One of the key takeaways from S&P’s in-depth analysis of my IRA through Empower is that I should be able to live a more fulfilling life in retirement. In fact, with the higher safe withdrawal rates recommended by Bill Bengen, one of America’s best retirement researchers, we should all be able to live better lives in retirement.
Since 1999, I have treated all of my tax-advantaged accounts as bonuses. My philosophy is simple: Without relying on these accounts to fund retirement, I will be forced to build a taxable portfolio large enough to support an early retirement lifestyle. At the same time, by automatically maxing out my 401(k) every year, I can ensure that life after age 60 will be more comfortable than it would have been had I not done so.
Yes, it can be hard to max out your 401(k) benefits every year and not get any returns for decades. But early in my career, I realized that there was no way I could work in banking for such a long time and with so much stress. So I chose the easier of two difficult paths: save aggressively and get free as quickly as possible.
Stay conservative and live in early retirement
Of course, when you retire at 34, your “freedom” still has limits. Withdrawing money from a 401(k) or IRA before 59½ will result in a 10% penalty plus tax, so I didn’t want to waste my efforts. Instead, I’ve devised five early retirement strategies:
- A severance package was negotiated to cover living expenses for the first few years.
- Established multiple passive income streams to cover at least my basic living expenses.
- Earn extra income with Financial Samurai and occasional consulting.
- Encourage my wife to work for another three years and then retire at 35.
- Cut expenses – most notably downsizing in 2014 and renting out your old home.
At 34, I had just cut off a major source of income and feared I had made a huge mistake. So it’s logical to take a conservative approach to early retirement just in case.
In hindsight, I probably should have worked for another five years. But the fear of failure kept me disciplined, and by 2015, we were financially stable enough for my wife to negotiate a six-figure severance package and retire.
Now it’s finally time to enjoy it
After another conversation with Bill Bengen, the father of the 4% rule, I decided it was finally time for YOLO to retire.
in his latest book A richer retirement lifeBengen increased its SAFEMAX withdrawal rate from 4.15% to 4.7%, rounded to 5%. His model assumes a 55% stocks/45% bond portfolio – quite conservative compared to my 99.8% stock-heavy IRA. 5% SAFEMAX is considered the highest annual withdrawal rate that retirees will not run out of money after 30 years.
Shifting the withdrawal rate from 4% to 5% increases spending power by 25%. It’s like going from spending $60,000 to $75,000 a year on a $1.5 million portfolio without breaking the bank. That doesn’t include Social Security or side income, both of which will greatly improve your odds.
I haven’t touched my retirement capital since 2012. In fact, I save and invest about 30% of my supplemental income each year. For example, over the past decade, I’ve contributed an average of $16,000 per year to my Solo 401(k). Freelancing income comes from occasional consulting and advance payments.
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As I get older, I can no longer be so frugal.
The irony of life is that the “old people” we imagined 20-30 years ago are now us. When realizing this, it’s worth asking: Is life going the way we want it to go? If not, what are we waiting for?
As I approach 50, I don’t want to regret not having a better life in retirement. I went through the ups and downs of life for 13 years without a paycheck or benefits. From paying $2,500 a month for unsubsidized health insurance to finding creative ways to continue contributing to tax-advantaged accounts, retiring early isn’t easy, especially when we become unemployed parents of two. But it looks like we’re going to be DUP for their entire teenage lives.
With fewer years to fund, it’s much easier to be a retiree in your late 50s than in your 30s. You are more experienced, more grounded, and less anxious about all the unknown. In other words, it will be 18 years until my youngest child graduates from college. And then there’s my parents and everyone’s health to think about.
Your retirement portfolio may continue to grow
For over 13 years, my principal has not been affected at all and my retirement account has grown significantly with the growth of the market. What if I invested my entire $3 million net worth in the S&P 500 in 2012? and With steady-state withdrawals of $120,000 per year, the portfolio would be worth approximately $13 million today. This is the power of compounding. At the same time, Beer’s study assumes that withdrawal rates increase with inflation.
| Year | Starting balance | Withdraw money | S&P 500 Index Growth Rate | Ending balance |
|---|---|---|---|---|
| 2012 | 3,000,000 | 120,000 | 16.0% | 3,340,800 |
| 2013 | 3,340,800 | 120,000 | 32.4% | 4,257,939 |
| 2014 | 4,257,939 | 120,000 | 13.7% | 4,710,691 |
| 2015 | 4,710,691 | 120,000 | 1.4% | 4,648,859 |
| 2016 | 4,648,859 | 120,000 | 12.0% | 5,090,784 |
| 2017 | 5,090,784 | 120,000 | 21.8% | 6,051,854 |
| 2018 | 6,051,854 | 120,000 | -4.4% | 5,665,569 |
| 2019 | 5,665,569 | 120,000 | 31.5% | 7,279,067 |
| 2020 | 7,279,067 | 120,000 | 18.4% | 8,445,000 |
| 2021 | 8,445,000 | 120,000 | 28.7% | 10,685,715 |
| 2022 | 10,685,715 | 120,000 | -18.1% | 8,670,573 |
| 2023 | 8,670,573 | 120,000 | 26.3% | 10,783,444 |
| 2024 | 10,783,444 | 120,000 | 15.0% | 12,285,460 |
| 2025 | 12,285,460 | 120,000 | 10.0% | 13,550,006 |
- 5% withdrawal: From $3 million in 2012 to $10 million today
- 7% drop out (average of 400 retirees in Bengen’s original study): About $4 million today
Of course, I didn’t have the courage to invest 100% in stocks when I left my job. So here are the results using a more realistic 60/40 retirement portfolio, with actual 2012-2024 returns of 60/40 (averaging about 8.2%) and projected 2025 returns of +6%:
| Withdrawal rate | Ending balance in 2025 |
|---|---|
| 4% | $5,959,300 |
| 5% | $5,146,696 USD |
| 6% | $4,438,007 USD |
| 7% | $3,820,844 |
Even with a balanced portfolio and regular withdrawals, the principal still doubled Just 13 years later, the interest rate increased from $3 million to $6 million at 4%. So a 5% withdrawal rate doesn’t seem unreasonable since 13 years later my net worth is still about 70% higher!
If I live 50 years after retirement in 2012 and make withdrawals at a 4% interest rate, at an annual return of 8.2% (historical 60/40 year returns), my nominal net worth will grow to a whopping $38 million, or $12-13 million in inflation-adjusted real terms. Therefore, the 4% withdrawal rate does seem a bit too conservative now.
The share price action since 2012 has been incredible thanks to a strong bull market. Sure, we’ve had downturns in 2018, the first half of 2020, and 2022, but for the most part, investors have been handsomely rewarded.
Could we face another “lost decade”? The S&P 500 is likely trading at about 23 times forward earnings. But as AI drives productivity gains, the future may surprise us again. I am willing to invest in artificial intelligence companies for my children to save them from a life of disappointment.
It’s time to enjoy what we’ve built
If you’ve been investing diligently since 2012, chances are you have a lot more money than you expected. We worked hard, saved consistently, and benefited from one of the greatest bull markets in history.
So maybe it’s time to relax your frugal attitude, enjoy the fruits of self-discipline, and live a happier life.
Because if we’ve done the hard part—saving, investing, and being disciplined—then the next challenge is learning how to enjoy our wealth without guilt.
Fellow retirees, how will your investment portfolio and net worth perform in retirement? Have any of you actually seen a significant drop in your portfolio or overall net worth? If not, why don’t more people retire early or spend more freely in retirement? The math clearly shows that if you continue to invest, the longer you live, the more likely you are to become richer.
Empower offers free financial analysis services
If you have more than $100,000 in investable assets (whether in savings, a taxable account, a 401(k) or an IRA), you can get Free financial check From Empowering Financial Professionals Register here. This is a no-obligation way to have your finances reviewed by an experienced professional who makes a living building and analyzing investment portfolios.
A fresh perspective can uncover hidden fees, allocation inefficiencies, or optimization opportunities, giving you greater clarity and confidence in your financial plan.
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