Financial Independence Backup Plans – Part Two

Welcome to Part Two of Financial Independence Backup Plans!

Last week, we discussed the many ways we can reduce spending, should our dividend income take a drastic hit in retirement.  And we found that even for a relatively frugal household like ours, we can still adjust our expenses considerably.

But if you remember, that still left us with a cashflow gap of $6,000 per year.

Luckily we were just getting started!

There’s plenty more we can do to plug this, and greater shortfalls, which is what today’s post is all about.  So let’s get into it…

 

Backup Plan #2 – Cash

It’s almost so obvious, there’s not much to say about it.  But keeping a chunk of cash on hand in case our income falls (or unexpected expenses come up) is something we should all do – retired or not.

Here’s how it’d work…

Using the figures we’ve established so far – our income falls 40%, we adjust our spending, but there’s still a $6,000 per year gap.  Let’s call it $10,000.

If we have $50,000 as a cash buffer, this would top up our income for 5 full years.

But this assumes dividends do not recover at all during that time.  The overwhelmingly likely scenario is dividends steadily recover after a large initial drop.

So this cash buffer is likely to last longer than 5 years.  Probably more like 7-10 years.

And if we keep $100,000 cash (which may be something close to 10% of the portfolio), it’ll last twice as long.  Then our income could be topped up for 10 years with no recovery in dividends.  Or perhaps 15-20 years with a steady recovery!

By that time, the economy will be back on track and company profits growing once more – in line with the relentless long term trend.

Now I know there’s inflation and other variables we could go into.  Forgive me for wanting to keep it simple!

The point is, with flexible spending, a decent cash buffer is likely to last a long time.  How much you want to have is up to you.  But we’ll probably opt for a smaller lump of cash (say $50k) and be more flexible.  More on this later.

 

Are these figures made up?

Of course they are.  This is the future we’re talking about.

I don’t care who you are or how sophisticated your ‘modelling’ is, you simply can’t know the future.  Some basic maths and common sense are far more useful in my view.

So far, we can see a combination of flexible spending and a cash buffer goes a very, very long way to seeing through some pretty dark times.

And the less flexible you are, the more cash you’ll need to keep on hand.  This means more saving and a longer road to Financial Independence.

But remember, keeping more in cash is a drag on your long term investment returns.

If you have an extra $50k sitting around earning 2% interest, instead of 8% return in shares – you’re missing out on an extra $3k per annum.  And that compounds to become a greater number every year.

So a lack of flexibility is costing you short term freedom as well as long term wealth!

Not to say you shouldn’t have a decent buffer, just something to keep in mind.

 

Backup Plan #3 – Renting Out Rooms

Uh-oh, more of that flexibility nonsense!

The fact is, most of us have at least 1 spare bedroom that we do nothing with.

Maybe it’s an office we don’t really use.  Maybe it’s full of stuff we’ve simply collected over the years.  A youngster’s old room who’s now grown up, moved out and unlikely to ever come back.  Or it could be that extra guest room that is rarely ever used.

We’re a perfect example.  Sure, we do have the odd guest staying every now and then.  But we rent a 4 bedroom house, and most of the time, only 1 of those bedrooms gets used!

A while back now, I wrote a post about setting up an income stream from your unused space.  We’re no longer in this situation, but it’s always an option in the future.

And keep in mind, in a recession, the number of people looking to reduce housing costs by sharing is likely to grow substantially.

This room value calculator by Flatmates.com.au suggests one of our spare rooms would earn roughly $8,500 per year.

Now I don’t know about you, but that’s a ton of cash for us!

In fact, when you think about it, this creates the same amount of income as about $200,000 worth of shares!

So it would be silly to just wave it away as a silly idea.  That alone would go a huge way to topping up our dividend income in a recession.

Instead of cutting spending by $12,000 as stated in Part One, we could keep most of the luxury we currently enjoy and simply have a housemate for a while.

If you own your house, there are of course tax consequences to consider.  But it’s simply another option to choose from, for generating some extra cashflow.

Which brings us to the next, perhaps the most dreaded option…

 

Backup Plan #4 – Working!

We’ve covered a number of ways to plug this imaginary income gap we’ve created.  And I thought I’d leave working as the last option.

Why?

Well, this is an early retirement blog!

Therefore, I’m going to assume that maximum freedom is a pretty high priority for readers.  So going back to work is perhaps not what jumps out as the first solution!

Nevertheless, turning on this income tap for a while is still a very viable option.

Let’s take a look at our own scenario to see how this would work…

We’re a relatively unskilled couple of early retirees.  The only real qualification between us is a forklift ticket (which I think has now expired!).

But given Australia’s generous wages compared with other countries, basically everyone can earn at least $20 per hour, doing all sorts of unskilled work.  (We’ll ignore the fact that we both earned $30+ per hour, in our relatively unskilled jobs.)

So let’s see how much work it takes to top up our dividend income.

 

The Numbers

First, we’ll assume the earlier figure of a $6,000 shortfall in our retirement cashflow, after optimising our expenses.

To generate $6,000 from working, we’d need to make around $120 per week.  Or about 6 hours work per week.

And that’s between us.  So 3 hours each.  Or 6 hours if only one of us can find work.

In fact, to make $18,000 per year and cover the entire 40% collapse in our dividend income (if we didn’t want to spend less), we’d need to work 18 hours per week between us to plug the hole.  Or 9 hours each per week.

Roughly one day per week each, or two half-days.

This also ignores every single option we’ve discussed so far.  So if we weren’t the slightest bit flexible in spending or living arrangements, and kept zero cash on hand, this is what it would come to.

Hardly a disaster!

And there’d be no tax because we’re still under the tax free threshold.  In any case, given the tax efficiency of Aussie dividends, we could use excess franking credits to offset any tax owing on work income.

Now, obviously there are less jobs available during a recession.  But part-time work is much more likely to be available than full-time work during those times.

After shedding workers, companies are generally slow to re-hire full-time employees.  But will happily take on part-time workers to fill gaps, as demand slowly picks up and the economy finds an equilibrium.

And that’s exactly what work we’d be looking for.

The unemployment rate will climb from roughly 5% today, possibly up to 10% during a recession.

That sounds pretty bad.  And it is.  But remember, this also means that 90% of people who want employment, still have it!

Now, you can argue that ‘underemployment’ is higher than that (people with a job but want more hours), and it will be.  But that doesn’t concern us.  A small amount of part-time employment is all we need.

In reality, all you’d need to do is keep a small cash buffer and adjust spending until you did find some part time work (if this is your preferred backup plan).

As always, people will find reasons why this option isn’t possible.  So if you don’t like your chances of finding ANY employment for a number of years, then simply focus on the other backup plans!

 

The Lean FIRE Argument

It’s been put to me that someone on even lower spending than us (labelled Lean FIRE) would have real trouble plugging the gap if their investment income dropped after leaving work.

Let’s see…

Say a couple has paid off their house and they’re living on $25,000 per year, which covers their expenses.

If this income drops by 40%, they’ll now only earn $15,000 from their investments.  So there’s a gap of $10,000.

What can they do?

Well, considering our own non-housing expenses are also around $25,000 per year, there’s likely still a surprising amount of room to trim spending.  Let’s say they can come up with just $3,000 per year in savings.

Now the gap is $7,000.

I’d certainly hope they had a stash of cash in the bank for times like this – perhaps around $50,000 or so.  This would top up their income for a good 5-10 years.

Then of course there’s the option of part-time work.  And again, to make $7,000 to cover the gap (completely ignoring the cash buffer), they’d only need to make around $130 per week, or around 6 hours between them.

And finally, they could choose to get a housemate, while acknowledging tax considerations.  Depending how the numbers stack up, our couple could also move to a lower cost rental, while leasing their own place out.

And as a couple of readers have pointed out, they could even go travelling to some low-cost countries for an extended period of time.  That option is open to all of us, mind you.  (I didn’t put this in Part One as it’s not part of our own plans so could be labelled as unrealistic and “easy for you to say.”)

Because this gap is a smaller dollar amount to fill, our couple’s income is more easily topped up with cash, part-time work, or housing arrangements.  So the Lean FIRE crowd may actually, and counter-intuitively, have it easier than the rest of us!

 

Other Considerations – Investment Strategy

If it’s not already apparent, we do things a little differently around here.

Instead of focusing on the market value of our portfolio, we’re laser-focused on the income from our investments.

So rather than the typical ‘withdrawal’ strategy of selling down shares in retirement, we’re using a cashflow approach.  Therefore, instead of being reliant on market prices, we’re choosing to rely on company dividends.

To me, this is a simpler way to invest.  And for better or worse, it’s the approach I feel most comfortable with.

At the end of the day, you can create the most optimal portfolio in the world, but it’s largely useless if the investor doesn’t feel comfortable with that strategy.

Anyway, our cashflow approach means simulating a crash type scenario is very different.  Every example I’ve seen focuses on how long a portfolio takes to get back to its peak value after a crash, and testing how long different backup plans will work from there.

For us, that makes zero sense.  You’ll see why in the next two sections.

 

LIC Dividends

Because of our focus on income, dividend focused vehicles like LICs are a large part of our portfolio.

Now, they’re far from perfect, but in times of crisis, the income from these investments is much more dependable than many other options.

As I’ve mentioned before, and for those unaware…

The company structure allows LICs to retain profits by paying out less than 100% of earnings.  These retained profits are reinvested in the portfolio, and also means excess franking credits which can be used in future years.

When the economy runs into trouble and many companies cut their dividends, the income from these LICs naturally falls.  But because of the excess franking generated in previous years and the small amount of cash they hold, LICs can pay above 100% of earnings (if deemed prudent) until dividends from the portfolio recover.

In short, it means more reliable dividends through the cycle and less vicious cuts to dividends in scary times.

Like during the GFC, when ASX dividends were down around 25%.  Some old LICs cut dividends by 15% or less.  And some not at all.

Now I know some argue this is meaningless, as it’s just a timing factor.  But the fact is, when we’re living through scary times, and living off our portfolio, this can make a huge difference psychologically.

 

Volatility

You might see where I’m going with this.

Using our imaginary recession scenario that we’re playing out here, the consequences vary for different investors.

— A capital growth focused investor may be looking at a 50%-60% decline in the value of their holdings.

— An income focused investor may be looking at a 25%-40% decline in their dividend income.

— And an investor in LICs may be looking at a 10%-25% decline in their dividend income.

So rather than focusing on the 50%-60% decline in their portfolio, the income investor is comforted in the fact that their cashflow (which is their primary focus) has only declined by half of that amount – perhaps even less.

Because we’re living off the income, in my eyes, the real risk is our dividends falling.  Not our portfolio value falling, as most people see it.

This isn’t to say the strategy is better.  It’s to say, think of the emotional impact this has on each investor.

The lessened volatility of income investing and to a smaller extent LICs, may be the difference between holding on and riding through the storm, and freaking out and doing something stupid.

I don’t know about you, but given market volatility, when the shit hits the fan, I want to be able to focus on something more dependable.  Like the income paid by the underlying businesses, rather than what panicked investors are trading those shares for.

While volatility is very real for every share investor, I’m much happier focusing on the far lower volatility of dividends.  Not because my shares won’t plummet in value.  They will!  But because my strategy is based on income, not market prices.

So the price movements, day to day, year to year, don’t really matter.  Instead, I can simply do my best to tune out the noise, like I do anyway, and focus on the cashflow from the portfolio.

Because old LICs make up a decent chunk of our portfolio, our income is unlikely to fall by the 40% disaster scenario I’m painting.  I’m happy to use this as a base case, but just pointing this out as an additional check in the column of “why we’ll manage just fine.”

 

Why there’s basically nothing to worry about…

So far we’ve covered lots of possible financial independence backup plans.

It’s a pretty scary scenario to think about – a 40% cut to our investment income!  But here’s why I’m not concerned…

— 1.  We have a hefty portion of our portfolio in LICs, which are likely to cut dividends much less than 40%.

— 2.  We’re flexible with our spending.  Last week I covered the many ways we can reduce costs by $12,000 per year, which only left a gap of $6,000.  Even then, I think we could close that gap entirely through optimising spending.

— 3.  We can get a housemate to share housing costs, which would create an extra $8,500 per year.

— 4.  We’ll keep a cash buffer of around $50,000, which will top up our dividend income for a number of years.

— 5.  We can earn some part-time income.  Indeed, we’re both already doing this, out of interest rather than necessity.  And this bonus income – mostly from Mrs Strong Money – is higher than half our yearly spending.

— 6.  Just one or two of these options is likely to fix the problem entirely.  But because we’re willing to utilise all of them, any shortfall in our retirement income can be covered in a number of ways.  We can mix and match any combination of the above.

As I see it, each of these things is like a layer of insulation.  So even in this very ugly scenario I’ve painted, our income and expenses are never likely to be far apart.

These factors and our personal flexibility combine to make our our financial position much stronger than money alone.

 

Think you won’t work?

I did too.  Think again!

For whatever reason, I was convinced I’d be one of those people who’d be perfectly happy lounging around after reaching my ultimate goal.

But the human mind doesn’t work like that.  In case you missed it, here’s what I learned after One Year of Freedom.

After 6 months or so, you’ll have so much productive energy and need an outlet for it.  So you begin pursuing new ideas and working on things you’re interested in – many of which result in earning income.  Then you go on to realise you probably didn’t need that much money to ‘retire’ in the first place!

But don’t tell anyone.  Because then you’re outed as a fraud for ‘working’!

The strange reality is that most people who reach Financial Independence go on to earn income after retiring.  Humans thrive on being productive.  We can’t help ourselves!

I didn’t really believe that until I experienced it.  5 years ago, if you said I’d end up doing something creative, like writing, and even earning a little bit of income from it, I’d ask what you’ve been smoking!

The point is, it’s really hard to imagine what we’ll do when we’re still working and on the path to FI.  But just accept that you’ll be full of energy and looking for somewhere to use it!

 

Personal Flexibility

By far, the most powerful weapon against the unexpected is our own character.

We need to be adaptable.  We need to be flexible.  And we need to stay calm and focused on solving whatever problems we’re faced with.

Obviously, this is our approach and what I think is a common sense way of dealing with things.  But your own backup plan can include whatever you like.

For those who are not so keen on all of this flexibility stuff, consider this…

—  The less willing you are to adjust your spending, the more money you need.

—  The more cash buffer you want to protect you from these scenarios, the more money you need.

—  The less willing you are to get a housemate or optimise your housing costs, the more money you need.

—  The less open you are to working part-time, the more money you need.

It’s perfectly okay to feel this way.  But realise, this lack of flexibility means your journey to Financial Independence is likely to be a longer one!

Your rigidity is going to cost you many years of freedom and a calmer state of mind.

Those who want a 100% success rate from their portfolio and are looking for a bulletproof plan, will always be worried about not having enough.  Because those people generally have a fearful mindset.

 

What’s it worth?

Let’s see how much flexibility is worth as a character trait.

If you are open to cutting your spending by $8,000 in a recession scenario, this is equivalent to having an extra $200,000 of investments.

And if you can manage just $4,000 per year, then you’re $100,000 better off than the no-flex household.

Why?

Because the rigid folks will need that much extra before they can retire, because of their unwillingness to reduce spending.

So if you’re open to cutting spending by $8,000, plus earning an extra $8,000 through part-time work, you need $400,000 less in investments than the no-flex folks.

Now can you see how incredibly valuable this one character trait is?

It’s worth an absolute fortune and many years of your life!

Not only that, but comes with a stronger mindset of a person who is relaxed about this stuff, knowing you’ll adjust as needed and make it through just fine.

 

What do you choose?

The more cushion and ‘safety’ you want in retirement, the more that costs you in foregone freedom.

For us, we chose to retire sooner with less, because it just made sense from so many angles.

And despite all this talk of flexibility, there’s no guarantee you’ll even have to use it!

Why?

Because if you retire early, there’s a very good chance you’ll end up doing something productive that earns income.  That’s just what happens when you start living a self-directed life.

On the other hand, there is a definite guarantee that you’ll need to work longer to build the extra savings needed, to avoid having to do any of this stuff.

I’ll take the guaranteed freedom sooner, any day!

Think of it as a scale.  Less flexibility = more money needed.  More flexibility = less money needed.

Or, the more personal strength you have, measured in adaptability, the less financial strength you need.

 

Conclusion

There’s no question, thinking of a nasty Aussie recession in retirement is a little scary.

In these situations, our mindset and personal traits are far more valuable than we think.

But at the end of the day, everyone gets to decide for themselves the amount of cushion they want and what level of flexibility they’re open to.

As I’ve shown using our own finances, any cashflow gap can be plugged in a huge number of ways:  reduced spending, a cash buffer, part-time work, getting a housemate etc.

So for those of us willing to use the backup plans available to us, adapt to new conditions and remain flexible, there’s little to worry about.

Personally, the fact that we can cover any drastic dividend cuts many times over, allows us to sleep well at night, move forward with confidence and enjoy our early retirement, worry free!

And ultimately, that’s what it’s all about!

What’s your financial independence backup plans?  Share with me in the comments…

20 comments

  1. Hi Dave
    Love the strategies for surviving a recession. You have mentioned several times that the old LICs only tend to reduce their dividend minimally during a recession as companies pay less dividends but the LICs have some franking credits in reserve and can use these to top up the LIC’s payout.

    Do you see the incoming Labor government’s change to franking policies to affect the old LICs ability to maintain their dividend stream in hard times?

    1. Thanks Ken!

      No, it’s the company structure that allows LICs to decide their own payout ratio, compared to trusts which have to pay out all their earnings. So LICs could still pay a smooth level of income, by using the small amount of cash they hold to top up the dividend. The excess franking credits from previous years I mention, simply mean that even if they pay over 100% of earnings, the dividend will still be fully franked.

      All Aussie tax paying companies including LICs would still generate franking credits to distribute to shareholders after Labor’s changes. The only difference would be someone on a zero tax rate would receive the 4% dividend in cash (as an example), and no refund for the franking, compared to 4% dividend plus the refund, resulting in a 5.7% cash yield, as it is today. Under the proposal, any excess franking can still be used to offset tax on other income, whether wages, rental income etc.

      Hope that makes sense.

      1. Got it ! Thanks for the clear explanation Dave. So to clarify, if someone is on a 46% tax rate, they will not be affected by the new Labor government policies? It seems strange that the lower tax brackets (? lower income recipients) get hit but not the higher brackets.

        1. That’s correct. Anyone paying 30% or above will not be affected. Hmm it’s a misguided policy to put it kindly.

  2. Hi Dave

    Good article with lots of food for thought.

    I agree the cash bucket approach seems to be pretty effective. Some of your readers may be interested in Big ERN’s series of analysis of different ‘flexibility’ rules and how they performed, Parts 23-25 (https://earlyretirementnow.com/2018/02/07/the-ultimate-guide-to-safe-withdrawal-rates-part-23-flexibility/)

    A couple of comments on the part-time work.

    I agree part-time work may hold up in a recession, but people relying on this need to understand that competition for part-time jobs is also likely to substantially increase in a recession, so it may not be as simple as posited to pick up a few hours that suit.

    The other issue is that as Big ERN notes, there is a hidden type of risk here as well – the ‘Type 2’ risk of going back to work when not actually desired. Some of the scenarios he discusses highlight the risk of going back to work for much longer periods than anyone might desire (even for a 20-30 year old).

    Ken’s question above also piqued my interest. I read him to be asking that Labor’s changes could affect the tradition ‘dividend smoothing’ approaches of LICs. I’m not sure the answer above really addressed that, because as I understand it there is commentary from LIC managers that they may be forced to change legal structure to trusts, in the event of the Labor changes.

    This would then affect their ability to carry out dividend smoothing, wouldn’t it? They would be left in the same legal position as ETFs and other trusts, obliged to pay out earnings? Additionally, LICs and many Australian companies are considering one-off payouts of excess franking credits ahead of the election, which would also deplete any franking credit balances, and reduce future flexibility for LICs, wouldn’t it? See the following from Wilson, for example: https://wilsonassetmanagement.com.au/2018/11/28/a-40bn-lic-reset-could-be-required-if-labor-takes-power/ which also cites Argo’s COO as saying:

    “The proposal would unfairly disadvantage shareholders of LICs as compared to other vehicles such as unit trusts, this is because income received via a trust is taxed in the hands of the recipient and income received via a LIC is subject to tax before it is distributed to shareholders as dividends.”

    1. Thanks mate.

      Hence my disclaimer – if people don’t feel comfortably relying on the part time work thing then just focus on the other strategies.

      Yeah I’ve seen stuff like that before, which is based on portfolio value and arguably takes a bigger hit than a cashflow approach, so the gap to fill is bigger, the cash runs out quicker or whatever, and then may require longer than planned part time work as a result.

      Nobody is forced to change to a trust structure. The ‘trading’ oriented LICs like Wilson operates would be likely to change to a trust because they have minimal capital gains in the portfolio and tend to pay a lot of tax due to high turnover. Switching to a trust would allow low tax shareholders (mostly retirees) to receive a higher dividend stream as a result, albeit likely an inconsistent one due to the trust structure and their trading profits vary markedly from year to year.

      As for the ‘buy-and-hold’ LICs that we discuss here – given their low turnover tend to have large amounts of capital gains in the portfolio, meaning any change in structure is extremely unlikely. Some special dividends look likely to be paid but it’s still very unlikely they will use up their entire franking credit balances. Reliable fully franked dividends will still be a key goal of the LICs as it is stated in their corporate objectives. That doesn’t change. It’s just that zero tax shareholders don’t get a refund for excess credits as you know.

      But anything’s possible of course.

      Yes the LIC structure (and the company structure in general) would become slightly less efficient vs a trust structure like an ETF for shareholders who have no other income and are paying very little or no tax. Almost all of the old LICs income is fully franked dividends (which they don’t pay tax on obviously), but they do have to pay a small amount of tax each year for distributions from REITs and unfranked dividends, also any CGT owing. Franking is still generated and passed on but the zero tax shareholder doesn’t receive the refund for that.

      This could see retirees dump bank shares, LICs, or any of the typical fully franked dividend payers, in favour of REITs etc – all speculation at this stage of course.

      1. Re LICs vs Trusts etc if franking credits are abolished. Initially there will be a knee jerk overreaction in affected assets. EG great buying opportunity in LICs vs poor buying in REITs / unfranked assets. Use it to your advantage.

        Seen this in action when Ralph recommendations were implemented. LICs entitled to CGT discount lost it so price plummeted. LICs lobbied Costello who reinstated CGT discount then prices recovered. The market may not be totally efficient but it will eventually adjust accordingly to changes.

        Personallly I’d prefer to buy into the out of favour LICs if franking credits were abolished vs a potential bubble in REITs / Trusts / unfranked assets.

        The older LICs were around long before dividend imputation was introduced and subsequent refund of franking credits. I’m confident they’ll be around for generations to come.

        That said I invest in both ETFs and LICs allowing me to take advantage of best oppprtinity as it arises.

        1. Thanks for your thoughts Nodrog!

          You could very well be right, we’ll have to wait and see. Certainly be interesting to see what happens. I’d very much welcome an overreaction and chance to pickup the same shares at discounted prices and higher yields.

          The LICs becoming slightly less efficient for retirees to hold, they may trade at decent discounts going forward to compensate as you’ve mentioned before. As you say, I don’t think the death bell is quite ringing just yet for these old vehicles 😉

  3. I agree that a combination of flexibility in spending and being willing (and able) to go back to work if need be will see you able to cope with just about any circumstance. Add a cash buffer in there and you are golden. I still don’t think it will be as fun and easy as some think it will be though. 😉 One caution I would point out is if you are renting while FIRE’d, check your lease carefully as to whether you are allowed to sublet a room.

    Having said that, I’m not sure I would consider myself truly FI if I could be forced back to work by anything less than a catastrophic societal or personal black swan event. A perfectly foreseeable (as in it will happen eventually even if we can’t predict when) recession with resultant loss of dividend income, to me, doesn’t really count. There’s a big difference between doing something you love that you happen to make some money from during “retirement” and being in a situation where you must go to work to cover some of your expenses. That’s not to say I wouldn’t do it if I had to though.

    1. Thanks for your thoughts AA 🙂

      Sure if somebody wants to never ‘have to’ go back to work regardless of what happens, they can simply work longer to build a bigger investment bucket or just work harder on the other backup plans. Up to each of us to decide how to approach it.

  4. Good post Dave, I came up with plenty of similar strategies in my Fire Safety – FIRE Breaks post. I do still think that it will be more difficult for people who are doing Lean FIRE if we do hit a bad sequence of returns, but there are certainly plenty of things that can be done to mitigate the issues this may cause,. Not least being flexible about things like going back to work, sharing your house with others (assuming it’s legal if you’re renting) and having a fair chunk of cash to keep you going for a while.

    The big one for me is really having plenty of room to cut costs if necessary whilst still maintaining an excellent standard of living, and as you point out the tradeoff here is that you will likely have to work longer to get there although perhaps not as long as you might think as I just wrote about!

    1. Cheers AHF!

      Let’s agree on the backup plans and agree to disagree on who will have it harder then 😉

      Flexibility equals freedom in my view. Definitely, working to establish a bigger income base can give additional wiggle room in these situaions, which I didn’t really mention!

  5. Could be just me but if we were looking like having a major downturn in the stock market/recession I would be going back to my job fulltime to cash in and pick up a lot of stock cheap. That way when it picks back up my portfolio dividends will grow substantially with it. That’s why I plan on never retiring full time and just plan to (jobshare) work 3 months out of every year and enjoy the rest of the time off. Keeps my skills up to date and my foot in the door. Also long service leave and holidays etc ticking over and I can always take a year off work unpaid anytime I want. My job offers too many benefits to giving it up entirely. But my personal opinion is that everyone SHOULD be looking to work in a recession to cash in on all the bargains. But I’m sure some will be content with what they have but I feel as though having a bit more passive income could never be a bad thing, even if it means working for a year or 2 again every recession. Food for thought.

    1. Thanks for your thoughts Ben. From memory you’re in a very good situation with low cost of living – it’s funny how those of us with lower costs tend to be much less worried about these things happening. Almost everyone who seems most concerned about these risks are the higher spenders. I don’t think that’s a coincidence.

      Sounds like you’ve already thought about this a bit. I was actually going to mention that I may consider putting in some effort to earn more cash in a recession to be able to buy more shares 😉

      The skeptics of course will say that jobs are likely to be few and far between and you may even lose your job with lots of perks. At the end of the day we’re all free to make our own plans (whether others think they’re reasonable or not) and acknowledge that whatever happens we’re each 100% responsible for dealing with our own situation 🙂

  6. Re LICs paying special dividends as a result of the ALP policy….. I note that BKI has just announced exactly that.
    Great article, keep up the good work

    1. Cheers Ian. Yes I did see that, and another increase from Argo and Milton – so no complaints here 🙂
      Thanks for reading!

    1. Thanks Bludger. Hmm, I don’t bother looking at such things and I’m not sure Michael does either. He already has more than he needs as noted by the fact that they’re still able to save even after FI. Also as he’s selling down properties and buying shares (like myself), these investments will generate a stronger income than he has currently and give a further safety margin.

      You would’ve seen my recent Backup Plans posts – highlighting the kind of stuff that I think makes sense to focus on. Not market returns and not a calculator, but what WE can do to make our own position sustainable. Others can use spreadsheets and calculators to forecast their death and portfolio ‘value’ – I have no use for it.

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