25x Expense Isn’t Enough For Early Retirement

25x Expenses Isn’t Enough for Early Retirement350How much money do you really need to retire early? I’m sure every reader here asked that question at some point. The rule of thumb in the early retirement community is 25x your annual expense. This benchmark is derived from the 4% safe withdrawal rate. If you accumulated 25x your annual expenses, then you would be able to support your lifestyle by withdrawing 4% every year. That’s pretty simple, but where dd the 4% rule come from? Is the magic 25x expense really enough for early retirement?

Safe Withdrawal Rate (SWR)

The 4% safe withdrawal rate came from a study by 3 professors at the Trinity University. The Trinity Study concluded that the withdrawal rate of 4% is extremely unlikely to deplete a stock-dominated portfolio over a 30 year period.

Here is how it works. In the first year of retirement, you withdraw 4% of your portfolio. Then you increase the withdrawal rate along with CPI (consumer price index) every year. The CPI is a measure of inflation released by the US government. The portfolio will get smaller over time, but it should last 30 years.

For example, if your expense is $50,000 per year, you’d need about $1,250,000 in investable assets to fund your retirement. The 4% rule works very well for traditional retirement. However, I’m not sure if it will work with early retirement. I retired when I was 38 and I have a lot of years ahead of me. If I’m lucky, I could spend 50+ years in retirement. That’s a long time. Would the 4% SWR work for early retirement?

25x Expenses Isn’t Enough

I’ve been retired for 7 years and I’m skeptical about the 4% SWR. We’re doing very well financially, but we have been very lucky. It might have turned out differently if I retired at the wrong time.

I retired from my engineering career in 2012. Our annual expense was at rock bottom at that point. We spent about $41,000 that year which was very low for us. We really tightened the belt to prepare for my early retirement. In hindsight, I shouldn’t have used $41,000 to measure anything because it was artificially low.

I quit my job when we had about 30x expenses in our investable assets. I thought that was a comfortable margin and I retired with confidence. After all, 30x is a lot more than 25x. Now that I look back, I see that things could have gone wrong.


The Portland metro CPI has been under 3% since I retired. Modest inflation is great for the economy, but the bad news is our personal inflation has been much higher. Our annual expenses rose 39% since I retired 7 years ago! That’s about 5.5% annually, more than double the CPI.

RB40 annual expense

Why did our annual expense increase so much faster than the CPI? This is mostly due to the dreaded lifestyle inflation. We didn’t change our lifestyle much, but we are spending more than in 2012. Here are the main reasons why.

  • Our son – In 2012, I became a stay-at-home dad and we didn’t spend much on childcare. In 2014, RB40Jr started preschool so that increased our expense. Fortunately, our public school is pretty good so that expense disappeared when he started kindergarten in 2016. We don’t have childcare expense now, but we still need to buy clothes, food, and pay for various activities. It’s harder to retire early when you have kids.
  • Travel – We took a break from traveling when RB40Jr was born. He’s old enough to travel now and we are taking international trips again. Last year, we spent over $10,000 on travel. We visited Iceland for 2 weeks and Thailand for 5 weeks. This year should be much cheaper.
  • Medical – We’re on Mrs. RB40’s employer health plan so we’re not paying a huge amount. It’s just the co-pays. We are getting older and we’re seeing the doctors more. RB40Jr also goes to the doctor pretty often. Kids get ear infections, fevers, weird rashes, etc…
  • New stuff – We didn’t have a smartphone in 2012; now we do and we can’t live without them. Our TV is 14 years old and I want a nicer one. There are lots of new things to spend money on.
  • Increased net worth – The economy did very well since I retired and our net worth doubled. We feel more comfortable financially so we aren’t as frugal today.

From the chart above, our annual expense increased dramatically from 2012 to 2014. Then flattens out until 2018. Last year, we spent more than usual because we traveled more than normal. This year, our annual expense should drop a bit. Our housing expense decreased because we moved into our duplex. We also cut back on travel. Hopefully, we can get back under $55,000/year. That seems to be the sweet spot for us.

Lifestyle inflation

Lifestyle inflation is inevitable, especially for early retirees. If you’re single, you might get married. No kids? Your partner might decide to have children. Married? You might get a divorce. People get sick and families need financial help. My mom developed dementia last year and she needs a lot more help now. Life is unpredictable and you have to be flexible and adapt. It’s very difficult to keep your expense flat from year to year.

Also, there are bound to be more gadgets we couldn’t live without. Ten years ago, I didn’t need a smartphone, but I use it constantly now. New technology isn’t cheap and it’s practically impossible to avoid them. Unless you’re willing to freeze time, lifestyle inflation will push up your annual expenses. Can you imagine retiring 20 years ago and saying no to laptops, cell phones, digital cameras, flat-screen TVs, Wi-Fi, and other new innovations? My father in law can do it, but not us.

I thought 30x was more than enough cushion, but it was barely enough. If I use our current expense in 2012, then we’d only have about 22x annual expense. That’s a big change. Fortunately, our net worth increased significantly over the last 7 years. We didn’t draw down because our income exceeded our expense. We kept adding our investment and it worked out really well. You can read more about our withdrawal strategy in detail here. Basically, we are putting off withdrawal until we’re 55.

The First Decade is Crucial

One of the biggest risks to retirement is having a few bad years at the beginning of your retirement. Imagine if you retired with 25x expenses at the end of 2007. After one year, your stock investment would have dropped by 50%. If your investments were all in stocks, your 25x would have turned into 12x. A few bad years at the beginning of your retirement will wreak havoc on your retirement portfolio. This is called sequential of return risk.

Luckily, I retired in the middle of a great bull market. Our investments gained a lot of value over the last 7 years and now we have over 40x annual expense. Now, I have a lot more confidence in my early retirement. Mrs. RB40 plans to retire soon and we will be in a good position for that event.

Long Retirement

Early retirement means a long retirement. I could spend more than 50 years in retirement if I’m lucky. The Trinity Study looked at a 30 year period and that isn’t long enough. Does the length of your retirement impact the safe withdrawal rate? Yes, you would need to lower your withdrawal rate if your retirement is longer than 30 years. Other studies have shown that 3.5% is much better for long retirements. Half a point doesn’t sound like much, but your portfolio would need to increase from 25x expenses to about 30x.

If you retire at 55 or older, then the 4% rule should work quite well.

Low Yield Environment

The 4% safe withdrawal rate was based on US historical data. They assumed 2.6% real returns for bond and 8.6% for stock investment. That’s not the current environment. Long term government bond yields 1.8%. Once you take inflation into account, the real return is less than zero.

Many experts are also pessimistic with the stock market recently. One way to measure the valuation of the US S&P 500 equity market is the Shiller PE ratio. It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation. (via Wikipedia)

shiller PE

The Shriller PE ratio doesn’t necessarily mean the stock market is going to crash. It is used to predict future returns from the stock market over the next 20 years. High Shriller PE ratio means your return will most likely be lower than the historical norm. As we can see from the graph, the 2019 value looks very high. We probably won’t get 8.6% average returns in the next 10 years.

The 4% withdrawal rate has a higher chance of depleting your portfolio in this low yield environment. If you’re planning to retire by 40, it would be safer to lower your withdrawal rate a bit.

Here is a study from retirement researchers Michael Finke, Wade Pfau, and David Blanchett – The 4 percent rule is not safe in a low-yield world.

Read more about the Safe Withdrawal Rate at Early Retirement Now. Big Ern wrote a huge series on this topic.

Improve Your Chance

Accumulating 25x your annual expense is a huge accomplishment. Most normal people will never get even close to that. However, you should add a little extra margin of safety for early retirement. If you can handle working a few more years, 30x annual expense is a much safer number to shoot for. However, 25x probably would still work if you are flexible. Here are some ways to improve your chance of a successful retirement. Successful retirement, in this case, means not running out of money.

  • Be extra vigilant in the first 10 years. The early years of retirement have outsized impact on the rest of your retirement. If things aren’t going well early on, then you should go back to work for a while. This is the advantage of early retirement. If things don’t look good, you can fix it because you’re young.
  • Side hustle or work part-time. A little active income goes a long way in retirement. I’m working part-time on my blog and the extra income is very helpful. Early retirees should be open to income opportunities. Retirement doesn’t mean you have to stop working completely. Develop a thick skin and ignore any negative comment.
  • Reduce the cost of living. Relocating to a lower cost of living area is a great way to reduce your expenses. If the stock market is having a bad year, why not live in Thailand for a while? The cost of living is low and you’ll learn more about other cultures.
  • Flexible withdrawal rate. Instead of withdrawing 4% and increase it with inflation, you should be more conservative and withdraw less in bad years. For example, withdrawing 3% in bad years and 4% in good years. This will minimize withdrawal when the market is down.
  • Go over your retirement finance at least once per year. Early retirees are very diligent about their finances and I’m sure they check it more than once per year. For regular investors, the easiest way to check on your retirement finance is with Personal Capital’s Retirement Planner. It can predict if your portfolio will support your desired monthly spending. You can adjust the inflation rate, add part-time income, and see how that changes your retirement spending ability. It’s a powerful tool for DIY investors.

We have been very lucky over the last 7 years, but it could have turned out differently. The stock market could have gone south or our living expenses could have shot up even higher. I’m very happy with my early retirement so far. Pretty soon, I will be retired for 10 years and put the sequence of return risk behind me. Let’s hope the stock market doesn’t crash in the next few years.

In conclusion, 25x expense is just the starting point. It’s pretty safe if you retire at 55 or older. If you want to retire earlier, you should save a bit more or be more flexible. Good luck!

How much money would you need to retire early?

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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138 thoughts on “25x Expense Isn’t Enough For Early Retirement”

  1. 50x expenses or higher would be nice, but I have a feeling I could get away with 15x if a few special circumstances come about (dual income, part time retirement work, paid off home, etc) but let’s say my burn rate is $30,000 currently as a single 20s male. 15x is 450k. I’m on pace to be there in 3-4 years. Could quit the main career, continue to live off that 30k mark and probably be fine for a long time. Would be a safer bet to keep working part time or just keep going in my main career until I hit about $2-3 million which would put me over the 50x mark which seems pretty safe although I could think of a number of ways my spending # gets thrown off in the future

  2. How are you counting your nest egg size? If I add in my defined benefit pension plus social security and throw in assumptions about mortality and solvency, my nest egg is a much larger multiple of expensives.

    • BTW the way I approach tyis is to include pensions and SS, and define a range for the muliple based on the most conservative and least conservative estimates. Specifically, I consider two mortality ages, 75 and 95. I also assume that both pension and SS will pay out as promised (least conservative) or that the higher paying plan goes away and pays nothing (most conservative).

      • That’s a good plan. I didn’t include pension and SS benefits in my calculation.
        It’s a bit tricky because we still have 20 years left until we can collect.
        Once we get closer, we’ll deduct the Social Security benefits and pension from our expense. That will give us much better multiple.
        I’m sure it’ll be over 50x if we can keep lifestyle inflation at bay. Thanks for your input.

  3. What does early retirement really mean? Does it mean that you NEVER do any work and NEVER earn any money?

    I’d argue that it means you spend the majority of your time doing what you WANT. This includes working on what you want, earning money in ways you enjoy/choose. In order to do this, of course achieving Financial Independence is the key. Once your money-driven days are behind you, you can be completely independent and work/have fun doing whatever you like! Who knows, you might even find that you wind up making more money/higher rate than you did before. Having some additional time in your life might open up your eyes to opportunities you were previously blind to.

    Cheers to a great post, Joe!

  4. Joe I like your site.
    It’s informative.
    Though I’d have to say you never really retired early.
    Your wife still works full time! Most people would say this isn’t really retiring early.
    Back in the 50’s households only has one working person. Still a large number of
    households only have one working person. So you trying to use your household as an example is bogus.

  5. I think there are other examples of people with kids who haven’t spent more in retirement such as Justin at http://www.rootofgood.com.
    It’s obviously harder to retire early with kids, but maybe you should take seom travel hacking tips from Justin. They travel a lot with their 3 kids and still spend under 40k per year.

    • I love Justin, but they’re not normal. Most families with 3 kids spend a lot more money than they do.
      Last year was expensive because we went to Iceland. This year we’re going to Thailand and we’ll use points to pay for almost everything.

  6. Great post, a defensive look at FIRE. I agree 25x expenses is not enough. I think I have 25x right now and I don’t feel comfortable retiring. I wouldn’t want to withdraw from my portfolio and I like the ‘never touch your principal’ approach instead.

  7. Love the in depth dive into the 4% rule.

    My situation is different, as is everyone else’s. I figure 25 x annual expenses is a good place to start. The thing is, what about those things that can come up? What if a source of income dries up? Different choices in current lifestyle? What if something catastrophic happens that would draw down your savings significantly? There are so many things that can happen that can derail a “perfect plan.”

    A concept I read about recently is to include “room for error.” I want to have several different buckets of income. One with 25 x expenses, that produces enough income to support my current life style. Another with enough to cover foreseeable expenses, replacement vehicle, new roof, income replacement when things get rough. Another with “excess” funds, just to sit and compound, and wait for that unforeseeable event that might be in my future

    I have lived long enough to remember when the 4% rule seemed too conservative. Today it almost seems too liberal. It’s looking like 4% might be way too liberal in the near future, to me. Things change, all the time.

    In other words, since I don’t absolutely despise my job, believe I will work another year or two, just to be on the safe side. I am blessed enough to have a job that just keeps me busy enough, is kind of a passion project that provides a lot of satisfaction, and most of the time the work isn’t that bad. I answered 50 x expenses in your above poll. I will reach that point in less than 10 years, if things go according to my plan. To me, this is a difference between lean and fat FIRE. I want excessively fat FIRE, going back to work is not an option I want to keep on the table.

    Your plan for you seems to be a good one for you and your family. I wish you much success with it.

    • Like Mike Tyson said – everybody has a plan until they get punched in the mouth. We just have to be flexible and figure out how to adapt to different situations. I didn’t think my mom would get dementia, but that’s what happened. It caused a lot of stress and we’re still trying to figure out what to do. This is an added expense that I didn’t plan for when I retired early. Luckily, I have 2 brothers and we can share the expense. Our investment also did well so we should be able to absorb the hit.

      I think working a bit longer is a great idea. If you enjoy your job, why quit. That’s why my wife is still working. She isn’t ready to retire yet.
      Thank you for your input.

  8. I agree that the first number of years are critical. Unless you really bat it out of the park on your investments, I think having a side hustle or part-time job is a must for most people to be on the safe side. However, it can really come down to what are you willing to do? Are you willing to relocate to a cheaper place to live if you had to? Are you willing to living in a tiny home or RV? Are you willing to not travel and only buy clothes at Goodwill? Are you willing to not ever eat out? There is a lot of discretionary spending that a lot of us don’t want to give up, but if you are willing to then it is much easier to make it if the market turns sour. I’m a big fan of having some rental property in your investment mix for this very reason. Companies could cut their dividends and stocks could crash, but I will still be collecting my rent.

    • Thanks for your input. I think that’s not a problem for most FIRE people. We’re very flexible and can adapt to many situations. People who can’t think out of the box won’t try to FIRE.
      I like rentals too, but they’re a lot of work. That’s why I like REITs and RE crowdfunding more now.

  9. I think the amount you have to set aside depends on the situation you are in. If you are a single individual, then you could probably get away with a lot lower. If you are a family individual, you will have to find ways to maximize what you are doing.

    Blogging, mobile app creation, Forex trading, etc can be ways to greatly increase that bottom line. It takes a while for these to get going but they are worth it. Most people don’t realize that these can be done without having to turn them into a major business.

    • You’re right, but it also depends on how much life is going to change too. A young single person’s life could change a lot. My life is pretty settled now. It’s not going to change much so our expense should be pretty steady.
      I’m with you on making some income after retirement. It’s a good way to keep busy.

  10. Are you really retired? Wouldn’t it be more accurate to say you have changed careers to become a blogger? Surely you spend more then 20 hours a week on your collective work with Retireby40. Your work on the site is high quality surely it’s not a extreme passive site that runs it self. You have had a career transition that now nets you $5 k per month, certainly you stopped working as a engineer but you are not “retired” from working or making money in the sense of traditional retirement. It’s slightly misleading.

    • I think of it as retired from my engineering career. Lately, I work 10-15 hours/week on the blog, but that’s summer schedule.
      It’s a huge drop from 60-80 hours per week. Life is a lot better now.
      Would it count as real retirement if I don’t make any money from blogging? Someday, I’ll get there.

  11. Wow has it really be 3 years since I commented on this article before? You did some impressive updates here… or maybe my memory is off.

    I like to be safe and half a little more for the reasons you mentioned. However, I find it almost as important to have a diversification of income streams. We don’t really 25x because most of our expenses can be zeroed out with real estate properties (or at least that the plan when the mortgages are done in a few years).

    We might have some lifestyle inflation as we travel, but that’s discretionary. This optional spending can be eliminated if necessary in a bad economy. For the most part, I think all the money that we need to spend will go down in the future.

    We’ve also reduced our future expenses with solar panels. That’s an extra $100 a month or enough to basically some modest tech budget growth.

    • Time really flies. The update is mostly inline with 2016. Our expense increased, but our asset base increased too.
      Last year was an anomaly for us. We’ll get back under $55k this year. Hopefully, we can keep our personal inflation low as we go forward.

  12. We’re using 25x expenses plus a paid off house and separate college savings as the starting point.

    I’ve always liked the idea of getting to 25x (say that’s 40k/year spending) and then dialing back to work JUST THAT AMOUNT year to year. Like going from a six figure engineering job to seasonal contract assignments to earn about what you spend (0% savings rate). That way you test out what it’s like living on that number, and if work goes sour you technically don’t need to be there anyway, and at the end of the year your nest egg has grown to maybe 43k/year. It’s fun to play around with scenarios like that.

    • 25x is a great starting point. A paid-off home helps a lot too.
      I like the way you think. That’s what I figured when I retired from my engineering career too. I won’t have to save anymore. I could work here and there to help fund our lifestyle. It worked out very well so far.

  13. I cannot stress how important the concepts you outlined in this post are Joe for the early retiree.

    A lot of FIRE disciples want and use the cookie cutter approach of 4% SWR (25x expenses) based solely on the Trinity study and what other FIRE bloggers preach.

    You correctly pointed out that this study was done in a different economic time than the one we are in and also that it was geared towards 30 year retirement, not the 40,50, or possible even 60 year retirements some of these FIRE hopefuls are planning.

    Everyone looks like an investing genius in a bull market and we have been blessed with an incredibly long one. Retiring in this climate and expecting it to continue will bring a lot of harsh reality to people.

    I personally am aiming for at worst a 3.5% withdrawal rate and would love to get it even closer to 3% if I can. I have another margin of safety as the annual budget I have been shooting for ($125k/yr) has a ton of buffers built in it already as most of that money would go towards discretionary items like travel and food. If everything went to hell I know I could cut it down to $50-60k (after my kid graduates college) and have quite a good life at that level anyway.

  14. Great article. For me (age 39) the key point is getting to 25-35X annual expenses. Once there, you know you will be fine. It doesn’t mean retire…but it means you no longer NEED to work for money. So you can keep “working” without it feeling like “work”. Work the hours you wants and doing what you want without having to be concerned about what you are getting paid….because it doesn’t matter that much.

  15. Retired and adding pre-school expenses! Hilarious.

    I’ve still got plenty of breathing room between my age now and 50- with kids out of college and fully paid for, no mortgage on my home and a liquid nest egg nearing $3mm (a large inheritance coming at some point, too), and zero debt.

    No way I would retire with young children even if I was restricting my spending (in my circumstances). Just a simple reversion to the mean on stock values, or worse, would be enough to upset the apple cart, and Lord knows all of the other unforeseen costs of having a family to take care of.

    But then again, if your wife is working and you’re spending a lot of time working on a blog that generates real income you’re not retired. You’re working.

  16. When my kids were nearly done with preschool, my sister warned me not to think we had just run across a “big coupon” for our budget– that basically, kids’ activities then start filling that gap right in. I was a little dubious, but that turned out to be exactly right. Of course, you could choose to go activity-free for a time– or forever– for your kids, but that was not our chosen route.

    • I’m sure you’re right. We already see a bunch of kid activities coming up. He is having a hard time adjusting to kindergarten, though. I will wait until he is comfortable there before we sign up for any more new stuff. We’ll probably limit his activities to one or two things. I think that’s plenty. Kids shouldn’t be that busy.

  17. Hi Joe,

    You have a great point. Having more than 25 X expenses will be better as there will be more buffers. May I want to know whether the net worth also includes your 401K and ROTH saving?



  18. I had wondered about the 25x as well and it seems that those that seem to be doing well on it are also generating ancillary streams of active/passive income during FI. I am likely aiming for a 35-40x on my stream, although I think I really have to reign in my spending in order to get to that level.

  19. There were studies done a couple of decades ago that came up with that 4% number. They did monte carlo simulations using historical returns. The point then was that someone had claimed 7% was fine since the stock market had historically earned 7% real returns. Yikes! Volatility will be a nail in that coffin. As you highlight, prospective returns look likely to be lower than our historical returns. A 2% dividend yield and gov’t bond yields lower than that make me more cautious. That said, I’m 50, so I’m just hoping to have 35 more years to go anyway.

  20. As someone who retired just recently, I think 25x is not near enough. If you have outside income coming in, as I do with rental property, it makes a big difference. Yo still have your wife’s income, so that makes a big difference.

    Pensions, social security and other income helps offset the amount you need.

    • When you retire in your 30s, those things won’t kick in for a very long while. You never know what’s going to happen in 30 years. Social security might be reduce, pension funds might bankrupt, even annuity can disappear.

  21. I think it totally depends on where you save the money, which will as you might imagine affect your retirement expenses – in the form of taxes.

    It also depends on how many years your need to last prior to age 59.5.

    If you were to put all your savings in a Roth and a taxable account (the proportion depends basically on how early you want to retire) you could thus reduce your tax expense to zero dropping your expenses and easily use a rule that was based on 25x pre-retirement expenses if that was your only criteria.

    Another way to essentially do the same “cheating” is to calculate your pre-tax IRA money on an after-tax basis — meaning you would need a larger IRA to equal 25x after-tax expenses.

    One other thing to consider is you would not be drawing all the 25x from your savings as eventually SS and or pension would kick-in, so you don’t have to survive the 4% rule’s 30 year withdraw rate. That realization is actually how I retired at 60 and don’t plan on taking SS until age 66. The good news was I did have a pension (hard to do if you retire at 40!). In the 4 years I have been retired my retirement savings have actually grown, even after paying off a $180k mortgage, but I thank Mr. Market for that, not anything magical on my end other than staying invested 100% in equities.

  22. I feel like 4% is still probably a pretty good fail safe if you’re talking about a traditional 30 year retirement, but 50-60 years or more? That’s pretty ballsy, particularly if you’re not willing to go back to work in a crash scenario.

    It’s all about sequence of returns risk though. Since you are feeling this way during a bull market period though, that’s a bit disconcerting to read.

    • I feel pretty good about our chances, but it could have gone the other way too. I’m lucky because my first few years were such great years for the stock market. I’m just a little nervous about equity right now. We’ll see how it goes in the next 6 years. You really have to be flexible if you retire by 40.

  23. I hear you about the 4% SWR being too optimistic. I also feel like you aren’t considering the chance you continue to make income doing something on the side. I’ve been tutoring, doing student loan consultation, and making a little bit of book income since I retired early on 13x’s expenses a year ago. Plus, if you work too long that’s time you cant get back. so there’s risk both ways

  24. My opinión is that it is not important how much money do you have in the Bank but your income related to your investments.

    Once you are getting passive income equal or more than you expenses, you can retire.

    I had the goal to achieve this when 40 years old, I got this at 39.5 years old.

    Since then, February 2013, I am getting 3.300 EUR from my investments.

    3.300 EUR + 2300 EUR from my wife salary = 5.600 EUR/month, after taxes

    Our expenses are 4.600 EUR/month, so it is OK


  25. I left the workforce a year before the Great Recession. I watched 83x annual expenses (based on 2015-2016) go down to 50x annual expenses. Even though I was still at 50x, it certainly didn’t feel like enough at the time. Currently back up to 100x expense, but honestly with volatile markets (stock, real estate, commodities, fixed income), nothing feels 100% secure.

    I left the workforce while single and in my 30s, now I’m married with a kid, with all college expenses still ahead. My expenses have grown over 50% (when I left the workforce I was actually over 120x annual expenses as a single guy) even though I’m still in the same house and driving the same car. I assume the Trinity study only discusses someone who retires at a standard retirement age with life situation that is fairly stable? Probably not too applicable to early retirees.

    • Joe,
      WOW! 100x WOW!! That is amazing! Are you willing to share your story? I am sure many readers would like to know what you did for a living before, how you saved, and how you maintained your savings. What do you do now in retirement?

      Maybe Joe can be a future post. I am sure readers will be interested.


      • I’ve been considering to restart blogging (I started a blog the year before I left the workforce many years ago but stopped writing once travels started), evaluating whether I’d bring anything valuable enough to the table…
        I’m not frugal (nor wasteful), but I got to ER with high income, not high savings rate. I actually made a lot of mistakes (poor tax planning, bad investment moves, unwise decisions), otherwise I’d be sitting at 1000x with less effort than it took to get to 100x… :-S I think it’s true what they say about remembering your mistakes more clearly rather than what you did right!
        I spent the first 4 years of ER living overseas. I had already been to/lived in over 40 countries for biz and pleasure before ER, so I didn’t have as intense a travel itch as other early retirees might… These days I spend most of my time having fun with and raising my kid. I still spend some time trying to bullet-proof my finances, I enjoy it, kind of like building an ark and then seeing if it will float when the floods come.

        • Hi Joe, I would love a guest post from you. Most of our guest post have been from people with high savings rate. It would be great to hear about someone who took a different path. In particular, I think readers would be curious about what it took to step away. It’s hard to retire if your career is going well.

  26. Joe, what you’re saying in your first paragraph just goes against your point. What you’re saying there is not that the 4% rule is inaccurate, but that you failed at properly estimated how much you’d actually need. I totally agree that this risk is real, but it is unrelated to the 4% rule…?

  27. Interesting read. We won’t be ready to retire for a while. And yes, while childcare expenses go down/away when kids start school, the sports/field trips/summer camps chip away at the bank account. But, given childcare rates in PDX, those public school related fees are still far less than childcare expenses.

  28. With a small defined benefit pension, a paid off mortgage and at a social security benefit down the road I feel confident that 25x will be enough. Also planning to move to a lower cost of living state at some point. I wouldn’t consider delaying my retirement until I had 50x. 50x might make sense if retiring at 35 or 40, but at 55 or 60 it seems like significant overkill, unless you are looking to leave a large inheritance for someone (I’m not).

    • yes. Likely overkill for someone in their 50s and 60s. 25x works for you

      But this is retire by 40… Different population. That’s the entire point of Joe’s article.

  29. In today’s environment, it’s impossible to say how much you will need to save. I think the most important things you can do are minimize spending and be flexible.
    I’m planning to do some random work once I “retire” in order to keep busy and earn some money, but a little bit goes a long way when you’ve minimized your expenses. If the market is bad, just do a little more work and make up for it.

    • That’s a great plan for early retirees. Working part time will cover a big portion of your expenses if you’re frugal.

  30. Very important issue. When I calculated my FI number I used WR of 3% so I needed 33X.
    4% is good for 30 years but for 40 to 50 it may not work. 3% can last forever so my kids will enjoy it too.
    I’m now retired for 4 years and in fact I use less than the full 3%. I think my frugality comes from the lake of experience of living out of a strict budget. I start the year with a plan to use every month only 7% of the annual budget and not the full 8.3% so I keep something for unplanned expenses. If I do not need it than I finish the year with only 84% of the 3% budget and it makes me feel good.

    • Congratulations! I bet your portfolio grew more than you expected. The last 4 years have been really good.
      Thanks for sharing your experience. It looks like you’re doing great. Enjoy your retirement!

  31. Good article! I completely agree with the central message here: 4% seems too high in today’s environment:
    1: Stocks and bonds seem expensive, it’s hard to generate a consistent 4% real return. As you mention, the first 10 years are crucial. So many years into an expansion it’s hard to make that case with any certainty.
    2: The Trinity study assumes a success is to have $0.01 left after 30 years (they assume capital depletion, not capital preservation). Uhhmmm, that’s not going to cut it if you retire in your 30s or 40s. The Trinity study is targeted at 65 year olds!

    So, I nitially, we planned to have 40x, but we may now shift that 33x expenses in light of some (hopefully) base stable income from rental properties.

    • Right, I would be very afraid to retire with 25x today. It feels like a crash is coming.
      2. It’s hard to look longer than 30 years. We have much less samples to work with if you look at 50 years period.
      Good luck! 33x is a great goal.

      • My personal way around this: Plan one 30 year window with real asset preservation as the target plus another 20-30 years with slightly higher withdrawals (higher health expenses, etc.) that draw down to 50% real value preservation. That first window of 30 years with real asset preservation warrants much lower SWRs than what they calculate in Trinity Study.

  32. Joe,

    I agree that 25x is not enough for you. For some ppl that live overseas, where cost of living is a lot cheaper than the US, would be fine for them. With inflation and lifestyle inflation, your expenses will probably increase. Since both of you will be retired, you will be spending more money instead of sitting at home. Like you said, you may be retired for another 50 years. Since I worry too more and I like to over plan, I think you and Mrs RB40 should consider:

    1. Factor in 20K a year for healthcare with 8% yearly increases until 65 in order to receive Medicare.
    2. Strive for a min of 40x but try for 50x expenses. We planned for yearly passive income 2-3x expenses because stuff always happens when you least expect it.
    3. Maybe Mrs. RB40 can work several more years to increase savings.
    4. If Mrs. RB40 likes her job then maybe she can work until 55 to build up her pension.
    5. If Mrs. RB40 had enuff then she can try to get a severance.
    6. Maybe Mrs. RB40 can be semi-retired and work part time at home in the future to bring in some active income if her current work place allows it.


    • Actually, cheap locations have very high inflation too. Thailand was a lot cheaper 10 years ago. It is a lot more expensive to live there now. You never know.
      We’ll push for 50x, but I’m not sure if we’ll get there. We’ll try our best.
      Mrs. RB40’s career is taking off so I don’t know if she can retire yet. Maybe a few more years. She is open to working part time or being self employed. Thanks for your ideas.

  33. Love your articles and info and am ready to pull the trigger. My wife and I are 55, no debt, and have saved $2 + million by investing and living below our means. I’ve run the numbers time after time and KNOW I can call it quits. How did you do it emotionally? I think that’s what is stopping me. Keep up the good work!

    • Many of our readers have the same problem. Why don’t you take a sabbatical and see how it goes?
      It was easy for me because I really hated my old job and the office environment. It’s harder if your career is going well.

  34. I think this is a great discussion. I always saw the 4% safe withdrawal rate as mere guidance instead of a rule. The thing with early retirement is that all of our ambition and savvy doesn’t just disappear once dropping out of the rat race. I retired at age 51 and had a successful and enjoyable encore career of which I retired from at age 56. Although I did have a solid 4% plan when not working, my portfolio/net-worth drastically increased during that encore career of passion time. I stay open to doing that again if all my boxes get checked off. I also have experienced lifestyle deflation on most things as I am getting older. I think early retirees need to plan for lifestyle inflation in earlier years as you have mentioned happening to you but understand that a lot of passions and interests (along with spending) will change with aging. We may start at 4%, worst case rise slightly higher for a short period of time and then fall well below 4% when Social Security/Medicare will offer some portfolio funding relief later on. My medical expense has seen a huge increase since retirement #1. But things get handled as they happen in life using the same skills that get us to early retirement.
    The point I am trying to make is I think the 4% withdrawal rate or 25X expenses is good guidance to say you are financially Independent. Then go live life on your terms and you will use the skills that got you there to have a successful early retirement. Always stay flexible to adjust to the future unknowns that planning may miss or history can’t predict. You laid out some good ideas.

    • Thank you for sharing your experience! You made a great point. Most of us won’t stop working when we reach 25x. We’ll adapt to new changes as they come along. I wonder how many people fail at ER once they reach 25x. I’m sure it must be a very low percentage.

  35. Just like you, I am skeptical of the 4% rule today. Between up until the early 1990s, dividend yields (and bond yields) were much higher than today. Those were the data points used by the researchers behind the 4% rule. S&P 500 stocks routinely yielded 4%. Today, I would not shoot for more than 3% yield, and even that may be reaching out too high. So a 3% yield = 33 times annual expenses.

    PS Fun fact: The old books on investing frequently mentioned that selling your stocks when the index yields 3% would have let you identify the 1907 and 1929 and the 1966 top in the stock market. If you sold in the early 1990s because dividend yields fell below 3%, you would have missed out on a lot of growth..

    • 3% yield is perfect for the dividend strategy. I think that’s the sweet spot for dividend yield today. Interesting fact about the old days.

  36. Interesting article. A while ago I read a book that suggested rather than using a fixed 4% withdrawal rule, use a flexible withdrawal rate. For example, do a base 3% withdraw, if the market performs, increase it by 1-2%.

    Another thought, you said 25x is probably not enough, this is based on withdrawing money from your portfolio. What if majority of your portfolio is consisted of dividend paying stocks yielding around 4% or higher? Do you think you would be fine with 25x or less?

    • I like the flexible method too. At first, I was planning to not withdraw at all until we’re 65, but that’s way too conservative. I think we’ll start withdrawing around 55. Using 3% as the base sounds really good.
      I’m undecided about going all in with dividend stocks. It’s probably okay, but 4% yield has some problems too. The yield might not be sustainable.

  37. Joe, I really enjoy the post. My wife and I can relate so much to your post that she thinks I’m secretly the author and have changed the names and locations to protect the innocent.

    However, I don’t agree with the premise of rising expenses. I currently work part-time (by choice) and have two young kids. My wife works full-time. When I’m not working, my dry cleaning, gas, lunch, car insurance, childcare and a host of other expenses go down.

    Our second biggest discretionary expense is travel (we travel 4+ weeks each year) usually with the kids. Unlike our childless days, we must travel when the rest of the world travels (summer, spring and winter breaks) and therefore pay peak season premiums. When we retire (and/or travel without kids), we can travel in the off-season and pay less. If we have the extra cash (and I plan on it), we will travel more. If I lack money, I would be just as happy to visit National Parks which grants essentially free admission to seniors.

    Other than healthcare costs which I expect to rise and I find very difficult to predict, I expect the following expenses to disappear or reduce dramatically as we age:
    1. Mortgage (many people have a goal to pay this off before retirement–I don’t necessarily but that’s a different post entirely)
    2. Housing expenses in general (at some point there will be no need for a 2000 sq ft house near a good school)
    3. Kids expenses (they are our biggest “discretionary” expense with private school, college fund, clothes, food, travel, etc.)
    4. Taxes (we’ll have lower taxable income either through lower income, real estate deductions or moving to a lower tax state)
    5. Car expenses (my desire for nice cars and to drive a lot diminishes with age)
    6. Gadgets (will I really want a new iPhone every two years or the the new Apple brain implant? My observation of older people is they don’t like change)
    7. Travel (for the aforementioned reason but also at some point I won’t feel like traveling as much–as Joe mentioned in another post)
    8. Leisure activities (I can visit museums, movies, festivals, colleges classes, etc., for free or at a discount. Financial Samurai has written about this. Older people also eat less.)
    9. Clothing expenses (I started my career in a suit, now I’m business casual, soon I’ll be casual–fewer new clothes and less dry cleaning expenses)
    10. Increased frugality (I have read and observed that people’s traits become more intense as they age. I am frugal by nature and I already see this trait intensifying in my mid-40s. Regardless of how much money I have, it will take a miracle to get me to pay for a business or first class ticket or a luxury hotel unless I get a super deal.)

    On the income side, I’ve made a conscious effort to diversify into investments that hedge against inflation (e.g., real estate). If there is inflation, I will be collecting higher rents and my property values will increase.

    I would submit that most of Joe’s readers are less susceptible to lifestyle inflation than the general population. Just by understanding and setting a goal of 25x expenses sets them apart. So I really don’t see the 25x goal as an issue for them.

    With all expense and income offsets I’ve cited, I hardly see the need to change one’s targets (assuming 25x is the right multiple to begin with). Saving and having more money is usually a good thing but there is a cost. What’s the point of sacrificing/saving if one is unable to enjoy it at the end? In my case, I fear that frugality is going to be the biggest impediment. At some point in the savings cycle, all you’re doing is padding your kids’ inheritances.

    • Wow, thanks for the extensive commentary. I feel like that’s what we did in 2012. We cut way back to prepare for my early retirement. Things went well so our expense went back up to a more normal level. We could cut back again if needed. I don’t see our expense reducing much in the near term. Maybe when we’re 65, we’ll have less expenses like you stated. Healthcare and college would be the big two and they’ll probably offset any reduction…

    • Kid expenses will only go to zero if you retire *after* the kids are all graduated from college. I don’t know about you, but since I had my second child at age 37, that means I’ll be 59 when she graduates college, assuming she does so in only 4 years. I guess 59 still counts as early retirement but it’s not very early, definitely not extremely early, and clearly not “by 40.”

    • Well said David! Very much agree with your thoughts. Historically all the research shows that anything more than 30x expenses is ridiculous if you have the smallest bit of flexibility during the downturns. Anything more is just wasted worry and paranoia

  38. 25x is more than enough for “early retirement” depending on what version of retirement someone is planning to pursue and also the aggregate dollar amount. If someone just plans on spending 40 years not doing anything, then maybe it’ll be a stretch, but if you plan on pursuing other income generating activities during retirement, then 25x is more than enough.

    Also, if someone has $5 mil cash and has $200k/yr expense, it’s likely that he/she can reduce their expense a bit and be just fine. However, if someone has $1mil, then 25x doesn’t offer as much of a buffer.

    • I agree that 4% probably won’t work if you just draw down without adding anything over 40 years. Don’t forget about lifestyle inflation, though. There will be a lot of new things to spend money on over the next 40 years.

  39. I will say this: if your 25X number is reached ignoring any/all Social Security payments, and you can be a LITTLE flexible, I think you’re likely safe, even in early retirement. Because really, all you need to do is last until 67 (or even 70) with your 4%, and then Social Security can/will kick in. If you can forego the inflation increase every once in awhile, you’ll be in even better shape.

    And keep in mind: 4% was designed to ensure you’d survive 30 years of retirement in the WORST periods historically. Even if we’re facing lower returns going forward (a highly dubious proposition, frankly, given the historical accuracy of the predictions of so-called “experts”), that does NOT mean you’d necessarily be retiring in “the worst period to retire” historically (i.e. right before a huge dip, followed by high inflation) — just that you’d have slightly slower growth, but not necessarily disastrous collapse, etc. The low returns, too, would likely be accompanied by low inflation (indeed, they are in many cases PREMISED on us remaining in a low inflation environment), meaning your 4% won’t increase nearly as much as it has historically year-to-year.

    I’m not saying it’s a bad idea to push that to 30X or 33X….but those who are shooting for 50X? You’re just working longer than you need to, or because you want to leave a substantial estate (which is totally fine too!)

    • I didn’t factor in Social Security because it is so far off in the future. I put it in when I used the Retirement Planner, though. It slows down the depletion rate quite a bit. I think 50x is too much as well.

    • Heh heh, you’d better be ready to go back to work. 😉 It’s a lot of luck too. We have been very lucky and I think you have been too.

  40. I think Justin at Root of Good is a good model: he completed a VERY detailed budget that so far has been pretty accurate.

    I do not intend to follow the 4% withdrawal rate, and my retirement model is built on a different drawdown schedule. But then again, I went super super conservative in my assumptions, because I’ve seen well-laid plans fail over and over again (it was very eye opening to enter the retirement industry in the aftermath of 2008…).

    But remember that the 4% drawdown rate CAN include dividends: if your portfolio yields 3%, then you technically only have to withdraw 1% each year. That’s sustainable forever, theoretically.

    • His budget is bare bone. I could see their expenses rise quite a bit. It’s great that they have been able to keep it low, though. They are doing a really great job. Also, Justin doesn’t mind working a little bit on the side. I think that’s what will pull most of us through the tough periods.

  41. “If you have no kids, you might forget to take the pill and have a kid.”

    I know that I’m nitpicking here, but as a woman living childfree by choice, this sounded odd to me. I wish that more PF bloggers would address the fact that financial freedom isn’t possible without reproductive freedom, and it’s important to note that this outcome doesn’t have to happen if you don’t want it to. If you’re careless about birth control and don’t mind having children, that’s fine, but let’s be honest, many people like myself would rather pay $50 for Plan B or $800 on an abortion than take on a lifetime of added expenses with an unplanned child.

    Just my two cents! Carry on!

  42. I think #4 flexible withdrawal rate would be my top choice. For me there’s quite a spread between what I can live with (or without) and what I might like to spend. If the market shoots up I can fly first class, a normal year would be coach, and a bear market means staycation. With the longer time horizon, I’ll probably get to experience some of each, only I don’t know which years will be which.

    My plan is to pay myself as a hedge fund manager– two and twenty on invested assets and annual returns, respectively, meaning my base expense coverage is 50x and the upside is 20% of market return. So for a typical 5% return year that’s 33x and a good 10% year that would be 25x. With this method I’ll never deplete, but income will fluctuate and possibly by a lot. One of these days I’ll back-test this scheme against a fixed withdrawal rate.

    I have a relative who will ER to a location where rental cap rates are in the 8-10% range. His plan is to trade most of his paper assets into apartments. I’m not cut out to be a landlord, but I’ve been swapping out some of my bonds for REITs over the past few years. So far no disasters but it’s always possible going forward.

    • I love your pay structure. Flexible withdrawal is great for early retirees. We plan to minimize withdrawal until we’re 55. By that time, we should be in a very good position.
      I’m fine being a landlord right now, but we’ll probably get out when we’re 55 or so. Or else we’d need to find a very good property manager.

    • Mrs. RB40 wants to retire soon. Her career is taking off, though. It’s difficult to walk away when things are going well.

  43. There are so many factors – including the investment mix. I personally recommend plugging some numbers into a Monte Carlo simulator to see how likely are the chances of success. I’ve done this (and still do it on occasion) personally using our current budget and 50 years (I’m 46 and retired). With *NO* additional income I have about a 75% chance of making things work out. With as little as a couple thousand per month the chances go into the 90%+ range though. I think it’s a good idea to work through the different scenarios like that – using a Monte Carlo simulation.

    • I like using the Retirement Planner and FireCalc. They are great, but I think they are probably too optimistic. The key is to be flexible. If things aren’t looking good, then we need to be able to work a bit or cut back.

  44. Awesome post, Joe! I’m glad to hear another viewpoint rather than the typical “save 25x your income and you’ll be fine!”

    I’m still aiming for the 25x, but I’m anticipating that we’ll burn at a lower percentage. I’m also going to plan on doing some side work for a while and my wife isn’t planning on quitting her part time job anytime soon either.

    — Jim

    • That’s a great plan! I’m doing that too. If we can keep the burn rate low, our portfolio will have a chance to grow even more. Part time work is good when you’re young.

  45. The 4% burn rate (withdrawal rate) is likely to deplete your nest egg in a low interest rate environment. To be conservative, one should plan for a lower burn rate of ~2.5% – 3%.

  46. Excellent article.

    30 to 40 something retirees also have the challenge of growing children which by itself is expensive. More high price activities. Also the likelihood of replacing cars, house, and lifestyle is greater than a 50 or 60 something.

    Healthcare is the wild card for everyone. No one knows how much more is going to go up. Due to doctors, insurance, prescription’s, and medicine as a whole. The only answer is to invest in being healthy.

    Nevertheless taxes and inflation will eat you up and the dollars plus inflation risk method would not matter. Something to consider is quality of life. Lifestyle inflation is dangerous if you plan to spent the minimum every year but in reality we spent the average. In the later years 70s, 80s, and 90s, we would spent less in lifestyle and more in quality.

    Good article and Joe does have some anxiety over his plan. We all do! At some point we have to let go and live.

    • You’re right. We still have about 17 years left before the kid will be independent. Our expenses should go way down after that. Healthcare is pretty crazy. Nobody knows what will happen in 20 years. Maybe we can move to Europe or somewhere with public healthcare…

      • Healthcare is the insane card. I am at more than 25x spending. When I look at healthcare costs for a family of 4, if I quit my job, I don’t have enough. The bar for financial independence (I think the definition for financial independence for most of us is the ability to leave our corp-type jobs) got significantly raised by healthcare “reform”. But for Obamacare, the leap for me would have been mental, not financial.

        The cost of healthcare for a family of 4 is higher than daycare. Here’s the kicker, childcare costs more than state college tuition! http://www.huffingtonpost.com/entry/child-care-expenses_us_5614285be4b022a4ce5fd5ff That means healthcare costs more than state college tuition!

        It isn’t lifestyle inflation that scares me. It is government inflation. Healthcare is a tax (thanks to how it passed constitutional muster). Property taxes go up, and have no relation with income. Income taxes go up. Sales taxes go up. Gas prices go up, but at least 50% of the price is taxes of some sort. We have realistic control over how we spend our funds – we can decide not buy chicken instead of beef; drive a Kia instead of a Porsche. But we will never be financially independent (defined as having enough money to outlast our lives) if the government keeps targeting “the rich”. And each of us who have at least 25x spending, is “rich” as measured by every government official at every level.

        • The cost of healthcare is out of control in the US. I don’t see a way to easily fix it. It will probably keep rising until we all can’t handle it anymore. The future is kind of bleak.

  47. I am glad to see more bloggers now challenging the assumptions of the 4% rule. Which was actually never a “rule” in the original article.
    When we retire in two years, we will be looking at a withdrawal rate of about 3.3%. This will drop to 2% when my pension kicks in four years later.
    For the early retiree at whatever age that is, it is still important to live a little. That means having some room to expand the budget a little to support that living – whether for travel, to support the kids needs or for those surprises that will undoubtedly come along.
    25x is the minimum “guidepost” and above that it all depends on where you sit on the spectrum of lifestyle requirements.

    And fully agree with the first 10 years argument. The sequence of returns can irreversibly damage a portfolio especially if the WR is high in those early years.

    • I love your plan. It’s almost foolproof! 2% would last a very long time.
      The first 10 years is very scary, but if you made it you should be set. We’re almost half way though, but I’m really worried about the next few years. Hopefully, we’ll pull through this crucial first decade.

  48. You’ve raised a very good point: the 4% rule is based on a 30 year retirement and many early retirees will need much much longer than that. Ha, never looked at this way!
    I am also aiming at 25x expenses but I don’t plan on stopping work. Looking at your experience, I may now try to increase that to 30x or more.

  49. On average, using historical data, your nest egg will nearly triple in 30 years with a 4% withdrawal rate, and failure is exceedingly rare.

    If I was disenchanted with my job, burning out and desperate for a change, I would be good with 25x. But, for many of the reasons you brought up, and the fact that it’s not a hardship to work a few more years, I’m shooting for 40x. I’d rather overshoot than undershoot, and I have no problem going to the grave with an 8-figure portfolio to divy up.

    The other thing you and I and a number of other bloggers have going for us is the side income from blogging. If writing covers 40% of your annual expenses, you only need to cover the other 60% with the portfolio. In this situation, 15x is as good as 25x, and 24x is as good as 40x.


    • I agree. If you’re desperate, then 25x would be good enough. You just have to hustle a little bit to make up for it.
      40x is a great goal. I don’t mind having a little left over for the family either.
      I don’t think we can count on blogging income. It might not last forever, you know.

  50. I have been working on our “magic number” over the last week. The biggest question mark is Health Care – I haven’t figured out how to factor that cost in yet.

    I am thinking about starting at 25x then adding a yearly travel/vacation amount on top of it.

    • It’s pretty easy. For a Gold – Platinum plan for two, it’s about $1,100 – $1,600 a month. For a family of four with the same plan levels, expect to pay about $1,800 – $2,000 a month. These are for great plans w/ low $2,500 MAX out of pocket. This should also be a business expense b/c you and everybody will be setting up a business in retirement!

    • Health care is a tough question. You can’t predict the cost that far out. It always changes. Everyone probably needs a little margin just for health care.

  51. I’m with you there. For a 30- or 40-something early retiree a more conservative 3% or 3.25% is a lot safer. Maybe 4% is okay if you do 4% of actual portfolio value each year and accept the annual fluctuations in withdrawals.

    We haven’t seen any huge surprises in kid costs as they get older, but I can see where those increases might come from. We went in for an orthodontics consult and that might be $5400 for the first kid (less for subsequent kids). Not sure if we’ll go forward with the treatment but that’s 1/8th of our normal annual budget!

    • Yikes! $5,400? That’s nuts. I never needed braces so I hope our kid doesn’t either. I think a little imperfection shows character. 🙂
      3% to 3.25% sounds about right for the young retirees.

  52. Good post, Joe. I’ll probably shoot for 50x or over. I’ll hopefully have a long retirement and can take no risk that my investments won’t outlast me. Expenses can vary so much in such a long period of time, plus as you mentioned, you have no way to know what curveballs life may through at you.

    I like the idea of being flexible, spending less in years your portfolio doesn’t do as well. This could be done pretty easily but cutting out some slack in dining out, vacations, delaying other big spending like cars and other discretionary accounts. That’ll be my plan for sure. It’d be hard to spend a bunch when I know my investments are taking a beating.

    Good post, thanks!

    • 50x would be awesome. I hope we can reach that point before Mrs. RB40 retires, but I don’t think we’ll get there. I think we’ll have a big market crash in the next few years. We need to be ready to take advantage of that.
      I like flexible spending too. We could vacation in nearby locations for a couple of years. There are plenty of things to see and do.

  53. We are always in a little bit different of a situation because we have two pensions. It’s been hard to find much written about that and all of the traditional “rules”. We have decided to not totally depend on those though. We have retirement accounts and rental properties – and we have committed to keeping multiple streams of income. My husband is retired and manages our properties and I am dabbling with online teaching and some consulting even though we are FI. I appreciate all of your comments here Joe – we are pretty conservative, but you have lived this and are questioning things. Great commentary.

  54. This is a really nice overview of the issues Joe. I agree that the 25x expenses is too conservative, especially if you are in the “growing expense” years. As a father of two high-school aged children, I can tell you that the expenses keep growing along with your kids! Travel soccer, piano lessons, braces, the list goes on and on… It’s all good stuff, but not cheap!

    On the bright side, even though it may not be much, most people can start drawing their full Social Security benefit at age 67. So you don’t have to be fully-funded for retirement if you get out early. You’ll start to get a little help from SS when you get there.

    • Ugh.. So many extra curricular activities. We’ll try to limit those to one or two per year. Kids need free time too.
      Social Security is a nice safety net. It’s such a long way off for us, though.

  55. Great reminder, Joe! Health care seems like such a wildcard. I’m not sure I’d be comfortable with 25x, either. Side hustles (especially if they pay well) will probably be my strategy. I can’t see myself completely retiring anyway, and having another stream of revenue would definitely give me a piece of mind.

    • Working part time is a great strategy. It’s working out very well for me. Hopefully, I can keep up the self employment for 5-10 more years.

  56. I’m happy you brought up the newer research later in the article. I still reference the 4%, number, but I’m usually quick to point out it might be 3.5%… or that the research might not be accurate in the first place.

    As you point out, expenses change. I try to look at what my retirement expenses are going to be rather than my expenses now. I currently have daycare costs (for two kids) that my retirement plan doesn’t have to account for.

    It’s difficult to say what a typical year in retirement is going to look like. As you mention, life throws a lot of curveballs. It still doesn’t hurt to map it out. You might be surprised to find that there’s a lot of expenses going away in retirement.

    Here are some examples. More than a decade ago, I realized that my landline costs were going to be zero. (It’s replaced by cell phone costs, but there are ways to keep that low.) People everywhere are cutting cable television, and I can see myself as part of that group. We got solar panels last year, so I no longer have to pay an electric bill. I predict that in the future our cars will be replaced by fleets of self-driving, Ubers (http://www.lazymanandmoney.com/new-uber-gpod/). In around 11 years, our mortgage will paid off. The last two cover about 50% of what people spend every year… and it could drop to 5-10% in retirement.

    We’ll have new costs (college, increased travel), but I’m very optimistic about keeping future expenses in check.

    • You’re right. It’s impossible to estimate how much you’ll spend 20 years from now. We need to be flexible and adapt. Most early retirees are good at adapting so I think we’ll be fine over the long haul. I’m not looking forward to paying for college at all…

      • And just because we can’t accurately predict future expenses, it doesn’t mean that we shouldn’t TRY. I found it to be a great exercise. In some ways it validates all the long-term decisions you are making.

        The other important part of this debate is that having income outside of a huge nest can be very, very important. For example, Joe and I have investment properties. They could bring in tens of thousands per year in retirement (I don’t mean to speak for Joe, but from I’ve read on this blog, that seems fair), which reduces the annual expenses you need to have in the first place.

  57. I want 100K after tax… we’re currently on approximately a freedom 45 plan. However, that requires not procreating, which as you’ve mentioned can be pricey. As long as we continue to aggressively save, we would be fine if anything went wrong long before we hit 4.5M! Our expenses are slightly less than half of that, for now.

  58. You ask, “How much money would you need to save to retire early?”

    Heck, if I know. I have never used budgets and can’t really tell you what my expenses are because my expenses vary widely from month to month and year to year. Remember that I was a true slacker when it comes to saving for retirement. Indeed, I did not start saving until I was over 40 years old.

    Not only that, I semi-retired at 40 years old when my net worth was minus $30,000 — that’s right, MINUS $30,000 due to student loans. Since then I have worked fewer than 5 hours a day and presently work only one or two hours a day. Yet, I believe that I will be okay in full-time retirement if I ever get to that stage. I think that I want to keep working a bit even if it is only an hour to two a day.

    As I said in two or three of my books, “If you have more money coming in than is going out, then you are financially independent.”

    Many financial advisors ask, “Will you be spending too much in retirement?” Yet few ask, “Will you be spending too little in retirement?” I ask that question of myself regularly even though I worked less than half of my adult life, don’t have any corporate pension, and have a rather insignificant government pension. But I am 67 years old now so I only have to think in terms of about 20 years of so-called retirement.

    These quotations resonate with me big time:

    “Any man who has $10,000 left when he dies is a failure.”
    — Errol Flynn

    “It’s better to live rich than to die rich.”
    — Henry David Thoreau

    “It’s a wise man who lives with money in the bank; it’s a fool who dies that way.”
    — French proverb

    “Thy money perish with thee.”
    — New Testament

    “He neither drank, smoked, nor rode a bicycle. Living frugally, saving his money, he died early, surrounded by greedy relatives. It was a great lesson to me.”
    — John Barrymore

    • Great quotes! You’re a great role model to early retirees who doesn’t mind working part time. It’s amazing how well you have done. Thanks you for sharing your experiences in your books.

      • I thought about that myself, getting some good nest egg and then cutting down my hours to a point where I only cover my expenses. I currently save more than half my income to I could would half the hours and just let my investment grow without withdrawing anything.

    • I saw that post. I think 4% would still be okay as long as you’re flexible. If you’re just drawing down, then you really need more. At least 30x. 45x is great!

  59. I agree, Joe! Inflation sneaks up on us and keeps going and going. Although my family is comfortable and I’ve taken an early retirement, I don’t think we have enough to say we’re at F.I. yet (as least to sustain the lifestyle we’re living). I have no doubt we’ll get there, but my wife’s income is a huge supplement in addition to our other streams of income.

    The good thing is it’s fun to pursue side hustles in early retirement and new streams of income will certainly grow over time and help add to our net worth. Ideally, we’d have 40x’s expenses by the time my wife finally decides to retire. I’m lucky that she’s passionate about her work!

    • We live in an amazing time. It’s great that women can decide to pursue their career and have more choices now. I hope your wife continue to be passionate about work. 😉


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