When Doug Nordman told his fellow friends in the Navy that he planned to retire after his 20 years of service ended, they looked at him incredulously, asking him ‘What are you going to do, surf all day?’
It’s a running joke for him. At the time he didn’t surf. But the day the 20 years of service ended, as he stepped into retirement at the ripe young age of 41, he decided to go surfing for a laugh. Nordman didn’t expect, 17 years later, that he would still ride waves most mornings after getting “hooked on it” during that first lesson, he said.
He also got hooked on retirement. Despite stepping away from his day job during the popping of the technology bubble in 2002, which only served as a precursor to the Great Recession six years later, Nordman’s retirement portfolio sits around three times larger than when he first quit the service.
When people hear that someone plans to retire at an extreme age, it’s often met with skepticism. And there are legitimate questions to ask about whether the person has saved enough, will they remain frugal for the next 40 years or more and will their portfolio survive downturns.
But part of the skepticism comes from the uniqueness of the decision to quit the day job with decades of working life left. It’s the retirement road less traveled, so to speak. In Nordman’s case, he has not only survived, but thrived.
Due in part to the recent success of the stock market, his family’s expenses have risen from around $60,000 a year to over $100,000, yet he’s taking less and less percentage of his portfolio out to pay for the expenses. He’s turned his regular FIRE (financial independence, retire early) into what is dubbed FatFire, or someone that has a lot of money to spend in his extreme early retirement. And he has sidestepped multiple recessions in the process.
He Keeps A Large Cash Reserve
Nordman and his wife, Marge (who retired from the Navy Reserve in 2008), always keep two years of cash on hand. It’s a tactic that serves as a stopgap, instead of pulling funds from the portfolio during a downswing.
“When we hit 2008, we kept our normal spending,” said Nordman. “Instead of cashing out [the portfolio], we kept spending the cash.”
By 2009, the market hadn’t yet corrected, so they kept using cash. If things had continued longer, then they would have had to start looking at selling some of the depleted shares of funds. But the market hit the bottom in March 2019. At the time, Nordman’s portfolio had fallen around 50%.
While it would take a few more years for the stock market to recover all of the losses seen in the 2008 fall, Nordman’s portfolio survived due to the cash reserves.
When they began to pull from the portfolio again, they adhered to the strict 4% rule, which states if you withdraw 4% of the portfolio in retirement then you have almost 100% chance that the portfolio will last (for extreme early retirees, though, 3.5% might be better). As they did, they began to refill their cash reserves again, in preparation for the next downturn.
That downturn hasn’t hit yet, and due to the market returns, they could very well soon live off of just 2% of the portfolio a year. At the moment, it’s nearly “low enough to live just off the dividends,” Nordman said, giving his portfolio a buffer, so it can last into his twilight years.
He Has A High Rate Of Stock Exposure
Nordman receives a pension for his 20 years of service working on submarines for the Navy (more on this below) and his wife will begin receiving a pension for her reserve service in 2022. This gives them a secure annuity.
He takes advantage of this reliable source of cash to invest almost entirely – often above 90% – in stocks. It means his portfolio will drop significantly when the market falls (he’s primarily in a total market index fund). But it also allows him to capture all the upside.
You don’t need to go 90% or more equity in order to capture every bit of upside in the market. Most people won’t have the pension, so utilizing a 80% stock fund, 20% bond fund can help during the accumulation phase, while a 60% stock, 40% bond fund can provide you some downside safety once you’re living off the portfolio.
Even with the more risk-adverse portfolio, you can find yourself ahead. Researcher and financial advisor Michael Kitces found that using a 3.5% withdrawal rate on a $1 million portfolio with a 60/40 mix, gives you a 90% chance of the portfolio tripling to $3 million, with a 50-year time horizon, a common length of time for extreme retirees.
He Benefits From His Military Life
In his retirement, Nordman has become a voice for financial independence for those serving in the military. He’s written a book, The Military Guide to Financial Independence and Retirement, where he expands on the topics he covers on his blog, The Military Guide. And you can’t ignore the benefits he earned through the 20 years of service.
The biggest benefit? The pension. It provides an extra layer of security that essentially serves as an annuity, buffering his need to tap the portfolio. When he retired in 2002, he could have done so without the pension. But now that he’s in retirement, using the pension to restock his cash savings, cover any costs if the portfolio falls, or even simply reinvesting the funds, provides him with an extra layer of safety.
The key for retiring on a military income is a high savings rate. Even before he had ever heard of FIRE, Nordman had a savings rate of at least 40% while working. This funneled cash into his portfolio, and he could use the pension as a submarine-sized backup.
Due to this pension, “spending has gone up” in retirement, said Nordman. It’s a big reason why he now considers himself “FatFIRE,” after 17 years.
It wouldn’t have happened, though, without planning for regular FIRE through his portfolio.