FIRE Like A Boss On A 1% Withdrawal Rate

If you’re familiar with the FIRE movement then you’re probably familiar with the 4% rule.  In a nutshell the 4% rule claims that you can safely withdrawal 4% of your total investments (or net worth) every year, including annual adjustments for inflation, with very little risk of running out of money. 

It’s based off the 1998 Trinity Study by three finance professors at Trinity University.

It’s often a hotly debated issue with economists and so-called experts.  The economist Wade Pfau thinks “3% would be a lot more realistic in terms of giving the same chance of success that we usually think about with the 4% rule” as he states in this interview.

While Karsten Jeske, aka “Big Ern”, who authors the popular Early Retirement Now blog thinks the 4% Rule is likely way too conservative for many early retirees as he explains in this post.  His take is very nuanced and detailed as demonstrated by his safe withdrawal series of blog posts which now has over 40 entries!  It’s recommended reading if you really want to geek out on this stuff.

Arguments aside, I follow many early retirement and FIRE blogs as well as lots of other financial media and I think a 3.5% – 4% rate seems to be something most in the community would agree is relatively safe.  I fall in that camp, but I have other plans.

I plan to early retire with a 1% withdrawal rate, or less.

It’s Not Magic

How will I be able to have a 1% withdrawal rate and still be fine?  I have a lifestyle business that I love, it’s that simple.  Last year it made over $20,000, and I expect it to steadily grow.

Ok, I realize I just pissed off a certain portion of those who feel the need to claim domain over the word “retire”.  In the FIRE community we jokingly call them the IRP, or internet retirement police.  They’ve been a subject of Turnip FIRE, and others explain the annoying details of their existence and behaviors better than I care to take the time to do. 

In short, IRP-types will proclaim that I won’t be retired when I fully leave my part time W2 job because I’ll have a graphic design business, and that counts to them as work.  I’m not interested in stupid semantic arguments.  I solve that argument very simply. 

This Isn’t Hard

FIRE to me has always meant retiring from a traditional W2 job, plain and simple. 

As far as having a business in retirement, I do think there’s more nuance there as to what constitutes retirement.  If one starts a business that he or she has to keep working at to keep alive, then I’d argue that perhaps that person is not fully retired. 

For example, someone who early retires from a career in law and starts a consulting firm that grows to have employees is probably not retired anymore.  Those employees are presumably dependent on the company for their livelihood. 

If the business owner hires someone to run the consulting company and thus regains 100% control of their own time on any given day, then I’d argue they are retired. 

Make sense?  My rules, my life, haha. 

My company is a company of one and since it’s a royalty based business I have no client base or anyone who depends on me.  I can take any day off, or stop working on it for good.  If I do the latter the company will still exist and will still have revenue, for years or even decades in the future. 

So when I leave my part time job I will have full control over all my time and have no one depending on me to work on anything.  That’s called retirement, regardless of what any annoying IRP people think. 

Maybe 0% Is Better Still

my business should keep my treasure chest stocked

Back to the 1% withdrawal rate.  I’m hoping to get my business income to the point where I can almost live off it and only have to withdrawal about 1% of my portfolio every year.  I’m getting there, slow and steady. 

In a perfect world I’ll get it to cover everything.  That’s the ultimate goal.  So what is that magic number? 

Last year I only spent $36,478, and the year before it was $34,763.  But those were both COVID years and my spending was definitely a bit lower than normal. 

In the years prior to COVID I was more often in the $38k – $45K range of spending per year.  When I fully retire from my W2 job I expect to travel more and increase my spending a bit.  But there’s no risk of me going hog-wild and on a Hollywood movie star spending baller.  I’m frugal by nature, it’s in my DNA.

So for a perfect world scenario I’m targeting $45k – $50k for my business. 

If I can get my business income to that level I can enjoy 100% time freedom and not have to touch my investments to cover my expenses.  A 0% FIRE withdrawal rate.

At that point if I want to “work” on my business on any given day – which I enjoy by the way – I can.  If I don’t, I’ll do whatever else seems fun that day.  Either way the money will still come in, 24×7.

FIRE’ing with a 0% withdrawal rate.  Like a boss.

Let’s make it happen!