Catching Up With Darrow Kirkpatrick

Darrow Kirkpatrick started this blog in 2011, shortly after retiring at age 50. Over the next six years, he was the sole voice at Can I Retire Yet?, building it into one of the most respected and trusted personal finance sites on the internet. Over the past three years, we’ve shared the writing duties.

Darrow recently decided that he didn’t want the demands of a regular writing schedule as he is transitioning to a different phase of life and retirement in his early 60’s. But he’s still interested in helping you prepare for a successful and happy retirement.

Read on to learn what projects have been occupying his time, how his thoughts on risk management are evolving based on recent personal adversity, how his approach to managing his portfolio and using retirement calculators has changed over the years, and other financial and personal lessons learned after a decade of early retirement. Take it away Darrow…

What have you been doing in the past year?

A New Phase of Life

I’d say I’ve entered a different phase of life, though it’s early to put a label on it. I recently turned 61, and my 60’s do feel different from my 50’s. I’m not as strong, though I’m also wiser about living.

I believe that fitness is central to good health as we age. But it comes at a cost. I sleep more than I did ten years ago. And I exercise more too. That leaves less time and energy for other projects, which is one reason I’ve stepped away from the blog.

A New Home

We finally bought a home late last year. I’ve always been concerned by how much time and money houses consume, and this experience hasn’t changed my opinion. Buying the house, moving into it, fixing it up for our tastes, then maintaining it, have consumed most of my free time for the past six months.

A Personal Milestone

I’ve maintained my love for and commitment to the outdoors. I take one or two long hikes each week. My trusty SideStix forearm crutches have continued to expand my range.

This year I made major progress on my long-term goal of completing the 500-mile Colorado Trail. On a recent overnight backpack, I hiked 25 miles and climbed 3,000 feet over a 12,000 foot summit. Even with a 60-plus year old body and a bunch of aches and pains, you can maintain good fitness and find a lot of adventure, if you’re attentive and fortunate.

Have you learned anything new about personal finance?

Renting vs. Buying

It’s been interesting to own a house again after renting for 7 years. Ironically, I’ve been identified with a pro-renting position because of my widely-read article on renting vs. buying.

Though renting suited us well for a long time, it was never my point to argue that it’s superior to buying. I was arguing against the old-fashioned viewpoint that owning a home is superior to renting. It’s a complex financial decision that must be analyzed in light of your own financial variables. Just as important, it’s an emotional decision, where personal values could outweigh financial ones.

Renting through our 50’s, when we had more energy and flexibility, and weren’t sure where we wanted our retirement home, made a lot of sense for us. But, as we entered our 60’s, and stability and convenience became more important, owning our own home suitable for aging in place became the top priority. Either way, there are tradeoffs. But owning is the right tradeoff for us at this stage.

Getting Sued

In addition to buying a home, we faced another major financial challenge this year: Late winter there was a knock on the door, and we were handed a summons. Yes, we were being sued, related to an auto accident. The process is over now, but it was a dreadful experience.

I won’t go into all the details, but I’d like to share some lessons learned, so you can be better informed and prepared if it ever happens to you:

We’ve always tried to carry more than enough personal liability insurance, especially umbrella insurance, to protect ourselves (and others). And we are grateful that we were prudent in that department. Though no amount of insurance will protect you from the stress and time drain of getting sued.

Ignore the aggressive and intimidating language in any complaint or summons until you consult an attorney. It’s a tactic from the other side to frighten you and gain leverage, and may have no basis in fact. Sadly, lawyers are free to accuse you of nearly anything. It doesn’t necessarily mean they have a case.

You may have as much to fear from your insurance company as from the plaintiff. At one point, ours sent us a terse warning that we would not be covered for “punitive damages.” We spent an agonizing few days thinking we could be financially ruined, before a friendly attorney advised us there was little risk in this case.

Moral: consult an independent attorney who is 100% on your side. Try SuperLawyers.com or Avvo.com if you don’t have a personal connection.

Asset Protection

Finally, I learned a few things about asset protection. How much can you lose if you exceed your liability coverage?

The answer depends on the state you live in. Most states let you keep some personal property and a modest vehicle, while also providing some protection for your primary residence, though it’s usually only a fraction of the value.

Also, in most cases, retirement accounts are protected by Federal exemptions up to at least $1.3M. That’s likely your largest single protection. However state laws can interact with Federal and change the limits. In our state, we were advised there is no limit: IRAs are 100% exempt from bankruptcy. So consult a local attorney if you need to know.

Lastly, do not try to gift or hide assets after you’ve been served in a lawsuit. Courts are wise to this behavior and the look back period can extend for years, resulting in criminal penalties. If you’re going to diversify assets for protection, do it long before you ever get sued.

What are your latest thoughts on the implications of early retirement — financial and emotional — in today’s world?

More Time > More Money

I’m glad I retired early. I treasure the extra 10+ years of freedom I’ve enjoyed. I can’t imagine retiring in my 60’s and trying to do all the things I did in my 50’s. I still believe that time is a more important resource than money. Money can be earned and made to go further. But, as human beings, we are all living on a finite clock.

The Role of Luck

We were incredibly fortunate to early retire into a record bull market that eliminated most of our financial worries and allowed us to modestly expand our retirement lifestyle. Undoubtedly this has colored our views on our “successful” early retirement. Still, we get good marks for managing our resources prudently, especially in the early years. We never increased spending until the money appeared. And I worked part time through my early retirement to build this blog. A lifestyle business is one of the best insurance policies you can have in the early years of retirement.

Assessing Tradeoffs

That said, there are some tradeoffs when retiring early. I’m sometimes wistful when I look at the influencers in society around me. This is especially true when I consider the enormous problems the world is facing with infrastructure and the environment.

Had I stayed at my job, I’d be near the top of a large corporation that is influential in that space. I abdicated a role where I could have done some good in the world. But the personal cost would have been high. It wasn’t my calling. And this blog and my books have also had some influence.

It’s also true that we’d have significantly more money, had I worked longer, pulling in a 6-digit salary plus bonuses that I could have socked away into investments. But I very rarely miss that money. On a daily basis, we live a luxurious lifestyle — eating well, travelling as much as we want, buying the things we want, getting the best health care.

Honestly, the only time since I retired ten years ago that money has really been a factor in our lifestyle was recently, when buying a house. Real estate prices skyrocketed last year, and it was clear we would be house shopping on a budget. Still, we wound up with a beautiful home that meets our needs, and we are grateful for that.

What are your thoughts on the post-pandemic economy and markets?

I can’t predict the future, but I can point to a few trends that seem obvious from looking around.

Entertainment and travel industries

As much as people like to vacation and socialize, they are going to do it on their own terms going forward. Why take on risk when you can enjoy so much in your own home? Travel is a question mark. But RVs and camping are hot. The RV Industry Association projects 2021 sales nearly 20% higher than 2020, which were already good.

Remote/hybrid work

I worked from home exclusively starting in 1996, with only occasional business trips to headquarters. For me, and many others, working remotely, at least part time, is the ideal work/life balance. And the technology for it is so much better these days. There will be fewer office buildings and fewer workers in the office. Companies that don’t offer hybrid work opportunities, won’t get the best talent.

Inflation

We’ve seen it big time in real estate, and now other commodities are catching up. There are more people with more wealth than ever. The economy was depressed by the pandemic and now it’s time to spend. Governments primed the pump with a record stimulus.

The world is on the move: people are relocating to adapt to a changing environment. Beautiful locations with less crowding and higher quality of living are in demand. It’s going to cost more to live in them going forward.

Related: What Is Your Personal Rate of Inflation?

Wealth disparity

All of this means even more differences in wealth. Those with intelligence and opportunity and capital will get richer. Those without will be left out. For better or worse, freedom and security are largely a function of wealth. It’s a great time to be financially independent. And, it’s a tough time to have a low-paying job or be in debt.

Have you made any significant changes to your portfolio?

Staying the Course

I have no idea what the stock market will do. But I’ll note that we’ve been spoiled for years by a market that dips for only short periods. This is unlikely to go on forever. Approaching conventional retirement age now, I’m as risk averse as ever with my core holdings.

My investment philosophy is unchanged, and I have not made any major changes to my asset allocation. However, I have moved a lot of money around.

Taxable Assets Became Home Equity

When we made an offer on a house late last year, we had two options for financing: we could (possibly) take out a mortgage, or we could liquidate the majority of our taxable investments. Though I made inquiries about a mortgage, and even started the application process a couple of places, we ultimately decided against borrowing.

One, we loathe debt, and I wanted Caroline to own the house free and clear if I were to pass from the scene suddenly. Two, it wasn’t perfectly clear that we would get a mortgage on favorable terms, given our status as early retirees with assets but no income. Third, with the housing market blowing up, we needed to move quickly and bring cash to the table in order to ensure our offer would be accepted.

Related: Getting a Mortgage When You Have Assets But No Income

So most of our taxable assets have turned into home equity. It was a big change, but one that I felt shouldn’t impact our overall financial picture much. And I was relieved, when I did my taxes this year, to confirm that we incurred almost no capital gains tax when we liquidated those holdings, because most of our income fell into the first two tax brackets.

Less Tax Diversification

This move left us with almost all of our investable assets in retirement accounts. My retirement savings have been with Vanguard since the beginning, and I have been satisfied with the company. They generally have an excellent reputation among do-it-yourself investors, but they have been criticized lately for customer service issues.

More Brokerage Diversification

With more than 80% of our assets at Vanguard, I decided it was time to diversify. My concerns were not so much with the company failing, as with systems failing and denying access to our money. All human institutions are fallible, and who hasn’t experienced some sort of banking or investment glitch in recent years?

So I decided to move roughly half of my retirement savings to Schwab, the other institution I have a long relationship with. And, for my diversification objectives, it wasn’t enough to simply transfer some of my existing Vanguard funds to a Schwab account. I also needed to diversify away from the Vanguard funds themselves. For that, I chose several Schwab passively managed index funds that were very similar to their Vanguard counterparts, including microscopic expense ratios, in the neighborhood of 0.05%.

As far as I can predict, my holdings should behave the same as in the past. Only some names have changed.

What’s your current approach to generating retirement income?

Theory vs. Practice

As much as I have studied and written about systematic retirement withdrawal strategies, I still don’t use one. They are fine as an academic exercise, to understand how your money will last under different conditions. But needs fluctuate year to year. And the financial world fluctuates around us. In my opinion, there is no autopilot solution to retirement withdrawals that doesn’t potentially leave money on the table, or expose you to undue risk.

My computer modeling over the years tells me that we are financially comfortable, as long as our spending stays within our historical boundaries. We are ten years older now than when we early retired, and it’s hard to be worried about our finances unless our net worth starts dramatically decreasing for several years. So far, it hasn’t.

Every few months, I sell some holdings to fund our living expenses. I keep an eye on PE ratios, and tend to sell stock instead of bond funds when those ratios are high, as they have been for most of our retirement. I also keep an eye on our accumulating taxable income every year, and try not to generate excessive income toward the end of the year that would push us into a higher tax bracket.

Since we now own a house and don’t anticipate major purchases going forward, I prefer to keep less cash on hand these days. But, as much as I want to withdraw just-in-time, to keep our assets working for us, I am sensitive to the aging bull market and feel pressure to take money off the table. Most of the time, I have at least 3-6 months of cash on hand. Buying the house significantly reduced our monthly expenses, since we no longer pay rent, so that number is smaller than when we were renting.

The Challenges of Annuities and Insurance

Some day an immediate or charitable annuity may be useful to simplify our financial life — especially if Caroline is on her own. But annuity payout rates continue in the gutter. ImmediateAnnuities.com just quoted me about 4.5% for a lifetime annuity. I think we can do better than that with a simple, inexpensive portfolio of passively-managed stock and bond funds. We have done so for nearly two decades now.

I am also less enamored of insurance companies after dealing with several of them lately: our auto insurance, one mother’s variable annuity, and the other’s long-term care insurance. The business reality is that insurance companies make money by selling you a feeling of security, and collecting premiums. They are neither optimized for, nor interested in, paying that money back out. The customer service we’ve received from some prominent and well-heeled insurance companies in recent months has been atrocious. Persistence and careful paperwork are required to get your due, and those might be in short supply as you age.

Retirement Calculators and Optimization

Finally, a word on retirement calculators. These are fascinating and helpful tools for peering into the future when you need to assess your financial situation. Like many technical early retirees, for years I found it entertaining and reassuring to rerun my retirement numbers. But, having determined that we have enough, if there are no major changes to our income or expenses, I rarely revisit the issue now.

Some people enjoy paying the minimum taxes, or growing their assets for a legacy. But, for me, there are more important things in life than optimizing finances. Though, if there is a big decision, like buying a house, I do rerun a simple version of my retirement model. For that I use Pralana Gold.

How is life in your “ideal retirement location”?

We still love Santa Fe. The last couple of years have been a good test of this medium-sized mountain town, given the pandemic, economic pressures, and political upheaval. No place is perfect, and New Mexico has its problems. But it’s about as good as it gets for us right now.

Environmental Concerns

The climate remains hard to beat. The seasons are moderate and most days are sunny. We do get a few more weeks of cold weather in the winter than we’d like. Though there is little snow, and it’s easy to travel to warmer climes. The summers are occasionally a little warm for one of us. But so far in the recent western heat wave, we’ve only had one short week of temperatures in the mid-90’s, before going lower again. The altitude here (about 7,000 feet), and the low humidity, make the difference.

Like the entire southwest, serious water issues are brewing. We’re in a record drought which could well be a permanent change. Though the monsoons have been good this season, and there is green all around us as I write this, the lakes, reservoirs, and rivers are suffering. It’s a bad part of the world to be running a farm. And we’re likely to pay more for water going forward. Though I can’t say if the impacts will be worse than that in our lifetime. The politicians are just beginning to wrestle with the issues. Santa Fe, specifically, has multiple water sources: mountain reservoirs, wells, and the Rio Grande river. Though the local paper just reported that one of our reservoirs is down to 13% capacity.

Upsides of the Mountain West

The outdoor recreation here is excellent, one of the main reasons we chose the area. Drive uphill and you’re in the southern Rockies surrounded by conifer/aspen forests, mountain lakes and meadows, and rugged peaks. Drive downhill and you’re in canyon country with sandstone walls, deep gorges, and an iconic river. The states of Colorado, Utah, and Arizona are all only a half-day’s drive away. We have access to the best of the mountain west, without the crowding of areas like Colorado’s Front Range.

Related: Where Should You Retire?

As we get older, healthcare takes on increasing importance. We are happy with our doctors here and have even seen an increase in quality specialists locally, so we rarely need to travel to Albuquerque for healthcare anymore. Yet it is nice to have that big city nearby when needed. The well-maintained, uncrowded airport with flights throughout the country is just an hour from our doorstep.

Increasing Cost of Living

Finally, yes, real estate and cost of living have gone up dramatically here like everywhere. Our local paper reports that the median home price in the county jumped nearly 35% year over year. I don’t see that moderating soon. Buildable land here is limited by the surrounding mountains and reservations. And the county has a 50% open space requirement for most new development. But prices are still below the shocking levels of big cities in California, whose residents are migrating here in droves. We are expecting a continuing stream of new arrivals, and hoping the quality of life stays high all the same.

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[The founder of CanIRetireYet.com, Darrow Kirkpatrick relied on a modest lifestyle, high savings rate, and simple passive index investing to retire at age 50 from a career as a civil and software engineer. He has been quoted or published in The Wall Street Journal, MarketWatch, Kiplinger, The Huffington Post, Consumer Reports, and Money Magazine among others. His books include Retiring Sooner: How to Accelerate Your Financial Independence and Can I Retire Yet? How to Make the Biggest Financial Decision of the Rest of Your Life.]

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