We in the FIRE community are nothing if not numbers obsessed and cheeky looky-loos when it comes to other peoples’ financials. We loves us sitting down with a nice craft beer cuppa and poring over someone’s spending/savings report and net worth numbers.
But most bloggers in the space don’t disclose actual numbers. Like me!
So, it’d be understandable if you, Dear Reader, are simultaneously curious about our numbers generally, and as to our revenues and expenses in 2022—year one after I FIREd—specifically. Like I’d be!
No such luck, Dear Reader. Womp womp!
Tease time
That said, I can—and think it may be worthwhile to—provide a general recap of our 2022 because my first post-FIREing year coincided with a year that was such a dramatic reversal of fortunes for most investors. And for those in the FIRE community in particular, I think. If you FIREd before I did, hopefully this post gives you some insight as to someone less fortunate in his timing fared. If you’re on your way to FIREing, hopefully this post gives you some insight as to how this one person handled a sucky challenging start to his FIRE life.
As I detailed in my post 360 Days, where I announced my plan to FIRE at the end of 2021, I anticipated hitting our FIRE number at the end of the year. And reach it we did. In fact, we exceeded it before year’s end.
While I always stood girded for a downturn, I didn’t know when it’d happen. And while the fourth quarter of 2021 was a little rocky for investors, no clear signs pointed to 2022 being a bear from the get go.
But a bear from the get go it was. I was glad we’d shot past our FIRE number because that meant we could absorb even a somewhat significant blow and still stay above the number.
As the year went on, however, things worsened. To the point that our net worth fell below our FIRE number. Yikes!
But I have faith in the 4% rule, which anyway isn’t a best-case scenario, but a worst-case one. So, while extremely annoyed at the turn of events, I was far from freak-out mode.
That was in no small part due to shock absorbers we had in place. In addition to the higher-than-anticipated net worth, those shock absorbers included The Missus’ income, dividends that we now would be withdrawing instead of having reinvested as we had in the past, income from a fun side gig I carried into 2022, anticipated bank account sign-up bonuses, and income from another side gig of mine.
But, as I’ve mentioned before, I’d all along been unnaturally paranoid concerned about sequence of returns risk. I definitely didn’t want to withdraw from our investments in a down market that I thought was only going further down.
I’m pleased to report (if to no one but myself) that I managed to go an impressively long way into 2022 before having to make any investment withdrawals to meet our living expenses. How? Well, lemme tell you.
De-fense! De-fense!
Our first lines of defense were The Missus’ income and cash reserves I’d been building for months going into 2022. I ended up having to dip into those reserves far earlier than I’d hoped (in no small part because of an unanticipated situation that I could’ve stayed out of but didn’t). But I was glad they were there. They helped carry the day for a few months.
In time, however, the reserves withered to the point where, with The Missus’ income, we’d be hard pressed to cover our monthly expenses.
Then came some happy events, including: a substantial tax refund; opportunities from my fun sidegig picked up substantially; we got some bank sign-up bonus payments; The Missus received a surprise bonus from her employer; and we received a sizable quarterly dividend deposit. These revenues enabled us to stave off yet further any need to tap our investments.
In time though, those monies were gobbled up. And our investments? Down, down, down they went.
Cue more happy events, including: my fun sidegig picked up even more so; our state sent sizable tax refundish checks to all taxpayers; we received more of those large quarterly dividend deposits; I picked up a part-time gig; and I accepted an offer to do work in the area I’d worked in during my full-time career.
We continued to cover our expenses without having to dip into our investments (minus having raided our cash reserves, which I admit ain’t nothing). But barely. I could see that absent further happy events—of which I saw none coming—the party was coming to an end.
And so, it ultimately did.
Dip stick
Annoyingly, our investments were then taking their most severe beating of 2022. I definitely didn’t want to sell at that point.
But on the plus side, we were well into the second half of the year. I consoled myself with the fact that whatever happened, we’d not have to withdraw much from our investments before the year was up.
Ultimately, rather than withdraw a sum large enough to cover us through the rest of the year, I chose to withdraw just enough to cover us for at least a month. I hoped that the investment beating we’d been taking would end soon and that we’d be able to sell into a less-bad market.
Welp, it didn’t entirely work out that way. Before year’s end I dipped into the investments once more.
In the end, we took out only a very tiny fraction of our 4% withdrawal rate based on our net worth at the end of 2021. Put another way, we had a withdrawal rate of less than .5% in 2022. Yowza!
But there’s more to the story.
Contributing factors
The Missus’ employer offered a match up to a certain amount of contributions to her employer-sponsored retirement account. While the Missus otherwise would have made no contributions and maximized her take-home income, we didn’t want to leave money on the table. So, she made contributions to get the maximum match.
As for me, I didn’t anticipate having access to an employer-sponsored retirement account in 2022. But, having taken my part-time job, I did. In an effort to show, by example, some of my wee lad coworkers how to invest, I also contributed to my employer-sponsored retirement account (sadly there’s no match).
As a result of these employer-sponsored retirement account contributions, we salted away well over half of the amount we withdrew from our investments in 2022. We also, of course, realized tax savings from those contributions.
The result is that aside from the losses we took from our investments taking a hit—which I expect to recoup, and more, when this downturn turns around—our investment portfolio otherwise lost little if any ground. That’s nothing to sneeze about!
The daze ahead
As of this writing, I don’t think the investing environment has turned the corner. In fact, I think that there’s another substantial beating coming, and an extended period of gains-limiting uncertainty beyond that. That said, 2023 so far has been less sucky a better year for investors than 2022.
Ironically, however, in 2023, we’ve already dipped into our investments in an amount equal to that for all of 2022. More withdrawals are coming, too. Especially when our 2022 tax return is finalized. In no small part due to a sizable Roth IRA conversion that we did in 2022 that we’ve not yet paid taxes on.
But I feel substantially better now than I did at the same point in the year in 2022.
For one thing, although I don’t know how much longer this downturn will last and notwithstanding my aforementioned feeling about pain likely to be felt for some time, my hunch is that the worst is behind us. I think things will turn around sometime later this year, or in the first half of 2024.
Also, The Missus’ income this year will be substantially higher than last year. My income also should be higher. I also now have confidence that unforeseen income-generating opportunities will come my way. Next, we’ll get even larger quarterly dividend payments than we did in 2022, and I hope to best my 2022 haul of bank account sign-up bonus payments.
The result will be that to enjoy a year similar to 2022 (which was a good year!) as to living expenses, we’d likely have to withdraw no more than 1% from our investments (at the current value, not that from the end of 2021 (it’d be far closer to .5% using that number)).
Had we adhered to the 4% rule last year, we’d have had a fat FIRE year. A very fat FIRE year.
I’m slowly but surely retraining my brain to be less bothered by spending. I’ve resolved to not be as conservative this year as I was in 2022.
The guardrails on my actually executing on the 4% rule aren’t all off yet. Said another way, I’m still an irrationally paranoid dolt. But they’re closer to that point than they were in 2022. And, unlike when I’d just FIRE’d, I can see them coming off completely when the investing environment turns around.
And in the end . . .
I’m sure that far more freewheeling spending will feel awkward. Maybe even surreal. I mean, never have I ever done that.
