October Update // Starting the Transition to FIRE
After hitting our high point for the year last month, the graph took a dip this month. On the investment side, nothing was pretty. The only asset class that we hold that went up in value was emerging markets (↑.67%), while everything else we own took a hit, most notably REITs (↓5.70%). Overall our assets were down 1.44% for the month despite upping contributions as year end incentive pay and side-hustle income has been kicking in. On the spending side, we were doing excellent until a couple of big end of month expenses occurred including needing brakes to pass car inspection ($250), needing a repair to the furnace ($275) and deciding to register early for next year’s FinCon conference ($200). That accounted for most of our $1,000 increase in spending from October 2015. Factor it all in and assets as a multiple of our yearly spending dropped from 16.2X to 15.6X.
Starting the Transition
We are now under a year until we plan to start the transition to our ultra-safe early retirement plan. As such, we have started to transition our investing strategy and I made a big career decision this past month.
On the financial side, we have stopped automatic contributions to Vanguard taxable investment accounts . We are instead starting to stockpile cash. Mrs. EE traditionally likes the security of a cash emergency fund while I generally feel it is a drag on our investments and so our compromise was to always keep about 3-6 months of expenses in savings. We will soon give up the excess cash-flow that comes with having two full-time incomes. We also have uncertainty of expenses with selling our home and likely making a cross country move in the next year or two. We agreed it is time to ramp up cash reserves.
We agreed to accumulate at least one year of expenses in cash by the time I leave full-time employment. We will probably stay at the greater of around 1 year of expenses or up to 5% of our allocation per our written investment/asset allocation plan for as long as we are anticipating having a redundant income stream outside of investments. As much as I traditionally have not liked holding cash, we have agreed (after much discussion) that this is a good place for us to be at this stage in life.
We also are considering changing our written plan to increase our cash reserves to about 3 years of living expenses by the time we plan to live solely off of investments. This was after having a long discussion after reading Darrow Kirkpatrick’s “Can I Retire Yet” book recently. In it, he discusses the average and worst case historic scenarios for markets to recover after downturns. The average time is about three years, making this seem like a prudent amount to hold when we are at the stage where we are worried about spending assets at depressed values. However, we do not see that anywhere in our immediate future so it is not a pressing issue.
I made a decision officially on October 31 as the deadline passed that I will not renew one of my professional credentials. Ten years ago, I became an Orthopedic Certified Specialist (OCS) through the American Board of Physical Therapy Specialties by passing a rigorous written test and documenting that I had met other standards related to education and experience. Earlier this summer, I received a packet to renew the certification as is required every ten years.
As I began skimming through what was required to renew, I realized it would take me hours to round up all of the documentation of work history, continuing education, students I had mentored, and professional publication for the past decade. I then looked at the fee I would have to pay, about $1,500 to renew. I quickly decided that there was really no reason for me to do this, and I didn’t really think about it again for months. I received a second reminder just a few weeks ago that the deadline was approaching.
I don’t know why, but after giving this decision little thought initially, it hit me as the deadline approached that this whole early retirement thing is real. As of next June, I legally have to remove those credentials from any professional documentation and stop writing those letters after my professional signature, where they have gone for the past ten years.
After discussing early retirement endlessly with Mrs. EE and writing this blog for the past two years, this is the first real action I have actually taken to start stepping away from the career that has defined me for the past 15 years. I must confess that I spent a few days second guessing my decision prior to the passing of the deadline.
I certainly do not regret the decision as the certification has little to no value to me at this point in my life. It did mean a lot to me personally at the time I got it. However, it has no bearing on my physical therapy license or ability to practice. I have found the designation is of little marketing value. Like many professional designations after people’s names, most people do not even know what it means. This is true of clients and even other professionals. It is certainly not worth the time and money it would require to retain it.
I can’t quite describe what it is that I am feeling when I think about the decision. I guess it is just a little sign that this whole FIRE thing is real. Despite the amount of thought and effort we’ve put into our planning, the reality is that what we want to do with our lives is quite different than what the vast majority of people do. I guess as it starts to get real, I must confess it is a little scary.
Any interesting changes in your plans as you work towards FIRE? For those of you getting close, are you changing anything with investment portfolios or making any other big changes? How much cash do you hold? Anyone else get those butterflies when you make big changes/decisions, even when you are sure they are the right decision? What do you find scary about making the transition to FIRE? Share your thoughts below.