Retirement isn’t what it used to be. For our parents and grandparents, the path was a defined highway with a clear offramp: work for 35 years, get the gold watch, and start cashing a pension check alongside Social Security. It was a “defined benefit” world where the logistics were handled by an unseen back-office administrator.
For those of us aiming to retire early, we’ve traded the gold watch for an excel spreadsheet (okay many spreadsheets). We are the architects, the investment committee, and the payroll department all rolled into one. It takes more work than it did for previous generations, and that can feel intimidating. But the upshot is that you are in the driver’s seat.
In the early retirement community, the question of “how much do i need?” has been answered by so many people that writing about the topic risks revising math that has already been solved to death. Examples include the Trinity University study, Bill Bengen’s research, and Karsten Jeske aka “Big ERN” of earlyretirementnow.com who wrote a 63 post series (!) about safe withdrawal rates.
Step 1: The Foundation Starts with Your Spending
Every great bridge needs a solid base. In retirement planning, that base is understanding your spending. I think this probably feels like a redirect for some people when they ask “How much do I need to save?” and they are immediately asked a spending question back.
But early retirees can mostly forget the generic “plan for 80% of your pre-retirement income” advice. Most early retirees are big savers, but that doesn’t always mean they’ve been closely tracking and budgeting their expenses. Many savers are simply “paying themselves first” by maxing out their retirement accounts and shoveling the rest into brokerage accounts and hoping for the best. But that doesn’t mean they’re tracking their spending or closely budgeting.
My advice for anyone getting close to their retirement date is to track your expenses carefully for at least a year, but ideally for two or three. Why? Because life is “lumpy.” One year the house might need a new roof, and the next year might include a family wedding, or a spike in health expenses.
Once you have a true average of what it costs to be you, you can find your target using some simple rules of thumb:
- The 25x – 30x Rule: This is your “Go/No-Go” gauge. If you spend $100k a year, you are looking for a portfolio of $2.5M (4% withdrawal rate) to $3M (3.3% withdrawal rate).
- The Logic: A 4% withdrawal rate is the classic starting point, but if you’re retiring at 45 or 50, aiming for a 3.25% or 3.5% rate buys you a cushion for a longer retirement.
One thing I would add here is that it’s worth running your numbers through a few online calculators. Different tools use slightly different assumptions, and seeing how your plan holds up under different scenarios can be incredibly helpful. You’re not looking for a perfect answer so much as building confidence and intuition around your plan.
Step 2: Crossing “The Bridge Period” (Retirement to 59.5)
Once you get past the general rule of thumb using the 4% (or 3.X%) rule, I think the biggest point of intimidation for early retirees is coming up with a plan to bridge the gap between the day they quit and the day the IRS “unlocks” traditional retirement accounts at age 59.5. Let’s call this the Bridge Period.
Many people think their 401(k) or IRA money is off-limits until they’re nearly 60. That’s mostly a myth. While it’s slightly more technical than cashing a paycheck, funding life during the Bridge Period is a solvable puzzle. Your staging typically looks like this:
- Taxable brokerage accounts: Your first and easiest funding source, including 0% long term capital gains taxes at lower income levels.
- Roth IRA contributions: You can withdraw what you put in (the basis) at any time, tax- and penalty-free.
- Tapping pre-tax accounts using 72(t) and Roth ladders: Mechanical tools that allow you to move money from “locked” tax-advantaged accounts to your checking account without the 10% penalty
I’ve written a post about accessing funds before 59 ½ here,
There isn’t anything especially complex about accessing funds in this period if you do a bit of homework and aren’t intimidated by a tax form or two.
Step 3: The Middle Stage (Pre-Social Security & Beyond)
Once you have hit age 60, the game changes. You have full access to your IRAs and 401(k)s, but you likely haven’t started Social Security yet. This is your Optimization Phase.
This is where proactive planning really pays off. You might choose to draw more heavily from your portfolio now so you can delay Social Security until age 70, locking in a much higher, inflation-adjusted “guaranteed floor” for later.
This is also the prime window for Roth Conversions if they fit in your plan. By strategically moving money from Traditional to Roth accounts while your income is lower, you shield your future self from larger Required Minimum Distributions (RMDs). You’re effectively giving your 80-year-old self a tax-free gift. If you’re married, you might be giving your spouse a tax-free gift.
Don’t ask where you’ll be. I’m sure it’s a better place!
Step 4: Staying the Course
The final piece of a confident exit is knowing how to handle a market downturn. The biggest risk is Sequence of Returns Risk (SORR), which is the concept of poor returns and losses early in your retirement. Similar to the SWR discussion, this ground has been covered extensively by Big ERN and others.
Unlike our parents’ fixed pensions, your DIY portfolio has a steering wheel. You are the pilot, and you have levers to pull:
- The spending lever: If the market drops 20% in year two, you don’t jump overboard. You adjust. Maybe that year you skip the European cruise and do a local road trip instead.
- The cash buffer: Keeping one to two years of spending in stable assets so you never have to sell your stocks when markets are down
Of course, sometimes we can be our own worst enemies. One of the worst things you can do in early retirement is panic sell and deviate from a plan. I recommend anyone considering retiring writes an investment policy statement and sticks to it.
You Aren’t Doing This Alone
Building a bridge to early retirement takes effort. It requires developing a savings goal, understanding your spending habits, and maybe even learning a few IRS rules. But you don’t have to do it in a vacuum.
There is a massive community of enthusiasts and deep math experts who have stress tested these strategies from every angle. Use their work to build your confidence, and use your own numbers to build your plan.
