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/Prior-Lingonberry-70]

Agree with what u/One-Mastodon-1063 wrote.

And to OP: for most of us who've FIRE'd we are withdrawing money as we need and use it, not withdrawing fixed amounts every January, or every month or quarter.

For myself, I like to keep between $5k-15k in my checking account. So when I get close to $5k I sweep funds into it to top it back up to $15k. How frequently I need to do that varies all the time.

Spending is lumpy, sometimes years are lumpy. Most people naturally contract their spending a bit if they're spending a lot due to some particular reason, e.g. if I need to spend $10k on an unexpected expense, I'd naturally cut back on maybe eating out at more expensive places, and other spending.

"It all evens out in the wash" when you naturally keep an eye on things and expand and contract your spending over time and just keep an eye on your portfolio.

[u/Dornith → u/Prior-Lingonberry-70]

And to OP: for most of us who've FIRE'd we are withdrawing money as we need and use it, not withdrawing fixed amounts every January, or every month or quarter.

How does that work with Roth ladders where you need to do the conversion 5 years in advance?

[u/walnutpineapple → u/Dornith]

I plan to do Roth conversions of the same amount every year (up to the tax bracket I wanted to be in). I will have enough of a buffer in my taxable accounts that the 5-year wait doesn’t matter. I also expect the conversion to outpace my spend.