January 1, 2022, was a good day for me. A fantastic day in fact. Why? Well, because it was day one of my post-FIREing life.
That triumphant day followed a long, winding, multidecade road that was full of plenty of challenges and not just a few victories, smartish moves, and copious amounts of luck. Having at last summited Mt. FIRE, I reflected upon the full length of the journey. I winced at the recollection of lows encountered along the way, and puffed up my chest a bit at having overcome them and at having FIREd.
Sequential matters
Being the fearful type, however, my thoughts soon turned. No more so than at the thought of sequence-of-returns risk. Wobbly markets in the last few months of 2021 played a role in bringing this thought to the fore.
But I consoled myself by reflecting upon various favorable facts.
For one thing, by January 1, the value of our investments exceeded our FIRE number by a healthy sum. So, we were starting off in a good place.
Next, The Missus is still working and bringing in income. And, I plan to earn income this year and going forward by way of side gigs. How much income, I can’t be sure. But something. I’ll also be withdrawing taxable account dividend income rather than automatically reinvesting it. So, we need not rely on our investments alone to fund our total expenses.
And last, to be conservative, I left two sources of income out of the pool of investments from which I planned to fund my post-FIREing expenses. One is a pension that The Missus will be able to draw from in less than 10 years, should she so choose. The others are my and The Missus’ Social Security accounts, which we’ll have access to in less than 15 years (again, if we choose to take one or the both at the earliest possible date).
Given this and the mostly positive trend as to our investments coming into 2022 (the late-2021 wobbliness didn’t do much if any damage), I was hopeful that sequence of returns risk could soon be a concern relegated to the rear-view mirror.
In-flate movie
Life and the world soon thrust firmly extended middle fingers at my hopes.
First, the high inflation we started experiencing in 2021 refused to abate and may even have increased. Thankfully, we’ve not been exposed to the worst of the inflation. But we’ve not avoided inflation entirely. Sums for some of our expense categories are a bit higher than they used to be.
Market-zing
Worse, however, is that soon after the new year, Mr. Market became cantankerous. To date, he’s not decided to turn that frown upside down. Current events in Europe have put a further damper on things and cast an even longer and more severe pall.
All told, our investments are down more than 10% in 2022. I’m not worried, much less freaking out. But, of course, I’d rather things were different in a good way.
And annoy-ther thing
This all said, I find myself a little more concerned than I’d have hoped. No, that’s not right. “Concerned” is the wrong word. “Annoyed” is more apt.
First, there’s the chance that the value of our investments drop below our FIRE number, even if probably temporarily. Naturally, I’d rather this not be the case. And certainly not so soon after FIREing.
But there’s more. For the last several months I was working, I banked all of my income in our checking account rather than investing part of it. The idea was to build up our cash reserves so that if our investments went south in 2022, we’d have cash on hand to weather the storm and hopefully not have to draw down on investments declining in value. As I didn’t want too many of my little green soldiers (dollars, not the Russian forces that were in Ukraine before the current war) not working day and night for us, I debated how much to keep as cash. By the end of 2021, I thought I probably should have started banking income as cash a few months earlier. But I sort of shrugged, thinking about those little green soldiers that might have been cash instead having been deployed to buy assets.
Alas, some intervening events have muddied the waters.
Pass due
Not too long after I started to bank cash, Chase announced an unprecedented 100,000-point sign-up bonus on its Southwest Airlines credit cards. We use Southwest for most of our domestic travel, of which we’ve done a lot in the last several years and likely will for a few years more. We not only almost always book with points, but take advantage of a companion pass that I or The Missus has had over the last five years to drive down the “cost” (i.e., points spent on bookings) further. Given the new card’s massive bonus, and the fact that because my companion pass would expire at the end of 2021 this presented an opportunity to be well on our way to another, it was a no-brainer that we’d sign up for the card.
All fine and good. Except that to get the full bonus and the companion pass, we must spend $25,000 on the card (this assumes that we don’t earn qualifying Southwest points by other means, including by opening up a second card). We planned to do all of this spending in 2022 because of the rules and benefits involving the companion pass. To help make the spending faster and easier, we deferred paying several large expenses that came due in 2021.
Compound disinterest
Compounding things, some of those expenses have turned out to be larger than expected. Some other unforeseen expenses have since cropped up after I started banking cash, too.
And then there’s a family member who’s had troubles for the last year. Initially, I took it upon myself to help this family member by nonfinancial means. That worked for many months. . . . Until this person ran into a financial pickle a few months ago (again, only after I’d started banking cash).
This presented me with a conundrum. On the one hand, I have good reason to believe that if I give or loan this person money, I’ll never see it again, no matter how much and sincerely they promise to repay it. On the other hand, this person is a very close family member, I’m the only realistic source of help, and theI feel a strong moral obligation to extend at least short-term financial help.
With much trepidation, I provided a loan of a few thousand dollars. I’m prepared to not be repaid, but reeeaaally hope to avoid that fate. In any event, this was cash I’d planned to have on hand.
I’ve recently learned that this family member’s financial problems have gotten a bit more acute. Asked for a loan of a few thousand dollars more, I relented. I now have to consider an upper limit to my generosity. But I think that that day is coming.
Early days
All this is to say that I’m not just faced with a potential cash crunch, but one far sooner than I’d had reason to expect going into the new year. And because of the blow to our investments this year, the recourse of drawing on them now has become far less palatable. Sure, I can draw on them. And sure, there’ll be plenty remaining. But I’m annoyed that this is an issue at all. I’m even more annoyed that it’s become an issue so close on the heels of that great January 1 day.
And in the end . . .
Lest there be any doubt, both when I calculated our FIRE number and when I decided to FIRE I considered the possibility of bad things happening soon after I FIREd. But I’d hoped that our cash cushion would be able to absorb many or all of the blows. It may yet. But the prospects look increasingly less likely. Again, in my brain, I know that for the foreseeable future none of this will cause any severe or lasting body blows. But this crunch sure is annoying.