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October 2018 Best of the Web

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October has been a crazy month in the world of finance. The stock markets have been volatile and trending downward. In the past week, the market gave up all of its gains for the year to that point. Many wonder if this could be the start of a bear market.

In the personal finance world, the idea of financial independence and retiring early (FIRE) is spreading through mainstream media like, well … fire.

But not everyone is buying. Suze Orman gave FIRE the “Suze slapdown.” She said of FIRE, “I hate it. I hate it. I hate it. And let me tell you why.” She highlighted literally everything that could go wrong if you retire too early. In the process, Orman showed that becoming a personal finance guru is far more about generating controversy and buzz through sensationalism and fear mongering than giving solid financial advice.

Our articles also look at a different framework for dealing with what many perceive as the biggest challenge and risk to an early retiree, planning for health insurance.

With those themes in mind, this month’s articles feature a lot of discussion of risk management. Enjoy!

Same Old, Same Old?

The market is nearing correction territory. Christine Benz writes, Guess What? It May Actually Be Different This Time. She highlights why one size advice can’t fit all.

Ben Carlson offers some Undervalued Financial Advice which is prudent regardless of market conditions.

Bogle on Investing

Christine Benz makes our list a second time this month for her talk with the Vanguard founder in which she learned What Jack Bogle Expects from the Market.

In the inaugural episode of the Boglehead’s on Investing Podcast, Rick Ferri did a fascinating long form interview with John Bogle.

The Suze Slapdown

Paula Pant interviewed Suze Orman for her podcast. Orman shared in no uncertain terms Why She Hates the FIRE Movement.

Many voices in the FIRE community offered a rebuttal, including this even handed analysis from Chad Carson who writes What Suze Orman Got Wrong About the FIRE Movement.

R.I.P. Paul Allen

In sad news this month, Paul Allen lost a battle with non-Hodgkins lymphoma. Allen’s passing demonstrates two points far better than anyone in the FIRE community can to rebut Orman’s rant about everything that can go wrong if you retire early.

  1. No matter how much money you have, no amount can insulate you from everything that can possibly go wrong. Allen was one of the wealthiest men on the planet. He died at 65, which is generally accepted as “normal” retirement age. Life comes with no guarantees.
  2. The true benefit of gaining financial independence early in life is not to retire to a life of sitting on a beach, playing golf, or however else we’re conditioned to view retirement. Financial independence gives you the option to leave a job or career you no longer want to do and live a life of meaning and impact. No one can argue Allen’s impact throughout his life; first as an innovator with Microsoft, then through his encore business endeavors and as a philanthropist who reportedly gave over $2 billion during his lifetime.

Allen certainly seems to have packed a lot of life into his 65 years. We would all be wise to try to do the same with whatever gifts we’ve been given.

Managing Risk

While we can’t eliminate risk from a retirement plan, we can manage it. From the Vanguard blog, here are The 5 Major Risks You Face in Retirement with strategies to manage them.

Michael Kitces does a deep dive into one of those risks, writing Getting Real About (Annual) Health Care Costs in Retirement.

Morgan Housel is an amazing writer and thinker . He proposes a new paradigm for Risk Management.

Taking Risk to a New Level

Darrow and I met in Moab, UT last week to discuss the future of the blog and enjoy some outdoor adventures.

During the course of our conversations, Darrow highly recommended I see the new National Geographic documentary Free Solo (trailer, 360° bonus footage and screening locations can be found at link). It documents the amazing physical and mental achievement of Alex Honnold climbing El Capitan without a partner or the protection of a rope or gear.

Side note: Our “outdoor adventures” look absolutely nothing like Honnold’s. That said, we did ride the ultra-classic Porcupine Rim trail together. As a novice mountain biker, completing the trail in one piece was an accomplishment for me!

We’ll close with an interesting read from Dave at the blog Accidental FIRE. He writes What Alex Honnold Can Teach Us About Living.

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Comments

  1. THANKS very much for the highlight Chris!

  2. Rather than the Suze Slapdown, I felt the Christine Benz interview with Jack Bogle provides a very important perspective impacting FIRE and would-be FIRE participants. He provides thoughtful rationale for people to expect gross market returns of 4-5% (with lower net returns given costs and inflation) over the next decade. He’s essentially saying we need to be extremely conservative when estimating future forecasts and our expectations for growth with our respective portfolios. If conservative growth cannot accommodate your FI, the time may not be right for the RE.

    • Chris Mamula says:

      Agree 100% Ken, and this is where a hybrid approach to early retirement as I’ve been writing about and living makes a lot of sense for people thinking about pulling the plug in their 30’s, 40’s and even early 50’s. I’m simply not sure a 4%, or even 3%, withdrawal rate is sustainable for 40-50 years, especially when starting from today’s valuations and interest rates. However, getting to the point that allows you to consider RE in your 30’s, 40’s or early 50’s means you’ve been living off less than half of your salary and saving over half. This gives many options such as cutting work back drastically or switching to a lower paying passion project and still covering most or all of your expenses from income while allowing your portfolio to grow for a while. Some will criticize this as “not really retired” which I’d agree it’s not if limiting yourself to traditional definitions of the word, but if you’re willing to open your mind to other options like mini-retirements, semi-retirement, or an “encore career” there are many other ways to do life.

  3. Chuck Chiarello says:

    Hi Chris
    I’m 66 and 1 year away from full retirement. With the current market pull back and listening to Jack Bogle I’m very concerned a 4% SWR will be sustainable even though my advisor at Vanguard predicts it will having the diversified portfolio he designed.
    Would appreciate any advice you may offer for someone like myself retiring at a traditional age in this financial environment. For me working longer is not an option and I will need to withdraw 3.5 – 4% yearly.
    I’m sure there are many in this situation right now!
    Thank you
    Chuck

    • Chris Mamula says:

      Chuck,

      The first thing I would think about it when you will claim SS and how much of your spending needs this will cover. While SS won’t cover all spending needs for most people, it can provide a spending floor that should cover at least some if not all of your basic needs. This should give you some peace of mind. If you would like more peace of mind, you could consider annuitizing a portion of your portfolio to create a higher income floor. Just realize that by locking in this guarantee, you are giving up future upside potential. Working even a little longer and delaying SS could have a similar effect of providing a higher floor from SS w/o requiring you to annuitize a portion of your portfolio. Again it’s important to realize either option involves a trade off of giving something up to get more security.

      A second thing to consider is that research shows most people spend less as they age, even as health care spending goes up. If you’re retiring at 67 and can maintain 20 years of your current spending, that gets you to 87 y/o. At that point, I would hope you are still in the same health and have the same activity level as you do now, but statistics say you probably won’t. This unfortunate reality for the vast majority of people is actually a relief from a financial perspective. It means you most likely won’t need the same amount of money to support your spending for your entire retirement.

      Finally, you write that you will need to WD 3.5-4% of your portfolio. Any flexibility in your spending is a plus, as it allows you to spend less if markets drop or more if things go better than anticipated.

      Hopefully those insights provide a little peace and comfort at a stressful time. Best wishes to you.

      Chris

  4. The risk category was particularly handy this month. I just sat down and made a list of all the things that could possibly go wrong so I could figure out either 1) how to deal with them; or 2) whether I should expect to be ruined. Not a fun task, but necessary and enlightening. An interesting part of the exercise is figuring out which of the shocks are correlated: for example, the need to buy a new car before expected may be correlated with particularly large medical bills.

    • Chris Mamula says:

      Agree that is an important, but not fun exercise for all of us to perform. Interesting idea of looking at what risks are correlated. Thanks for sharing.

  5. I think there is a huge misconception spread by the FIRE movement. All the bloggers keep promoting quitting the current work. However, if one is content with it, they shouldn’t do it, IMO, unless they really wish to quit and look for ways to monetize the passions. After a few years of reading FIRE blogs, I’m getting the following message:

    1. FIRE minded people really hate their jobs, so they strive to live on very lean budgets to save and get out. Lean budgets are commendable, BTW.
    2. As soon as a FIRE minded person ‘retires’, s/he switches either to another career that is exactly as step #1, but now they LOVE their new job or must monetize the passion that is hopefully possible to monetize.
    3. The old mantra, that people will FIRE, retire and then either volunteer or do stuff for fun is pretty much dead.
    4. Since the Internet and advertising dollars are apparently the easiest ways to capture the dollars, the digital FIRE is being promoted the most.
    5. It’s all about the money and monetization of anything possible. I wonder if this is because that’s how American culture is defined to begin with… This is so counterintuitive especially if you have children in middle and high school what are required or told to volunteer especially if they wish to enter a college, but somehow the same kids enter the real world and there is little left on their mind about volunteering or very minimally just to brag later “I volunteer 1 hour a month at so and so place” LOL. I’ve noticed that either school aged students or old people volunteering, but not the one in between….because they still gotta make the money even though they claim they’re FIRED.

    • Chris Mamula says:

      S&N,

      I’d disagree on several accounts.

      1.) I see many FIRE bloggers who start the path to FIRE b/c they are discontent with jobs/careers, but who later see the light that you can use your progressively increasing FI to create the ability to work less, or work less at the parts of your job you don’t want to do. I write about that with our situation, as my wife has created an amazing work situation that she doesn’t want to leave, and I disclose that fully. Granted there are people who will criticize what we’ve done as “not really retired” b/c she continues to work, but it would be ludicrous for her to leave a job that she likes, pays her well, and solves the health insurance issue for us while providing a great lifestyle.
      2.) The idea that FIRE/retire to do fun stuff/volunteer VS. continue to make money is a false dichotomy. I’m writing right now as I do for a couple hours each day. Today, I’m having lunch with a young homeless person recently released from prison who I’m mentoring. Tomorrow, I’m volunteering at my daughter’s trunk or treat. Next week, I’m chaperoning her class’ field trip. I’m scheduled to meet soon to volunteer with the local adaptive ski program in my area. I also get out and bike, hike and/or climb 3-5 days/week. I used to get out 3-4x/month when working. I simply wouldn’t have had the freedom to do all these things when working a normal full time job.
      3.) Monetization of some activities is a smart strategy for an early retiree as a risk management strategy. There are simply too many unknowns to accurately project out a traditional retirement for 50+ years into the future. You can do it if you want to save enough to draw 1-3% and never spend down principle, but this likely means working way longer than necessary. It also means locking into a set level of spending as life circumstances change. The idea of creating some income in “retirement” is a smart alternative to hedge your bets while improving lifestyle sooner.

      These are the real world issues people “retiring” in their 30’s, 40’s, and 50’s face. This is why I frequently beat the drum for the need to redefine retirement to reflect these realities.

    • Agreed S&N – it is more than obvious to me that the source of the confusion is that the FIRE bloggers insist on using the word “retirement”. They argue that they have the right to change the meaning of the word, but clearly none of them are “retired” in the sense that we all know and understand.

      Yes, I agree that they all (especially the ones who “retire” in their 30’s) claim to hate their jobs with an all-consuming fury. Generally, that reflects poor life choices or lack of motivation in their younger years. You’re right in saying that they have simply switched careers. There’s nothing wrong with that, but it’s not worth writing about.

      The elephant in the room, which NONE of them will address, is that one can’t completely “unplug” without ensuring health insurance. ACA/Obamacare is marginal (expensive premiums, high deductibles, and very limited provider networks) at best, and it’s the only game in town right now. Unless you qualify for health benefits as a retired military or municipal employee, or you attach yourself to your spouse’s benefits, and you don’t want to relocate to Colombia or Outer Mongolia, you cannot walk away from a career/job that provides insurance. I believe Chris intends to continue working part time, but most of us do not have that luxury.

      • Chris Mamula says:

        Larry,

        Do you really believe “that reflects poor life choices or lack of motivation in their younger years”? How many people do you know that knew exactly what they wanted to do for the rest of their lives at age 18-20 when starting down a career path. I’d put that number at somewhere around 5%. If you happen to be in that 5% then good for you, but you are in the minority. Many people are trapped doing things they don’t particularly enjoy or want to be doing by student loan debt and/or lifestyle inflation. People in the FIRE community that I know either have made excellent choices early in life or they are highly motivated to overcome poor earlier decisions. Either of which allow them to pursue a different way of life than those that remain trapped.

        Regarding health care, I agree that the situation in the US is horrible. However, I don’t know anyone who denies that or is happy about it. The reality is that you have to deal with it. This basically means using ACA plans by either saving enough to pay high premiums and deductibles or rolling the dice on subsidies which may or may not be there over the long term, choosing health sharing ministries which have unique benefits and risks, or having at least one spouse continue to work enough to get employer subsidized insurance (the path we’ve chosen and have fully disclosed). I discussed this in detail in one of my first posts on this site. https://www.caniretireyet.com/flexible-health-insurance-early-retirement/

        • Yes Chris, in many cases (not you specifically), I believe many FIRE bloggers ended up in dead-end jobs (one example I can think of, whose name escapes me, was selling cars). These are the ones who profess the mantra of “quitting a job that you hate, which earns me money that I don’t need, to buy stuff to impress people that I don’t like”. A total rejection of every decision they ever made about what career to pursue or not pursue, which people to associate with, what material possessions they have, and on and on and on. Again, do not take this personally. But you know that attitude is really common among the young FIRE crowd.

          You have been up front about how you’re handling the insurance issue too. If only the others would do likewise. I got into a fairly heated discussion on another site recently (more of a “life philosophy” site with no emphasis on true “planning” at all), for even daring to ask the question. That site and its readers are of the “sometimes you just have to take a chance and hope for the best” mindset.

          • Chris Mamula says:

            Larry,

            I’ll concede that I’m defending FIRE blogs in general when I honestly don’t know what a lot of the newer FIRE blogs out there are saying/doing b/c I don’t read them. That said, I have been helped tremendously by some of the older FIRE blogs, and I started writing to share my story as a way to pay it forward.

            I consider both Darrow’s story and my own as examples of FIRE (though admittedly not the most extreme examples and with more of an emphasis on serious planning than some others), and thus consider this a FIRE blog. I have also gotten tremendous value reading other FIRE blogs including JL Collins, Mad Fientist, Go Curry Cracker, Our Next Life, & Coach Carson to name just a few. While I don’t agree with everything that any of them write, I’ve learned a lot from each and think they all take financial planning (including provisions for health care) seriously in their own way.

            S&N,

            What I think distinguishes someone who has achieved FIRE from someone who simply switched careers is the FI part of the equation that gives options to do different things in life while eliminating much if not all of the financial risk and stress. If I didn’t have the level of FI that I did, I would not have had the courage to leave my secure, relatively high paying career to be a blogger. Despite what many people think, there is little money in writing a blog and throwing a few ads on a page as we do here. For me it represented a greater than 90% pay cut. You certainly can make 6 or even 7 figures annually as a blogger, but that is truly a new career and a lot of work. Those people are hustling and focusing on monetization way more than we are. I’m not criticizing those that do it, and I’m not ruling out that we’ll at some point do more to monetize this site if it allows us to add more value to readers/consumers in a way that aligns with our values and lifestyles, but it’s not our emphasis at this stage in life. I hope that clarifies.

      • Larry,

        I definitely agree that a linguist should put a good substitute word for ‘modern’ retirement in today’s dictionary. The general public takes ‘retirement’ at its old/true definition which is quit your job and whatever you do doesn’t really generate another income that sponsors your life. When you think about it, all the young people quit their jobs that they studied for in college and now they work for something else. However, it’s not too bad because America has more entrepreneurship minded people, but still not retired.

        However, I’ve ‘met’ (virtually) a couple of bloggers who freely admit that they quit and are doing something else, so they’re not really retired. Such people get more respect from me. It’s funny how the rest are clinging to the special acronym, but this could be in relation to marketing…so to make those extra dollars.

  6. I would like to see more on the the 1st risk I want to avoid most of all in retirement. The major financial institutions and talking heads like Vangaurd and Suzie O mention the 5 major risks of retirement…but no one lists the one just as bad in my mind. Dying and leaving a huge estate. The first calculator I have even run into that asks the question of how much of an estate do you want to leave is the Financial Mentor’s Ultimate Retirement Calculator. I am not a greedy or uncaring person, I have provided housing, vacations, upkeep, paid college, etc for my family. I continue to donate time, money, etc to some of my favorite charities. I am not saying die broke (even though that is a valid lifestyle for those who want it), but somewhere in between. The financial industry needs to change from an asset retention mindset to a de-accumulation mindset. We can’t predict when we will die, but setting up a retirement financial plan with the goal of leaving the same or more than we started with are the chains which shackle us to work we would rather not be doing.

    • Chris Mamula says:

      John G,

      See response to previous comment from S&N. I think you hit the nail on the head. To me this is the beauty and power of FIRE, NOT retiring by society’s traditional definition of not working at all and living strictly off passive income, which frankly I find restrictive and unnecessarily stressful.

      Having financial independence early in life allows you to do what matters to you. Ironically, what most people find brings value is serving and helping others in different ways. When you do this, you tend to make money which means you still end up having enough or too much.

      Even if you’re not trying to make money, by serving others needs you create a community of people that want to help you. This provides a level of social insurance, as opposed to financial insurance. Vicki Robbin, author of Your Money or Your Life talks about this a good bit as she did little to monetize her life after leaving the work force, but she had a great network of people who were willing and wanting to help her when she had health issues because she had been so active in her community of friends.

  7. Took your advice and saw Free Solo in the movie theater this week. Fabulous!! Thanks to you and Darrow for the recommendation.

    • Chris Mamula says:

      Glad to see you saw it and enjoyed as well. Thank Darrow. I haven’t seen it yet myself and apparently missed when it passed through Utah, so looks like I’ll be watching it at home on DVD unless they pass through again. 🙁

  8. Great write up and agree with you that the famous financial people are there because of sensationalism and not because they’re smarter than everyone else.