Surviving a recession as an early retiree: A journey of FIRE (financial independence retire early)…
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| Montreal, Canada |
As a relatively recent early retirees as of August 2020, my wife and I have been living on a fairly tight fixed income every month. Thanks to our adherence to the FIRE (financial independence retire early) movement, we’ve been able to get by (and enjoy ourselves) for the past two years or so, traveling the United States as well as Canada.
Admittedly, our second year of our retirement did end up costing us more money compared to our first year of retirement, thanks to rising inflation and macroeconomics. The AirBnB rental, for example, cost roughly $300 more on average, the second year.
In these times of weird economic conditions, where inflation is incredibly high, all asset classes are getting hammered, but people are still going on ‘revenge travel’, we’re having a hard time trying to make sense of all these economic data coming in from all sectors, like real estate, stocks/bonds, and energy.
In my lifetime, I’ve never seen used cars appreciate in value, yet this is exactly what’s happened during the last two years. I’ve seen real estate appreciate in value by double digits, which is not normal. I’ve also seen cryptocurrencies reach peaks last November.
As free stimulus money made people feel rich, which directly contributed to rising prices on just about every asset class out there, we’re now seeing the aftermath of what happens when free money stops and when interest rates go up at the same time.
One symptom out of many strange symptoms lately is that many technology companies have been laying off their staff in preparation for a coming recession, trying to conserve capital/cash, in order to survive. The tech sector, like many other industries, had over-hired during the boom of Covid-19 work remote (and buy everything remote, gamble remote) environment.
Real estate market is now showing signs of a crash in markets like the Southwest, Mountain West, and the West Coast, where home inventory is piling up, while prices are coming down. In stocks/bonds, the same is true. After reaching the peak in November 2021, the market has reached a bear market, where assets fall 20% or more. Same goes for cryptocurrencies. Bitcoin, the most popular cryptocurrency, was at its peak of $65,000 last November, only to lose around $45,000 in value as of September 2022.
It is no fun living through another recession after living through the Dot Com Bust, and the Great Recession, not too long ago…For those who are too young to remember any of these recessions, it can be a shock to the system to learn that, yes, things don’t always go up in value. They also can come down in value…
One thing is blatantly clear in these confusing times: Cash, cash flow, and/or emergency fund is king! It’s what everyone should have on hand to get them through a recession or any tough times. Typically in any recession, those that have enough cash flow usually get to survive, then hope to come out on the other side, battered, but alive. Whether we’re talking about individuals or companies, the concept is the same.
In this post, I’d like to share my thoughts on surviving a recession as an early retiree.
According to the Bureau of Economic Analysis (BEA), United States’ first quarter GDP was -1.6%, while the second quarter GDP was -0.6%. In technical terms, this equals recession, meaning two consecutive quarters of negative GDP. Usually, in a recession, there would be more people out of work, while the economic activity, like consumption, would go down.
This weird recession, is well, different. There’s still high consumption going on, and despite the tech sector and the mortgage industry laying off workers, there are more job openings in other sectors, than there are workers. Like I said, very weird indeed…
Maybe it’s because I’m living through this recession in real time, that I’m having a hard time making sense of all this. Or maybe, the world is changing fundamentally, and I’m just witnessing it happening first hand. I’m not sure.
What I am sure is that all these news coming out of the economy show that we all need to be prepared for what’s to come. That means the following:
- Emergency fund, emergency fund, and emergency fund!
We’re trying to minimize withdrawing from our bond funds as value goes down. Starting October, we’re going to withdraw about 2/3rd of what we normally withdraw, for our monthly living expenses. The rest will be made up from our emergency fund.
My reasoning for this is simple: the bond fund gets monthly interest rate of around 4.5% to 5.0%, which is much higher than what I can get on my online savings account, which pays around 2% interest. I figure I can make my bond fund last much longer thanks to that high interest rate by selling less of it every month.
We’ll see how that goes. If you know me by now, it’s adapting to the environment based on current situation. If something changes again, I’ll go with the flow…
For everyone else, the concept of an emergency fund shouldn’t be anything new, especially if you’ve been following the FIRE movement. Having one could be the difference from making it through these times, or not making it at all.
I highly recommend having one if you don’t already have one, or if you do have one, see if you can add to it until you have 6 months of living expenses or better. No one can see the future, but the way our labor market is, along with disrupted supply chain, and the Russia-Ukraine War, it doesn’t bode well for inflation in our near future.
- Budget! I can’t talk about finance without this of course!
- We’re again trying to do more takeout vs eating at a sit down restaurant
In conclusion:
Despite what news and media report on these days, we are definitely in a recession. Because we’re witnessing this is real time, we don’t feel like we’re in one, but regardless, it’s always better to be prepared than to be unprepared.
World is changing right before our eyes. Inflation will be with us for a long time, and there may be more widespread job cuts in the coming days. Be prepared now, cut down on your spending, and please add to your emergency fund. Cash is king!
In normal times, all these advices are true, but it’s more true in these turbulent times. Read other FIRE movement bloggers and watch finance related videos to get motivated to become financially independent. The concepts of saving money to invest and to spend less is always a great advice in any economic environment…
Thank you all for reading and wish you the best of luck surviving these turbulent times.
Jake
Wandering Money Pig
