the process

The Income Streams Our Early Retirement Is (Now) Built On

Quick note: Mr. ONL gave notice Monday, so this is really happening! I’ll write about after I give notice in two weeks. And be sure to enter our pre-reveal contest! There are multiple ways to win, and there’s even a category for those who already know some of the details about us, including where we live. Get your entry in this week! Now on with the post.

It’s pretty amazing the mental evolution we’ve gone through in this early retirement journey. Just three years ago, we swore we would never work again after quitting, at least not in any capacity that would involve checking email outside of work hours (ski patrol could be okay, though, if it was fun). And our early retirement plan and “magic numbers” have been based on giving ourselves enough cushion that we could actually never earn another penny and still be fine.

Fast forward three years, and we’re mentally in a different place. Not only do we now realize that that strong aversion to future work was really just a knee-jerk reaction to then-current work stress, and not a permanent state, but we also realize that, duh, of course we will earn money someway, somehow.

Add to the list of realizations that the timing of economic cycles may not be ideal in our case, as well as anyone else on a similar timeline. We’ve absolutely benefited from one of the best bull markets in history, but we might also be retiring into a recession, which could trigger a cascade of sequence of returns risk. Not that we or anyone have a clue what will happen or when. But we all know this current run has to end at some point. (And we honestly thought that time would have come already, well ahead of our retirement. But no. Yay or boo?) The end of the bull run could be in our first year or two of retirement, which doesn’t bode well for our long-term odds of success, statistically speaking. Yet another reason to leave those “phase 2 funds” alone to grow so that even if phase 1 is rocky, we’ll be okay in traditional retirement.

We’re nearly to the end of the focused six years of saving that will deliver us to early retirement in less than three months now. And over that time, we’ve only had a few instances of rapid shifts to our thinking. Most of our thinking has evolved slowly, sometimes barely perceptibly. But if we compare where our early retirement income plan started (live off the proceeds of index fund sales, almost entirely), to where we are now (more diversified income streams), we see a fairly dramatic difference.

Let’s take a look at how our early retirement income is now structured, and why. Then tell us how you’re thinking about early retirement income in the comments!

The income streams and cash flow sources that will fund our early retirement. Selling shares, dividends, rental income, personal loan payments and even a little bit of very part-time work!

Our early retirement income falls into three categories — income we’ll have throughout our entire phase 1 retirement (until Mr. ONL turns 59 1/2), income that we’ll have for only a few years of early retirement, and income that we’ll have eventually but don’t have yet (or at least don’t have it as cash flow). All of which maps generally to our phase 1 and 2 income and health care plan, but the actual plan is more nuanced than this now:

Sources of income and health insurance through early retirement and traditional retirement

Related post: Optimizing Our Retirement Income // ACA and Taxes Vs Actual Cashflow

Ongoing Sources of Early Retirement Income


Because we can’t get out of counting dividends as income for both tax purposes and health insurance premium calculations, whether we cash those dividends out or not, we’ll use those as our very first source of income and cash flow. They’ll be largest in the early years, before we sell many shares, and gradually decrease in percentage of early retirement income as we draw down our index fund shares.

Selling Shares

While the thought of selling shares still freaks my $#!% out a little, it’s always been the core of our plan. We’ve bought enough index fund shares to get us through all of our early retirement (supplemented by rental income later), assuming no economic catastrophes, and assuming no crazy spikes in health care costs. Of course, we can’t actually assume either, which is why there’s more to this post.

Temporary Sources of Early Retirement Income

Very Part-Time Work (Because Sequence Risk, and Health Care)

While we’d never planned to have to work in retirement, we also expected that the next recession would have arrived already. So we adjust. The data on sequence of returns risk suggests that a major adverse economic event in the first three years of retirement is the most potentially harmful, so I’ve had in my head that if we can avoid selling shares for three years, we’ll be beyond rock solid. (We’re already super solid and will be living way below the 4 percent rule, so I’m talking drilling-down-into-bedrock solid.) Then there’s the whole health care debacle, bringing with it all kinds of uncertainty about what our pre-Medicare health care expenses could be, and making us want to at least keep alive the possibility that we could ramp our income back up if we needed to, because we don’t think “just going back to work” is as simple or easy as a lot of folks make it sound. We’ve also realized that there are some aspects of work that we’re awesome at that we’ll miss, and so we’re open to doing some very part-time work in the near term to keep doing those things in small doses. But we’ll be very particular about what we’re willing to do. If we find ourselves having to check email while on vacation halfway around the world? We will have failed. But if we can give a little counsel here and there on projects we find super interesting, in a very part-time capacity? Then great. (And yes, we still think that counts as retired.)

Personal Loan Principal and Interest Payments

The personal loan we made will still have three years of repayment left on it at the start of 2018, so we’ll count both the principal and interest on that as cash flow (only the interest counts as income). Mainly because if we reinvested that money in new shares, we’d only have to sell more shares, triggering more taxable capital gains, and hard pass on that.

Related post: Why We Ignored The Experts and Loaned Money to Family

Early Retirement Income That Will Come Later

Rental Income

We bought our rental property with a 15-year mortgage, though we’re not planning to prepay it, despite how aggressively we paid off our primary residence. Right now, it’s actually a slight liability, working out to cash flow neutral, but because we’re in a high marginal tax bracket, the part that still counts as income is heavily taxed, putting us in the hole. But next year, our tax bracket will drop dramatically and it become truly cash flow neutral. And then it will be paid off in 2029, and at that point, net us sizable cash flow that will offset much of what we’d otherwise need to sell shares to get. Depending what the rental market does in the soon-to-be-disclosed place where our rental is, it could even cover most of our cash flow needs, though we’re not counting on that. (We’re counting on level rent in our calculations because we’d always rather project conservatively and then end up with gravy.)

Related post: Choosing People Over Money // The Story of Our Rental Property

Income Sources for Traditional Retirement

I’m working on a post on Social Security — and why we’re not including it in our calculations — but we still feel especially rock solid about the traditional phase of our retirement, assuming we don’t experience the zombie apocalypse before then, because we’ve been well above the amount needed in our 401(k)s for some time now:

We long ago exceeded the amount we need in our tax-deferred 401(k) retirement accounts to be able to count on a comfortable traditional retirement.

We’re planning to be able to increase our withdrawals once we get to traditional retirement age, and so far nothing has shaken our faith that that will be possible. Of course, that’s still about 20 years off, so a lot can happen! And maybe by the time we arrive there, we’ll have a much more diversified plan for income like we’ve ended up with for our early retirement.

Let’s Talk Early (and Traditional) Retirement Income!

What sources of retirement income are you counting on that aren’t a part of our plan? Or do you follow a more streamlined plan than this? Want to play the part of retirement police and accuse us of not really retiring if we still work in a very part-time way next year? Bring it on. ;-) Notice that we aren’t planning on any backdoor Roth conversions in our early retirement income plan, and want to talk about that aspect of it? Let’s do it! Fire away in the comments.

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109 replies »

  1. I view my blog a lot like how you view your rental property, it provides some income to weather potential market storms and sequence of return risk. Generate some cash (while building equity) and if we fall into a recession, we can avoid selling stocks when they’re lower.

    Since you’ve been sprinting (savings wise), it might be hard to “get over” that and be able to spend and sell some stock. Part time work isn’t necessarily a bad thing. :)

    • I’m less worried about our ability to spend, which we never stopped doing. But I am more worried about how it will feel to sell stock. I expect pain. ;-) And I think it’s smart to have some hedge against a recession, whether that’s your blog, or part-time work, or rental income…

  2. It sounds like a very well thought out plan. I especially like the part about being bedrock solid. That’s my kind of retirement plan!

    We have the same ultra-conservative philosophy. We are retiring in two years in our early 50’s. What are our sources of income?

    Two pensions that combined, will provide over $140,000 / year pre-tax (very well-funded and highly ranked, backed by a state, with annual COLAs);

    An additional seven figure retirement nest egg comprised of 457 plans, an IRA, and Vanguard index funds outside of retirement vehicles;

    And (gasp – hold onto your hats retirement police), a side hustle (service LLC) that brings in over $30,000 a year but requires less than 8 hours / week of interesting and enjoyable activity.

    We will fund retirement with our pensions, maintain the additional investment funds to cover costs in case the pensions collapse (highly unlikely, but we also want to be “bedrock solid”), and maintain the side hustle as long as we are having fun (and it doesn’t get in the way of our travels).

    We don’t include social security, because it is just too hard to know what the benefits will be when we draw in 15 – 20 years. We think it will still exist, but we don’t know what form in our ever changing political climate.

    There you have it – let the retirement police turn on their lights and pull us over. We hope we can afford the ticket…

    • Are you living in a very HCOL area and/or do you lead an expensive lifestyle? That sounds like a lot of money and assets (nicely done!) and I’m wondering whether you regret not pulling the trigger earlier. I think I would if I were in your shoes, but everyone’s risk tolerance is different. And maybe you enjoy your jobs a ton?

      • Great questions. Our area has an above average cost of living from a national standpoint, but nothing close to somewhere like New York City. Our pensions have an annual reduction if you retire and withdraw before a certain age, and that had to be taken into account when choosing our retirement date. We are paying for our children’s undergraduate educations, and we have multiple in college now. All of that combined to make the early 50’s the right time (we are close!). We have no regrets not pulling the trigger earlier, though we realize our approach is very conservative (wanting huge safety nets). Thanks for asking.

      • I absolutely admire you guys for being more conservative in your financial approach — there’s a lot that can happen, and better safe than sorry! Also, kudos for covering your kids’ college! What an incredible gift you’re giving them!

      • Both! ;-) Our area is extremely pricey, and our lifestyle will be swanky by FIRE standards (though still modest by other people’s, haha — but having a paid-off house means we can downsize our spending anytime if need be). In hindsight we might see that we could have retired sooner, but with all the uncertainty around there, especially about health care, we regret nothing. And we also enjoy a lot about our work, so our only complaint about it is that it’s just too much and is taking a toll on our health. But it hasn’t been miserable to go just a little longer, and that feels like the right balance to us. Plus, we got ahead on savings last year and have continued that this year, but we were mentally prepared to work the whole year, so there was no good reason to quit early when we could work the same amount but add more padding. ;-)

    • Oh man, I am droolingly jealous of that pension! You guys have the means to live a super baller life in early retirement! Congrats.

      You guys seem like you have SO MUCH gravy built in that you *truly* don’t need Social Security… which makes it easier not to count it! ;-)

      And if the retirement police come after you, send ’em my way. I’ll stick up for you. :-D

    • Any chance that sweet 30k/year side hustle is something that can be easily replicated? That sounds awesome!

    • Wow, Not a Fire Blogger (still…), those pensions are truly killer, even at (or especially considering that is at) the reduced amount. Wondering how bad the reduction/year is – if you retire as planned but had some way to wait 2 or 3 years before you started drawing on the pensions, would they be 20 or 30K/yr higher?

      Reason I ask is, I’ve done some modeling the future of my wife’s pension (nice, although not so generous as yours). Each year after she retires (we’re shooting for age 52 for her), but does not draw from it, it increases quite a bit. Up until age 62, when it is thereafter no longer subject to reductions.

      • This is a whole foreign world to us, as we’ve never for one second had pensions as an option to us! ;-)

  3. Rental income will eventually be more than $500 a month, I’ll have some income coming in from passion project work (blog, podcast, stained glass work, pet sitting, etc) and then eventually I’ll also be able to access my 401k and other retirement accounts!

    • Nice! I loooove that you are planning to keep doing your stained glass. Money made from creative endeavors is extra rad.

  4. I am counting on Social Security as part of our plan, but Mrs. FF and I are older than you guys and already FIREd.

    Our taxable income is so low right now that I use a Backdoor Roth IRA just to boost income for Obamacare so that we stay out of Medicaid land. That combined with an HSA and a HDHP means we actually MAKE money from Obamacare. Cha-ching!

    I just reported you to the Retirement Police, so you should expect a knock on your door shortly. :)

    • I don’t think there’s *anything* wrong with counting SS, and we know we’re lucky not to need to. (Not that we will turn it down!) And I will totally amend all of what I’ve written to say that we will ABSOLUTELY use a backdoor Roth to stay out of Medicaid land if it comes to that, and then just set that money aside for later in a different vehicle. No desire to be on Medicaid whatsoever! We don’t expect to be in that low a bracket anytime soon, though, and anyway, who knows if Medicaid will even exist in a few years. :-/

      Thanks for the heads-up on the RPs. I’ll brace myself. ;-)

  5. Again, I really love that you’ve split out your funds as “early” and “traditional” retirement. Right now you’re a lot more flexible (good health, recent work history) to make changes if you need to. By leaving your traditional funds alone, you really only have to worry about the early part.

    That said, I think very part time work is a great idea. It will still very much feel like retirement compared to what you’ve been working now, you get to continue to sock away some cash, and it will give you a nice window into what it *really* feels like to be early retired.

    My dad “early retired” for ~8 years in his 40s to spend time with us kids when we were young (we won a softball state championship together with him as my coach!) but then he went back to more traditional work hours when we got older because that’s what he likes to do. You never know what the future will hold, and this plan seems to keep the most options open to you.

    And CONGRATULATIONS to Mr. ONL for pulling the trigger!

    • That’s a perfect distillation — we want to give future us the peace of mind of not having to worry. And so we’ve structured our retirement so that we only maybe have to worry in the years when we’re most nimble, and can live stress-free from 60 onward. ;-) That’s so awesome that your dad did that! My dad early retired as well (because of a different reason, disability), and I will forever be grateful for that time together before I left home. It’s cool your dad went back to work — it definitely helps me sleep better to know that we’re going to keep that option open, although we certainly hope not to need it! ;-) Thanks also for the congrats — such exciting times.

  6. Congratulations. I have enjoyed following your blog and look forward to seeing how your plans play out. Our plans are similar to yours. We are planning on leaving tax deferred monies alone to grow and live off taxable investments first. One thing I did differently was to pay off our rental home mortgage but I still carry my main mortgage. I did it simply based on interest rate – the rental was higher. We have the money to pay off the mortgage set aside, but so far the money is making more than the mortgage interest so we have been leaving it alone. That could change – as you mentioned this market run has to end sometime. We will probably hang up the work thing in the next year or so – We are dealing with one more year syndrome. It’s scary to pull the trigger. My mind says we’ll be fine, but my gut says I’m nervous.
    Congrats again. You seem to have done a lot of thinking and planning. I’m sure your retirement will be a resounding success.

    • Thanks, Tim! It sounds like YOUR plan is super smart, too. (LOVE that you’re in the two-phase camp.) What do you think is ultimately spurring your OMY syndrome?? Happy to offer a pep talk. ;-)

      • I don’t really know. My wife just turned the big 50 and she is blessed with a now vested pension. The pension will cover 42% to 46% of our annual spend (at least the spend we have had for the past 3 years). Plus we have the rental income. The difference we have to make up would be in the 1 3/4% to 2 1/2% withdrawal range. And although I “don’t count” SS, in reality I find it hard to believe there wouldn’t be something paid out. Like I say, my head tells me we should be fine. We’re just having trouble shaking the fear of the unknown. We’ve been conservative in our decisions our entire married lives. It’s just difficult for us to make a change.
        I’m glad you are coming to Dallas for your conference. I won’t be there as I am not a blogger – I’m not even sure if non bloggers are welcome. But I sure do hope you enjoy your visit. I’ve lived here since ’93 and have enjoyed it. I had a conference in Denver a couple of weeks ago though and I can sure see why you love your mountains. My wife and I spent a couple of nights in an AirBnB on a large ranch near Pike’s Peak and it was just stunning.
        Thanks! And Congrats again!

      • Hi Tim — Good (new) news! You CAN join a part of FinCon that’s just been created specifically for non-bloggers! Here’s info Let me know if you decide to come so I can look for you. :-) And I feel you on the emotional stuff. You just have to remind yourself that there’s risk on both sides — the risk of running out of money vs. the risk of spending all your good years at work. Don’t let your mind trick you into thinking there’s a risky side and a safe side. ;-)

  7. To me it sounds like you could probably fund four people’s early retirement with your plan. So more-than-rock-solid and probably-a-little-too-perfect, but hey, if that makes you feel secure and safe, why not.

    • Ha! Maybe! ;-) Though the truth is, we really just hope to be able to increase our budget if we get through the first few years. So it’s less about having an impenetrable fortress, and more about wanting a less minimalist retirement. ;-)

  8. Ok, so you’re not planning back door Roth IRA contributions and you are planning very part time work to keep your skills and mind sharp. Is there a reason you aren’t planning to make Roth contributions with your part time earned income while living off other passive income? I suppose those are front door contributions? That is what we do with my part-time earnings and plan to keep up any year we have “extra”.

    • We very well MAY make Roth contributions in the future, if we have extra! But we wouldn’t do something like incur capital gains by selling shares while buying new shares in a Roth. That may come out ahead in a tax sense, but it certainly wouldn’t in a health care sense (at least so long as there is ACA coverage), because we lose subsidy with every dollar of taxable income we have.

  9. Congratulations to Mr. ONL. It’s getting real…. :)

    I’m still 5+ years away from my number. My path to wealth is simple, so mainly stock index funds. I’m starting to contemplate about taking breaks along my journey. Actually, part-time work would be ideal, such as 3 days per week, but I’m not sure how common that is in the US. For the near future, a super-mini-retirement is coming up, as my company grants a few months of paternity leave, which is great. Let’s see how I like it.

    • Crazy, right?! It’s actually happening! :-D I do think part-time work is becoming more common in the U.S., and that we would be considering something more like mini retirements if we still had many years ahead of us. In our case, it made sense to push through to the end, but I think there are many ways to make this stuff work. Enjoy your paternity leave. (And congrats!!)

  10. Our streams will be a little similar, but a little heavier on the rental income. We’re going to need that to keep things going while our Roth IRA Conversion Ladder is in the works for those first 5 years.

    In the meantime, everything else is our eyes seems pretty similar – possible part-time work for anything we find interesting, not count on SS but consider it gravy, etc.

    Truly excited for you guys! I can only imagine the excited feelings (probably with a pinch of nervousness in there) that you guys are feeling.

    — Jim

    • Do you guys also have some taxable investments you can live off in the interim years? And have you looked at possible health care implications of doing the Roth conversions? (Like looking at how much subsidy you’d lose for taking the tax hit on the Roths vs. the much smaller taxable amount it would be if it was only capital gains.) Just always worth understanding how those pieces work (or don’t work) in your favor.

      Thanks so much for sharing our excitement! And there’s MORE than a pinch of nervousness, at least until I have my Big Talk. ;-)

      • We’re building up the taxable investments currently, but the cash flow from the rental properties will help ease a little bit of what we need.

        Ah, health care… always fun! Right now, there’s probably about a 90% chance that we’re going to take the plunge and move to Panama. If that’s the case, health care becomes a whole different ball game. This is in a good way as the costs are pennies on the dollar as to what we pay here. We would then put into place catastrophic coverage for, well, catastrophes.

        If we decide to stay here though, we’ll need to dig a little deeper, work with our accountant, and of course, re-read some of your previous posts regarding health care! ;-)

        Good luck on the talk, but I’m sure it’ll go just fine!

        — Jim

      • Wow, a move to Panama! That’s a big deal! I assume you already know about the unrest and guerrilla occupation there? (I know it’s not everywhere in the country!)

  11. Love it! Like you guys, we don’t count Social Security into our projections either – not because we don’t believe it’ll be there (there will *always* be a government program there), but because it’s so far off that we just don’t worry about it. Anything we get will just be gravy.

    Also like you guys, we are very sensitive about our first three years of early retirement. One way we’ve accomplished that is by keeping WAY more cash than most people would – three years of living expenses in an interest-bearing Ally savings account. While it’s a lot of cash, it will be nice not to have to withdrawal from investments once the economy does finally take it’s natural turn downward. We might lose a little money compared to keeping it in the market and then withdrawing in a down market, but we’re okay with that scenario. It won’t be a significant difference.

    We are also earning more than we had expected at this point in early retirement as well. Though it’s not quite enough to fund our entire lifestyle, it’s nice to know that we can relatively easily increase our income as we need with a little more work with side hustles and things like that.

    We’ll definitely employ the backdoor Roth IRA strategy when the time comes, but who knows when that’ll be. The more we’re able to earn in these early years of ER, the later that eventuality will need to be employed. Who knows…we may never need to withdraw from our Roth accounts after all.

    • Thumbs up on needing to rely on Social Security, and maybe not even on the backdoor Roth! I love the point you made on Twitter the other day that opps for earning money are always there, but are harder to see when you’re working. I’m sure there will be lots of opps for us — and for you guys! — that we don’t see yet. ;-) Of course, how great is it to know you don’t NEED that?! ;-)

  12. Your plan looks solid and I wouldn’t be concerned about selling from taxable. I’ve always viewed dividends as a sort of forced sale. It may feel different when I hit the sell button, but the result is essentially the same as collecting a dividend.

    I haven’t sold from taxable to get money to live on, but I’ve sold from taxable several times to purchase property (our current home and lakefront for a future home). I’m glad to have pulled that trigger a couple times already, as it should make it psychologically easier to do again when we need spending money.

    If you still have this blog after retirement, and I fully expect and hope that you do, you will be checking e-mail from wherever you are in this world. Nothing wrong with that. I plan to be retired from medicine in a couple years or so, but I expect to have continued income since I monetize the living crap out my site. The prospect of my online endeavors covering most or all of our living expenses is throwing a beautiful wrench into our drawdown strategy.


    • We’ve sold taxable for home down payments before, too, and I maintain that felt different (and still not awesome) because we knew then that we’d still earn and buy more in the future. So it will just be interesting to see how that feels.

      And we’ll absolutely keep this going — and do MORE with it, not less — and there will be ways that makes money. Maybe not as many as your site has, but still good gravy! ;-)

  13. During an economic downturn what do you think about relying (in part) on a HELOC loan for income? I’m talking just for a year or two until the market turns around?

    My thinking is it would eliminate you from selling shares at the worst possible time. Yes, you’ll pay for that benefit in the form of interest on the loan – but then you’ll get it all back, and more, when the market recovers. If you sell your shares, you get nothing back.


    • *We* think that a HELOC is not a good option, but that’s colored by things we’ve observed close-up and by our debt aversion. No comment on whether it might be a good tool for others. ;-) We’ll achieve the same thing, though, with our cash cushion, and the interest we lose on keeping that money in cash we’ll offset by not paying HELOC interest (or, worse, risking our home).

  14. I’m so excited for you two :) And I’ll fully admit I’m insanely jealous!

    Question for you: What metric did you use to determine you had enough in your 401ks? Are you using the 4% (or 3%) rule and projecting future expenses including inflation or did you devise some other way of determining when you had enough in those accounts to fund traditional retirement? I can’t remember if you’ve written about this so let me know if that’s the case and I’ll read that post for details.

  15. I enjoy reading about how amazingly conservative you guys are with your projections. Starting out at <4%, not counting on Social Security, conservative rental estimates, AND considering part time work to supplement the side gig(s) you expect to make money from but also aren't counting!

    I'm looking forward to posts here a decade from now where you guys try to determine what to do with all of the excess money! Certainly a good problem to have and I'm sure various charities will be very glad you had conservative projections. :)

    Also, congrats on the first of you giving notice and good luck to the second one!

    • I think “I enjoy” is code for a secret dis. ;-) Hahaha. Just giving you a hard time. I haven’t written this post yet, but the truth is that we won’t STAY this conservative if it’s clear we don’t need to be. We want to be sure to insulate ourselves from SORR, and of course health care is the biggest x factor. If we get to a place where we feel remotely confident that we know what health care will cost over the long term, then we’ll get a LOT less conservative. But right now, we think most people are WAY underestimating possible future costs, and that’s going to sink a lot of folks’ plans. So we account for that uncertainty by going extra conservative, at least for now. ;-) But of course we HOPE for everyone’s sake that health care becomes something we can all budget and plan for, and then we’ll chill the heck out. :-D Thanks for the congrats — 10 days to go for me! Eeeeeek!

    • You didn’t follow the links in the post! ;-) There are three in there — about the case for conservative returns, about not prematurely spending your assets because expenses will go up later, and on our two-phase plan — that articulate this better than I can in a comment response. And short answer on RMDs (though working on a bigger, researched post on this) is we don’t see them as the bad thing that others do, but we also like things that taxes pay for like schools, libraries and roads so aren’t trying to avoid paying them at all costs. ;-)

  16. One advantage of FIREing later, is that our plan is simpler.

    We’ll have a few years of expenses in cash or cash like equivalents and will consider some part time work. Goal is to work the income rules that the ACA has is place.

    Within a couple of years we’ll have access to the tax deferred accounts. Goal is to generate required income from dividends, leaving the principal alone.

    Eight or so years into retirement, we’ll tap Social Security, or even consider deferring that a couple of years more, depending on the value of the tax advantaged accounts at that time.

    • Absolutely! Fewer early retirement years means way less uncertainty! We account for that uncertainty by being super conservative financially (at least for now, until we get past our first three years and most SORR), but we’d sure love if we didn’t have to take it quite so far! ;-) Fingers crossed for you guys that you can delay claiming SS so you can get more. Just don’t delay signing up for Medicare! ;-)

  17. Congratulations to Mr. ONL! How did it feel? How was it received? We need details!

    I also worry about how it is going to feel to start drawing down from our investments – that it will feel wrong or weird somehow. I can’t begin to imagine what it will like during a year when the markets are down.

    • Thank you! And we’ll share all about it after my meeting in 10 days! ;-) And yeah, totally with you on concern about selling in a down year! I didn’t write this, but I also think of part-time work income as a bit of psychological soothing to get us past the pain of selling shares, especially when the markets are grumpy.

  18. Our strategy will be significantly similar to yours, including the real estate. I plan on wanting to do things in retirement that generate income, but not traditional job type things – I want to make things! Hopefully people will want to buy them :) I won’t consider sources of income like that, but I know it will make me feel better when I finally pull the plug.

    • Well then you know I love your plan! Hahaha. A humbling thought has been to think about how much people would pay for THINGS we might make (real-life things, not online things), and how many of those we’d have to make to come close to covering expenses. (Spoiler: It’s a lot!) So that has us wanting to keep one foot in the possibility of full-time work, at least for a few years.

  19. Most of my questions have been asked:) Hope Mr. ONL had a great career over at NASA, consulting on Global Warming and the Dakota Pipeline as it relates to how rocket fuel will be used in 2041, all of this is accurate and true I’m sure of it!

    So are you avoiding the Roth Ladder due to potential excess tax considerations early on or what is the thought process behind that avoidance?

    Speaking at FINCON, what’s next Mayor of Mountain Town USA?

    • I mean, after they retired the Space Shuttle program, he just didn’t feel that same passion for NASA anymore. It’s all unmanned Mars Rovers and deep space probes now. Sigh… hahahaaha.

      Re: (mostly) no Roth ladder, it’s mostly because we think many people VASTLY underestimate how much they’ll need in later years, and we don’t want to sell out future us. And because doing large conversions would cost us BIG health care subsidies, assuming the ACA survives. Might we still do small conversions that stay under caps? Sure.

      Are you coming to FinCon??

      • Yeah I plan to use the Roth ladder as a way to avoid taxes if possible from FI to 65, not use the money for FIre.

        No on FINCON, vacation used up and chose Montana with an old college roommate over Fincon. 2019 is the plan though.

      • Makes sense on the Roth. And you already know to keep an eye on health care subsidies, because those limits are much lower than the tax limits. ;-) Bummer about FinCon17, but yay for next year!

  20. How far below 4% is “bedrock solid”? We’re approaching sub-3.5% for investments and retirement accounts and sub-3.0% if you throw primary house equity in the mix. Fully admit that my version of bedrock solid keeps creeping lower and lower due to my own fears (health care, market, blah, blah, blah, standard RE concerns) about pulling the RE trigger.

    • If you count total NW, it’s like 2% for the first three years, and then we’ll see where we are and reassess. But more like 6.5% of taxable, though that doesn’t need to last nearly as long. That’s assuming NO part-time income, so we expect the real numbers to be lower still. And I think you’re SMART to pay so much attention to health care. I fear that lots of folks are going to get themselves into trouble by underestimating future health care expenses.

      • Thanks for the reply. I would definitely say 2% is bedrock solid! Our current plan is to shoot for 3%, not including primary house equity, mainly because of the unknown future of health care. If it ends up being better than terrible that “extra” savings will just be a nice cushion. Looking forward to hearing about the home-stretch of your journey to FIRE!

      • I think 3% is PLENTY solid. ;-) Our number isn’t really apples-to-apples with how folks would normally think of the 4% rule because we aren’t planning to touch most of our assets for a long time. Our taxable funds are much smaller than our 401(k)s, and those are what we’ll primarily live on until the rental is paid off, and then have a combo of taxable plus rent. All of which you probably read. But just to say that our plan isn’t QUITE as conservative as it sounds. ;-)

  21. Great question! For us we will probably continue working in some extend. We’ll probably continue getting income from my photography business and our cookbook business. Mrs. T can continue offering her holistic healing sessions and teach workshops on these healing practices. The money coaching service I just launched is generating surprisingly more income than I expected so I expect this would continue once we reach FI or retire early.

    Many early retirees seem to be able to find some sort of money generating income “jobs” post retirement. I’m sure you’ll be able to find something if you are open to it.

    • So awesome you guys have so many little hustles all over the place! That will certainly serve you well in ER. I hate the idea of HAVING to work for money forever, but when you take all the pressure off of the work, the thought of it becomes much more fun!

  22. The considerations of Roth conversion (taking money from a future self pot as you have described it ) along with watching where AGI ends up for purpose of optimizing ACA subsidies is a factor for some.

    We are actually going to take a new tactic with my cash-balance pension. i.e. not taking it as an 100% joint/survivor annuity. Based on some ideas we got from a (very) financially savvy blogger friend, we are likely going to roll it over into my IRA and build a bond ladder (with a portion of it that will replicate the first 8-10 years of annuity payments). A way of protecting / mitigating from SoR risk in that first decade.The surplus (61%) from the pension rollover will be invested in blend of index funds (likely VTSAX, VTIAX) in the IRA. Since we can’t get access to the income from IRA bond ladder, we will sell equities from taxable and rebuy in IRA with flows from the bond ladder. As a number of bloggers remind us, money is very fungible!!

    Another advantage here, we open up space for ROTH conversions. Although being mindful of AGI and managing ACA subsidy for our family of four. As an aside here,I can retire from my company and take my cash-balance pension with me at any age. I found out company healthcare for retirees kicks in only if you are age 55 or older. Another quirk with MANY different plans within my company… I tell you it is a little tricky finding the necessary info. without raising alarm bells on our plans. We will be going onto an ACA plan when we finish in July next year and will be doing lots of searching once the plans open up on the exchange in the next few weeks. Estimates are we will likely be paying a lot less anyway than my company sponsored plan, had it been available to me. Go figure!

    We actually have raised the subject of moving back to the UK with our dual US/UK citizenship if healthcare gets completely out of control here. Nothing surprises me any more with healthcare. We hope we don’t get to that situation- it will be a very sad day for us to leave what we call home, the US of A. We’ll be doing everything we can to remain in the US.

    Everybody’s plan is unique and you have to do what works for you. You know we fully embrace a SWR way below 4%. We are projecting to be at a SWR of 2.5% and think that is solid without getting silly and not enjoying many of the things we hope to do like travel extensively across US, to UK, EU and beyond. We don’t factor home equity or 529’s in our SWR. Being closer to SS age, we do factor SS income stream in our longer-term planning albeit with a sizeable haircut for what the site tells us we will receive at age 67 or 70.

    • AGI and health care subsides are a MAJOR consideration for us… at least as long as ACA survives. Then, who knows? (Ugh.) I think your bond ladder from pension idea is brilliant, and worth considering for folks in a similar position. And YES, it is super hard to get HR info without raising alarm bells. I still don’t have confirmation of whether I get the 401(k) match for this year if I’m not employed next summer when it gets deposited. Fortunately, that is not make-or-break for our retirement (though of course I will fight for it, as I have earned it! But I am not going to die on that hill.). You already know we are super jealous that you have the option to move back to the UK if health care gets out of control here. Just having ANY other solid health care option is a real luxury!

  23. We’re very much in a wait-and-see mode on this part of things. I have some ideas based on what I’ve seen other people do (at least the sampling that we can learn from in the blogosphere), but my opinion constantly changes as to what the best option for us will be. I like your multi-phase plan, but I’m kind of interested to see how our taxable vs tax-sheltered accounts grow separately over the next 5 years. When we’re a year or two out, we’ll start trying to hone in on our specific strategy a bit more.

    For right now, we’re playing with a few scenarios. Working part-time for a few years seems like a great way to not only diminish sequence of returns and health care cost risks, but also help us build new social ties in a new home, as we’re hoping to relocate post-FI. We’ve also toyed with the idea of getting an AirBNB in a location we like for some side income that could also act as a getaway for us when we want a change of scenery. Side hustles are probably out. Neither of us have really found anything in that arena that appeals, but we’d be open to it if an opportunity arose.

    I don’t think we’ll be quite “bedrock solid” by the end of our 5 years, but we should be solid enough to at least take a break from work burn-out and assess our future plans with refreshed brains. Wherever we are in 5 years, we should be far enough along to take a year long sabbatical. It’s not a major enough resume gap to destroy our careers and we can explore new homes and new opportunities while getting enough sleep and taking a nice deep breather from the politics of our current work lives. :)

    I’m still holding out hope that we’ll be further along that we planned by that point, too, but that market correction’s coming some day, so trying to be conservative about things…

    • I think your wait-and-see approach makes a TON of sense. Much of what’s in our plan now was NOT in it a year ago, but is based on where the world and markets are at this point in time. So just keep your eyes open, and adapt accordingly! (We also found — unexpectedly! — that we didn’t want to give up *every* aspect of work, at least not all at once, so the chance to do some tiny amount very part-time will let us decide what feels right without introducing a big barrier/gap.) There’s a lot of Airbnb saturation out there in the destination-y spots, so read up on how it’s looking where you’re planning to go — I’d hate for you to walk into an anemic investment! I also love your “wherever we are in 5 years” plan — that’s where we moved ourselves about 4 years ago, and by giving ourselves a deadline, it gave us extra motivation to be sure we were ready for full retirement then, and not just a sabbatical. But of course we had market help, and who knows what the next 5 years will bring! But I still think you’ll be farther along than you think. ;-)

  24. When you say rock solid, enough cushion, assuming no economic/health catastrophe … I hear uh-oh. because all these well laid plans will meet reality and boom. But you guys seem to have a very flexible mindset and will do just fine. As for the work (part time or ski patrol), it is not a four letter word & I think you’re going to find that retirement is a state of mind that will allow the best of both worlds. You’re going to be so much more forceful in the line you draw between work and play. Take a significant full-time break though. I also believe that you will have no problem finding purpose at work if that’s what you choose down the road. No problem 1 year, 2 years, 3 years … in fact you’ll find that the time off from typical work life will make you even more interesting, desirable and value adding. Heck it might be your own side hustle that turns into the Unicorn (but that is truly too much work … so forget that). As for our streams: we initially started setting goals like 300k/300k/300k (taxable, tax deferred, real estate) in our 30’s. That was passed and reset to 1m/1m/1m in our 40’s. That was passed and reset to what seemingly seemed impossible to comprehend back when we were in our 30’s. So again the comment about well laid plans. They change. Our withdrawal strategies are similar to you, but shifted to the right. We don’t expect to draw from tax deferred accounts at all until 70+ when RMDs are in play. We expect taxable to more than last until that time. I don’t have (and you won’t have) any problem selling securities. It’s fun … especially when you aren’t making ordinary income because you’ll save a ton based on marginal tax brackets. We keep years of cash to bridge any catastrophe. Probably too much cash actually, but when things do go south then many options. We absolutely expect social security … but when we were younger I didn’t count a penny of it. You’ll likely be in a familiar situation in a couple decades … it will be there in some shape/form. We will delay that to the last minute too since the benefit is just too good to take early. The big, big, big wildcard is health insurance. We expect and budget for worse case for this, which turns out to be a lot (premiums, max out of pocket x 2, any Rx needed). So $1k+ in premiums per month + 2x $6500 out of pocket + copays + Rx can add up. In years we don’t need it which I hope is most, then gravy. If it happens every single year, then at least we expected it and can deal with it. Lastly, the big wildcard in a positive way is your ability to earn and the desire that you might want to. It’s just about finding the absolute right role, with the right people & working toward the right purpose. For you guys maybe it’s monetizing the blog … which is not a bad thing either. You add value to other people and should get compensated for it. Whichever way it goes, you will have the time of your life! I’m confident that I selected your home town, so please send my t-shirt in XL. Does my wife get one too?

    • I think it’s more a matter of our definition of “catastrophe.” ;-) When I say it, I mean CATASTROPHE, like either health insurance disappears for everyone who’s not employed AND we get hit with something horrible like brain cancer or a massive car accident AND we can’t travel abroad for care. Or that financial markets worldwide collapse and wipe out everyone’s invested assets. Not just “oh, here’s a bit of an economic bummer.” We can definitely ride out allllllll the bummers. ;-)

      We’re also north of two years of cash at this point, so definitely understand that! And on all your other Qs, it’s tempting to answer with specifics, but you know we don’t do that, so I will just have to say DON’T WORRY ABOUT US. ;-) We have oversaved by almost everyone’s definition, and we are going to be MUCH MORE than fine. (But also, thank you for your concern!)

      And I look forward to telling you if your guess was correct! Thanks for playing along. ;-)

      • Oh I had no questions (other than will my wife get a t-shirt too as a co-winner ;))! I just described our plan and streams. Not at all worried about you guys … you have the right attitude as plans meet unexpected events. As I said, you will have the time of your life. Enjoy!

  25. A, for now, pie in the sky income stream I’d like to have for early retirement is royalties from book sales. Even a tiny amount each month can offset a large pile I’d need to have in my taxable accounts. If I can build up my business to earn enough to offer me health insurance that would be fantastic. Especially if I can manage that and still work under 30 hours/week on average.

  26. We’ll see how this plays out when one or both of us stop working. For now, we both work 3-4 days/wk and have full benefits. The ACA has dodged the latest repeal bullet, but I’d guess that some providers like Kaiser would still survive the demise of the ACA and provide reasonable individual plans. That might flavor our retirement destination. So back on income streams, PT working income will eventually be replaced in part similarly with qualified divs. Hopefully, LTCGs will play a part for income, along with taxable accounts. Selling equity income funds doesn’t seem like they’ll illicit the same emotional response as individual stocks might. I expect SS to be there at 70 and hopefully not at a 70% level. We need Congress to act responsibly and preserve SS for future beneficiaries. If not, those that didn’t save for retirement will live in dire poverty.

    • If only Kaiser was available everywhere! (Sadly, essentially no rural areas have it as an option. Which includes all ski towns.) And I agree with you on SS — we would HAPPILY take smaller benefits based on our high net worth to keep the fund solvent for the future, and to provide more for those whose earnings were lower while working.

  27. You pretty much covered everything on this post with regards to income sources to replace one’s salary. We all know that SSS pensions won’t cut it and that’s where my rental income to my fully paid income property comes in to supplement. I am so thankful that we’ve paid off a condo unit and have been renting it for over 5 years now. Not retired yet but for those of you who are contemplating on purchasing a property for income, I’d say hesitate no more.

    • So long as the math works out in your market, and you don’t mind the headaches of landlording, I agree. ;-)

  28. The good news is that you’re probably not going to run out of money even if you don’t work or earn money, and even if you have to buy your own insurance plan until you die. The bad news is that a more accurate depiction of the bottom two rows of your chart are: ????????????????????????????????????????????????

    Based on your description of a 2% withdrawal, I wouldn’t be too concerned about the political winds one way or the other.

    • Ha. Well said. And 2% isn’t our permanent rate, of course, but just for a few years until things become clearer. ;-)

  29. Your plans are dialed, don’t let analysis paralysis burden you. I have faith on both of your due diligence for this plan and it looks pretty bulletproof.

    I am looking forward to my rental property generating cashflow in the future although I may sell it to make life easier, you never know. As of right now it is almost cash neutral but a local recession where it is has crushed the average rental rate and I had to drop to attract tenants.

    My retirement government social assistance income is guaranteed for my wife and I so in our case I confidently bank on them. At 60 we will take CPP (Canada Pension Plan) and then at 65 we will take (Old Ages Security) which is indexed for inflation each year (currently at 583/month)

    I as well don’t want to touch those shares themselves and will instead try to live off dividends next year and my cash buffer. The best case scenario is I can actually draw an income from our business as I have never in our 15 years as I always had a job and high income. This will help both my wife and I drop to a lower tax bracket and also open us to more tax credits and programs, next year we should see a healthy Federal child assistance monthly grant for our daughter who will not be over the age limit yet. Every Canadian family is entitled to it based on family income (the max is like $6,000 per child)

    On your other consideration for health care I will keep rooting for Bernie Sanders

    • I don’t know if it’s surprising or not, but there’s been no analysis paralysis or one more year syndrome creeping in! We’re proceeding right on schedule with no hesitation — woot!

      Your plan sounds super solid, too — thanks, no doubt, to the excellent Canadian safety net! Sending you good vibes that you can make money with your business next year.

  30. Sounds like you’re in good shape. But the two-phase plan confuses me a bit. All cash is fungible, even cash in tax-deferred accounts. There are easy steps to take to access tax-deferred investments (which is sounds like you’re aware of) so why not take those steps to buy yourself extra insurance (drill down deeper into the bedrock)? If there is a CATASTROPHE and you need immediate access to cash in excess of your taxable investments, it would be nice knowing that you have access to tax-deferred funds that were rolled into a Roth.

    Bottom line: the two-phase plan has an emotional appeal and looks nice in a chart, but don’t forget that cash is fungible and you have a large pot of tax-deferred money you can, and may, need access to before 59.5.

    • Here’s more detail on this thinking: Shorter version: As long as the ACA and its subsidies are around, a lot of folks are ignoring the large subsidies they lose by having to count Roth transitions as full income (not partial, like long-term capital gains). We’ve done the math, and it’s not even close — we come out WAY ahead doing no or only small backdoor conversions. If the ACA goes away, we’ll reassess, but right now, that’s our plan.

      • Good point, and thanks for the link. I agree that maximizing ACA subsidies is crucial in early retirement. Good to hear you’ve done the math and it makes sense to keep tax-deferred accounts in deferral-mode. In our plan we have plenty of room for Roth conversions and/or capital gain harvesting. Our taxable account isn’t dividend heavy (it holds our emerging market allocation) and we actually need to generate about 10-15k per year of income to hit our ACA sweet spot of about 40k/year. Good luck with your transition to being early retirees!

      • I love knowing that you guys have thought all of this through and crunched the numbers! High five!

  31. You guys definitely get a gold star for how well you’re analyzing and planning your early retirement. Since reading about your plan, I have started a “FIRE” plan on my quarterly worksheet and to project out our income streams starting in 2020 in blocks similar to yours. It has dividends, rental income, 401k, pension, SS, and deferred compensation with a conservative zero investment appreciation. I also have a “if I were to get fired now” scenario, and it’s satisfying to see that we’ll be ok. It’s also helping the Mrs. overcome her fears about early retirement. You’re making a difference in the community!

    • Aww, thanks! You know I love those stars! ;-) I LOVE that you have created a similar blocked out plan! And wow, you’ve got us beat with 0% appreciation! (Are you sure you need to go THAT low?!) And that “if I was fired now” scenario is so smart to plan for. Thanks for your nice note! :-D