Early Retirement Withdrawal Strategy

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Retirement planning consists of 2 broad phases – accumulation and withdrawal. Early retirement is difficult to achieve because there is less time to build wealth and more years to spend. The timing makes a huge difference. For most people, the accumulation phase is the difficult part. Most U.S. households spend too much and don’t save enough. Fortunately, I was naturally frugal and diligently saved when I was young. My frugal habit and good income enabled me to retire early from my engineering career.

The last 11 years have been great. Mrs. RB40 still works so we haven’t withdrawn from our retirement fund. I also made some income from blogging and various side hustles. We continued to invest and grow our net worth. It’s all going according to plan.

However, I’m getting older and a lot of stuff happened recently. My mom passed away earlier this year and it woke me up. She was just 75. Her health declined rapidly after she was diagnosed with dementia 5 years ago. My dad is doing well but has a few health issues too. Now, I think we should enjoy life while we’re young. I’m 50 this year. Mrs. RB40 and I want to enjoy the next 20 years as much as possible. After 70, our health will decline and we probably will relax more. That’s why I’m updating our withdrawal strategy a bit. We want to spend more to enjoy life while we’re healthy.

Today, I’ll share our updated withdrawal strategy.

Traditional Withdrawal Strategy

To clarify the concept, here is a graph of regular folk’s retirement savings. Workers can save 15% and retire when they are 65. In the ideal case, their net worth and retirement savings should look something like this.


Retirement is the natural inflection point because the earned income will disappear and retirees will fund their lifestyle with savings and other sources (pension and Social Security benefits.)

Early Retirement Withdrawal

Early retirement is more difficult because the accumulation phase is shorter and the withdrawal phase is longer. Your retirement savings will be smaller if you retire early.


To retire early, you’d need to save much more than 15% of your income. I recommend increasing your saving rate to 50% as soon as possible. Saving and investing more will directly translate into how early you can retire. In this graph, we see the ideal case for an early retiree who stops working at 55. The real world is more complicated than this so you’d need to make your own graph. You can use the 4% rule as a guideline. Once your net worth exceeds 25x your annual expense, then you can consider early retirement. Most people probably want some padding, though.

Joe’s Withdrawal Strategy

What if you can’t wait until 55? Here is an alternative path that I’m taking. I added another phase to the retirement planning model. I need to be more flexible because my time in retirement will be so long.


Basically, I split retirement into early retirement (semi) and full retirement. I retired from my engineering career when I was 38 and this is early retirement for me. However, I still make some income from blogging and various side hustles. Now, there are 3 phases instead of 2.

  1. Accumulation phase – Work and save for retirement.
  2. Holdfast phase – Retire from full-time employment, but avoid withdrawal from retirement accounts. Stay frugal and live on side hustles and passive income.
  3. Withdrawal phase – Withdraw from retirement accounts.

Currently, we are 11 years into the Holdfast phase. I’m semi-retired, but Mrs. RB40 is working full-time. Our household income still exceeds our expenses and we continue to save more than 50% of our income. Once Mrs. RB40 retires, we will transition to the withdrawal phase.

Surprising result

In reality, our net worth continued to grow after I quit working full-time. Mrs. RB40 did very well in her career and increased her income tremendously over the last 11 years. The stock market also performed incredibly well. Here is a chart of the RB40 household net worth for illustration.

Mrs. RB40 took a long sabbatical in 2022 to figure out if she wanted to retire early. It was a lot of fun, but she decided to keep working for a few more years. Our modest lifestyle and increasing household income enabled us to stretch out our Accumulation Phase.

Updated withdrawal strategy

Here is the updated withdrawal strategy.


  • 22 to 38 years old – Joe did the heavy lifting in this first part of the accumulation phase.
  • 38 to 50 years old – Mrs. RB40 took over heavy lifting and our net worth continued to grow. Joe earned enough to keep adding to his retirement accounts.


  • 50 to 55 years old – We want to enjoy life while we’re healthy. Joe will stop saving for retirement. Mrs. RB40 keeps contributing to her 401k while she works.


  • 55 to 60 years old – Mrs. RB40 plans to retire when our son goes off to college. I might blog a bit, but I plan to stop other side hustles. Our active income will drop to almost zero. At this point, we can use the rule of 55 to withdraw from our 401k. The 401k and taxable account should be plenty to fund 5 years of active retirement.
  • 60 to 65 years old – We can withdraw from our traditional and Roth IRAs.
  • 65 to 70 years old – Social Security benefits will be available here.  
  • 70 to 80 years old – We’ll settle down to enjoy a relaxing lifestyle. Hopefully, we’ll be healthy enough to be a little active.
  • 80+ years old – I’m not optimistic. All our older relatives are not very healthy. We’ll probably spend a lot of money on healthcare.

Lifestyle inflation

I’m 50 this year and we want to spend more money over the next 5 years. Mrs. RB40 said she’s tired of being frugal. The scary thing about lifestyle inflation is we probably will get used to it. If we spend more in our 50s, we might not be able to cut back later.

Over the next few years, we plan to travel more and update our home a bit. Our kitchen is straight from the 70s. It has a laminate countertop and a funky DIY hood. We want to remodel so it’ll be easier to sell later. The upstairs unit also needs a new kitchen and new carpet. Home remodeling is painfully expensive these days.

Once RB40Jr goes off to college, we plan to move closer to Mrs. RB40’s parents. Hopefully, we can find a low-maintenance home. At that point, our home maintenance expenses should come down. We’ll have to keep an eye on it.

Alright, that’s it for today. It’ll be interesting to see what happens to our net worth over the next 5 years. Hopefully, it’ll keep growing a little bit even with less savings.

Image credit: Nick Pampoukidis

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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