Our Unusual Early Retirement Withdrawal Strategy

Our Unusual Early Retirement Withdrawal Strategy 350Retirement planning normally consists of 2 broad phases – accumulation and withdrawal. Early retirement is difficult to achieve because there is less time to build wealth and more time to use it up. The timing makes a big difference. For most people, the accumulation phase is the difficult part. Many families spend too much and don’t save enough. The median retirement savings of households near retirement age is just $17,000. That’s not going to work out well. For us, the accumulation phase has been relatively smooth. Our household income has been good and we live a modest lifestyle. The withdrawal phase is more questionable because I will have 40+ years in retirement. Can our savings last that long? Today, we’ll take a look at our unusual retirement withdrawal strategy and see how to make our retirement savings last.

*This post is a part of the Drawdown Strategy chain started by Physician on Fire and Fritz @ The Retirement Manifesto. You can see other bloggers’ retirement withdrawal strategy at the end of this post. Check them out.

Traditional Withdrawal Strategy

To clarify the concept, here is a graph of regular folk’s retirement savings. Workers can save 15% and retire when they are 65. In the ideal case, their net worth and retirement savings should look something like this.


Retirement is the natural inflection point because the earned income will disappear and retirees will need to fund their cost of living with their savings and other sources (pension and Social Security benefits.)

Early Retirement Withdrawal

Early retirement is more difficult because the accumulation phase is shorter and the withdrawal phase is longer.


To retire early, you’d need to save much more than 15% of your income. Saving and investing more will translate directly into how early you can retire. In this graph, we see the ideal case for an early retiree who stops working at 55. The real world is more complicated than this so you’d need to make your own graph. Basically, if your net worth is 25x your annual expense, then you can consider early retirement. That’s financial independence and it should work very well at 55 and older.

Joe’s Withdrawal Strategy

What if you can’t wait until 55? Here is an alternative that I’m pursuing. I added another phase into the traditional retirement planning model. We need to be more flexible because our time in retirement will be so long.


Basically, I split retirement into early retirement (semi) and full retirement. I retired from my engineering career when I was 38 and this is early retirement for me. However, I still make some income from blogging. Now, there are 3 phases instead of 2.

  1. Accumulation phase – I worked full time and saved a sizable portion of my income.
  2. Holdfast phase – The beginning of this phase is when I quit my full-time job. The goal in this phase is to avoid drawing down from our retirement accounts and minimize withdrawal from our taxable accounts. We can do this by having some passive and active income (blogging for me). Our net worth gain would slow way down because we won’t save much, but it should still grow slowly.
  3. Withdrawal phase – We’d go into the traditional withdrawal mode when we’re 65 and probably won’t earn much money.

Currently, we are 7 years into the first inflection point. I’m already retired, but Mrs. RB40 is working full time. Our household income still exceeds our expenses and we continue to save more 50% of our income every year. Once Mrs. RB40 retires, we will be 100% into the holdfast mode.

*Update* In reality, our holdfast phase is more complicated than the chart here. We’ll have another inflection point in 2020 when Mrs. RB40 retires. We won’t be able to save 50% anymore, but we won’t have to start withdrawing yet. Our passive income now exceeds our expense. That’s not counting my blogging income.

Investable Assets

Whew, we finally get to the withdrawal strategy. My drawdown strategy is spread over 2 phases – the holdfast and withdrawal phase. Let’s look at our investable assets to see the mechanic of the withdrawal process.

tax categories

We’ll just look at the major categories and ignore the smaller ones in this post.

  • Taxable accounts – This is our dividend stock portfolio. We’re reinvesting the dividend for now, but this income will help fund our early retirement.
  • Rental properties – I downsized to just 2 rental units in 2019. I need to spend more time out of town and I can’t be a hands-on landlord anymore. Eventually, I’ll move all my real estate investment to REITs and real estate crowdfunding.
  • Tax-Deferred – These are our 401k and traditional IRAs. We plan to avoid withdrawal until we’re 65. These are all invested in vanguard funds.
  • Tax-Free – Our Roth IRAs. We will try to avoid withdrawal here too, but we could take out some money out if we need to. I plan to build our Roth IRA conversion ladder after Mrs. RB40 retires. Hopefully, we can move most of the investment from our tax-deferred account to our Roth IRA before we’re 70. This will help us minimize RMD.
  • Business – My online business.
  • Real estate crowdfunding – I plan to increase our investment with CrowdStreet to 5%. I’m taking it slow because I want to make a ladder. These big commercial projects require 5-10 years of commitment. I’ll invest $25,000 to $50,000 every year so I can have a steady stream of income.

Sign up for a free account at CrowdStreet to check out their projects. CrowdStreet specializes in commercial properties across the USA. You can invest in apartments, self-storage, strip mall, office buildings, medical offices, and more. Real estate is a great way to diversify your investment portfolio.

Holdfast Phase withdrawal plan

We are 7 years into the holdfast phase, but this is still beginning. Once Mrs. RB40 retires, we’ll probably have to make some adjustment. We should be able to continue saving as long as I continue with blogging. Here is the plan after Mrs. RB40 retires.

  • Passive incomeOur passive income now exceed our expense! However, I haven’t look at taxes yet. It’s a bit too complicated to estimate right now. Luckily, we have income from other sources.
  • Online income – My online income is good this year, but it can be volatile. My blog income probably will drop significantly if we have a recession.
  • Side hustles – I have several side hustles – charge scooters, market research, JobSpotting, and more. These side hustles don’t generate a lot of income, but they don’t take much time either. The income goes straight into savings. Mrs. RB40 might work a bit after retiring from her full-time job too.

As long as we keep our lifestyle inflation reasonable, these sources of income should cover our expense until we’re 65. Social Security benefits and pension will kick in a couple of years later at 67. Retirement should be smooth sailing after that point. I doubt I’ll ever stop working completely, though. Working part-time is really good. It helps me stay physically and mentally active. Full retirement can wait until I’m 80.

Lean Years

Our holdfast phase looks good right now, but everyone has a plan until they get punched in the mouth (Mike Tyson’s quote.) What happens if we get a deep recession and my online income disappear? We might have to live lean for a few years. Don’t worry, I have some contingency plans for those lean years.

  • Hustle a little more. I’ll pick up more side hustles like driving for Uber or renting out an Airbnb. Mrs. RB40 could pick up some contract work or find something part-time. I could even pick up some seasonal work if we really need the money.
  • Cut back on expenses. We’ll vacation locally instead of visiting other countries. There are a lot of local attractions that we haven’t seen yet.
  • Relocate to a low cost of living location. We like living in Portland, but we’re open to relocation. My brother moved to North Carolina and the cost of living is much lower there. We could move there or even relocate to Thailand for a few years. It’ll be a fun adventure to live outside the US for a while.
  • Sell some dividend stocks. I prefer not to do this because it will reduce our future dividend income.
  • Withdraw from our retirement accounts. If we really need some extra money, we could withdraw money from our tax-free accounts. The Roth IRAs don’t have early withdrawal penalty when you withdraw the contributions. We also could borrow from our 401k. That would be the last resort, though.

Hopefully, we won’t have to put these contingency plans into action. The US economy is still strong. Even if we get a recession, it shouldn’t be a huge one like the global financial crisis. I’m optimistic about our holdfast phase. If we can holdfast like this for 20 years, our retirement savings will continue to grow and we’ll have a very comfortable (full) retirement ahead of us. It looks good for now.

Full Retirement Withdrawal

Full retirement is still 20 years off for us so there are a lot of uncertainties. We’ll just make some broad assumptions and go with that. Our asset mix will change over the years and this is what I want it to look like in 2038.

asset mix

Here is how we’ll support ourselves when we’re 65.

  1. Passive income – These will come from the dividend stocks in our taxable accounts and real estate crowdfunding.
  2. Tax-deferred accounts – We’ll withdraw from our tax-deferred account. This will help reduce it so we won’t have so much RMD (required minimum distribution) when we turn 70.
  3. Social Security benefits – We should have a nice income from our Social Security benefit. Hopefully, we won’t need it and can use it as a donation fund.
  4. Tax-free – I plan to use our Roth IRAs through the conversion ladder before we turn 65. Once we turn 65, I want to leave these accounts alone. We can pass them onto our son as an inheritance because they have some tax advantages.
  5. Primary residence – I used to think we’ll downsize when we get older, but now I’m reconsidering. Being a homeowner is a lot of work! Maybe we’ll just rent instead. It’ll be much easier when we’re older. We’ll just have to wait and see how it goes.
  6. Cash – I put down 5% cash here, but that’s probably too much.

This drawdown phase is light on the detail because it’s 19 years away. I don’t want to spend too much time on it because there will be a ton of changes over the next 2 decades. Our asset mix probably won’t look anything like this. This plan will firm up as we get closer to our full retirement date. Right now, we need to focus on our holdfast phase and make sure we get through it with minimal damage to our retirement savings.

No need to over plan

So that’s my withdrawal strategy. The additional holdfast phase suits me very well because I really enjoy working part-time on my own projects. The extra income will help minimize withdrawal over the next 20 years and give us a big margin of safety when we’re 65. Our retirement investment will grow a huge amount if we can just holdfast for the next 20 years. It’s best to delay withdrawal until you really need it.

Lastly, I don’t think you need to worry much about the withdrawal strategy unless you’re close to retirement. If you’re in the accumulation phase, just focus on saving and investing as much as you can. I’m sure you’ll work out a withdrawal strategy after retirement. You’ll have a lot more time to do it then.

More Withdrawal Strategies

Here are more retirement strategies from the PF blogger community. Some of these are much more detailed than mine. Check them out!

Anchor: Physician On Fire: Our Drawdown Plan in Early Retirement
Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy
Link 2: OthalaFehu: Retirement Master Plan
Link 3: Plan.Invest.Escape: Drawdown vs. Wealth Preservation in Early Retirement
Link 4: Freedom Is Groovy: The Groovy Drawdown Strategy
Link 5: The Green Swan:  The Nastiest, Hardest Problem In Finance:  Decumulation
Link 6: My Curiosity Lab:  Show Me The Money: My Retirement Drawdown Plan 
Link 7: Cracking Retirement: Our Drawdown Strategy
Link 8: The Financial Journeyman: Early Retirement Portfolio & Plan
Link 9: Retire by 40: Our Unusual Early Retirement Withdrawal Strategy
Link 10: Early Retirement Now:  The ERN Family Early Retirement Captial Preservation Plan
Link 11: 39 Months: Mr. 39 Months Drawdown Plan
Link 12:  7 Circles:  Drawdown Strategy – Joining The Chain Gang
Link 13:  Retirement Starts Today:  What’s Your Retirement Withdrawal Strategy?
Link 14:  Ms. Liz Money Matters:  How I’ll Fund My Retirement
Link 15a:  Dads Dollars Debts:  DDD Drawdown Part 1: Living With A Pension
Link 15b:  Dads Dollars Debts:  DDD Drawdown Plan Part 2:  Retire at 48?
Link 16:  Penny & Rich:  Rich’s Retirement Plan 

Link 17:  Atypical Life:  Our Retirement Drawdown Strategy
Link 18:  New Retirement: 5 Steps For Defining Your Retirement Drawdown Strategy
Link 19:  Maximize Your Money: Practical Retirement Withdrawal Strategies Are Important
Link 20:  ChooseFI:  The Retirement Manifesto – Drawdown Strategy Podcast

If you’d like to join the chain, then share your withdrawal strategy and tweet with #DrawdownStrategy. Then add these links above and new posts on the chain. I’ll check Twitter periodically and keep this list updated.

Image by Nick Pampoukidis

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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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89 thoughts on “Our Unusual Early Retirement Withdrawal Strategy”

  1. I like the detail in your plan, it is very well thought out. Thanks for sharing. Being a home owner IS a lot of work- do you think you will move back into a condo after age 65? Yard maintenance, snow shovelling etc.

  2. Something, probably on my end isn’t letting me see your charts. Also, you mention a 2019 transaction in your post, but the comments are over two years old, so I’m guessing this is an update of a previous post, so maybe this has been discussed elsewhere. My question has to do with Social Security. I am older than you and I don’t qualify for full benefits until I’m 67 and change. Why do you use 65 as your age to start SS? Are you planning on starting SS early? I hope youll see this. If theres some loophole youre planning on exploitibg, I’d love to hear about it.

    • Wow, something weird is going on. I scrolled to the end of the comments to see if this had been mentioned before I posted my question. After I hit Submit, a slew more comments appeared. Sorry if my comment seems out of sync. The question still stands, it just should have been at the end. I see there is plenty of recent input.

  3. I think what most people need to be aware of is to constantly look for new ways to earn some extra money. Look for additional ways to earn more. Plan WELL ahead and then adjust accordingly. Always be aware of opportunities that can crop up and take advantage of those when they do present themselves. It’s even harder for individuals to save money if they are below poverty.

  4. We’re doing a similar phased retirement b/c we’re in our late 40’s so facing more years in retirement potentially than working traditionally. Our current phase is your “holdfast” phase, and we see it as continuing to work but only on passion projects and using our portfolio to smooth out any volatility b/c projects come and go. Our portfolio is about 60% real estate so drawing down is via rental income, HELOC’s or selling outright where that makes sense. Ideally we wouldn’t touch our paper assets as they are in tax-deferred accounts. In this “holdfast” phase, we’re also considering geo-arbitrage (we have places in Costa Rica) b/c we could jump to traditional retirement phase out here and not do any projects at all. But we prefer the flexibility to live anywhere we want and we also want something to do.

    • I’m still working too, but it’s way less than when I was working full-time. Life is a lot more enjoyable now and I see that as semi-retirement. 😉
      Real estate is the way to go if you can handle being a landlord. It’s a proven way to build wealth. Enjoy your semi-retirement!

  5. I like your comment about not needing to over plan. Otherwise, it will be hard to actually retire if trying to account for all scenarios.

    I believe flexibility is the key word here. Just be flexible in living expenses and be willing to modify withdrawals accordingly for how the assets have performed.

  6. Great information. I’ve recently got into personal finance this year and am really trying to get a blog up and running as well as build up passive income for early retirement. It’s so awesome to have articles like this that focus on the real-world considerations that you need to think about in order to successfully pull off F.I.R.E.

  7. we’re only 6 and 11 years from social security in our house. i think we’ll take this as soon as available and not spend it but invest it. right now we’re on the glide path which probably looks similar to yours. mrs. smidlap works 1/2 time and i work full time. we stopped saving so much when our income went down and that’s fine. with no kids or heirs i’m trying to figure out a way to spend it all down to zero on the death bed.

    it’s tempting to skew some stocks towards preferred stock etf’s for the 6-7% yields as the years go on. 70k/year on a 1M portfolio doesn’t sound too bad to me.

  8. North Carolina is beautiful, I used to live there too 🙂 Great in-state college options too!

    We’ve been in the Holdfast stage for a while now. It’s pretty comfortable, coasting to our actual retirement age. I like the security of knowing I don’t need a job.

  9. What if you move to a country where they don’t see Roth IRA and tax deferred accounts in the same way and they tax any money coming out of them? That will happen to us. What to do other than not moving there bc we will ?

  10. “Basically, if your net worth is 25x your annual expense, then you probably can retire.”
    I have always invested in rental income and right now at a stage (i am 34 now) where passive monthly income from rental properties exceeds our monthly budget. But how do we calculate “net worth”.

    Should I take my rental properties monthly/yearly net profit times 25-30 and see if I am good for early retirement (plus emergency fund + pension plan etc)?

    I still have around 8-10 yrs for retirement and trying to focus on index investing, but wanted to put my question out as to how do we actually calculate net worth in my scenario.


    • Congratulations! If your rental income exceeds your expense, I think you’re there.
      You don’t need to calculate the net worth. Income is way better.
      Of course, you need to build in some margin for vacancy and repair.
      It sounds like you’ve done it.

  11. First time I have actually seen a chart going from full time to part time to full retirement. I have long thought that is my path. I have one more year syndrome making the switch from full to part time. More accurately I have 3-5 one more year syndromes as I “think” I will pull the trigger once my youngest college is selected and paid for. People with young kids I don’t think realize how expensive college is. We have/had 529’s etc but colleges are much like governments in that they just spend more and costs go up. They also lie with numbers, tuition stay the same or goes up 1% but the junk fees, books, room and board go up at a much higher %. Great article.

    • I think that is a very smart plan and the hold fast phase seems to be working well so far. It helps that you have a spouse that up until this point continued to work full time which not only gave you income but health benefits as well.

      The key is adaptability. If things change it looks like you have already contemplated several viable options to bring in money so you can delay tapping into your capital funds.

  12. Great article, Joe!
    We all need to be realistic about our retirement date. Even if we want to work longer, we may not get the opportunity to because of the labor market is constantly changing.

    It is good to have three to six months worth of expenses saved in an emergency fund to serve as a safety net during lean times. This could not just cover unexpected expenses, but could also make up for lost income due to illness or layoffs.

  13. Hi Joe,

    First time caller, long time fan. In terms of your investment property, why not sell it and put it in a REIT ETF or follow Warren Buffett’s recent purchase of STOR which pays a 5% dividend?

  14. Great article again Joe. Having saved almost 25 times income, I have been retired for 2.5 years now at 54. The main income generating accounts are holding flat as the dividends we take out match the overall growth. At 55 I can start taking from a small pension and at 65 or so I will start social security. At some point we can also take from our tax and tax deferred accounts. As each of these incomes kicks in, we can take less from the main investments and if my calculations are correct it grows and grows over the years to a very big number.

    Moral of the story – If you nest egg is big enough, it doesn’t go down, it keeps on going up! I love compound interest!

  15. I love your blog RB40, great to have somewhere like minded people can come together and chat

    I just wanted to say that, since taking a rough stab at very early semi retirement at 34 things haven’t gone as planned. They went much better! I genuinely feel blessed to say that I started my own business that kinda took off and now earn twice what I ever have working full time, while working just a few days per week.. and I like it. So, now able to live well and save a more reliable sum for later without hating every second of my job (which inturn boils down to hating your life)

    Life is pretty good. My main goal now is to live happily, with enough free time to still feel semi retired and enough money to do the things I desire. We plan to fully ‘retire’ from compulsory work in another few years and begin full time travelling. For now we travel moderately for short periods

    Anyhow, thanks again for your excellent blog. It gives hope to many

  16. Nice to read about retirement withdrawal strategy Joe. I would think that even when Mrs RB40 retires in 2020, your assets will spit out enough dividends, rents, other passive income, that you may see yourself in a holdfast phase for the rest of your lives ( may they be long and happy)

    What I mean is that your dividend incomes (and other investment income) from taxable and retirement accounts will likely grow over time, you may end up earning more than you spend ( meaning you will end up saving money in retirement). Plus, in about 15 – 20 years you will start earning Social Security too..

    We personally plan to live off dividend income when we decide to retire. The money is in taxable and tax deferred accounts, accessing the dividend income is not that difficult really.
    I look forward to reading where your journey takes you next!


  17. I’ve reached FI for a few years now but still continue to work because I have an easy job. I’m planning on paying down the mortgage on my 2nd rental in 5 years and 2 more years after my finance (soon to be husband) will pay down his, which we’re living in right now. We’re planning to stop working by then if we don’t feel like working anymore. We’ll then have 4 properties between the 2 of us, 1 is our primary resident, 2 are rental, 1 that my parents are living in currently. We expect to collect about $6k of gross rental, after taxes and expenses, maybe we’d still have $3.5k per month for spending money. My fiance will be at his job for over 30 years and should be collecting a good lump sum or monthly pension payments.

    Therefore, we might not need to withdraw from our savings.

  18. Thanks for sharing your strategy here. I think this a pretty darn realistic approach. I always envision an early retirement strategy where I am also accumulating wealth for a stage. It wasn’t going to turn into a drastic cut-off, where suddenly I stop earning revenue all together and just withdraw funds from my account. I am working on putting this plan together, and I will continue to draw/estimate the end game, but this is very, very much in line with what I have been brainstorming.

    Thanks for the read and the links to other articles.


  19. I like it. It’s in a way, partial retirement leading up to full retirement. You have a lot of buckets of income, so that seems like a very feasible method for you and your family Joe. Personally for me, I don’t see myself ever retiring because I enjoy working because it brings a certain level of satisfaction and fulfillment. But I can see myself jumping around working on different passion projects. And part of what makes it fun is seeing the financial rewards from something you build from scratch. But if I do that, it might be defined as “early retirement” since I would be quitting my full time job at my current employer. But at the same time, I would still be working 60-80 hours a week. Because that’s just how I am wired. I get antsy.

    • Yes, it’s is a partial retirement. Which is much better than full retirement when you’re young. You need to have goals and be active at this age.
      Maybe you’ll mellow out as you get older. 🙂

  20. nice post. i recommend the blog “my money design” as another example of draw down plan. it´s the one the inspired me to build up mine in more detail.

  21. I’m 65 and retired at 56. One thing I found astonishing in your graphs was that the X axis only went out to 80 years old. In my opinion any reasonable retirement plan should extend to at least age 90 and probably 95. These used to be extraordinary ages but there are many more people living this long today. If your plan exhausts all of your assets at age 80 what is the next step if you’re unlucky enough to still be alive?? The black capsule I suppose!

    • The graph is just examples. Everyone’s chart will look different so I didn’t try to make it accurate. But you’re right. I should stretch it to 95..

  22. Happy to see you become another link in the chain, Joe! Your message of a two step approach is very important. I wouldn’t depend on the 25x expenses theory if I had another 50 years to live. I believe flexibility, as you mentioned, is the secret sauce. And you’re doing a wonderful job creating options for yourself. Having the means to adjust your drawdown strategy, lower your expenses, and/or increase your income, are all excellent risk-protectors.
    Thanks for all the details and a great post!

  23. This has been a very useful exercise for me in so many ways—especially spying on the other plans!

    I plan to support our “holdfast” phase by working part-time basically until I don’t feel like doing it anymore. (Doesn’t sound like much of a plan when I write it down, eek.)

    My efforts so far have focused on accumulation to the neglect of drawdown, but methinks it’s time to sit down and have “the drawdown talk” with my wife. That time is approaching more quickly than I anticipated, and it’s a good thing!

    Dr. C

  24. My goal is not to have to “withdraw” money for retirement. My plan is to have a portfolio of assets that generate income that I can live on (my favorite is multifamily real estate). That way I will never have the possibility of running out or even cutting it close. We never know how long we are going to live.

    Plus I want to be able to pass down those assets to my children when I do eventually pass. There are certainly different perspectives on retirement.

    • That’s a great goal! I’d love that too, but I’m not sure if we can do it.
      The one problem is that it means you’ll have to work longer. That’s okay if you like your job.

  25. I like Holdfast phase idea for early retirees. It is a warm up period to have a feel of retirement and make any changes in the strategies if needed. It is sort of swimming in the shallow water before tackling deep water.

    • I think the Holdfast phase is really great. It’s much better than an erupt transition to retirement. Everyone should plan for 5-10 years in the Holdfast phase.

  26. Thanks for joining the #DrawdownStrategy Chain.

    It is amazing that you were able to retire from a career in engineering at such a young age.

    Your plan looks solid.

    Plus you have many different income streams and great diversification.

    I hope you enjoy your very long retirement.


  27. Thx for you withdrawl plan. It articulates what I have in mind for my FI life: make sure we have income to cover our expenses. In my case, it is probably doing what I do now.

    The term holdfast is nice for that.

  28. I like the early retiring idea and still able to capture some passive and active income in the process. It’ll help to continue to grow that nest egg and have the benefit of a semi-retirement. We still have a loooonnnngggggg way to go as we’re in the accumulating stage.

  29. It’s great to see you joining in the #DrawdownStrategy chain, Joe.

    I would love to see us enter more of a holdfast phase rather than a drawdown phase. I alluded to the possibility in the closing paragraphs, but really any additional income from online endeavors is icing on the retirement cake.


  30. This makes a lot of sense and is roughly inline with what we have in mind. Love your term of “Holdfast phase.” What happens if your passive income grow so much during your holdfast phase that you don’t need to withdraw from your portfolio at all? Any plans if that happens?

  31. Great topic! Early retirement to me is any time before 65. All early retirees face the same dilemas whether they reired at 40, 50, or 60. Of course, those retiring at 40 have a bigger task than those at 60 since as you pointed out their monies have to last longer. Semi-retired is not really retired as your withdrawls are not in full force. This is the reason a lot of financial planners recommend postponement of social security benefits until either FRA or age 70 to max your benefit.

    FI is a necessary for but not sufficient condition for retirement so they are not equivalent. Other factors play a role including age.

    With only 20% of the population making over $100K, the multiplier for FI can be as low as 8x your salary. Noticed salary is not equal to expenses which brings me to other factors to consider not addressed here such as taxes and inflation but the most dangerous one is deflation. What do I mean?

    Taxes, are taxes lower or higher now than in the future? Most would agree now are lower so it makes sense to pay now in the early parts of retirement when your taxable income is low.

    Our combined state and federal effective tax rate for 2016 was 7% and we live in California. What was yours? This could troublesome for 40 something retirees.

    Inflation, it costs more to live. How to manage expenditures and inflation. In order for your monies to last, inflation must be factor at an average of 3.5% per year. We been below the average, nevertheless, this monster will show his head sooner than later. We cut in insurance coverages, premium cable, eating out, and other discretionary expenditures such as quantity of food for health reasons.

    Last but not least is deflation. This one again uglier for yonger retirees as they have to account for more car, personal goods, and home remodels replacements.
    40 something retirees need to buy with a lifetime usage in mind. In the case of a car as an example, new would make sense since there is more time to recover the imvestment. Example is our 2003 Suburban with 290K miles and looks good and runs better. Timely maintenance pays off.

    Lastly, run the numbers for 50 years. Not 40 or 30. Population is living longer. Right now people entering retirement at 65 plan for 30 years.

    My point here is that the factors and trades are the same. Earlier retirees need to plan more of it. For example, before I retired, I worked part time for a year and took a leave of absence for another year. Called it, the exit plan..LOL!

  32. I think having some solid side income, as you do with the blog and the rentals, really takes things that are already pretty safe like the 4% rule, and makes them fairly ironclad.

    My plan is to stay fairly flexible in the first 10 years of early retirement: be open to earning income if it’s something I enjoy (internet retirement police be damned), being open to saving money in areas that make sense, and, gasp, even going back to work if it turns out I kind of miss it. I figure without a crystal ball for what FIRE will look like at first, that’ll help.

    As for draw downs, the vast majority of our funds are in taxable accounts now, just due to the missus not having a 401k: most of what we invest exceeds the limits of my meager 401k, HSA, and her IRA. So I think our draw down is going to be pretty boring, but we’ll also use the 5 year Roth conversion plan to move our funds from the 401k and Traditional IRAs in a tax efficient manner.

    • The big challenge is to keep it up for 20 years… Even 10 years would put us in a great position. WE’ll see how it goes.
      It’s nice that most of your funds are in the taxable accounts. That makes withdrawal much easier.

  33. Being conservative, I’m a fan of the hold-fast strategy. I’m confident in our portfolio, but it’s nice not having to draw from it. Mrs CK still earns more money than we need, and we are still able to invest some 🙂

  34. Enjoyed this read, Joe. I completely agree that a drawdown strategy makes most sense when the person is closer to retirement. i.e within 2 years. They evolve over time and I have no doubt our own plan will get tweaked a little over the next year.

    I echo the comments of Adam and Jane in healthcare costs being a major piece of the expense. Planning for all that is hard but a big buffer will surely help. With a family, you do not want to short-change healthcare so find a very robust plan and don’t regret for a minute paying for what is the most important thing for you and your family.

    The 150% number from Adam and Jane is not unreasonable at all. Conservative, yes. But smart.

    • Healthcare will change over the next few years so we’ll put that off. It’s no use to figure that out now. We’ll just have to keep an eye on it and figure it out when the time comes. 150% is pretty hard to crack…

  35. If the blue line in your chart peaks at 25x expenses, then its decayrate on the right side seems pessimistic, no? Drawing it down to zero in 25 years would mean that your portfolio return rate just matches inflation. Perhaps realistic if you’re heavy into CDs and light on stocks, in which case maybe you’d rather buy an SPIA (annuity) for lifetime income?

    My plan is a variable withdrawal rate that starts with lots of cushion. Basically I pay myself two and twenty for self-managing my portfolio (so maybe I’m not retired after all?). The benefit is that it can’t deplete to zero, but the drawback is potentially large income fluctuations. I’m already used to this, and the cure is the same as it ever was– underspending. Like the 20% of marked-to-market annual growth I don’t plan to spend that same year, it’ll feed my cash reserve.

    So with this scheme and assuming stock returns exceed inflation by a couple of percent, my blue line’s right side should look similar to your holdfast phase– a slightly upward sloping line.

    • This charts are just visual aid. It will be different for everyone so I just made a simple chart.
      I like paying yourself the management fee. That’s a great idea.

  36. Joe,

    Sounds good. Great job at in planning your retirements. To be in the safe side, have your incomes covers 150% before Mrs. RB40 retired. When you both retire, I would think your expenses will increase unless you are both home bodies. You will probably travel more and overall spend more to further enjoy your life. You will need to replace big ticket items like a car, roof, world travel, etc.

    I am still working just to reach 55 in a bit over two years so that I can double my pension to 70K and to receive 8K for healthcare. I consider myself “semi-retired” working at home 10-20 hours a week. It is a race against time for me to reach 55 before the company outsources the systems that I support. If I am let go before 55 without a severance then so be it. At least, I gave it a shot to double my pension.

    Our muni bond income is 87K for this year and Jane just applied for her 52K pension. Our expenses were 40-45K for the last 7 years by holding back on many purchases. I feel that we are now in good financial shape and at this stage we do not have to accumulate any more. As a result, we loosen up a bit and spent 20K plus more so far this year. I spent over 5K on my hobbies, 3K for Jane’s new Apple gadgets and clothes, 4.5K for her medical. Just went to Alaska and blew 8-9K on this bucket list item.

    Since I worry too much, does your numbers include 3% inflation and 8% for healthcare yearly increases?

    Healthcare can be very expensive. Jane was laid off in 2016. Since she was over 50 and had 30 years of service, the company gives her 8K a year only towards the company healthcare plan, Aetna. In 2016, Jane’s Aetna premium out of pocket was 3K (11K – 8K) a year. In 2017, Jane’s out of pocket is $4.5K (12.5K-8K) a year. In a couple of years, it will probably be 15K for her healthcare before her 8K allowance.


    • It’s great that you have such a solid income. Really nice job. I think 150% is going to be tough for us. Our income can fluctuate a lot so it might be anywhere from 80% to 150%. It really depends on the year. A bit below 100% is okay because we can withdraw a little.
      Healthcare is really a huge problem. We’ll need to keep an eye on that one. No, I didn’t budget 8% annual increase for it. That’s ridiculous. Healthcare is much more affordable in other countries so that’s one option for us.

      • Joe,

        You and your wife seem to have a passion for cooking and traveling. Would it be possible for you to create a new website or incorporate into this site and grow some additional income from it. The pictures of food that you made just makes my mouth water! I think you and the misses may enjoy blogging on food and travel. Maybe you can also review restaurants around your area and where you travel too, to grow more followers. There are a lot of foodies out there.

        If not food and travel then is there anything else that you and Mrs. RB40 are passionate about that can be turned into a side hustle?


        • We don’t have time to create a new site. It’s a lot of work. There are so many good food sites already. I’m thinking about making a new travel site when we go on our around the world trip. I’ll make my kid carry that one and he can be the main voice. That will be a great learning experience for him.

  37. It’s interesting for me to watch your journey as I lag behind you by about 10 years. I’m in the accumulation mode right now. One big item that will impact our early retirement date is figuring out when my wife will go back to work. Our daughter is 9 months old and we plan to have one more child. Therefore, we are about 2 to 3 years from my wife going back to work. We plan to save all of her income, and I hope she gets a job with the state so we can max out a 401(k) and 457! Saving a minimum of $36k/year from her income will drastically pull in our early retirement date!

  38. I always love the charts. I like your chart, and those that were put together but the other guys.

    My plan is to never drawdown unless I absolutely have to. So in other words, always try to make more than I spend. It’ll be a fun challenge, and something I hope will be good for my child, my wife and others in need when it comes time for me to pass.

    It’s too fun right now. But maybe I will think differently after reaching the 10 year mark in blogging in 2019!


    • Thanks! I enjoyed making the charts too. It’s much easier to understand with some visual aid.
      You built up enough wealth to be at that point already. We’re slower so I’m not sure if we will ever get there. Drawing down is okay with me. 🙂

  39. “Rental income – This one is tough. In a good year, we make about $10,000 from our rentals. However, one big maintenance expenses can cut that in half or more.”

    I wonder if you would be better off if instead of owning rental properties, you just put that money into buying dividend aristocrat indexes. There are the hard numbers, but of course, there are also the intangibles, such as the fact that owning properties takes much more *time* and you would constantly have to *worry* about upkeep and maintenance. It would also make it logistically cumbersome to relocate or just go on a long vacation (e.g., traveling around the world). It’s difficult to quantify the value of *peace of mind* that owning stocks would give you.

  40. I believe you are in an almost ideal position. Having your expenses covered by passive or semi passive income while being “retired”. You are certainly going to have a massive net worth by the time you are 65.

    Have you ever considered selling your rental properties and buying more dividend stocks? It seems like you could sell them and make $10,000 a year with less stress and worry about tenants. Not sure what they are worth and what you might owe but that seems easier.

    • We will probably sell off our rentals by the time we get to 65. Not in a hurry right now because the property price is still increasing. It will a lot easier if I don’t have to worry about the rentals.

  41. Thanks for the write up and links Joe – I like how you break down your accumulation graph and its impressive you are going to be able to live off RB40 and passive income for so many years while letting investment accounts grow.

    We are still in the accumulation phase and will be for awhile – not thinking about withdrawal strategies for years

    • Right, that’s why I didn’t go into a lot of detail in the full drawdown phase. It’s way off for us and there will be a ton of changes.

  42. The Holdfast Phase is an interesting idea. I like it.

    I FIREd at 52 in 2012. My basic plan is to under spend in retirement. I use CFiresim to figure out what Mrs. Freaky Frugal and I can afford to spend assuming we live to 98 with a 100% probability of success. We are under spending by over $30K per year which I view as our safety margin.

    This strategy allows me to sleep well at night. 🙂

  43. Thanks for sharing your approach to early retirement. I think breaking it up into phases like this is a great model that others can use too. I’m going to give it some thought for my own situation!

    • This model works well for careers with income that ramp up early. Engineers is paid well early, but many hit a ceiling before they’re 40. Good luck!

  44. Welcome to the Drawdown Chain! I like your approach and the flexibility the hold fast stage offers. I can definitely see the benefit vs going hard and heavy until early retirement. Now you can work a little and still enjoy living life to the fullest!

    • Thanks! That’s the key. Work a little and enjoy life. Many people do that while they are young, but that’s not the right approach. I like my approach better.

    • This method seems more natural too. Rather than working too much and then retiring, a gradual fade out seems more natural.

      It also eases some of the financial uncertainties of such a long retirement.

  45. I’m fortunate. I just turned 68 so I am past that 65 retirement milestone. I had my best year ever for pretax income in 2015 with it dropping somewhat in 2016. But 2017 appears like it will be better than in 2016 and possibly even better than in 2015. What’s more, I am thinking about writing and self-publishing more books which will bring even more residual income. This I will not be doing for the extra money. I am being motivated by people saying that I am “lucky” to have had three true bestsellers (each selling over 100,000 copies in print) and having the residual income that I have. I want to prove to them that I can create two more true bestsellers with big monetary payoffs and show it has absolutely nothing to do with luck. (It has everything to do with critical thinking skills, creative thinking skills, plain common sense, and inspired action.)

    So, I may also not ever reach the full retirement phase. But that is a good thing because I will always have financially rewarding and emotionally satisfying projects to work on, even if it’s only one or two hours a day.

    • That’s a great goal! I’m sure you can do it.
      I don’t look forward to full retirement either. It’s better to stay busy with a project.

    • Ernie,
      You live a life that many people may envy. YOU and only YOU created intellectual properties that generate passive income which allows you to live a good and free life. You don’t need their accolads to validate your accomplishments.

      Don’t let these people get to you. If they say that you are lucky then does that mean they are unlucky? If so then I rather be “lucky”.

      Maybe you are “lucky” to live in Canada and not a 3rd country which gave you the chance to reach your potential.

      Maybe you are “lucky” that they lit a fire in your belly so that you are now motivated to write 2 new books and then you can rub it into their faces!

      I think I am lucky that I was born in America instead of village in China like my parents. Life is tough there. Maybe it is luck that I work in the same company for the last 30 years and where I met my wife. Maybe my wife and I are lucky to have pensions, 401Ks, muni bond interest that provides passive income 3x our expenses at age 52. In my mind, it was a tough 30 years and it took a lot of aggressive blunt force savings and sacrifice for retirement. If people think that I am lucky then so be it. I believe in good karma and destiny.

      Their words are just meaningless static and should be ignored. I say who cares, enjoy your life and avoid negative people unless you want to write more bestsellers!! 😉

      Another way to look at it, is that many people misuse the word “lucky” in place of the word “fortunate”.


  46. Hi Joe! I really like the idea of your “holdfast” stage. That’s where I’m at right now — Not working, but our net worth keeps growing.

    The question for me is — Will I ever enter that “full retirement” phase? I’ve thought really hard about it, and I don’t see it happening until I’m physically incapable of doing something “productive”.

    I think it’s smart to plan for this to happen at *any time*. What if you suddenly couldn’t earn and online income? Would you have enough?

    • I agree with you on full retirement. Even if we stop working, I’m sure will keep busy with volunteering and other projects.
      We should be able to go full retirement if we need to. We’re just being conservative. It’d be nice to have some assets left for the future generations so we’ll stay in the holdfast phase as long as we can.

    • Yep, me too – I don’t see that semi-retirement phase ending, but that’s more by design I think. (Semi-) Retiring at 55 early next year. I will keep doing the occasional contract gig (3 to 6 months) – with long gaps in between. Too much fun stuff to do…

  47. Joe, I really like how you distinguish a Holdfast Phase. This is where I’m also operating in currently as an early retiree. I couldn’t imagine trying to do a full retirement phase yet and accessing any principal. My intention is to remain in the Holdfast Phase indefinitely once we can accumulate enough passive income to support beyond our typical living expenses… we need some more rental properties! 😉

    • It’d be great if we can remain in the Holdfast phase indefinitely, but it will be harder when we’re old. We’ll have a lot more healthcare expenses and maybe long term care problems. I’d be very happy if we can maintain it for 20 years.


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