In Support of One More Year Syndrome

In Support of One More Year Syndrome

Hello everyone! Thanks for stopping by The Green Swan. Recently I was encouraged by a reader (thanks Crusher!) to share a post on why I plan on investing 100% of my portfolio in equities when I retire. As I was writing that, I couldn’t help but realize how that subject tied into my views on working “one more year” (aka one more year syndrome).

While I may have an “aggressive” investing philosophy by investing 100% in equities today and into retirement, to me it is the safest way to retire. However, this does require a conservative view and approach with other aspects of early retirement, such as building in extra costs to my estimated retirement cost of living and retiring with an investment portfolio about 35-40% larger than standard advice. I do this for a multitude of reasons as I think it is the sane way to retire comfortably early…way early in reality considering I’m planning a 50+ year retirement.

This strategy protects against sequence of return risk, it protects against longevity risk, it provides a flexibility standard for cost of living including the ability to increase our expense baseline if we ultimately determine a more “lavish” retirement is up our alley, etc.

Embrace One More Year Syndrome

With all that said, I encourage you to embrace one more year syndrome! Heck, embrace the five year syndrome if you can tolerate work (more on that in a minute).

Six months ago I published a post declaring my financial independence. This may seem strange considering a post shortly thereafter declared my target retirement date is March 2023…five years out. Does that mean I’m embracing the “five more year syndrome”? Yes, it really is and give me a chance to explain.

In the traditional sense, I am financial independent. With a net worth of over $1.6 million today and a current cost of living of around $60K, I have saved nearly 27 times my annual expenses. This represents a 3.75% withdrawal rate based on my current portfolio size which is inside the traditional 4% safe withdrawal rate used as a rule of thumb by many in the FIRE crowd. Further, the $60K includes about $20K of daycare and $15K of mortgage principal and interest; both expenses with a finite life.

However, I’m not ready to pull the retirement trigger as I want my retirement lifestyle to inflate from where it is today. To what exactly, I’m not entirely sure (that will evolve in time), but that’s why I’m building in lots of cushion. So I’m throwing in around $20K of extra costs into the travel, hobby, and other miscellaneous expenses to our retirement budget. We’ll also need a large sum to cover health insurance that we’ll begin buying in the open market, say $10K to $15K to be safe. Plus, while I strategize to pay no taxes in retirement, to be conservative and somewhat more realistic, I estimate about $10K in taxes (mostly from conversions from pre-tax retirement accounts).

We may spend this much some years, but not in other years. It gives us cushion to enjoy the retirement we idealize, while also giving us cushion to cut things back if we experience a rough sequence of returns or unexpected expense. After all, life happens.

With all that said and working with obviously round numbers, we ballpark a baseline retirement cost of living of around $75K, give or take. This takes out the finite costs (daycare and mortgage) while adding the incremental retirement costs (vacations, healthcare, taxes) as mentioned above.

I use a slightly more conservative 3.5% safe withdrawal rate to back into an approximate $2.1 million target retirement portfolio based on a $75K retirement cost of living.

Great, so I’m financial independent today based on today’s cost of living. I am embracing “one more year syndrome” to keep building the portfolio to $2.1 million. But I continue to embrace my one more year syndrome as I shoot for my target $3 million portfolio before entering retirement which adds about 40% cushion! All-in-all, that results in my embrace of a “five more year syndrome”!

Sustain Your One More Year Syndrome

So here I am encouraging you to also embrace and sustain your one more year syndrome. Why? Embrace your working life phase for the following considerations:

  • Build cushion into your retirement cost of living estimates and allow flexibility for lifestyle inflation. It may be hard and unfeasible to expect a constant lifestyle standard. Create some space for a more lavish retirement. Isn’t that what retirement is all about?
  • Peace of mind as you alleviate sequence of return risk and longevity risk. Can you imagine how it would feel to put financial considerations on the backburner for any and all future expenses or purchases?
  • Build up liquidity for a fun side project like investing in a small business or new retirement hobbies (brewing beer, starting a bee-hive to harvest honey, various exercise or sporting equipment, tools for a woodworking passion, or all the above). Imagine using woodworking skills to build the bee-hives which houses the bees making the honey you use to brew a nice honey wheat ale? Mind blown!
  • Allow tons of spending the years before retirement to test the waters on what lifestyle you want. While you still have the support of a W2 income, try your hardest to “blow” the money your bringing in on anything that makes you happy. Live large and go out with a bang. It might actually open your mind to the things that you value in life and how you may ideally spend your money in retirement to maximize your bang for the buck.
  • Stock up on things entering retirement, like buying your mid-life crisis car…? Is it possible to have a mid-life crisis if you are essentially retiring mid-life? Anyway, use that last year to save up for a large purchase as that may be the time to buy a Tesla.

The Ultimate Retirement Snowball

The cushion afforded by working one (or five) more years, if not relied upon, can provide very comfortable living standards when age 70 or 80+ or, if you so choose, the ability to bequest to grandchildren or great grandchildren and/or charities.

In the article last week on investing 100% in equities into retirement, I outlined how a $100K buffer in your investment portfolio (as in retiring with $2.2 million rather than a hypothetical target of $2.1 million) could snowball into $1 million in 30 years if the buffer goes unused (assuming ~8% return).

While the buffer may or may not actually be relied upon to support your lifestyle in those 30 years, it will result in a heck of retirement snowball (in essence a nest egg within your nest egg!). That can provide a decent starter fund for a potential second act in retirement.

The cushion I’m factoring into my investment portfolio is around $900K or so ($3 million portfolio vs. a $2.1 million target portfolio as mentioned above). If Lucy and I end up maintaining a somewhat static cost of living in retirement of around $75K, we’ll be banking that surplus and building the ultimate retirement snowball. An extra $900K sitting around will grow to $9 million in 30 years! Not a bad problem to have for just working a few more years and retiring at 37 instead of 34.

What if you Hate Your Job

With all due respect, that is a whole different issue that requires addressing. The solution isn’t retirement. As many retirees have prophesized, it is much better to be retiring to something than retiring from something.

I can sympathize with folks in this situation though. I was there. I was at the point of burnout. And at the time, I made a very challenging decision that ended up being a fantastic decision. Dare I say, one of the best decisions in my life…perhaps one day I may reflect back on it as a defining turning point in my life. I decided to ease off the career pedal and realign my work life balance.

I now have a job that I not only can tolerate, but I enjoy. I am working much more reasonable 50 hour work week with my weekends free. I also now have the flexibility to actually use the paid time off that I’m given by my company rather than losing days off each year. Now I am no longer at risk of prematurely retiring simply in order to cut of my working career. All the while, I’m still making good money to fuel my early retirement.

If you hate your job, rather than jumping into retirement, jump into a new job. Try something new, take a leap of faith, and continue to work for a brighter retirement future. Embrace your one more year syndrome!

Thanks for taking a look!

The Green Swan

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14 Comments

  1. Just curious, is the $10K-$15K healthcare cost estimate based on research on the exchange and actual inputs or just a plug for the time being? Any side income assumed in there or would that be additional icing on the cake. Seems like a great conservative plan!

    1. The healthcare premiums is just a plug. The situation on the exchanges will continue to change so it’s hard to get a feel there plus there may be a resurgence of lower cost short term or catastrophic health plans that aren’t widely available today. My estimate could be off quite a bit, admittedly, and it may change quite a bit from year to year.

      Any side income would be icing on the cake! Thanks for the questions!

  2. JW, ironically, I have a post coming out this week on how the OMY Syndrome can be used as a hedge against a bear market / sequence risk. Amazing minds, my friend. Good luck on your 5MY, if they’re anything like my last 5 working years, they’ll fly by.

    Based on my experience, a secure and worry free retirement is worth a few more years behind the desk. Good post about an important topic!

    1. What a coincidence! Feel free to post a link to your article in the comments. I look forward to giving it a read!

      As much as I’d love to retire now, enduring for a few more years will be so worth it. Thanks for your thoughts, Fritz!

  3. I agree. There is nothing wrong with working a bit longer – one year, five years, or as much as you can tolerate.

    As of now, we have set a target date (mid 2023) and will be close enough to FI (although we may not quite make it), but plan to keep making some money in retirement. I don’t anticipate one-more-year-syndrome affecting us, but it is still too far to say. But if there is an itch, I will fully embrace it. More money can’t hurt! I can always leave it to charity.

    1. Great plan and sounds like you have a very open, flexible mindset which will suit you well as you head into retirement! Thanks for sharing!

  4. It was nice to see your feature this morning on Rockstar Finance. The great thing about being successful early in your career is life is full of choices. There is no doubt you can earn a LOT more for each additional year you work, especially once you make it to the mid-levels of banking.

    I was in a similar position to you and worked for an incredible leader, then the experience at work changed dramatically, so its time to pull the plug.

    1. Nice to have that flexibility to pull the plug whenever the time is right! That may be the route I go to, not necessarily in an urgent rush to leave the workforce, but when the time is right I will know. Thanks for sharing your experience!

  5. I’m right there with you, especially if you earn a high income. If one more year allows you to save $100k to $200k or more, those savings can have a meaningful effect on the rest of your life, However, if one more year adds less than $20k of savings, perhaps more time is worth more than that money.

    I also like the fact that oversaving can allow you to keep a more aggressive asset allocation. Retiring with 25x or less, you ought to shift to a somewhat conservative allocation, at least initially, or have contingent plans to start earning money again. With 33x or more, you can feel more comfortable letting your money ride in a portfolio heavy in stocks.

    My take on OMY syndrome from a couple years ago: https://www.physicianonfire.com/omy/

    I’m in my third “OMY” since realizing I had achieved baseline FI, and will be in my fourth year when I retire from medicine next summer.

    Cheers!
    -PoF

    1. Well said, PoF. Not surprisingly, you and I are thinking the same. And the power of having the flexibility to invest more aggressively in stocks and not worry as much about the downside can not be over-stated. That can pay very handsomely down the road! Thanks for sharing!

  6. Great post and a good prespective. If the savings justify it and you do not hate your job I believe this is a safe way to figure out what you want to do. I for one have no clue what my plans will be when I achieve FI.

  7. I know I am going to struggle with one more year syndrome as I start approaching FIRE lift off. There are so many unknown variables that it is hard to predict what exactly you will need in retirement (health care costs, etc). FIRE people tend to be pretty conservative so most likely will be fine, but I would still feel like an extra year is going to be tempting just to be safe

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