After a decade of saving over half of his income, Justin McCurry quit his engineering job in 2013 and retired at 33. His wife, Kaisorn, left her 9-to-5 a few years later and joined him in early retirement.
Their portfolio has been as high as $2.3 million in December 2019. Now, it's closer to $1.6 million. In March 2020, when the coronavirus pandemic rocked the stock market, their net worth dropped by a staggering $298,000.
McCurry, now 39, was relatively unfazed by the massive dip. "In terms of our long-term plans, nothing has changed," he tells CNBC Make It. He's confident that their portfolio will last through retirement, even if the markets don't fully recover. That's because they worked strategically for years to get to a comfortable financial place that would be able to sustain a major downturn. Plus, they've been sticking to a conservative retirement budget of about $40,000 a year.
As for the FIRE (financial independence, retire early) movement overall, which embraces the concept of saving the majority of your income in your 20s or 30s so you can retire in your 30s or 40s, McCurry doesn't think that the pandemic will wipe it out.
However, it does highlight the risks involved in retiring early and relying on your portfolio and savings to last you a certain number of years, rather than consistent income. The economic impact of the pandemic is "going to reintroduce the idea that there are risks and you have to address those risks," he says.
McCurry, who does a bit of early retirement consulting, encourages his clients to think about what a massive downturn would mean for them. "What would you do if you wake up and, suddenly, your portfolio has shrunk by 30%? Or even 50%?" he asks them. "If you go from $1 million to $700,000, are you going to be OK with that? Can you still get by on that — or is it going to make you panic?"
If you can maintain your lifestyle amid market turmoil, that's a good sign that you're in an OK position to retire, McCurry says. But if you crunch the numbers and realize you'd be in financial trouble if you unexpectedly lost 30% of your portfolio, you need to save more before settling down, he says.
"I think that risk is going to become a lot more real for people that have started investing after 2009, just because they haven't lived through [a major economic downturn] before," McCurry says. "It may be the first time they're really internalizing, What does risk mean? What does volatility mean? What does it feel like to lose 30% of your portfolio value in a very short period of time?"
The best way to address the risk of retiring early is to over-prepare and create a conservative plan based on reliable numbers, says McCurry: "Make sure your plan is airtight and that you're OK retiring with the amount of money that you have."
McCurry left his job when his portfolio reached just over $1 million. He was comfortable with that amount for a few reasons: First, he used the "4% rule," which states that in most cases you can safely withdraw 4% a year from your retirement savings, to determine how much he needed saved up to begin with. He knew going into retirement that he could safely withdraw $40,000 a year without running out of money.
McCurry also has some income coming in each month from his blog and the early retirement consulting work he does in his spare time, which gives him more of a buffer.
Finally, he understands that the markets go up and down, and he's willing to be flexible when it comes to his retirement budget. As he told CNBC Make It in 2018: "You may have to spend less if the markets go down. Or, you may be able to spend more than what you originally budgeted for. ... As long as you're OK cutting back on some of the wants if your portfolio goes down, then you can still cover your needs without worrying about depleting your assets prematurely."