- My husband and I are currently in our early 40s but have been on track to retire in just 4-5 years.
- We lost hundreds of thousands during the first three months of 2022, but this hasn’t deterred us.
- We plan to think long-term, reduce our spending, stay debt-free, and work part-time after retiring.
- Read more from Personal Finance Insider.
I had high hopes for early retirement by the time I was ready to ring in 2022. After all, the S&P 500 returned over 27% for the year in 2021. Meanwhile, the Vanguard Total Stock Market ETF (VTI), where I keep a decent percentage of our investments, reported a total annual return of over 25%.
At age 42 with my early retirement just eight years away, these astronomical returns catapulted my family’s plans. All of a sudden, it started to look like my husband and I could retire even earlier than we planned — in four or five years, maybe.
But, we all know what they say about plans: We make them, and God laughs.
My heart sank as I watched our retirement portfolio and taxable investment accounts lose hundreds of thousands of dollars during the first three months of 2022. That said, I’m still planning to retire by the age of 50, and potentially even earlier.
My husband and I always hope for the best but plan for the worst, and that’s exactly why our plans for early retirement still make sense.
For full disclosure, my husband and I are both self-employed. We have been maxing out contributions for retirement in Solo 401(k) accounts for years, and we also saved for retirement in a Roth IRA when we were eligible. We have considerable funds saved in a Health Savings Account (HSA), almost enough savings in two 529 plans for our two children’s college education, and a taxable brokerage account with Vanguard where we invest in index funds.
Where many early retirement enthusiasts strive to save enough money to cover 25 years of their regular expenses, we are pursuing a plan called FAT FIRE that requires us to have closer to 35 times our annual expenses saved before we throw in the towel and stop work.
For our early retirement plans to work, we estimate that we’ll earn a conservative return of 6% each year. While the stock market has historically performed better than that, we think that percentage gives us an idea of where we’ll be without being overly optimistic.
But how can our early retirement plans still work out when we have already lost hundreds of thousands of dollars this year alone? Here are four reasons why I’m not worried and think we’re still on track.
Table of Contents
1. We are willing (and able) to adjust our spending
Our current retirement goal is saving up 35 times our annual expenses for early retirement, but we may have to live on less than that. The reality is, we don’t have any idea what kind of returns our investments will bring over the next seven or eight years, so we have to be comfortable with the possibility we’ll have less for retirement than we planned — at least at first.
If we do wind up having closer to 25 times our annual expenses for retirement, we will have to work harder to keep our expenses lower than we really want to. For us, that would probably mean lighter international travel for a few years, eating at home more and dining out less and taking on tasks we currency outsource like lawn care and grocery shopping.
Would those sacrifices be worth it to be able to retire at the age of 50? We certainly think so, and we’re prepared to change our lifestyle if we have to.
2. We vow to remain debt-free
We also vow to remain debt-free when it comes to our home, our cars and all other debts that can easily take shape. We won’t have a mortgage payment during early retirement, and that will provide us with a ton more flexibility when it comes to keeping our expenses low.
Without any debts, our main living expenses will include property taxes, homeowners insurance,
healthcare, utility bills and food.
3. Working part-time is a real possibility
My husband and I are both self-employed in gigs that allow part-time work if we need to. With that in mind, we have always said one or both of us could work part-time to cover our living expenses if we wanted to avoid drawing from our investments for a few years.
This is the most likely scenario to play out if the sequence of returns leading up to our retirement is less than advantageous. Instead of retiring during an “off year” when returns are down, we can work just enough to cover our bills and give our investments more time to rebound.
4. Long-term thinking is key
Finally, we have always believed that you have to be flexible in order to make any early retirement plan work. In the meantime, we also know that a few years of unimpressive stock market returns shouldn’t alter our plans.
The reality is, markets always go up if given enough time, but only if you stick around long enough to see it happen. In fact, the average 10-year stock market return is 9.2%. There will be good years and bad years, but investments have always rebounded and worked their way back on track over the long run.
While we have “lost” hundreds of thousands of dollars in 2022 so far, those losses are only theoretical right now. We’re definitely not cashing out or changing our plans, so those losses will never be realized in a traditional sense. In fact, we are continuing on with our regular contributions as always, so some would say we’re buying index funds and other investments “at a discount.”
Whatever happens, we are still “all in” on our investment plan, and we’re not giving up. With regular investments in our Solo 401(k) plans and taxable accounts, some time and plenty of luck, we’ll be ready to retire early and with plenty of money to spare.