Mitigation

A comment was left on the blog about being your own boss. This is important on several levels whether you actually are self-employed or not. I think part of successful retirement planning requires an entrepreneurial sense of ownership as far as managing the saving and investing aspect of it and the manner in which you create your pay check when you retire.

My thought here is that being a successful entrepreneur requires innovative planning and trying to look at things differently than most folks.

Here is an example of what I mean from my time at Schwab. In 2000 there was a series of events that I knew marked the beginning of the end, and that I knew meant layoffs for some employees. While I don’t remember the exact time line, in a very short time period, then co-CEO Dave Pottruck left a memorable company wide voicemail gushing over the stock reaching $100 per share. Around the same time the company paid a half a billion dollars for some trading software and they opened a call center in Austin, TX that was not yet (and as it turned out never was) needed.

You don’t have to be that bright to see the writing on the wall. Starting in mid-2000, I started planning for a layoff. The way I planned was to stop contributing to my 401k and save the money where I could access it without penalty if needed. I also stopped taking vacation. Due to my seniority I was accumulating a lot of vacation time that the company would have to pay me for if I got laid off.

Sure enough I got laid off on September 26, 2001 (nice timing). Between the severance package and the accrued vacation I had my full salary covered for a little over a year. Keep in mind from my last post that by living below my means, I calculated that I could have made it last for about two years if I had trouble finding work.

The example here is taking ownership of my situation as best as possible. Layoffs can be dreadfully frightening if you are not prepared. Having your retirement plan fail would be worse.

No matter what stage of life you are in, things take turns you do not expect. Some turns can be mitigated, like being laid off or having some large expense come along that will be difficult to pay for. Take some time to analyze your job, your portfolio and whatever else is relevant to this topic and try to explore what might go wrong.

I live in the woods where there is a high fire danger. That is tough to mitigate but we maintain a fire line around our property. This gives us a shot to protect against a slow creeping fire. If we ever have a fire storm, we’ll be out of luck. Similarly, you can mitigate a 10% drop in the stock market coming at a bad time but you will be out of luck if there is a fire storm in the stock market at exactly the wrong time. I think the analogy holds up.

I have no idea if strategically what I have done along these lines is the most efficient way but it allowed me to get laid off and take other risks along the way with no financial fear. And I can tell you that was very empowering.

Empowerment is big part of all of this.