How My Six Lines of Financial Defense Work


I'm ready to defend my retirement!

                 I’m ready to defend my retirement!

Whenever anyone lets go of their job and its income in favor of retirement or financial independence, there has to be a worry. Will the cash flow from the pension or the investments keep coming? Will it last or will it run out? Will some financial catastrophe wreck everything and ruin retirement? I had those same exact worries when I started to seriously plan for retirement 5 years in advance of my targeted freedom date. But I honestly have no such worries now, 14 years into my actual earlier retirement. Here is what I did to get to this point.

Optimizing my spending made everything easier. My first line of retirement defense was to reduce my cash requirements by separating my wants from my needs. The lower I made my expense target, the easier it would be for me to keep hitting it. In time, I crafted an annual budget of less than $15,000 that I could live on comfortably.

I put myself into my Social Security sweet spot. I did not pull that $15,000 budget figure out of my hat. My second line of financial defense was to target that expense figure based on my projected Social Security income. (If I had had a pension coming, I would have factored that in, but I had no such pension coming.) That way, my basic living costs would be met by my most (relatively) reliable income source and anything else I chose to spend money on would be flexible and discretionary.

I structured my investing to back up my Social Security. When I developed my retirement pathway, I set a goal of growing my stock investments until they would generate enough dividend income to meet my basic living expense budget. That would back up my Social Security income and be my third line of financial defense.

I insured myself against the unknown catastrophe. My retirement will not be wrecked by an expensive illness, an unexpected need for nursing care, accidental loss to my vehicle or home, or even by some out-of-the-blue lawsuit. I have got it ALL covered with insurance. Paying the premiums takes a full third of my $15,000 basic living budget, but I consider this fourth line of financial defense absolutely essential to my worry-free retirement.

I set up reserves. Any military commander preparing for battle will set aside a reserve, no matter how small his main resources may be. And that is what I have done. I have set aside reserves of cash and other resources as a fifth line of defense to pick up the slack for a year if all else fails. That will give me time to assess the situation and plan my next move.

I positioned my investment book value as a final defense. I have set up my stock portfolio so that I can routinely collect and spend the dividend income it throws off without touching the book value principal. This means that this book value will be there going into the future as my sixth and last line of defense even if its market value is reduced. If Social Security craps out, if my stocks all cease paying dividends, if a year goes by without any of that changing and eating up my cash reserves, this will be my sixth and final financial defense line.

Add to that last financial stronghold the equity in my paid-for house, against which a reverse mortgage may give me the option of creating a new cash flow, and I am set not to have to worry. My financially independent retirement is well defended.

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image courtesy of vectorolie at


  1. I wonder what my insurance costs will be when I retire in 6-7 years. That is my biggest concern at this point, not the return I get on my portfolio or how big my nest egg becomes. I think I will have several lines of defense, too. I like the concept of treating it like layers of protection.

    1. You’ve hit your “social security sweet spot” when your SS payments meet or exceed your baseline living expenses. At that point, any other income you have is gravy and game for optional spending.

      I started getting SS at 65. Should/could have done it sooner but did not know any better at the time.

      1. Thanks for the quick reply.

        When do you think you should have started SS payments, and why?
        Do your calculations show the later/larger payment strategy doesn’t add up?

      2. My calculations showed me that one could be better off collecting earlier (maybe as early as possible) if one is going to invest that money rather than spend it. In my particular case, my results showed that I would be ahead at age 70 due to the gains I projected on that invested money. Beyond 70, it was still going to take a while for the “collect later strategy” to catch up. And, rather than wait that long for payments that might be changed at the will of Washington, I opted for having the bird in the hand.

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