When I was working, it seemed that the climb toward our FIRE escape from MegaCorp was slow and steady. Each year our nest egg grew bigger. Sometimes faster, sometimes slower. Even in a very bad year like 2008, we managed to eek out some growth.
It felt like the cards we were being dealt were always resulted in a pretty good hand.
That has not been the case in the first 4 years of early retirement. Instead of having a big income to supplement investment returns, we are now drawing off of our savings and investment returns have played a bigger role.
Since early investment returns are more critical to long-term retirement plan success than later returns, I thought I would share the volatility we have seen year-by-year – by showing how many years spending we have gained and lost on paper …
You can see that we have had some pretty big swings. We started with almost 2 years ‘buffer’. Despite ‘losing’ one full year of that right off the bat, we were in the positive and it grew back in 2017. I was feeling good at this point – having not worked at all and having a bigger nest egg than we started with.
Year 3 changed all of that as the stock market fell sharply at the end of 2018 and our MegaCorp stock hit a 7 year low, seriously affecting our stock options. Thankfully, everything recovered pretty quickly in 2019 and although we’ve lost our buffer, we’re back where we expected to be in our FIRE Plan.
While I don’t watch investment returns as closely as I did when I was working (goofing off too much now!) it has been disconcerting to see the numbers dip into the red so quickly. Our Monte Carlo simulation didn’t actually change to much, so we didn’t adjust our lifestyle, but it’s definitely no fun to see that you are ‘off track’.
I think the key learning I’ve had is that you should probably expect to see a little more volatility in your nest egg when you are into retirement. Unlike when you are working, you don’t have ‘new money’ regularly coming in – smoothing out your nest egg. It’s like being in the casino and getting a few extra cards each hand.
How much volatility have you seen in your retirement nest egg compared with when you were working?
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