“Why Do I Have To Pay Back VSI or SSB?!?”


Just when you think you’ve written about everything in military personal finance, someone asks a new question about an old topic.

If you’re still in uniform, here’s a cautionary tale. If you’re a veteran of a certain age, let’s take a stroll down Memory Lane and learn about paybacks. The dollar version of paybacks, not the karma.

Bottom line up front: when someone gives you a financial incentive to sign up for their program, make sure you ask the “What if…?” questions and understand the fine print. Consider how you’ll feel about your decision years or even decades later.

 

A Reader Writes:

My friend just retired from the Reserves. Back in the 1990s she was given $120K to leave active duty and join the Reserves. She’s now being told that she has to pay back that $120K. She’s still a few years away from her pension (at age 60) so for now they’re deducting payments from her VA disability compensation. I didn’t think the military could do that. Any ideas?

We’ve seen this before. She was paid to leave active duty, but now that she’s earned her Reserve pension the Department of Defense wants their money back. If there’s any good news here, it’s that DoD has easy repayment terms with zero interest or penalties.

 

Here’s The History:

In the 1990s after “winning” the Cold War, the U.S. military reduced our active-duty forces by over 25%. It was the largest drawdown since WWII.

Instead of simply stopping 1990s enlistments (which 10-15 years later would leave a big hole in the leadership ranks), the Department of Defense started by throttling back on new enlistments. They also paid more senior servicemembers to separate from the mid-grade ranks (at least six years of service). DoD even encouraged people to retire as early as 15 years instead of 20, for a substantial reduction in their pension calculation– but still with a full Cost Of Living Adjustment and full military benefits.

The three programs of the Temporary Early Retirement Authority, the Voluntary Separation Incentive, and the Special Separation Benefit ran from 1992-1995 for just about everyone who met the minimum requirements. Additional special situations were approved all the way up until… 9/11/2001.  Three decades later these dates are gaining new relevance, and I’ll come back to that point later.

 

Executing The U.S. Military’s 1990s Drawdown

In 1992 I had just reached 10 years of active duty and rotated to shore duty at a submarine operations staff. I had a front-row seat to the 1990s drawdown process (and its consequences). I watched these programs roll out in real time, and I applied for one of them several times.

U.S. military black boots by mud puddle symbolizing the 1990s drawdown after the Cold War. Photo digital rights bought from MilstockTribe. | MilitaryFinancialIndependence.com

A hard slog for not promoting.

The first group to be “paid” to leave was mid-grade officers (O-4s) who had failed to promote to O-5 at about 15 years of service. During the 1980s personnel shortages (a perpetual problem in the submarine officer community), most of these members had been allowed to continue on active duty “until eligible to retire”, which meant 20 years of service.

When TERA authorized retirement at 15-18 years, though, all submarine O-4s in that range who had not been selected for O-5 (and for all I know, the rest of the military’s O-4s who’d failed to promote) were notified that they were retiring in six months– and at a much smaller TERA pension. No exceptions, no waivers. Military families had made implicit long-term plans based on years of history, and that all changed overnight.

I have not heard of a successful TERA lawsuit to let someone continue to 20 years. Even worse, the six-month deadline meant that officers disappeared from shore duty months before their reliefs arrived– including a few critical members of our staff. Like every drawdown, the extra workload pain was shared among the remaining staff members.

After DoD harvested the TERA low-hanging fruit, they rolled out VSI and SSB. As the names imply, these programs were voluntary– but volunteering also came with unexpected long-term consequences.

The Voluntary Separation Incentive is a term-certain annuity:
[2.5% of annual base pay] x [years of service], paid out for twice as long as the YOS.

The Special Separation Benefit is a lump sum:
[15% of annual base pay x YOS].

Every VSI or SSB applicant had to be approved by their commanding officer. Unfortunately, at the peak of the drawdown, every command was under heavy pressure to do more with less by “rightsizing.” COs were frequently overruled and rarely succeeded in keeping anyone who wanted to separate.

The details in the VSI & SSB contracts clarified that the money was taxable income. The Defense Finance and Accounting Service withheld 20% of the amount for estimated income-tax payments, although some of that money might be refunded later when the tax return was filed.

In addition, everyone who took VSI had to affiliate with the Reserves. They didn’t have to drill or go on active duty, let alone mobilize, but if they voluntarily left the Reserves later then their VSI was terminated.

The fine print: anyone who took VSI or SSB and eventually (somehow) qualified for any sort of military pension had to pay back their VSI or SSB. We’re returning to that point in a few paragraphs, too.

In the 1990s, everyone who separated from the military was technically required to attend a transition seminar of 3-5 days. The agenda explained our military & veterans benefits along with the basics of starting a bridge career. VSI & SSB probably got one-hour presentations on the details, but explaining that fine print during a very busy transition is like trying to teach a semester of financial literacy during a combat readiness inspection. The fine print is not exactly your highest priority with everything else happening at a chaotic time in your life.

VSI & SSB quickly cleared out the marginal performers who already wanted to leave. The unintended consequence was that too many high-performance people also left to make their fortunes from the World Wide Web. (Yeah, today nobody’s surprised to read that, but in the early 1990s our senior leadership didn’t see it coming.) As our shipmates went on terminal leave, I also remember seeing a lot of new high-end vehicles peeling SSB rubber out of the parking lot. Nobody looked back.

Meanwhile, after my TERA requests were disapproved, I gutted it out to 20 and retired in 2002.

 

Decades Later:

In 2011 I started marketing my book about military financial independence. Along with the usual FI questions, I was blindsided with a ton of questions about VSI & SSB. Today I’m getting a resurgence of these queries, and that’s why you’re reading this (keyword-rich) blog post.

It turns out that some people earned VSI for so many years (and of course stayed in the Reserves too) that they’d become eligible to receive Reserve pensions. At age 60 when they happily applied to start those pensions, they discovered that retirees who’d received VSI were subject to recoupment. Even worse, they learned that DFAS would recoup the entire amount– not just the after-tax dollars they’d actually been able to invest (or spend).

By federal law, DoD claws back up to 40% of their pensions and even 40% of their VA disability compensation until the gross VSI sum is repaidYes, veterans got an interest-free loan for many years. (And paid back a sum that had been eroded by years of inflation.)  Yes, it was in the fine print.  Yes, the clawbacks are totally legal.

These retirees had paid income taxes on their VSI (if required), and many of them had made long-term assumptions about their military pensions without accounting for recoupment.  Some had also been receiving VA disability compensation (perhaps for decades) and the recoupment suddenly gored a big hole in their cash flow.

In other cases, after 9/11 a significant minority of the VSI & SSB veterans voluntarily returned to active duty. Now older and more experienced, they were challenged & fulfilled to serve that higher calling. (A few returned after losing their civilian jobs during the Internet Recession, perhaps no longer able to afford the operating expenses of a high-end vehicle.) A number of these members became eligible for active-duty pensions. Again, VSI & SSB clawbacks.

I heard from one retiree’s family while he was in the hospital recovering from more surgery on injuries received in Afghanistan. His VA disability rating was 100% Permanent & Total, but DoD was also deducting 40% of every deposit to recoup something that the retiree barely remembered doing in the 1990s– and none of their family understood. He eventually received a DoD financial-hardship approval to continue the clawback at a lower ratefor one year… before it resumed at 40%.

 

Sea story:

In the 1990s I didn’t apply for VSI or SSB because (at the time) I was totally (and unhappily) ignorant about Reserve pay & benefits. Even though I worked with several outstanding Reservists during my years of submarine service, the Reserves had a poor reputation among active-duty service members. (In retrospect, this trope was ludicrously untrue.) Senior active-duty officers (also in retrospect, at least as ignorant as me) discouraged the whole idea of “going Weekend Warrior.”

In 1996 I finally applied for TERA, and was promptly declined because I was still a few months short of 15 years. I applied twice more in 1997 (each time that TERA was offered to submariners) but was still disapproved. At the third disapproval I was informed that the submarine force had (ironically) already cut too deep at my rank– and I was discouraged from submitting further requests.

By this time my career had derailed from the typical submarine career flowchart and I served the rest of my active duty at training commands. In a final ironic twist, I failed to select for promotion to O-5 and was continued on active duty “until eligible to retire.” (I was now cynical about that phrase, and we stayed financially ready for me to abruptly retire with only six months’ warning.) After 9/11, as we mobilized the submarine force for a new war, I was quietly (and unofficially) informed that I could extend on active duty.

By then my spouse was a drilling Reservist, and despite the Internet Recession we were also still (barely) financially independent. We were very concerned that she would be mobilized and deployed, so I declined my active-duty offer and made sure that our nine-year-old daughter had at least one parent at home.

In another unintended consequence of the drawdown, new officers who joined the submarine force in 1996 had one of the Navy’s highest rates of selection to command since WWII… mainly because not many of them were selected for the community in ‘96, and by 2010 there were so few of them who elected to stay.

Even in 2024 I’m hearing the same story about submarine officers in the yeargroups of 2010-2012. The retention issues never seem to change.

 

Call To Action:

If you’ve taken VSI or SSB and you’re eligible for a military pension (active duty or Reserve), then please review those links and assess the recoupment impact on your finances. Contact me if you have questions about the process or the math.

If you’re paying back your VSI or SSB from your VA disability compensation or your military pension, take a look at the reference links in the paragraphs about clawbacks and hardship. We can’t stop the clawback, but you can at least calculate when you’ll finish the recoupment– or learn how to obtain a year of hardship relief at a lower rate.

 

 

There are no affiliate links or paid ads in this post.  Try your military base library or local public library before you pay money for these books– in any format.

 

Military Financial Independence on Amazon:

The Military Guide cover
  • Reach your own financial independence
  • Retire on your terms
  • Success stories and personal checklists
  • Royalties donated to military charities

Use this link to order from Amazon.com!

Raising Your Money-Savvy Family on Amazon:

The Military Guide cover
  • Reach your own financial independence
  • Teach your kids how to manage their money
  • Specific tactics from my adult daughter
  • Checklists and spreadsheets for your family

Use this link to order from Amazon.com!

 

Related articles:
DFAS description of TERA
DFAS explanation of VSI, including the Reserve service obligation
DFAS explanation of SSB
Don’t Gut It Out To 20
The Financial Management Regulation (DoD 7000.14-R) on hardship payback applications (this link opens a PDF)

Posted in Career, Military and Veterans Benefits, Military Retirement, Sea Stories | Leave a comment

21.5 Years Of Financial Independence and Early Retirement


 

As we slide into 2024, after more than two decades of financial independence, I feel as if my spouse and I are reaching an inflection point.

We’ll highlight the changes. It’s all good.

 

Slow Travel 2023:  Flying Space A

During September and October we took our first military Space A flights in four years. (Because global pandemic.) The Air Force resumed Space A in early 2022, but it took us another 18 months to work our plans around the mission schedules.

We’ve flown Space A for nearly 40 years, and this benefit has improved tremendously. (Way back in the day you had to telephone every 12-24 hours for the flight schedules, show up for every roll call, and occasionally sleep overnight in the terminal.) After the pandemic it’s clear that the passenger terminals took care of sorely-needed structural & services upgrades. We’re even seeing additional touches like rental-car desks & shuttle buses.

Better yet, this time Hickam AFB let us park in the long-term lot for 46 days instead of 30.

If there’s a downside to Space A, it’s: fewer flights. The passenger terminals (especially Hickam) seem to put all of their missions on the schedules before knowing whether the crew will actually take passengers. We wasted a lot of time showing up for roll calls that were canceled just before they started.

The best news is that there are fewer flights because, for the first time in over two decades, the U.S. military is supporting far fewer combat zones. This welcome reality means there’s less need for moving personnel & consumables. The remaining flights are mostly handling hazardous cargo or classified missions, not passengers.

In early September we flew from Hickam to Yokota AB (a C-5M). In late October we flew from Yokota to SeaTac (a Patriot Express charter 767-300). Once we actually got onto a manifest, everything went well. From SeaTac we flew commercial back to Oahu.

We took plenty of photos (with captions) which you can view at my public Facebook album.  That link should let you see the album even if you don’t have a FB account.

 

“You’re Still Flying Space A?!?”

I can hear the comments now: “Nords, you guys can afford to fly international business class and U.S. first class anytime you want. Everybody in the FI community travel-hacks with rewards points. Why in the world are you flying Space A?

Yeah, I know. Another financially-independent blogger suddenly avoids spending money.  Maybe two decades with that 4% Safe Withdrawal Rate isn’t working out after all?

No worries:  that 4% SWR is working better than ever.  We’ve won the game and now we’re just running up the score while we still can.

We fly Space A for the challenge, the camaraderie, and the reduced security hassles.

I still enjoy rolling out my air mattress on the deck of a C-17 and snuggling into a sleeping bag for the flight. I like watching the crew do their jobs. Sadly, even with TSA Pre-check for first-class seats on a commercial flight from Honolulu airport, Hickam’s passenger terminal can move us faster from their parking lot onto a military flight– and military families are much easier to travel with.

We know we can abandon on the passenger terminal anytime for a commercial flight, but Space A is half of the adventure of our retiree slow travel.

 

Slow Travel 2023: Japan

Speaking of adventure: the cardinal rule of Space A is taking the first flight in the direction you want to go. That eventually turned out to be Japan but we also packed (and repacked) for Australia, New Zealand, Guam, Thailand and even… Europe. After a few days of roll-call roulette I accidentally ended up hauling my snorkel gear all over Japan.

During our active-duty 1990s we’d both been to Japan several times. I had too much time in Yokosuka with submarine upkeeps (and post-mission… repairs) while my spouse spent her share of time at meteorology conferences or teaching tactical oceanography.

Back then we also managed to get a couple days of Tokyo liberty, but it was a struggle. We were dealing with paper maps, printed instructions (with drawings of the kanji to watch for), and sky-high prices from the strong yen.

When we arrived in Japan in September 2023, we had big plans. We had plenty of liberty and lots more money, so we were not frugal. Tokyo & Kyoto, sure. What about Hiroshima? Nikko? Miyajima Island? Fukuoka?!? Hey, we could Space A to Singapore and then fly commercial to Thailand!!

Six weeks later we’d explored all over Tokyo & Kyoto, and the weather was starting to get chilly.

We fell into a very comfortable routine among military lodging, hotels, and AirBnBs. We did our best to avoid the most popular visitor sites. (Been there, done that.) We met up with Facebook friends, got great crowdsourced advice from social media, and refrained from racing around.

Our days were leisurely breakfasts, a morning or afternoon adventure, and plenty of walking. Public transportation in the cities was widely available, once we figured out the systems. Lunches & dinners were usually hole-in-the-wall diners or a small restaurant. (We even found food trucks!) Evenings were mostly relaxing around our lodgings and planning the next few events. Every 2-3 days was a down day for groceries, laundry, and local neighborhoods.

One of the highlights of the trip was exploring Kyoto’s Kamo River on e-bikes. YOLO, dude.

To our surprise, we were also able to get rooms in the U.S. military recreation centers of Tokyo Recreational Lodging (Hardy Barracks) and the New Sanno Hotel. They were crowded but my spouse persistently checked daily and scored last-minute reservations from cancellations.

Image of the Japanese Suite at the New Sanno Hotel in Tokyo where we stayed during slow travel. | MilitaryFinancialIndependence.com

Japanese Suite at the New Sanno Hotel

We even upgraded to one of the Japanese Suites in the New Sanno.  (Check the rest of the photos in that Facebook album.)  Highly recommended.

Japan was on sale last fall due to the very strong dollar. We found a couple of nice AirBnBs and could easily have spent more time exploring local neighborhoods.

Around our third week, though, we realized that we didn’t need to add more air travel to our itinerary, let alone customs in Thailand or Singapore. Even a three-hour Shinkansen train seemed like excessive logistics. We were cleared to stay in country for up to 90 days but we felt we’d done enough.

We’ll explore the rest of Japan on a separate trip… although for 2024 we’re more interested in visiting New Zealand & Australia.

Image of smartphone screen welcoming a T-Mobile customer to Japan, with free bandwidth and texts. | MilitaryFinancialIndependence.com

We made it!

Before anyone asks in the comments: T-Mobile’s Magenta plan (with a military discount) gave us seamless connectivity with unlimited data, 256 Kbps bandwidth, and free texting. “It just works”, which is very convenient if a Space A flight ends up getting diverted to a different country than you planned on.

When we returned to the U.S. (at SeaTac), we used the Global Entry Mobile App to speed our clearance. We didn’t even need to use the kiosk– we filled out the app while we waited at baggage claim. We picked up our luggage, rolled past the arrivals crowds to the customs agent, showed him our phones, and headed into the airport. We spent less than a minute chatting with the agent.

All of our Facebook album’s photos have captions with more details. Contact me if you have more questions about specific attractions or logistics.

 

Slow travel with Google Maps & Google Translate

In a word: awesome.

On this trip we dove deep into Google Maps’s train, subway, and bus menus. Tokyo and Kyoto have excellent maps in the downtown train & metro stations (and even some of the bus stops), but the tourist features are harder to find in the suburbs.

The app made it absolutely seamless to navigate between locations with multiple options. We even knew which platforms to use and whether to skip the local train (using the same platform) or the limited express.

Google Translate gets better every year. Again, both Tokyo & Kyoto have plenty of English speakers (especially in popular visitor destinations) but it can be more difficult outside of the tourist districts. We had plenty of experience at bringing up the app, turning on the mic, and talking with people. I even went to an eyewear shop for a new presbyopian prescription and did the entire transaction through Translate. The clerk only knew a few words of English for eyeglasses (and I know zero words of optical Japanese) but Translate knew all the words– and it backed up the audio by displaying both English and kanji.

 

Inflection Points

During the four years since our last Space A travel, my spouse and I both entered our 60s. I’m 63 years old now, with osteoarthritis and torn ligaments in my creaky knees, but we still managed to walk 125 miles of Japan’s two largest cities. Thank goodness for Grandpa Skechers.

I’ll never get around to climbing Mt. Fuji… and I’ll have to carefully manage my scampering along the hiking trails of New Zealand & Australia. Yet I’m still pretty confident that we’ll do plenty of Great Barrier Reef diving and several surf sessions at the more popular breaks.

Image of Doug Nordman sitting on a lanai wall at White Plains Beach on Oahu, enjoying a recovery day with a cup of coffee. | MilitaryFinancialIndependence.com

Action shot of a typical recovery day.

“Slow travel” is turning into snarky humor about not just staying in local neighborhoods for weeks at a time, but also moving more slowly during our wanderings. We’ll still be out & about for most of the day, but every 2-3 days we definitely need that recovery day to just stroll the local neighborhood and catch up on housekeeping chores.

If you’re wondering how our travel budget is doing after more than two decades of financial independence: our days of flying coach are largely finished. We’ll still fly Space A for the adventure, and we can still travel hack if we care to, but for any flight over a couple of hours we’ll be at the front of the plane. A lie-flat seat on an eight-hour flight saves us an entire recovery day in our destination lodgings, too.

We’re not trying to Die With Zero, but we’re absolutely enjoying life while we still can. If we don’t fly first class, our descendants certainly will. In our case, we’ll do that with all three of our generations while we’re all still around to enjoy it together.

 

2024 Plans

Our daughter, son-in-law, and toddler granddaughter are moving back to Hawaii. He has active-duty orders to a Navy command, and this time it’s shore duty! He’s approaching his own career inflection point, and we’ve already had plenty of conversations about gutting it out to 20.

Our daughter has finished her Navy service obligation and will have her hands full with the very busy daughter who we’ve warned her about. (Karma has delivered a wicked generational backlash, but it’s all good– and we grandparents can get plenty of naps now!) She’ll also have her hands full with the usual transfer chores of shipping personal property, vehicles, unpacking, and turning a house into a home. The best part is that they’ll be right up the street from us (a 15-minute toddler walk) with plenty of quality grandparenting help on call.

Our granddaughter turns four years old in January. She’ll have another 18 months of preschool before starting kindergarten in 2025… at her mother’s old school. (Remember all those childhood threats from our teachers about our “permanent record”?) It’ll be fun to watch her grow up. She’s a little young for surfing but we’ll take it all at her pace. When she finishes high school (in the Class of ‘38) I’ll be nearly 78 years old, and I plan to enjoy the family celebrations.

Once everyone settles in, our younger adults want to get involved with managing our rental property. (Personally, “I am ready to be relieved!”) They’ve heard all of our cool stories about the glamorous landlording life, (that’s the house featured in the post) and we’re eyeballing a significant repair list during the next tenant turnover. I’m eagerly anticipating what could be my last round of rental-property plumbing, electrical, and carpentry. Our daughter already knows how to handle the rental’s deductions and the income-tax returns, too.

We’ll do another round of estate planning, but our family’s asset management is sustainable and we’re simply tinkering on the margins. The plan has held up well over the last four years, and this is a good opportunity for more family conversations about the next decade.

For those of you in the military personal-finance business, my daughter and I are attending MilMoneyCon in Denver (25-27 April).  She’s part of a panel discussion and I’ll enjoy talking with people I haven’t seen in person for a year. Andrew Cohen will return for his third year with an update on his team running SECDEF’s Financial Readiness programs, and this is our chance to speak truth to power. (He’s retired Army. He already understands the issues.) We’ll all enjoy our usual financial nerdery.

I have my Pro Pass for FinCon24 (23-26 October, Atlanta) and I’m happy to spend a few more hours at the Authors Booth. We’ll work around those dates with our plans for the southern hemisphere summer in New Zealand.

You don’t have to buy a pass for those conferences.  If you happen to be in Denver or Atlanta during those dates, let me know if you’d like to meet up in the hotel lobby.  Meeting people is the reason why I attend these events!

 

“Call To Action”…?

I’m sharing these details as one example of Life After Financial Independence. No matter where you are on your FI journey, you’ll start an entirely different journey after you reach the FI milestone.

More importantly, you have to make a plan before life imposes its plans on you.

That’s why the featured image for this phase of my life is a sunrise, not a sunset.  Shortly after the dawn in that photo, I headed out for dawn patrol.

Regular readers of this site have plenty of financial literacy and know all about managing the 4% Safe Withdrawal Rate. As you approach your FI, it’s time to absorb the wisdom in Doc G’s “Taking Stock” and that impressive engineering textbook “Designing Your Life.”  Buy those books if you want (there are no affiliate links on this site) but feel free to try them at your local public library first.

And ask me questions.

 

 

[earnist ref=”the-military-guide-to-financial-independence” id=”70177″]

[earnist ref=”book-raising-your-money-savvy-family-for-next-generation-financial-independence” id=”82363″]

 

 

Posted in Financial Independence, Travel, What Do You DO All Day?!? | 4 Comments

“What If The 4% Safe Withdrawal Rate Fails?!?”


In an earlier blog post I wrote:

“In a future blog post I’ll share more ways to get comfortable with the 4% SWR.”

That’s based on a question from a member of ESIMoney’s Millionaire Money Mentor forum:

“I have to admit I don’t understand all the details, but what I walked away with was that the 4% rule wasn’t great for folks who were highly averse to the chance of running out of funds, or have a long time horizon.”

Black & white image of Edvard Munch’s painting “The Scream”, showing a facemask of a screaming mouth and sad eyes | MilitaryFinancialIndependence.com

“Nooooooooo!”

 Let’s discuss how to minimize your chances of failure with the 4% Safe Withdrawal Rate.

In some cases you’ll actually drive the (remote possibility of a) 4% SWR failure to zero, even with a time horizon of 60 years!

(For those of you who want a reminder about the details of the 4% SWR, after the end of this post I’ve included an excerpt from our book “Raising Your Money-Savvy Family for Next Generation Financial Independence.”)

 

“Is It Gambling?”

Before we dig into the math & logic, here’s an analogy for fear of financial failure:  

What if we were invited to play with our investments at a casino for at least 30 years with an 80% chance of never running out of money?  Better yet, what if the casino promised that most of the time we’d end up with as much money as we started— or that we could possibly get richer off the house?

Image of blackjack table with chips and cards, showing that the player is holding an ace and a king of hearts for a blackjack. | MilitaryFinancialIndependence.com

I’ll be over here.

Yeah, we’d all gamble. 

That’s math & logic, yet humans are driven even more strongly by the emotions of behavioral financial psychology.

 

How Do You “Feel” About the 4% SWR?

Because we’re human, we all focus on the few failures behind the 4% Safe Withdrawal Rate.  Even when we get the success rate up to 95%, we immediately shift focus to raise the success rate to 100.0000% and drive the failure rate to 0.0000%.  

That can’t be done.  The best perspective on our emotions of this behavioral financial psychology was summarized over 20 years ago by William Bernstein.

In a few more paragraphs we’ll get to better ways to simply sidestep these failure situations instead of trying to prevent them.

When people can’t trust a promise that they’ll never run out of money, their emotional default is working Just One More Year.  That’s why my earlier post quoted “If you choose not to decide, you still have made a choice.”

People see the default-work choice as much less scary than the flaws of the 4% SWR because they *feel* better about staying at work.  Yeah, the job might suck, but it’s a known suckiness next to the unknown risks of the 4% SWR.  

That dubious bliss (from our human illusion of control) lasts until a worker’s life is disrupted by a health crisis, a family emergency, a layoff, declining physical or mental health, or any other external event beyond their control.  

I’m 63 years old.  I’ll vouch that as life throws curveballs, they’re a lot easier to handle when you’re not working for a paycheck.  It’s far better to leave paid employment on your own financial-independence terms— before uncontrollable life events abruptly force you to leave paid employment.  

There are worse things in life to worry about than the few failures of the 4% SWR.

 

Sidestep the potential failures of the 4% SWR.

So, what do risk-averse people do when they want a guarantee, or at least want to stretch the 4% SWR past 30 years?  Here’s five different options, and none of them depend on the 4% SWR.

1.  Buy a guarantee.

Buy a Single Premium Immediate Annuity to cover your core expenses.  (Or pay extra for one of its ugly cousins like a deferred annuity or a term-certain annuity.)  For most Americans who qualify, Social Security is all the annuity guarantee we’ll ever need– and Social Security comes with a CPI inflation adjustment.  

(If anyone is going to bring up the failure modes of insurance companies or Social Security, then we can’t help you until you’re comfortable with insurance or SS.  I recognize that there’s financial and political risk with both, but the first is regulated by federal laws.  The second will be fixed by the time Social Security becomes a 2034 election issue.  Both are far less risky than a failure of the 4% SWR.)

For military veterans, even a small amount of VA disability compensation can fend off a potential failure of the 4% SWR.  You’ve already paid the price for it, so make sure you file your VA disability claim.  Unlike most annuities, VA disability compensation is adjusted for inflation, so its value will persist for the rest of your life.

2.  Sequence of returns. 

Every failure mode of the 4% SWR is tied to sequence of returns risk during the first decade.  If you can survive that SORR for the first 10 years then you’re going to have enough money for at least the next 20 years.  

One way to handle SORR is to keep two years’ expenses in cash for the first decade.  

Put 8% of your asset allocation in high-yield savings, short-term Treasuries, CDs, or even TIPS.  Replenish the cash each year when the market is up, or continue to spend it the second year when the market is down.  Using that cash stash with the 4% SWR for the first 10 years of FI will give your stock & bond investments enough time to recover from any bear markets and even from the Great Recession.  You’ll be fine for the remaining 20 years of the 30-year period.

Let’s be clear:  it may take 3-4 years for the stock market to recover its value from a recession.  However spending just two years of cash gives your equities the chance to recover from the worst part of the losses.  Even if they haven’t fully recovered their value after two years, they’ll still survive the 30 years of the 4% SWR.

You might not even need the cash stash if the sequence of returns risk doesn’t show up in the first 10 years.  That’s especially true if you have reliable income from a military pension or VA disability compensation.

At the end of your first decade of financial independence, you can compare your annual expenses to your net worth.  You started your FI by spending 4% of your net worth, and a decade later your investments have probably grown faster than inflation.  Meanwhile you’ve grown your spending at no more than inflation.

If that’s the case, then your withdrawal rate has dropped below 4%.  You now meet the conditions for never running out of money during a 30-year FI, and you still have 20 years left.

If your withdrawal rate has dropped all the way down to 3.5% then Karsten Jeske’s analysis at EarlyRetirementNow has confirmed that your investments will survive for 60 years.

3.  Investment rental properties (by landlording or by syndication).

Over the long term (>10 years) real estate appreciates at the rate of inflation.  Over the long term your rents will rise at the market rate, and that’s probably close to inflation.  

Better yet, you have the tools to find good real estate investments in every ZIP code of the nation.  You’ll buy at a discount, your rents will grow at least as fast as inflation, and your syndications will return more than inflation.

“How much real estate?” is a diversification question, and everyone has a different answer.  You’ll find your comfort zone somewhere between avoiding the failure of the 4% SWR and before accidentally building a real-estate career.

4.  Variable spending. 

This is a catch-all section for the rest of the techniques– because #1-#3 above are all some element of variable spending.

This includes tactics like Blanchett’s “retirement spending smile”, Pfau’s “safety first, floor & upside”, or Guyton & Klinger’s guardrails.  Morningstar’s Christine Benz has even more suggestions, although some of them might seem downright apocalyptic.

All of those are tactics in addition to the 4% SWR, and they’re all resistant to recessions as well as inflation.

5.  The dividend model.

When your investments grow to the point that their dividends (or for real estate, their net income) pay your expenses, then (by definition) your withdrawal rate drops to zero.  You won’t run out of money because you’re only spending the income without selling the shares or the real estate.

I don’t recommend working until you meet the dividend model.  

Instead, get close to it with assets of 25x-30x your annual spending.  Then stop working and enjoy life while you let another decade or two of compound growth (faster than inflation) boost your income for the rest of your life.  You might start out at a 4% SWR but as the dividends grow then your withdrawal rate gradually declines to zero.

Yes, this looks an awful lot like copping out to just one more year (or two).  In its defense (not much) you at least have a concrete goal instead of perpetually moving the goal posts.

 

Military Pensions

Now let’s address the part where someone says “Yeah sure, Nords, but dude:  you have a military pension!”

 I retired from active duty (and stopped working for money) in 2002 at age 41.  I planned for a 60-year time horizon, although I might only have 35 years of cognition.  With my family history of dementia, I’m very glad that I quit work (as soon as I could) to live life on my terms (for as long as I can).  The attitude of “just one more year” could have led me to far more working than living, and dementia is a horrible reason to have to quit working.

My spouse is a year younger than me, yet she has an even longer horizon.  She has Ashkenazi Methuselah genes, and her grandparents were centenarians.  Her parents are in their late 80s and still healthy… and still at their full cognition.  My spouse’s metabolism & health are so good (compared to mine) that they’re on the verge of annoying.

When we stopped working, we continued tracking our spending (at the 4% SWR)* until we were confident that we were past sequence of returns risk.  (Because of the Great Recession, that took about a decade.)  Today, after 20 years of FI, our lifestyle costs less than the 4% SWR because our assets grew faster than our spending.  

*(Yes, I started my inflation-fighting military pension in 2002.  Each year we spent all of my pension– and then spent more from our investments at the 4% SWR.)

Now we’re doing everything we want to do and we’ll never run out of money for our lifestyle. **

**(Yes, my spouse started her Reserve pension in 2022.  Today we’re spending all of it on philanthropy and gifting… because we’re confident we’ll have more than we need for our lifestyle.)  

We’re starting Social Security in 2030 when we reach our 70s.  Because the 4% SWR has worked out so well, our Social Security will be spent on still yet even more philanthropy and gifting.

 

Call To Action:

When will you reach financial independence?  Do your math at that link.

Which of these methods will you use to avoid a failure of the 4% SWR?

—————————————————

In Memoriam:
(This post is in memory of my friend S. K., a military retiree who had moved into an enjoyable bridge career.  He agreed that he was afflicted with the worst case of Just One More Year syndrome that I’ve ever seen.  Every time we got together he’d tease me about being unable to hold a job, and I’d ask him when he’d finally feel that he had enough money to retire.  After a decade of this trash talk, one day he paused and said “We’ll pay off our mortgage in about six months, and I think I’ll retire after that.” 
Four months later he suddenly passed away from a cerebral hemorrhage— at work. 
His widow paid off the mortgage with his life insurance.)

—————————————————

For those who want to refresh their memory on the 4% Safe Withdrawal Rate, here’s an excerpt from our book “Raising Your Money-Savvy Family for Next Generation Financial Independence”:

Appendix B: The 4% Safe Withdrawal Rate

We’re not going to talk about the details of reaching financial independence. The FI research and analysis is all over the Internet, and our Resources section can send you down that rabbit hole. 

But we will share the best tip: the 4% Safe Withdrawal Rate (SWR). 

It has two parts: 

1.  You’re financially independent when your assets reach 25 times the amount of your annual spending (4% is 1/25). This is the point where you can stop relying on paychecks. 

2.  You can start your FI life by withdrawing 4% of the value of your assets at the beginning of your first year. Every year afterward you can raise that withdrawal by the inflation rate. 

The 4% SWR computer simulations show enough statistical resilience for your investments to survive at least 30 years, although there are a few failures. Your investments may last for at least 60 years, although there’s not enough stock-market data to be statistically confident in the results. 

Humans don’t focus on the success rate. We’re optimized to obsess over the failures. 

Here are the solutions for the failures, even though a failure is unlikely. 

The 4% SWR research does not include Social Security income or other annuities (like a pension). Your investments will almost certainly make it to your minimum age for Social Security, and then that inflation-adjusted annuity will let your portfolio recover. For some Americans, Social Security may be all the longevity insurance that you’ll ever need. 

The 4% SWR research assumes that spending rises every year with inflation because it’s easier to program those computer simulations, yet humans are not SWR robots. We can use variable spending to boost our investment portfolio’s survival. 

When a recession hits, you’ll delay big spending (like a fantasy vacation or a replacement vehicle) and maybe even cut back (temporarily) on your monthly entertainment spending. You may be worried, but you won’t face deprivation.

When the economy is booming your investments will grow much faster than inflation or your spending—and that growth will rebuild your portfolio’s survivability margin for the next recession. 

Even if there’s a recession (or two) during your first decade of FI, then during the second decade your investments will probably still compound fast enough to reduce your actual withdrawal rate (your latest annual expenses divided by your latest portfolio value) to less than 4%. 

If a full-on Great Depression repeats itself, then variable spending will help your portfolio survive. (Variable spending was only necessary for a tiny part of the Great Depression.) If a new depression is even worse, then your variable spending will ease the pressure of the annual withdrawals. You don’t even need to start variable spending until after the first year or two of the economic catastrophe. You’ll see the problem coming from a long way off, and you’ll only need to cut back a little to avoid failure. 

You could even get a part-time job, and at the 4% SWR you might only need to work for 10 hours per week to earn about $10,000 per year. You might only need it for 6-12 months. Depressions have very high unemployment, but those part-time jobs are everywhere because employers can’t pay full-time salaries while (unemployed) workers want full-time jobs. 

But what if you reached FI and worked for another year or two to reduce your withdrawal rate below the 4% SWR? That seems pretty easy, right? 

This logic trap is so widespread that it has a diagnosis: the Just One More Year (JOMY) Syndrome. 

JOMY Syndrome looks great, because the 4% SWR is already good enough and a small annuity can insure that plan against failure. JOMY only piles on more assets and guarantees that you’ll die with even more money. A decade after you start your FI life, you’ll realize that you wasted a year of your life to delay that decade. Was it worth it? 

More importantly, is it worth working one more year to reduce your scarcity stress and to sleep better at night? Will you feel better despite having more work stress, spending less time with your family, and trading life energy for excess money? 

Only you can answer that behavioral economics question. The math and the 4% SWR research says that you’re wasting your time.

Starting with the 4% SWR, perhaps with a little annuity income and variable spending, your investments will last for the rest of your life. You’ll also have plenty of money to pass to the next generation. You could hand over that legacy in a lump sum, or you could spread it out a little at a time over many years. 

That’s how you can help your money-savvy family reach financial independence. 

That’s why we wrote this book.

 

 

Related articles:
“Fear And The Just One More Year Syndrome”

Posted in Financial Independence, Money Management & Personal Finance | Leave a comment

Sea Story: Standing Duty During A Volcanic Eruption With A Typhoon


Image of a group counseling session with everyone cowering in a corner or gagging about the information that was just shared by one of the members. The counselor is asking "So, who would like to respond to what Bruce has shared about life on a submarine? | MilitaryFinancialIndependence.com

Thank you, New Yorker magazine.

This post doesn’t have a financial independence theme, but it certainly helped me develop attitudes of gratitude and abundance.  I’m also sharing it to help others.

June 15th is the anniversary of the 1991 eruption of Mount Pinatubo in the Philippines, about 20 miles north of Subic Bay.

I spent that 36-hour day mostly as the inport Ship’s Duty Officer on the submarine USS NEW YORK CITY (SSN 696), where I was serving a department-head tour as the Weapons Officer.

Earlier in 2023, one of my friends wrote me:

“… you likely had many scary times during your service. If you’d be willing to share them (either just with me or with the forums), I know I’d love to hear them.
Most people generally don’t think of things like this when considering what our military members have to go through in serving our country, so telling them to a broader audience will hopefully give many a better appreciation for our service members.”

My cheerful reaction was “Sure, I haven’t written about Mount Pinatubo in a while!”

Then I tried to write about it. That wasn’t so cheerful.

It turned out that all I’d written before was a short social-media post asking Pinatubo vets to get in touch. (I wanted to learn if we survivors could have a VA disability rating for lung damage from volcanic ash.) Even now, during the weeks months that I’ve displayed this post on my monitor, my brain keeps skittering away to find anything else to write about. And oh look, my coffeepot needs cleaning!

Four months and 7000 words later, this is now the blog’s longest post. With photos.

This is the hardest post I’ve ever written (out of more than 2000) over the last two decades. Maybe my aversion is a mental-healthy defense mechanism, but I’ll tackle the keyboard-therapy challenge. If this helps me, I hope it helps a few of you too.

 

SPOILERS:

Over 800 Filipino residents died during the eruption and thousands more were injured, but our submarine crew survived.

A few crewmembers were on liberty in Olongapo and were injured during the eruption. Several spent the night trapped under wreckage of buildings that collapsed from the ashfall and the earthquakes, and for hours we had no idea if they were alive or dead. They were rescued the next morning and came aboard before we got underway.

Our submarine initially seemed to be undamaged, but over the next year we had to replace a surprising amount of ash-damaged equipment. As the Weapons Officer, I’m surprised that our torpedo launching systems were unscathed. All we lost in our department was some topside hull paint.

For more background on the environment, you can read the Wikipedia article about the interaction of the Mt. Pinatubo eruption with Typhoon Yunya.  Yeah, I know, that sentence reads like the plot for a bad 1970s disaster movie. I wish I’d never bought that particular ticket.

I’ve researched the event from open sources, but I’ll admit up front that my memories are flawed by the stress and fatigue of 36 hours without sleep. I’ve also gone through three decades of involuntary leveling and sharpening of those memories, along with apparently suppressing the entire experience.  My subconscious has done an incredible job of fighting protecting me for nearly half of my life now.

This is a personal story with my perceptions of our experiences. I’ll gloss over some of my more… intense… interactions with the chain of command above my billet. As far as I’m concerned, the rest of the crew did an outstanding job.  If you were there with me, feel free to improve my memory in the comments. I’ll leave it to an experienced researcher to build a better chronology from our boat’s deck log in the Navy’s archives.

If you’re a veteran searching for more information about disability ratings from breathing volcanic ash, as far as I’m aware the VA has no presumptive conditions for Pinatubo. You’ll have to document silicosis or other respiratory symptoms and check a lung scan for lesions. You’re welcome to read the rest of this blog post and contact me with questions, and I’ll update this post if there’s new information.

If you’re an accredited historian, I’m happy to share more memories with you. Post a comment or contact me through this site.

Finally, this post has little to do with financial independence. (Sorry, hardcore FI fans.) This is more in the category of “You never know when you’re living your last day.”

 

Setup

Image of USS NEW YORK CITY (SSN 696) submarine conducting an emergency blow surfacing in open ocean. | MilitaryFinancialIndependence.com

The obligatory submarine emergency blow photo.

During NYC’s Westpac ‘91 deployment, we succeeded in one of the scariest missions I’ve ever experienced. (I’ll write about that another day, but some of you will recognize why a submarine crew was awarded the Coast Guard Special Operations Service ribbon.)  We proved that 360-foot long submarines with 32-foot drafts could operate submerged in (very) shallow water. We opened up a whole new mission area (thanks, INDO-PACOM) at a time when our traditional Cold War operations were rapidly dwindling.

At the end of that mission we were much, much further north and east of our scheduled liberty portcall in Singapore.

At the same time, we’d read many media headlines about the U.S.-Philippines diplomatic efforts to continue leasing Subic Bay’s naval station maintenance facilities and Clark Air Base.  The Philippine government wanted a lot more money, and negotiations had broken down.

Subic Bay has been one of the U.S. Navy’s most legendary ports for several generations, where you could get just about anything you wanted for your submarine. The liberty in adjacent Olongapo City was even more notorious, where you could get just about anything you wanted– period. Certain… experienced… members of our crew were agonizing that we’d never be able to have another Subic portcall, and these concerns were shared with the boat’s chief petty officers. The consensus was that we’d rather go to Subic than Singapore.

Submarine crews do not simply vote for their next liberty port. However our commanding officer appreciated that Subic was a lot closer to our current location than Singapore, and he might have had a few Subic fantasies memories of his own younger days to recreate. Our XO was smirking a little, too.

After several protracted exchanges of message traffic, our Westpac boss (the commodore at Submarine Group SEVEN in Yokosuka, Japan) agreed to arrange our liberty port in Subic instead of Singapore. CSG7’s staff location, nearly 2000 miles away from Mt. Pinatubo, had apparently left them blissfully ignorant of its emergent volcanic activity.

 

Arrival

When we tied up at the pier, I immediately scampered across the brow to a nearby pay telephone to check in with my spouse. (1991’s Philippine landline calls to Hawaii = $6/minute.) She was a Navy meteorology/oceanography officer stationed at the Pearl Harbor METOC center, responsible for forecasting the weather all over the Pacific. We hadn’t talked in over a month, but she had the security clearances to know when & where we’d been doing our last mission.

I’d been married long enough to know that I should phone home before all of the boat’s other spouses found out that we were inport. You don’t want to be the last spouse to check in after all the other families have had their calls.

In those days submarines only had about 2400 bps of bandwidth for radio broadcasts (with headline news), and the mail was always weeks behind. I hadn’t seen a newspaper(!) yet and wasn’t up on current events, so our spouse conversation was an unpleasant surprise.

Her: “What the #$%* is your boat doing in Subic?!? Did anyone tell you there’s an active volcano just 20 miles north of you?!? There’s also a tropical storm a few days away that’s going to turn into a typhoon.”
Me: “Um. I hope CSG7 checked with their weather center. Gosh, 20 miles away, I’m sure it’ll be fine.”
Her: “Listen to your meteorologists: you need to get out of there.”

A few days later on 12 June, Mt. Pinatubo had a brief eruption.

Image of the Mount Pinatubo volcanic eruption mushroom cloud rising above the hill and into the clear blue sky above puffy white cumulus clouds. | MilitaryFinancialIndependence.com

This was the “minor” eruption on 12 June 1991. Courtesy NASA meteorological photo.

All day we could see a gigantic mushroom cloud of the eruption to the north, and a “light sprinkling” of volcanic ash fell on Subic Bay. (The port’s base guards hosed the ash off your taxi’s windshield as it went through the gate.) The eruption was an immense distraction, let alone a threatening omen.  Understandably, many of the crew spent the morning topside to gawk and take photos as they worked on other tasks.  As the boat’s Weapons Officer, during that workday I found myself going topside to announce to the troops “All right, I haven’t seen a live volcanic eruption since we left Hawaii either, but right now we’re supposed to be on the mess decks doing department training.”  Yeah, I could still snark at a time like that.

By that evening, the Olongapo entrepreneurs were selling t-shirts: “I survived the eruption of Mount Pinatubo, 12 June 1991!” I wish I’d bought one for the irony.

Apparently the eruption didn’t cause any concerns among the Filipino authorities, let alone the U.S. Navy’s Seventh Fleet or our submarine group staff. In retrospect, we should have gotten underway that day– but we were busy with essential maintenance and even more essential liberty.

Three days later the eruption really began.

 

“Worst Duty Day Ever”

Every military veteran jokes about their worst duty day, and this one certainly recalibrated my definition.

Back then I’d usually show up on the boat around 4:30 AM to tour all of the spaces and chat with the offgoing watchstanders. I always learned a lot from the midwatch duty section about what was really happening… instead of what we supervisors wish had happened.

On the morning of 15 June 1991, though, the volcano’s ash was already falling. It was soft, like the first few hours of a gentle snow– but there was a lot of it and it was already forming a heavy slush.

I checked with the Weapons Department crew on our torpedo room, sonar, and fire control gear.  All of those systems had been shut down when we entered port. We’d caught up on repairs and maintenance and we’d had no problems so far.

The engineroom was a different situation.

Inport submarines have four ways to maintain power (and air conditioning): shore power, the boat’s diesel generator, the boat’s emergency battery, and… the nuclear reactor. Starting up the reactor (and generating steam for the engineroom) takes a full watch section (and consumes uranium), so when we tied up we’d usually shut down the reactor as soon as we connected to shore power. We’d post a skeleton duty section and everyone else would go on liberty.

If you lose shore power (for whatever reason) then the duty section uses a few kilowatt-hours from the battery while they’re starting the diesel to snorkel (and generate electricity) until shore power’s fixed.

If you suddenly had problems with the diesel then you could hypothetically start up the reactor. For various safety & maintenance reasons, though, the startup checklist takes several hours to make sure all of the reactor protection systems are working correctly. Starting up the reactor also takes a lot more watchstanders.

By the time I got to the boat, I learned that the midwatch team was having a Really Bad Night.

As Mt. Pinatubo exploded, the combination of falling ash and lava-boosted mudslides had damaged the local electric grid. Shore power had been down & up all night, and the boat’s electricians were very unhappy about our battery discharge.

At the same time, the diesel mechanics were equally unhappy about the volcanic ashfall. Diesels suck down a tremendous volume of air for combustion, and the ash-fouled air was quickly creating an ash-fouled diesel. We joked that the diesel sounded like a rock crusher, but it wasn’t designed to crush lava.

Our Engineer Officer had been getting phone calls all night about the shore power problems, and he was even more concerned about the diesel. By the time I wandered into the engineroom for my pre-duty tour, he was stationing the full watch section. With the CO’s concurrence, the Engineer had already ordered an emergency reactor startup.

30 years ago, submarine engineering departments trained on emergency startups and even occasionally did one for practice. Compared to the full-blown precritical checklist, an emergency reactor startup is just a cursory look that all the important switches are in the right positions, and that the core’s power-monitoring instruments seem to be working. Full switch lineups? Calibration checks? Yeah, those could be done after the boat had power & light.

The emergency startup section of the Reactor Plant Manual had a couple paragraphs about not hurting anyone or breaking anything– and try not to accidentally scram the reactor while you’re withdrawing the control rods. To us nukes, that was a welcome freedom from the hundreds of pages of detailed guidance for a normal reactor startup.

After the full team had assumed the watch, the Engineering Officer Of the Watch ordered the Reactor Operator to commence an emergency reactor startup. The RO latched the reactor’s drive motors onto the core’s control rods and pulled them out just short of the point where they expected the reactor to reach criticality. Right after that, keeping a close eye on their instruments, they withdrew them a bit more until the reactor was indeed critical.

It was going well, but most of the duty section had been up all night and the situation was getting tense. Out in the engineroom someone might have muttered “Latch ‘em and snatch ‘em, and let’s get the steam in here.”

The RO kept bumping out the rods (a little at a time) to heat up the reactor as quickly as they deemed safe, while making sure that reactor power stayed below the scram setpoint. The EOOW coordinated the rest of the watch team. As soon as the plant was hot enough, the mechanics opened the steam valves and began rolling both turbine generators to produce electricity.

Compared to a normal reactor startup and heatup of several hours, the emergency procedure had our engineroom generating our own electricity within minutes. You could almost feel the entire crew (especially me and the rest of the oncoming duty section) heaving a sigh of relief as everyone scurried around to restart air conditioning and ventilation fans.

Topside and on the pier, however, was a different situation.

 

“LCDR Nordman is the Ship’s Duty Officer.”

I’d seen enough in the engineroom to know that we were back on track back aft. The oncoming duty section had taken over, and I relieved the offgoing Ship’s Duty Officer around 7 AM.  That was announced throughout the boat.

Belowdecks our ventilation system was blowing cool dry air, breakfast was served, and the coffee was hot. We were doing great and we were going to get through this little natural disaster.

I went up the ladder to see how we were doing topside and stepped out of the hatch. The storm immediately blew me off balance– and almost into the harbor. An hour after dawn, the sky was still black and the air was full of ash. This duty day might not be as easy as I thought.

While Mt. Pinatubo explosively erupted its megatons of volcanic debris, Yunya had intensified into a typhoon and made landfall. That torrential downpour and the high winds spread the volcanic ash and hazardous sulfide gases to form lethal conditions.

Months later I learned that satellite imagery showed the volcanic mushroom cloud erupting straight up through the eye of the typhoon. Scientists later determined that Pintubo’s explosion pumped so much ash into the upper atmosphere (to be spread by the typhoon) that the entire earth’s climate cooled by nearly a degree. The following winter (around the globe) was the coldest in decades. The ash also led to months of spectacular sunrises and sunsets in Hawaii, but that might be my survivor bias evoking my gratitude for the little things in life.

As the ash soared, the heaviest particles spread across the peninsula and rained down with the typhoon like a shower of pebbles. Lava cascading down the side of Pinatubo had already caused galloping lahar mudslides which wiped out entire villages. The typhoon rain sent even more mud and debris rocketing down the southern slopes to flood the entire peninsula and Subic Bay. Storm surge in the channel and the harbor created waves across the moorings and flooded over the piers. Fortunately our lines and fenders kept our boat from moving– and from beating its ballast tanks on the concrete.

Although the morning was long past dawn, the sky was still black with a mixture of typhoon clouds and falling ash. Back then I wasn’t aware of the silicosis hazards of breathing the ash, but we were all uncomfortable topside with ash clogging our nostrils and our mouths. (Especially the security watches.) We broke out our 1960s MkV gas masks for the two topside watchstanders, who also sheltered from the ashfall under the sail’s fairwater planes or on the pier kiosk. Those masks were hot, heavy, and foggy– but they worked just as well with ash as they did at their main use for airborne radioactive particulates. Besides, visibility was only about a hundred feet and nobody else was wandering around on the pier.

After another hour it became clear that the ashfall was not only building up on the hull, but was heavy enough to deepen our draft. By the time we sent more crew topside with brooms (also wearing gas masks), we’d already lost a couple of inches. We shifted to shovels (found somewhere on the pier) and eventually rigged our 2” 250 PSI fire hoses to blast the sludge off the hull. Although we were using lots of seawater from our trim tanks, we were also lightening our draft and reducing the effect of the ash. We kept this up for over 18 hours, both with the fire hoses and the shovels, rotating teams every hour. The crew got years of firehose tactical training in one day, and we nearly emptied our trim tanks. Some of us inhaled way too much ash, too.

While the duty section was struggling with ashfall, suddenly more crewmembers scurried across the base up to our flooded, ash-covered pier from the barracks (several blocks away). We asked them why they wanted to come back to the boat instead of sheltering in the barracks, and they said “Don’t you feel the earthquakes?!?”

Well, no we couldn’t, not on a floating submarine. Yet the temblors were so severe that the barracks walls on several floors had started to crack, and even the boat seemed safer than being inside that building. As the day wore on we finally verified that our crew had left the barracks, but another 20 people (on authorized liberty) were still unaccounted for.

A few minutes after the crew showed up we were very happy to have the extra help– especially from the nukes.

 

Running Critical

By late morning the ashfall was pelting down like a concrete monsoon, when suddenly back aft the EOOW announced on the loudspeakers: “Lowering vacuum, port main condenser.”

The volcanic ash in the harbor water was clogging the suctions of our seawater pumps, and that loss of cooling water almost cascaded into a loss of electricity followed by a (controlled) reactor shutdown.

(You can scroll to the end of this post for the detailed engineering thermodynamics of why this was a serious fast-moving casualty. I’m going to continue with the main story.)

The rest of the Engineering Department had to help the mechanics clear the ash from the seawater suctions. This happened every 20-30 minutes for the next 18 hours. We barely kept the steam plant going, but the nukes were exhausted from fighting the nonstop crisis.

On my next visit topside, the ash on the hull was over a foot thick. Our draft had already deepened by a few more inches, and we were barely keeping up. Engineering had their hands full with ash problems down below, but most of the rest of the crew was doing their best to remove the topside ash under surreal conditions.

The hot ash mixed with the typhoon’s rain created weather of over 90 degrees with 100% humidity. In the early afternoon the sky was totally black with clouds and the winds were gusting to 80 knots. The ash created lightning discharges in bolts and sheets across the entire sky, but for some reason the lightning was bright red.

The constant red streaks across a black sky– along with the thunder, the howling winds, the heat, and the blowing ash– were as close to hell on earth as I ever want to see.

It wasn’t just straight out of the Old Testament or Dante’s Inferno. Some of the crew might have been regretting their liberty sins in Olongapo, but everyone else was rethinking our life choices and wishing we’d spent more time with our families.

A week ago when we’d given up our Singapore portcall, we’d had no idea that a volcano or a typhoon was threatening Subic Bay. Now we wished we’d had more warning from our military chain of command so that we could have left port before the eruption. Unfortunately a couple of other Navy ships were also trapped at different piers.

Technically, we could have cast off our mooring lines and gotten underway for open sea. (You Navy vets are already alarmed at the thought.) However we were already having enough trouble pierside just generating electricity (let alone air conditioning) and the ash in the water meant that we might not even be able to maintain reliable propulsion in a narrow channel.

By mid-afternoon, visibility in the ashfall was nearly zero. If we’d gotten underway then the winds would have been extremely hazardous to topside linehandlers, and anyone who was blown off the hull would have been lost without our ability to rescue them.

With visibility dropping to only a few yards, the black skies and the red lightning were tremendously disorienting. Our navigation team wouldn’t have been able to see enough out of the periscopes to get visual fixes to keep us on track. The stormy electronic discharges had overwhelmed our GPS receivers from using any of the satellites to track our position. Even our bridge team wouldn’t have been able to see enough of the channel to avoid collisions or grounding. After hours of ashfall we had no idea whether the channel was still deep enough for our draft. The channel might even have been blocked with debris or other vessels.

As I write this, it seems impossible that we contemplated getting underway– yet our conditions pierside were so life-threatening that we seriously considered it. Our wardroom had a contentious debate about overcoming the propulsion and navigation obstacles, and we even contacted the commodore to discuss a plan. (By now we were using HF radio to talk to the submarine group staff in Yokosuka. Telephone lines had been dead since last night and even satellite radio signals were intermittent.) There were some raised voices and forceful arguments, but we couldn’t find a way around the dangers of grounding or collisions.

Meteorologists thought the storm and the eruption would subside during the next 24 hours.

We thought we’d be lucky to live through 24 more hours.

We had to stay inport and fight through the rest of the disaster. As far as we could tell, we’d slowly lose the struggle for cooling water and we’d have to shut down the reactor. The entire boat would be dark and hot (slowly sinking under the ash) while we conserved battery power until the ashfall stopped and we could restore seawater cooling.

Nobody got any rest that day, let alone sleep.

 

“There’s Got To Be A Morning After”

By midnight the skies had been black all day, but the ash fall slowed down a little. Around 2 AM it finally subsided to almost a gentle snow flurry. The topside team gradually caught up with cleaning the sludge off the hull, and our draft returned to normal. By 4 AM the winds had died down.

Although most of the crew had spent the night onboard, our muster was still short by a dozen men. Shipmates knew where they’d planned to spend their liberty, but we didn’t know where we’d find them. If we were able to get underway that morning, we needed to bring the entire crew with us.

I talked it over with the Duty Chief Petty Officer, and as dawn began to appear he sent people on the pier in search of a bus or a truck. The base seemed abandoned but we finally found a stake-bed truck near our pier with keys still in the ignition. Its engine started! The team cleaned the ash off the truck and drove back to the boat.

We mustered a small search party to find whoever might still be in the barracks or in Olongapo. After some debate, I (as the Weapons Officer) agreed not to arm the searchers. Most of our crew was poorly trained to handle firearms (due to a lack of ammunition funds), while our stress and fatigue would make us even less safe. We expected that we’d have several hours to find our crewmembers before any first responders or locals were ready to worry about looters or militia.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. | MilitaryFinancialIndependence.com

Driving into Olongapo.

As soon as it was light enough, we sent the truck out to Olongapo. (All of these photos were taken on a film camera by one of the crew in the truck.) We learned later that the town was buried in several feet of ash but the main roads were navigable. The larger buildings (apartments and hotels) had minor earthquake damage but many of the smaller ones (mostly bars and restaurants) had collapsed roofs. People were wandering about, checking on each other and assessing the damage.

Image of a collapsed building under volcanic ash in Olongapo, Philippines the morning after the eruption of Mount Pinatubo. It might be the same bar where our crewmember spent the night trapped under the wreckage while a local Olongapo resident died of his injuries. | MilitaryFinancialIndependence.com

One of many collapsed buildings in Olongapo.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. These buildings collapsed under the weight of the ash and the force of the winds. | MilitaryFinancialIndependence.com

Heavy ash and high winds = collapsed buildings and bare trees.

Happily we found our missing crew, although most of them had minor cuts and bruises. One of them had been trapped all night under a bar with a collapsed roof and had a long wound on his forearm from metal debris. (He said he felt fortunate to be alive, because he’d listened to the screams of one of the bar’s employees as they died in the wreckage.) The truck hustled the crew back to the boat without incident, where our corpsman cleaned & stitched our injured man’s arm.

 

“We Gotta Get Out Of This Place”

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. Cars are parked along the side of the road and the morning bus is approaching around the bend. | MilitaryFinancialIndependence.com

The municipal bus was on time.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. Debris was everywhere, especially the trees. | MilitaryFinancialIndependence.com

Downed trees were everywhere.

Back on the boat, we quickly finished our underway checklists. The typhoon had dumped its rain and was breaking down into a tropical storm, but we didn’t know whether Mt. Pinatubo would erupt for a third time. As the skies cleared, we’d regained satcom radio contact with the submarine group. They agreed with our voyage plans and assigned us the submerged operating areas to head for our maintenance port in Guam.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. Palm trees were stripped by the wind. | MilitaryFinancialIndependence.com

Stripped palm trees.

Aside from the ash, the boat appeared to be in surprisingly good shape. Once the Engineering Department finished cleaning the ash out of their seawater suctions, the steam plant was much more stable. With reliable air conditioning (and chill water to our computers) our sonar and fire control systems started with minimal glitches. (We could technically get underway without them, but nobody wanted to submerge without a reliable sonar system.) Our Weapons Department gear was as good as it gets but all of us were exhausted physically, mentally, and emotionally. We still had to get through today.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. Hillsides were covered in ash but the typhoon rain washed even more ash down into the river. | MilitaryFinancialIndependence.com

Ash-covered hills, and ash in the water too.

As the offgoing (finally!) Ship’s Duty Officer, I was also the Surfaced Officer Of the Deck for the underway. To our surprise, a few port employees showed up on the pier to check on us. (The phone systems were still down, and the shore electric grid was still dead.) We could cast off the mooring lines without assistance, and they used our borrowed truck to pull the brows off the boat. It was the ugliest underway I’ve ever conducted, and my happiest.

Image of the Philippine town of Olongapo after the eruption of Mount Pinatubo, with the streets covered in ash and people walking alongside to check for survivors and damage. The typhoon's storm surge also flooded out these homes along the river. | MilitaryFinancialIndependence.com

Storm surge and ash-filled rivers.

Our sortie was surprisingly uneventful. The channel was filled with floating debris but we were the only vessel going through it. We straddled both the inbound & outbound lanes and gave ourselves as much evasion room as possible. Both sides of the shore were blasted by the winds and the ashfall, and the surviving palm trees were mostly ragged sticks. As we passed the airfield at Cubi Point I remember seeing one plane resting on its tail, its nose in the air. It was covered with two feet of ash.

Once we reached open ocean, our speed scrubbed the last of the ash from the hull. Now in clean water, we could restart our evaporator and top off our drinking water tanks. We also had to refill our trim tanks to replace the thousands of gallons of seawater that we’d used to hose off the ash during the worst of the eruption.

The Engineering Department’s mechanics had needed so much air to blow ash out of the seawater suctions that our 4500 PSI airbanks were below 3000 PSI. These air banks would also be needed for emergency blows to reach the surface if we had an underwater casualty, and they had to be back at 4500 PSI to be effective against flooding. This meant that before we could dive, we had to run a long air charge while we were driving on the surface.

With clean air and reliable electrical power, the mechanics started all three of our high-pressure air compressors. Four hours later, we managed to get the air banks back above their minimum required pressure and we finally submerged.

After diving and getting a final neutral-buoyancy trim (happily without any surprises) we sped up and went deep.  We manned our regular underway watchstations while the rest of the crew caught a few hours of sleep. That afternoon we began cleaning up the ash that had been tracked onto (or sucked into) just about every nook & cranny. I don’t remember much about that week, but I clearly remember that we even suspended our routine training & drills so that we could focus on cleaning and resting. Not necessarily in that order.

We reached Guam in several days.  30 years later, in today’s Navy, the entire crew would have been met at the next port with a team of psychologists and counselors to help us talk through our trauma. There’d be several PTSD screenings and maybe even physical exams to check for lung damage.

As near as I can remember from 1991, none of that was even discussed. While we were on watch (or cleaning), I remember many conversations that started with “Where were you when… ?” One of our crew said that they’d planned to serve for at least 20 years, but after this natural disaster they were hoping for a Monopoly game’s “Get Out Of The Navy Free” card. (That wasn’t offered to any of us either.) We got through the rest of the week mainly through crowdsourced talk therapy.

 

Aftermath

The Weapons Department’s gear was largely unaffected by the ash. On the way to Guam we shot a salvo of water slugs out of our torpedo tubes, and we found a small amount of ash left in the tube. There was no other damage (like the engineroom’s seawater pump seals) but… there was ash. After more inspections and discussion we decided that the ash had flowed down along the hull inport to get trapped in nooks & crannies of the ejection system. We shot a second salvo and the tubes were clear. Thankfully there was no evidence of ash damage in any seals or gaskets in the weapons launch system.

The superstructure inside our sail had probably accumulated an amazing amount of ash through the bridge openings at the top. We never made the time to remove the sail’s access plates (always good for hours of frustration) to inspect for damage, let alone cleaning. We raised and lowered our periscopes and antennae (housed in the sail) as part of the underway and undoubtedly scraped a lot of bearings through the ash. After we submerged the ash would (eventually) have washed out of the sail through various freeflood penetrations.

During the next year we replaced just about every bearing on every mast in the sail, and at least one antenna barrel. That was probably the second-worst damage to the boat, and certainly the most expensive.

The boat’s ventilation filters were clogged with fine ash that had entered the boat through the hatches. Over the next month the crew spent hours cleaning those as the ventilation system gradually cycled the ash through all of the fans and ducting. (The air filters on our sonar and fire control computers were even worse, despite daily cleanings.) The diesel generator’s snorkel air inlet plenum was coated with ash, so it’s a very good thing that we never attempted to snorkel.

I’ve already mentioned the engineroom’s seawater systems. The seawater cooling pumps managed to handle an amazing amount of ash but their seals were permanently eroded. The mechanics dealt with the leaks for the rest of the deployment (and pumped a lot of seawater out of the bilges) until the boat’s next major homeport upkeep. Let’s just say that we depleted the Pearl Harbor submarine logistics system of seals for all of our seawater pumps.

During the rest of the deployment, nearly everyone in the crew dealt with respiratory infections. Our bodies were clearing the ash out of our lungs as quickly as possible, but we all had complaints ranging from chronic coughs to full-blown pneumonia.  A few days after leaving Subic Bay I woke up that morning gasping for air and unable to draw a full breath. Our corpsman listened to my lungs and pumped me full of antibiotics, which took care of the problem. And yes, I sucked it up and stayed on the watchbill.  I wasn’t going to be snoozing in my rack when everyone else felt at least as crappy as I did.

As far as I’ve learned from shipmates over the years, our crew recovered from the trauma. I’ve heard from several other veterans (Air Force and Navy) who now have damaged lungs from the weeks of the evacuation and closure of Clark Air Base. Please post a comment if you were there during or after the eruption and have more information (or sea stories) to share.

 

Epilogue

In 1992 USS NEW YORK CITY (SSN 696) was awarded its fourth Meritorious Unit Commendation.  The crew earned dozens of individual medals and other commendations.  That was mostly due to our deployment’s typical Cold War submarine missions (which we do not discuss) and possibly our mission with the Coast Guard. Someday I’ll write about that USCG operation and I’ll post a link here.

At the end of my tour in July 1992, I transferred to shore duty. In 1995 the boat deployed to the Western Pacific again and the crew finally got that Singapore port call.

The boat’s inactivation ceremony was in December 1995 at only 16 years of service. That’s less than half of a submarine’s typical lifespan, and NYC was in good material condition with plenty of nuclear fuel. The decommissioning was due to the funding cuts of the U.S. military’s biggest drawdown since the Vietnam era, not from the effects of Mt. Pinatubo.

During the next decade I dealt with repeated respiratory issues: several more cases of pneumonia, at least a dozen of bronchitis, and more ear infections than I can remember. A chest X-ray in 1992 was negative. (That was only done as a routine check for nuclear-trained submariners.) Several other X-rays over the following years diagnosed pneumonia but presumably there were no lesions or other signs of silicosis. There was no respiratory damage found during my retirement physical in 2001, and in 2013 a full pulmonary function test was rated as “normal for a man in his 50s.”

In the late 1990s when I was stationed at a submarine training command, I reunited with one of the senior enlisted Sailors who’d been in the Weapons Department with me. He was the man with the injured arm who’d spent the night trapped under the wreckage of the bar. We both agreed that we’d recovered from the incident. Maybe we were right.

 

“Every Blog Post Should Have A Call To Action”

My spouse and I reached financial independence during active duty, and I’ve been retired from the military for over 20 years. Three decades after the eruption I still struggled to write this sea story.  While I wrote it, I paused many times to gaze out of our windows and admire the tropical view. I’ve even had a few paragraphs of this post pop up in my brain during surf sessions, and surfing always leaves me with an extra-large helping of gratitude.

You never know your last day of doing anything. Work as long as you find it challenging and fulfilling, but keep saving & investing for your financial independence. If you’re dealing with a scarcity mentality, then appreciate your human capital and try to adopt a mindset of abundance.  That evolution can take months.

Make sure you’re living your best life without trading more of your life energy (which you might not have) for more money (that you do not need).

 

Related Articles:
A U.S. Navy meteorologist remembers the Mt. Pinatubo eruption and evacuation

Want to read more about (unclassified) submarine careers and lifestyles?
Poopie Suits & Cowboy Boots “Sub Tales” book series

Explanation: “Lowering Vacuum, Port Main Condenser”
A steam plant generates electricity by turning a turbine that’s connected to an electrical generator. As the hot dry steam spins the turbine, the steam gives up its energy and exits down into a condenser.  The steam has barely enough heat energy to stay vaporized. Submarine steam plants pump seawater through cooling tubes in the condensers to turn the moist steam back into hot water. Pumps move that condensate back into the feedwater system and eventually into the steam generators where the reactor supplies the heat to make more hot, dry steam.

A submarine condenser is a sealed system that normally operates at a vacuum for greater cooling efficiency. If a condenser loses its vacuum (or its seawater cooling) then it can’t turn the steam back into condensate. If vacuum is lost and pressure builds up then the turbine’s steam supply has to be shut down before the condenser blows a seal. It’s a delicate balance, but it’s sustainable as long as the condenser has cooling seawater.

If the turbine is shut down, it’s not making electricity. If both electrical turbine generators are shut down then the emergency storage battery starts discharging again. The reactor is still keeping the engineroom’s steam hot, but none of it is generating electricity. The reactor’s still (relatively) safe but this is not sustainable. The condenser has to restore its seawater cooling (and its vacuum) to bring the turbine back online and resume generating electricity before the battery runs out of amp-hours.

When vacuum started dropping during the volcanic ashfall, the engineroom’s mechanics quickly checked the condenser and realized that there was hardly any seawater flowing through the cooling tubes. The hull suctions of the seawater pumps were clogged with volcanic ash. Even worse, the seawater pumps were forcing a slurry of abrasive volcanic ash through their rotors and seals and into the condenser’s narrow tubes before trying to push the sludge back out of the hull’s discharge piping.

Under a typical loss of condenser vacuum, the Engineering Officer Of the Watch would order the Electrical Operator to unload the turbine generator. (The other turbine generator would handle all of the electrical demands.) The mechanics would shut down the steam to the unloaded generator and then shut off that condensor’s seawater cooling. They’d connect an air hose to the seawater suction piping and blow air back out of the suction’s sea chest to clear out whatever marine debris had accumulated.

But nobody ever designed a submarine cooling system to run on seawater that’s fouled with volcanic ash.

Once the cause of the problem was clear, the EOOW and the EO quickly unloaded the turbine and the mechanics blew the ash back out of the sea chest. As they restored seawater cooling to the condenser and it began doing its job again, the EOOW announced “Rising vacuum, port main condenser.”

Whew. Everyone relaxed a little as the mechanics brought steam back into the port side of the engineroom and spun up the turbine for the EO to generate more electricity.

You submarine veterans can already predict what happened next.

Suddenly the EOOW had a new announcement: “Lowering vacuum, STARBOARD main condenser.”

This caused a mad scramble from the EO and the mechanics. As the port turbine generator took over the electric loads, the starboard turbine generator was electrically unloaded and the starboard side of the engineroom was quickly shut down. The mechanics hustled the air hoses over to the starboard seawater suction, blew out that sea chest, and quickly brought steam back to the starboard turbine generator.

This continued for 18 hours. Every 20-30 minutes one side of the engineroom would have to be shut down to blow a sea chest while the other side struggled to maintain condenser vacuum long enough for the first side to be brought back online. The mechanics, normally in three-section watches, were all on continuous casualty response. The ship shut off all non-essential electrical loads, and even the air conditioning was turned off until the engineroom got too hot.

The seawater pumps continued to grind through the ash in their impellers and seals. All of the mechanics gained way too much proficiency training at shutting down and starting up a side of the engineroom. As they raced against the lowering vacuum and the seawater flow, they knew what was already happening to the pump seals– and nobody was looking forward to those repairs.

 

 

 

 

 

Posted in Military Life & Family, Sea Stories, Travel | 3 Comments

Fear And The Just One More Year Syndrome


 

“If you could stop working, why haven’t you?”

“If you’re financially independent, then why are you going to work this week?”

Image of Monopoly Millionaire character with empty pockets | MilitaryFinancialIndependence.com

Millionaires, but…

Those quotes were posted on ESIMoney’s Millionaire Money Mentors forum. I spend an hour or two there almost every day, because I enjoy the questions and the creative-writing process!

(That link is not a sales pitch and there’s no affiliate revenue. I’ve written this post to help you worry less and feel happier about the 4% Safe Withdrawal Rate, which I’ll clarify below with a classic-rock reference. The links in this post are for the search engines– and in case you want to dive deeper after enjoying the rest of these thoughts.)

I’ve written on that forum for over two years because, well: millionaire mentors. I’m learning a lot for my next book. (Better yet: paid Internet forums do not have trolls, spammers, or haters.) This is the best peer tutoring I’ve experienced in over 25 years.

The forum does not have any secret trading codes for the stock markets, and the real-estate entrepreneurs did not get rich quick. However we have many discussions about safe withdrawal rates and the potential pitfalls of our financial independence lifestyles.

 

“Pitfalls”…?!?

Yeah, you read that right:  just like everyone else, millionaires are concerned whether we’ll have enough money for the rest of our lives. The Just One More Year syndrome is more pernicious among this wealthy group than my years of experience on Reddit, or MrMoneyMustache, or Bogleheads, or even the Early-Retirement forum.

Some of the Millionaire Money Mentors have been happily financially independent for years, yet they’re not ready to stop working. They fall into two groups.

The first group loves what they do, and this is a very good thing. When you’re financially independent and your work is still challenging & fulfilling, then keep working! Do what you love for as long as you can. I hope we all find our avocations.

The second group of millionaires wants to use their FI to work less and live more. As much as they’d like to do that, they’re skeptical that their assets are sustainable. Before they quit their jobs, they want more safety margin.

I empathize with both groups. It takes months to change a mindset from scarcity to abundance, and we’re all reluctant to live a lifestyle that will Die With Zero.

I have over 20 years of experience with financial independence, yet spending money in retirement was harder than I expected. The skills which enable humans to earn, save, and grow our wealth (before FI) have little relevance to living a financially sustainable life without a paycheck (after FI).

Financial independence means that we might be able to afford the (higher) prices of (more) things, but we still have to perceive the value of every purchase. Does it improve our lives? Does it make us happier?

Millionaires can do math. Most of the forum understands probability & statistics. I thought that every member would embrace the strengths of the 4% Safe Withdrawal Rate while accepting its minimal risks. At age 62 I’m old enough to remember when Bill Bengen published his 1994 SAFEMAX research and started the perpetual debate on the 4% SWR. These days I expected that after three decades of analysis, a bunch of millionaires would agree that it’s become conventional wisdom.

That seems so logical, doesn’t it?

Gosh was I wrong.

At first I was shocked by the number of forum members who feel compelled to work for more years to build more wealth which– by their own math– they do not need. “C’mon, folks, I joined this group to learn the millionaire secrets of how to live with too much money! Whaddya mean, you don’t think you have enough?!?”

Our phrase “safety margin” isn’t fretting about our yacht’s lifeboats or the fuel ranges of our jets. We don’t have yachts or jets. (We’re not even contemplating carbon-fiber longboards.) It turns out that people in the Two-Comma Club are still stressing about mortgages, affordable health insurance, kids’ college tuition, long-term care, and the travel budget.

Image of Kazuma stand-up paddleboard at White Plains Beach Oahu | MilitaryFinancialIndependence.com

Well, I did buy a (used) carbon-fiber SUP.

The math & logic behind the 4% SWR isn’t enough reassurance, either. When you’re a millionaire, you’re still vulnerable to the emotions of behavioral financial psychology. You might be awesome at math & logic but you’re still human. Even if you’re way past the tripwire of financial independence, you still have to sleep comfortably at night after quitting paid employment.

Yes, these are millionaire #FirstWorldProblems. You wish you had them too, right?

(If you’re just starting your path to financial independence, please keep reading.  Do not despair while you’re paying off debt or feeling the pressure to sign up for that military retention bonus.  These millionaire examples are only highlighting the surprising fact that more money does not free you from worry. We can still help you reach financial independence on your terms.)

 

What’s wrong with working for more money?!?

Money is the easier part. As we approach FI, we have more critical resources to worry about sustaining.

Recently one of the forum’s more prolific posters, Millionaire73, explained his perspective:

… something I have been thinking about recently and might be relevant for the ‘One more year folks’ who have the means to retire but are worried about running out of money [is] how much thought they are giving to ‘running out of health.’
We always talk about SWR but never about SHR (Safe Health Rate)…
You may want to ask yourself why you have that fear around money but not around health as for all too many they are trading money not only for time but for health as they don’t have the time or energy to take care of their physical or mental health and ‘will get to it later.’
I have to think that less stress, more sleep, more time to exercise, and self-care increases the odds of staying healthier for longer. Are you only worried about the money odds?
For each person, there are the opportunity costs of making money at the expense of time and portions of life/experiences (worth way more than money) that you can never get back if you miss as well.

Then he wrote:

Three years ago I was planning on working for another 5-10 years so my perspective has done a complete 180 and I’m sure glad it did.

That’s the issue, coming straight out of the book “Your Money Or Your Life”:  trading life energy (that you might not have) for more money (that you won’t need).

It’s fascinating to learn about the fallacies and biases of behavioral finance, but we hardly ever discuss the fallacies and biases of our life energy. What’s the safety margin on our health? Maybe we feel personally invulnerable and darn near immortal, but the universe has a few surprises waiting for us. We can all figure out how much money we have– but none of us know how much time we have left.

Worrying about money might be the wrong approach. Maybe we should worry about our quality of life.

 

Feelings and choices, not just math & logic

I’ve spent decades explaining financial freedom with math & logic, but I’ve learned that our human emotions are more important. I’m finally beginning to understand how to explain FI with more attention to how we’ll feel, and not just more pontificating on exponential compounding.

The deeper I dive into the math & logic of personal finance, the more I appreciate that the emotions of behavioral financial psychology are far more difficult to handle. The size of your spreadsheet only matters if you feel confident about it. If you (and your family) aren’t happy with reaching the 4% SWR’s tripwire of FI, then the math & logic is irrelevant.

I should stop relying on math & logic to assuage our fears about the 4% SWR.

Financial independence gives us the freedom to make more choices. It’s our chance to completely redesign our lives.  We should feel happy about that freedom of choice!

Unfortunately there’s a paradox in all of those choices, and we’re overwhelmed like hyper-sugared toddlers in a candy store.

What do we do with too many choices? We want everything. We flounder with indecision. We procrastinate. Instead of thoughtfully and rationally identifying what we really want, we try to discard most of the other choices so that we can pick something from whatever’s left.

Then our self-confidence withers and we second-guess the choices we’ve already made. We start all over again and end up running around in circles.

Every parent has seen this toddler story before, and we all know what eventually happens. First, there’s an epic meltdown… and then someone else makes the choices for them.

“Golly, maybe it’s easier to stop tasting all the candy. We’ll circle back to these decisions in… oh, Just One More Year!”

As we grow older, eventually most of us learn to make our own choices. (Some of us take longer than others to learn that.) However the longer we flail around in the candy store of life, the more likely it becomes that someone else is going to make our choices for us.

Let’s make that fear work for you. If you’re worried about Just One More Year syndrome and hesitant to make the choices for a better life, then I’m going to help you worry constructively.

 

“What, me worry?”

Image of Leonard Nimoy's Doctor Spock character looking skeptical because worrying is highly illogical.

Worry? Highly illogical.

So you’re too worried about the 4% Safe Withdrawal Rate to feel that you can stop working, and you’re going to try Just One More Year?

Maybe you should worry that you’ve defaulted to spending more time at work instead of choosing to:

  • sleep well almost every night
  • eat a leisurely healthy breakfast (and lunch, and dinner), and not snack on the run
  • exercise regularly
  • spend more time with loved ones
  • enjoy nature during long walks with friends, family, podcasts, or your own thoughts
  • travel the world at your own pace instead of in between work
  • explore new interests as deeply as you want.

If you’re committing yourself to Just One More Year (with only two weeks of vacation), maybe you should worry how you’ll feel about missing the opportunities to:

  • reconnect with your spouse and family
  • focus on parenting after bringing home your next baby
  • volunteer more at your kids’ school
  • cheer on your kids at their school & sports events
  • travel with family for months at any time of year instead of two weeks in summer
  • experiment with long-term slow travel and expatriate living
  • drop everything to help family or friends with a crisis
  • be there for your loved ones.

“Just One More Year”: is your life on hold, or are you holding back your life?

You should worry that instead of making choices for a better quality of life, the side effects of the stress could be working you to death. JOMY syndrome also means that you might be raising your stress levels with:

  • business attire, workplace clothing, and occupational safety gear
  • repetitive stress injuries and other service-related conditions
  • rush-hour commutes
  • corporate travel (in coach, not in business class!)
  • meetings you don’t want to have with people you don’t want to deal with
  • deadlines
  • reorganizations
  • watching out for your team
  • new bosses
  • “mandatory” events of training, team building, and socializing
  • frequent interruptions all workday
  • assessing every life opportunity within the constraint of the work calendar
  • checking e-mail every evening
  • a 24/7 corporate culture, including nights & weekends
  • having to lay off some of your team… or even
  • being laid off.

Considering that list, maybe you should worry about your health. Meanwhile there are literally thousands of posts on personal-finance forums describing how FI people are enjoying their freedom while getting into the best shape of their lives.

While you’re contemplating those Safe Health Rate issues, here’s two more thought experiments.

First, worry about how you’d feel if you were working under the self-inflicted duress of JOMY syndrome when:

  • you’re overweight, your blood pressure is higher, you have stress headaches from chronic fatigue, and your doctor’s writing prescriptions
  • you’re hospitalized with a health crisis
  • a loved one has a severe disease or injury needing prolonged care & therapy
  • a family elder needs your help with their home, their activities of daily living, or even dementia.

Is it better to have to untangle yourself from work to take care of these situations, or would you rather already be living your freedom in financial independence?

And finally, think about Taking Stock of your life if:

  • your co-workers are dying on the job from strokes or heart attacks, or
  • even worse: you realize (before it’s too late) that you’re at risk of dying on the job from a work-related stroke or heart attack.

If you die at work then you don’t have to worry about your feelings– you’re dead. But before that happens, maybe you should worry about how your family, friends, & neighbors will feel. When you’re in the military, you already know how it feels.

That’s a lot of life events to worry about.

Are you still worried about your money and the 4% Safe Withdrawal Rate?

Or would you be less concerned if you had a better Safe Health Rate and the life energy to help you worry about more important issues?

 

“You Never Know Your Last Day”

Here’s a quote from another Millionaire Money Mentor:

It has struck me lately that we never know the last day we’ll do anything.
For example, I have two friends who looked like they were going to play pickleball for years to come, but have recently had injuries/situations come up.
Now it looks like their last day ever playing pickleball is behind them, not ahead of them.
Things still could turn for them, but I’m even thinking of this issue for myself…I may not be able to do _____. In fact I probably won’t be able to do lots of (fill in the blanks) in 1 year, 5 years, 10 years, etc. So I don’t want to put those off saying, ‘I can do them in the future.’ Maybe I can, maybe I can’t. One simple event could make it the last time I do X, Y, and Z.
Anyway, trying not to be a downer today, but also want to be realistic. So get out there and do what you want NOW – so your last day of doing X is not behind you…as it appears to be for my friends.

 

The Classic-Rock Reference

Welp, that got awfully dark.

I think you can figure out this post’s Call To Action, so now I’ll try for a more upbeat conclusion.

Let’s reach back to those paragraphs about making life choices for your Safe Health Rate.

The world’s greatest drummer in progressive rock, Neil Peart, wrote the world’s best lyric about Free Will in his chorus:

“If you choose not to decide, you still have made a choice!”

Go ahead, click through that link and enjoy the music while you read those lyrics.  We’re here to help you feel better, and that anthem has helped me get through four decades of life.

Now worry constructively: and make good life choices.  The 4% Safe Withdrawal Rate will take care of your money, and you can take care of your life.

In a future blog post I’ll share more ways to get comfortable with the 4% SWR.

(This post was written in memory of Jim Nelson– BigMoneyJim–  who reached financial independence on a high savings rate and became a digital nomad for two years before unexpectedly passing away. Even as his health deteriorated, Jim was happy that he’d had the flexibility to explore his new life.)

 

Related articles:
Tim Urban’s “The Tail End”
Four Thousand Weeks
After financial independence: Rich, Broke, or Dead?

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