Every so often, the stock market will take a dive when you least expect it. When we sense danger, the natural tendency is to run the other way, preferably in a herd for survival. As a result, sell-offs often intensify as computer algorithms now join us humans in rushing out of positions.

As I’ve gotten older, despite much larger absolute dollar swings, I’ve become more sanguine in times of stock market volatility.

Here are some things you can do to reduce your fear and not sell or buy at inopportune times. 

If you want to retire early, you must maximize the value of your after-tax investments. Pre-tax retirement accounts such as your standard IRA or 401(k) are nice, but they won’t get the job done unless you think retiring after the age of 59.5 is considered early.

There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without a 10% penalty from their 401k called the “rule of 55.” You can also utilize Rule 72(t) for early withdrawal. The distributions must be “substantially equal” payments based upon your life expectancy. Once the distributions begin, they must continue for a period of five years or until you reach age 59½, whichever is longer.

But these rules are crutches for those who’ve bungled their early retirement plans. A successful early retiree waits until at least 60 to access their pre-tax retirement accounts because they have an abundant amount in their after-tax investment accounts.

Let’s first review how much you should have in your pre-tax retirement accounts by age as our foundation. 

Over the years, many readers have asked, “What does it take to become a Financial Samurai? Do you have a set of core principles to follow?”

I resisted putting anything formal together because to do so felt a little bit arrogant and presumptuous. But after almost 10 years of running Financial Samurai and having over 1,000 people ask me the same thing, it would now be wrong not to.

Now that I’m a father, I regularly think about how to ensure taking care of my son and wife if I were to die prematurely. In addition to creating a will, buying life insurance, and setting up a revocable living trust, it’s a good idea to expand Financial Samurai so that somebody can take over or contribute to the platform regularly once I’m gone.

Financial Samurai is not just me. Financial Samurai is a way of life. To be a Financial Samurai is to be someone who follows these five principles.

According to the Federal Reserve’s Survey of Consumer Finances, the average US household net worth is a whopping $692,100! And that’s based on data from 2016, when the S&P 500 was ~30% lower. Further, real estate prices in many major cities have also increased substantially since 2016. Surely, the average US household net worth will be even higher when the next survey comes out in 2019.

What’s also interesting from the chart below is that the average net worth for a college educated person is $1,511,000 compared to a net worth of only $249,600 for someone with just a high school diploma.

Further, the average net worth for a homeowner is $1,034,200 versus only $91,100 for a renter. A 11X difference is massive! For all of you who still think it’s wiser to short the real estate market by renting over the long-term, the data does not support your belief.

Source: Federal Reserve Consumer Finance Survey 2016

Run towards something you love

生き甲斐, pronounced ikigai, is a Japanese concept that means “reason for being.” In other words, what makes you get up in the morning without an alarm clock because you’re so damn excited?!

From 1999 – 2001, I had to get to the office by 5:30am because I was a lowly grunt in the investment banking world. Making photocopies of last night’s research, getting coffee for the traders, and making presentations was all part of the morning equities routine. But I was excited because I had a fast-paced job right out of college in NYC.

From 2001 – 2007, despite having to continue getting to work at a goodness forsaken hour, I was still excited because I got a new job in San Francisco with the opportunity to build my own little business out west. Working in a satellite office gave me my first glimpse of what entrepreneurship could be like.

But when the financial crisis hit in 2008, my excitement turned into fear. I no longer went to the office because I loved all that went on in the stock markets. I started setting multiple alarm clocks to ensure I got in on time because I didn’t want to give management a reason for firing me. It was depressing to come in and see everything crumbling so quickly.

Despite a recovery by 2012, my excitement for work no longer existed. Work had become a bureaucratic nightmare, so I figured a way out. In retrospect, what I thought was my ikigai for 13 years was simply a job where I traded time for money. Helping institutions make more money felt shallow, even if some of the institutions were responsible for a teacher’s pension.

But through work, I learned how to be a better communicator. Through the practice of writing daily newsletters about what went on in Asia while we slept, I slowly found my ikigai through storytelling. Clients and colleagues alike would regularly reach out to say how much they enjoyed the newsletter.

Now that I don’t have a compliance department breathing down my neck with Financial Samurai, it’s a joy to help make people believe a little more in themselves by showing what’s possible.

It’s been six years and three months since they took my paycheck away. I sometimes stay up all night and sleep all day. At least I can do whatever I want and see professionally whomever I choose.

Gourmet sushi at fancy restaurants tastes so good. But sitting alone mixing wasabi can’t take away those occasional blues. Because nothing compares, nothing compares to the camaraderie of you dear ex-colleagues!

For all the glamour of living an early retirement lifestyle, there are plenty of negatives I’ve come to discover since I permanently left my job in 2012. I know why we revert back to our baseline state of happiness, no matter how much freedom and money you have.

Let’s go through some of the negatives of retiring early now that I’m a grizzled veteran.

When I first started Financial Samurai in 2009, I was proud of finally creating something. For too long, I had just followed orders. Yet, I couldn’t tell anybody about my hobby because I was still employed. I was afraid if my employer found out, they’d tell me to shut it down or at the very least, dock my bonus for being unfocused. After all, the site was started in the middle of the financial crisis and they were always looking for reasons to cut costs.

When I finally engineered my layoff three years later in 2012, I still felt it was unwise to tell anybody about my site even though I was internally beaming with pride about the site’s growth. I felt like a new parent who wanted to annoy the crap out of all his friends by cooing about every milestone their child hit.

But because I had five years of deferred compensation on the line, even if there was just a 1% chance my old employer would withhold payment, I didn’t want to risk losing years of living expenses. And so, I kept my mouth largely shut until I had a decision to make on 4/21/2017, when my last severance-related after-tax payment hit my bank account.

In a way, the five-year time period when I was collecting my deferred compensation was like a mental jail. Like Andy Dufresne in The Shawshank Redemption reaching for the stars as rain spatters his face, full emancipation only came years after leaving Corporate America.

With nothing holding me back in 2017, it would seem like finally, I could brag to everyone that I had created a website large enough to support a family in San Francisco. With some publicity would come growth. But alas, I felt it was much better to keep a low profile.

For those of you who are thirsty for attention, let me share some thoughts about being a nobody for so long and why it may be in your best interest to do the same. 

Financial loss creates stress. And given stress kills, your goal as a retiree should be to remove as much stress from your life to live as long and happy as possible.

Recently, I’ve been thinking about being OK with no longer making a lot of money from investments. With such huge returns in the S&P 500 and the SF real estate market since 2012, I kind of feel like Anthony Bourdain when he said,

“I should’ve died in my 20s. I became successful in my 40s. I became a dad in my 50s. I feel like I’ve stolen a car — a really nice car — and I keep looking in the rearview mirror for flashing lights. But there’s been nothing yet.”

I got in trouble the summer before starting college and could have easily given up on my future. But in college, I met my wife and landed a hard-to-get job for someone with my lack of pedigree.

Two months before likely being terminated at my first job as the internet bubble burst in 2000, I was able to find a new job in San Francisco for a raise and a promotion.

Instead of selling a home close to the bottom of the market in 2012, I was blessed that nobody took advantage of my uncertainty.

Instead of flaming out with Financial Samurai and having to go back to work a couple years later, this site has become a viable source of income to support my family.

Sure, there have been plenty of setbacks as well, but I’ve chosen to focus on the positives because life is better this way.

With low returns and a stable income, life becomes magnificent in retirement. All the worry about running out of money or having to go back to work full-time starts to fade away.