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THEY SAY TIMING IS everything. That’s something I should know—because I’ve never been very good at it. The motto of Scotland’s Kerr clan is Sero Sed Serio, or Late, but in Earnest. That’s been my reputation since I was young.
In high school, my basketball game blossomed at the end of my senior year, just in time to have one good game of double-digit scoring before I graduated. I’ve missed every fashion trend that’s come along. Anybody want an unworn pair of bell-bottom jeans? I didn’t publish my first book until I was age 62. And as for investing? Well, let’s just say I didn’t buy shares of Apple or Amazon before they took off for the moon.
So, when it came to saving for retirement during my working career, I automated the process as much as possible. In addition to making monthly pretax payroll contributions to my 401(k) to take advantage of the company match, I had additional money pulled out of my bank account every month and invested in mutual funds held in a taxable account. Over time, the power of dollar-cost averaging made up for my own lack of investing prowess and enabled me to build a decent-sized nest egg.
Alas, my miserable sense of timing came back to bite me when picking the date of my “retirement” from the corporate world. I opted for September 2021. Back then, all was blue skies in the financial markets. My portfolio was appropriately diversified for someone of my age, or so said my account advisor at Vanguard Group. As long as I didn’t change my spending levels or long-term income expectations, he was confident I could leave the workforce at 61 and be fine for the next few years, until I started taking Social Security and Medicare.
Then came 2022, soaring inflation and interest rates, and a brutal year for stock and bond investors. Who could have predicted that in my first year without a steady paycheck, I’d be looking at double-digit losses on both the stock and bond sides of my portfolio? So much for the power of diversification in reducing portfolio risk.
Even worse, right before interest rates took off, I rolled over my 401(k) balance from my former employer, which had been invested in small-cap funds, and put the money mostly into the bond side of my portfolio, with the goal of maintaining my targeted 60% stock-40% bond mix. Needless to say, those funds have gotten hammered in the bond selloff.
Sero Sed Serio.
But here I am, still standing. I haven’t (as yet) had to go back to fulltime work or draw on my retirement accounts. How am I riding out the storm? Four things have been key to staying afloat:
1. Low expenses, plus avoiding debt like the plague. Proper preparation goes a long way toward making up for lousy timing. For years before I stepped away from the corporate workplace, I was ruthlessly lowering my expenses. I downsized, paid off my credit cards and got rid of all debt except the loan on my new Keystone travel trailer.
If I had a big mortgage to pay every month, there’s no way I could have ridden out this storm in the financial markets without going back to work. I own free and clear my mountain cabin and the land it sits on. My biggest monthly expense is buying my own medical insurance. That isn’t cheap, but I consider it the price of freedom.
Unlike when I was working, I know I can’t buy anything I want. I have a budget and I work hard to stick to it. Every potential purchase gets weighed on a scale of what I would have to give up to buy it. The one exception is travel. This phase of my life is about experiences and adventures, so—if I can afford a trip—I’ll take it. For instance, the weekend before Thanksgiving, I went on a spur-of-the-moment trip to Breckenridge, Colorado, to see my son and his fiancée.
2. A sizable emergency fund and health savings account. Life is unpredictable. While budgets are great, they can’t take all contingencies into account.
That’s why, before I stepped away from the corporate world, I made sure I had a substantial emergency fund to pull from when necessary. I tapped into it recently to help my son with a legal problem he was facing. I also used the fund to pay for a new set of tires for my truck. Without a rainy-day fund, I would be pulling out the credit card or going to the bank for a loan—and that would spell the end of my freedom.
Before I retired, I also made sure I had a health savings account fund to draw on for out-of-pocket medical expenses. I built up the fund with pretax contributions while I was working, and have been pulling from it over the past 18 months to cover deductibles and insurance copayments. Having this fund was critical in paying the cost of my replacement left hip earlier this year.
3. A side gig to bring in extra income. Even with all my preparations, I knew going into early retirement that I’d have to continue making money to replenish my emergency fund, and to pay for travel and other adventures.
Fortunately, I have a skill—writing—that I can make some money at without being chained to a corporation. In addition to writing freelance articles like this one, I’ve launched my own communications business, Boy Blue Communications, to take on select writing and communications projects for my former employer and other corporate clients.
The beauty of having my own firm is that I can choose the clients and projects I take on and how many hours I want to work. My specialty is high-level financial and executive communications, speechwriting, and client case studies—all areas that interest me and that I can charge a healthy premium for. I enjoy keeping my finger in the corporate world. It keeps me mentally sharp, while bringing in a decent amount of income.
4. The power of dividends. When the market was crashing at the beginning of the pandemic, I took advantage by picking up a bunch of quality dividend-paying stocks in my taxable account.
A few of these stocks, such as Exxon, AbbVie and Blackstone, have more than doubled since I bought them. Only one, AT&T, has been a dud. But all of them have continued to pay dividends over the past few years, and a few of them have increased their payouts. The dividend stream isn’t much—less than $5,000 a year—but it has helped keep my savings account from dwindling and paid for a few trips over the past year and a half.
The stock market will come back and eventually return to record highs. In the meantime, I’m holding my ground in the storm, while enjoying my newfound freedom to pursue my passions. Sero Sed Serio.
James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.
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Like yourself, I love dividend paying stocks so when I came into a small inheritance, I invested it all in a few stocks which pay out each month. With some dollar cost averaging, I decide when it’s time to purchase more shares & bank the rest.
Having no mortgage and always living below our means has helped our bottom line. We’re not rich by any stretch but definitely middle class folks who enjoy our work & our lives as empty nesters. We both still work, me part time since my forced retirement in 2010, and are not looking to stop quite yet. Have decided to work another couple of years & then see where we’re at.
I usually keep my moth shut about the “power of dividends” because the listener/reader either gets the “deer in the headlights look” or I get lectured on being a stock picker, no longer a Boglehead, or “don’t you know the price of the stock goes down when they pay the dividend?”
As my Grandfather would say “Oh fagabalah!” (I think it’s German for malarkey).
Yes, I was/am a Boglehead. That is how I was raised by parents who had nothing yet paid for my college, made it to the end in the black, and even left something for their two boys.
My transition took place when the company I worked for declared bankruptcy (for no other $@&!!! reason than to rape and pillage our pension….but I digress). This, quite honestly scared the you know what out of me as I suddenly was faced with quite possibly having to live off our “lazy portfolio” at 57.
Fast forward…this lightening bolt led me to Dividend Growth Investing (DGI). Which has now fully transitioned to Dividend Harvest Investing. Many of the Guru’s I followed at SeekingAlpha no longer write but there is still some good info out there (Take Eric Landis for example: https://dgiforthediy.com/).
I have been retired since April 2021 at 65. I (we) have not started social security. We have not changed our lifestyle. And, we have not had to sell a single share of stock, ETF, mutual fund, etc.
We live off our harvested dividends and some bond fund interest (80/20 portfolio) (Gasp!!). This income represents a yield of 3.84%.
Our portfolio, YTD is down -9.97% according to my spreadsheet.
The S & P 500 by comparison is down -19.17% (M* SPX)
The Dow by comparison is down -9.41% (M* !DJI)
The NASDAQ by comparison is down -31.57% (M*)
The VBTLX (Vanguard Total Bond) is down -11.15% (M*)
I encourage naysayers to google “Dividend Champions” (a term coined I believe by the late David Fish) (free version here called Dividend Radar: https://www.portfolio-insight.com/dividend-radar).
Yes, you are going to pick stocks if you mimic what we did. But honestly, it “ain’t rocket science”. I would even argue that many of you have bought ETFs or mutual funds “above their fair value” even if dollar cost averaging.
How we did it:
Zero commission at Fidelity so my “expense ratio” is the fee for M* and Simply Safe (0.0002’ish). And I do own more than the “recommended number of companies”. Again, Fagabalah! We built our own figurative ETF. If I am distracted (think grandkids) and miss some weird news that company XYZ just cut their dividend and the price tanked, it’s not a huge deal. I salvage what I can, maybe wait and see, do some extra research, or sell and reinvest. It doesn’t send me to the bank for a loan.
You can also do this with low cost ETFs:
SCHD SEC Yield 3.2%. Exp .06
VYM SEC Yield 2.8%. Exp .06
VYMI Yield 5.0%. Exp .22. International/Emerging
BND SEC Yield 4.0%. Exp .03
To summarize: Yes, when the market does a “Trump Rally” you will not have the big gains as being in all growth. But you will still have gains. And you will still have that income stream.
And when the market is doing what it is doing now….you can sleep well at night because of that lazy stream of dividends.
My better half will wander in to me sitting at the computer and say with that look on her face “did you see the market tanked!” To which I will log into Fidelity and go to the Activity page and show her all of the money we were recently paid…while we were sleeping….(!)
Like teasing the dog with “Squirrel!” … Oh look! Another dividend!
Timing! I feel your pain. We quit in May this year, after delaying two years because of the pandemic (couldn’t travel, wfh, why quit?). That worked really well as it turned out.
In May we debated whether or not to stay in, but i decided I valued time more than money.
Then we realized that the value of our 3-year cash reserve, which was conservately invested 30/70, was back where we started with it five years ago. Oops.
Pulled that out and put into 3-month T-bonds.
The good news is we have that to live on so we can (hopefully) wait out this bear market before the cash runs out and we need to begin the decumulation plan.
Good luck to you – stay the course!
I don’t understand the “Power of Dividends” strategy. When a company pays the dividend, the stock price is reduced by an equal dollar amount. Your net result is zero but now you have to pay taxes on the dividend distribution when the equity is held in a taxable account.
From Fidelity:
When a company pays the dividend, the stock price is reduced by an amount proportionate to its book value.Thankfully, book value alone does not determine share price.
Moreover, I would rather have the money given to me than have the management buy back shares at ridiculous valuations or use it to buy their parents a home in the Bahamas.
If a company has a high ROIC or a very disciplined buyback policy (like Berkshire), I don’t mind them not paying dividends at all. However, this argument that share prices adjust in accordance with dividends and stay that way is not really accurate.
In his book Plain Talk About Leadership, Robert L. Bailey wrote:
“Back 30 years ago if someone had offered you 100% of your salary
to retire, you would likely have jumped at it. Had you done so,
how well would you be living today?”
If retirees don’t have a way to increase their income over time, they will probably suffer a substantial reduction in their standard of living. That’s a plus for Social Security. At least it goes up a little over time.
I’m not surprised that you would invest in a 60/40 stock/bond balanced portfolio in 2021, but still a little disappointed. This “common wisdom” has been out of date for at least a decade. I’m sorry it hurt you so badly. Investing in dividend stocks, though, seems to have worked out a good bit better, so perhaps you will do more of that going forward.
Actually, given how much bond prices have declined this year, a 60/40 portfolio might do quite well going forward.
We used the cost sharing reductions for several years until my wife was old enough for Medicare. This article in Kiplinger was one of the most helpful.
https://www.kiplinger.com/article/retirement/t027-c032-s014-how-early-retirees-can-get-cheap-health-insurance.html
Also, the Bogleheads discussion forum has a lot of information about strategies.
https://www.bogleheads.org/forum/index.php
the key for me was getting healthcare thru the ACA. For a gold plan, my wife and I pay only $500 per month. The subsidy is over $1100 monthly. I was able to do this because I put away three years worth of salary in savings account. Most of my dividends and cap gains are in qualified accounts, so my MAGI is well below the Federal Poverty level that they use to determine your subsidy
Wow. That’s excellent. I’ll be going on the ACA next year and I’m afraid what my monthly premium is going to be. 🙁
You can control your income to get the maximum subsidy with a little planning in advance. A large savings account and some short term bonds in my taxable account saved me when I retired at 61. My wife and I were able to get coverage for 0 dollars with the lowest
deductibles and out of pocket maximum. Research MAGI to learn
what counts as income with the ACA subsidies.