Oh Sh$t, I Retired Into the Teeth of Sequence Risk!
Well, I did it. I retired into the teeth of sequence risk.
Congratulate me now because I did have a plan for sequence of returns risk when I retired.
In fact, I often say that the most important part of retirement (aside from setting the date) is to plan for sequence of returns risk. Well, that, or actually have something purposeful to do in retirement! Is purpose more important than the money? Which one do you want to run out of first in retirement?
If you don’t want to run out of money in retirement, then you better plan for sequence of returns risk. And oh sh|t, did I retire into the teeth of sequence risk!
I Retired into the Teeth of Sequence of Returns Risk
I assume you know what sequence of returns risk is, as it is the largest mitigatable retirement-specific risk a retiree faces early on.
Sequence of returns risk is the risk of permanent harm to a portfolio due to withdrawals during a poor early sequence of stock market returns. Even if returns improve later to prove a good arithmetic average, the damage is done as you are forced to sell low and lock in losses.
It is mitigatable, as you can build buffer assets to mitigate against sequence risk.
And it is only a risk early on in retirement. I have bits on planning for sequence risk and asset allocation before and after retirement:
I retired into the teeth of sequence risk, as the largest proportion of the risk is in the first year of retirement. However, I mitigated the risk by having other sources of income and not needing current portfolio income to live on.
Essentially, we are coastFIRE, earning enough to support current spending and letting the portfolio double in the background before planned withdrawals.
So, did I retire? No, I told you, I’m a stay-at-home dad, and my wife works harder than I ever did!
Buying Crypto during the CryptoWinter
I have also finished buying crypto for now. See my previous blog on how I got to 1% of investible assets.
Now, I have increased my holdings of three different coins to 1% of our net worth. It took some buying to do so, as the coins have generally been going down about 30% since I started getting in (and they were off 50% before I even started buying!).
So, understand this, even despite dollar-cost averaging into a position while it is going down (the best time to do so!), I have a negative 30% return already! Amazingly, I spent two weeks shoveling money into crypto; at least on paper, it is already gone. Poof. But good thing I don’t need to sell and can see what prices do in the next 5-10 years. Remember, crypto is a stock-alternative and probably a good thing to think about if you want to have a lot of risk and volatility in part of your portfolio.
Selling Muni’s during Sequence Risk
And amazingly, I took a loss on some Muni that I have had around like smelly dogs for the last few years. I’m not sure if I broke even after-tax or not, and it doesn’t matter because the purpose of the money all those years ago was to provide cash at some point in the future.
Yes, the cash was for a possible real estate purchase (useless land for horse grazing, not the good cash flowing stuff), but cash is cash as money is fungible.
So instead of useless land, it pays for rapidly inflating daily living essentially as other money is funneled into new equity (and crypto) purchases.
Actually, I bought some buffered ETFs a few months ago to take the place of the Muni’s, and I’ve been thinking about a way to get them out of my life. And I guess the easiest way is just to sell them.
Mr. Market, if you keep going down, I will keep selling Muni’s and rotating into VTI. Just you watch me.
Are We At the Bottom Yet?
So, are we at the bottom yet, or should I plan on selling more Muni’s?
It just doesn’t feel like capitulation yet. People are not hurting that bad. The pain isn’t uniform yet.
Inflation is more real than expected, and we are seeing prices go up. And how long does it take to get in for a dental appointment or get your AC services right now?
There will be real wage inflation, job growth will slow down, and inflation will continue, and who knows, maybe housing will become affordable again. But not with current mortgage rates going up a percent a month.
Are we at the bottom? Doesn’t matter. As money is fungible, I will keep selling my best performing asset (which is currently my least bad performing asset, Muni’s), and when I have money, I will buy the whole US economy.
Even if we aren’t at the bottom yet, I managed to do it! I retired into the teeth of sequence of returns risk. I’m pretty excited about that. Think about this paradox for a second, what would my 4% SWR be 6 months ago compared to now? Is your SWR supposed to go down by 20% in 6 months?
It takes me two days to get into the dentist unless I’m hurting, then he will stay late and see me today. My AC went out last week on a day with heat index warnings and they were on-site in 45 minutes and had it fixed in another 45 minutes. Because I do business with friends and relationships trump inflation and inconvenience. Prices may go up with inflation doesn’t have to impact quality of service, in my experience.
Well so did I David and thanks to your coaching we have enough cash to ride out a year or even two. But I admit it was several weeks before I emotionally regained my composure! I did sell all of our brokerage bond funds to take advantage of some tax loss harvesting since we can repurchase in 31 days. But my thought is to wait until those bond funds stabilize before repurchasing. We also took advantage of the down market to get a significant Roth conversion done. Unfortunate timing for us ‘just retired’ folks. I keep the flight bag at my side at all times 🙂