Having A Wobble

This "financial independence" lark is a new idea that we all have to absorb, and this happens on different levels. We can understand it logically, intellectually, and still take some time to catch up emotionally.

After all, we're not all that many generations removed from being hunter-gatherers, so it is a challenge to really grasp at an emotional level concepts like "you can stop working and it'll be okay." We can just about cope with "you'll get a monthly pension for life", so it's not surprising that we find it harder to deal with "a 4% drawdown from this investment pot won't let you down. Probably."

A friend recently gave me a shout. "I'm having a wobble."  Now, this friend knows his stuff. And he's been doing this long enough to be at the point of hitting FI and leaving his job. That means he has had plenty of time to get to grips with the different aspects of it, but at the same time his imminent retirement is probably what is causing him to think about the whole thing a bit deeper.

This just goes to show that none of us are immune to a case of the wobbles.

My first response to him was, "Well, you know that you're not going to run out of money." And from there we chewed it over a bit more, mostly with me listing the backups and contingencies that he has in place. 

So I thought you may appreciate the same pep talk.

Yes you have your portfolio built. You have a sensible withdrawal rate planned. We've stress-tested it against historical data using tools like FIREcalc, and plotted out the trajectory of your wealth using fireplanner. There is lots of reassurance that you're going to be okay.

As for backups and contingencies, you probably have some of the following:

• State Pension will kick in, giving a certain income for the later part of your retirement.
• You have an element of "fun" spending which you can cut during a stock market crash, to further protect your portfolio.
• You may have a holiday home to sell, or other assets that you can liquidate - a boat, a motorhome, your precious collection of vintage Star Wars toys or Aunt Nellie's jewellery which she left to you but you're not actually all that bothered about. (Sorry, Auntie!)
• You may get inheritances.
• You could downsize your house, and probably should before you get too old to face the upheaval of moving.
• You could use equity release on your home. From the age of 55 you can cash in up to 70% of the value of your house.
• You could earn some money. Even if you found your career job tedious (or worse), even taking on some part-time minimum-wage work would ease the pressure on your portfolio if things are going badly wrong. And a lot of low-paid work can be quite fun. The fun stuff tends not to pay well.
• You could relocate somewhere cheaper, even to a cheaper country. You could live in Thailand, India, Colombia or Romania for perhaps a third of the cost of living in the UK. (If you are running out of money, this is more likely to be later on in your retirement, in which case there may be fewer family ties like older relatives to stop you from considering this.)

If all of these backups aren't enough to reassure you, the other alternative is to look at your withdrawal rate in a different way. By treating your "core" spending separately to your "fun" spending, you may be better able to see how low your core spending needs are. I wrote about this more in the Two Pot Stratagem.

Want to read more of my ideas? I have a new book out - Build Your Retirement, 5 ways to improve your wealth in retirement. Or other books here. 

Or you may prefer my FIRE series for beginners.