The Recession – The Ultimate Test for Early Retirees

The Recession - The Ultimate Test for Early RetireesWell boys and girls, like it or not, we’re soon to be in a recession – if we’re not there already.

The COVID-19/Coronavirus pandemic appears to be the black swan event that became the catalyst for the downfall of one heckuva long bull market.

To try to contain the virus and flatten the curve, many businesses were ordered to shut down temporarily.  In many places, bars, wineries, breweries, and restaurants (sometimes with the exception of takeout or delivery) were forced to close their doors.

And those businesses that weren’t ordered to shut down aren’t getting enough traffic to justify staying open.

People don’t want to travel prompting the shutdown of hotel chains and airlines eliminating large percentages of their flights.  And the cruise business is completely in the toilet.

Small businesses?  Forget about it.  There will be a lot of these companies that simply aren’t going to come out of this period in time.

Between all of this, businesses are forced to lay-off employees to try to stay afloat for as long as they can.  How do you pay employees if you don’t have revenue coming in?

Each layer of this event has affected other layers.  One by one, the world economy is starting to crumble in a domino effect.

As time goes on, public businesses will continue to report their earnings… most won’t be good.  In fact, many will be downright horrible.

I think we’ll look back and see that the recession has already started.  Things are bound to only get worse for a while, too.

A lot of lives are going to be affected.  Families who thought they had steady jobs are now suddenly out of work.  Mortgages and rent payments are going to be a huge burden on many.

I hope that you’re in a position where you’re not living paycheck to paycheck.  I also hope that you’ve been able to build up your emergency savings.  If there ever was a time where having that stash of cash in place would pay off, now’s probably that time.

Then there’s another area the recession is going to affect… the FIRE (financial independence / retire early) movement and early retirees.


The FIRE movement 

My friend Joe from Retire by 40 says that when he started blogging in 2010, there were only three early retirement blogs.  Over the past decade though, the number of FIRE bloggers has continued to grow considerably.

I jumped on the bandwagon and started Route to Retire in 2015.  This was a couple of years after inspiration from Joe’s blog that showed me the path to FIRE wasn’t just some pipe dream.  Even in the close-to five years that I’ve been blogging, I’ve seen hundreds of others starting their own site.

Like anyone in the community will tell you, financial independence (FI) is an admirable goal.  Reaching FI gives you more freedom in your life than you may have ever thought possible.  Having the flexibility to leave a job you may decide you don’t want to or can’t do anymore is huge.

Being able to try other interests and find new passions without worrying about a paycheck is liberating.  And really, The Path Is Simple, but It’s Not Necessarily Easy.

Here’s the problem…

You’ve probably heard the saying that “everyone is a genius in a bull market.”  For many, riding this bull market has been easy.  Folks have seen their net worths grow in ways they never could have imagined.

Life’s been great – it’s like the Roaring Twenties all over again.

With all this economic prosperity and low unemployment, what could go wrong?!


Welcome to the recession

Oh, yeah… there’s this.

We don’t know yet if we’re already in a recession, but the signs are pointing to a yes.  And of course, the media is excited to have even more to talk about:

Life has changed in an instant as a result of the economy tanking mostly due to the COVID-19/Coronavirus pandemic.  In fact, it’s very possible the world may never be the same.

But for now, we need to focus on the here and now.  A couple of great quotes from two of the most revered folks in the financial community:

“Never confuse genius with luck and a bull market.”

— John C Bogle from “Common Sense on Mutual Funds”


“Only when the tide goes out do you discover who’s been swimming naked.”

— Warren Buffet

The past is the past and the good and bad decisions we’ve made over the years are now starting to rise to the surface.

“You’ve made your bed, now lie in it.”  Come on, Jim – are you just tossing in every quote you can think of?!!

We already know that many folks are ill-prepared for a time like this financially:

It’s still early, but as more folks get laid off and paychecks stop showing up, shit’s about to get real.  It’s gonna be one helluva mess and an economic stimulus package isn’t going to fix it.  It’s only going to put the country into a bigger deficit.

Is there a better course of action?  I don’t know the answer to that, but just know that regardless of what crutches are put in place, we’re in for a rough time.  It’s going to get ugly.


The recession, the FIRE community, and early retirees

As far as the FIRE community and early retirees, my buddy Steve inspired this blog post with his post on Twitter recently:

He’s right (he’s a thinker like that).  We can’t just preach about saving/earning more and the ability to retire early without being able to back it up.  It’s time to see if the FIRE community has been making the right decisions along the way and can withstand these hard and uncertain times.

It’s easy to lecture about the right thing to do while everything’s going smoothly.  The true test comes with being able to ride out the rough time of a recession as well.

Unfortunately, I have a feeling we’ll see several FIRE blogs start to fall off the radar.  We’ll probably also lose a lot of followers in the community.  That’s not a slam against anyone.  It’s just a feeling that the pessimism that a recession tends to bring will make the goal of financial independence seem like a lost cause.

But there should still be a strong base of folks who can stay the course and remain strong during this time.  If folks have practiced what they’ve preached, this should be a bump in the road on the path to FI (maybe even a big bump).  It’s definitely something we need to keep an eye on but it’s not the end of the world.

It may also be the start of seeing many new faces and hearing new voices.

Think about it – this economic downturn is new to many younger folks.  Going through good times in a bull market is all they might remember.  This downturn presents a great opportunity for them to be putting money in the stock market to grow for many years.  They’re in a great place to start themselves onto the road to financial independence.

This recession can also be a wake-up call for many people, regardless of age, to realize that they don’t want to be behind the eight-ball the next time around.  The power of being financially sound can be the difference between not being able to afford your mortgage payment or just making slight changes to comfortably make it through the hard times.

It’s also my hope that anyone who’s already in early retirement has planned for this very scenario.  A recession in early retirement, especially in the early years of leaving, has the potential to be devastating to their plan.  I’ll talk about that more in a moment.

But I do wish the best for anyone in this position of early retirement.  As someone in this exact scenario, I can feel the pain.  Without a solid plan in place, the chance of failure goes up dramatically.  But for those who have prepared beforehand, this shouldn’t be the catalyst for most early retirees to need to go find a job.


Will this early retiree need to go back to work?

In a way, I was very lucky.  As I got closer to early retirement, over the past few years, I started strategically shifting our funds.  To pull off FIRE successfully, I had major concerns about the sequence of returns risk.  If the stock market crashed right after I left my job, we’d be in real trouble pulling from our stock portfolio.

If you’re unfamiliar with the sequence of returns risk, here are a couple of mind-blowing posts:

To help battle that issue, I learned from Fritz at The Retirement Manifesto about the idea of building a retirement paycheck.  That changed everything for me and I ended up growing a large “bucket 1” for early retirement.  In my case, that consisted of 1 year of living expenses in cash (checking and online savings account) and 5 years in a bond fund ladder.

That turned out to be a very smart move.

We’re now in a position that we have enough money outside of the stock market to cover us for at least six years before we’d have to sell any equities.

Can the recession last more than six years?  Absolutely.

Will the recession last more than six years?  I have no idea.

In the meantime, six years is one helluva long time.  So many things could change between now and then:

  • The recession could be brief – things could turn around by the end of the year.
  • The recession could crawl on for a decade… or more!
  • I could be bringing in a little more or a lot of income from other things I’m working on… like this blog!
  • We could end up selling our rental property (a duplex).  I don’t plan to, but if I had the right offer, I’d absolutely entertain the idea.
  • It’s possible, we could be in a down real estate market and be enticed to buy another rental property.
  • Maybe Panama could be something of the past.  The plan was to take it year-by-year and we’re leaning toward staying another year.  But who knows how long we’ll be here?

These are just a handful of things that can happen.  I can’t predict the future, but we can adapt as needed.

I still can’t see myself ever needing to go back to a 9-5 job – it just seems like there are too many opportunities out there to make money.  But as long as I’m healthy, there’s always the J-O-B option to fall back on.

The bull market that ran for over a decade is over.  How long this downturn will last is anyone’s guess.

I love the FIRE community and hope my fellow bloggers and podcasters can hang in there.  But I have a feeling we’ll lose some of them.  However, I do think we’ll gain some new friends in the community as well.

More concerning though are the actual early retirees who aren’t currently working.  I hope that many of those who have actually pulled the ripcord had prepared for the worst beforehand.  If they have, they might need to adapt along the way.

If they haven’t, it’s very possible that the job market could be even more crowded as some early retirees head back to work.


Are you prepared for the recession?  Will the FIRE movement die off because of it?


Thanks for reading!!

— Jim

You know you wanna share this!!

30 thoughts on “The Recession – The Ultimate Test for Early Retirees”

  1. I love the optimism of the FIRE community, just like this post. We share ideas, plan for the worst, and expect the future will be better. I really hope it stays a movement through the recession.

  2. Thanks for the shout-out, Jim. Good to hear the “retirement paycheck” strategy is helping keep you calm during the bear, I feel the same way. I agree it will be interesting to see the impact on the FIRE community. I hope we don’t lose too many, it’s a great community.

  3. Like Fritz – I started thinking about retirement
    Paycheck years ago. Last recession 2008-09 after loosing 40% in market I felt like market was a casino and I little to no control other than Hope. I decided then to take all Monies and then and future $ to pour into physical assets namely real estate. Now keep in mind from 2008- now I often had FOMO regarding the stock market but kept funding real estate deal and would buy when I had CASH and I was patient looking all over the country for deals that made sense – including STR on OR coast, mobile home park, SFR in TN, hard money loan in NC, these passive income sources would be there when I decide to retire
    I’ve taken all these payments I’ve received over the past years and put into hight yield savings / MM accounts and waited for stock market drop – many times over the last few years – I kept thinking I should just get back in and not time the market but my instincts was to wait and trust me often I said to myself my instincts are obviously wrong – get back in but I just held off – now I am easing back into the stock market – but gingerly so far I put 10% of
    My cash back into the stock market – I feel
    Like if the market doesn’t drop
    More I’ll look for another piece of property if RE market takes a hit and stay patient . I think the bottom line here is my mindset changed 10 years ago from wanting a big win to not wanting to loose – staying patient and I’m sure there is a great argument against what I did
    Like – money is cheap – borrow for real estate but I only bought real estate after my pile of cash grew where I could pay cash- now as we enter April if someone doesn’t pay me due to corona – I won’t like it but I can breathe because I don’t have a payment to make or I risk bank wanting my properties for lack of payments – good luck to all- also one last thing this entire last decade I always looked where can I contribute to others either time or
    Money and I believe that giving nature blesses both parties – the person(s) I’m giving to and myself many times over – last night anonymously I order 10 pizzas and had them deliver to our local hospital just to let those on the front lines are appreciated – let’s all stay kind to each other and remember to keep our focus on what we want to see not what we don’t want to see

    1. That’s really interesting, Rich – patience is definitely important and seems to have worked in your favor. That’s great that you’re now in a position of having cash in a time like this – it should serve you well for unexpected issues like you mentioned.

      Awesome idea on the delivery of pizzas to the local hospital! I’m sure gestures like that are great appreciated!

  4. I appreciate your perspective Jim. It is a weird feeling right now like we are all on that rollercoaster we watched while waiting in line for 45 minutes. Still it is somehow surprisingly scary even though it’s exactly what we signed up for. A shake out in the FIRE world could be interesting. I often wonder which bloggers would still write if there was no chance of profit but only friendships to be had. However, I also feel for my struggling local community and especially those in their 60s who’s retirement plans are in limbo.

  5. Great article Jim. A lot of unknowns but then nothing is for sure but death and taxes. All we can do is plan the best we can and forge ahead. I did not get on board with the retirement paycheck (aka bucket strategy) as soon as I should have but I’m still taking the plunge in May. Stay safe and enjoy Panama.

  6. Also did the cash bucket strategy. So hanging tough.

    Hoping a fast recovery is possible due to being in a strong economy.

    Many counties have no reported cases and people need to get back to work. We can do this on a county to county basis. Need to address the hotspots separately. Last year 60M infected, 80K deaths . So there will unfortunately be more cases.

    1. I hope we have a fast economic recovery as well, but I think it’s going to be a really tough hole to crawl out of. It’s really a sad state the world is in right now. Between so many people getting sick and possibly dying and all the lay-offs, it’s going to be an uphill climb for us to get back on track.

  7. It’ll be alright.

    Personally we are prepared. With the wife still working (hopefully it stays that way) we don’t have to touch anything and have been putting some cash in IRA’s to work albeit slowly.

    This is a “can’t see the forest through the trees” moment. IMHO, I don’t think this is going to last very long. Between containment actions they will come up with a treatment protocol then a vaccine. Life has to go on. With that said it will be interesting how long it will take to dig out. I think there are fundamental changes that will arise out of all this.

    When it comes to the FIRE movement there might be some changes but it should increase, not fade away. Common held beliefs are being challenged so now we must “Improvise, adapt and overcome” (name the movie!). What is a truly worst case senario? Cash is king, how much to have on hand? But you will lose out to inflation! Who cares when it is the apocalypse! What about that dividend shield that crumbles if all the companies suspend their dividend to try and get by? So there are new things to think about, a paradigm shift, new information to plug into the equation. At the end of the day I’m at peace. I still believe that striving for FI should be everyone’s goal more than ever. Watching the freak out on the news and in the stores exposes that there is a long way to go.

    1. Unfortunately, a vaccine can take a long time to be tested and be released (think 1 year to 18 months). Our only hope right now is that the brains of the world are able to develop a treatment very quickly. I understand that there’s some optimism from the medical community on this, so fingers crossed.

      You’re absolutely right about life having to go on. The problem will be if leaders pull the trigger on opening things up too soon – we’d be right back where we started. World leaders have to be really torn on the right moves to make for the long term. I don’t envy them right now. I will say though that the President here in Panama, Nito Cortizo, has been doing a fantastic job. Shut it off and then we’ll start to open things back up. It’s so hard for an economy, but it’s the right thing to do.

      I hope you’re right about the FIRE movement. It seems like this can be a great opportunity for people to realize that they’re not in the ideal position financially and want to aim for better. Once someone reaches financial independence, a lot of stress points in life seem to disappear.

      PS Heartbreak Ridge – I cheated and looked it up! 😉 Looks like that’s the unofficial slogan of the Marines.

      1. Right now they already have a vaccine in trial. Obviously results, scale up and distribution take time. They are looking at Plaquenil and Azithromycin as a treatment. The antiviral plus an antibacterial. I believe the French figured it out and is what they are using.

        At the end of the day I don’t think “opening it up” will be an all or none situation. In the US, NYC is the worst but many other areas are ok, relatively speaking. I look at it as a surgical strike. Get other areas going as soon as reasonable to support the areas where it isn’t.

        I worry about unintended consequences. You keep things shut down for too long and other bad things are bound to happen which will probably be worse than the virus. Depression, suicide etc. because people can’t make a living or handle the stress of life. People need to use common sense (which isn’t so common). Doing a bunch of the little things to avoid contact/spread will make this fade quicker. Just need people to use their heads.

        1. I’ve read about the possible French treatment and the promise that it shows. I do hope that is something they can get rolling sooner than later, assuming it proves to be solid.

          Deciding what to do as a whole though is above my pay-grade. Opening things up in areas where the virus isn’t prevalent may work, but for how long until it starts showing up and spreading in those areas? But what can you do without destroying the whole economy and causing problems like you mentioned?

          Last week, I talked to Joshua Sheets from Radical Personal Finance whose brain is on a much higher level than mine. He suggested one long-shot option might be to have things opened up for a while (say a month) and then close them back down for a period (another month maybe). Alternating this way would still allow the virus to spread but hopefully in a more manageable fashion. It would also help keep the economy from folding up on itself until a treatment or vaccine becomes available. Interesting thought. Have a listen to his show sometime if you’re unfamiliar – he’s got a lot of good information to share.

          1. The FDA just approved the Plaquenil/Zpack “off label” protocol so expect that to be put in place very quickly. So has using plasma from people that have recovered from the virus.

            Above your pay grade, hmm. You don’t have a pay grade!! 🙂

            I have the RPF podcast as a favorite on my Stitcher, along with many others. I almost feel I should start a podcast but I listen to so many different FI/Financial podcasts it all seems like over kill after a while.

          2. Wow, that’s great news – I’ll have to dig more into that. That could be a real game-changer!

            As far as a podcast goes, you should start one. I don’t think the FI podcast market is over-saturated and you’d have a different perspective to add anyway. I say go for it! 🙂

  8. I tend to think the actual lockdown won’t last long, partly because governments themselves will run out of money. But the digging out – who knows. The supply chains are very complex and interconnected. If it lasts 6 years, our household is hosed. Biggest challenge is the home sale is not happening right now.

    But, we are also seeing expenses – even with a mortgage – that are way below projections. So cash should hold out longer than projected. With everything closed, there is not much to spend it on! I wonder how much permanent spending will change during recovery – people might find they LIKE spending time at home with family…

    1. Sorry to hear about the home sale – that can be stressful. Maybe we’ll get lucky with a treatment available in the near future. The sooner that happens, the shallower the hole the economy will need to dig themselves out of.

      Haha, that would be a great outcome if people start enjoying their time together at home more! That’s good news on the cash situation. Unless you’re spending all your time ordering on Amazon or restaurant food-to-go, that’s an easy way to cut expenses! 🙂

  9. Hey Jim,

    My estimation is that the majority of the FIRE community will actually be fine. Being calculated and responsible is ingrained in most of us, otherwise we couldn’t even consider FIRE.

    Even the less responsible “FIRE community members” are still in a much better position than 90% of the population and could probably survive at least 5-10 years without a job.

    I guess we’ll just have to wait and see how this turns out.

    Cheers and stay safe!

  10. Traffic is down for every blog, from what I heard. Nobody wants to read about early retirement right now. Well, I think the FIRE people are a lot more prepared than almost anybody else. We live frugally and look for ways to optimize our finances. We can pull through by using the things we learned and use every day. Most households will struggle a lot more.

    Also, a lot of people will be laid off in the coming months. They’ll learn their employers are not their friends. This will lead to more desire for FIRE, like the last recession.

    I hope the recession will be short, but who knows.

    1. Here’s something weird – traffic’s been about the same on my blog as it’s been… in fact, it’s grown slightly over the past couple of weeks. Not sure why, but no complaints! 🙂

      Yeah, I agree – it’s those “most households” that I’m worried about. I hope the recession isn’t horrible, but of course, we won’t know until it’s over.

  11. Tough times right now indeed. I feel like the odd duck hard, being the only one that I’m aware of that has announced that I failed at FIRE, announced on Jan 2, 2020.

    It kind of feels bad to be the only one who has failed, but I will continue to try hard to get back to the promised land. I think it is very impressive there so many people in the early retirement community continue to march on after this bear market.

    Fight on!


    1. You might consider yourself a FIRE failure, but I’d venture to guess that everyone else in the community thinks that’s far from the truth. You just want to continue living the dream lifestyle. Nothing wrong with that, but I feel you’d somehow manage to survive without going back to a regular job. 😉 Hang in there, my friend and stay safe!

  12. Not worried aboutbthe stock market yet. 40% down isn’t really anything.
    Its the real economy we’re worried about. We’re locked down for 21 days, army patrolling the streets, no more flights out of this country and theres an economic implosion happening. If people start rioting…
    We have enough to survive for 30+ years unless global hyperinflation hits. Greater worries are crime or actual infection in the short term.

    At least in 08 it was just the economy imploding, 00 was just tech exploding. I’m not sure how to deal with something I can’t see on the one end and armed soldiers (who are not sophisticated developed market soldiers btw). Like a movie… Time to watch star wars or lord of the rings for some more realistic experiences.

    1. It’s truly an uncertain time right now and can be downright scary because of that. The best we can do right now is try to run through different scenarios and do the best we can to make the best decisions and preparations that we’re able to for ourselves and our families.

      Stay safe, Bob – I wish you the best!

  13. On one hand, you have the optimists that think the economy is going to bounce back by the end of the year. On the other hand there’s the pessimists that think this downturn could go on for a very long time (aka lost decade).

    Personally, I think it’s going to fall somewhere in the middle. Corporate earnings this year are going to be down some ridiculous number for the year. Maybe 50%-70% or more (depending on the industry). Once the economy starts to unlock again, business will begin to pick up. But it certainly won’t be fast. Displaced workers will need months to find new jobs, and in some cases retrain for new jobs.

    My guess is that things will actually start to improve in 2021. Even then, revenues will be down significantly against 2019. It might take 5 years (or more) to climb back to similar levels that we saw in 2019.

    I think our family should be able to ride it out OK, as we were pretty prepared for this. Does this mean our FIRE plans are ruined? It’s too soon to tell I think, but I’m cautiously optimistic.

    1. Couldn’t agree more with your thoughts on the economy, Mr. Tako… time will tell, I guess.

      I don’t have any doubts that you guys will be just fine in early retirement. Between how far ahead of the eight-ball you are and your inherent frugality, you’ll probably be good for the next 150 years or so. 😉

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