Life Matters: Consider FIRE (Financial Independence, Retire Early) - Chapter 1

In 2024, a career-related circumstance opened up new possibilities for my future. After considering various options, I took it as an opportunity to reevaluate my life's direction and priorities. This pivotal moment made me realize it might be the perfect time to consider retirement and explore the new adventures, changes, freedoms, and challenges that come with it. I'm sharing this deeply personal experience to help you ask and answer the same questions I had on this topic, whatever stage you are in your professional and personal life.

Having spent forty years working diligently, spending wisely, and making prudent investments, I was confident I had a solid foundation for contemplating this transition. However, like many of you, I wasn't entirely sure, so like the Engineer and Curious Human I am, I embarked on a quest to figure this out.

During this process, I learned (and am still learning) a LOT, and I decided to share this with my followers and friends on LinkedIn with the specific goal of helping you think about this critical decision, wherever you are in your career.

(Note: I am NOT a financial advisor nor an expert at this - Consider this post as such. Always consult a professional for personalized advice.)

This will be the first of many posts on this subject. In this post, I would like to introduce a quick but rough rule of thumb to help you make this decision. If you think this is a good idea, we will tackle the 'WHY' (the reasons behind the retirement decision) and the 'HOW' (the practical steps to plan for retirement) in subsequent posts. So my challenge to you is to think about this important decision.

Deciding to retire early hinges on a rough calculation based on two essential pieces of information:

• Your spending - in the form of ongoing/essential spending and discretionary/one-time spending. Include your rent/mortgage/EMI as well as insurance. For now, let's not include taxes.
• Your savings - in the form of Retirement accounts (e.g., IRAs, 401(k), and the like for US folks), Individual Brokerage Accounts, Savings and CDs, and other passive forms of income (rental properties, side-gigs), and so on. If you are lucky to have an eligible pension, add that in. If you become eligible for Government-provided support schemes such as SS (Social Security in the US), CPP (Canada Pension Plan in Canada), or EPF (Employee's Provident Fund in India), etc., add that in only as long as you will be eligible for it at the time of deciding to retire.

Now that we know our accumulated wealth in the form of savings and investments (our future income) and spending (our future outflow), we can apply a simple and well-accepted estimation of the "Withdrawal Rate" from our accumulated wealth to replace our work-based income and fund our retirement living.

Essentially, we are switching from "Accumulating" to "Decumulating"! (Subsequent posts will discuss the important mindset change required and the processes to support decumulation safely)

The '4% Withdrawal Rule' is a guideline often used in retirement planning. It suggests that you can withdraw 4% of your retirement savings in the first year of retirement and then adjust that amount each year for inflation. In other words, in the first year of retirement, you withdraw 4% of your total retirement savings for your expenses. For example, if you have $1,000,000 saved, you would withdraw $40,000. In subsequent years, you adjust the withdrawal amount for inflation. If inflation is 2% in the first year of retirement, you would increase your withdrawal to $40,800 in the second year ($40,000 + 2%).

Note that this rough-and-ready rule is based on the assumption, supported by historical numbers, that a prudent combination of stocks, bonds, and other savings typically increases by at least 4% or more when averaged over time. Bill Bengen, a financial adviser in Southern California, created this rule in the mid-1990s based on historical data.

While I introduce this concept, we must understand that this rule is simply a "Rule of Thumb" to match your potential retirement. Fundamental risks include a steep and sustained slide in stock prices, as occurred worldwide in the 2008 US housing-related financial crisis. We will cover ways to reduce the risk this eventuality poses in subsequent posts.

Dear reader and friend on LinkedIn: You are on a spectrum regarding your career and family and earning/saving state (and potential). So you might ask, "Does this apply to me?" - a fair question that I will address below:

• Early career: Father Time is your best friend, even if you don't know it! Saving and investing any amount you can now will multiply through the magic of Compounding in the decades ahead. If you haven't started, today is the first day of the rest of your journey!
• Mid-career: Father Time is looking at you with a quizzical look. You are probably already saving and investing and are looking to optimize. However, you don't have enough time, energy, and mind space to plan and act with all the busyness of life and a growing young family. I advise spending some quality time on this - a simple optimization of even 1% today will have enormous consequences for your eventual retirement. Make Time your friend
• Late career/deciding: Father Time is your enemy now, as the sands of time are running out. You are in your late 50s or 60s, and the children have already grown up or left home. The end of the career runway is rapidly approaching, and your grey hair and new aches and pains start showing up as a reminder. Since I am in this stage, my journey and the process I described here could help you make or inform your decisions.

Before I conclude, I realize that our personal and financial circumstances are as varied as we are as individuals. Many are struggling to make ends meet, but an equal number are just too busy to realize that they have more than they need. We must realize that our Time on Earth is limited, and Life needs to be Lived. This is my story, and I hope this helps you live yours!

(If you want to comment, please be respectful to everyone. If you would like to see more of this content, let me know in the comments. I am open to connecting with real human beings—bots are not welcome!)

Until the next time, JK out!

(Edit 1/27/25: - Changed Title to use "Chapter" rather than "Part" - It looks like there will be a lot to cover, so I can add multiple "chapters" rather than limited "parts" 8-D