What if somebody gave you an interest-free loan for a year? Say, the government, maybe. And then instead of requiring you pay back all of the loan, they only wanted half?
This situation actually exists within the Affordable Care Act / Obamacare in some circumstances. Throughout the year, Premium Tax Credits are paid directly to the insurance company based on our estimated income for the year. Then come tax filing season, we reconcile any differences – if our actual income is greater than estimated, we repay the excess on the advanced credits.
For the self-employed, seasonal workers, and retirees living off variable investment income, estimating income accurately can be next to impossible. As such, to provide some protection against unexpectedly large tax bills, as long as total income is less than 400% of the Federal Poverty Level (FPL) the amount of repayment is limited.
One anonymous GCC reader made an astute observation in a recent email:
“In your analysis of the 4% rule and the worst times to retire (1929, 1965, 2000) you repeatedly made a suggestion that early retirees spend less in the early years of retirement to minimize sequence of returns risk.
You also shared how you have been increasing spending every year as the stock market has grown. If the market crashed 50% tomorrow, what would you do? If you were to follow your own advice, wouldn’t you need to roll back all of your spending increases?”
One of the things I dislike about the 4% Rule / Trinity Study is the open-ended definition of success – if you have more than $0 after 30 years, great success!
Having $1 and $1 million both meet that criteria, but will have obviously different outcomes over the next 30 years.
Planning for a 60+ year retirement requires looking a little closer.
Your typical Trinity Study / 4% Rule style portfolio longevity analysis requires a full 30+ year period to determine retirement success. If the portfolio value was still positive after 30 years of spending, you passed. If you ran out of money, you didn’t…amongst other things.
Since we don’t have a full 30 years’ worth of data for people retiring in 2000 or 2008, the most recent scary dates, these periods are left out of the pass/fail statistics of the most common retirement calculators. [The most recent possible start date is 1989 (1989 + 30 = 2019)]
This dearth of data is exacerbated for early retirees since we expect our retirements to be much longer than 30 years. [The most recent start date for a 50 year period is 1969 (1969 + 50 = 2019.)]
But let’s see how these retirees would be doing mid-stream, and compare to other difficult times in history.
Well, whattaya know… 7 years ago today-ish I walked out of my office building for the last time.
A lot has happened since that day. We traveled full-time for a couple of years before becoming parents and traveling parents… Jr has now been to 40+ countries. We started a couple of blogs, Winnie wrote a book, and we had maybe 5 minutes of fame when our story was shared throughout the media. We lived large, practiced intentional lifestyle inflation, and grew as people and as a family.
Thankfully, throughout all of this, our investment portfolio has also continued to grow. This is largely due to an extended bull market in US stocks, but also in small part due to blog and book income. (More is more.)
It’s been a good ride.
But… what if things didn’t go so well? What if the stock market crashed and the economy tanked? What if our hobbies never made a dime? What if it all went to hell?
Well, whattaya know… 7 years ago today-ish I walked out of my office building for the last time.
