Retiring on the Eve of a Global Recession
I’m taking social distancing seriously.
This is the timing everyone fears when retiring, early or not- a stock market crash becoming a global recession a month after retirement. Now it looks like this flash sale is more like an extended clearance sale, and we are starting to see a sharp impact on our other income generator, our Airbnb properties, at the same time.
When I ran the usual FIRE calculations, 25x annual spending, I felt pretty secure with my number. Of course, timing is everything. This calculator runs scenarios based on past market performance to see if your portfolio would have lasted longer than you think you will live (not morbid at all!).
If I run it at my current portfolio value (which is higher than it could be because I’ve continued to invest even after hitting my FIRE number), I can still reduce my spending a bit to offset the lost Airbnb revenue, especially during the coming recession, and make it in 100% of past scenarios where I never earn money again. It feels like this is something out of a zombie movie and nothing will ever be the same again, but we will probably get through it. Don’t panic!
Lucky for us we have been slow to invest the cash from the sale of Man who Works’ startup- so we will be able to weather this storm even if he loses his job without having to sell while the market is down. However, here is what we would have done if that sale had not gone through:
Reduce cost of living by moving back to Mexico
We have blackberries, limes, figs and pomegranates in our garden in Mexico - free food!
We are lucky to have a place to live for free, which also is now available thanks to Airbnb allowing free cancelations to guests. Food is very cheap (and delicious) in Mexico, which is our main essential expense. Even without health insurance, it is affordable to pay out of pocket for health care if needed. Our city is very walkable so transportation costs are minimal. Our water heater is solar and we don’t have a dryer, plus there is no need for AC and only occasional heat at night in the winter so utility bills are also low.
This mix of good climate, farming, and anywhere-but-US-healthcare is why central Mexico is such a good place to retire. A middle-class lifestyle costs as much as we would pay just for health insurance in the US.
You may think, given that East Africa has even lower median income than Mexico, it would make more sense to stay put. However, there is a very small middle class so most businesses cater to either the very poor or the very rich. I’m lucky to have the option to have AC in the 100° heat, and not have to be smashed into a minibus with 25 other people - and I chose comfort. Plus, there is more risk of getting a serious infectious disease here (even now- and we just had our first confirmed coronavirus case yesterday!). For the same amount of money, we have a higher quality of life in Mexico.
2. Tap into the emergency fund
It is an emergency yet?
I always keep $10k in a high interest (although maybe not anymore?) Capital One online savings account. The general advice is to have 3-6 months of living expenses in an emergency fund, usually for cases where a large unexpected expense comes up and/or you lose your job.
When I felt secure in my job, I always thought this seemed like a waste of non-invested money - after all, isn’t that what credit cards are for, to cover the cost of something while you wait for a paycheck or sell a few stocks to pay it off in a month?
Why did no one ever say that the emergency fund is for when the global pandemic comes and no one can leave their houses? That I would have believed- in the public health world we have known that something like this was going to happen, it was just a question of when. I don’t know why I failed to consider this in my side-hustle calculations as well- while our Airbnb guests are majority Mexican, we have already had several international cancellations and I foresee more coming and declining bookings over the next few months.
In any case, $10k can easily sustain us for a year in Mexico if we are frugal and if no major emergencies arise. Another calculation I did not include, however, is getting back to Mexico from East Africa. In the old days, my job would have covered this, but now it will cost us around $3k to get the three of us back there. Another lesson learned.
3. Pick up some side gigs
Why is everyone freaking out about hand sanitizer when we have so much artisanal soap?
I recently turned down a consulting opportunity, before the pandemic was declared but when I knew that the next few months were going to be unpredictable as we made our move to China. I felt secure in saying no because I knew we did not need the money. However, if the time arose, both Man who Works and I have networks that could get us at least a few opportunities to tide us over for a while or start another side hustle making artisanal hand sanitizer or something.
What’s next in real life
While this situation could be a lot worse for us, it is going to be bad for a while for a lot of people as global quarantines force more people into my frugal spending habits which in turn will cause layoffs and cash-strapped businesses to fold. We are committed to continuing to pay people that we employ even if their work dries up, and seeing how we can help with other issues has the situation progresses. We are staying put geographically to minimize spread, as I suspect there are already many cases circulating in our expat circles but no tests available.
I am still buying a little each day as the market falls- even though everyone says dollar-cost averaging is worse than lump-sum, it just feels better since it seems like the end is far, yet could also be near. I know investing based on feelings is bad, but I do get a thrill of getting (what I think at the time is) a good deal. In another life maybe I could have been a day trader...
After the covid-19 apocalypse, will the economy reshape itself into something that produces less useless crap? Will Americans be convinced that a social safety net is important? Probably not. But maybe more people will see the value of emergency funds and better understand where their money goes each month. Hopefully, this will only be a short term slump and the virus is contained as soon as possible before I become the she-wolf of Wall Street.