What is FI/RE?

FI/RE is Financial Independence / Retiring Early. We already talked about Financial Independence (FI), now let’s talk about Retiring Early.

flame, fire, inferno

A common secondary goal of FI for some people is to have those savings invested and generating income to eventually Retire Early (RE, put together makes FI/RE). How big of an investment portfolio do you need to retire? What is now known as the Trinity Study, analyzed the historic US Stock and Bonds Market. It indicated that (in short) if you have a withdrawal rate of 4% of your investments annually, you would have had a 96% chance to not run out of money during a 30 year period. For easy math, this means you would be required to save 25x the amount that you would want to spend each year. There are different versions of FI/RE depending on the amount of income you require to retire Lean FI/RE is retiring early on a low income and focuses on frugality. Fat FI/RE is the opposite, and focuses on working extra years to have an income that can afford more luxuries. Barista FI/RE is another version that focuses on retiring early from your main job, but still working a more enjoyable  or part time job for less money afterwards. It is much better working because you want to, not because you have to!


The Trinity Study is a paper written in 1998 that attempted to determine a “safe withdrawal rate” for stock containing retirement portfolios. Success was based on whether or not the portfolio lasted for the desired period, and the retiree did not end up bankrupt. Failure, according to the study, is if the portfolio is exhausted before the end of the desired period. The desired period was 30 years, with annual rolling starts, covering from 1925-1995. The study concluded that a 4% withdrawal rate or lower would very likely end with a portfolio success. This resulted in the “4% withdrawal rate rule of thumb”. The 4% is calculated by the balance of the portfolio in the first year, and is not recalculated annually. However, the withdrawal size increases/decreases with inflation/deflation. An updated analysis on historic US Stock & Bonds indexes similar to the Trinity Study came to a similar result. This analysis covered from 1925-2017. A chart for the results is pictured on the right. To simplify it, the 4% withdrawal rule is still applicable for most mixes of stocks/bonds. Critics of the Trinity Study point out two faults. One, the inability to predict the future of the stock market based on past results and that basing a retirement plan on a volatile investment strategy is risky. Two, in a plan like this, any major unexpected expenses (that result in higher than planned spending) can drastically influence the portfolio’s results. Especially if this emergency occurs in the earlier years. Gordon Pye suggests a “Retrenchment Rule”. This means calculating a new (lower) withdrawal rate when the risk of failure (exhausting your portfolio) becomes too high with the current withdrawal rate compared to the current size of your portfolio. 


The Safe Withdrawal Rate (SWR) got its name from the Trinity Study because the results of the study indicated that if you withdraw 4% of your portfolio annually, you would have a 96% chance (or higher) to still have money leftover after 30 years. This makes a withdrawal rate of 4% or less “safe”. You can use the safe withdrawal rate to predict how much money you will require to Retire Early. To calculate the size of investment portfolio required to retire at a specific safe withdrawal rate, use the following formula:

100/SWR = Y

Y x Annual Income = Required investments.

Example: If you wanted to be safe, and chose a SWR of 3%, but you needed $50,000 in Annual Income to spend, the formula would look like this:

100/3 = 33.33

33.33 x $50,000 = $1.67 Million dollars. The size of required investment portfolio to retire and make an annual income of $50,000 with a SWR of 3% is $1.67 million dollars.

The Safe withdrawal rate you choose depends on a few things. How much risk do you want to take? How flexible are your annual withdrawals? Would you be willing/can you return to work if there is a bad year in the stock market?

A 5% SWR left between 22%-78% of people with no money after 30 years depending on stock/bond allocation. If you decided to do a 5% SWR, there is more than a 22% chance you won’t last the 30 years, if that’s a risk you are OK with taking, it can shave a lot of time off your journey to retiring early.

For example: Using the $50,000 annual income again, let’s see the difference in portfolio sizes required for a SWR of 3%, 4%, and 5%. 

    3% = $1.67 million 

    4% = $1.25 million

    5% = $1.00 million.

The flexibility you have on the annual income you are taking is also a determinant on what you should choose for a SWR. If you are choosing a small annual income, you have much less to cut if the stock market drops. If your monthly living expenses are high, you also have less room to cut.

 For example:  Someone doing their calculations with a $30,000 annual income should use a safer withdrawal rate than someone using $100,000. This is because the person with $100,000 could more easily cut their annual income in years where the market is bad. EXCEPT in the case they have high monthly expenses like a mortgage that isn’t paid off. 

       Example 2: two people using $100,000 for their calculations. Person 1 has $750 a month in REQUIRED living expenses such as food. Person 2 has $2500 a month in REQUIRED living expenses because they rent instead of owning a house. Person 2 should use a safer withdrawal rate when they do their calculations.

If you are ok with going back to work for a bit during bad market times, you also can afford to use a little higher SWR. Working intermittently throughout the year can also be used to buffer your annual income if you want luxuries or something, but don’t require the income.

Example: If you want an annual income of $50,000 but plan on doing some side projects throughout each year that totals an annual income of about $10,000, you would do your calculations using $40,000 instead. 

100/4 = 25

25 x $50,000 = $1.25 million

25 x $40,000 = $1.00 million

This can also shave quite a bit of time of your journey if you still want to work a little bit during retirement.



Portfolio Success Rates for inflation adjusted withdrawals. 1926-2017