The Financial Independence Retire Early Community is going through a test during the coronavirus pandemic. Let me share how the FIRE community is holding up and what now that things have improved.
Imagine a situation where both you and your spouse have no day job income. You guys have two children under three to feed. Monthly health care premiums cost $2,380. Your family isn't eligible for stimulus checks. And, your portfolio experienced a 30% drop in your stock portfolio.
Welcome to my world.
Coronavirus And The Financial Independence Retire Early Community
Before the coronavirus pandemic hit, my goal was to go back to work after six months of self-determined paternity leave to boost our capital and investment income so I could retire again by the end of 2022.
After our daughter was born at the end of 2019, I realized that continuing the early retirement lifestyle I had been living since 2012 wasn't a wise decision. Our expenses were surely going to go up with two kids. Besides, after 10 years, how much longer could the bull market last? Now we know.
Let me share with you how the coronavirus pandemic has negatively impacted our early retirement household. I'll also share what I've learned and how we plan to recover.
How The Coronavirus Change Our Early Retirement Plans
It's current mid-2021 as I revisit this post. But here's what happened to me during the height of the coronavirus pandemic in March-June 2020.
1) Anxiety went way up with no day job income.
When times were good, I didn't worry about not having W2 income. Our investments kept going up and so did our various passive income streams. Once the coronavirus-induced bear market hit, however, all this changed.
Everyday I've been concerned. Will our stock dividend income get slashed? What type of workout agreements will I need to have with tenants who can't pay rent as I continue to pay my mortgages? Even our municipal bond investments, which were supposed to stay flat or go up in a bear market, sold off hard as governments forced shutdowns that put municipality revenue at risk.
With heightened anxiety, my chronic lower back pain returned. I also came down with a two-month-long cold with a dry cough I couldn't shake. My mind started to spin as I wondered whether I also got COVID-19.
I felt foolish for not having a job to protect my family. So many of my friends continue to get paid their full salaries with benefits during the crisis. Some even got stimulus checks too.
2) We lost way more than most.
Given my family depends solely on our investment income to survive in retirement, we didn't have most of our assets in cash since yields were so low. Therefore, most of our net worth was invested in stocks, bonds, real estate, and various private investments.
When the S&P 500 was down 30%, our stock portfolio was down by around ~$600,000. What hurt more than the paper losses was the time spent accumulating those losses. Time is our most precious commodity, and I felt like I wasted so much of it by losing so much.
Our saving grace during the pandemic was that our bond and real estate investments help up since they are defensive asset classes. Luckily we had about 2.5X more in bonds and real estate.
At 42, I've got 20 years less time to recover financially than someone who is 22. Instead of having 20% of our net worth in equities, our exposure should have been close to 0% given we can live off a 2% withdrawal rate.
To make up ~$600,000 in equity losses will require the S&P 500 to rebound by 47% from its lows and re-hit its all-time high. Maybe this will happen by the end of the year if we experience a v-shaped recovery. Or maybe, we experience another lost decade like we did between 2000 – 2010.
Losing so much money in equities may force me to go back to work to try and recoup these losses if the markets don't rebound. Alternatively, we could cut way back on our living expenses and just accept our losses. The Financial Independence Retire Early Community helped us put things in perspective.
3) We had to fake reality with our children.
Though the world was falling apart, we forced ourselves to pretend like everything was fine. We couldn't let our losses in the stock market or the fear of catching a virus prevent us from being good parents. We had to put on brave faces every day even though internally we were worried.
Imagine having a highly energetic 3-year-old who needs 12 hours a day of nonstop attention. He wants to go to the playground every day, but can't because all the gates are padlocked. All we can do is tell him a whit lie that the playgrounds are broken.
Now imagine also having a precious 12-week-old whose immune system has not yet fully developed during a pandemic. Life went from hard mode to insane mode real quick. Many in the Financial Independence Retire Early Community shared with me they had to shelter their young children as well.
How Coronavirus Has Affected Other Early Retirees
Here are some insights from other people in the Financial Independence Retire Early Community regarding how the coronavirus pandemic has negatively affected them.
A Fake Reality
Despite putting up a front that I retired early at 30, I have been secretly working 50+ hours a week trying to make money online. At 34, I'm technically no longer a millionaire because the value of my investments has declined. I'm scared and have been faking living the amazing early retirement lifestyle for too long. It feels bad. However, the Financial Independence Retire Early Community has kept my motivation alive to keep hustling.
Self-Esteem Needs A Boost
For years, we've been sharing what it's like living a fabulous early retirement lifestyle. For the most part, life is pretty good. However, my wife has this type of “high school revenge fantasy” where she's on a mission to show off our lifestyle to prove all her haters wrong.
FIRE is bringing out a side of her I didn't really know existed.
Sometimes I wish we could just have children to focus our attention inward, not always outward. But we're a little too old now. I'm working part-time so we can have more space. At least we're having a lot of heart-to-heart conversations during the lockdown.
I Fear I Did Not Save Up Enough
I retired recently off of a $600,000 nest egg. During the height of the sell-off, my retirement funds declined to about $480,000. It was scary and now I fear I retired with too little saved. I should have kept working for another two or three years.
Now that I haven't worked for six months, I miss some of the fun things at work that used to bother me. When you don't need to work as much to live, work becomes more fun!
Thankfully, I also have a partner who will continue to work. I also don't have kids. Therefore, early retirement isn't that scary or difficult. If he loses his job, however, I'd be much more nervous.
It's Getting Lonely
We retired in 2019 and changed our portfolio balance to 50% stocks from 80% stocks. It was a good move, as we were only down about 15% when the S&P 500 was down about 30%.
What I'm realizing now is how much we enjoyed our old life, living in New York City. There was always something going on and it was fun! We miss our friends and our relatives there as well.
To help our money last longer, we decided to move to a small town in Florida. It's cheap and the weather is nice. But we have no friends. My son also misses his old friends. I think we're going to move back after a year and I will try and find a job again.
With the lockdowns, I can't hang out with anybody in the Financial Independence Retire Early Community any longer. No more conferences. No more meetups. It sucks!
Early Retirement Will Eventually Come
Although I lived through the 2000 dotcom bomb, SARS pandemic, and the 2008-2009 global financial crisis, this is the first time my wife and I have lived through a bear market as early retirees.
If we didn't have children, we probably would be feeling much better. Life is easier when you only have yourself to support.
However, as every parent knows, it is in our DNA to constantly provide and protect. When you're losing money in the stock market and you've got to protect your children from an invisible enemy, you can't help but always feel on edge.
Here are some of my key takeaways from this bear market:
- Appreciate your work and your job benefits. Millions are not as lucky. Once you lose a steady paycheck, your anxiety will shoot way up. Be kind to your colleagues and always be proactive at work.
- If you already have enough capital to fund your lifestyle, there is no point in taking excess risk. You must constantly do your best to match your risk tolerance with your risk exposure. Even if you have the appropriate risk exposure, losing money will still hurt like hell.
- Appreciate Treasury bonds. During the bull market, bonds were seen as second class citizens due to their lower historical returns. Bonds, however, can provide plenty of defense during a bear market.
- Real estate may also be a defensive alternative to stocks. Given real estate provides shelter, produces rental income and is a tangible asset that just doesn't go *poof* overnight, real estate is seen as an attractive asset class during stock market volatility. If you haven't diversified into real estate, consider doing more research on my favorite asset class to build long-term wealth.
- There are always some positives that come with a recession. For example, mortgage rates are at or near all-time lows, which improves cash flow for homeowners who refinance. Low mortgage rates also increases affordability for new buyers. Other benefits of a coronavirus bear market include: less pollution, more time with children, work from home experience, and less sickness.
As for what's next with us, we plan to replenish our cash hoard since we ended up increasing our equity exposure from 20% of net worth to 25% during the first quarter.
Because the labor market is now so bad, I've given up my goal of finding work again. Instead, I've focused on trying to make more money online. Having a website really is the easiest way to make money from home. How ironic the coronavirus pandemic will keep me retired / unemployed for a lot longer.
In the meantime, I am going to focus on lowering living costs, protecting our existing capital, raising our children, and spending my free time writing on Financial Samurai.
We are extremely lucky that the stock market and real estate market have rebounded so strongly. The Financial Independence Retire Early Community is thriving as most of us held onto our investments. Many also bought more when the markets were down.
Personally, I bought about $250,000 worth of stock in 2020. I also upgraded to a larger house for my family. The stock market feels frothy again, but I think the housing market will keep on running for three years.
I plan on re-retiring again once there is herd immunity. I'm tired as hell and want to enjoy life to the maximum!
Related post: The Pandemic Was An Experience In Hedging Your Life
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