Q&A: I Want to Retire Early Without Selling My Stocks in a Crash

0:00Joe, you've taken a couple of sabbaticals in your day, haven't you? I have. I just call them extended vacations. How long do they last? The longest that I've ever taken off is a month, but not like you taking off six months or taking off a year. I've never done that. A month is great. Yeah. I enjoy what I do too much, but getting away for a month, generally two weeks into it, I feel itchy. I want to get back to work. But then along about week three, I forget about it again. You know what I mean? It comes and goes. But then generally after a month, I'm ready to get rolling again. Nice. Well, we're about to answer a question from someone who is on the verge of taking a sabbatical.

0:38In doing so, she needs to make some decisions about how to handle her savings, where to put it, how to manage it. We're also then going to go one step beyond that and talk to somebody who is going to early retire. A permanent sabbatical. Permanent. Yes. So we're going to start with sabbatical. Then we're going to have a high-level philosophical discussion mid-show. And then we're going to end with early retirement. Wow. All in one show. All in one show. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship.

1:18Acronym is FIRE with two I's. Double I FIRE. I'm your host, Paula Pant. I trained in economic reporting at Columbia. every other episode-ish, I answer questions that come from you. And I do so with my buddy, the former financial planner, Joe Salcihai. What's up, Joe? Wow, that's me. That is me. That's you. How are you? I am amazing. I'm loving 2026 so far. Knock on wood. Knock, knock, knock. This should be a great year. I think so too. I think we're going to make it a great year for three people right about now. We absolutely are. And our first question comes from Jean. Hi, Paula. Long-time listener here and first-time caller.

1:55Thanks so much for all the years of amazing advice. I'm calling in looking for advice on how to save up for a mini-retirement. In the next three years, I'm planning to take a self-made sabbatical of sorts. I'm a freelance creator, so I expect that I will be doing work during that time, but I really want to only do work that I enjoy and not worry about my living expenses for the year. So my goal is to save up anywhere from$30 ,000 to$36 ,000. That's very attainable for me, and it will actually cover all my expenses for the year. What I can't decide right now is where I should be saving this money.

2:34At the moment, I have a high yield savings account with 4.5 % interest. And then I also have a Vanguard brokerage account that's mostly made up of ETFs. I know that I have the most growth potential in the stock market, but I'm feeling a little bit risk averse just because of the short timeframe. Again, I'm trying to save up for only the next three years and then have enough to fund that year off. So right now I'm thinking about doing a split, something like 50 % in my high yield savings account and 50 % in my brokerage account. I'm just having trouble deciding what's going to be best given my timeframe.

3:13So I'd love to hear your thoughts and thank you so much. Jean, thank you for the question. And you have asked one of the most common questions in financial planning, which is what to do with funds for a medium-term goal. I think we all, most of the people who are listening to this know that if you have a 10-year goal, and I'm just going to broaden this out for the sake of the whole audience to orient it, most people listening know that if you've got a 10-year goal, then you can invest that money because that money is likely to grow in the next 10 years if the future is like the past. And most people know that if you've got a one-year goal, you keep it all in savings.

3:51But that three to five year, that middle term, that's the big head scratcher. That's the question mark. You don't want to be losing out to inflation or missing out on gains that you otherwise could have had for a relatively reasonable risk profile. But at the same time, if we do another 2008, you don't want to be caught on your butt. Yeah, this could be a really bad thing if you take on too much risk because of the importance of this goal and because of the fact that it sounds like it is definitely for this very fixed timeframe, I think I begin even more risk averse, Paula. Yeah, same. I'm thinking high yield savings account.

4:36I think the more that you think about this question, the more when you look at studies over short periods like five years, the things that can go wrong versus what can go right and the threats and what the biggest driver of your gains is over a five-year timeframe. And bar none, the number one thing you can do to rock this over the next five years is save more money. Over the next three years. Next three years. Excuse me, over the next three years. Yeah. So I think with a three-year timeframe, I'm not doing anything besides a high yield savings account. I think I'm thinking as hard as I can about how do I put more money away?

5:19The money's completely safe. I don't ever have to watch the news, think about what's going on with economic indicators. I'm just sitting the money in a very safe lockdown place. Let me push back on that a little bit, Joe. I would not put the money into equities because I agree. My sense listening to Jean's question is that the timeframe is reasonably fixed. It sounds like she wants to pursue this goal in three years. Maybe there's a little wiggle room like four years, but I don't think she wants to go too far outside of that three-year zone. This is not going to be delayed for seven years. This is three years, maybe two to four, we can say, if we want to buffer it on either end.

6:08And so given, and Jean, please correct me if I'm wrong or modify this if I'm wrong, but if this goal truly is a three-year goal, I think putting the majority of it in a high-yield savings account makes a lot of sense. But I would push back a little bit, Joe. I think that she could put some money into bonds and some money into Ginny Mays. Well, I mean, you know, Ginny May bonds, I really like. You know, the reason why I got hung up and I said five years instead of three was because, A, I can't read my own handwriting. But the thing around five years, I think five years is really the timeframe when you talk about a medium term, you know, medium term goal.

6:47I think three years is way too much of a short term goal to even do that. I mean, the things that can go wrong, even in as something I like as much as Ginny May's, in one year, the destruction in Ginny May can still be so bad that it can wreck the other couple of years. What if she went like 80 % high yield savings, 10 % total bond market index, 10 % Ginnie Mays? Looking at the last 10 years of the iShares Ginnie May bond ETF, which very creatively has the ticker symbol GNMA. Very, very difficult to look up. You know, in 2022, you lost 10.8 % in Ginny Mays, which take on almost no risk. Now, since then, you had in 2023, five and a third, just over 1 % in 2024.

7:452025 last year, you had a wonderful eight and a quarter percent. So you've had some really good years, but with a three-year timeframe, that negative 10.8, Paula still sticks out to me as does the year before where you did almost negative two. So for two years, you were losing some pretty big money in, in Ginny Mays, which I think of is a fairly risk. I'm not going to say free, but you know what I mean? Very, very low risk. I almost said fairly risk free, but, but it's really very, very, very low risk position in Ginny Mays and that negative 10.83 speaks volumes to why I wouldn't go there. I mean, I guess as I'm thinking through this, the other element of it is, is the juice worth the squeeze?

8:31And so, all right, if she put 10 % in Ginny Mays on a$30 ,000 bucket of money, that's$3 ,000. Yeah. If it went down 10%, she's losing$300. That's not the end of the world. No. That being said, if it goes up 5%, she's making$150. dollars. If it goes up 10%, right? Yeah. I mean, we're talking about such a, what ultimately will sort of come out in the wash is a rounding error anyway, because we're talking about a relatively small pool of money. Well, I like two things about that. I like that you're getting rid of the risk through minimizing the downside of this negativity by putting less money toward it and by dollar cost averaging into it.

9:15So I think a dollar cost averaging approach, I would definitely espouse. I think that's really good because if it starts going down during that time, you can do one of two things. Number one is you can shut it off. Now, I never like doing that because I don't like jumping in and out of my plan because then I think that I'm Nostradamus and I'm going to call the future. And the second that I turn it off, it's all of a sudden I'm going to start rebounding. Not the case, but I can shut it off. But the second thing I like is we're getting this variable pricing. We're not locking all the money in, in one fell swoop.

9:49So to that degree, I think it's okay. What I really, really would like to see Jean do before she does that is just go to Morningstar and take a look at the risk reward profile. And I think when you see the negative years and the positive years, I think knowing what you're getting into and knowing what the bounce around is going to be in that exchange traded fund is a big part of winning because you won't jump out at the wrong time. I still think for three, four years. Yeah. Okay. What do you think then about total bond market index? Let's put the Ginny Mays to the side. What if she just put 20 % into a total bond market index fund?

10:32Well, I think that's worse because of the fact that you're taking even more risk when you're putting in other types of bonds. The thing I love about Ginny Mays is that this is a government-sponsored entity, right? So even though there's not explicit government backing, there's implicit government backing, which means that this is going to have less volatility than something that has no government backing. So when I take a look at the Vanguard Total Bond market index fund, ticker symbol BND. Now you had some downside in 2018 that you didn't have in the Ginnie Mae fund, negative 0.11%, so barely lost money.

11:11But in 2021, you lost almost 2%. And then in 2022, instead of 10, you lost 13%. Now that sounds like, oh, well, negative 10 versus negative 13. What's the difference? That's 30 % more money. You lost 30 % more. When you think in terms of percentages, it's a big difference between 13 and 10 when you start talking about the actual dollars that you lost. The only thing I like about the bond index is when you talk about dollar cost averaging, volatility can work in your favor when you're dollar cost averaging. but I couple that with a three-year goal and I think okay we're going further out on the risk chart so I think if you're gonna do it Ginny Mays as far as I would go that negative 10 of course is a year that I had not seen during my career and you rarely see in an investment like that which is why I like it so much for an application maybe a couple years longer than this she said five years, I'd be like, yep, let's go Ginnie Mae.

12:17But I don't think so, Paula. By the way, for anybody who's wondering why I didn't say TIPS, Treasury Inflation Protected Securities, it's because she's getting 4.5 % in her high yield savings. And that's better. Yeah, no upside. Likely better than what she's going to get from TIPS. Well, and even if she does get slightly better in TIPS, the fact that she's got this guaranteed outcome, right? Which she doesn't have. She's going to have some volatility in tips. I, uh, yeah. And you know, and that's the other thing when she said 4.5. Yeah. I mean, there's volatility in that too. Like that is, that is a number that constantly changes.

12:55Yeah. But she, but that also tells me she's in one of the higher performing high yield savings accounts out there, maybe top 5%, top five or 10 % of all of the high yield savings accounts that are available. So she's done a great job of picking one that does very, very well. Tips again, 2022, negative 12.24. And also lost money in 2018 where the Ginnie Mae fund did not. And this is also interesting. Tips versus Ginnie Mae's in 2025. Ginnie Mae's actually won. So you lost more money in 2022 and you didn't make as much last year. Interesting to see both sides of that coin. Now, what changes the game here, and you and I have talked about this when people have called in with similar ideas, let's say that she puts some money into the Vanguard total bond market ETF, or she puts some money into the iShares Ginnie Mae fund.

13:54And we do have that negative 10, negative 12, negative 13 % year. And she does her 50-50 that she's talking about now. My question around the 50-50 that she was talking about would be, how upset are you if you have to push this off? Now, if you go with a bond fund, either that total market bond fund or less risky into the Ginnie Mae fund, she'd probably only need to push it back a year or two because bonds historically have come back fairly quickly. Stocks, which we'll get to later, can be a whole different story. That's right. I forgot that when I was running the, what's the actual dollar amount she might stand to win or lose, I was running that off of the full savings,$30 ,000.

14:39She said she wants to save between$30 ,000 to$36 ,000. If half of that's going into a high savings account regardless, and the other half, let's say, is going into a bond fund, okay, now we're talking you've invested 15 ,000 and there's a 10 % haircut. You've lost$1 ,500. Yeah. If she makes up the 1500 bucks in six months or in whatever timeframe, and she has to take her sabbatical six months later, how does that make her feel? That'd be my next question. Right. And then again, is the six months worth the risk? Right. Because the more flexibility you have around the date, the more risk you can take.

15:24Absolutely. That's why if we're bracketing this goal as, let's say, two to four years or two and a half to four years, or maybe three years is the soonest, but if it's four years, that's no big deal. Yeah. Then she can take a lot more risk, a lot more than she could if she was like, no, this needs to start in precisely three years. I think it's interesting kind of the yin and yin of this, that in general with a lot of financial planning questions, when somebody's talking about taking a life risk, like I'm going to have this period of no income, we want the other side, the portfolio side to be less risky.

16:02We want it to be much more certain where if you're 30 years old listening to this and you're going to have an income stream for a long period of time, as far as you can project, you know, hopefully you'll have it for a long period of time. Well, then very comfortably notch up the risk in your portfolio because you have the safety of this career, this money coming in that you think is going to continue. you. So I feel like there's this back, you know, this push and pull one, take the risk on one side, abandon the risk on the other. I'm glad you brought that up, Joe. That's a very important mental model.

16:40Again, to broaden this out to the whole audience, because this is something I talk about with the students in my rental property course all the time. It's a mental model for how to think about risk. And it is that if you are going to have risk concentrated in one dimension, then you counterbalance that by reducing risk in other dimensions. And so the way that that plays out in a rental property context, for example, is that in rentals, you've got risk across all of these various dimensions, right? You've got the age of the property. You have the separately, but sometimes related, sometimes not, the condition of the property.

17:18You have the type of neighborhood that it's located in. You have the economic prospects of the city and state that it's located in. You have risk across all of these dimensions. And of course, you have the level of financing, right? And so if people ask, all right, what is a reasonable amount to borrow for a property? Well, I'd be far more willing to leverage up on class A rentals in an economically dynamic location than I would be class C rentals in a place with declining population. That's an example of if you're going to have risk in one dimension, you counterbalance that by reducing risk in other dimensions so that your overall net risk across the entire spectrum is balanced.

18:12And I think along that note, I think that when we talk about risk too, we don't talk broadly enough about risk. Like we get questions, you and I all the time about taking more risk in your portfolio, but really a lot of the time the portfolio risk, you can do that, but the juice may be worth more squeeze. If you take some more risk with your income streams, or you take some more risk in your life, you decide to take a sabbatical like Jean is and go do the thing. I feel like when we talk about risk, we're always talking about our money. And I think if you expand that, especially the more I see numbers lately about the huge impact your savings rate makes, you know, and I've known that like cerebrally, I've known it forever, but just some of the studies I've seen lately about how just impactful that savings rate can be notching it up just a little bit.

19:12And if we take a little risk to say, I'm going to save just a touch more money than I did last month, or I'm going to go ask for that raise that might be a no, but heck might be a yes, but I never asked. Taking some of those risks can really improve outcomes a ton, but we're so busy looking at, do I choose small cap versus mid cap? Says Mr. Efficient Frontier. That we don't consider the bigger picture, but there is a bigger picture there, right? Yeah. I mean, that bigger picture, what's the level of risk, again, broadening this out to the whole audience, what's the level of risk in your career?

19:52If you are a tenured professor, then you don't have the same type of income risk as an entrepreneur. And that influences the types of investments that you might choose. It certainly influences, again, back to real estate, the amount of leverage that you might take out. And I'm not just talking, oftentimes when people say, how much can I borrow? What they mean is, how much will a bank or financial institution allow me to borrow? It's funny, when you Google how much house can I afford, people use that question synonymous with how much do I qualify for? But they're fundamentally very different questions.

20:31Very different. And it's a shame that it's used so synonymously. Because a bank will help you get in trouble really quickly. Yeah. That's another way to think about risk is what is the risk in the career or industry that you're in? What level of risk does that carry? And how does that translate to your investing and leverage decisions? I've also seen along another parallel line here, Paula, is the chance that you're going to make a mistake in your financial plan goes up the closer you get to needing the money. Which means that if you are taking risk, let's say Jean takes some risk in her portfolio right now with half of this money, she puts it in a stock-based mutual fund.

21:14Let's go crazy. Let's say it's a small company, stock-based mutual fund. The other half is in high-yield savings. the chance of her messing up and doing the wrong thing, overthinks it, decides to question whether it's going to make money or not, pulls the money at the wrong time, right? The chance of you doing that goes up as the goal gets closer and your brain knows the delta between the risk that you're taking with your money and the amount of risk you should be taking with your money. So as that delta grows and grows and it becomes more of a bet and your brain knows it's more of a bet, the more likely you are to do something destructive that wrecks your portfolio.

22:02Which is why it gets to another piece of this. And I know, Gene, we're going way off of your question here with this, but I think it's still important to widen this out. When people get toward retirement, the number one thing to do, regardless, historically, the best solution is to stay in equities. And yet the reason people don't stay in equities, and most people probably shouldn't stay in equities, has nothing to do with the market. it's that that perceived risk you're taking and the volatility of the equity positions versus the fact that in your brain you're retired and I may need some of these dollars, even though it's ridiculous to think you're going to need your entire retirement portfolio tomorrow, right?

22:47What are you going to do with that? And why would you do that? But your brain sees it as I might need this dollar tomorrow and people mess it up. the same people that when they were 30 years old would not have messed it up because at 30, they were still a significant amount of time away from the perception in their brain of needing to use that dollar. Essentially, the brain feels fear and reacts accordingly. Brain feels the fear. Right. You know, another thing, I'm sorry, Gene, this is way off your question now, but this is something that I've never heard anyone talk about and that I think really ought to be discussed.

23:22It's something I've been thinking about a lot lately. There is a certain level of risk that comes from suffering from depression, managing ADHD. If you know yourself well enough to be able to anticipate that you might be going into a state in which you are going to have to be focusing on your inner life, and you're probably going to let the ball drop in some areas of your outer life. If you know that that's going to happen, or if you have a sense that that might happen, there's a strong case for de-risking so that you can focus on your inner life. It's hard to anticipate those times, and I don't think that that's talked about enough, but often in these financial conversations, we act as though people have the same level of motivation and attention, that that is static throughout a person's life when in fact, that is incredibly dynamic.

24:25But I do think that all of these threads, all these different hallways that you and I just walked down, Paula, lead me back to, I'd use a high yield savings account. So Jean, there you have it. Thank you, Gene, for sparking such a great discussion. Best of luck with your sabbatical. Yeah. We're going to take a moment to hear from the sponsors who make this show free and available. And when we return, we're going to hear from someone who actually loves one of our sponsors. And he talks about that in his question. That's coming up next.

25:14Welcome back. Our next question comes from my fellow quince lover, Jared. Hi, Paula and Joe. Jared here. At the time I'm calling you, you recently answered a broader philosophical question, and that inspired me to call in with my own. Over the course of the year in financial media, I've been seeing more discourse about pensions versus 401ks. And in my experience, a lot of this reporting and a number of the articles wax very nostalgic for the days of the pension, and I'd love to complicate that and get your thoughts on it a little bit. There are several things I can see being in favor of pensions.

25:53Number one, pensions remove the behavioral element. You can't undersave, you can't overspend, the pension is what it is, and sometimes removing choice can improve compliance and adherence to a program in your favor. That's why I see that as an advantage. A second thing is they're incredibly predictable. You don't really have to worry about sequence of return risks. You don't have to worry about safe withdrawal rates. Assuming it's well-managed and well-funded and we could complicate pensions being well-managed and well-funded, you know exactly what you're going to get. Third thing is that pensions allow for collective risk modeling, and there might be more efficient ways to do collective risk modeling for retirement rather than a lot of individual 401k accounts.

26:37I kind of think about it like car insurance, where we can get some efficiencies by doing collective car insurance rather than individual everyone self-insuring. However, there's several different things that I view as being problematic with pensions. First, if someone thinks the problem with 401ks is that people don't earn a living wage plus enough to save, then why would we think an employer would, from a total compensation approach, would provide a living wage and a robust enough pension? So I don't understand how to reconcile that. Second, pensions often require vesting. For myself, I was part of a job where I was covered by a pension, but I left within the first five years, and I'll never see that money again.

27:18Whereas with a 401k, I would have been able to take my money with me. And then a third thing is, based on the pensions that I'm aware of, and I'm a layperson to be clear, once you leave a job that is covered by a pension, assuming that you don't go to another job covered by the same plan, your growth becomes linear. Your salary won't be increasing within the pension plan coverage. Your years of service won't be increasing within the pension plan coverage. Only your age, which usually grows as a linear multiplier, so you're getting linear growth on your pension rather than multiplicative or exponential growth through other investment options.

27:54So I'd love to hear what you and Joe think. Also, a quick shout out and appreciation for Quince, one of your sponsors. I recently got my sister birthday gifts from Quince and got some major big brother points. So thank you for that. Have a great day. Yeah, I love Quince. I'm going to do a shout out. I'm obsessed with them. I am wearing Quince. This was not planned, but like I come to every single one of these wearing Quince because I literally wear it daily. Wearing a Quince sweater right now, wearing, can you see it? Quince pants right now. I'm obsessed. Quince.com slash Paula. They are not even paying me for this added ad spot.

28:32I am just doing it because I am obsessed. Quince.com slash Paula. I also want to know, Jared, you said that age is usually linear. I want to know when it's not. I know. I love that line. I mean, in my brain, it's not. I love that. I stopped somewhere around 34 and I haven't aged since. Right. Yeah. And sometimes it reverses. Yeah. So that would affect my pension if that were real. Oh, but sometimes it's exponential. You know, you got, yeah. Just feel old. Yeah. So old. Yeah. You got a couple of, don't they say aging accelerates in bursts? Like when you're 44 and then when you're 60, you get a couple of bursts of aging.