- My husband and I are currently in our early 40s, but have been on track to retire in just 4-5 years.
- We lost hundreds of thousands during the first three months of 2022, but this has not deterred us.
- We plan to think long term, reduce our expenses, stay debt-free, and work part-time after we retire.
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I had high hopes of retiring early when I was ready to welcome 2022. After all, the S&P 500 returned more than 27% by 2021. Meanwhile, the Vanguard Total Stock Market ETF (VTI)where I hold a decent percentage of our investments, reported a total annual return of over 25%.
At age 42 and with my early retirement only eight years away, these astronomical returns catapulted my family’s plans. Suddenly, it began to look like my husband and I might retire even sooner than planned, maybe in four or five years.
But, we all know what they say about plans: we make them, and God laughs.
My heart sank when I saw that our retirement portfolio and taxable investment accounts lost hundreds of thousands of dollars during the first three months of 2022. That said, I still plan to retire at age 50, and possibly even sooner.
My husband and I always hope for the best, but plan for the worst, which is exactly why our plans for early retirement still make sense.
For full disclosure, my husband and I are self-employed. We have been maximizing retirement contributions in 401(k) only accounts for years, and we also saved for retirement in a Roth IRA when we were eligible. We have considerable funds saved in a Health Savings Account (HSA)almost enough savings in two 529 plans for our two children’s college education and a taxable brokerage account with Vanguard where we invested in index funds.
Where many early retirement enthusiasts struggle to save enough money to cover 25 years of your regular expenseswe are chasing a plan called FAT FIRE that requires us to save about 35 times our annual expenses before throwing in the towel and quitting work.
For our early retirement plans to work, we estimate that we will earn a conservative 6% return each year. While the stock market has historically done better than that, we think that percentage gives us an idea of where we will be without being too optimistic.
But how can our early retirement plans work when we’ve already lost hundreds of thousands of dollars this year alone? Here are four reasons why I’m not worried and believe we’re still on the right track.
1. We are willing (and able) to adjust our spending
Our current retirement goal is to save up to 35 times our annual expenses for early retirement, but we may need to live with less than that. The reality is that we have no idea what kind of returns our investments will bring over the next seven or eight years, so we have to be comfortable with the possibility that we will have less for retirement than we planned, at least at least. First.
If we end up having close to 25 times our annual expenses for retirement, we will have to work harder to keep our expenses lower than we really want. For us, that would probably mean lighter international travel for a few years, eating at home more and dining out less, and taking on tasks we outsource, like lawn care and grocery shopping.
Would it be worth those sacrifices to be able to retire at 50? We certainly think so, and we are prepared to change our lifestyle if necessary.
2. We promise to stay debt free
We also commit to staying debt free when it comes to our home, our cars, and all other debt that can easily take shape. We won’t have a mortgage payment in early retirement, and that will give us a lot more flexibility when it comes to keeping our expenses down.
Without any debt, our main living expenses will include property taxes, home insurance,
medical care, utility bills and food.
3. Working part-time is a real possibility
My husband and I are self-employed in jobs that allow part-time work if necessary. With that in mind, we’ve always said that one or both of us could work part-time to cover our living expenses if we wanted to avoid withdrawing our investments for a few years.
This is the most likely scenario if the sequence of returns leading to our retirement is less than advantageous. Instead of retiring during a “bad year” when returns are low, we can work hard enough to cover our bills and give our investments more time to recover.
4. Long-term thinking is key
Finally, we’ve always believed that you have to be flexible for any early retirement plan to work. In the meantime, we also know that a few years of lackluster stock performance shouldn’t upset our plans.
The reality is that markets always go up given enough time, but only if you hang around long enough to see it happen. In fact, the 10 year average stock market return it is 9.2%. There will be good years and bad years, but investments have always recovered and been back on track for the long term.
While we have “lost” hundreds of thousands of dollars in 2022 so far, those losses are only theoretical at this point. We are definitely not charging or changing our plans, so those losses will never be realized in a traditional sense. In fact, we’re continuing our regular contributions as usual, so some would say we’re buying index funds and other investments “at a discount.”
Whatever happens, we are still “all in” on our investment plan, and we will not give up. With regular investments in our Solo 401(k) plans and taxable accounts, some time, and a lot of luck, we’ll be ready to retire early and with plenty of money to spare.