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Falling Out of FI

With the recent market pull back due to Covid-19 we are no longer financially independent (FI).  The market is down greater than 20% as I write this.  By the time you read this, things may have recovered or even further declined.

We Were Financially Independent (FI)

Last year I wrote about us crossing the line to financially independent.  Essentially we hit a point where we had 25X expenses in Net Worth.  During much of the last year, this was excluding home equity, despite as you recall we own our home outright.

Why 25X?  Well, 25x expenses denotes the point where most studies show the money will last at least 30 years.  Mind you if I were to retire now I would need to cover expenses way longer then 30 years, so I was not at my retirement number.  Still it was a fun milestone.

Our Max Net Worth Expense Ratio

By early this year that number had swelled further to 27x expenses.  Still not our number but way up over such a short period.  I enjoyed watching our saving to expense ratios rising.

But as mentioned before I never once measured our net worth as a sign of success.    The S&P 500 last year returned 30%.  I didn’t have to do much at all to achieve my 2x increase in expense ratio.

Enter Covid-19, Bye Bye Net Worth

And then the virus hit, and the market sunk into correction territory,   greater than 20% decline.   Again a movement largely out of my control.  If I were measuring my net worth as a goal I’d be beating myself up after thinking I was a super start last year.  2 whole years of savings out the window, despite a moderate increase in savings rate (the thing I actually control).    Which year was more successful again? 

Not only the above, but the question was asked am I panicking over the declines?  Well, no.  As of this writing, the market was lower as recently as December of 2018. (The market has declined further since this was written, but the point still holds)    Less than 2 years ago my investments in the stock market were still lower than they are now.    It is enough to make you question the definition of a market correction.

Market Timing, a Stopped Watch is Only Right Twice a Day

It also really nails the stupidity of talking about market timing.  If I go back to 2018 I wrote several pieces on why not to market time. I even wrote pieces on the subject in 2017.  The general “expert” consensus even then was the market was over-priced and was sure to decline.  And yet here we are after a major correction 2 years later, and the market is still up.

Lest you think I’m cherry-picking the pull back in December of 2018, most of the entire year of 2018 we were lower-priced then we are today (March 11, 2020).   It really puts the decline in perspective.  Even if the decline continues the point is made.  After all, even at this point, people are losing it over the amounts they’ve already lost.  Nevermind that if they’d pulled out in 2018 they’d still have lost compared to being in the market.

Retire with a Buffer, fi is not necessarily FI

This whole situation also illustrates the foolhardiness of pulling the plug exactly at net worth equals 25x expenses.  Why?    Well if I were just at 25x when the market declined I’d now have 23x.   In other words, I would no longer have 30 years until the money runs out from today forward.  This is what is called sequence of return risk. 

Basically, if you have a decline very early on in your retirement, the sequence of that decline will result in the worst outcome for your remaining money.  Conversely, if a decline were to happen years down the road the impact would be much less.  The best way to combat that sequence of return risk should be obvious.  To build some sort of buffer.  That buffer should keep you above the target expense ratio in spite of either a surprise increase in expenses or a sequence of return situation.

Covid-19 Won’t Impact Most People’s Retirement Income

All this adds up to me being very glad I don’t intend to retire until 55.  I should have plenty of savings at that point to weather storms.    But it also means that I am largely indifferent to the stock market impact of Covid-19.    It’s a long way to retirement, and what happens today should have little to no impact on when I need that money.  For most people not at or near retirement, the same should be true.     I fear for those in retirement or near, but the rest of us should keep the situation in perspective.

How are you doing financially?  Anyone else no longer financially Independent (FI).


  1. Financial Samurai
    Financial Samurai March 16, 2020

    Congrats for not feeling bad about the melt down! I have yet to meet anybody commenting on FS who has said they have lost money or feels bad too. Maybe it’s because people who do keep quiet? I’m not sure.

    I was 25% stocks/75% fixed income going into this crash. It has helped a lot, but the losses still hurt a lot. Hopefully folks will stop making fun of me for being so conservative. Doubt it though.

    I think things will be OK. Opportunity!


    • FullTimeFinance
      FullTimeFinance March 19, 2020

      I think the longer this lasts the more those commenters will come out. I occasionally skim the Bogleheads forum. I’m reminded of what happened there in 2008. Everyone was staying the course until suddenly it got so bad the stalwarts started to head for the hills. Then again that is usually the sign things are near bottom and it’s time to buy.

  2. Joe
    Joe March 16, 2020

    This is why the sequence of return risks is so important. If you’re not going to retire soon, then stay in the market. If you plan to retire, then put it off a bit.
    Our FI ratio dropped a bit, but we’re still over 25x. So it’s good to have some margin. Another way to improve the ratio is to slash your expenses.
    Good luck and stay safe.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      Very true about slashing expenses. In some ways self-isolation is already doing that for us.

  3. Dave @ Accidental FIRE
    Dave @ Accidental FIRE March 16, 2020

    I’m still way over 25x, heck I’m probably still over 50x I think, I’d have to check after todays massacre. Not bragging but I have a huge buffer and lots of cash so I’m not worried. I am worried for a very long recession though, for the sake of the country.

    Stay the course, this too shall pass.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      Of course, I am very worried for the country as well. Especially those less fortunate. It’s definitely a case of make sure your oxygen mask is in place and then help your neighbor. I’m not particularly worried about us even now as low as 20x. We’re well prepared thankfully.

  4. Katie Camel
    Katie Camel March 16, 2020

    “Retire with a Buffer, fi is not necessarily FI”

    This correction is the wake-up call I’ve been waiting for because so I fear so many in this community only know the upside of the market, not its nasty downside. I wasn’t FI before this downturn, but I was more than halfway to my padded FI number. The more I see downturns like this one, the more I’m thankful I keep increasing my FI number. I don’t want to hit 25x and think it’s time to check out, which is why I continue raising my number. In some respects, I’m sure I’ll continue working in some capacity well past my “retirement” because I like mental stimulation, challenges, and people. Plus, I think it’ll be hard for this accumulator to stop accumulating. 😉

    Thanks for your honesty and recognizing the importance of that buffer! We need this reminder at times in this community.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      I love the approach. FI is about removing stress and worry. What you do with it depends on what you want.

  5. freddy smidlap
    freddy smidlap March 16, 2020

    this is why asset allocation matters. the closer you get and when you have likely “made it” it’s ok to keep some money in cash. i don’t think a few years’ worth is too much. it goes back to your point of having a buffer. sure you can go 100% stocks all the time but what would you spend if the economy tanks and you lose your cash flow (job)?

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      Agreed. We have about 2x expenses in near-cash investments. In some ways, you could call these our emergency funds. In our case we mostly used direct CDs and other items from a few years ago, so they even have a decent return. Here’s hoping we don’t need them.

  6. Xrayvsn
    Xrayvsn March 17, 2020

    I have been pretty conservative with my FI goals and had been going always towards a fat FIRE retirement. This year validates why going lean FIRE can be quite a gamble.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      I guess for some that dice role is worth it. I’d hope the lean fire folks have an air tight plan B right about now.

  7. Scott Trench
    Scott Trench March 18, 2020

    Guys – the 4% rule is the safe withdrawal rate, precisely because it takes into account the exact circumstances we find ourselves in today. It is the SAFE withdrawal rate. It takes into account the sequence of returns risk discussed in this article already.

    The entire point of the 4% rule is basically “hey! If the market crashes immediately after you retire, like in the COVID-19 scenario then you STILL will never run out of money in retirement!”

    This is why it is used.

    Obviously, if you retire at 25X your spending, and then your portfolio immeidately takes a nosedive, you are no longer at 25X your spending. You are now at 20, or 18X, or whatever.

    This is the sequence of return risk mentioned here. To be abundantly clear, the 4% rule takes this into account. It is everyone’s worst fear, and the entire reason why we get to 4%, or 25x our spending, instead of assuming a 7% withdrawal rate, or 14-15X.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      I’d recommend you read this post by early retirement now for a good look at empirical evidence showing relying on the 4% rule isn’t a good idea.

      Conceptually the 4% rule does not take into account the sequence of return risks. It takes into account your investment outcomes based on the number of 30 consecutive year periods available since the beginning of the stock market. That number is not what I would call statistically significant compared to the number of likely outcomes. In fact, even with this methodology, the 4% rule is not 100% likely to last, it is a number in the 9x% range based on your asset allocation. The difference between 100% and 9x% is your sequence of return risk.

      • Scott Trench
        Scott Trench March 19, 2020

        FullTImeFinance. I continue to respectfully disagree, and recommend you read this post from MMM that explains the 4% rule in laymans terms.

        “The 4% Rule: The Easy Answer to “How Much do I Need for Retirement”

        This dip is currently right in the fairway of normalcy for a market drop in a recession. Exactly what we plan for as a FIRE community. Exactly what MMM discusses in his post nearly 8 years ago. Anyone who retired with exactly 25X their annual spending just a few months ago is still FI.

        That said, in practice, while the 4% rule is extremely conservative and designed for exactly the present circumstances, only a tiny minority of the FI community actually goes on to “retire” with just stocks/bonds in a 4% rule allocation. Nearly every person who leaves wage paying work, or direct management of their businesses, has other assets, like pensions, real estate, businesses, etc.

        The math and feelings don’t match up. But the math still holds.

        • FullTimeFinance
          FullTimeFinance March 19, 2020

          Hi Scott,
          I’ll have to respectfully degree on the first part.

          However for the second part I’d argue all the things you mentioned are part of the equation. Pensions, businesses, and real estate are all assets you should count. How you count can be complex but they still count. The only items I wouldn’t call assets are things that depreciate, like cars, and your personal home. I don’t count your home only because the asset of your personal housing either bears out as a reduction in expenses (no rent) or an asset you sell. It can’t be both. I prefer the expense viewpoint.

  8. Steveark
    Steveark March 19, 2020

    This little dip has no real effect on us. Four years into slightly early retirement we are still at zero withdrawal rate. Plus I worked way past 25x because work was so fun. I expect never to pull more than 1% if I ever do need to withdraw income from our portfolio.

    • FullTimeFinance
      FullTimeFinance March 19, 2020

      Sounds like you’ve built yourself a secure future.

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