategy. My buddy Fritz, who is the one who schooled me on this whole idea wrote a fantastic post on the subject, How to Build A Retirement Paycheck From Your Investments.

You’ll see that his strategy is designed differently than mine. Since everyone’s finances and goals are different, you need to determine a solution that works best for you.

Disclaimer: Just a reminder, I’m not a financial advisor. What you’re seeing is just what I’ve decided to do with my money. Talk to a professional before wreaking havoc on your own portfolio.

So, as an early retiree, planning in advance for wild rides like we saw last week (and what will likely continue) has been the key to my worry-free attitude.

My thoughts go out to the Ukrainian people – wars that revolve around power and greed from bullies are not acceptable and bother me tremendously.

My biggest concern on a personal level, however, isn’t related to the stock market at all. Instead, this situation is going to dramatically impact fuel prices. And since we’re planning on a month-long road trip this summer once we move back to the U.S., this can be a real concern.

It’s too early to tell, but if we’re seeing gas prices of $4, $5, or $6 a gallon, that can add up for this big trip. Although we don’t have a path set in stone yet, we jotted down a rough draft of our trip and we’re looking at over 5,600 miles total. So even a dollar increase means a nice jump in expenses!

We’re probably still good, but if not, we may have to modify our plans somewhat if a big increase happens and decides to stick around into the summer.

But does the down stock market worry me as an early retiree? Not in the least… sleeping like a baby!

Is this wild and crazy down stock market worrying you?

Plan well, take action, and live your best life!

Thanks for reading!!

— Jim

You know you wanna share this!!

25 thoughts on “Is This Down Stock Market Problematic as an Early Retiree?”

  1. I’m a new enough retiree that sequence of return is still a real risk. But this downward volatility due to the war doesn’t concern me too much. I’m looking at converting some traditional IRA stock holdings to my Roth IRA now rather than waiting to end of year to assess, but not much else. The cash bucket and bond ladder helps. Inflation concerns me more, and I have rotated to more REITs over the last year as a hedge against inflation. Otherwise, it’s just tighten my seatbelt and keep hands inside the car at all times.

  2. Another place to consider investing non-stock market money is:

    Fidelity Floating Rate High Income Fund (FFRHX) Current Yield: 3.07%, Duration: 0.19

    In an increasing interest rate market, it is important to know a bond fund’s duration. A 1% interest rate hike in a fund with a 3 year duration, translates into a 3% loss of principal. A 1% interest hike in a fund with a 10 year duration, translates into a 10% loss in principal. This explains why bonds funds are not doing well in the current market. The fund listed above is constantly turning over, so it keeps up with the prevailing yield and has minimal impact from interest increases because of its short duration; but like anything else it is not free of risk.

    1. It has been a favorite of mine for a long time now. Wish the expense ratio was a little lower but it has done quite well for the more conservative part of our portfolio.

  3. Not too worried about the stock market. We always keep some powder dry for opportunities that arise. I am concerned about the effects of inflation(stagflation) long term, the state of the union and the global effects of the war between Ukraine and Russia. As it stands I don’t see Putin backing down so the future landscape hasn’t been this sketchy in a long time. Even with this uncertainty I put the blinders on and separate the markets from the emotions of what is going on.

    1. Such a terrible situation. I don’t think anyone could know how this whole thing is going to play out, which is obviously the concern throwing the market in a tizzy. I’m with you though and just try to take the emotion out of the equation when investing.

  4. Great timing on this post. Thank you for reminding everyone that planning makes for peaceful sleeping ?. I am praying for the sanctions to have an affect on the bully’s agenda. His greed and power won’t stop with one country if he’s allowed to succeed. History tells us what can happen.
    Congratulations on your article ?. So exciting ?

    1. Yeah, I know it sounds like everyone should already know to plan ahead, but unfortunately, I think a lot of folks don’t realize that there are actually ways to do this. Hopefully, this post helped some people to restructure their own portfolio once the dust settles (and we all hope it does sooner than later!).

      And thanks for the congrats, Kathy – much appreciated! 🙂

  5. Volatility doesn’t bother me in the least. These are just wiggles in market prices!

    The market is always going to be fluctuating up (or down). That’s the honest truth. Unfortunately it’s been so long since we had a down market, I think most people forgot bear markets were perfectly normal.

    Frankly, the market could continue to go down for *years* and we’d still be in the realm of perfectly normal behavior.

    I say “Let the market wiggle around. Real investors will keep acquiring assets regardless.”

    1. Great points, Mr. Tako! This has been one heckuva climb in the market over the years and the was probably overdue regardless. While some folks jump in and out, real investors as you put it, will just stay the course and keep investing. 🙂

  6. Hi, Jim!
    Just received my Kiplinger’s and saw your family picture on page 53. How exciting, especially for Faith! I’ve been following your story for a few years as my mom was a native Panamanian. She moved to the US California and obtained her citizenship in 1960. I’ve been to Panama once on my 18th birthday back in the 80s. I’ll never forget the severe humidity and all the free-for-all driving in Panama City. Haha. It was wild. Very beautiful country, though. Take care and safe travels. Lisa

    1. It’s a little surreal to have our photo smack-dab in the middle of Kiplinger’s Personal Finance magazine, but still fun, too! I don’t think Faith realizes just how big that magazine really is.

      Haha, yes, I don’t know how folks take that heat/humidity and fun driving in Panama City. I’ll take the moderate temps and small-town atmosphere of Boquete any day. That said, the drivers here make it a sort of free-for-all as well here! 🙂

      I would imagine that so much had to have changed since your visit here. Have you ever wanted to come back and visit again?

      1. Hi, Jim!
        No, no more trips to Panama. I’m not a huge traveler and experienced three weeks there, which was enough for me. I enjoyed the beaches, food and going through one of the locks on a Japanese ship. My uncle was an engineer on the Panama Canal so we enjoyed an exclusive experience. I have to say, though, I wore my hair up in a bun the whole time in Panama City. The humidity made my hair an uncontrollable frizzy mess. 🙂

        What an amazing experience you and your wife have provided to your daughter. This will be a time she’ll never forget. A copy of Kiplinger’s is going to be a great keepsake for her. Take care.

  7. I’m not too worried because I’m in Thailand and I’m not paying much attention. 😀
    I’d probably worry more if I’m home. But even then, I wouldn’t adjust much. We already have a steady conservative strategy so we’re okay to weather this kind of downturn.

  8. It’s good you are not worried. Means you’ve got the right asset allocation.

    Personally, I am worried about the black swan event where the war keeps on going, keeps going west, and nuclear construction starts.

    What a mostly sad for the Ukrainian and Russian people who did not want this war. Their lives are now ruined. Can you imagine investing in the stock market and seeing all your assets go down by 80% or more in one week?

    I will say it’s a bummer to no longer be making money in the stock market. But one of the positive as is, nobody harasses me about my Financial Samurai safe withdrawal rate formal anymore!



    1. Yeah, there’s always that black swan event that can happen. I don’t think this will be it, but only time will tell.

      I 100% agree about the people. Power and greed tend to drive wars and it’s always the regular people who suffer. Extremely sad.

  9. I don’t know if I had just not read enough drawdown strategies but yours is amazing. The 5-year bond ladder combined with the cash allowance is such a work of art. It makes a lot of sense. We are planning to retire in 7 or so years and our worry the market just plunging down when we pull the plug on full time work?

    Since we work in healthcare (where there’s always demand) the Plan B I thought of is to go back and work until everything goes back to normal, but this strategy just made my eyes twinkle. We might not have to go back to work, instead we could enjoy our early retirement.

    Yes, we might not maximize portfolio growth, but certainty and security will go a long way if it makes us sleep better at night.

    Appreciate your post very much!

  10. If I hold BulletShares to maturity, will I be guaranteed to not lose money, even when interest rates rise? If so, then they are exactly what I need now that I’m retired!

    1. Hi Kim, there’s always going to be some risk. You can read the risk information for BSJN, which is the Invesco BulletShares 2023 High Yield Corporate Bond ETF for this year, at

      Right now, one of the lowest-risk investments with a good return are Series I Savings Bonds. I wrote about them in November in my post, Getting a 7.12% Return With Series I Savings Bonds. With interest rates rising, this is something I like a lot. However, you can only put in a limited amount each year. It won’t stay that way forever but right now it’s a hard one to beat. 🙂

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