In my previous article, I talked about how to not run out of money during early retirement.
This involves setting up your portfolio to generate income and having a spare cash reserve.
However, what if portfolio income and cash reserve aren’t enough to last a long market crash?
Good news – there are a few backup plans you can implement even in that unlikely scenario:
Backup Plan 1 is to Travel Abroad – travelling the world costs less than living in one place.
Backup Plan 2 is to have a Side Hustle – a project or business you’ve always wanted to do.
Backup Plan 3 is to Work Part Time – as a consultant or freelancer using your existing skills.
In this article, I talk about Portfolio Income/Cash Reserve and the first backup plan: travelling.
I also talk about the benefits of having a ‘side hustle’ and working part time in your profession.
Finally, I talk about why it’s wise to keep these in mind and where to go for more information.
Portfolio Income and Cash Reserve
In my other article, I talk about how following the 4% Rule gives you a high 95% success rate.
What determines whether you are part of the 95% or 5%? The stock market when you retire.
If the market booms as soon as you retire – you join the 95% and have nothing to worry about.
But if the market dips as soon as you retire – then you have the potential of joining the 5%.
This is when I introduced strategies to get out of the 5%: Portfolio Income and Cash Reserve.
Portfolio Income is when you get income from your portfolio regardless of market conditions.
Having a cash reserve means you don’t need to sell assets when your portfolio sum is down.
According to research, 5 years’ worth of a cash is enough to last any market crash in history.
However what if it’s not enough – what if you manage to somehow deplete your cash reserve?
Even in that unlikely scenario, there are 3 great backup plans that you can look to implement:
Backup Plan 1: Travel Abroad
I know what you’re thinking – really, international travelling? That’s your first backup option?
It’s true – believe it or not, travelling the world can actually cost less than living in one place.
Now let’s be clear, travelling/living in Europe doesn’t cost the same as travelling/living in Asia.
You can use this to your advantage: you can design your travels to match your yearly income.
Let’s say the stock market had a few bad years (5+ years) and you finished your Cash Reserve.
You have 2 options: match your spending to your portfolio income or sell some of your assets.
Or a better option: spend a year in Mexico, Egypt, or Thailand without affecting your lifestyle!
I don’t know about you, but I sure would not mind spending a year on the beaches of Egypt!
That’s the beauty of not working for your money – you are not forced to live where you earn.
By earning in dollars/pounds, and spending in pesos/rupees/yen, you get to live like a royal!
Backup Plan 2: Side Hustle
Travelling abroad is a great option, but what if you don’t want to travel yet keep your lifestyle?
What if you don’t want to move to a foreign land after you’ve depleted your Cash Reserve?
Good news, there is a backup plan that doesn’t require you to move to Thailand: a side hustle.
A side hustle? Really? I thought the whole point of retiring early is so I don’t have to work?
Let’s be honest: after a few months of relaxing you’re going to want to have something to do!
A side hustle can be anything: writing a book, dog walking business, running kids camps, etc.
Your goal would not be to make much – just enough in case your Cash Reserve gets depleted.
So even if you make £5000 the entire year, with your Portfolio Income that’ll be all you need.
If you’re the kind of person that wants to retire early then you’re likely to be very ambitious.
It’s likely you have plans already for a side hustle you want to work on, that will make money.
Backup Plan 3: Work Part Time
You have a big advantage that you’ve built up over your working career: skills and experience.
You will likely be working for a few years before you can retire: that is valuable experience.
While the whole point is not working in early retirement, at least you have this as a last resort.
This is if you’ve depleted your Cash Reserve, don’t want to travel and don’t have a side hustle.
To make the extra cash you need, you could work part time, as a consultant, or as a freelancer.
You wouldn’t need much just enough on top of your Portfolio Income to cover your expenses.
Some professions require you to work a minimum number of hours to keep their licenses.
So if you’re a health professional, teachers, etc. it may be something you want to do anyway.
By choosing work in your field as opposed to a side hustle – you already have the experience.
As such, you’ll likely earn more money quickly as opposed to starting something from scratch.
Do what Works for You
Again, these are backup plans in case you finish your Cash Reserve during a big market crash.
This already is highly unlikely, but you never know – anything that can happen, will happen!
I don’t know about you, but I’m not waiting until I deplete my Cash Reserve to travel abroad!
I may even start a Side Hustle while travelling and living abroad – in whatever I feel like doing.
I may even do a bit of freelancing or consulting to help a friend out with their business/project.
Although they’re meant as backup plans, they can really be done any time during retirement!
To find out more about these backup plans in detail, check out the book Quit like a Millionaire.
The authors talk about their path to early retirement and what early retirement is really like.
Are you on the path to early retirement? How is it going? Please share in the comments below.
If you want me to cover anything in more detail, please let me know in the comments below.
