July 1, 2021 – Time flies! I can’t believe I already had my 3-year FIRE anniversary last month! Time to reflect and think back on the first three years of early retirement: travel, moving, “market timing”, dealing with the shutdown, and some other exciting news in the ERN retirement life. Let’s take a look…
Good timing: Travel
Geez, are we glad we retired when we did! After we FIRE’d we went on an 11-month trip around the world. Not all in one piece but spread over two long trips: 7 months in 2018 visiting 21 countries. We briefly interrupted that trip to set up our new home in Washington in early 2019 and then went on another trip for “only” four months from April to August 2019 to check the following places off our to-do list:
- Spend Easter with family in Atlanta
- A Trans-Atlantic cruise from Tampa to Barcelona, Spain with stops in Key West, La Palma and Teneriffe (Canary Islands, Spain), and Malaga, Spain. It took 14 days and was the most relaxing and luxurious way to cross the Atlantic. And you have no jetlag because the time changes are gradual, i.e., 1 hour every 1-2 days!
- Spain: Barcelona, Madrid, Toledo, Seville, Cordoba (didn’t make it to Granada. Next time!)
- Portugal: Algarve and Lisbon (didn’t make it to Porto. Next time!)
- Morocco: Casablanca, Marrakesh, Fes
- Italy: Venice, a full 14 days in the Dolomites, then Rome, Florence, Sienna, Turin
- A Mediterranean cruise out of Venice to Bari (Italy), Santorini, Crete, Cephalonia (Greece), and Split (Croatia)
- France/Monaco: Nice, Cannes, Provence region (lavender fields!), Monte Carlo
- Germany: Munich, Konstanz, Hannover. Then back to Portland’s PDX airport.
I’m glad we got to do all that before the 2020 health crisis hit! One of the lessons from my extensive work on Safe Withdrawal Strategies is that you are bound to make an error in your retirement planning:
- Type 1 Error: Work too long and over-accumulate and you have money left over and you beat yourself up over why you hadn’t retired earlier.
- Type 2 Error: Retire too early with an insufficient nest egg and you might run out of money.
Because of so many decades of uncertain asset returns ahead of us, we still can’t tell for sure what error we are making. I’m getting more confident, though, that we’ll be making the Type 1 error (=worried for no reason). Our portfolio was already more than 30x our annual budget three years ago and with the recent equity rally, we are pretty secure with our retirement finances. So, it’s good to know that we contained the loss from the Type 1 error by splurging on our travel expenses a little bit.
Market Timing: Moving to the suburbs!
We’re glad we left San Francisco. It’s not that it was a bad place to live. Quite the opposite, it was the perfect place to hang out in mid-career when you live comfortably in an outrageously expensive city and you got the cash to enjoy a lot of the amenities there. But always walking the fine line between staying Stealth Wealthy and Stealth Frugal! I could easily afford to buy an apartment right in the middle of the city; in a great location, walking distance to the office. And the place even appreciated quite a bit between 2008 and 2018. If you factor in the tax write-offs, the implicit rental income, and the modest leverage, I even realized a pretty sweet return, see “My best investment ever: Homeownership?!“. No complaints here!
But as I wrote previously, we eventually settled down in the suburbs. That has worked out splendidly so far. It turns out that right after we sold our condo in San Francisco the market there leveled off, while our property value in Camas, WA rallied post-2018. We couldn’t have planned this better! We essentially front-ran the pandemic exodus from the cities to the suburbs by about 1.5 years and we’re sitting on a nice 35% (paper) profit on our little single-family home here. Market timing, baby!
35% doesn’t sound like much compared to the outsized equity returns over that timespan. But also notice that we did have a big chunk of money left over after the home purchase to divert into more productive assets (equities and my options trading account in this case). And always keep in mind that both the condo and the house returns were really only “price returns” without factoring in the implicit rental income of the home (hence, the quotation marks around “returns”). See my post on the price return vs. total return issue.
Also, don’t get me wrong, the move to the suburbs wasn’t successful purely from a financial aspect and market timing considerations. Even without the pandemic and without the outsized gains in our small house, we wanted a single-family home with a backyard in a quiet suburb and in a good public school district. It’s just a more relaxed life. And fewer health hazards on the sidewalks than in the big city!
Good Timing: Moving to Washington State!
We could have clearly achieved that move to the suburbs in California as well, but since we already had the fixed expense of having to pack up everything we decided to look beyond the state line as well. Most importantly, we disliked the California state income tax. A lot of our investments did phenomenally well in 2019, 2020, and 2021 YTD, so not having to pay taxes on dividends and options trading income was a big plus. Other retirees might be better served staying in CA. With a smaller portfolio and a leaner budget, if you stay within the 4% or at least within the 6% bracket, you face a relatively small effective tax burden! But we would have ended up well into the 10.3% bracket. No, thank you!
Moreover, the congestion, the cost of living, water shortages, potential blackouts (never happened while we lived there but could be on the horizon soon), wildfires, and many other crazy antics had us itching to leave California. I’m not saying that Washington is perfect. For example, we were impacted by the September 2020 wildfires and suffered for about 3-4 days from the bad air quality. But that same problem seems more regular and more persistent in CA than in WA!
So, as much as we enjoyed our stay in California, we’re also glad we left on time. But let’s not exaggerate CA’s problems either, see the (satire!) news headline my prankster buddy sent me a while ago. Come on, man, it wasn’t that bad!
Surviving the pandemic
How did we cope with the shutdowns? Oh, we went hardcore, baby! We diligently followed a strict lockdown, isolation at home, and a tight, tight, tight social distancing protocol! For about 3 to 4 days. And that was because of the Oregon and Washington wildfires and the resulting bad air quality in September 2020. For the most part of the “shutdown”, we went about our business almost as usual. We enjoyed outdoor activities like hiking, skiing, and snowshoeing. We traveled a little bit less than in a “normal” year; shorter trips to Montana, Idaho (2x), and Bend, OR. We flew to Utah during Spring Break this year. No international trips on the horizon until 2022.
Most importantly, though, we had – gasp – playdates for our daughter starting in April 2020. And letting the kids play, the adults had a good excuse to mingle and fight off the cabin fever and maintain sanity, too. We are all young and healthy and we played it safe: if someone had even the slightest symptoms their family would not join that day. We got vaccinated as early as possible. Worked out all right for us. Someone out there will scream at me now that we all escaped almost certain death, and what a bad example we are. So what?! Bite me! Our daughter will thank us later!
If you remember my 1-year anniversary post back in 2019, I outlined in item 2 that “I won’t let my blog interfere with my early retirement (yet).” Now that we finally settled down and we travel less I could have certainly spent more time on the blog. But I decided to dedicate the additional energy and bandwidth to some other projects I am passionate about. Specifically, if you recently checked out my LinkedIn profile you would have noticed some changes. In January 2021, I started two new gigs: First, I got a neat new title “Chief Economist at Valravn Capital”. Does that mean we fell on hard financial times and we are desperate for cash now? Not exactly. Valravn Capital is a Fintech and hedge fund startup, so I am willing to work there without a salary but for a small share of the equity pie. If it all works out and the company becomes a success, there is some profit potential in the end, but I don’t count on it. The scope of work is also part-time and it’s completely remote. No need to move, no commuting. I’m working with a team scattered all over the U.S. and even one colleague in France. I get to spend time with some exceptionally smart people a few days a week. Not a bad way to spend your free time in retirement.
My second gig: I am teaching Introduction to Microeconomics in the UC Berkeley Extension Program. Even though I’m a macroeconomist by training, I always enjoyed undergrad micro material a lot. How is the pay? Don’t ask! If you have ever taught as an adjunct professor you will know that there is very little money in that line of work. Sure, full-time tenured professors have a very cushy life – probably the only career path that could have talked me out of my FIRE plan. But adjunct teaching gigs are often woefully underpaid. So, I’m doing this mostly for fun. And the maximum percentage, 70%+ of the little money I make there goes straight into the University of California retirement plan.
It’s always best to leave your job on good terms
Another random thought that I was reminded of recently: When leaving their job, some people are tempted to go out with a bang. You know, let the F-U money in your bank account give you the courage to pound on your boss’ desk and give him/her your unfiltered F-U opinion. Bad idea. Not that I would have even had much material to shout at my boss back then. But even if I had, it’s always better to leave on good terms. In early 2018, when I notified my employer about my plans to leave, I tried to be as respectful, courteous, and cooperative as possible. By being extremely nice and flexible about my departure I was able to negotiate my departure as a layoff. I got a severance package including pay and health insurance until November 2018 and – even more valuable – I got to keep three more years of deferred bonuses. You would normally leave that money on the table if you exit your job in the finance industry on your own initiative. Three more years of bonus payments definitely helped from a Sequence Risk perspective! I could have even applied for unemployment benefits. California still “owes” me a six-figure amount after paying taxes there for 10 years and not getting all that much back. But it just didn’t feel right (much less legal) to receive unemployment benefits while traveling abroad and sitting at the beach in French Polynesia.
Also, you never know if and when you might need your old office contacts again. At Valravn Capital I’m now working with two former colleagues, including my former boss. Nice how that all worked out, isn’t it?
I realized that I skipped the 2-year anniversary post last year. Was there anything important going on in the summer of 2020? Nah, didn’t think so. But with three years of FIRE under my belt, I thought I share some random updates, thoughts, and insights. I hope everybody else’s retirement is going as well as ours!
Hope you enjoyed today’s update! Looking forward to you comments!
Title picture source: pixabay.com