It seems that a lot of FIRE (financial independent/retire early) bloggers are writing about how they are going to withdraw money from the nest egg they accumulated when they retire. That sounds simple, but it gets complicated fairly quickly. I’ll be linking to articles later on.
If Retire By 40’s withdrawal strategy is “unusual” (I think it is), then our’s is extremely bizarre. In a nutshell that strategy is: Don’t Do It. I lean much more towards Frankie Goes to Hollywood than Nike.
This bizarre strategy is brought about by a unique circumstance… my wife’s military pension is worth an estimated $50,000 and it’s adjusted to inflation.
At this point, you’re probably thinking, “Hey that’s cheating!” You’re not wrong to be thinking that. Pensions are very rare nowadays. In a lot of ways we are blessed. In other ways, we pay a price. My wife (a pharmacist) could have earned a lot more for years if she worked in retail. She wouldn’t have to think about being deployed for Ebola or Zika outbreaks. If she takes a day off on Friday and the following Monday, she loses 4 days of leave. We work around military restrictions and we receive some benefits for that. In my opinion there are more pluses than minuses.
Let’s put that $50,000 pension aside and pretend it doesn’t exist. After all, for perhaps 99% of you, it doesn’t exist. The idea of that pension kicked me in the butt! I’m not going to be the chump that worked to 65 when my wife retires at 44. Hells no! That’s why I started this blog more than 10 years ago. I wanted to explore how people become financially independent.
Like any money journey there’s been twists and turns. If you want to read 10 years of that history, my archive of articles is here.
A strange thing happened and advertisers started to email me about ad placement on my blog. I didn’t understand it, but if someone wanted to pay my landline bill (people had landlines back then), I was all for it. In fact, I feel it would have been hypocritical NOT to take the ads.
I presume that my blog can earn a revenue of $30,000. I could be crazy as blog income is not reliable at all. However, I have talked to bloggers who stopped blogging more than 5 years ago and it still brings in an income. I also do dog sitting, because… well dogs are awesome and there’s no explanation necessary. I’ve only been doing for the last 20 months, but it seems like an income of $15,000 is possible in my area.
Let’s suppose you say that the military pension and my blog is cheating. I’d argue that we could have earned more money and saved up a bigger nest egg to draw down. I don’t want to get tied up in those hypothetical situations.
Instead, let’s focus our real estate situation. We have a small real estate “empire”. I expect that it will generate around $30,000 of income (after maintenance) when the 15-year mortgages are paid off in 2027.
Also around 2027, we’ll own our home as well. Without mortgage payments, electricity payments (thanks solar panels), limited transportation costs, and military health care, our expenses should be very, very low. I expect that the real estate income would cover 90% or more of those costs.
There’s going to be time when Social Security kicks in. I believe that taking Social Security early and investing it is the best plan. I covered that here. For the purposes of the discussion here, we’d get around $50,000 if we took it at 66.
So, let’s pretend that military pensions don’t exist. Let’s pretend my online income goes to zero. Let’s pretend that I suddenly get an extreme allergic reaction to dogs (let’s not pretend that… I don’t want to live in that world). Let’s pretend that our real estate assets somehow ceased to exist. Let’s pretend that Social Security is not solvent (not too hard), but also that people aren’t paying in at all (which would prevent us from withdrawing money from the system).
Let’s also pretend that I couldn’t find a way to earn an income. Honestly, I’d love to revisit my teenager years in fast food. I wouldn’t want to do it full time, but there’s something greatly satisfying about being able to completing a task by rote. Let’s also pretend that my wife can’t find a job as a pharmacist.
In that contrived scenario, we’d have to look into drawing down from our retirement brokerage accounts. I don’t know how to begin calculating that. Since it is “plan G”, we’ll cross that bridge when we come to it.
Our strategy is to never draw down from the retirement accounts (until the RMDs kick in). As I wrote in the title, it is bizarre. Is that rational? Let me know in the comments.
If you are looking to more conventional drawdown ideas, please see the following: