Early Retirement Planning

A guideline originating from the 1998 Trinity Study suggesting that retirees can withdraw 4% of their portfolio in the first year of retirement, adjusting annually for inflation, with a high probability the portfolio will last at least 30 years. For early retirees with longer time horizons, lower rates of 3% to 3.5% are often recommended.

A lifestyle movement focused on extreme savings rates and frugal living to achieve financial independence decades before traditional retirement age. Variants include Lean FIRE (minimal spending), Fat FIRE (higher spending), Barista FIRE (part-time work for benefits), and Coast FIRE (enough saved that compounding alone will fund traditional retirement).

The total investment portfolio value needed to sustain annual living expenses indefinitely. Commonly calculated by multiplying annual expenses by 25 (the inverse of the 4% withdrawal rate) or by 33 for a more conservative 3% withdrawal rate.

The percentage of after-tax income that is saved and invested rather than spent. In early retirement planning, the savings rate is the most powerful lever for determining time to financial independence, far outweighing investment returns or total income in importance.

The risk that poor investment returns in the early years of retirement will permanently deplete a portfolio, even if average returns over the full period are adequate. This is especially dangerous for early retirees because they have longer time horizons and more years of withdrawals.

The planned order and method of drawing income from different account types, including taxable brokerage accounts, tax-deferred accounts like traditional 401(k)s and IRAs, and tax-free accounts like Roth IRAs, to minimize lifetime tax burden during retirement.

A strategy for accessing tax-deferred retirement funds before age 59.5 without penalties. Money is converted from a traditional IRA to a Roth IRA, and after a five-year waiting period, the converted principal can be withdrawn tax-free and penalty-free.

The distribution of investments across different asset classes such as stocks, bonds, real estate, and cash, tailored for a potentially 40- to 50-year retirement. Early retirees typically maintain a higher stock allocation than traditional retirees to ensure growth that outpaces inflation over decades.

A plan for obtaining health insurance coverage during the gap between early retirement and Medicare eligibility at age 65. Options include ACA marketplace plans, health sharing ministries, COBRA continuation, a working spouse's employer plan, or part-time employment that provides benefits.

A milestone where enough money has been saved and invested that, even with no additional contributions, compound growth alone will grow the portfolio to a sufficient size for traditional retirement at age 65. After reaching Coast FIRE, a person only needs to earn enough to cover current expenses.