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I DECIDED TO TAKE a peek at our investment portfolio. I try not to look too often. But I was curious to see how our assets were holding up in this bear market.
What did I learn? Our retirement savings were down more than $500,000 this year, thanks to a combination of investment losses and our spending. Most of our shrinking balance is the result of falling stock and bond prices.
Still, our spending this year on travel has increased sharply. We took a five-week vacation to the U.K., as well as a number of shorter trips. As I’m writing this article, we’re on our way to France and Switzerland for three weeks. Later this year, we’re going to Vancouver, British Columbia. My wife is already planning some trips for early next year.
If it was left up to me, I’d probably hunker down for the rest of the year—because that’s what my money instincts tell me to do in this tough economic environment. But it’s not up to me. I have a wife who has a say in our finances. She says, “Let’s continue with our travel plans. We can get through these difficult times.”
When I think about it, she’s right. Here are six reasons it’s okay to stay the course with our current spending:
1. Our current investment losses aren’t real losses. They’re paper losses, also known as unrealized losses. They only become an actual money loss if we sell—and we have no intention of selling any of our long-term investments in this down market.
2. We have a cash bucket. I’m optimistic that our stocks will rebound before we’re forced to sell. The average bear market lasts 289 days. We have enough cash and Social Security income to fund our living and travel expenses for the next five years. In addition, we have a short-term bond fund in our retirement accounts to satisfy our required minimum distributions without liquidating any of our long-term investments.
3. We have high-quality investments that should rebound with the economy. If our portfolio was loaded with sector funds and individual stocks, I might be concerned about the health of our portfolio going forward. But I’m not. All our investments are in low-cost, broad market index funds that track the major indices. When the economy recovers, our portfolio should, too.
4. We have enough savings. I divided our current account balance by 25—the equivalent of a 4% withdrawal rate—to see how much we can reasonably withdraw each year from our somewhat shrunken portfolio. When I added our Social Security benefits, we should have more than enough income to fund our retirement lifestyle.
5. Our spending will improve our quality of life. I took great satisfaction in watching my savings grow over the years. When I was younger, I was willing to make financial sacrifices to propel my portfolio’s growth. But I’m at a point in my life where I want my money to work for me. I want it to make my life better. Isn’t that why we skimped and saved all those years?
Our travel has brought immense pleasure to our lives—more so than having a larger retirement portfolio that, in any case, might not be needed in our later years.
6. The time is right. At age 71, this is a good time for us to travel. I’m in good health. I don’t have any physical and mental limitations. My wife is healthy, too. There’s nothing in our lives that prevents us from doing the things we want to do.
If COVID-19 taught us anything, it’s that life can unexpectedly be put on hold. Sometimes, you have to seize the moment. I believe this is our moment. Delaying our retirement wish list would be a risky proposition, especially at our age.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.
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I 100% agree with your 5 year cash bucket strategy coupled with bonds to cover RMDs. But, I have not found any financial advisor that agrees with this much cash/bond exposure. Perhaps it’s because this portion of a portfolio may not be under active management, and no advisor makes any money on it. And, given your (and/or mine) travel will probably start to slow down over the next decade, meaning a lot less spending.
Ditto to that!
Though not having as big or deep of a ‘Cash Bucket’; I concur with the ‘Carry On’ sentiments, and sleep like a baby at night.
As a 63 single woman of two grown financially independent children (blessed …) with no relational ties other than families and dear friends, been blissfully traveling through Summer. Super grateful to be mentally/physically fit and curious enough to enjoy all our wonderful World has to offer.
We worked hard to do the right thing for decades. US dollar’s strong, and tomorrow’s not a guarantee. Thanks for the affirmations! Seize the moment indeed.
Egypt and Asia next –
While it certainly makes sense to me to prioritize travel and continue to “go for it” I also think it’s important not to rely on things like the average length of stock market downturns or the old 4% rule in charting one’s course.
As Mike Zaccardi points out in another post in this very issue of Humble Dollar:
“This year has been among the worst on record for broad stock and bond index funds. Consider that a portfolio allocated 60% to U.S. stocks and 40% to domestic bonds was down more than 20%through September. Factor in inflation, and that’s nearly a 26% decline.
Charlie Bilello found that only the awful year of