Walk Softly and Carry a 4 x 4 to Secure Retirement!

Secure Retirement

Hello there $wanigan! Welcome back to The Green Swan! We have been exploring retirement related topics the last few weeks. First with a discussion on my financial wallchart and how my passive portfolio income has tracked with my expenses over the last 8 years. This will be a tool I use to help gauge at what point I have reached Financial Independence.

Then with a follow-up post I outlined expected expenses to support our retirement lifestyle, factoring in planned lifestyle inflation. Here is where I first outlined our four degrees of conservatism in estimating our lifestyle costs.

Today I am taking the discussion one step further with my four levers and dials to secure retirement. In sum, these three posts work together as the wallchart estimates Financial Independence based on our retirement lifestyle supported by 4 degrees of conservatism and 4 levers and dials to ensure a secure retirement. With that, I plan to walk softly and carry a 4 x 4 to secure retirement!

Secure Retirement

Levers and Dials to Secure Retirement

What do I mean by that? Well if my wife and I are planning on / hoping for a 50+ year retirement, we better have a Plan B, C, D and E in place just in case our retirement portfolio doesn’t last! If that is the case, we’ll need to pull a few levers and turn a couple dials to stretch our money through our golden years.

If you’ve already read the two prior posts in this “retirement” series of articles, you know that I have a pretty conservative plan in place. I touched on our Four Degrees of Conservatism:

  1. Conservative expense estimates
  2. Adding a separate 10% cost cushion
  3. The ability to cut discretionary items (30% of expenses)
  4. Entering retirement with an investment portfolio 40-45% larger than necessary

My four degrees of conservatism along with my four back-up plans detailed below will allow me to walk softly and carry a 4 by 4 to secure retirement.

My Forbidden Cousin

I think I have a fairly conservative starting point to enter a 50+ year retirement horizon. But what about in the situation where my forbidden cousin, the black swan, enters the picture? Black swan events, coined by Nicholas Nassim Taleb in his great book The Black Swan, are known as surprise events with major effects. Think of the 2008 recession…

Could there be black swan events during the course of my retirement horizon that knock it permanently off course? It is hard to say that is unlikely. My retirement plan is stress tested with my four degrees of conservatism, but I can never say never.

Black Swans

Green swans really are the best…black swans suck! But they happen so it is best to be prepared. Do you want me to spitball and predict the future…a black swan could potentially come in the form of:

  • War…or cyber war. The U.S. doesn’t necessarily have the best foreign relations with China, Russia, or North Korea, among others, right now.
  • Have you heard of the Zika? Or super bugs? Can modern science and technology keep up with these brewing risks?
  • The world population isn’t shrinking. Will we be able to figure out a way to feed the growing world?

It doesn’t take too much of an imagination to see a few black swans on the horizon. Just ask any doomsday prepper. However, black swans are known to be black swans for a reason…because you don’t see them coming. So who knows what could happen when…

Black swans happen and they could potential spin out from any of the above factors to spoil investment portfolios. That’s not to say we, or any early retiree, should keep working to build a greater and greater fortress. Enough has to be enough, right? A Smilodon will suit my retirement just fine and will allow us to enjoy life to the fullest while we can.

But in the face of the rare event that my black swan cousin comes in to ruin the fun, what will we do? What will you do…?

My Levers and Dials

The following are my levers and dials that I can utilize to stretch and carry on our retirement lifestyle. These factors would be in addition to the four degrees of conservatism I outlined above including cutting back on discretionary spending categories.

These are the steps I would take in the event I sorely underestimate the expense of our retirement lifestyle, experience “sequence of return” risk (i.e. a significant drop in investments during my first 10 years of retirement), or the long term growth of my investments pales in comparison to historical returns for miscellaneous reasons or black swans.

  1. Raiding my kids 529 accounts!

Oh the humanity! But yes, in all reality this is on the table. Lucy and I have chosen to “fully fund” our kids 529 accounts with ~$70K by their third birthday. This will allow us to take full advantage of the initial investment compounding tax free for 15 years.

However, we still haven’t ultimately decided our intent to pay for all their college or not. I paid for about half of my college expenses and I found great value in having some “skin in the game” to motivate me.

It is definitely an option to have our kiddos pay 25% or 50% of their own college costs, thereby adding the remainder of their college funds to our retirement funds.

  1. Tap home equity.

To bide us through a rough patch, we could tap home equity to avoid selling investments in a down market. We will likely own our home free and clear in retirement which could provide a few years’ worth of expenses if we levered it up. Of course we’d ultimately need to repay this loan. Or, alternatively, we could downsize our home to permanently access that capital.

  1. Liquidate our Health Savings Account (H.S.A.)

We’ve been investing in our H.S.A. for years now. Little by little this has amounted to a decent chunk of change. It currently sits at approximately $25K and I would estimate it to grow to around $70K by the time we retire.

We’ve been saving receipts for health related expenses (e.g. labor and delivery for our second kiddo…) to allow us to withdraw funds tax and penalty free in the future at any time. While we won’t have enough receipts to pull all the money out tax and penalty free, we’ll still have access to over a years’ worth of expenses if necessary (or in the situation where a black swan medical condition strikes someone in our family).

  1. Return to work

Boo hoo, but we could always return to work. I understand the argument that we won’t be able to return to work at similar wages from when we decided to retire, but we wouldn’t need that much income necessarily. Our current jobs (pre-retirement) are at wages that not only cover our current costs but also drive significant contributions to retire. If our intent or necessity to work again is to get through a down market / black swan type of event and simply provide for our cost of living, that isn’t too much to ask.

We could pursue any number of temporary positions and jobs which we’d enjoy as hobbies just as much as we’d need the extra money. Either one of us could, or may, seek employment for a year or two here and there if we so choose or need.

One additional avenue we’d have for traditional employment is working at our own small business. My brothers and I entered the entrepreneurial world and we intend to continue and grow those business ventures. While Lucy and I currently only act as owners of the businesses, our skills could provide value as traditional employees or management in the future. Nothing like having basically a certain employment opportunity at any time necessary!

Final Thoughts

Making the leap to retirement can certainly be stressful. I’ve always been one to lay out plans and preparations before any major decision to ensure I have my basis covered. Retirement is certainly no different.

All else equal, I would prefer to work one more year on the front end before retiring than risk having to re-enter the workforce after retirement out of necessity. Hence all the prep and precautions. Hence the four degrees of conservatism. And hence the four levers and dials. I want a really secure retirement!

I guess you could say I’m entering retirement with a 4 x 4! Four degrees of conservatism and four levers and dials to ensure my passive portfolio income can stretch through my golden years.

What is your plan for retirement? Will you be carrying a 4 x 4 to secure retirement? Of course personal finance is personal, so your 4 x 4 could be completely different than mine. Let me know in the comments below.

Thanks for taking a look!

The Green Swan

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  1. I hear you! I haven’t stacked decades worth of food either, but we don’t even have to go to a full-scale doomsday scenario to get folks into trouble with their early retirement. A repeat of 2001-2009 or 1965-1982 would do the trick. Multiple layers of dealing with will be necessary. For us it’s definitely back to work and spending cuts.

  2. Nice article! It seems this is on a lot of minds. I just published an article along the same lines of risk mitigation, advocating for a specific financial cushion to bullet-proof (as well as one can) early retirement plans and ease the stress of such a big life change.
    ONL also just published their progress, indicating their financial cushion and some contingency options. And ERN recently wrote some nice safe withdrawal rate articles also providing reasoning for additional savings beyond the 4% rule, especially for early retirees. PoF also talks about this.
    It’s interesting that so many of us are ending up in a similar position from diverse paths. The math and risk estimates are leading us here.

    1. Oh gosh I need to catch up on some of those articles. Always interesting to hear other perspectives, thanks for sharing.

      And yes it is reassuring to know that we are making similar conclusions!

  3. I love the conservative approach to your retirement plan. 50+ year retirements are definitely not the norm, and so the more flexibility one has, the better. It sounds like you guys have a great plan in place.

  4. I like the 4×4 approach! The mix of conservative assumptions and back up plans seems like it should cover you in that vast vast majority of situations. I think when people talk about the difficulties of going back to work, they often miss your point about pursuing temp jobs or lower paying jobs that you enjoy. You wouldn’t be starting from scratch and trying to build up a whole new portfolio – just filling a gap. I’m with you on this one.

    1. Thanks Matt!

      Glad you’re with me. A temp job may be all you need to get by for a few years until the market recovers. Not the worst thing in the world.

  5. Your black swan examples would have an impact on HUGE numbers of people (terrifying to think about). Is there such a thing as a personal black swan? e.g. cancer? debilitating disease? Seems to me that would have a potentially devastating impact on anybody’s plans. Hell, even a short term job loss would wipe out the finances of of most Americans, if the financial headlines we read are true.

    I’ve got many contingencies for while I’m in my wealth accumulation phase, but I need to spend more time thinking about how to better protect my assets once I reach the wealth preservation stage.

    Thanks for the thought provoking post, and congrats on baby #4!

    1. Yeah absolutely, it doesn’t have to be an Armageddon. Personal black swans can definitely derail a well thought out retirement plan. Definitely good to have contingencies. Thanks Ty!

  6. We have not yet reached the point where we put real numbers on the SWR we want to use, the buffer there is in the spending, an extra cushion to be put in place. It is just too far away.

    The ideal scenario is that we become FI at the start of a long bull market. We can off course tune our date to meet that point…

    1. I hear you, it is still a little far away for us too. Things will change for sure, we’ll just have to keep refining.

      Thanks for stopping by, ATL!

  7. We are definitely on the conservative side as well. We recently posted a two part article going over what we think our needs will be, expected investment growth, and where we currently are. I’d rather have too much near the end and gift even more than originally planned.

    And we could certainly scale back our anticipated spending if needed, part-time work, etc. I’ll be watching out for those Black Swans though.

    1. Oh great, I’ll have to check out those posts. Very interested in checking out your thoughts! With something so important, urea hard not to error on the conservative side. If the worst case is bequesting more than expected than that’s not too bad. Good for you folks.

      Thanks for the comment, N2S!

  8. Not that you would really want to , but going back to work in some manner would likely really help your numbers. Even part time, seasonal, or something fun for lower pay could work and give you a buffer. Watching your spending and making something instead of nothing should give you a boost. Also getting Umbrella insurance is probably a good idea. It doesnt cost much extra. You can really get sued for almost anything these days and the courts will let it go forward. Its a slow process and the legal fees add up quick.

    1. Absolutely, great points Arrgo. I first started looking into umbrella policies a few years ago and glad I did… Cheap protection to cover myself from some black swan events!

      Thanks for the comment!

  9. You omitted the potential of an EMP (read “Lights Out”, by Ted Koppel, it’ll keep you awake at night!). Always good to have contingency plans. I’ve got a draft post titled: “Am I A Prepper? Nope, Just Prepared”. Don’t know when/if I’ll get to finishing it, but it’s always good to think about The Black Swans (tho, I prefer the Green Ones, myself)…..

    1. Just had a baby boy on 4/1, I don’t think I need something else to keep me up at night! 🙂

      I’d love to hear your thoughts on being prepared! You’ll have to let me know when you finish that post.

      Thanks Fritz!

  10. Great article!! It is so important to really think about how we can handle our black swans in retirement to be prepared.

    Reminds us of a favorite quote: “Failing to prepare is preparing to fail”

    Having multiple backups is a great way to be prepared. Even Mr. Money Mustache has been increasing his stash rather than decreasing it in his retirement due to his hobbies.

    1. Right on, Master Duke! Never a bad deal when your hobbies can bring in some extra cash to secure retirement… Although it may not be easy to replicate the hundreds of thousands MMM is now bringing in! 🙂

      Thanks for the comment!

  11. It sounds like you have a pretty rock solid plan in place. I really appreciate the level of detail and thought you have clearly put into your planning process and rightfully so. A 50+ year retirement is a long time (and is really awesome to think about). In addition to all the levers and dials you have outlined, I really like the fact you could very easily go to work for the business you own with your brothers. That definitely adds another layer of security.

  12. Not to suggest that you would “have” to go back to work. But if you did. It could be a completely different kind of work. Better, more enjoyable work. Although it would require an alarm clock. But being a golf course starter or working at a book store a few days a week to cover a portion of the budget wouldn’t necessarily be the end of the world. Or maybe it would. Ahhh…

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