This past weekend, I had the fortunate experience of attending CampFI for my first time. CampFI is a weekend long retreat where people curious about, in their pursuit of, or those who have already attained financial independence (“FI”), participate in discussions and presentations (and impromptu pop-up podcasts!) about any and all subject matter revolving around this concept.
First and foremost, for me at least, it is an event where I was able to meet community members “IRL” (in real life – as opposed to online) to make solid connections and new friendships. I had already “met” a number of these individuals in the ChooseFI Facebook group. If you are interested in this topic, as you likely are if you are reading this post, you can look to join the main ChooseFI Facebook group and also your local ChooseFI group. It is a great community for those interested in achieving financial independence.
I was somewhat surprised to learn that I was in the minority of those who had reached financial independence and who was currently drawing down on a portfolio to replace income after leaving traditional employment. Moving from being a saver and accumulator of wealth to actually living off of my portfolio was a major mental challenge for me. It has taken three years post leaving work to get (mostly) comfortable.
This switch is apparently something many in the community feel is, or will be, difficult and it was a topic many of us discussed among one other throughout the weekend. Most of those I discussed this transition with were anxious about the prospect of withdrawing from their portfolios as they approach retirement in the very near future. I shared my experience with them, and since it was such a hot topic, I thought I would do the same with you here.
My Portfolio Drawdown Strategy
I officially retired from full time employment at the end of 2015. During my first year, in order to avoid confronting my anxiety with drawing down my portfolio, I looked around and identified a number of non-portfolio assets that could be sold to fund the early part of my retirement. Many people probably do this prior to retirement or even to help initially fund theirs, but I guess I was a late bloomer (or a procrastinator). Fortunately, there were a number of items of decent value, the biggest of which was a third car which had become somewhat of a collector vehicle. This, along with a number of other items I was able to identify, was sold to effectively fund my first year of retirement (aka “Funemployment”).
By year two, I had run out of physical assets worth much of anything to sell and was faced with confronting my drawdown anxiety. However, much to my delight, I was able to delay it a little bit longer, as I was able to sell a very small ownership position in my old employer back to the company. After that, it was time to face my only available option – and that was to start my portfolio drawdown (or consider going back to work – but that was out of the question!)
Many of you may be aware of the 4% rule (or better yet, “guideline”) that suggests that a 4% initial portfolio draw annually adjusted for inflation will most likely result in the ability to last 30 years without running out of money given a portfolio allocation of 50% in stocks and 50% in bonds. I was never really comfortable with the 4% drawdown strategy and sought out other studies that further investigated an appropriate withdrawal strategy that I could get comfortable with.
The best analysis I have encountered is the one done by “BigERN” of EarlyRetirementNow. I came to the conclusion that I would be comfortable with a maximum initial drawdown percentage of 3.25% of starting portfolio value (adjusted for inflation annually), especially given that my wife and I (current ages of 55 and 53, respectively) will likely receive our projected social security benefits.
Even though I was getting comfortable with the math of my drawdown strategy, I still had anxiety about putting it in motion. In order to get started, I decided to pay myself a “paycheck” from my portfolio on a monthly basis. I had calculated that I would actually need about a 2% draw to cover our normal expenses – so that is where I began. I set up a monthly automatic transfer from the money market fund in our investment account (taxable brokerage account) equivalent to 1/12 of 2% of the starting portfolio value. (The “portfolio” includes the aggregate value of all investments accounts – taxable & retirement).
My anxiety level has greatly reduced, and continues to do so, with each passing month. I am still at the 2% withdrawal rate, but as circumstances require, I now feel that I will be comfortable moving my drawdown rate up toward the maximum level of 3.25% (adjusted for inflation) as necessary. Getting the ball rolling with a drawdown rate much lower than statistically feasible was a huge step in overcoming my anxiety with starting the withdrawal process.
Changing Your Habits
It wasn’t until I attended CampFI this past weekend that I became fully aware that changing old habits (i.e. saving and accumulating) and creating a new one (drawing down my portfolio) was such a monumental task. Anthony Ongaro of BreakTheTwitch gave an excellent talk including methods to change old habits and establish new ones. In my opinion, one of his best pieces of advice was to start small and expand it over time – confirmation that my approach was a logical one.
Something that resonated with me specifically was if you have trouble writing (a blog post for instance) just commit yourself to writing one sentence. You may even find when you start, you end up writing much more than you think. FYI, I did that with this post and here I am over 1,000 words into it – Thanks Anthony! Also, you may certainly be aware that this is my first post in over six months, so I also have Anthony to thank for helping me get back to it.
Surprise! An Impromptu Podcasting
CampFI participants also had the awesome experience to participate in a Pop-Up Podcast hosted collectively by Mindy Jensen of BiggerPockets Money, Paul Thompson of What’s Up Next and Paula Pant of Afford Anything. While this was a spur of the moment event, it was one of the many highlights of the weekend! I highly recommend all three podcasts for your FI education and listening enjoyment. You won’t be disappointed.
My wife and I have already purchased our tickets for next year’s Rocky Mountain CampFI event. Maybe we will even see you there. In the mean time, I will also be hanging around the ChooseFI Facebook groups, and of course posting more here – I just have to start with that one sentence 🙂