FI and Early Retirement… Could It All Come Crashing Down?

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FI and Early Retirement... Could It All Come Crashing Down?I’m not going to lie – being FI (financially independent) is a truly awesome feeling.  To realize that you don’t need to work again if you don’t want to takes such a massive weight off of your shoulders.

But if you take it to the next level and throw in early retirement, you’re now solely depending on whatever you’ve put in place to sustain that financial independence.

That’s scary.  No, I mean, that’s really scary.

If you continue to work, you don’t share that risk until you actually decide to leave your job.

But once you do, you better hope that your savings or income streams will cover you for the long haul.  If not, you could have a real problem.

Right now though, this bull market’s been insanely strong.  It seems like everyone’s on cloud nine like we should all be sipping expensive champagne at elite parties wearing fancy tuxes and ballgowns.

According to Grow By Acorns, from 2010-2019:

[…] the S&P 500 rose more than 370% during the current bull market run.  Taking into account total returns, which assumes you reinvest dividends, those returns swelled to more than 490%.


[…] the S&P 500 rose almost 29% in 2019 for the 10th best year of returns in history for this index.

Of course, everyone’s thrilled to see that, but let’s think this through a little bit.

First of all, for those in the accumulation stage who are still working and saving, a strong market isn’t the best thing for your portfolio.  If you’re not planning to leave your job for a while, you should be rooting for the market to be in the toilet.

Buying shares at a discounted price is a fantastic way for your portfolio to grow.  When you’re getting ready to start withdrawing the money is when you want that market to boom.

But if you’re FI and either retired or close to it, this powerhouse of growth in the market can be really scary.


Because even though we have absolutely no idea when the next market crash is going to happen, psychologically we don’t believe it.  We start to think that we do know.  We reason that if the market’s been this strong, it’s got to be close to the top and ready to come crashing down very soon.

Will it?

Couldn’t tell you.  The market could have lost everything it gained over the past decade or more by the time this post comes out.  Or it could keep growing strong for years to come.  Absolutely no one knows when a bear market’s going to happen and if they try to convince you otherwise, be sure not to take their advice for your own finances.


Can the FI and RE folks survive a market crash?

Even though we don’t know when things are going to go south, it’s still Ok to wonder about it.  Really, it’s the smart thing to do.  You should always be preparing as best you can for any scenario, good or bad.

In fact, Tracy Alloway, the Executive Editor at Bloomberg recently threw out her own bit of speculation with this comment on Twitter…

That’s a fair question.  First of all, if you don’t completely understand the intricacies of how most folks in the FIRE movement do their planning, it could seem like the only way you’d survive is if the market is always going up.

Plus, there are plenty of naysayers hoping the FIRE movement will die.  The media loves that as well – instilling fear and doubt makes for better news, right?  That can cause a lot of people (like possibly Tracy) to be curious if the end is near!

Fortunately, we know better.  A big takeaway from the Trinity Study tells us that we can safely pull out 4% of our portfolio (adjusted for inflation) every year.  It’s even been dubbed as the 4% rule by the personal finance community.  The research shows that over a 30-year period, following this withdrawal strategy rigidly should prevent us from ever running out of money.

In many cases, you’d actually end up with more money in your portfolio than you started with.  The study was based on historical returns and takes into consideration the ups and downs of the market – including the end of the bull markets like Tracy’s referring to.

So if you’re FI (financially independent) and you’re basing your retirement plans off of the 4% rule of thumb, the end of the bull market shouldn’t ruin you… though it may bang you up a little depending on when you retire and when it ends.

But not everyone relies solely on the 4% rule (including me).  Generally, that helps get you in the ballpark to FI, but then you put other plans in place such as:

  • The bucket strategy (Fritz does a great job discussing this in his post How to Build A Retirement Paycheck From Your Investments)
  • Pulling out less than 4% of your portfolio every year
  • Just being more flexible on your withdrawal amount depending on market conditions
  • Having other income streams in place

In our case, we’re planning to do all of the above.  We’re already implementing the bucket strategy.  We’re also spending a good deal less than 4% (my guess is about 3.5% now that we’re settled).

And we can easily adapt and cut some costs if the market tanks.  Then we have a duplex we own in Ohio throwing off some money that isn’t tied to the stock market.  Finally, I do anticipate that we’ll bring in additional income through different outlets like this site and other projects.

Seems pretty solid to me!  I shouldn’t have a care in the world or rarely even need to think about money, right?


What, me worry?

We’re now a little over a year in since I walked away from my career and things have been great (both financially and otherwise).

Alfred E. Neuman
One of the original inspirations for Mad Magazine’s “What, me worry?” kid.

Now, that said, I do have some things that do weigh on my mind.  I don’t know about others who have reached FI and pulled the trigger on early retirement, but I do think about money and the “what-ifs”… a lot!

  • Do we really have enough money saved in our portfolio?
  • What if the market crashes sooner than later?  Could the sequence of returns risk ruin us?
  • What if we have a major downturn and five years’ worth of expenses in our bond fund ladder and savings in our bucket strategy isn’t enough?
  • What if stock market returns aren’t good enough over the next few decades or inflation starts climbing much faster?  The Trinity Study and the 4% rule are based on historical data from the years 1926 to 1995.  But things can change and that could throw our planning right out the window.
  • Speaking of change, what if we decide to move back from Panama – a place where our costs are so much cheaper?  We did base our spending as if we were living in the U.S., but can we truly afford to live there?

Am I worried because we just thought “yeah, we’re good” and quit my job?

Not at all.  This has been years of learning and planning.  Then on top of it, I’ve had three different financial planners give the thumbs up on our numbers and plans.  Three!

So no, I’m certainly not concerned that we jumped into this without a sound plan in place.

But there’s no way to be 100% certain about this.  Shit happens.  Yeah, I said it.  It does.  We don’t have a pension, annuity, or anything like that in place.  That means we don’t have any “guarantees” on our finances.

The entire foundation of our plan is that, based on “historical data”, our portfolio should sustain us for decades to come.  Then we put some mitigation techniques in place (like I mentioned earlier) to help carry us in the case of some variance.

We should be fine, but there’s still a lot at stake.  It’s not just me and Lisa enjoying the benefits of being retired – we have a nine-year-old daughter here we need to be concerned about.

So yeah, I do worry about the future.  History tends to repeat itself but it’s not completely predictable either.  It could all fall to @#$# at the drop of a hat.

I absolutely do feel we made the right move.  We did some thorough planning and at some point, you gotta pull the trigger.  Like I wrote in the article How to Get Up the Nerve to Retire for ESI Money, you can’t let “one more year” syndrome be what controls your future.

In the meantime, I’ll be rebalancing our portfolio a little more often.  Once you know your desired asset allocation, rebalancing can ensure that you’re buying low and selling high.

For example, let’s say that you have a desired portfolio asset allocation of 75% stocks and 25% bonds.  As stock prices go up, the values in your portfolio go up.  That means that the percentage of stock allocation might move up to 80%.

Periodically (once or twice a year), you then go in and sell some stocks and buy more bonds to get the percentages back in line.  It’s also important to do it in times when bonds start taking a bigger percentage of your portfolio as well – sell some bonds and buy more stocks to get the numbers back in check.

See how this forces you to buy low and sell high?  With how crazy this bull market’s been, I’m going to do the rebalancing more often for the time being… maybe every couple of months?

Jim Collins discusses this a lot more in his post Stocks — Part XXIII: Selecting your asset allocation from his phenomenal Stock Series, which I recommend that everyone read.

And if you’re wondering how to see what your asset allocation is, I highly recommend Empower (formerly Personal Capital).  It’s free and lets you easily connect your investment accounts.  With a single click, you can then see what your asset allocation is.  Then you can make changes and see the updates on the site (or app).  I love how simple it is!

Like it or not, none of us will ever have 100% control over your destiny – even with the blessings FI has given us.  All I can do is enjoy today (I do!) and the real quality time my family and I are spending together while still always keeping an eye on the future.  Then, we just adapt as needed.


If you’re already FI, do you still think about the possibility of things crumbling?  If you’re not FI, does that idea make it more difficult to know when to pull the trigger and stop working?


Thanks for reading!!

— Jim

You know you wanna share this!!

22 thoughts on “FI and Early Retirement… Could It All Come Crashing Down?”

  1. We’re targeting a withdrawal rate of 3.25% based on where our investment account was about 4 months ago – so we are probably fine. Especially once we sell our CA house and move to a lower cost state – funds we may net from the sale are not calculated in the withdrawal plan since most will be redeployed to housing anyway. I actually submitted for a job in one of our potential retirement spots – not sure I’d get it but mostly because I am sure they will sense my ambivalence.

    Each month of the bull reduces my sequence of return risk. I worry more about inflation, which may be more challenging then sequence risk.

    One thing I recently learned. I was keeping my biggest cash bucket in my federal TSP account. But when you do a withdrawal from the TSP they take it proportionately from each of the sub accounts – so they would be pulling from stocks as well as my cash in a bear market. I’m transferring my cash bucket to Vanguard IRA to correct this weakness. It will also allow me to do some Roth conversions later this year.

    Keeping diversified and within the bucket lanes seems to be best protection.

    1. 3.25% withdrawal rate should put you in a great spot!

      That’s interesting on the TSP accounts – I’m not very familiar with them, but yeah, that could be a problem. Nice job spotting that point of potential failure and patching it up by moving the cash bucket!

  2. Just a couple comments…

    We reduce our risk by being more 50/50-60/40 stock bond ratio. If the market tanks 30% I should only go down 15% which is no issue. We also lean towards dividend payers and value. If you use the “dividend shield” approach of FIRECracker you should be able to get by on just dividends until the market recovers if it falls. That along with being flexible should allow anyone following FIRE to weather the storm.

    If you do decide to move back to the states I see no reason you can’t live well. We still live in Ohio for now and get by just fine. We are in a position where only my wife works. We just live on what she makes and let our investment grows. Just make sure you have no debt and keep your property taxes low.

    1. It’s always a tough balance on minimizing risk and still allowing for growth. Because I’m anticipating a lot of years on this portfolio, I have to be careful of being too weight in bonds. I trust the long term growth but it’s scary to think that we’re basing this solely on history.

      Going the dividend route though is a smart move. I know a number of folks in the community who are good at focusing on building a nice income from dividend stocks. That could be something maybe I should build up into another stream.

      I still love Ohio (minus the winters!) and it’s a nice low-cost state to live in. I think my concern with moving back would be health care more than anything. That beast is a moving target that just keeps getting more and more out of hand.

      I appreciate the input, Scott!

      1. I’m a few years older (51) and have a shorter runway than you do. With my kids being in high school and college I only have 8 years to go until tapping my money. I would like my income stream to pay for what we do in life and keep the principle working. It is that whole issue of spending down. Now that makes me uneasy. I don’t want to kill the goose that laid the golden egg or my giving tree to end up a stump.

        Health care is always the big X factor. I’m not sure what the costs are on the ACA. I’m glad my wife has a flexible job where she can work from home a lot. I think someone called it a glide path. We don’t have to save any more (though we still do with an HSA etc.) and just let our current savings grow. This lets us live off her pay until we need to tap it later on. I expect to do something like consult or get into real estate at some point for fun. I love being FI.

        1. I’m with you on loving FI. What’s great is all the flexibility we have in making choices. If we move back to the U.S., I would bet that my wife would want to get a flexible job as well just to have something “fun” to do. That extra income never hurt anyone! 😉

  3. Jim, thanks for the shoutout on my Bucket Strategy post. I’ve gotta say, I’ve been pleasantly surprised how little I worry about money now that we’re post-FIRE. Knowing we’ve got enough “dry tinder” on hand to survive all but the worst bear market is enough to keep me sleeping soundly at night. I choose to focus on the many positive aspects of early retirement, and I’m intentional on keeping the worry at bay. Thus far, it’s worked out well. Ask me again after that Bear attacks. It’s only a matter of time, after all.

    1. Of course I’m going to give you the shout-out, Fritz – that’s probably the smartest facet of my portfolio!

      I have no complaints about where we’re at (loving life and early retirement!), but I do like to be cautious. I need to trust in the plan more and not worry about things like you. But yeah, I’ll hit you up in the next bear market! 😉

  4. We’re at 4% currently and income is still coming in this year (through lingering freelance contracts that we’re closing down slowly), so we’re sort of doing a One More Year without intending to do so. I don’t lose a lot of sleep over safe withdrawal rates since we both maintain our professional licenses and credentials, and keep an ear to the ground for exciting freelance opportunities that come up to supplement investment income. Whether or not we’ll actually withdraw 4% in any given year is anybody’s guess.

    1. Hard not to love lingering money still coming in! 🙂

      I think what you’re saying is key – when you find something exciting to do that brings in some extra cash, that’s the best of both worlds. Not only does it give you something fun to do, but you make money doing it. That’s a beautiful thing!

  5. Hey Jim,

    I’m nowhere near FI, but one of the metrics I track in my portfolio is the % of annual expenses covered by my dividends. The other metric I track is the YoY growth in dividend income vs YoY growth in expenses, as long the the first is outpacing the latter, gives me another layer of comfort 🙂

    DGX Capital

  6. One thing that offers a degree of security is doing a hobby job you enjoy a day or two a week. In my case the money it makes is of no real value to me because I’ve got more than I need already, but it does keep my name alive in the business world and I keep getting job offers to turn down. If you don’t keep your hand in the work world you might lose the option to ever go back to a highly paid job.

    1. That makes complete sense – it’s hard to get back into a high-paying job if you don’t have anything on your resume for a few years. But if you didn’t love doing what you did (this guy!), you might never want to go back to it. I’d rather take a lower-paying job that I can go home happier about than get back into the world of IT. The nice part about FI is that I could do that pretty easily… I could get a job at Home Depot and be happy as a lark!

      In the meantime, I’m working on turning this hobby of a blog into more of a business by trying to monetize more and get a little more creative on what I do. It’s a long uphill journey to make happen, but I’ve got nothing but time! 😉

  7. I came up with a better rule of thumb. Your net worth should keep increasing until you’re 55. Well, not every year, but it should trend up. Once you hit 55, then you can use the 4% rule.
    If your net worth keeps dropping for several years, you’ll need to evaluate your finance again. Might need to go back to work… 🙂
    I suspect relying on dividend to get you through a bear market might not be a good idea. Companies will cut dividend and some will go out of business. We’ll see how it goes.

    1. I like that rule, Joe – that would be a pretty sure-fire way to make sure everything’s good financially. Ugh, just over 10 years to go before 55 – I better start bringing in some income soon before the market crashes! 😉

  8. I think you guys should be in OK shape Jim. You’re spending less than 4% and you’re living in a low cost country. You might need to tighten your belt a little when the next recession comes, but that’s not a big deal. Less eating out, fewer cruises and flights around the world and you should be golden.

    Right now we’re spending around 3% of our portfolio, but I’d like to get things a little closer to 2.5%. We also keep several years of living expenses in cash… which seems pretty safe to me.

    1. That’s really incredible if you can get that down to 2.5% – it would have to be armageddon to kill a portfolio with that small of a withdrawal!

      I think we’ll be alright, too – I’m just blessed with a mind that won’t stop thinking about every outcome 24/7!

      However, I do think it would be easier if we had a bigger pot to pull from… any chance you can hit an ATM and send me over a million or two? 😉

  9. Hey Jim,

    I’m in the FI crowd but didn’t pull the trigger on RE yet 🙂
    I can’t lie, this bull market has gotten me a bit concerned. I might pull the trigger only to be obliterated by the infamous sequence of returns. However, once I really started thinking about it, I saw how many “life jackets” I actually have. There is the network from my current career + 2-3 non-correlated skills which can be monetized very quickly if shit hits the fan. Also prepared for some good old fashioned geo arbitraging to lower my costs by ~30%. So not the best options but definitely good enough for a stormy day.


  10. Hi Jim,

    I share your concerns. I know that I have sufficient investment portfolio to last me at least 25 years. This is made with the assumption of 6.3% yield. There is bound to have many uncertainties during the course of the years. I guess that the best approach is to enjoy the present moment of time. I will assess the situation at the start of the new year and adjust my approach in accordance to the market situation. I am unlikely to adjust my portfolio and opine that it will be more worthwhile to adjust my expenses. When the market is going south, I reduce my expense accordingly. When the market goes up, I will maintain the existing expenses and increase it when I deem it to be necessary to increase my happiness. Having a minimalist lifestyle helps to great extent and I am flexible with the spending pattern.


    1. I think that’s a great way to look at it, WTK. We can always worry about the “what-ifs” but if you’re ballpark, it’s important to enjoy the present. You can still keep an eye on what’s going on and adapt along the way as needed.

      I really don’t consider myself a minimalist but when we sold everything to move to Panama, it opened up my eyes to how much easier life actually is when you don’t really have or care about material stuff. 🙂

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