A couple of weeks ago I posted about how a heart attack paradoxically improved my life outlook and health. I sincerely titled it “I Hope You Have A Heart Attack“, with the assumption that I also hope you have an outcome just like mine. I promised I would post a follow-up that was more focused on how this event changed my financial plans.
Today I will compare my “pre”-heart attack plans to my “post”-heart attack plans related to several areas of personal finance. I’ll discuss how having a near-death experience impacted my rationale behind those plans. If you haven’t read “I Hope You Have A Heart Attack“, it might be worth your time to read that post first to understand how irritatingly optimistic my stay in the hospital made me. But reading last week’s post is not a prerequisite to understanding the rest of today’s post.
Pre Heart Attack – I planned that 2017 would be my last year working my “day job”. I was working half-time, with the intent of fully retiring by the end of this year at age 52. By 2016 I had accumulated enough savings to pretty safely follow a 4% portfolio withdrawal rate (and perhaps even a bit higher) for the next 40 years. I actually like my job, but I realized I didn’t want to continue doing the same thing every day for another 10 or 15 years, even if the work was relatively challenging and interesting. However, I had lingering doubts. Was I taking an unreasonable financial risk? What if the market crashes in 2018? Would I later regret my early retirement for some surprising reason? Would I find retirement activities less fulfilling than work? Would I miss the daily interactions with work friends?
Post Heart Attack – I’m ecstatic that I was already executing an early retirement plan! I have a much better appreciation that life is inevitably unpredictable. And being prepared for early retirement provides more ways to cope with that unpredictability. For example, if you don’t plan for early retirement and something unexpected happens, your options are limited, and they all likely involve hard work in difficult circumstances or with failing health. However, if you do plan for early retirement, and it turns out your loving work in later years, you can always postpone the retirement, or work on the most enjoyable tasks and turn down the scut work.
It’s clear to me now that possibly slumping dead at my work desk because I was too afraid to retire early would have been a huge potential waste of the last third of my life. Working too long would be a tragic missed opportunity to try new things, spend more time with my wife and daughter, and help people. Jeff Bezos (among others) follows a “regret minimization” framework for life decisions. That’s where you project forward to the last years of your life and consider what you will regret having tried or not having tried, with the goal being to minimize the number of life regrets. As a life-guiding framework, this feels a bit too self-centered to me. Nevertheless, it shows that the risks I’m taking with early retirement are small in comparison to my likely later regrets about not retiring early. My prior worries about early retirement now seem completely ridiculous; a fading mirage that’s behind me.
Also, I wonder that maybe my work was a little too challenging. Perhaps work was adding to my stress levels and was a factor in my heart attack. A recent study found that the chances of a heart attack are 23% higher for people working in high stress jobs. Retiring at this point might actually increase my chances of living longer, which gives me more time to try new things, which in turn will further reduce my later regrets.
So, my heart attack caused no concrete changes to my early retirement plans, but it helped me confirm that I was making the right decision.
Investing and Withdrawals
Becoming firmly committed to early retirement led me to double-check the details of my retirement investing and withdrawal strategy. Given the unpredictability of life, perhaps I was being a bit too confident in my prior analyses of retirement investing, or perhaps I’d missed something that would now seem obvious.
Pre – I detail my retirement investing and withdrawal approach in the “old” investor parts of the Article 8 series here. In summary, a mindful investing approach points toward a portfolio of mostly stocks (at least until bond yields increase substantially) that are invested for the long-term. I use a cash reserve in the first 8 years of retirement as part of a retirement investment bucket plan to help minimize potential sequence of return risks.
Post – Should I reconsider my preference for a mostly stock portfolio? Using the mindful investing principles on this website, I thought I’d objectively determined that a relatively aggressive (some might say reckless) stock-heavy portfolio was the most mindful. Likewise, should I change my retirement bucket investing plan? Now that I’m in a higher risk group, what if I die earlier than I assumed in my projections?
I quickly came to the conclusion that the case for a mostly stock retirement portfolio is still entirely objective and sound. If you’re wondering about the underlying rationale, you can read all about it the Article 7 series. Likewise, the mindful bucket investing and withdrawal plan still makes sense to me. Even if I die earlier, my family will most likely require nearly the same income and withdrawals, and therefore, they’d still need the same investment performance and protections against sequence of return risks.
However, as I noted in mindful bucket investment plan articles, the withdrawal plan that I’ve described on this website is somewhat generic; it’s something you could apply to almost anyone. That’s because this is a website more about investing and less about retirement strategies. Nonetheless, I had previously verified an inflation adjusted withdrawal percentage that works well for our family. And although I’ve not presented it anywhere on this website (yet), I had already conducted a series of inflation adjusted projections for our: investment growth (including a Monte Carlo assessment shown in the graph below), other income streams, the sequence of withdraws from various accounts (taxable, tax deferred, etc.), tax burden, and a range of health care cost scenarios. Again, because my family might well outlive me regardless of my current health status, I don’t see much that needs changing here.
However, my new-found appreciation for the precariousness of life makes it clear that I should conduct some additional projections that “stress test” my retirement plans. First, I’d like to better understand the impact of a large unexpected one-time expense. This might be due to unusual health care expenses or some strange catastrophic accident that’s not covered by our insurance policies. Second, I’d like to vary this extraordinary expense in timing and magnitude and see just how much stress I can put on my retirement plan before it collapses. The results won’t change my plan to retire this year, but it might give me a better sense of how to respond to a sudden financial crises.
Along the similar lines, my projections currently assume about 40 years of retirement. It’s clear to me now that this time span is only one of many possible outcomes. I guess that’s kind of obvious to some folks, but I’d never thought to vary that particular number in my projections before. What if my wife and I both live an extraordinarily long life? I’d like to better consider how I might need to adjust our retirement plan as we age. Or what if we both die relatively soon? I need to give more thought to the size and status of our retirement nest egg at various points in the future and after various rates of investment return along the way. And given these variations, how would the money be efficiently (taxes and otherwise) transferred to my daughter and charities? I will probably post the results of some of these additional calculations in the future.
My projections also make some assumptions about health care costs, particularly between now and the time that I qualify for Medicare. Most people contemplating early retirement are concerned, if not frantic, about national health care situation. Now that I have a pre-existing condition, the debates about specific changes to Obamacare take on a new importance for me. In short, I plan to do some “stress testing” scenarios around health care costs as well. These include scenarios involving relatively good and poor health in the next few years and seeing how those costs might vary across a range outcomes in the national health care debate (e.g., Obamacare continuing versus imploding). This is a huge subject that I will likely devote a post to in the future.
Budgeting and Spending
Any retirement investing and withdrawal plan is dependent on your ability to stick to your planned rate of withdrawals. And as I discuss in Article 8.4, if you build in some flexibility to temporarily reduce withdrawals, you greatly increase your ability to adapt and avoid running out of money during economic or market crises. So, I decided I should also think more about my annual spending estimates in retirement.
Pre – My working assumption for our retirement is that we would continue to spend about the same annual dollar amount as we do right now. I inflation adjusted that budget by 3% per year for my retirement projections. So, my budget allows us to maintain our existing lifestyle, which is certainly not extravagant, but it’s not spartan either. For example, we just returned from a month-long vacation in Great Britain, with the assistance of frequent flier miles and relatively inexpensive AirBnB accommodations, which sometimes had my daughter sleeping on the floor. If you can reduce spending early in retirement, it gives your investments more time to grow and recover from any market downturns. Accordingly, I’d planned to keep a pretty tight rein on our spending in the first few years of retirement. Ideally, we would come in under budget for as many of those early years as possible.
Post – If anything, I now feel less motivated to be the budget task master for the family. I never savored obsessing over budget details every day to provide a modicum of additional protection against relatively unlikely market scenarios. Now that prospect seems like a distasteful distraction from where I’d really like to focus my attention. Perhaps, this turn of attention might result in us scrimping a little more later in retirement, particularly if the stock market turns sour for a prolonged period. But my projections still suggest it’s more likely we won’t have to scrimp, ever. In any case, expenditures often decline later in retirement, which is another margin of safety in my current constant spending assumption. I now plan to simply reassess the probabilities of retirement plan failure once a year and adjust our spending if/when those failure probabilities become substantially higher. That’s one beauty of doing a probabilistic investment analysis, which I might elaborate on in a later post.
Although I don’t intend to change our overall budget, I am thinking I want to reassess where that money is spent each year. It feels more important to me now than ever to refocus expenditures on things that maximize fulfillment in life. For me that means spending more money on personal growth, activities with my family (like our recent vacation) and friends, and charity activities. Accordingly, I’m placing less importance on things like a cable bill, electronics, cars, house improvements, clothing, etc. And as many frugal and minimalism blogs expound, this type of refocusing is synergistic. Baking cookies with my daughter brings us closer and costs less than buying cookies at the store. Almost no one says on their death-bed that they wished they’d spent more time watching T.V. or picking out new shirts. I’m sure I won’t. I want to avoid regrets about spending enough time helping people, whether that means family, friends, or total strangers.
Obviously, I’m going to refocus my efforts to spend more time on activities that I find most fulfilling. I feel that blogging falls under the “personal growth” category, and it has almost no effect on our budget. So, I don’t intend to stop blogging any time soon. I will report in coming months on the additional retirement projections, health care assessment, and probabilistic modeling I discussed above. (I’m always puzzled by bloggers who run out of post ideas. Every time I write something, it seems to spawn two or three upcoming posts. Maybe I’ll eventually run out of ideas, but I’m not seeing that horizon yet.). Once I’m fully retired in 2018, I also intend to kick off some new charity activities, where I will donate my time and expertise rather than money.
You might want to use my experiences to reality check your own financial plan. Imagine how your financial plans might change if you had a heart attack or other health emergency tomorrow. I suspect you have sufficient imagination to benefit from such a thought exercise, particularly if you devote more than a few quiet minutes to it. And if your anything like me, you might be a little surprised by what you decide.