Due to market fluctuations, you may hit your number one day, drop back below your number, and not come back up to your number for days, weeks or months.
At what point do you feel comfortable saying, "Yay, I/We made it!"?
We're humans, and our emotions make us overthink everything. The math & logic of financial independence has been rigorously tested over the last 25 years, but behavioral finance has proven that math & logic can be derailed with every recession.
When you reach assets of 25x annual spending, you're at the tripwire of the 4% Safe Withdrawal Rate. It's still valid if you dip down to 24.99x or even 24x.
You're at financial independence, and staying longer in the workplace is just padding the numbers. It's time to plan your transition, and you can execute it immediately.
People worry about the worst-case failures of the 4% SWR, but that's easily countered with longevity insurance. For most Americans who qualify, Social Security is all the annuity they'll ever need. SS is not counted as part of the 4% SWR computer simulations.
You'll see a potential failure of the 4% SWR coming from years away. You're not going to rigidly spend down your assets like a 4% SWR robot. You'll clamp down on your spending and use other variable-spending techniques to avoid failure long before it becomes a threat.
You might even earn an additional dollar or two during your FI. If you're approaching a failure situation then you only need $10K/year for a year or two in order to avoid it. Full-time jobs might be difficult to find during a recession, but part-time work is everywhere because most people pass it up to continue searching for full-time work.
The math is straightforward, when you've hit your number, even if it is at an all time market high, that's what your safe withdrawal rate is supposed to handle. But I think most people end up feeling worried about exactly that. I'd certainly feel better if I hit my number in the middle of a market crash.
Thanks, Retch, I was beginning to wonder whether people had forgotten how this works.
Dealing with this right now at 48 y/o. According to firecalc, I'm there, at a 94% to 97% success rate. Market keeps going up and down, then up again, which affects the pot of resources needed to provide 2/3 of my expected spending level. The other 1/3 comes from the military retirement.
Plan is to keep working while 2 things happen: refi the mortgage to lower the expected expenses, and build up a cash reserve to mitigate the need to sell equities in a down market. (I'm thinking that 2 years of cash, backed up with a HELOC, ought to be enough)
Two years of cash in CDs worked fine for us during the first 10 years of sequence-of-returns risk.
https://the-military-guide.com/how-should-i-invest-during-retirement/
