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How to Retire Forever on a Fixed Chunk of Money

These last two articles have focused on how common it is for early retirees to continue making money after they say goodbye to the cubicle. I share stories like that because I’ve seen it happen in so many lives, including my own. Plus, if you do it right, work is fun.

But the downside of all this “side hustle” talk is that you can take it too far, and people start to think that early retirement is possible only if you keep making money afterwards. To the point that I’ve now been hearing many thirtysomething millionaires saying things like,

“Sure, the numbers say I’ve easily reached financial independence, but I’m not even going to touch my nest egg until I’m 60.

So these days, I just do a bit of unpleasant consulting work here and there to cover my expenses and to get the employer subsidized health insurance. “

On top of that, it is hard to get mainstream financial advisers to admit that there is such thing as a finite chunk of money that you can live safely on, forever. They say stuff like, “Financial independence is great, but truly retiring from making money? Forget it.

This is where Mr. Money Mustache puts a stake in the ground.

Because it IS absolutely possible and in fact very easy, to make a chunk of money last through your lifetime. There is no magic or unusual risk or hope involved, it’s just plain math.

Even with all the complexities of the modern financial world with its booms and busts, OPECs and Brexits and the churning sea of changing politicians and dictators, it still all boils down to a really simple number. And we can illustrate it with this really simple example:

Let’s say you want to be able to spend $40,000 per year, for life, and have that spending allowance continue to grow with inflation. And you never want to make another dollar from work in your lifetime.

In this situation, the following three sentences represent the entire universe of probability for you:

  • If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)
  • If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money
  • If you start with $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.

Now, these statements do all depend on the continued existence of a productive human race which continues to innovate and trade and not destroy its own productive capacity.

But you know what?

  • In the event of a global apocalypse, you won’t be thanking yourself for spending those last few years in the office accumulating a few last shares of index funds anyway.
  • The strategies described in this blog are designed to shift us all to a more sustainable, healthy, productive economy. So when you live a Mustachian lifestyle, you’re boosting the likelihood of an apocalypse-free future for all of us. Thus, because of you, We are all going to do just fine.

So. A fixed chunk of money is about as safe a retirement strategy as you’ll ever find.

It’s safer than relying on any job, because keeping a steady job depends on the overall economy remaining healthy enough to feed your company, your company remaining solvent, and you remaining productive and useful to that company.

Meanwhile, a good investment portfolio just depends on the world economy in general continuing to exist.

But once you’ve got that chunk, how do actually convert it into a safe stream of lifetime income?

In other words, most of us get to the door of financial independence with something like this:

A complex financial picture with lots of dollar signs – but can you retire on it?

But what we really want is something like this:

This is how money flow really works in early retirement..

So What Is The Problem?

Most people get stuck on the same three questions:

  • What investments do I use to provide a lifetime of income?
  • A big chunk of my savings are in 401k or pension, locked up until I’m 59. How do I retire at 35?
  • How can I pay for (US) health insurance on a $3300 per month budget, when I’ve heard monthly premiums can exceed $1200 per month for a family of four?

The great news is that there are easy answers for all three. They are just not widely known because true early retirement (with no backup income) is such a rare field that very few people write about it. So let’s bang out those answers right here:

Investments:

The Simple Path to Wealth is a short book on investing that convinces you that the simplest strategy is also the best.

As always, I suggest that you only need one thing: a generous bucketload of low-fee index funds. It can even be a single index fund if you want to keep it even simpler: Vanguard’s VTI “Total Stock Market Exchange Traded Fund”

Whether you own these funds through your company’s 401(k) plan, or the brokerage account of your choice, or a Vanguard account, or through an automatic management service like Betterment* as I do, doesn’t matter. What matters is that you are buying pieces of real, profitable companies, which pay dividends and appreciate over time.

Okay, got the funds, Now What?

Okay, you’re 35 years old, you have saved exactly one million dollars, and handed in your resignation.

At this point, you will probably have at least two chunks of money: a normal chunk (also known as a taxable account), and a retirement chunk (perhaps a 401k, IRA, or pension).

Let’s suppose it is divvied up like this:

When you retire early, you Use up your taxable accounts first.

On your first day of freedom, you log into your account, find the option for what to do with dividends, and set those to get automatically deposited into your checking account.

Right now, the VTI fund happens to pay a 1.89% annual dividend, which means that the $500,000  account in that green box above will pay $9000 in annual dividends straight to you.

Then, if you’re shooting for $40,000 of annual spending, simply set up an automatic monthly withdrawal of an additional $31,000 per year ($2583 per month) to be sent to your checking account, which is set to automatically pay off your credit card, which you use to buy your groceries.

But Won’t I Run Out of Money If I Do This!?

That’s the magic of early retirement math – the answer is NOPE! Because check out how this plays out:

  • Because of those withdrawals, your account will lose a few shares every year.
  • But because of natural stock market growth, your account will be fighting back and each share will be worth a bit more.
  • Thus, your money lasts much longer than it would if you were just keeping it all in a checking account or stuffed in your mattress.
  • So a quick spreadsheet simulation of this drawdown reveals that your account survives almost 23 years. At which point you are 58 years old – almost eligible for penalty-free withdrawal of your true retirement money.
  • BUT, during this whole time, that other $500,000 in your retirement account grew untouched (and untaxed), and it’s now worth about $1.2 million dollars even after accounting for future inflation**. In other words, you have WAY more than enough to live on forever at that point.

Here’s a quick spreadsheet with simple assumptions and 4% after-inflation stock market returns. In this situation the first 500 grand lasts about 23 years.

And here’s the same thing, except I did it in Betterment’s fun retirement income simulator, using a 95% stock portfolio. This version is slightly less optimistic, but still gets us out to almost 20 years in the most probable scenario.

If you have a really large locked-up retirement balance and a small taxable account, you might want to tap into the retirement account sooner. There are ways to do that penalty-free too, see this earlier MMM article for a few ideas.

The overall lesson: It doesn’t matter how you have your investments split up between normal investments and retirement accounts. It just matters how much you have in total.

Heck, even if you are stuck with a $1 million house occupying a huge part of your net worth, you can convert that into livable money: sell the house, put the cash into index funds, and use the resulting cash stream to rent a spiffy but reasonably priced house or apartment in the lovely walkable area of your choice.

Okay, What About Health Insurance?

If you are stuck in the world’s most expensive medical care market like I am, the most profitable investment of all may be salads, bikes, and barbells because these virtually eliminate the “lifestyle diseases” that trigger about 75% of US healthcare spending.

But even so, most people choose to insure against surprise medical bills, and people with existing medical needs depend on help with those costs.

The good news is, the politically controversial Affordable Care Act actually handles this much better than most people assume. If I go to healthcare.gov right now (or in my case the Colorado-specific equivalent) and put in a hypothetical 4-person family with a $40,000 annual income in my zip code right now, I see this:

This represents a cost reduction of $830 per month relative to what a high-income person would pay for the same coverage. So in other words, the United States just has a progressive tax bracket system like other rich countries, chopped up a little differently. It’s not great and to be clear, this is shitty health insurance because it has a high deductible. But at least it’s not a retirement-buster.

Other Things You Probably Don’t Need To Worry About But Everybody Does

What if Stocks fall or My Cost of Living Goes Up?

Stock market crashes are never permanent. In the long run, the market always goes up. So all that happens during a crash is that those few shares that you do sell during those brief times when the market is down, will hurt your account balance just a bit more. Within a year or two, the market is back up and your remaining stocks are more valuable than ever. If you want even further reassurance, you could just choose to spend a bit less money during this time.

As for your cost of living going up faster than inflation – it rarely happens. And if it does, you can adjust by spending less in other areas. Most things are in your control, especially if you take a big-picture view. You can shop around, move, and alter your lifestyle in a million different ways, and in fact this is really good for you.

Standard retirement advice is based on protecting people from any form of hardship or change, which is completely counterproductive. In the right quantity, these are the backbone of a good life and the fuel for personal growth. Without them, you will melt into a whining puddle in front of a television that endlessly blares Fox News.

Every Financial Advisor (even Betterment!) Seems to Suggest Lots Of Bonds, – Why Does MMM Only Hold Stocks?

The quick answer is that stocks earn more money on average, especially right now in 2018 with bond yields so low. Sure, stocks are more volatile, but volatility only bothers fearful people who look at the stock market every day and fret when it jumps around. As a Mustachian, you don’t do this. Lower stock prices are simply a temporary sale on stocks.

What About All Sorts of Other Stuff Not Covered in this Article?

The absolute key to success in early retirement, and indeed most areas of life, is to get the big picture approximately right and not sweat the small stuff. And design the big picture with a generous Safety Marginwhich allow lots of slop and mistakes in your original forecasts and allows you to still come out with a surplus.

For example, in the story above I assumed a $40,000 annual spending rate, which is way more than almost anyone really needs to live well here in the US, especially once your kids are grown. I completely ignored Social Security, which will benefit most people at a level between $1000 and $2500 per month for a big portion of their older years.  I ignored any incidental income or inheritances or profits you might make on selling your house someday, and the list goes on.

So that’s the line in the sand.

Although I personally think working hard almost every day after your retirement is good for you, it is also completely optional, and you do not have to earn any money at it if you don’t want to.

A chunk of money is a perfectly good retirement plan, and the math doesn’t care if you are retiring at 5 years old or 85. If you get the numbers right, you’re set for life.

—–

*Betterment, Wealthfront, and Personal Capital are investment management systems known as “Robo-Advisors”, which typically buy shares on your behalf and then add on features like rebalancing, tax loss harvesting and personalized advice. I happen to use Betterment because the I like the interface and benefit from their tax loss harvesting more than pays for their service fees in my own tax situation.

Betterment purchases a flat rate advertising banner elsewhere on this site, although I don’t get paid for mentioning them or for any new customers they might get. And blog affiliates/advertisers have no say in what I choose to write.

** For this calculation, I assumed the stock market delivers a 4% rate of return including dividends, after inflation. (or roughly a 6-7% total annual return)


  • Tonto Svensen December 2, 2018, 1:26 pm

    Seriously? Someone with $1M by age thirty is going to be content living on $40K/year for the rest of their life? You lost all credibility right there. Then there’s the matter of deferring taxes on half of that mil…

    Reply
    • Mr. Money Mustache December 2, 2018, 2:51 pm

      Heheheh.. Welcome, new reader!

      You will be even MORE amazed that many of us with SEVERAL million dollars are content to live on more like $25,000 per year.

      Although Tonto is probably already long gone, just in case here is a “start here” article to explain what this blog is about:

      https://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

      Reply
    • Married to a Swabian December 2, 2018, 7:15 pm

      Frugal is where it’s at!

      Why? Because TIME is the ultimate luxury – not BMWs and Rolexes.

      Too many folks in this country have a financial situation that Texans call “Big hat, no cattle”.

      Reply
      • Florida Mike December 3, 2018, 2:45 pm

        And the cool thing is you can be frugal and still own a BMW. I own an old one and its a joy to work on myself and still reap the benefits of ownership and the joy of driving it!

        Reply
  • Kristin December 2, 2018, 5:24 pm

    This all seems predicated on not having children or worse, not giving a damn about them or their futures. First, selling the family home means no-one has a stable base, the likelihood of moving around a lot (and that does kids no favours when they’re growing up) and potentially leaves you without a place to live in older age (and clearly you haven’t seen rents in Australia). Second, if you do maintain owning a property, but bugger off and buy one in the country or overseas, WTF are your kids meant to live (most Australian kids live at home whilst they’re at uni – they don’t go away to college). And finally, what about leaving a decent legacy to the next generation?

    It would seem that your ‘retire, have fun until you die – look after yourself and screw everyone else’, is a very selfish way of looking at the world. And hasn’t that got the world into the problems that it’s currently experiencing?

    Reply
    • Mr. Money Mustache December 3, 2018, 4:47 pm

      That is an interesting perspective Kristin, and it might be partly a difference between US and Australian values (?)

      In many countries there is no shame in being a renter for life – many people never own homes and doing so is not a moral accomplishment. And the decision should really depend on the price-to-rent ratio in the area you happen to settle. Renting doesn’t mean disruptive moves, you can simply hop to a new place right in the same neighbourhood if you need to. I’m currently on the fifth home I’ve owned right in this same area, and I think moving is a healthy way to keep yourself nimble and lighter on posessions and less attached to permanence the material world.

      Secondly, I don’t believe in the “Ovarian Lottery” system of parents passing along large amounts of money to their kids. Unless they have special needs or disabilities, I think we benefit from building ourselves up from scratch, in the financial sense. My parents didn’t buy me much of anything after beyond age 15 and I had to pay for most of my own education, and it has been a huge advantage in teaching me how to earn and manage my own money. I wish the same good fortune for my son, and if he achieves it I can give most of my own money to charity before and after I pass on.

      Reply
  • Andrew December 2, 2018, 7:00 pm

    https://apple.news/AZooaBBghTkOdFl-NLbf_vQ

    Wondering about this critical peak of index funds?

    Reply
  • Bobby Easy December 3, 2018, 6:45 am

    While this is all generally good advice from within the frame of chiseling down a small fortune on the way to one’s demise – I find it unfortunate that we can’t be creative enough to find a way to live off a seven-figure fortune without touching the principal.

    I “retired” at 33 and have watched my fortune slowly grow as I’ve learned to invest in real estate, debt funds and private equity for income while continuing to fund my stock portfolio with a trickle of new cash.

    This, I believe, is the next responsibility after early retirement. First we gain financial independence, then we should seek to achieve some glory and leave something substantial behind for our families.

    Unless you’re cool with casseroles and Honda Accords for the rest of your life and have no family. Then I guess it’s cool to just let it whither as slowly as possible.

    Reply
    • Mr. Money Mustache December 3, 2018, 4:33 pm

      Well, first of all Bobby, NOBODY should consider a luxury car like a Honda Accord to be beneath them, nor a fucking delicious dinner like a casserole to be fit for anything less than a king. Chill out on the self-pampering a bit and try bare feet and plain lentils, and then come back and enjoy middle class life in the richest country in the world.
      ;-)
      Secondly, the example given in this blog post is NOT chipping away at a chunk of money – if you do the math on the entire $1M fortune, the person ends up wealthier every single year – it is just that half of it is hidden in the retirement account for the first 20 years or so.

      Finally, I do agree that working hard (and making money) after retirement is rewarding for many of us. But it’s not an obligation or a necessity in order to get through life.

      Reply
  • SilentC December 3, 2018, 9:25 am

    I’m actually a financial advisor and I agree with MMM 98%. The biggest issue I have is with suggesting a 95% stock portfolio. If you use apps like Firecalc you can see that mixing in some bonds can increase the total expected longevity of a portfolio. Also, rates have moved up and there are investments out there in bond land where you can earn 5%+ which is a far cry from the last few years.

    Secondly, it is really, really important for people who are interested in FIRE to realize there have been periods in history where the stock market has been flat for 10-15 years point to point, so you need to mentally be prepared to encounter a scenario like that. For example, from 1966-1982 the real return (net of inflation) of the S&P 500 was about zero. With a 4% withdrawal rate in this scenario your portfolio would be down about 60% in real terms. It doesn’t mean you shouldn’t FIRE, it just means you need to be true to yourself and evaluate how you would react to a scenario where year after year your ‘stache is melting.

    Reply
    • Mr. Money Mustache December 3, 2018, 4:27 pm

      Yeah, all good points Silent C! That 1966-1982 period was quite the storm as the P/E ratio of the shares was cut in half – earnings remained fine but investors assumed that inflation and interest rates would remain high forever. By the end of it, shares were offering a 6% dividend – and then the a great bull run began!

      If I had retired right at the beginning of that period, I probably would have indeed become spooked and chosen to make more income before it was out.

      Reply
  • Mike P December 3, 2018, 12:52 pm

    Love this blog post! Would love to see more posts explaining the details of the actual steps taken once FI is achieved. Thanks for explaining this out.

    Reply
  • Mike Earl December 3, 2018, 2:02 pm

    Great article. I work as a financial advisor and tell all of our young clients that early retirement can easily be a reality.

    The one thing that should be made more clear: the cheap health insurance is only cheap because it is heavily-subsidized by your fellow American taxpayers. Isn’t it troubling for a family with a million dollar nest egg to be accepting welfare (let’s call it what it is) to the tune of more than $10,000 per year?

    Reply
    • Silent C December 3, 2018, 7:47 pm

      Hey Mike, it’s somewhat troubling. Carried interest tax tricks for private equity fund managers, stepped up basis on inherited assets, no estate tax on $11mn estates, family LPs, generous gift tax exclusions and things like this bother me way more. I think taking advantage of medical care subsidies is no different than any other tax avoidance tactics which shift costs to fellow taxpayers but I’m very open to counterpoints.

      Reply
  • Florida Mike December 3, 2018, 2:42 pm

    As a person who is far behind retirement planning due to a host of setbacks including divorce and job loss, this post was VERY inspiring! Thank you!!!

    Reply
  • Joe D December 3, 2018, 3:46 pm

    How easy is it to tell healthcare.gov how much you make when you are not really making anything but living off what you have saved? Basically, I’m wondering how that process works. I estimate my net worth at about 1.5 million but plan to get to at least 2 million. I have maybe some spookier health concerns than maybe other mustachian wannabes do.

    Reply
  • DC December 3, 2018, 6:12 pm

    Assuming you’re not earning wages at a job, your income is whatever you earned in capital gains when you sold to have money to live on, plus whatever dividends you collected. If you had no capital gains or dividends, you have no income as far as healthcare.gov is concerned.

    Reply
  • Dee December 3, 2018, 7:30 pm

    What if I’m 26 years old with only a high school diploma, have $4000 to my name and make minimum wage? Is FIRE possible on less than $20,000 a year? should I be putting $50 or $100 a month away in investments instead of in the bank? Do I need to go into knee shaking debt for a bachelor’s degree then work earning $60,000 a year for 5 or 10 years before I think about any of this?

    Reply
    • Florida Mike December 4, 2018, 8:00 am

      Dee, I am by far not the best person to give career advice but I would look into going to community college and then transfer to a local university after you get an Associates degree. Thats what I did and finished school with no debt. Community college is less expensive, you can go part time which allows you to pay as you go and still work full time. It takes longer but what the heck, time is going to go by anyway so if you started now, you could have an Associates degree in 3-4 years and a Bachelors in maybe 3-4 after that. All in all a college degree by the time you are 35-40 which is pretty good. Best of luck!

      Reply
    • ms blaise December 5, 2018, 1:14 am

      Since you asked: my advice is to flag the degree, and instead learn yourself a trade. Then start working in the barter economy while you are on apprentice wages and build your skills and networks. Choose your trade carefully = plumbers do well. Be qualified by 30 and buy a simple home that you intend to live in and enjoy. Use all the tricks from here to help out with paying it off. Enjoy the journey, don’t get caught up in consumerism. You’ll retire rich but lots of people won’t know you are rich because you won’t look it.
      I wouldn’t go into debt to study – unless you have a passion?
      Do the cost benefit analysis.

      Reply
    • Married to a Swabian December 5, 2018, 4:42 am

      Dee, both of the above pieces of advice are excellent: find your passion and go for it. If it’s a trade, become an apprentice and learn it. If it requires a degree, the route Florida Mike mentioned is great: community college and then transfer to a university. Just automatically going to a university and graduating with six figures in student loan debt, does not guarantee high income later. It puts you in a financial hole that you have to dig yourself out of. Figure out what type of work truly inspires you and pursue it! There’s a book that’s been around for a few decades on this topic, “What Color is your Parachute?”. It’s pretty helpful in figuring out which direction to go.

      Reply
  • PLS December 5, 2018, 4:38 am

    Hey MMM,

    First, reading your articles always give me confidence to stay the course. So much of the materialistic world can pull you away from your plan if you let it. Second, your articles allowed me and my family to have more freedom than I ever imagined, whether I get to FIRE or not (which is fine because my job is what I would do for fun even if I didn’t need to). I started reading a bit before we started a family. Because of your advice, we had the option of dropping her job so she could stay home and keep the kids. Durring the one moderate salary days ($70,000) and with four people (twins!) we still paid off all debt, built up a portfolio and had a blast It’s also allowed us to take a new job, move to be closer to family and have more free time because we weren’t beholden to a specific salary. It’s just a math problem, right? People have way more control than they think.

    One question though. I just moved to a Health Savings Account for my insurance. It looks like a great plan for Mustachians because it’s an investment vehicle that you keep forever rather than paying an insurance company each month. High deductable though, which is fine when you’re not sick. What’s your take on this option and how would you include this in your plan? Would you allocate a specific amount to it rather than a Vanguard Total Stock Market Fund?

    Reply
  • Steve P. December 6, 2018, 9:09 am

    Thanks for explaining this in a great simple way. I always appreciate how you keep it simple.

    Reply
  • Tomasz December 6, 2018, 1:28 pm

    Michael & Ben from Animal Spirits podcast comment your article:
    https://awealthofcommonsense.com/2018/12/animal-spirits-episode-58-the-sellers-are-in-control/

    Reply
  • Living the Dream 2.0 December 6, 2018, 5:42 pm

    This article was vintage MMM. You’ve restored my faith. The trend lately in FIRE blogs seems to be centered on side hustles to supplement investment income. I prefer the chunk of money approach (while leaving my options open). I am taking a very fortuitous auto buyout tomorrow and look forward to the satisfaction of the next phase of my mustachian existence.

    Reply
  • Nancy Zubiri December 6, 2018, 9:09 pm

    I know that this is a blog about finances, but one of the reasons Mr. Money Mustache retired early is so that he can spend more time outdoors, living a healthier lifestyle, instead of stuck indoors in an office job. Research is starting to reveal that part of all of our cancers and illnesses and weight problems are due to a lack of Vitamin D. Research it. You’ll find that it’s true. Spending time outdoors has also been proven to help people live longer. Forty-fifty ago, when people naturally spent more time outdoors, they didn’t have the weight problems and number of cancers that we do now. That is a key factor that is often overlooked. I suspect the reason why Mr. Mustache is happy is because he spends a fair amount of time at his Colorado home working outdoors, riding his bike, working out in his outdoor gym. And that would hopefully be a goal for many of you seeking to curtail your office hours. And then hopefully health insurance would be less necessary. I’ve upped my exposure to the outdoors a great deal in the past five years, simply going outside during work breaks, gardening on the weekends, etc. I have not had any major illnesses in that time. Colds barely make a dent. Read this https://blog.scoutingmagazine.org/2018/08/08/study-verifies-what-scouters-already-knew-spending-time-outside-is-good-for-you/

    Reply
  • Michael Evanoff December 7, 2018, 7:45 am

    I lived through the 70’s when inflation was incredibly high and stocks were flat and declining. I doubt that your model would fare well with a retirement date of January 1969. There was no crash, and the market rolled up and then down for a decade while slowly being eaten alive by inflation. It was almost 14 years until the 1969 peaks were reached again. Crashes don’t always just last a year or two, and you don’t need a crash to slowly wipe out half of your retirement savings. Ask anyone who retired in 2000 how their first 14 years of retirement treated them.

    In the face of gut-wrenching declines or slow stagnation of your savings, you need to ask yourself if you can stay sane and sleep at night for 10+ years as you see your nest egg being slowly eroded. History shows that most people can not do this.

    Another topic that you do not seem to address is that people do not accumulate social security points if they are not working and paying into the system. If you quit and live off of your savings, you will receive little if any social security. Sure, young workers certainly will not get the same level of benefits that their parents received, but having a steady source of income no matter what happens to the markets is an important part of any retirement plan.

    My advice: your plan may work for strong-willed people who retire at the bottom of a market cycle, but it will be incredibly risky to do it right now at the top of a cycle or for people who can’t stare down an extended decline.

    Reply
    • Mr. Money Mustache December 8, 2018, 11:59 am

      These are valid points Michael, except they’re incorrect. The 3%/4% withdrawal rates already take into account situations like 1969 – if you run your calculations on sites like http://www.cfiresim.com/, you can generate a historical analysis of exactly what would have happened to to any given portfolio.

      Also, most people who retire early have still contributed strongly to Social Security for a long enough period to earn benefits – this would even be true in my case, with a career where I worked roughly from age 20 – 30. You only need to hit 40 quarters of work to qualify. (And of course, ANY jobs or businesses I run between 30 and 65 will also generate additional paid quarters).

      The bottom line: if you retire RIGHT NOW at a time of relatively high price-to-earnings in the market, you just need to allow for more flexibility in your future spending, the potential for future income, or a higher safety margin in the form of a lower withdrawal rate (say, 3.5% instead of 4%)

      Reply
      • dawn December 11, 2018, 12:22 pm

        mmm
        if you decide on 3% swr and your stash of money suddenly plummets ,do you take 3% from the new lower total or 3% from what the total stock investments were before the drop?

        Reply
        • Mr. Money Mustache December 13, 2018, 12:47 pm

          According to the math you can lock in the 3% at the moment of retirement and then keep withdrawing that number of dollars, bumping it up for inflation even, regardless of what the stock market does.

          If you are willing to drop your annual withdrawal during years of market downturns, you are even safer and could get by with a higher starting withdrawal rate (often 5% or more – see cFireSim for various simulations)

          Reply
  • Cedar Fencing Guy December 7, 2018, 1:16 pm

    Another great book on the subject of equity-only investing over the long term is called Simple Wealth, Inevitable Wealth by Nick Murray
    https://www.amazon.com/Simple-Wealth-Inevitable-Financial-Advisor/dp/0966976312/ref=sr_1_1?ie=UTF8&qid=1544213767&sr=8-1&keywords=simple+wealth+inevitable+wealth

    Reply
  • Mark December 7, 2018, 4:58 pm

    I’m longing for the day when Mr. Money Mustache writes something new! I guess all the good info is already out! *shrug*

    Reply
  • Thomas Colligan December 8, 2018, 11:27 am

    In the replies to this post many people have been saying that a fixed chunk of money won’t protect you in the event of a disabling injury. I think that’s true unless the fixed chunk of money is very large.

    However there is a way to protect yourself from being wiped out from large medical bills from a disabling injury after you retire early. The best way to do this is to make sure that you don’t retire early before acquiring 40 quarters towards Social Security eligibility. That’s 10 years of working. The reason you want to do this is because it eligibility for Social Security not only makes you eligible for Social Security and Medicare after age 65+ in the US; it also makes you eligible for Social Security and Medicare if you become disabled and unable to work before age 65. Also unlike Medicaid it doesn’t have asset restrictions. You don’t have to be destitute to qualify.

    Reply
  • QQQBall December 11, 2018, 11:06 am

    To all the naysayers, I was FI in 2000, but I enjoyed my business and forgot to GTFO. I did it just the way others have: worked hard, lived below my means, saved and invested and basically thought the Joneses were idjits. So now, almost 20 years later, I regret not quitting – and REGRET is a deeply powerful word. Sure, my 2 chillrens would not have had 14 years of college & 4 int’l internships and I would not have speculated as much, but the past 20 years are not coming back and my little ones would have gone to CSU campuses and lived in the guest houses. Life is like an hour glass; you have to get through the neck in the middle or the sand will just keep raining down on your noggin. The thing is once your are through the neck into the upper globe, you gotta avoid getting sucked back down. If I had bailed in 2000, I would have had much different opportunities than now; as my life expectancy was longer. Luckily I like what I do, but now I am trimming back to PT and some days I fight the urge not to quit. Even if you like or even love what you do, the opportunity costs increase with age. Business has been really good, particularly since 2009, but at this point, I am just squeezing the lemon again and again.

    Reply
  • Waingro December 11, 2018, 1:46 pm

    Great article and I am 100% with you. However, two key points: 1) the healthcare premium subsidies could disappear any time, at which time the early retiree needs to go without insurance or move overseas. 2) Social security is based on 35 years (!) of work, so the early retiree’s benefit will be minuscule; $1,000/month ain’t gonna happen. I realize that’s why you’re not using it in your analysis, but it should be noted.

    Reply
  • MKE December 14, 2018, 11:07 am

    Kudos to MMM for putting a number on it. 1.2 million, give or take.

    It’s informative to realize that the typical American millionaire hits the one-million dollar mark at the age of 57 at an income of $357,000. (Must be doing some crazy stupid spending. It’s a stat that burned into my brain the moment I read it). Getting to the point of 1.2 ain’t gonna be easy. Yes, you’d have to live the “mustachian” lifestyle, but it helps to consider how rare and alternative that is.

    Also, middle class in America is currently between an income of$38,000 and $120,000 per year, according to most sources. This brings up two worthwhile things to consider: 1) You gonna have to earn way, way up and above middle class to get to 1.2 million in short order. 2) Living on $40,000 per year is going to put you at the bottom of the middle class, and that’s a middle class that is probably getting medical coverage for free.

    I am not saying it can’t or shouldn’t be done. Just like the $1.2 million should give a few people pause, so should those other numbers.

    Reply
    • Bluecollarmusician December 17, 2018, 7:39 am

      I almost never post on the blog, though I have read a good deal of it. Just happened to see your comment, and thought I would add a few thoughts. I think this blog is aimed DIRECTLY AT people who earn towards the top if the middle income tier (the 120k) you mention. If those folks learn to live on the lower amount you mention (around 40k) per year while saving and investing the difference then they will indeed in very short order (10-12 years) be able to retire on 25x their spending.
      Obviously people who are earning the lower end will have a slightly different path- although it is totally doable-it might take a little longer. But the blueprint works fine at any income level. Check out my own path in the forum in my journal…there are plenty of people earning less than average that figure out ways to make it work.

      Regarding HI- you are absolutely right- and I have no good solution. At any income level the cost of health insurance is uncertain and likely a deterrent to being able to establish any lasting RE budget.

      And lastly, don’t know where you got your stats- and while I am sure they are informed from somewhere, there is plenty of evidence (anecdotal and otherwise, have you read “The Millionaire Next Door?”- certainly not the only thing out there, but good info nonetheless) that would suggest that most millionaires are NOT earning incomes that you suggest . My experience information suggests that most earn upper middle class incomes or start a business and live below their means. Perhaps that # is skewed towards business owners with a lot of income from the business and not a traditional salary? In any event- there are many who get to 1.2million without earning way above the average. Best of luck to you.

      Reply
  • CW December 15, 2018, 8:18 am

    Totally agree with you on the stocks vs. bonds issue.
    Financial advisors are taught that stocks are risky while bonds are safe. That is why they are advising to shift towards owning more bonds during retirement. However, choosing stocks over bonds has nothing to do with risk! Over time, stocks outperform bonds. While in retirement, it is much more logical to switch to a high dividend yield ETF, than to bonds.
    For example the Vanguard High Dividend Yield ETF (VYM) has a dividend yield of 3.08% (as of December 15, 2018). Which is almost the same as the US 30 year treasury rate of 3.16%.
    Because you own a wide variety of stocks, the actual dividend will not fluctuate that much. As a bonus, after receiving the dividend you are also left with the stock, which appreciates over time.

    Reply
  • Ama2088 December 16, 2018, 12:36 pm

    I have a question about emergency fund whilst saving to reach FI goal. Should you have one? And if so how much. I currently have a three month emergency and trying to figure out if I should get a 6 month or just divert rest of saving to FI account ?

    Reply
    • NoClaude December 17, 2018, 12:11 am

      Hi Ama2088, I’ve been progressively reducing my emergency savings to practically zero but recently I got a line of credit with my bank. In a real liquidity emergency I can get money through the credit and only pay interests on the amount I’m actually borrowing. One of the many brilliant ideas I got from reading this blog.

      The goal of course is to never borrow unless it’s a real emergency. (And I’m having to tell myself all the time how stocks on sale don’t count as emergency).

      Not sure it would fit your situation?

      Reply
      • NoClaude December 17, 2018, 12:12 am

        Oh and of course the savings get diverted to my ETFs or Lending-Club equivalent in Europe.

        Reply
  • Jen December 17, 2018, 12:23 pm

    This is such a helpful post, maybe your best one yet! I have reread it five or six times since you posted it and I have one question that you may or may not be able to answer, but it’s very relevant when considering ACA subsidies, if they still exist in the future.
    In your first year example you would pay taxes only on the $9000 dividends and whatever part of the $31000 withdrawal was earnings, correct? So your taxes would be extremely low. Is there a way to calculate how much of it would be taxable?

    Reply
  • Katie Camel December 18, 2018, 7:23 am

    Just saw this post on msn.com. Nice job! The only concern I have is the issue with health care costs. As one person commented above about developing stage 2 breast cancer, despite an otherwise clean bill of health, I can confirm this happens all the time. Where I work, we regularly treat younger and younger patients for breast cancer as well as other cancers, so those huge out-of-pocket costs are a definite threat to a year’s income. It’s probably best to advise would-be early retirees to have an additional savings account (HSA for those who have that option or maybe a separate account) for these huge unexpected expenses. The health care costs can certainly decimate your savings in the US. So that it one major unpredictable cost. Otherwise, nicely done!

    Reply

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