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Today begins my third year of retirement. I retired at 54 ½ and have never had any regrets. It's been great so far, but I've learned a few things along the way.

How well I remember sitting in my boss's office in December 1999 when I told him I'd decided to retire. He was surprised but wished me well and said if I thought I could handle it financially I ought to go for it. I told him I felt secure so long as we didn't have another stock market like 1973-74.

Well, you know what happened. Lesson one: Murphy's Law is still valid. Whatever can go wrong will. I was just starting to invest in the early 70's. I remember the 73' crash well. Not only were the losses deep but it took many years to recover. For a young investor it was good because I could buy at depressed prices during those years. For someone near or in retirement it was a disaster.

In the last two years I've seen my portfolio shrink by 18%. Not bad compared to some friends who have lost almost everything but tough when you're retired. My main income source is SEPP distributions from my IRA's. 2002's distribution will be the lowest of the 3 years. Lesson two: have some assets outside your retirement accounts to cover shortfalls. I had enough in non-retirement investments to cover three or four years living expenses. Unfortunately a lot was invested in tech stocks so that fund has shrunk along with the IRA's.

I never owned a stock and felt comfortable owning industry leaders with 20+ year histories and solid profits. Lesson three: in a steep downturn even the best companies can suffer huge stock market reversals. Fortunately I'm only looking at 40 to 50% declines from the highs and this on stocks I've held for several years. If I sell I'm still paying tax on capital gains.

I don't think this market will take as long to recover as it did in the 70's. The 70's were a period of runaway inflation. We don't have that problem today. And the economy seems to be in better shape overall. It's been sixty years since the market went down 3 years in a row. Still it could happen. Lesson four: have enough cash to cover several year's expenses so you don't have to sell into a down market. I didn't do so well here. I had enough cash for two years plus but by late 2003 I'll have to sell some stocks or bonds to meet expenses. And more in 2004. I've avoided selling at the bottom but will have to sell well before the next market cycle peaks. In hindsight I wish I'd sold some tech in 2000 and bought bonds but like so many others I kept thinking there was still some life in the bull. Wonder if I'll be any smarter the next time around?

Just a couple other tips for those considering early retirement. Health insurance has been a big hassle. I couldn't stay on my employer's plan so I shopped carefully (I thought) for good coverage at an affordable price. In less than two years the company's parent had financial problems and it and all it's subsidiaries were forced into liquidation. After some quick scrambling I was able to get new coverage with Blue Cross/Blue Shield but there were some anxious moments. And going without health insurance is like playing Russian roulette. You may win but can you afford the consequences if you lose.

One other thing that makes life in retirement a lot simpler. Set up all your regular bills for automatic debit. Then you don't have to worry about paying the electric bill while you're off on that trip you've always wanted to take. And use the scheduling feature in Quicken or Money to remind yourself about things like estimated income tax payments or real estate taxes. You'll be surprised how easy it is to forget such things when you get away from the working world.

Even though things haven't exactly gone smoothly I still don't regret my decision to retire. I did have a pretty diversified portfolio and I've fared a lot better than many people I know. The freedom to do what I want when I want is wonderful. I've had several job offers, both full and part time, but have declined them even though the money is sometimes appealing. Instead I do more community volunteer work, which has it's own rewards. I have time to read now and to travel. I play lots of golf too. In short, I'm enjoying life while I still have the good health and energy to do so. I could have kept working and had greater wealth when I eventually retired but I might not have been able to enjoy it. So I'm happy with my decision and my life.

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