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One Year of FIRE: Ask Me (Almost) Anything—Part 3

surf grove campground

Gorgeous Surf Grove RV Park in Tofino, which we visited during our first year of FIRE

Part 3 of my FIRE AMA

On November 18, 2022, my husband and I celebrated our first year of FIRE. 🔥 To mark the occasion, I asked all of you to send me your questions… and did you ever! I received 41 incredible questions, and am answering them in an AMA (Ask Me Anything).

About a month ago, I published Part 1, which covered about half of the questions. I then replied to another batch of questions in Part 2, which was published three weeks ago. Today, I’m finally publishing the last set of questions here, in Part 3. 

In case you missed them, here are the links to Parts 1 and 2:

I hope you enjoy this final installment of my AMA!

Notes

  • The questions have been organized in the order that they came in.
  • Some readers included additional info with their question(s). This info appears in italics immediately after the question.
  • The (Almost) in Ask Me (Almost) Anything is there to safeguard my family’s privacy—I’ll only share info they’re okay with sharing.

Part 3 questions

These are the questions I answered in this post (scroll to the end for the questions I answered in Parts 1 and 2):

  1. What have you found to be the most challenging, but unexpected, adjustment that you’ve had to make in your transition to a FIRE’d life? 
  2. From a mental health perspective, how has your first year been? 
  3. Have you found it to be recharging or does it create extra anxiety at times? 
  4. When you say, you are going to withdraw from your investment, is there a strategy that you put in place? 
  5. Another question is on your RESP, how are you using it? 
  6. How do you organize your day to be so productive? 
  7. How much time do you dedicate to blogging? 
  8. You said, you are active on social media like Twitter. Do you have any tips so we won’t be on all time checking our phones? Do you dedicate specific time?
  9. What have you decided for extended medical insurance since you FIRE’d?
  10. How do you factor in the interest rate on the leverage when you apply the 4% rule? 
  11. How would you handle a 50% market drop (in your leveraged portfolio)?

One Year of FIRE: Ask Me (Almost) Anything—Part 3

Alright, now that we’ve got the preamble out of the way, let’s get to the main attraction—your questions! 

Phia

Phia is an old blogging friend (her blog is Freedom 101). She and her husband retired early several years ago and have been enjoying their FIRE life with their two young kids. Phia no longer actively blogs, but I’m hoping she’ll return to it one day. Here’s her question:

Phia: What have you found to be the most challenging, but unexpected, adjustment that you’ve had to make in your transition to a FIRE’d life? 

Chrissy: In Part 1, a number of you asked me about surprises or anything unexpected in retirement. I think it was asked about four times, in various ways! I was happy to reply—click here to jump back to Part 1 and check out my answers.

I thought I’d said everything I had to say about surprises in retirement. But apparently, I didn’t! It must be the way you worded the question, Phia—it’s helped get me thinking more about the past year. In doing so, I realized there was more to share…

The unexpected challenge

As I go back to the earliest days after M retired, I now recall that we did experience an unexpected challenge at that time. Of course, it was a happy and exciting time. But it was also a time of transition because M was suddenly around all day, every day. 😵

To be honest, I wasn’t expecting it to be much of a transition. As mentioned in We Did It—We Reached FIRE, we’ve always been used to spending a lot of time together. M had also been working full-time from home since COVID started, so I was used to him being around a lot. 

Given our past and recent experiences with seeing so much of each other, I absolutely did not expect issues when M finally retired. Well, I was wrong. In reality, it was quite a challenge figuring out how M would now ‘fit’ into my routine (and I into his). 

What happened

Since becoming a stay-at-home mom, I’d largely determined how the kids and I spent our days. Even when M worked from home, our daily routines were very much siloed. He did his thing and the kids and I did ours until we all saw each other again at dinnertime. 

But when M retired, that all changed. We both needed to figure out our new routines, roles, and rituals. We also had specific needs and expectations, which we didn’t always communicate gracefully to each other. 😬

Routines and rituals disrupted 

For example, my routine was to get the kids fed in the morning, then head out to walk Mika. When I got back from the walk, my usual ritual was to get her and my outside gear off, feed her breakfast, then go upstairs to change. 

M did not know this. And, being retired and full of energy and motivation, every day was an exciting invitation for him to get going and get stuff done. So, when I walked in the door after my hour-long walk with Mika, he’d be done feeding the kids and ready and waiting to start the day.

That meant, as soon as I walked in the door, he’d be bursting with questions or wanting to review our plans for the day. For me, this was too much! I found it stressful to be confronted with this ball of energy that was my husband… all while trying to carry out my post-walk ritual. 

The fallout and the solution

At first, this led to misunderstandings and hurt feelings. M didn’t understand why I wasn’t in the mood to engage with him. He was just trying to be efficient and thought I was being uncaring and grumpy. 

As for me, I just needed a bit of time to switch modes from dog walking to productive planning and doing. I was annoyed that M couldn’t see I had stuff to do once I got in the door! Until my after-walk ritual was done, I wasn’t in the right headspace to plan the day with him.

Fortunately, M realized relatively quickly that this was a problem we needed to address. So, we sat down and had an open conversation to share our side of the issue and work out a solution. As it turns out, the solution was obvious and simple, so it didn’t take long to figure out.

M agreed to give me space to complete my after-walk ritual. And I agreed to be patient and understanding if there were times when he’d need to talk to me right after I came in the door. Since then, we’ve both stuck to this solution and peace and harmony have been restored.

As for other areas of our lives that overlap, we’ve been fortunate that those have mostly worked themselves out as we’ve gone along. For example, we’ve fallen into an organic rhythm where we each do roughly half of the cooking and split taking our kids to activities and appointments.

I’m sure we’ll face other transition periods, such as when the kids start post-secondary (and potentially live on campus). At each juncture, we’ll likely have new upheavals and disruptions to face. If we’re smart, we’ll remember and apply the lessons we learned from FIREing!

Owning up to my naiveté

I’ve now shared two unexpected challenges from FIRE. (This one, and the one mentioned in Part 1, which was how hard it would be to switch from accumulation to decumulation.)

With both issues, I was very much caught off-guard. I’d always believed that I was ready and well-educated on what to expect post-FIRE, but these challenges have proven otherwise. 

I’ve been humbled. And I hope that, by sharing my FIRE challenges, it might help others to better prepare for retirement. Even so, it’s important to acknowledge that, no matter how well-prepared we are, we all have blind spots.

So, if you’ve already retired, please share your retirement blind spots in the comments. Let’s start some honest, detailed discussions about our FIRE challenges. It could give all of us a better chance at avoiding the biggest issues, so please share below!

FI Garage Groupie 

FI Garage Groupie and I became fast friends when he won me over with his dry sense of humour. (Which was mostly at the expense of my friends on the FI Garage podcast, ha ha.) 

He and I are also both anxious, worrying types, which was another point of connection between us. This made his questions extra poignant for me… 

FI Garage Groupie: From a mental health perspective, how has your first year been? 

Chrissy: Mental health is such an important topic and I’m glad you asked this question. My short answer is my mental health is the best it’s ever been. But there’s a lot more to share, so I’m going to get detailed with a longer answer below. 

My mental health history 

I first experienced serious mental health issues when I developed postpartum depression upon the birth of each of our kids. Along with the depression, I also experienced debilitating anxiety (which took much longer to treat). 

Those were some of the hardest, darkest years of our lives. I wouldn’t wish that kind of pain on anyone. But as hard as those years were, there was a silver lining—I learned so much about myself and emerged from the darkness a healthier, happier person. 

Had it not been for my depression, I likely wouldn’t have worked so hard to face my issues and heal myself. And now, nearly two decades since I was first struck down by depression, I feel more resilient and confident than ever. 

However, it’s important to note that this transformation happened slowly and started long before I even discovered FIRE. 

Putting in the hard work

I’m not at all ashamed to share that I’ve been in therapy for most of the last 17 years. During that time, I was fortunate to have had the love and support of my family and guidance from wonderful psychologists, psychiatrists, counsellors, and support groups.

Each of them helped me in my journey out of postpartum depression and the anxiety that lingered long after. With their help and A LOT of homework and effort on my part, I learned to circumvent my unhelpful thought patterns. It was a painful up-and-down journey, but slowly, over time, I healed and became stronger and happier. 

It’s now been more than a decade since I last felt deeply depressed and at least five years since my anxiety was bad enough to cripple me. More and more, those hard times are fading into distant memory.

Admittedly, I still have depressive, anxious moments now and then. But thankfully, they’re fleeting and easily managed with CBT and mindfulness. 

What FIRE did and didn’t do

Now that you know my story, let’s get back to FIRE. As mentioned, my mental health has been excellent in our first year of retirement. M and I couldn’t be happier and can’t imagine ever going back to full-time employment. There’s no denying that our post-FIRE life has been amazing and better than expected. 

But as you can see from my story, FIRE played little to no role in improving my mental health. This may not be true for everyone, but it’s certainly been true for me and other FIREees, including The Mad Fientist and Mr. 1500. Both of them raced to FIRE, hoping it would bring them the happiness and satisfaction they were lacking. 

But when they finally FIREd, they were disappointed to discover that they were still the same people, with the same issues. They had to face the fact that work wasn’t the source of all of their unhappiness. In addition, FIRE wasn’t the be-all, end-all solution they’d imagined it would be. It was a rude awakening. 

Fortunately, they found their way, and are now living happy and fulfilling lives. But their stories were nonetheless educational and informative. Essentially, The Mad Fientist and Mr. 1500 provided a guide for what not to expect when FIREing. 

I’m grateful to them for sharing their experiences so openly as it allowed me to go into FIRE with realistic expectations. Thanks to them and others in the FIRE community, I had no illusions that all our issues and problems would be alleviated by FIRE. (Nor did I believe it would send our happiness into the stratosphere.)

A realistic view of FIRE  

As much as I love FIRE and its many benefits, I knew not to pin all our expectations, hopes, and dreams on achieving it. I’ve learned that FIRE isn’t some magical state of being that wipes away all grievances and troubles. 

Instead, I see FIRE as a framework and mindset which can help us live our best lives. Put another way, FIRE gave us some of the key ingredients for happiness (such as freedom and autonomy). But those ingredients wouldn’t have led to happiness without awareness, effort, and a lot of mental labour.

To reap the full rewards of FIRE, I had to put in the painful legwork—long before we reached the finish line. But as difficult as it was, I can undoubtedly say that the happiness I have now was worth every ounce of effort.  

This was just my story 

I write all this being fully aware that I’ve been a stay-at-home mom and that working people will have a different experience. I’d expect that a lot of mental load and stress would be lifted upon leaving a stressful job.

In turn, this could greatly improve someone’s mental health (if their job was the main or only cause of their distress). I’m sure for some, reaching FIRE and being able to retire would fix a lot of problems!

Therefore, I don’t assume that my experience or my journey will apply to everyone. Indeed, other SAHMs and people with mental health issues will also have different experiences from me. We’re all on our own journeys, with our own unique struggles.

Yet, as different as we may be, I hope my story helps to share a more realistic view of FIRE and what it can (and can’t) bring to your life. Yes, FIRE is incredible, fantastic, and wonderful. But it’s not a magic bullet that will fix all our woes. 

Keeping this in mind helped both M and I to avoid unrealistic expectations and emotionally crashing after reaching FIRE. But more importantly, it also helped us to live our best life throughout our journey to FIRE. 

I know this got a little deep, but I hope it was at least somewhat helpful, FI Garage Groupie.

FI Garage Groupie: Have you found your first year to be recharging or does it create extra anxiety at times? 

Chrissy: Fortunately for us, FIRE has been very recharging and does not create extra anxiety. In fact, M and I have learned to be more zen and laissez-faire in retirement! Here’s how each of us has changed in our first year of FIRE:

When M was working, weekends were an ongoing source of stress and frustration for him. He was always torn between getting stuff done and trying to relax and recover from the work week. There was never enough time to do both, and by the end of his weekend, he was often disappointed and wiped out. 

But in retirement, M has all the time in the world, and it’s alleviated so much pressure. He’s enjoyed and embraced slowing down and taking each day as it comes. I often hear him saying, “You know what? I can do that tomorrow… or next week. There’s no rush.” 

That’s music to my ears! I’m happy that M can finally be so relaxed and stress-free in retirement. It’s true what they say—the gift of time is priceless! This was exactly what drove me to reach FIRE.

As for me, I was far more regimented with my time in my pre-FIRE days. During those years, I was the primary parent and main household manager. I had so much on my plate and not enough time to get it all done. This scarcity led to highly scheduled days, which left little room for issues or spontaneous happenings. (Either of which could seriously throw out my day.)

When I look at my retired life now, I wonder how I survived those days—and I was a stay-at-home mom! I can’t imagine how much harder it would’ve been if I’d had a job. (Huge kudos to all the working parents out there. It’s not easy keeping so many plates up in the air.) 

Like M, I’ve learned to slow down and relax my schedule. This has helped so much to make most of my days more recharging than they are draining. Additionally, while my anxiety was already well under control, I’m having even fewer anxious moments these days. 

I don’t know if every FIREee experiences early retirement as M and I have. But based on other retirees we know, our experience seems to be relatively universal. I hope it’ll be the case for you as well, FI Garage Groupie!

SimpleDar 

I ‘met’ SimpleDar when she left a comment on my October update post. She started her blog of the same name in September, so she’s still very new to blogging. On her blog, SimpleDar shares the experiences and lessons she’s learned as an immigrant and single mom. 

Incredibly, she worked her way up from the bottom after arriving in Canada and managed to achieve financial freedom in her mid-40s! I hope you’ll check out her brand-new blog and show her some support. Here are her questions. 

SimpleDar: When you say, you are going to withdraw from your investment, is there a strategy that you put in place? 

For example, I heard some planners sells the investment and prepare the money needed for two years.

Chrissy: This is an excellent question and one that a few other readers asked as well. The list below links directly to each question and my replies:

However, I’d like to share my thoughts on your comment about selling and keeping two years of money. There are pros and cons to this approach versus selling investments monthly (which is what we do). Here’s the comparison:

Two years of cashSelling monthly
DescriptionA popular strategy that many retirees and financial planners use (often referred to as the bucket strategy or a cash wedge).

Typically, most retirees will opt for one to two years’ worth of cash, but some will hold even more.
With this strategy, you start by dividing your annual spending into a monthly amount.

Then, every month, you sell some of your investments to provide you with your monthly cash flow.

You can automate this by setting up an SWP (systematic withdrawal plan).
Simplicity (pre-retirement)If you slowly accumulate cash over time before you retire, it's a very simple strategy.

If you sell your investments all at once to achieve your desired amount of cash, that would also be simple.

If you slowly sell investments to build up your cash, that would be less simple as it would require more effort and planning.
Pre-retirement, you'll just continue to buy and accumulate stocks as you normally would.

Since you wouldn't need to change anything before retiring, this strategy would be very simple.
Simplicity (in retirement)If you plan to continue replenishing your cash bucket or wedge in retirement (i.e. to always maintain 1+ years of cash) you'd need to make a plan for how you'd do this. This may or may not be simple.

If you plan to spend your cash until it's all gone, then switch to selling monthly (or annually), it would be very simple during the 1+ years you lived on your cash.

After that, you'd have to plan and set up a regular withdrawal strategy.
If you set up an SWP* (systematic withdrawal plan), it's very simple. All you have to do is fill out a form once and send it to your brokerage.

Then, every month, your investments will automatically be sold and deposited into your account.

*Note that this every brokerage or custodian may have a different process—some may be simpler than others.
ConvenienceHaving a lot of cash ready and on hand is undoubtedly convenient.Once you set up your monthly SWP payments, it's very convenient—essentially like getting a monthly paycheque.
VolatilityIf volatility makes you uncomfortable, holding cash will allow you to ignore the ups and downs in the rest of your portfolio.Depending on the percentage of stocks you own, you'll experience medium to high levels of volatility.

For some (like me) the volatility of stocks isn’t an issue. But for others, it could create a lot of anxiety.
Potential for growth Cash doesn’t keep up with inflation, so whatever you hold in cash will experience negative growth. (This is true even if you earn interest on your cash.)By keeping more of your money invested in stocks, it has a much higher potential for growth—over and above inflation.
Potential for loss Cash may not appear to go down in value as stocks do, but it will slowly lose buying power due to inflation. If you're withdrawing during a down market, you'll be selling at a loss.

However, selling small amounts of investments monthly can decrease the risk of selling a large chunk of investments at the worst time.

Over the long term, the growth in your investments will likely more than make up for the losses.
Psychological comfortFor most people, holding a year or more of cash provides a lot of psychological comfort. (This is the sleep-at-night factor.)For some people, keeping more of their money invested in stocks is what allows them to sleep well at night.

It can also feel good to get a regular 'paycheque' via an SWP.
Cash flow managementFor some people, having a year or more of cash on hand can make cash flow planning easier.

However, managing cash flow with a large pot of cash requires forethought and organization.
For some people, monthly withdrawals can simplify cash flow management by providing built-in organization and structure.

It may also be easier to manage because they're used to it—it's similar to the paycheques they used to get at work.

However, monthly withdrawals can make it harder to deal with lumpy spending.

Bottom line

As long as you fully understand the pros and cons of each approach, there’s really no right or wrong—only what’s right for you. 

If you know you’ll be very stressed when withdrawing from your investments in a down market, you may be better off with a cash bucket or wedge. On the other hand, if you’re like me and hate the drag on returns from holding a lot of cash, you’ll be happier selling investments monthly.

You know yourself best, so choose the strategy that’s most suitable for you.

Going deeper with the cash bucket/wedge strategy

For those who are considering the bucket/cash wedge strategy, I’d like to leave you with something to ponder: how are you planning to manage this strategy long-term? 

I ask this because you’ll eventually use up your cash and will need to sell investments to replenish it. Here are some questions you may want to consider:

  • Will you maintain X years of cash throughout retirement, or are you planning to use up your initial stash, then switch to monthly withdrawals?
  • If you plan to maintain X years of cash, will you replenish it based on a schedule (annually, bi-annually, etc.) or on a specific trigger (X months of cash left)?
  • How will you replenish your cash? Will you regularly sell some stocks to move into bonds, then sell the bonds for cash? Or will you skip bonds entirely and just move the cash from selling the stocks directly into your bank account?
  • If you plan to regularly shift some stocks to bonds, how often will you do this? What will be the trigger for you to make the shift? Will it be time-based or something else?
  • What will you do when it’s time to replenish your cash, but stocks (or bonds) are down?

You may also want to read this article by Rob Berger: The Bucket Strategy Is Flawed—Here’s A Better Way. He not only addresses flaws in the cash bucket/wedge strategy but also suggests a better solution. (I still prefer monthly withdrawals, but his suggestion could be an excellent alternative.)

SimpleDar: Another question is on your RESP, how are you using it? 

It seems it is tricky and the money needs to be out before the kids go to university, any insight to share.

Chrissy: How to use RESPs is a topic that many Canadian parents are curious about. I find there’s a lot of info about RESP grants and how to invest in these accounts. But there’s not nearly as much info about how to withdraw from RESPs.

Both of my kids are still in high school, so we’re not using our RESP yet. However, I’m happy to share how we’ve managed the account up to this point and how we plan to use the funds in the future.

How we’ve managed our RESP

We set up an RESP for Kid 1 as soon as he was born. When Kid 2 came along 2.5 years later, we converted it to a family account. It’s always been invested in 100% equities and will be for the life of the plan.

Many people would criticize us for our ‘risky’ strategy since the money’s intended for our kids’ education. However, I treat our RESP just like we do the rest of our investments—I want to give it the maximum potential for growth.

Based on historical statistics, we’re much more likely to come out ahead when invested in 100% equities 100% of the time. Conversely, there’s a very high probability of lower returns if we were to shift to more conservative investments.

I’m no gambler, but I do base my decisions on facts, statistics, and probabilities. All of these factors point to staying invested in 100% equities—as long as I can take the volatility. (Fortunately, I know I can. 👍)

What happens if markets drop?

So what happens if the markets are down when it’s time for us to withdraw from the RESP? That certainly wouldn’t be ideal. But even if that came to pass, we’d be okay. Here’s why:

  • We’re only withdrawing a portion of the RESP every year. Historically, the stock market is up more years than it is down. So the odds are in our favour as long as we don’t sell everything when the markets are down.
  • For the last few years, our RESP already had more than enough to fund four years of university per kid. Kid 1 still has one more year before he starts withdrawing and Kid 2 has four—which is all extra time for the investments to keep growing.
  • Neither kid will withdraw everything in their first year. They’ll only be using a portion of the RESP each year. Therefore, even if the markets are down, most of the money will stay invested. (And, eventually, recover along with the rest of the market.)
  • We saved an extra buffer over and above what we need for retirement. This can be accessed to cover any shortfall.
  • Each of our kids has their own informal trust account. These funds can also be accessed to cover shortfalls.
  • Because we’re invested in 100% equities, we’ve already made far more than if we’d slowly shifted to bonds and cash. Even if we withdraw in a down year, the excess gains will make up for the loss. 
  • Whatever stays invested will continue to grow for Kid 2 and the rest of Kid 1’s education. The future gains from our 100% equity investments will more than likely make up for any losses.

That said, this is what works for us. An aggressive approach such as ours likely won’t work for most people. For a more measured approach, here’s an excellent post from Dan Bortolotti which outlines a plan to gradually shift an RESP to fixed income: Taking risk in an RESP.

How we’ll use our RESP

I’m not able to provide much detail on this as we’ve yet to experience it! But I do have a loose idea of what will happen when it’s time for us to start using the RESP. These two episodes from my former podcast provide some insight into how the withdrawal phase will work:

Our RESP and FIRE

From the beginning, we’ve always treated the RESP and our kids’ informal trust accounts as separate from the rest of our money. The RESP is only there for their education and their informal trusts hold money that they saved and will get to use as they wish. (With our guidance, of course.)

Therefore, these accounts have never had any bearing on our FIRE plans. (Well, the RESP did a little bit in that we knew the kids’ education was covered! This meant we didn’t need to add their education expenses to our FIRE number.)

Related: Test your RESP knowledge with my quiz, How Much Do You Really Know About RESPs?

SimpleDar: How do you organize your day to be so productive? 

I understood you have been staying home for a while, but you are doing so much: Podcast, a blog that is outstanding, honestly, your articles are well researched, well formatted, plus two kids and volunteering. I found my days were better organized with work schedules. Now that I am on sabbatical leave, I find the days go on without that much done. 😂

Chrissy: Thank you for all your kind words, but you give me too much credit! Sadly, I’m no longer podcasting. I loved our show and guests, but the back-end work got to be too much, so I made the tough decision to leave the show in January

Even so, my schedule is still very full! But I do try my best to be as efficient as possible. My obsession with efficiency started when my kids were little and my time was extremely short. 

I became a bit of a time management junkie and read piles of productivity and time management books. I learned and tried out a lot of helpful tips, and shared my favourites in 11 Time Management Tips for Parents. Here’s a summary of the tips I shared in the post:

  1. Smart scheduling
  2. Batching 
  3. Track your time
  4. Avoid decision fatigue 
  5. Free, Focus, and Buffer days
  6. Outsource your brain
  7. Use a to-do list app
  8. Get more sleep
  9. Meditate
  10. Be mindful
  11. Say no

It took a lot of trial and error, but for the last five or so years, I’ve been very satisfied with my level of productivity. I’ve also learned to make peace with my never-ending to-do list—I know I’ll never get it all done, and I’m (finally) okay with that!

I have a feeling you’re far more productive than you think you are. (A good way to assess this is to look back on your year, rather than each day or week.) But even if you’re not as productive as you’d like to be, maybe it’s not such a bad thing? 

Perhaps you’ve simply reached a healthy level of productivity for yourself, and you just need to reframe things. Or you could just be in a less productive season of your life. Whatever the case, I think it’s perfectly okay to go at a slower pace!

In fact, I have a book recommendation that could very well make you feel good about being less productive. It’s titled Burnout: The Secret to Unlocking the Stress Cycle* and is written by twin sisters Emily and Amelia Nagoski. In my opinion, it’s a must-read for all women.

*Disclosure: This is an affiliate link, which means I may receive a small commission if you make a purchase through my link.

SimpleDar: How much time do you dedicate to blogging? 

Chrissy: I spend 10–20 hours per week on my blog. I used to spend more time, but it was often at the cost of my sleep and/or less interesting tasks. That wasn’t healthy, so I’ve reduced my time spent blogging.

During the day, I’ll only deal with very quick tasks, like replying to social media comments. Anything that takes more than a minute or two is saved for the evenings after all the chores of the day are done. 

That means I’ll usually work on my blog 2–4 hours per evening, 3–5 times per week. I don’t publish as often as I’d like, but I’ve made peace with that. For now, this is a comfortable and sustainable pace for me, so I’m sticking with it!

SimpleDar: You said, you are active on social media like Twitter. Do you have any tips so we won’t be on all time checking our phones? Do you dedicate specific time?

Please continue the blogging articles with all the details and statistics. It is such inspiration for blogger that are just starting like myself. 

Chrissy: During the day, I do my best to limit my social media use to idle moments when I’m not able to do anything else. For example, when I’m waiting for water to boil or standing in line at a store. (However, if I’m feeling frazzled, I’ll avoid my phone and will use these moments to meditate or just ‘be’.)

Another thing that helps a lot is that I don’t use social media for socializing or connecting with friends and family. I did that in the past and found that it was a huge time suck. These days, my social media use is only for blogging and learning about/getting help on specific topics (through Facebook groups).

However, I do sometimes allow myself the ‘indulgence’ of checking Twitter for breaking news or Facebook for new group posts. I treat this time as entertainment and only do it for a few minutes when I’m needing a brain break.

I know it’d probably be better for me to quit social media altogether. But I feel I use it mindfully and judiciously enough that the benefits outweigh the downsides. I mean, how else would I learn how to train my dramatic Shiba Inu to let me trim her nails?! 

I hope that was helpful. If anyone has more tips on limiting phone use, please leave a comment so we can all learn!

Finally, in response to your request for more of my stats-filled blogiversary posts: I’m definitely going to be sharing another blogiversary post in January. However, I may change the format this year. Stay tuned! 😉

Susan

Susan is a reader who asked this question as a comment on Part 1 of this AMA. It was such a great question that I decided to include it here so I could answer it in detail. (Thanks for your patience in waiting for my reply, Susan!)

Susan: What have you decided for extended medical insurance since you FIRE’d? 

We recently moved to BC and are struggling to choose. I’m a little older than you (45 and spouse 51), and we’d like to get something but are not sure what/how much, dental or not, and so on. 

I hate buying any kind of insurance, and that’s all I’ve been doing since moving here!! I know you reference that a bit in your post here, but any new info on your post-FIRE budget and thought process would be a big help!

Chrissy: At first glance, it’s hard to know if extended medical insurance is worth getting or not. However, once you do the math and learn how this type of insurance works, the decision becomes very clear! Here are the steps I went through to help us make our decision:

1. Add up expenses

I started by adding up our previous five years of extended health claims. To make this exercise extra useful, I sorted the expenses into the following categories:

  • Prescriptions
  • Dental
  • Vision
  • Paramedical
  • Therapy

Seeing the cost breakdowns per category made it much easier to decide which and how much coverage we needed. In case you’re curious, here are our average costs per year from 2016–2021: 

  • Prescriptions: $600
  • Dental: $1,600
  • Vision: $350
  • Paramedical: $220
  • Therapy: $1,400
  • TOTAL: $4,170 

Notes: I excluded one-off expenses such as orthodontics and equipment for Kid 1’s broken leg. In addition, these numbers are for all four of us. In the not-too-distant future, it’ll only be M and I as our kids will receive coverage from their post-secondary schools or at work.

With these breakdowns, I had a very clear idea of the categories we spent on and how much we spent. This gave me a baseline to work with, which then helped me to compare the cost of purchasing insurance versus self-insuring.

2. Research plans

I didn’t spend much time on this as I just wanted a quick idea of costs and coverage. It didn’t take long to see that insurance likely wouldn’t work out in our favour.

To start with, the premiums were about the same as what we’d be paying out of pocket for everything anyway. So there was no advantage there. But the value decreased further once I dug into the coverage.

In general, extended health policies only cover 70–80% of any given expense. Since we’re already starting at a $0 advantage, the partial coverage would almost guarantee we’d pay more overall with insurance.

On top of that, my assumption is there may also be deductibles to pay. This would further decrease the value of an extended health plan. (However, I couldn’t confirm this in my quick research, so deductibles may not actually apply.)

3. Ask the experts

I wanted a second opinion, so I turned to our financial planning team for their thoughts. I figured, since they work with hundreds of clients, many of whom are retired, they’d have firsthand knowledge on this topic.

They told us exactly what I’d already suspected—the odds are always in the insurance company’s favour. They’re businesses and they need to make a profit to survive. 

Therefore, it’s very rare for most people to save money with extended health insurance. A few people may end up ahead, but the majority of us will be better off paying out of pocket. 

4. Make a plan

After speaking with our planning team, we were 99% sure we wouldn’t be getting insurance. But before making the final decision, we had to ensure we had backups for worst-case scenarios.

Luckily, I already ran through these when my in-laws questioned us on our decision to FIRE. In That Time My In-Laws Grilled Us On Our FIRE Plans (Part 2) I shared my in-laws’ questions about our FIRE plans and my replies to them.

In the post (see the “Healthcare concerns” section), I discussed what we’ll do if faced with costly medical issues. In short, we feel very comfortable relying on the contingencies we came up with. (I share more details on these contingencies in the post.)  

 5. The final decision

After going through all the steps listed above, I collected my notes and did a final analysis. This was my conclusion: no matter how I looked at it, it was very hard to make the case for insurance. 

It would only be worth getting if our medical expenses were above average every year. And there’s really only one scenario* I can think of that would cause that—if we needed an expensive medication for a chronic condition.

*Maybe I’m wrong—if you can think of other scenarios which would make insurance worthwhile, let me know in the comments.

All other medical issues would be covered by government care and/or wouldn’t be covered much or at all by extended health insurance. (For example, a long-term disability requiring special at-home equipment and care.)

True, there will be the odd incident which could make insurance worth it every few years (such as an unexpected and expensive dental expense). However, these issues don’t occur often enough for the math to work out. 

In addition, coverage for such issues tends to only be around 50%, with annual and lifetime maximums. These factors would further limit how much value and protection we might get from an extended health policy. 

Conversely, self-insuring has everything else going for it: 

  • We only pay for what we use, so there are no ‘wasted’ premiums if we don’t make enough claims. 
  • No claim forms or reimbursements to deal with.
  • No need to wait for pre-approvals for prescriptions or procedures.
  • No need to track and add up reimbursed versus unreimbursed expenses (for claiming when filing income taxes).
  • No need to research plans and check every year that we’re still getting the best rate.

So, after all that research and analysis, my final decision was clear and easy—we will self-insure and pay out of pocket for all our medical expenses. 

Further reading

Here’s an excellent article you may want to check out: The Burning Question: Health Insurance is it Worth It? It covers many of the points I made in my reply to Susan, but more succinctly.

The article is meant for small business owners who are considering extended health insurance for their employees. However, most of the info is still relevant to individuals. 

The author makes a very strong case against extended health insurance and further reinforces our decision not to get it. It also lines up with my overall thoughts on any kind of insurance (that is, it should only be purchased to cover catastrophic losses). 

I hope I answered your question, Susan, and that you find the article as helpful as I did!

Max

Max is another reader whose comments I always look forward to receiving because they’re so detailed, thoughtful, and helpful. (Thanks so much for your engagement, Max!)

He left a comment in Part 2 with some interesting questions about our leveraged investing strategy. I left a quick reply on that post but asked him to hang tight so I could reply in more detail here. I appreciate your patience, Max! Here are your questions and my replies:

Max: You mentioned that you are 100% invested in equities and 50% leveraged. How do you factor in the interest rate on the leverage when you apply the 4% rule (is it just part of your expenses)?

The 4% rule as you describe it is meant for unleveraged portfolios, I believe. 

Chrissy: This is an excellent question! Not many people use leveraged investing, so there’s not a lot of info about it. That’s especially true when it comes to granular info like this (and even more so when it involves retirement).

I have to admit that it’s taken me a while to fully understand how leveraged investing works in retirement—even with the help of our experienced financial planning team. I’m sure I’m still missing some info, but I’ll share what I know here.

You’re correct that the 4% rule doesn’t fully apply to leveraged investments. The math behind it is a little different and really interesting. The key factor behind the difference is the fact that the payments on an investment loan are not subject to inflation. 

The payments will go up and down over the years due to fluctuating interest rates. But they won’t increase with inflation as our other expenses will. Therefore, the amount we need to cover our investment loan will not grow indefinitely like the rest of our expenses will.

Before we implemented our leveraged investing strategy, our financial planner did some important math for us. One of the numbers he calculated was the lump sum we’d need to have saved and invested to support the investment loan for the rest of our lives. 

I don’t know the calculation(s) he used to figure out this amount, but here’s the gist of how the math works:

  • Our financial planner uses a historical Canadian average interest rate of 4.5% for investment loans. That means, over our lifetime, we can expect to pay an average interest rate of 4.5% on our investment loan. 
  • Some years, our rate will be higher and some years it’ll be lower. But the average over the long term works out to about 4.5%.
  • Using this interest rate and our current loan amount, our financial planner calculated the lump sum we’d need to keep the loan payments going until we’re 100. 

How the 4% rule works with leverage

Now here’s where things get interesting. The lump sum which we’ve allocated for our loan payments can be included or excluded from our 4% rule calculations, depending on the situation. Here’s how:

Low interest rates

When interest rates are low, we include the lump sum for our loan payments in our 4% calculations. Here’s a hypothetical example:

  • $1,000,000 in unleveraged investments + $400,000 in leveraged investments (the lump sum).
  • $40,000 per year in annual lifestyle spending + $10,000 per year in loan payments (2.5% interest rate).
  • ($40,000 + $10,000) ÷ ($1,000,000 + $400,000) = 3.57%
High interest rates

When interest rates are high, we exclude the lump sum for our loan payments from our 4% calculations. Here’s a hypothetical example:

  • $1,000,000 in unleveraged investments.
  • $40,000 per year in annual lifestyle spending.
  • $40,000 ÷ $1,000,000 = 4% 

  • $400,000 in leveraged investments (the lump sum).
  • $20,000 per year in loan payments (5.5% interest rate).
  • $20,000 ÷ $400,000 = 5%*

*Even though we’ve exceeded the 4% rule for the leveraged portion of the portfolio, we’re not concerned. That’s because it doesn’t need to follow the 4% rule as it’s not subject to inflation.

As you can see, the leveraged portion of our portfolio works for us in good times. But when rates are high, we can safely remove this lump sum from our calculations. 

This isolates the loan payments from our regular, lifestyle spending. Then, as long as our lifestyle spending is 4% or less of our unleveraged investments, we know we’re safe. This is true even if the loan payments exceed 4% of our leveraged lump sum.

I hope that all makes sense! Let me know in the comments if there’s any confusion. I can’t guarantee I can answer all your questions, but I’ll do my best! 

Max: 50% leveraged portfolios would have different long term growth rates from what you are assuming and also would have blown up a few times in my lifetime. How would you handle a 50% market drop (think 2008)? 

With 50% leverage, your portfolio balance would be zero at that point. 

Chrissy: When you say, “50% leveraged portfolios would have different long term growth rates… “ I assume what you’re doing is taking into account the cost of borrowing. (For example, if the interest rate is 5%, and the average rate of return is 8%, then you’re really only earning 3%.)

If so, that’s not exactly the case as there are other benefits to leveraged investing which are not as readily apparent:

  • The interest deduction (which lowers your tax rate and gives you a larger tax refund).
  • Additional or increased government benefits (due to your lower tax rate).
  • Being able to put otherwise ‘dead’ home equity to work.

Therefore, the rate of return from leveraged investing isn’t nearly as diminished as many believe. The cost of borrowing does come into play, but not as much as most would think since the less-apparent benefits offset the cost.

I hope I’m not making incorrect assumptions about what you’re asking, Max. If I am, feel free to clarify in the comments!

How would we handle a 50% market drop?

As for the second part of your question—how would we handle a 50% market drop, here’s my reply. Fortunately, we’d be fine psychologically, even though the investments are leveraged. 

We’d weather that storm the same way we would the rest of our portfolio. (See How We’re Staying Calm in Turbulent Times to learn how we’ve kept our cool in the face of volatility and uncertainty.)

But when you say, “With 50% leverage, your portfolio balance would be zero at that point,” I’m not clear on your math. If I use the previous hypothetical scenario I shared, even when reduced by 50%, the portfolio doesn’t go to $0:

  • $1,000,000 in unleveraged investments + $400,000 in leveraged investments.
  • 50% drop = $700,000 ($500,000 + $200,000)

Clearly, I’m missing something as I can’t figure out how the portfolio would go to $0 from a 50% drop! Yes, it’s an eye-watering amount, but I’m unclear on how it would go to $0 just because it’s leveraged.

Math isn’t my strong suit, so my inability to compute this is probably all me! If you’re up for it, leave me a comment to try and help me understand, Max. Then I can try to give you a better answer. 🙂

Share your thoughts

Wow, we made it—41 questions and about 20,000 words in total! Thank you all for submitting so many amazing questions and for hanging in there as I made my way through them. This was a fun, thought-provoking exercise for me and I hope it was helpful to you.

As always, I want to hear from you, so please don’t forget to leave your feedback on the following:

  • If you’re already retired, what were your retirement blind spots?
  • Do you have tips on how NOT to check your phone all day?
  • Are there scenarios which would make extended health insurance worthwhile?

Feel free to also leave your thoughts or questions about anything else in this post!

Part 1

These intriguing questions were covered in Part 1:

  1. How is retired life different than you thought it would be? 
  2. How many hours are you putting into your side hustles on a weekly basis?
  3. Do you ever get bored?
  4. Do you ever feel guilt about not being productive enough? 
  5. What advice do you have that would allow me to speed up my path to FI/RE?
  6. What is your decumulation strategy?
  7. Have you altered your strategy since starting? 
  8. Are there any surprises during your year?
  9. Are either of you planning to return to the workforce in the future?
  10. What have you discovered you liked doing that didn’t cost a lot?
  11. Any thoughts on getting already FIREd up people together?
  12. What surprised you most about your new life after achieving FIRE a year ago? 
  13. If it was something you didn’t anticipate, how did you adjust to it?
  14. How do your real expenses after FIREing compare to what you had projected?
  15. Any unexpected expenses, and how did you deal with them?
  16. Still in terms of expenses, are you spending more now after FIREing compared to before FIREing?
  17. What do you know now after one year of retirement that you wish you knew a year ago?
  18. What would you do differently if you had to do it over again?

Part 2

And these were the amazing questions answered in Part 2:

  1. How do you pay yourself? 
  2. Do you live off of dividends or cash in stocks or GICs? 
  3. Do you pay yourself monthly?
  4. Why do you believe some popular bloggers hate the 4% rule so much? 
  5. What’s your withdrawal strategy? Will it shift over time? 
  6. What would be the biggest pro to having both of you at home all the time? 
  7. What’s the biggest con? 
  8. Do you find that your to-do list takes even longer to complete now that you have all the time to “procrastinate”?
  9. What are your “big goals” to try and accomplish during these first ~5–10 years while you’re retired years before your peers?
  10. How is your income working for your family now that you have more free time? 
  11. When you mention withdrawing 4% of your account, plus cost of living, does this mean that the 4% is based on the current account balance, like at the beginning of the year, or is it based on the initial account balance? 
  12. How is your nest egg invested? 

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16 Comments

  • Reply
    Steveark
    December 29, 2022 at 10:48 am

    I didn’t find any big surprises in retirement. My wife had been a stay at home mom even after the kids were grown and gone. Our house is big enough with each of us having an office and also having separate reading and living rooms we aren’t in each other’s way. We run in the same morning run group, hit tennis balls together and separately and play pickleball with the same group of friends. We fish together and hike together but we also do lots of things with our own personal friends. We both have significant volunteer work that is completely separate from each other. We alternate weeks to cook, clean and shop which I find to be a lot of fun. The next three days are very typical. We will drive to her family farm for a belated Christmas dinner, then to an AirBnB in one part of the state to bushwhack to some waterfalls. Then we’ll head across the state to a VRBO and more hiking, then back home to pickleball, tennis and volunteering next week. All pretty much the way I expected it to be, and all very very nice. On rare occasions I’ll do some paid consulting/expert witnessing but it has to sound like a lot of fun or be for a friend/client who really needs my help.

    • Reply
      Chrissy
      December 29, 2022 at 4:17 pm

      Hi Steve—I’ve been following your blog since I interviewed you. It’s clear from your posts that you and your wife are indeed having a wonderful retirement!

      I think it’s important for each partner to have separate space and different people and activities to engage with, as you and your wife do. Lots of time together is great, but too much time can lead to annoyance and irritability!

      It’s great to hear that you didn’t experience any retirement surprises. I thought I was very well prepared and that there wouldn’t be surprises… but that turned out to not be the case!

      I wonder what it is that makes the transition into retirement so smooth for some (such as yourself)? 🤔

  • Reply
    Dividend Daddy
    December 30, 2022 at 4:18 pm

    “If you set up an SWP (systematic withdrawal plan), it’s very simple. All you have to do is fill out a form once and send it to your brokerage.Then, every month, your investments will automatically be sold and deposited into your account.”

    I am curious how the brokerage decides what to sell? Do you have to instruct them? Do they sell what may be advantageous to sell at that point (if it’s increased in value and is over-weighted according to desired weighting, or if it might be tax advantageous to sell, etc.) or does the brokerage just randomly sell whatever it wants to get you the desired monthly income “cheque”?

    • Reply
      Chrissy
      December 31, 2022 at 11:19 pm

      Hi Dividend Daddy—I did some research on this, and so far, I’m not able to find the answers to your questions. I realize now that setting up an SWP is likely different at every brokerage/custodian and may also differ depending on your portfolio.

      In my situation, it appears that specific amounts of specific funds are sold from our RRIFs to send us our desired amount of income (plus any tax that must be withheld). I don’t know how our investment manager has this set up, but in each account, some fund(s) were sold while others were left alone. So to me, it appears there’s an aim to rebalance the portfolio with each sell.

      Another data point I can offer is my in-laws’ experience when they used to be with Wealthsimple. They were in the Generations program, which gave them access to a CFP. When he set up their RRIF withdrawals, they had the option to receive the payments annually or monthly. At the time, they opted to receive an annual lump sum from one RRIF and a monthly payment from the other. I believe it was all automated and set up with one form, but I can’t recall all the details, so I may be wrong.

      And my last bit of info to share is from Questrade: I downloaded their RRIF withdrawal form, and it appears you have to state the ticker symbol, security name, and quantity that you want withdrawn. I don’t know if there’s a more automated way to set this up at Questrade or other brokerages nor how it works when the values of your investments fluctuate from month to month.

      I’m sorry that I can’t give you more clarity! Your best bet is probably to call up your brokerage to ask them how they handle regular withdrawals.

      I appreciate that you brought this up—it’s made me realize that I shouldn’t have made such a sweeping statement, and that everyone’s mileage may vary! I’ll edit my post to reflect this.

      • Dividend Daddy
        January 1, 2023 at 11:26 am

        Thank you for the clarification. I’m a Generation client and I’ve talked to WealthSimple about withdrawals. Frankly, they are really the only outfit in Canada that I’ve been able to find that will assist with withdrawals and don’t demand up front that I transfer all my holding to them in order for them to provide any advice either before early retirement or after. I may end up transferring my Questrade accounts ultimately to WealthSimple.

      • Chrissy
        January 1, 2023 at 10:38 pm

        Hi again Dividend Daddy—the Generation program is a unique and affordable offering that works well for most people. My in-laws were, for the most part, very happy with it. However, I wasn’t happy with the overly conservative advice and lack of decisiveness from their CFP when I asked for his thoughts on specific planning issues. 🙁

  • Reply
    Jessica
    December 30, 2022 at 6:32 pm

    I am grateful for your sharing: the 3 parts were really interesting, and a lot of subjects were managed.
    I am in semi-retirement since September and the most difficult for me until today was to explain myself at others (mainly because of my age, 44). So, I don’t share this fact anymore (included family), unless people are familiar with FI or like me (partial time at work…). Not every person understand why you abandon a “career” at this age (and I feel judged…they are a pression on woman to be independent and to have a career in same time to have a family. It’s exhausting and not always satisfying to do it all. I want time now, not in ten years!).
    I have questions about your leveraged investments. If you are at ease to share that, how much represent the leverage in regard of your house? How much time do you plan to leverage your house (15 years? Always to put the money of your house to work? Until you move?). Do you reimburse the interest or the capital with the dividend (If you have some)? And one another question: what is the repartition of your placement in terms of countries (100% equities, but for example 35% Canada, 50% USA, etc.?)?
    Thank you very much for your blog!!!

    • Reply
      Chrissy
      December 31, 2022 at 11:50 pm

      Hi Jessica—this AMA took me waaay longer to write than I care to admit, so comments like yours make all the effort worthwhile!

      Congrats to you on reaching semi-retirement. That’s an amazing milestone. As you know from my AMA (and my previous posts where I shared my emails with my in-laws), my husband and I know how you feel about sharing your early-retired status. It can absolutely be exhausting and I don’t blame you for not sharing it anymore.

      It’s such a shame for all these people in your life that they’r not open-minded enough to want to know more about your journey. If they did, they very well could achieve the freedom you have. As far as I’m concerned, it’s their loss!

      As for your questions, here are my replies:

      Q. How much represent the leverage in regard of your house?
      A. We borrowed the maximum that BMO would loan us, which was A LOT! (I’d rather not share how much or the percentage as most people would pass out in shock if they knew.) 😜

      Q. How much time do you plan to leverage your house (15 years? Always to put the money of your house to work? Until you move?)
      A. We plan to maintain our leverage for as long as possible (until death, if we can). If we ever sold our house, we have different options: 1) pay off the loan, 2) maintain some leverage with the purchase of our next, likely smaller property, 3) sell the house to our kid(s) but keep the loan in our name—even if they make the payments and own the home. (I may be remembering wrong, and I can’t recall exactly how this would work, but our financial planner mentioned it to us once.)

      Q. Do you reimburse the interest or the capital with the dividend (If you have some)?
      A. We do not invest for dividends, so we receive little to no dividends. However, I do capitalize the interest. You can read more about this in Ed Rempel’s post on the Smith Manoeuvre.

      Q. What is the repartition of your placement in terms of countries (100% equities, but for example 35% Canada, 50% USA, etc.?)
      A. We invest globally, and I believe our allocation is similar to the MSCI World Index—you can find the country-specific allocations for this index on this page.

      I hope my answers were helpful. Thanks again for your comment and for being a reader!

  • Reply
    AnotherLoonie
    December 30, 2022 at 6:53 pm

    Such an incredible post. I can only sit in awe at how much effort it must have taken to write all of this.

    I really appreciate that you’ve stayed connected to the FIRE community even though you and your hubby are fully retired. Reading about the pshycological side of early retirement has been so interesting. It’s also very informative to learn how you’re managing your time, your leveraged investments, expenses and cashflow in retirement. Keep it up! And happy new year :).

    • Reply
      Chrissy
      December 31, 2022 at 11:57 pm

      Hi AL—thank you for your kind and thoughtful comment. Only another blogger could know just how long it takes to write 20,000 words across three posts! 😬😅

      I know some bloggers lose interest in blogging about FIRE once they reach it, so I honestly didn’t know which way I’d go. Happily, I’ve found that I’m as enthused and passionate about FIRE as ever, so it brings me a lot of joy to continue contributing and engaging. It also keeps me motivated when I read comments like yours and others, who tell me there’s at least some value in the info I share! So thank you for taking the time to let me know. It means a lot!

      Happy New Year to you and your wife too, AL!

  • Reply
    Dividend Earner
    December 31, 2022 at 9:48 am

    Thanks for sharing the details in this 3rd post. It’s very informative. I think I am sold on not having a cash bucket after reading your approach.

    On the healthcare insurance front, my parents never had it and still don’t to this day (both in their 80’s). However, we (famiy of 4) make massive use of my employer’s healthcare coverage. It covers massages and other practitioners.

    Thinking on the fly here, I think your list of expenses are deemed necessary expensive for health as opposed to potentially including wellness care ? Is that correct?

    While you are still young and healthy, is that a final decision and not being reviewed every year? or do you review every year or so? Do you find that not having coverage is making you think twice about the spending? Since you shared your story about mental health, it doesn’t take long that the cost can add up and when you pay out of pocket and trying to get better, the cost of getting better can come to mind and be an additional barrier (paying for 3 in the family to help with mental health right now).

    Another question is if you have life insurance and if no, why not? Further to that, what do you do for travel insurance?

    The health insurance has been on my mind for a while … Kids are soon going to not be on my employer’s plan and it’s not clear if they will have it … As a parent, now I am curious about how I can ensure they take care of their health when it’s so expensive …

    One last thought for you to ponder since we both live in the Greater Vancouver area … Do you ever think about how your kids will afford rent when it comes to that? or do you expect to be a multi-generational home? It’s a big topic for our family at the moment. Kids don’t want to live at home and they can’t afford to live on their own … The whole thing is a money problem to be solve.

    • Reply
      Chrissy
      January 1, 2023 at 11:54 pm

      Hi Dividend Earner—these are such great questions that I’ve decided to add them to the AMA and reply to them in detail. I’ll update the post with your questions and my replies as soon as I can!

  • Reply
    PhiaFreedom101
    January 3, 2023 at 8:36 am

    Wow! What a detailed series, and excellent resource. Thanks for putting so much work into this Chrissy.

    After retiring, finding our new routines was an area in which Mike and I shared your challenges. It took awhile, some major overhauls and some minor tweaks, to iron out our needs and expectations of each others time. I’m happy to hear that you guys have also found your way through that!

    I think that the truth of any major transition is that, no matter how much you inform yourself or think about a topic/change, living it is always going to be a different experience. I think many of us in the FIRE community are serious planners, and it can feel like a negative reflection of our preparation and planning, so acknowledging the challenges that inevitably arise isn’t always broadcast. Thanks for talking about your experiences 🙂

    I also love your discussion about mental health as well, especially your comments about others who have pursued FIRE in hopes of finding happiness, or as a cure to mental health issues. A good reminder that time is a currency just like money, the acquisition of more doesn’t necessarily equate to an increased sense of purpose, meaning or happiness.

    Wonderful posts, and thank you for continuing to put out such great content. Happy 2023 🙂

    • Reply
      Chrissy
      January 7, 2023 at 5:18 pm

      Hi Phia—I agree that in the FIRE community, we don’t always broadcast our struggles. I think there’s a stigma to it since, as you said, we’re all such serious planners! It feels bad when something unexpected happens, so it’s only natural to want to hide it.

      I also wonder if there’s an element of wanting to defend the FIRE movement from naysayers. So many people are all too eager to pile on when we make mistakes, backtrack, or experience challenges. That definitely makes it hard to be vulnerable when we stumble.

      Regardless, I’ll continue being open and transparent here! FIRE naysayers don’t scare me! 😆

      Your comment was like a page out of one of your old blog posts. It’s filled with so much wisdom and I was nodding my head as I read it. Thank you for taking the time to share such insightful thoughts, Phia!

      I hope you and your family have a happy, healthy 2023.

  • Reply
    Max
    January 3, 2023 at 8:04 pm

    Hi Chrissy,

    That was an excellent and exhausting reply to my questions. Thank you for that great effort, you have shed light on many issues that arise from projections into the future and using leverage.

    I’d like to first clarify my comment on using 50% leverage and how you could end up with nothing. I based that on your reply to Richnesswithinn in Part 2 where you said: “We also hold minimal cash and $0 in GICs and bonds. That’s because these financial instruments are a major drag on returns. So… that leaves only stocks, which we’re 100% allocated to. (Or really, closer to 200% if you consider the fact that about half of our portfolio is leveraged!)”
    From that I assumed that 50% (half) of your portfolio value consists of leveraged positions, which really is 100% leverage and not 50% as I stated. I should have said “With 50% of your portfolio being leveraged” rather than just “with 50% leverage”. Sorry for that confusion, hopefully I do better this time. The outcome of a portfolio with my assumption would look like this:

    $500,000 unleveraged + $500,000 leveraged = $1,000,000 portfolio – $500,000 loan = $500,000 net worth
    50% drop = $500,000 portfolio – $500,000 loan = $0 net worth

    From all your comments it sounds like you are using something like 40% leverage which is not nearly as bad as my example. In your example that would look like this:

    $1,000,000 unleveraged + $400,000 leveraged = $1,400,000 portfolio -$400,000 loan = $1,000,000 net worth
    50% drop = $700,000 portfolio – $400,000 loan = $300,000 net worth

    Of course, in your case it’s different again because you’re using the Smith Manoeuvre, which means you have the marked value of your home to back you up a bit.

    This brings up another twist on using leverage with the Smith Manoeuvre. You have $400,000 available (in your example) for investing right now and it will grow to some maximum amount when the house is paid off. That means you are periodically adding more leveraged positions to your portfolio. You are also counting on an 8% portfolio return per year. This means that your portfolio leverage will get lower (in %) as time goes on because your portfolio will grow more than what you put down on the mortgage and becomes available for leveraged investing (I’m assuming). So, are you planning on keeping your portfolio leverage at 40% by adding some other form of leverage or will you let the portfolio leverage (in %) dimmish over time? This will have an impact on your long term portfolio growth.

    You also touched on the fact that leverage provides some tax advantage because interest on investment loans is tax deductible. This is correct and I have taken advantage of this from time to time myself. Tax actually plays a big part in investing and your return varies quite a bit depending on whether you invest tax sheltered (RRSP, RRIF) or in regular leveraged and unleveraged accounts and also on how frequently you are trading outside of sheltered accounts.

    The 4% rule is a rather controversial concept. The calculation depends on so many assumptions that the resulting projection is questionable and could be misleading if you’re not careful. Any future world events, which we can’t predict, could also have a huge impact. Just using long term averages for market returns and inflation will most likely give you a high probability for a false projection because it neglects the “sequence of events”. The standard 4% rule will most likely make you outlive your portfolio if you start FIRE at a bull market peak or just before a prolonged sideways market, especially if you also enter an inflationary period at the same time (which would increase the 4% amount if you follow the rule).

    Rather than just assuming long term averages for the input parameters for the calculations, some people use Monte Carlo simulations which introduces random variations for the parameters, but even that may produce misleading results because real life does not follow averages with some random noise on top of it, real life introduces big market swings and sideways markets that can last ten years or more and inflation and interest rates have big swings as well.

    The most realistic result you would get if you used actual long-term data (100+ years) for all parameters in your simulation. You would have to include market data that represents your portfolio, inflation, and interest rates if you use margin or have a mortgage or other debt. You could then see what would have really happened had you retired at any day in the past 100 years. There are folks who have done this (Cemil Otar being one of them), but I’m sure it’s not something for the everyday Joe to attempt. And, in my view, even this approach may fail miserably in the future because our future will almost certainly look very different from the past. I base this mainly on the fact that the world population is projected to top out at around 100 billion by the end of the century and that we need to spend many trillions of $ to keep our environment suitable for homo sapiens to live in. If that is what will happen, then we will inevitably have to transition from a business model and economy that’s based on growth to one with little or even negative growth, hence, “past performance is not indicative of future performance”. And if those population and environment projections turn out to be completely wrong, then it’s even more certain that the future performance will not look anything close to the past.

    Sorry, I was getting off the topic for a bit, but with your retirement horizon of 50+ years, it’s worth thinking about it. To come back to the 4% rule, I’d like to offer some food for thought on a couple of variations that I like:

    1. Rather than blindly starting with 4%, make your starting amount the lower of 4% of your current net worth or 3% of your peak net worth. This is equivalent to applying the 4% rule on a net worth that has pulled back at least 25% but allows you to apply it at any time. You may have to wait a bit longer to claim FIRE status, but it will reduce the chance of outliving your savings. Net worth for the purpose of this calculation should only include assets available for spending (not your home equity or any fixed assets you don’t want to part with) but should include all debt (incl. mortgage and car loans, etc).

    2. Reset the 4% amount every year based on your net worth at that time, basically you are assuming you retire every year. You will never run out of funds with this approach but your cashflow will fluctuate on a yearly basis, sometimes quite a bit. You can smooth out these fluctuations by planning the big-ticket spending like a fancy vacation or a new kitchen for the “good” years, which is a prudent strategy at any time in life anyway. Or you could establish a rainy-day fund to tide you over during lean years. What I really like about this strategy is that it will give you an early warning if you don’t have enough savings for the long run by squeezing your spending money (rather than blindly increasing it by inflation like you do with the standard 4% rule). Getting an early warning of a funding shortfall is important, it gives you a chance to find a source of income while you are still young and capable. This version makes you live within your means, you will never completely run out of money, and it will also guarantee you that you will have at least a small estate to pass on to your kids.

    Variant 2 is my favorite strategy, it’s simple and safe and has very little maintenance. If you don’t like the cashflow volatility, I suggest you combine it with variant 1, this will smooth out your cashflows quite a bit and your worries will diminish.

    I hope I didn’t make your head spin with all of this; it turned out much longer than what I had in mind, but I hope it will clarify some of my earlier comments and also shed some more light on a very complex subject.

    Happy new Year

    • Reply
      Chrissy
      January 7, 2023 at 6:53 pm

      Hi Max—Happy New Year to you too! Your comment is incredible and too good to be left as just a comment, so I’m going to add it to the post and reply there. It may take me a little while, but I’ll get to it as soon as I can!

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