It's easy to be retired early when the market is great, huh?

It's easy to be retired early when the market is great, huh?

It's easy to be retired early when the market is great, huh?

When the market is great, it's easy to be retired. But, what happens when it isn't, and should we make light of the fact that some early retirees might not be able to withstand recessions as easily?

It's easy to be retired early when the market is great, huh?

    It's all rosy and great when the market's literally propelling everyone forward in their money goals. It's almost impossible to NOT make money in this market. It's been a great ride, no doubt about it. But eventually, the other shoe will fall.

    Recently, I've heard a few lines of thought within the community that's troubling.


    "Everybody's an expert when things are great. Let's see what happens when the market tanks."

    "I wonder how many of those index-fund millionaires are still millionaires after the market dipped 1,500 points today."

    "Things are always great and every money decision you're making now is spot on - until it isn't."

    It's similar to another line of thought I've always found to be disheartening:

    "I can't wait until the market tanks! Then, stocks will be on sale."

    Pardon me for saying this, but these remarks sound incredibly condescending and entirely unhelpful in the money blogosphere and personal finance in general. This community has been so uplifting and supportive over the years. Let's keep it that way by offering something truly constructive!

    And yes, stocks will be cheaper if the market tanks. But, a tanking market also has potentially catastrophic consequences for many people - even those who didn't spread themselves thin through irresponsible spending habits. A tanking market affects everybody. I've written about this before.

    Things are great until they aren't

    The implication behind these words is clear: If you pulled the cord on full-time work so early that you only have a million bucks (or even less), you probably aren't all that wealthy, and you should have stayed working much, much longer. Because, what happens if the market tanks and your index funds crash? Or your health diminishes? Or...

    What if, what if, what if.

    Make no mistake, I think there is wisdom behind some of these concerns. If you're spread too thin, it's easy to remain afloat when the market is great. After all, we are all making money hand over fist right now. It's hard NOT to be just a bit richer at the end of almost every day. But even so, some of us might not have the economic foundation to withstand a powerful recession. All this is true.

    However, we are all very different people, capable of very different things and comfortable with very different degrees of risk. Let's not patronize those who might be riskier.

    There are three primary types of early retirees:

    Risk-averse: These are retirees who have padded their wealth as much as they can, to include working longer than might be necessary to make double (and triple) sure that their savings will last through virtually any market situation, including a recession. If you live in a high cost of living area, you're likely one of these people.

    Risk-tolerant: These are retirees who are willing to accept the added risk of retiring sooner than most people might feel comfortable with, but also tend to be ready and willing to make adjustments in retirement to account for unforeseen circumstances, like market dips, health concerns or anything else.

    Somewhere in the middle: These are retirees who worked a little longer than necessary to pad their savings just a bit, but pulled the plug on their working careers early with a reasonable expectation that things will be fine in retirement. These people tend to be accepting of a little risk, but not as much as those who are more risk-tolerant. My wife and I fit well in this category.

    "Everybody's an expert when things are great. Let's see what happens when the market tanks."

    This is a direct shot at those who are more risk-tolerant and decided against years of additional work to pad their savings. Though I understand the concern behind these words, I really, really wish we would choose a less condescending way to argue our point.

    And to that point...

    It is okay to be risk-tolerant!

    My wife and I are on the more risk-tolerant side of early retirement. We quit our jobs at 33 and 35, respectively, with around a million in the bank.

    But regardless of our personal situation, I believe taking risks is smart. Risks put us in a position that forces us to remain vigilant rather than complacent. Risks help us to understand the world around us and accept the fact that things might not go right.

    One of those "what ifs" might come true.

    And, that's okay. It's a risk. But, we are all different. Some of us are more accepting of risks than others. Many of us believe that the opportunities in early retirement are worth the risk of calling it quits without several million in the bank. Depending on our lifestyles, we may not need several million sitting there, waiting.

    Some do. Some don't.

    And there's absolutely nothing wrong with being risk-averse, either. I think there's wisdom in working longer to pad your stash a bit more, which will make it easier to withstand a variety of market conditions, inflation, and health.

    Two ways to think about early retirement:

    More risk-averse: "It's true that I don't know how much I will need, so I might as well work a bit longer to make sure I have enough to live comfortably as well as pay for unexpected expenses."

    More risk-tolerant: "It's true that I don't know how much I will need, but flexibility in retirement, along with opportunities to make money, is enough for me. I'd rather not continue working a job I don't like for money that I may not need."

    Different strokes for different folks.

    How we are managing risk

    Like I said, my wife and I are definitely more risk-tolerant. Retiring in your 30s (or even your 40s), you gotta be at least a little risk tolerant. Early retirement is a risk, especially this early in life.

    Thanks to my wife, we believe that our risks are smart. If it were just me, I would have retired years ago and just figured it out. I'm extremely risk-tolerant. My wife, however, is different, and together, we've settled into that happy middle ground between ER'ing early enough to squeeze maximum enjoyment out of our most productive years, but still leaving us enough flexibility in case things get tough.

    We are primarily index fund investors, which means when the market is great, we do great. When the market tanks, we also tank. My wife and I don't invest in real estate (I tried that and lost over $100,000). Our primary focus is the stock market, which is inherently risky but historically successful.

    We also have more than three years of living expenses saved up and ready in an interest-bearing Ally savings account, which builds by hundreds of dollars every month through the power of compound interest. While this is much more cash than a lot of people would keep, it's also a hedge against failure if things get bad. If a recession comes, we will live off of that to minimize pulling from our stocks during a down market.

    Our cash flow is far better than we had expected heading into retirement. One of the things I love the most about early retirement are the opportunities. I have my hands wet in a variety of projects that earn money. I've also monetized this blog, which generates nearly a third of our living expenses alone.

    Note: We didn't plan on any income in early retirement (aside from capital gains, of course). But, it happened anyway. That's the magic of early retirement. The earlier we retire, the less likely we are to sit on our ass all day without anything to do. That's not the way early retirement generally works. We are still active and motivated people, and it's hard NOT to find an opportunity to improve our cash flow.

    Over 1/3rd of our expenses are entirely discretionary. This means that if things do get bad, we can free up a third of our money by cutting back on discretionary spending virtually overnight.

    And, we are okay with international travel. In fact, one of our goals is to live internationally in a low cost-of-living area, like Thailand, Costa Rica, Panama or Guatemala. If things get truly bad in this country, we will utilize our willingness to bail for a while until things improve.

    In early retirement, flexibility is the spice of life.

    Here's the point: I think it's okay if you're risk-averse or risk-tolerant. We are all very different people. Some of us are Type-As and always have to be busy. Others are the opposite and would rather have a clear schedule every day. Some love taking risks. Others hate it.

    None of this is inherently wrong, and neither side should be the recipient of questions that clearly imply that they're doing it wrong. There's more than one road to early retirement.

    Are you risk-tolerant, or risk-averse?

    There is a lot more to many of us bloggers, or redditers, or personal finance junkies, than what meets the eye. What might sound risky to some isn't a big deal to others. They might have a much higher cash flow than you think. Or be able to start up a dormant side hustle at a moment's notice. Or slash their expenses by in a favor to know, adjust.

    In other words, that whole "don't judge a book by its cover" sort of thing.

    Where are you on the spectrum of early retirement? Are you more or less tolerant of risk in early retirement? Are you willing to do what it takes to make ER work, even if things get baaaaaad?  :)

    For example, one of my favorite blogs, Our Next Life, is written by Tanja who is pretty risk-averse. They worked longer than they had preferred in order to protect against unexpected expenses, inflation, and healthcare. She's also one of the most detailed bloggers I know.

    Also, The Give And Get is written by a lawyer who is extremely risk-averse because she deals so often with what happens when risks fail. She also started a wickedly-interesting thread on Twitter that blew up into quite the conversation about this topic!

    Accidental FIRE is less risky, too. His $12,500 knee surgery of which he only had to pay $175, due to his co-pay, is a testament to how expensive unexpected costs can get.

    And then there are guys like Justin from Root of Good who's confidence level matches my own (which, by the way, isn't easy). He's much more tolerant than many in the community. So is Joel from Financial 180.

    Thanks for reading! In the end, we're all different, and that's what makes life so interesting.  :)

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    Steve Adcock

    774 posts

    Steves a 38-year-old early retiree who writes about the intersection of happiness and financial independence.