Maybe today isn’t the ideal time to take the early retirement you planned. But the day is fast approaching. The pandemic will pass, economic activity will increase and the market will travel to new highs. Beginning retirement when the economy is at the beginning stages of a bull market allows for the longest period of growth before your budget is seriously challenged with declining asset prices.
Rules of thumb are an easy way to quickly see where you stand financially. Once you reach 25X your spending in liquid net worth (the 4% rule presented as a multiple of spending) you are assumed to have enough to retire under the 4% rule, regardless your age.
However, as we are seeing with the current market turmoil, the simple rule of thumb has one fatal flaw. If you reached your 25X goal a few months ago and decided this was the time to step away from traditional labor, you now face a withdrawal rate from your index funds a third higher than expected. This will reduce the account value early in the distribution phase, lowering the total amount you can get from the investment over your lifetime.
Another rule of thumb is to keep 6 months of spending in cash in case you become unemployed. Under a normal job loss or economic decline this would be a reasonable policy to follow. Unemployment insurance can provide additional cushion to the 6-month cash reserve.
Black Swan events (unexpected negative economic events such as the housing crisis or pandemic) throw the whole rule of thumb out the window. Black Swan events do not happen often, but they do occur every decade or so. Looking back at U.S. history, it seems something always happens every decade to knock the markets lower and slow economic activity. The 2010s are the only decade to avoid that fate and 2020 seems to be making up for the oversight.
Perhaps the most important financial advice in the Bible comes from 1 Timothy 6:10:
For the love of money is the root of all evil. (KJV)
Money is not bad; greed is. Working to have money is of vital importance and God places money and wealth front and center. I see so many people suffering financially because they believe “money” is the root of all evil, when that is the furthest thing from the truth. It is the “love” of money that is the problem. Avoid that and you are golden.
There is so much more financial advice than that just in the four gospels and Proverbs. Of course, if you are serious about wealth, you might want to read the entire Bible as Living Literature. The stories still resonate and for good reason. They are archetypal stories dripping with significance. Virtually every bestselling novel and movie can be traced back to some story in the Bible. You just didn’t know it.
Money and wealth are important. And yes, God wants you to be rich. Really rich! Not just in financial terms, but in physical, mental and spiritual terms as well.
The word goal has taken on dreaded status. Over the decades I’ve attended several informational and motivational seminars. Whenever the topic of goals comes up, heads duck. It shouldn’t be that way.
I think people dread goals because they feel obligated once they are on paper. There is also some fear of stating your goals because they entail your deepest desires.
The thing is, goals should change. Not every goal deserves consideration. It would be nice to skydive. Sure it would. But after careful consideration other goals might interest you more. More family time might be the goal you wish to pursue instead and the rewards (in your mind) might be better than falling from 10,000 feet.
As the weight started taking its toll I adjusted as best I could. First the other blogs were cancelled. Then my farm was sacrificed. The weight of my choices extracted a serious penalty.
I have always been healthy. I did have a heart operation in junior high, but outside that I was like a machine. I enjoyed life and took the largest bite I could chew. If life is worth living it is worth living to the max.
It was easy to brush off the first warning signs. Yes, I was working long hours, but I enjoyed the work so why not.
Traditional retirement plan contributions come with a loan attached to it with a variable rate of interest, to be determined at a later date by the tax code and your income level.
We all know that traditional retirement accounts get a tax deduction at your ordinary tax rate to the retirement plan contribution limits. We should also know that these account grow tax-deferred and that all distributions are taxed at ordinary rates.
This is a real problem if your goal is to maximize your net worth. In the early years the tax benefit makes it seem like it is the best deal on the planet. But as time passes the math tells a darker tale.