How I Knew When to Retire

Here I am hard charging at 25. I had a boat load of Human Capital, not much risk, a small portfolio, my first house. I was trading commodities at this point in my life, had a steady job as an engineer.

Here I am at 45. Out of med school, out of residency, out of the Navy, Fee for service private practice, Anesthesia main gig, Pain Management side gig 5 days a week. I was Reelin in the years and stowin away the time.

By now I’m working a same day center. My FFSPP turned into a group then our contract was cancelled so we went into competition with the hospital. Did that gig for 7 years plus pain on the side. No call, no weekends, still pretty stressful as the Human Capital was winding down. At 65 I realized what 70 would look like if I continued to work. Human Capital a sliver, Risk through the roof, a tiny bit of reward compared to a big portfolio. Risk and stress dominate this picture. I needed a New Goal!

What I did was go to SS.gov and looked at my life long Medicare earnings. Medicare earnings are not capped. I added them up and divided by the number of years I worked. That was my Human Capital gross and average for my work life. Out of that HC I had funded a retirement portfolio, bought a house, some cars, paid for college for my kids, food, travel, insurance, taxes. all the stuff of life. I looked at my bank account and portfolio and saw I had 1.5 times in the bank what the value of the Human Capital was I had expended over the course of my life. What I had in the bank would easily substitute for my Human Capital and give me and my wife security to the completion of our lives. A few more years or another million meant nothing compared to the growing risk and stress. I knew what my HC had paid for and I was completely satisfied with living at that level. That trip to SS.gov changed my life and was just the tool needed to correctly assess my risk and reward going forward. The rest was merely details, get some health care together, re-jigger some TIRA to Roth pre-RMD, Optimize taxes going forward, Optimize SS, reduce SOR risk by moving to 5 years of cash to live on while Roth converting, details. Nirvana is about moving from being a Human Doing to becoming a Human Being. The portfolio is correctly sized and funded so there is virtually no risk, My time is my own so there is no stress. Nirvana is a place of Zen:

Nirvana is a place of perfect peace and happiness, like heaven. In Hinduism and Buddhism, nirvana is the highest state that someone can attain, a state of enlightenment, meaning a person’s individual desires and suffering go away.

I’m Catholic not Buddhist so I have my guilt to deal with but this is where I’m at today.

Been down one time, Been down 2 times, Never going back again.

This is what it means to win.

This is what the SS.gov calculation provided me. A clear personal picture of where I stood in my life. Displayed in that table was a history of what I did and what I could expect. I knew how it felt to live my life and what that cost. I knew what it took to get where I was and for the first time I saw where I was going, Not some normative projection or a FV calculation or bla bla bla on a forum or article in Forbes. At that point I internalized what enough meant and I had more than enough. At that point return became irrelevant and I realized my life had become ALL RISK and it was time to make a decision. I did risk really well. I was good at risk, but I a needed New Goal. So I gave myself permission. The relative sizes of the triangles are important. My retirement and self insurance out sized what my life had cost. There is no leverage needed in a flush retirement save perhaps enough to cover inflation.

There is a TON of leverage in this retirement. The little purple triangle needs to generate ALL of the green triangle. So when someone is bragging about retiring at 30 what they are bragging about is their stupidity and failure at risk management. Do not be deceived by the shiny object.

4 Replies to “How I Knew When to Retire”

  1. I think your route makes sense. It was time for you. Human capital is an oddity. I have certainly not depleted mine yet.

    FIRE is anathema to nutzoid in my opinion. I had 50 times my nut but I still would have worked to make my yearly expenses.

    And I had a husband who just started practicing as a surgeon. I did not have a stay at home wife and young kids.

    You took the time to take care of your family and to launch the kids.

    You did not just close your eyes for hope and pray.

    Thank goodness you are divulging details. This shall prove useful for others at this stage in life.

    1. There are all kinds of narratives about enough. 4% x25 is a narrative based around a normal age 65 30 year retirement and a 50/50 portfolio. My BIL just retired, he’s an ex broker and he’s about 65 and 100% in stocks. I started talking about risk management and it clearly pissed him off. “Always been 100% stocks” Then he threw me a stat “markets never lost in any 25 year period”. Not my place to rain on his parade but glad it’s not my parade. 3 x33 is “super safe” Bernstein says 2% is what is bullet proof. If you run a Harry Browne Permanent portfolio the vol is so low you can take out 5% so it’s said. Millennial Revolution quit at 30 I think, Our Next Life at 39 yet all of these peeps are hustling still. Not one is retired except maybe my BIL Marketing blogs and books and sure fire knowledge. You have to make it your own way to sleep at night. If the US maintains it’s productivity at historic levels and the robots don’t eat our lunch, and interest on the debt doesn’t take us down, and welfare and socialism if if if. If every thing goes up like it did the last 10 years forever anybody can retire at 30 of course then there is no one to pay for the social services, maybe that won’t work either.

      Annualized S&P 500 growth since 1998 (20 years) inflation adjusted is 2.178% with dividends reinvested 4.04%. Small reward for a ton of risk. 10 year bonds returned 3.9% over the same period. So if you retired in 1998 and lived off the dividend plus some principal (3%) you made 1% per year inflation adjusted over that 20 year period. If you were in bonds you grew at 0.9% almost as good and a whole lot safer. Suddenly “super safe” doesn’t sound so “super safe”. Your money did grow on the average and 1M became 1.22M in 20 years. If the Oncologist handed you a 400K cancer bill and the Neurologist gave your wife a 360K Alzheimer bill, you’re hosed. 2% WR grew at 2% if you’re spending at 2% and growing at 2% that portfolio is pretty safe. Using the above scenario a 2% WR grew to 1.5M over 20 years and your 760K medical bill left you with 740K still to live on. your likelihood of portfolio survival increases dramatically.

  2. Enjoy the graphic representations of life stages. I’m curious when I’ll hit that same point of nearly all stress, no benefit, and if I’m just softer than the old guard who could pull it off until 65.

    I also see the formerly shiny lures of youth, eternal travel without roots, as something that has lost some appeal over time. Still plan to experience the other with my family as part of our touchstone experience, but no doubt about it, I’m feeling older. More Walter Matthau old grumpy guy in my constitution.

    Thanks for the reflection and the look ahead.

    1. It’s a journey of short term and long term. IMHO you have to separate the two. If you look at a S&P stock chart its all ups and downs generally trending up. The scope of any down year is limited since the trend is up. The odds are in your favor. If you have a really bad down year it takes longer to get back to zero, but eventually you do and start the climb again. On an up year you may be able to splurge a little and make some touch stones. There’s no law against spending money but there is a law about spending stupidly.

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