A reminder of how early retirement works:<ul><li>You know your math. You know what it costs to live for a year, your net worth, and other key future financial needs.  </li><li>You save up enough money to fund the rest of your life.  You really need compound interest at work to do this effectively. We talk through the 4% rule or 25X rule, end-of-life planning spreadsheet and concept, and more.</li><li>You keep your cost of living low.  This might include getting debt-free.</li></ul>The different levers that could be available for income during early retirement:<ul><li>Cash</li><li>Deferred compensation programs</li><li>Investment income - selling off investments, dividends, etc. </li><li>Passive income/side hustles - rental property income, a new hustle you start, selling off a rental property</li><li><a href="https://friendsonfire.org/059-the-amazing-tax-benefits-of-fsas-hsas-and-dcas/">HSAs</a></li><li>More advanced techniques to get to your retirement funds early - e.g. Roth IRA 5-year ladder conversions</li><li>Part-time or full-time work - You can always go back to work!  This might be your backup plan, your parachute cord, or perhaps a new passion you discover and are excited to do.  </li><li>Generally speaking, though, you need to make sure that you’ll have enough cash every year to cover your living expenses until you’re 59.6 and your retirement funds kick-in.</li></ul>How you plan your withdrawal strategy for early retirement:<ul><li>It depends is the real answer.  It’s going to be different for everyone based on the reality of their portfolio and their goals. </li><li>We share high-level how Maggie and Greg are funding their early retirement.  </li><li>What should you do?  Have a plan, understand the levers, and consult with someone if needed.</li><li>To early retire, meaning before 59.5 in our definition, you’ll need to have income + safe withdrawals of taxable accounts. So if you need $100K a year, you need to find a way to generate that cash. Having passive or some active income makes things infinitely easier and less risk. You’ll need to plot it out though: If I have $1M of taxable assets and that grows at 5% a year, if I withdrawn $110K a year for 10 years, you’d basically eat up most of that and then could start using your retirement accounts.</li><li>How specifically do I start withdrawing money?  We discuss short and long-term capital gains and other factors you’d want to consider. We also briefly discuss how these withdrawal strategies change for 60+.</li></ul>Top 3 Takeaways:<ol><li>There are a bunch of different ways to fund and structure early retirement.</li><li>Make a general plan for how you plan to do yours.</li><li>Understand the principles Know that you’ll need to adjust and pivot your plan over time.</li></ol>References:<ul><li><a href="https://friendsonfire.org/004-spending-less-pillar-1/">Friends on FIRE podcast #004 - Spending Less – Pillar #1</a></li><li><a href="https://friendsonfire.org/005-growing-wealth-pillar-2/">Friends on FIRE podcast #005 - Growing Wealth – Pillar #2</a></li><li><a href="https://friendsonfire.org/006-finding-freedom-pillar-3/">Friends on FIRE podcast #006 - Finding Freedom – Pillar #3</a></li><li>Mike’s Book:<a href="https://amzn.to/2sPIzuj"> Your New Relationship with Money</a></li><li><a href="https://friendsonfire.org/112-how-to-know-if-you-are-fi/">Friends on FIRE podcast #112 - How to know if you are FI</a></li><li><a href="https://friendsonfire.org/096-freedom-is-the-ultimate-financial-goal-not-retirement/">Friends on FIRE podcast #096 - Freedom is the ultimate financial goal, not retirement</a></li><li><a href="https://friendsonfire.org/059-the-amazing-tax-benefits-of-fsas-hsas-and-dcas/">Friends on FIRE podcast #059 - The amazing tax benefits of FSAs, HSAs, and DCAs</a></li><li><a href="https://friendsonfire.org/138-how-a-family-of-5-can-afford-to-retire-at-41-and-43/">Friends on FIRE podcast #138 - How a family of 5 can afford to retire at 41 and 43 (part 2 of 5)</a></li><li><a href="https://cfiresim.com/">https://cfiresim.com/</a></li><li><a href="https://secure.ssa.gov/">Social Security Administration website</a></li></ul>---Follow friends on FIRE<a href="https://twitter.com/Friends_onFIRE">Twitter</a><a href="https://www.instagram.com/friends.onfire/">Instagram</a><a href="https://www.facebook.com/Friendsonfire-102269151278480/">Facebook</a><a href="https://www.linkedin.com/company/friendsonfire">LinkedIn</a>Leave us a voicemail or text us: 404-981-3370eMail us at:  <a href="mailto:friendsonfiremm@gmail.com">friendsonfiremm@gmail.com</a>Visit our website:<a href="https://www.friendsonfire.org/"> www.friendsonfire.org</a>---Other LinksMaggie’s Blog:<a href="https://mostlyminimal.life"> Mostly Minimal Life</a>Mike’s Book:<a href="https://amzn.to/2sPIzuj"> Your New Relationship with Money</a>

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#190 | The financial mechanics of early retirement

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