Early Retirement Viability Hinges on Withdrawal Rate and Age
TL;DR
- Early retirement for individuals in their 40s with substantial assets carries significant risk due to the extended time horizon, making a low withdrawal rate crucial to mitigate sequence of return risk and market volatility.
- A 2% withdrawal rate from a $3 million portfolio at age 45, while mathematically feasible for a shortfall, may be financially and psychologically unsustainable given potential market downturns and the need for funds to last 40+ years.
- Individuals considering early retirement with significant assets should prepare for the psychological challenge of depleting their principal, especially if market performance is poor, which could necessitate returning to work.
- While a 2.2% withdrawal rate from $2.25 million at age 42 appears manageable on paper, the plan's reliance on projected growth and the depletion of liquid assets before age 62 introduces considerable risk if market returns underperform.
- A 1.5% withdrawal rate from $1 million in retirement savings for a 69-year-old needing $60,000 annually for 30 years is considered financially sound, offering a high probability of success due to the shorter time horizon and lower withdrawal percentage.
- For a 45-year-old with $2.4 million and rental income, a 2.5% withdrawal rate ($75,000 total) is mathematically viable for early retirement, but the success hinges on market performance and the individual's ability to adapt to potential income fluctuations.
Deep Dive
The podcast "Your Money, Your Wealth" episode 562, an encore presentation, tackles the financial feasibility of early retirement for individuals experiencing burnout or seeking financial independence. The core argument is that while substantial assets can support early retirement, the viability hinges critically on the distribution rate, the individual's age, and the potential for sequencing risk, underscoring that "can I retire now?" is only the first question, with "should I?" and "what will I do?" being equally important.
The analysis of Peter and Joanna, a couple in their mid-40s with $3 million in assets and $120,000 in annual expenses, highlights the tension between financial capacity and the psychological and practical realities of early retirement. Their plan to retire in two years with a 2% withdrawal rate from their portfolio is presented as mathematically feasible, covering their spending shortfall after Joanna's income. However, a significant concern is raised about the long time horizon (40+ years) and the potential for market downturns, which could deplete assets and create significant anxiety for a 45-year-old. The hosts debate whether this is "rich" or a "lose-lose" situation, emphasizing that while financially possible, the decision to retire so early with young children involves complex lifestyle considerations beyond mere numbers. The implication is that early retirement for younger individuals requires not just sufficient funds, but also a robust plan for how to fill the time and manage potential financial volatility over decades.
A similar theme emerges with a 42-year-old single individual, "Burned Out and Ready to Retire," who has $2.25 million and $40,000 in annual expenses, aiming to retire in one year. His detailed plan involves phased withdrawals and a projected pension and Social Security income later in life. While the initial numbers appear workable, the hosts express significant skepticism, particularly regarding the sustainability of drawing down over half his liquid portfolio ($1.1 million in brokerage and cash) before age 62, especially if markets underperform. The core second-order implication here is the high risk associated with aggressive withdrawal rates and long retirement timelines, especially for those retiring in their early 40s. The analysis suggests that psychological resilience and adaptability are crucial, as a market downturn could necessitate returning to work, a difficult prospect after leaving a "toxic office."
Suzanne, a 69-year-old with $1 million in savings and needing $60,000 annually, presents a contrasting case. Her situation is deemed "all right" due to a lower withdrawal rate (1.5%) when factoring in her Social Security benefit. This highlights a critical second-order implication: the significantly lower risk and greater sustainability of retirement withdrawals for individuals closer to traditional retirement age, as the time horizon for asset depletion is considerably shorter.
Maryland Chicken Man, a 45-year-old self-employed individual with $2.4 million in projected assets in three years and a desire to withdraw $80,000 annually plus rental income, also faces early retirement considerations. While mathematically feasible with a 2.5% withdrawal rate, the hosts emphasize that his background as a small business owner might provide him with the grit and adaptability to navigate unforeseen financial challenges or pursue alternative income streams if necessary. This suggests that individuals with entrepreneurial experience may be better equipped to handle the uncertainties of early retirement compared to those with stable W2 employment, as they are accustomed to managing fluctuating income and reinvesting in their ventures.
The overarching takeaway is that while early retirement is achievable for those with substantial assets, it carries inherent risks. The ability to sustain financial independence hinges on conservative withdrawal rates, realistic expense projections, and a clear understanding of the psychological impact of market fluctuations over extended periods. For younger retirees, the "what next?" question--how to fill time and manage potential financial stress--is as critical as the financial calculations themselves.
Action Items
- Audit retirement withdrawal strategies: For individuals retiring before age 50, analyze portfolio performance under adverse market conditions (e.g., 10% annual loss for 3 years) to identify potential failure points.
- Create early retirement risk assessment: For individuals retiring before age 50, calculate the probability of portfolio depletion within 15 years based on a 2.5% to 3% withdrawal rate.
- Develop part-time work contingency plans: For individuals retiring before age 50, outline 3-5 potential part-time roles or side hustles that could supplement income if early retirement proves financially unsustainable.
- Evaluate long-term spending projections: For individuals retiring before age 50, review projected expenses for the next 40 years, identifying 5-10 potential areas for cost reduction if market downturns impact portfolio value.
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View Episode Notes →Key Quotes
"My total income is $350,000 per year. I have a company contribution of 8% and contribute the max to my Roth 401k. Joanna started a second career a few years ago and now has an income of $75,000 per year. She contributes $500 a month to her 403b. As a state employee, she has paid healthcare that would contribute through retirement and will receive about a 60% pension with an inflated base, call it 62%. We spend about $10,000 a month. We'll have the following assets: Peter has $1.4 million in a brokerage account, $900,000 in a Roth, and an additional $400,000 in a traditional 401k. Joanna's got $100,000 in her brokerage account, $100,000 in her IRA Roth IRA, $15,000 in a 403b. Then they have joint $100,000 cash. We got a $700,000 house that's fully paid for, and a 529 plan that has about $500,000 in it for the kids."
Joe Anderson, CFP, highlights Peter and Joanna's substantial assets, totaling approximately $3 million, alongside their significant annual income. This financial snapshot is crucial for assessing their feasibility of early retirement. Big Al Clopine, CPA, notes that their stated expenses, when offset by Joanna's income, create a shortfall covered by a low 2% distribution rate from their assets.
"I'm 42, single, live in New Jersey. I think I'm burnt out. This is actually me. This probably was you. You changed the name, didn't you? I love the show, Joe and Big Al. Stumbled across, oh, you wrote this, yeah, because I love your show, Joe. So he stumbled across our podcast this year, hoping for a little spitball, looking to retire next year. I'm 42, single, live in New Jersey. Is this double New Jersey? It is. I think people are just getting burnt. It's winter, you know, it's cold in Jersey. They don't want to be going to work. I'm done."
Joe Anderson, CFP, notes the recurring theme of burnout and the desire for early retirement, as expressed by this listener from New Jersey. Big Al Clopine, CPA, observes that the listener's stated expenses of $40,000 annually in New Jersey are quite low, which impacts the feasibility of his retirement plan.
"I'm 69 and working in healthcare on a per diem basis. I make $40,000 a year. I plan to draw Social Security at age 70. Estimated benefit is $48,000 a year. I have $1 million in retirement savings with a mixture of annuities. I rent and have a small emergency fund of $100,000. I need $55,000 to $60,000 a year for the next 30 years. Am I all right?"
Joe Anderson, CFP, presents Suzanne's situation, highlighting her age, income, and retirement savings, which include annuities. Big Al Clopine, CPA, calculates that Suzanne's Social Security benefit of $48,000 annually, combined with a 1.5% withdrawal rate from her $1 million in savings, would cover her stated expenses of $55,000-$60,000 per year.
"So here's the breakdown. He's got, let's see, a couple million bucks, it sounds like. $1.7 million in a brokerage account. He's got an IRA of $100,000, solo 401k of $100,000, Roth IRA $8,000, just opened. He's got two rental properties worth about $450,000, not going to sell. They're next door to me. They profit $15,000 a year. Business assets are land worth $500,000, which I'll be happy to sell, but not right away. Zero debt and not going to get any. My income is $100,000 a year. I max out my solo 401k of about $40,000 a year. Roth IRA is $7,000, HSA $4,000."
Joe Anderson, CFP, details the Maryland Chicken Man's assets, which include a significant brokerage account, retirement funds, and profitable rental properties, totaling approximately $2.75 million in liquid and investment assets, plus business land. Big Al Clopine, CPA, estimates that based on a 2.5% distribution rate from his assets and $15,000 in rental income, the Chicken Man could potentially withdraw around $75,000 annually.
"If you're worried about outliving your retirement savings and wondering if you're on track, get a free financial assessment from the experienced professionals on Joe and Big Al's team at Pure Financial Advisors. They'll go beyond a simple spitball to give you a comprehensive analysis of your entire financial picture and your risk tolerance to help you create a customized retirement plan that aligns with your needs and goals."
Joe Anderson, CFP, promotes a free financial assessment offered by Pure Financial Advisors. This service, as explained by Joe Anderson, CFP, provides a detailed analysis of an individual's financial situation and risk tolerance to develop a personalized retirement plan.
"Now, it never caused me any symptoms or any pain or anything, but leaving it all in there like that was not an option. So throughout November, Joe and Big Al and I recorded as many spitballs for you as we possibly could in preparation for my recovery time and the holidays. But now you've seen or heard them all, so thus the encores. We still have about 60 pages worth of your questions, so let's all meet back up here in 2026 and continue the spitballing where we left off."
Andy, the Executive Producer, explains the reason for the podcast's encore episodes, citing his upcoming kidney surgery due to a genetic predisposition to cancer. Andy, the Executive Producer, states that he and the hosts recorded extra episodes to prepare for his recovery period.
Resources
External Resources
Books
- "10 Big Retirement Regrets" - Mentioned as a topic for a new episode of Your Money Your Wealth TV.
Articles & Papers
- "Retiring Early: Better Get Familiar with Roth Conversions" (Blog) - Mentioned as Cupert's most recent blog post.
People
- Cupert - Mentioned as a person who retired in June 2023 and continues to blog about early retirement.
Websites & Online Resources
- Pure Financial Advisors (purefinancial.com) - Mentioned as the provider of the 2025 Key Financial Data Guide and financial assessments.
- Apple Podcasts - Mentioned as a platform where listeners can leave reviews and ratings for the podcast.
- Spotify - Mentioned as a platform where the podcast can be listened to or watched.
- YouTube - Mentioned as a platform where the podcast can be listened to or watched, and where viewers can join the conversation in the comments.
Other Resources
- 2025 Key Financial Data Guide - Mentioned as a free download available in the episode description, containing tax brackets, contribution limits, and other financial data.
- Financial Blueprint Tool - Mentioned as a tool to calculate retirement success probability by inputting cash flow, assets, and projected spending.
- Leaf-Fremany Syndrome (LFS) - Mentioned as a rare genetic predisposition to developing cancer that the executive producer has.
- Monte Carlo simulation - Mentioned as a type of financial planning software that might indicate retirement feasibility.
- FIRE movement (Financial Independence, Retire Early) - Mentioned as a concept where people retire young, sometimes by saving a high percentage of income and living frugally.
- Your Money Your Wealth TV - Mentioned as a program that will feature an episode on the 10 biggest retirement regrets.