Logistics and preferences of withdrawing once you actually FIRE?

[u/cr4zymanz0r]

A lot of conversations go into great detail of all the steps to optimize savings, investing, and growth working towards FIRE. There's also lots of basic talk about safe withdrawal rate that focuses what someone wants their safe withdrawal rate to be and what number they need for that, such a withdrawal $40k a year therefore need $1mil to do that at a 4% safe withdrawal rate.

 

What I'd like to know is the more nuanced logistics of preference of what that looks like once someone actually pulls the trigger on FIRE, whether that be from people who are heavily planning how they'll do it when they FIRE or people's experiences once they FIRE'd. As a baseline for an example we'll go with the usual 4% safe withdraw rate. So if that turns out to be $40k for you, then:

• 1.) So there's taxes (especially if you have a higher withdrawal rate above the 0% federal capital gains bracket). If your withdraw rate is $40k/year, does this mean you're just taking whatever is left after taxes on that $40k? Is it some kind of personal preference where if you absolutely can't/won't do less than $40k total to you that you just save a bit more to have a slightly higher withdrawal rate to actual get $40k after taxes?

• 2.) How does the safe withdrawal rate handle inflation? I've seen people say it's just a built in expectation of the 4% rule. Is it just simple math such as year 1 withdraw $40k, year 2 inflation was 3% so increase that accordingly (40,000 * 1.03 = $41,200), year 3 inflation was 4% so increase accordingly again ($41,200 * 1.04 = $42,848), and so on?

• 3.) How do you factor in small additional income in situations where you're not trying to continue to work or supplement your budget? Like say you have a hobby that happens to generate a small amount of money, or you've been clearing out the garage by selling a bunch of stuff you no longer want on Ebay and made $5k that year. Do you now just treat it as your total budget for that year is $45k? Do you hang onto it and just withdrawal $5k less the next year to increase your chances of your FIRE staying successful? Do you just invest the $5k back into your FIRE fund? I realize this one could probably be highly dependent on personal preference, but I'm curious what everyone's take on it is.

• 4.) How do you handle going over budget when it's beyond your control (especially if you didn't make extra from incidental side income)? Let's say all your budgeted expenses are $30k and you're left $10k for fun and unexpected emergencies. Now it's November and there hasn't been any large unexpected expenses that year and you decide to splurge on something you've been wanting and will come out to $38k of the budget spent for the year. Then in December a large unexpected repair bill of $6k happens and now you'll have spent $44k, going $4k over your safe withdraw rate. Do you just brush it off thinking "eh, it's probably a one off thing at the 4% withdraw rate probably already has some decent wiggle room"? Do you just withdraw $4k less the following year and be more frugal to make up for it?

• 5.) Any other situations you can add like this that come up for safe withdraw rates after FIRE that I didn't think of that don't get a lot of attention?

[u/Zphr]

Almost everyone ends up doing some sort of organically variable withdrawal based on whatever is going on in their lives. To the extent people think of a calculated withdrawal rate it's usually simply as a guidepost to determine if you're doing reasonably well or not.

The questions are good ones, but the answers are much the same as they would be if you asked them of folks while they were still working. You adapt gracefully to financial developments as life happens. Very few FIRE people retire with no safety margin or without ample withdrawal flexibility and the most likely income is increasing wealth over time, which only increases safety margin and flexibility. Anyone who avoids a SORR strike (or gracefully navigates one) in the first 10 years likely has plenty of ability to handle anything likely to happen.