My Retirement Flexibility Scale for Choosing Your Safe Withdrawal Rate

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Prospective retirees want a simple formula for making the retirement decision. Financial advisors, pundits, and salesmen would love to give it to them. And charge for it.

But, sadly, it doesn’t exist.

Sure, there are calculations that will shed light on your retirement prospects. You can gather your income, expense, tax, and investment return projections. Push that data into a retirement calculator and crank out a number showing how many years until you can retire, or how long your money will last.

It’s a fascinating exercise, and one I highly recommend for all potential retirees. If you don’t already have a favored tool, look at my list of the best retirement calculators.

Just don’t stake your future on the results. There is clarity at the extremes — if you have many millions, or nowhere near enough to retire. But, for most of us, there are too many unknowns to ever compute a precise numerical answer to the question of how much you need for financial independence.

For us, the retirement decision is not an entirely mathematical exercise. Rather, it’s a survey of the landscape ahead, and a gut check about our odds of navigating it successfully. In the face of that numerical uncertainty, you need a qualitative way to sum up your situation, deciding how much risk you can take on in retirement.

Because, assuming you have saved enough to be in range to retire, the real question is how aggressively can you withdraw from your portfolio in the retirement years….

Safe Withdrawal Rates

There is no precise answer to the retirement equation, but there is a numerical range. In my second book I write:

“There have been hundreds of studies into how much you need to retire, and nearly as many systems proposed for how to safely spend down your assets in retirement. In essence, these efforts break down into three categories: backcasting using market history, forecasting using history or current market valuations, and making like an endowment and consuming only the inflation-adjusted income and growth. [I go into more detail on these categories in the book.]

In the end, every one of these approaches boils down to this: A certain percentage of your assets is deemed safe to consume at the start of retirement. Sometimes that initial percentage is adjusted for inflation in following years, so the nominal amount withdrawn increases over time. Sometimes the percentage itself is maintained, so the amount withdrawn fluctuates and is proportional to the size of the underlying portfolio. Either way, each of these approaches settles on an initial withdrawal percentage.

And, after the better part of a decade studying and reading about this question, I can tell you that essentially all methods arrive at the same range of initial payout rates from your assets: between 2% on the very low side for the most conservative approaches, and 6% on the very high side, for the most optimistic approaches. Almost no responsible party currently recommends a withdrawal rate over 5% at the start of retirement. More and more are recommending lower rates – as low as 2% to 3%, given the state of world financial affairs, and unknown prospects for future growth.

If we throw out the outliers, we can say that the consensus view on this issue is 3% to 5%. Large endowments, respected financial companies, leading researchers, well-known financial advisors, best-selling authors, and successful early-retired bloggers all generally advise withdrawal rates within that range. “

Where Are You in the Range?

But, when it comes to retirement income, 3-5% is a very big spread. For example, suppose you needed $40,000 annually for retirement living expenses, in addition to any Social Security or pension. That 3-5% range is the difference between having to save $800,000 (if you use the more aggressive 5% withdrawal rate) versus having to save more than $1.3 million (if you use the more conservative 3% withdrawal rate).

When you retire, the choice is yours: You can start withdrawing 3% of your assets annually, or 4%, or 5%, or some in-between number. At the start, of course, you can get away with any withdrawal rate. You won’t see the impact on your portfolio for years, even in the worst cases. But, in the end, that withdrawal rate will determine how long your money will last. So how do you know which withdrawal rate is “right”?

Mathematically, as I’ve said, you don’t. But I made my retirement decision anyway, and you can too.

In recent years, I’ve been trying to “quantify” the non-numeric criteria that go into the retirement withdrawal rate decision. These are the factors that I used in making my own decision years ago, and that I recommend others take into account in making theirs.

What this boils down to is a qualitative system for balancing financial security and risk in retirement.

(I’d been kicking these ideas around in my head for years, but kudos to the Grumpmatic Method described in a recent guest post here, for crystalizing my thinking.)

Using my system is simple enough: There are a dozen factors that you need to evaluate and total up, all potentially favorable to a more aggressive withdrawal rate. You tally up your Retirement Flexibility Score, enter it into my simple scale below, and read out your suggested withdrawal rate.

Let’s get started by exploring each factor…

The Factors

For each of the following factors, if you can answer “YES”, add 1 to your Retirement Flexibility Score:

Do you have a plan for obtaining health insurance until age 65? (+1)

Sadly, health insurance in the U.S. can be a retirement deal killer. I was fortunate to marry a public school teacher with retirement health benefits. (We have to pay for them, but the group plan is guaranteed.) Then Obamacare appeared to offer an avenue for other pre-65 retirees to obtain coverage. But that avenue is changing and eroding now. Early retirees now may have no choice but to cast off for the unknown with the best plan being to re-evaluate annually, and pick up work if they must.

Could you go back to work in your original career in the first 4 years of retirement if necessary? (+1)

As I explain in the “Retirement Fuel Gauge” section of my book, a four-year window is a good safety check for your portfolio. Being able to return to your previous work is the ultimate backup plan. If things don’t go well in the first years of retirement, you can simply hit the “reset” button. Just understand that it’s the rare individual who could jump back into their career after much time has passed: the economy might have tanked which would impact hiring, your skills might have atrophied, or your job might have disappeared or changed due to technology.

Do you have the skills to start a lifestyle business that could bring in an extra $1-2K/month? (+1)

Many early retirees choose this route. A lifestyle business, related to a hobby or your previous professional skills — consulting, publishing, or coaching, for example — can offer freedom, creativity, and income. Just understand that small businesses are risky and hard work. There is no guarantee of success. (This blog required several years of dedicated part-time work to produce any significant income.) Whatever you do, don’t dump so much capital into a retirement business that it threatens your retirement!

Would you be willing to work a part-time service job to bring in an extra $1K/month? (+1)

Just $1K/month in extra income substitutes for about $300K in retirement savings, according to the simple 4% rule. Working in retirement, at a low-skill, hourly, part-time job is the most realistic way for most retirees to produce income in a pinch. And many people love the personal interaction, the flexible hours, and the minimal responsibility. Just make sure that having to pursue that kind of work would be an overall plus for you. If it’s necessary, but not enjoyable, why retire in the first place?

Could you reduce your discretionary spending by 50% for 3 years if necessary? (+1)

As I note in my book, to outlast a run-of-the-mill bear market, you need to improve your cash flow for about three years. Whether you are employable or not, cutting discretionary expenses is a route available to every retiree. Just ask yourself two questions: How much could I save by cutting? And, would it reduce my happiness so much that I’d rather be working instead? Cutting out international travel or new vehicles might not be much of a hardship. But foregoing visits to the kids or grandkids, skipping entertainment, or never dining out would be depressing for many.

Could you downsize to reduce your housing expenses by 25% or more permanently? (+1)

Another lever that many retirees can throw to cut their cost of living is to downsize their home. Do you really need the same size and location that you required in your working years, or while raising kids? In our case, we went from owning a 4BR single family home with yard in an upscale neighborhood in an Eastern city, to renting a 2BR duplex on a small, low-maintenance plot in an urban setting in a Southwestern town. Not only did downsizing save us some money, but it eliminated house maintenance as a wildcard financial variable. Further, the “lock it and leave it” lifestyle is a much better fit for our retirement years!

Is there at least a 50% chance that you’ll receive an inheritance that materially improves your net worth? (+1)

I wouldn’t generally count on an inheritance to fund my baseline retirement expenses. After all, it’s somebody else’s money, and you need them to die on schedule to fulfill your plans. Both unsavory factors. That said, if you have a good relationship with your parents, if they are well off, and if you have a handle on their health prospects, it would seem foolish to ignore a potential inheritance down the road. Rather than plugging a specific number into my calculations, I preferred to offset the uncertainty of an inheritance against the uncertainty in needing long-term care. Make your own best guess. These kinds of trade-offs are a personal matter.

Could you qualify for a reverse mortgage, and would it make sense for you? (+1)

With new research and new regulations, reverse mortgages have become more respectable. If you have substantial equity in your home, a reverse mortgage could improve your retirement income. But it’s wise to do some serious thinking and research in advance of any need. Are you old enough to qualify for a reverse mortgage? Will you be able to stay in your home long enough — while continuing to pay for taxes, insurance, and maintenance — for a reverse mortgage to make sense?

Could you purchase an annuity that would materially improve your lifetime income? (+1)

If you have significant retirement savings, an annuity can improve your apparent withdrawal rate. The fundamental tradeoff is leaving less wealth behind as a legacy. And there are other factors. Are annuity rates favorable when you need one? Do you have the liquid assets to buy one if required? Exactly how much extra income could you generate? And how would an annuity integrate with your Social Security and investment portfolio?

Is your retirement likely to be a traditional length (due to your age and/or health) of 30 years or less? (+1)

Most research tends to show a convergence in withdrawal rates in the 3-5% range, even for longer retirements. But the fact remains that, intuitively and mathematically, there is greater risk of running out of assets, the longer you must go without guaranteed income. A 10- or 20- retirement is a slam dunk for most people, often supporting withdrawal rates in excess of 5%. A 40- or even 50- year retirement, statistically likely for early retirees, is another matter. For those time spans, you’d better monitor your portfolio carefully, consider a withdrawal strategy that preserves principal, and possibly supplement with some part-time work income.

Are stocks reasonably valued on your retirement date: Is the Schiller PE Ratio (CAPE) near to or lower than its long-term average? (+1)

There are researchers out there who will tell you, based on current market valuations, exactly what your safe withdrawal rate (SWR) should be. I’m not so sure that we can predict the future accurately based on the past. Pundits have been calling for a market downturn for essentially my entire retirement since 2011, and yet my portfolio has kept going up. Still, conservative, defensive investing is part of my DNA. And this factor is a nod to the notion that if stocks are priced high now, you may not be able to count on your portfolio as much in the future.

Does your bucket list — professional or recreational — outweigh the security of staying in your old career? (+1)

In my view, this is an absolutely critical component of the retirement decision. Call it the “mirror” factor: When you look in the mirror in the morning, are you happy with your life? Most people worry about outliving their money. That’s a valid concern. But it’s not the only one. In the final years of my career, I worried as much about underliving my life. I didn’t want to die or lose my mobility before I’d done a lot more traveling and outdoor adventuring. Those activities, and the associated personal relationships, were what made my life worth living. And I was at risk of running out of time if I kept slaving away at my career into my 60’s.

The Scale: Your Safe Withdrawal Rate

If you followed the steps above, you should now have your own personal Retirement Flexibility Score somewhere in the range of 0 to 12. We’ll now map that score into the 3-5% withdrawal rate range like this:

Retirement Flexibility Score Safe Withdrawal Rate
0 – 4 3%
5 – 8 4%
9 – 12 5%

Using the above table is simple: Scan down the left side for your score, and read the suggested safe withdrawal rate in the right column.

The essential insight here is that the more qualitative financial and lifestyle factors in your favor, the more aggressive a potential withdrawal rate you can live on in retirement. On the other hand, the less flexibility in your life, the more conservative your withdrawal rate ought to be.

And it’s all predicated on the common sense idea that if your retirement isn’t going well down the road using the withdrawal rate you chose at the start, you would employ these factors to reduce your withdrawal rate.


Have I calibrated or weighted my factors against each other? Have I back-tested my results? Have I performed randomized trials on real retirees? No, no, and no.

This scoring system is an informal tool, a thought experiment. Don’t read too much into it. It represents only my rough experience, based on years of reading, thinking, and writing about retirement modeling, early retirement, and retirement income, and nothing more.

This is by no means a precise scientific method, proven to work in the past or guaranteed to work in the future!

Use it, if you do, as only one of many tools for guiding your retirement decision….


How much money do you need to retire? As I discuss in my book, there are a range of answers to that question.

In my opinion, if you can live on about 3% or less of your starting assets annually, you have enough already. On the other hand, if you’d need more than about 5% of your assets, you don’t have enough for a realistic shot at financial independence — you need to work longer, or live on less.

But what about in-between those two numbers, where many of us will find ourselves making the retirement decision? What if you have more than enough to live on a 5% withdrawal but not enough to make it on a 3% withdrawal?

The question for you then is not how much money, but how much risk are you willing to take on? Your retirement might work out OK. Or it might go off the rails and you’d have to make adjustments. It depends on your flexibility and your resources.

My Retirement Flexibility Scale can help you answer that question.

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Note: In keeping with our new policy on the blog, the comments section below is now open. We welcome civil discussion. I won’t be able to reply personally to most comments, but Chris will be moderating.

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  1. Darrow, thank you for this. I think it’s a very useful way to think about the complexities of early retirement. There are so many moving parts: health care, market fundamentals shifting, global upheaval. This gives you a framework for seeing both the plusses and minuses of your unique situation. I know I struggle with making the decision for our family to completely disengage from our careers. This is very helpful.

  2. This is a great way for me to understand our risk tolerance and why we are aiming for 2.5% SWR when we pull the trigger this summer. . If that creeps up for any reason to 3%, it is still OK. With two sizeable SS checks to come (well as much as we know today about our future benefits… ) and taking a 10-20% haircut on those, we should be good.

    It is good to see a healthy reality check on the “RA RA RA!!” of the 4% rule of thumb

    BTW, long time reader and great to see the comments feature turned back on. Awesome!

  3. Eric Johnson says

    Good article. I would reiterate that the excellent thought exercise described above is only possible if one thoroughly understands one’s existing assets, realistic income options and, most importantly, the factors that go into one’s cost estimates.

    • Chris Mamula says

      Excellent points Eric. There is no shortcut to thorough planning. This system provides an additional way to assess and try to quantify how secure your retirement plan is, just like you would hopefully use outputs of a retirement calculator, or preferably calculators, to get a sense of where you are.

  4. Thank you Darrow. Your list consists of items I’ve mulled over previously and I come up with 9 points conservatively. I’ve tracked spending and we currently spend at 3.4%. This however is after tax spending. When using your withdrawal rate, how do you account for taxes or do you? Should I calculate using the pretax value needed for spending?

    • I assumed percentages cited would be total spend including taxes. Percentage withdrawal “rules” assumes pre-tax cash taken (based on my readings), hence your portfolio withdrawal amount should include the amount needed for taxes.

  5. Darrow I have been reading you for a few years now,and I really enjoy the information that you put forth in your writing. I even bought your first book and downloaded your pro app I keep working with it but still get some strange numbers in the AGI collom for my third and fourth year of retirement.even still it.leaves me with a large sum left after 40 years.But what is my biggest fear is the unknown of healthcare costs. I know that in the current climate things just keep changing. But how would I try to calculate the cost for my wife and I if we left work at 59.Knowing that we have to cover it till 65. Ivan control my income to be whatever I want it to be,from withdrawal of cash or retirement assets. But still not sure how high the cost will be. Any ideas on a safe estimate?

    • Chris Mamula says


      Thanks for reading and taking the time to write.

      Re: retirement calculators. Try to contact them directly through the support function on the calculator with specific questions. It may be a simple error in entering data, and if it is truly a problem they will want to correct it. Either way that should help you get the best experience and they try to address questions quickly.

      Re: health care costs. Being able to control your income should help a lot to control premiums and out of pocket expenses by maximizing subsidies as things currently stand. However, the ACA is under continued assault so there is no guarantee that will be true in 5 years. See response below to Iksy for further thoughts.

  6. Darrow-

    Great post! I very much like such tools. I ended up right in the middle of the scale…6, which provides us a bit of flexibility. One thing I don’t see addressed is the potential that we (the retirees) are subject to a significant, unplanned financial burden from loved ones (long term care for parents, non-funded schooling for children, a chronic debilitating disease for one of the retirees, etc.). Seems like with one of these conditions, we should ‘subtract’ a point from our score.

    Keep up the good work!

  7. It seems the location of retirement assets is of critical importance but rarely addressed. A dollar in a 401k tax deferred account is worth less than a dollar in an after tax account due to the tax differential which can range from 0 to 40 plus percent depending on cost basis, total amount of income , federal taxes, state taxes, investment taxes and city taxes.

  8. Awesome post as always Darrow. Very thorough rundown of things to consider and I love the flexibility score system. I’m really hoping to get my side-hustle income (or lifestyle business as you call it) up to a level of 1k a month. I have a pretty solid pension in my future, so with additional side hustle income and *possible social security one day I know I’d have lots of security built in.

    • Chris Mamula says

      Flexibility is key. The more room you have to maneuver on the spending and/or income side of the equation, the more secure your retirement.

  9. Love your final bucket list factor. So few people in the pf space address this, and it is crucial to the entire analysis. My parents were “greatest generation “ deferred gratification black belts. My dad had a psychotic break at 67 from which he never recovered. So, all their golden years dreams went up in smoke. Do the things that are important to you, whatever they may be, while you have your health.

  10. Thank you for an article that made me think more. Flexibility, the ‘bucket list’ concept, and the changeable nature of our lives sure make it tough to know when to retire. That said, with some serious thinking & cyphering your numbers, you’ll find you’ll know when to pull the trigger. Maybe a little scary, but with the ideas of your article considered… it will be all good. Jackie (and Mark) do bring up another one of those unknowns in our life situations which indeed needs some thought and a reduction to your score. Of course you could also live a relatively long life with good health as my 94 year old father has & his older sister who is 97 and is still at home with her family. Glad I ‘stretched’ my horizon to 100 years!

    • Chris Mamula says

      David, Jackie, and Mark,

      I think that you all hit on a key point that makes retirement planning so difficult. Many people worry about not having enough money, but there also is a possibility of saving too much in the constant search for security. What this scale demonstrates in my mind is that the ultimate security comes from flexibility.

  11. JC Webber III says

    Wow. So many thoughts about this post. Let me dig right in. I scored a ‘3’ on your ‘test’. I should have been drawing 3% all these years, according to our ‘test results’. We have a 10 year history of drawing on our retirement funds. We have averaged a 7% WR over those 10 years. Our gains have out paced our spending over those years (including 07-09) such that our rate of spending has decreased over the years. But, I know, 7% is unsustainable. However, just this past Oct we began collecting SS. With SS now covering over half of our living expenses, our WR rate is slated to come down to 2.8% from now on. We can live with that. 8^)

    • Chris Mamula says


      Thanks for reading and commenting.

      One quick point for other readers is that your early retirement occurred at a perfect time with regards to sequence of returns risk. If we could all know with certainty that we would retire into a decade long bull market, retirement planning would be pretty easy. This allowed you to take a higher than normally recommended draw from your portfolio and come out the other side just fine. This does not mean that others should do the same, unless they have a great deal of flexibility to cut back their spending or the ability to start earning more money as addressed in the scale.

  12. I think you nailed the critical issue – outliving my money or under-living my life.
    I come down on the “living life while I can” side. I’ve accepted the idea of a likely modest income and reduced circumstances to some degree if I live long enough. While I won’t be eating cat food, I won’t be buying a new Mercedes in my 80’s either. But by then I will have savored the enjoyment of travel and experiences while I can still get around and have the wits to know what’s going on. No time like now, and no regrets.

  13. Oh, the balance of these factors! If only Magic 8 Balls worked! I feel the call of early retirement very strongly and yet my common sense tells me to wait at least a bit. I am working hard to reduce my expenses, have a small passive income stream in place, and be conscious of potential health insurance costs (to say nothing of actual spending) for the pre-Medicare early retirement hopeful. If a program to buy in to Medicare coverage early were available I think I’d be joining Darrow!

    • Chris Mamula says


      You are certainly not alone. There are many people that I talk to and that write in with concerns about high market valuations, low interest rates, and massive uncertainty in health care costs. Next week I’ll look at what to do if you can’t retire yet (or aren’t sure) and we’ll build on these ideas.

      Thanks for reading and taking the time to comment.

  14. Darrow, well done! Not that I’m anyone with the credentials to judge your work, but that is really good stuff. I was oblivious to the idea of retiring early so I worked way past FI and then when I did finally figure out I could retire early I had way too much. But most of this community, all of it, are smarter than me so this kind of analysis is vital in helping them weigh a future of intangibles against what their heart steers them toward. I’ve seen posts from others that deal with one or two of those factors but not one like this that hits all of the things that impact how much you might really need.

  15. Like JC Webber, we are in the position of withdrawing a higher percentage in these years since my husband retired at 64 until he turns 70 and we start collecting his Social Security and my half of his, which is greater than my own. Until then we have two small pensions coming in and will have my SS when I turn 66 (and my husband is still able, even after the SS laws changed, to file a restricted application and collect half of mine at that point). My husband is now on Medicare, thank goodness, and I am on an ACA plan. Since our income this year is so low, the ACA plan is completely subsidized but the deductible is around $6000. We just hope I don’t get seriously ill until I am able to get on Medicare–or after that!
    I have not seen many retirement articles that address this situation. They all assume the withdrawal rates will be fairly stable throughout retirement. That leaves us guessing as to what a safe withdrawal rate is in these years between my husband’s retirement and when he turns 70. We are being fairly conservative and we have saved up what I think will be an adequate amount for our entire retirement, but it would be informative if we could read about how others are handling things if they are in this boat.
    Thanks for an informative article. We ended up with a score of 6–right in the 4% range for now.

    • Chris Mamula says


      I shared the landscape as it was in the fall and our strategies here:

      This is an area that is in constant flux which makes planning incredibly difficult. Just in the past two months the new tax law has eliminated the mandate to have insurance which may make non-ACA compliant high-deductible, ie “catastrophic”, health insurance plans an option once again. However, there is also analysis that this will further destabilize the health care market, so we’ll have to wait and see. I will certainly be writing much more about this as it is on nearly every pre-Medicare eligible retirees mind.

  16. Thank you for providing a great framework to think about SWRs. Not only did I enjoy reading this, but it made me think of and re-read an oldie but goodie from Kitces about personalizing your withdrawal rate to one’s own particular circumstances using a “layer cake”
    analogy (

  17. Thanks for this. I appreciated the factors to take into consideration. It looks like I should be ok according to this article. I have a question about the following statements:

    That 3-5% range is the difference between having to save $800,000 (if you use the more aggressive 5% withdrawal rate) versus having to save more than $1.3 million (if you use the more conservative 3% withdrawal rate).

    Shouldn’t that be the other way around?

    And this one too?

    What if you have more than enough to live on a 5% withdrawal but not enough to make it on a 3% withdrawal?

    • Chris Mamula says

      If you were to withdrawal the more aggressive 5% of your portfolio, your portfolio would then by definition be 20X your spending. So for $40,000 spending X 20 = $800,000 portfolio necessary. It is “more aggressive” to spend a greater percentage of a smaller portfolio. Another way to look at it is to say it increases risk of running out of money to spend a larger percentage of the portfolio.

      For a less aggressive 3% withdrawal rate, you would need to save substantially more, 33X your spending. $40,000 X 33 = $1,320,000. Your would need to more aggressive in your saving (or take a longer period of time to accumulate the larger portfolio), but the withdrawal rate would be less aggressive or less likely to run out of money.

      Make sense?

  18. Given the financial state of social security, I think it’s prudent to apply a discount rate to our future expected social security payments. In my calculations, I’m currently assuming that starting in 2034 (the year the “trust fund” is projected to be depleted), I will only get 80% of what the government says I should get. Anyone have thoughts on this?

  19. The idea of a single withdrawal rate seems inadequate.

    Let’s assume a post-career start (retirement from full-time work) at age 60 and paying for health insurance out of pocket. As just 2 examples of major changes, health insurance cost goes down substantially at 65 and Social Security (assuming age 70) substantially increases income. I have used many of the tools recommended on this site, including ESPlanner and Can I Retire Yet – Pro. ESPlanner has a unique approach of smoothing consumption which yields relatively dramatic changes in retirement savings withdrawals in specific years. According to CIRY-P, even starting withdrawals of 8% at age 60, we still wind up with greater taxable income in our 80s due to RMDs (most of my savings are in tax deferred accounts). While I hope to still be quite active then, I want to be more active, traveling, and spending in my 60s!

    Shouldn’t a discussion about withdrawal rates be broken down into different post-career life phases to be meaningful?

    • Chris Mamula says


      This is something that I agree with and think about a lot. It is just difficult to write about in a way that scales and is relevant to a wide variety of scenarios because everyone’s situation is so unique.

    • Thank you Darrow (and Chris) for teaching me so much over the past year. Early retirement planning has provided an enthusiastic outlet for both my love of learning and financials.

      Like Brian, the majority of our retirement income will be from 401(k) accounts. I will start withdrawing from them as soon as I qualify post retirement @ 59 (hopefully!) to avoid the cumulative peak of RMDs and Social Security which both commence at 70 years old. My current strategy is to put any withdrawn excess funds into my life insurance cash value which can then grow and be withdrawn tax free at anytime. Will manage the US healthcare gap by taking residential status back in Australia for 6 months of each year. I have met a few Americans living in Mexico who were utilizing a similar strategy to take advantage of high quality, but affordable, medical and dental options to avoid the uncontrolled exposure to US Healthcare costs.

  20. Hi Darrow

    Thanks for the very enlightening article. It seems that everybody talks about saving till a lump sum, say X. Then in retirement, spend 3-6%, withdrawal rate till X is finished. We can invest in a safe instrument or machine that generate a return or dividend, say 5% and spend on the return or dividends without encroaching on the principal. This way, the money is generated in perpetuity and the principal can even be inheritance. Say if one has a million, the 5% returns is $50,000. Spend only the $50,000 annually or whatever is generated. When situation changes, adapt to the changes. Human has great ingenuity to adapt to changes.

    • Chris Mamula says


      This is great in theory. In practice there are major challenges to this approach (at least with a traditional allocation of stocks and bonds). Current yields on 10 year treasuries are about 2.8% and stocks are yielding less than 2%. Therefore, you would need to save about twice the 20X needed assuming a 5% withdrawal rate with a total return approach as alluded to in Darrow’s system. And even that does not account for inflation.

      The approach you describe is more compatible with a portfolio of fully paid off real estate if you can generate the income to support your living needs and assume that rents will grow to meet or exceed inflation. However, this is an apples to oranges comparison as building a real estate portfolio is a lot more work as is managing the portfolio as compared to a relatively simple portfolio of index funds.

  21. I like the Aristocrat MethodTM myself: never touch the principal, live off dividends and interest. Combined with cutting expenses and working part-time it offers close to bulletproof retirement planning 🙂

    • Chris Mamula says

      Agree, but as explained in comment above, it is easier said than done unless you 1.) save much more money using paper investments, 2.) use an approach like real estate investing that is not the same as a passive investing approach, or 3.) are willing to do some work in retirement (as you suggest).

      That is not a criticism of your comment, as this is exactly the approach my wife and I are taking by doing some work and considering diversifying into real estate. We also like bulletproof and sleeping well at night.

      • I think it’s a good option if you are feeling your way. We don’t really have a master plan, so we just focus on increasing our saving/investing and simplifying our life. At some point we’ll hit the Your Money or Your Life crossover point, but it’s not something we’re laser focused on 🙂

  22. Over the years, I accumulated five fully paid homes and am now three years into full retirement. I’m still living off my savings. The passive incomes from the rents of the five homes( including overseas)are not touched yet but continue to accumulate in the banks. My current monthly expense is less than half of my total rent collected. That is why I advocate living off less than two-third your passive income as buffer for any contingency.

    I have lived a frugal lifestyle,still am and definitely not into gratifications. I care not what my neighbours had, a pair of shoes is shoes, whether it is Nike or some no-brand ‘Made In China or Vietnam!’ I will wear my clothings till they were tethered and torn. I do not even know I became a millionaire some years back but work, save and invest till my properties rental income far exceeded my salary.

    For inflation, somehow the rents have exceeded inflation in more than two decades of renting out my properties without even factoring their capital appreciation. I believe most other investment assets will also ride on inflation.

  23. Thanks, Darrow. As you stated, there are many factors beyond a safe withdrawal rate. In retirement, do you want to work part-time, open a small business, or downsize your living quarters? All of those options can add to not outliving your retirement savings. I am planning on starting with a 2% withdrawal rate in my early 50’s. There is plenty of data that supports a 4% withdrawal rate, but there are not any guarantees. When I call it a career, going back to work will not be an option.