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Fear and Loathing: Early Retirement Into the Coronavirus Pandemic

This article is part of a series on personal finance during the coronavirus pandemic. Please check out the Coronavirus and Your Finances Series (link will open in a new window).

Sometimes bad luck hits you like in an ancient Greek tragedy, and it’s not your own making. When you have a plane crash, it’s not your fault.
–Werner Herzog

My wife and I decided about a year and a half ago that we were going to pull the plug and retire early at the end of 2019. We’d done all of the calculations and projections and felt very secure about our sources of passive income and our safety net going into retirement.

Three months later, most of the country is under lockdown. HUD just announced a moratorium on evictions. While we don’t expect our renters to take that as a blanket moratorium on paying rent, we also are quite aware that some of them will face financial hardships, and we’ll have to work with them. It will undoubtedly affect our cash flow.

Even when the coronavirus restrictions are lifted, I personally think it would be unwise to expect a snap back rebound. Demand will have been drained from the economy by unemployment as well as by people hunkering down with their own spending. Many small businesses who employ those people will go under, so they will not have jobs to go back to. It could be anywhere from 4 to 18 months before we see a return (hopefully, I’ll be overly pessimistic here).

How Should Early Retirees Think About Dealing With the Financial Impacts of the Coronavirus?

  1. Pare down expenses. While we’re buying meals for local hospital staff from local restaurants, we’ve otherwise trimmed down all unnecessary expenses. It’s easy to do when we’re in what is effectively a lockdown. We’ve moved from AT&T to Google Fi (#aff), and expect to potentially save up to $100 a month on our cellular expenses. We’re buying in bulk where we can. We’re buying unprocessed foods. We purchased a SodaStream (#aff) because we’d been drinking a lot of seltzer water, and we purchased an air fryer (#aff) to cook more healthily at home. We are “splurging” more on either having groceries available for curbside pickup (when we can schedule it) or having them delivered (when we cannot schedule the curbside pickup) to avoid in-person contact.
    First attempt at air frying and Sodastreaming. Receipe courtesy Noble Pig Air Fryer Salmon.
  2. Use your liquid assets first. People who sold after the 1929 Wall Street crash, after the 2000 dot com bubble, after 9/11, and after the 2008 Great Recession had one thing in common: they sold low. Yes, as of the close of the markets for March 20, 2020, the S&P 500 is down 29% since market open on January 2, 2020. While this drop has occurred almost solely because of an exogenous shock – COVID-19 – and the tourniquet that the world has needed to put on the economy to stop its spread, the fundamentals of most businesses have not changed. Therefore, if you can avoid selling low, avoid it. You’d rather pare back your lifestyle for a year or two to buy your invested assets time to recover than to kneecap your long-term nest egg to get you through the short-term.
  3. Look at going back into the workforce or getting contracting work. Yes, unemployment claims are currently skyrocketing; however, there are still pockets of the economy that are holding out, or even growing in this pandemic. At least two of our portfolio companies at the private equity group I co-founded are currently hiring. It is easier to go back to work now, while your skills are still fresh and relevant, than it will be in 18-24 months when you’ve had a gap in employment.
  4. If you have to sell assets, try to tax loss harvest. Hopefully you have some capital gains to offset your capital losses. Beware of wash sale rules when tax loss harvesting.
  5. Don’t tap into your retirement accounts unless that was already part of your plan. If you’re below the age where you can withdraw penalty free, you should go back to work. Treat finding a job like a full-time job until you get income. Sorry. The worst of tail end risks hit you, and you should get back into the workforce until this passes over, if you can.

Some people want reassurance that everything will be OK and that it’ll all work out and they can keep on with their early retirement as if a once in 5 generations event hasn’t happened. If you didn’t abide by saving up enough for early retirement to be able to live within your safe withdrawal rate and you can’t dial down your expenses to get back under your safe withdrawal rate (at this point, by about 30%), then do what you can to get back to earning income. You do not want to eat through your nest egg and find out when you’re in your 60s and 70s that you don’t have enough money to survive. You’ll be greeting shoppers at Walmart (or whatever the equivalent is at that time). Yes, SAFEMAX worked during the Great Depression.

It’ll probably still work (though the 2000 cohort of retirees is probably now chewing through their cuticles).

But, early into this crisis, if you do not have PLENTY of cash cushion (we have 2 years’ worth of expenses in cash and cash equivalents, to give you a reference point, and that is without dialing back as we’re currently doing), you want to take proactive measures to avoid chewing through your nest egg.

That may mean that you have to postpone your early retirement dreams.

It’s better than chewing through your savings and having to go back to work at an age where it is difficult to do so and your job skills will have greatly eroded.

If I turned out to be wrong and did a great Chicken Little imitation (which, by the way, I do think there will be GREAT buying opportunities in the intermediate future if you’re flush with cash), so be it. You delayed your dreams by a few months or a year, and you padded your nest egg. The asymmetric risk of failure means that’s a reasonable price to pay, and I’d be thrilled to be proven wrong.

Did you early retire in the past few months? How are you handling the novel coronavirus pandemic and its effect on the markets and the economy? Let’s talk about it in the comments below.

By Jason Hull, CFP®

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

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