Ask Big Ern: A Safe Withdrawal Rate Case Study for “Ms. Almost FI”

Welcome to a new installment of our “Ask Big Ern” series with case studies on safe withdrawal calculations. This is already the seventh part, see here for the other parts of the series! Today’s volunteer is Ms. Almost FI and that’s not her real name, of course. She’s planning to retire early in 2019 and this causes a lot of anxiety: Does she have enough money? When should she take her pensions? What about long-term care insurance? All very valid questions, all impossible to answer without a careful customized analysis!

Ms. Almost FI’s situation:

I think I am close to FI and planning to quit my job in 2019, but I am anxious and having sleepless nights about that big decision and worried about sequence of returns after I quit my job. I highly respect your opinion and would value your advice and input on my financial situation. I would so appreciate it if you would pick me as a case study!

I am a single (divorced) 47-year-old woman, and I am in a committed long-term relationship with another divorcee who is 58 years old. Neither of us have children. We are not married due to financial and tax reasons, but we may get married someday down the road when the time is right. We file our taxes separately as single filing status. My boyfriend plans to work until 67.

Oh, no, I hope you get over your sleepless nights! Let’s look at the financial details:

My Financial Data (Total $1,403,900):

  • Cash = $239,200
  • Taxable Investment (mostly in equity) = $439,000
  • Traditional IRA (rolled over from former 401k accts) = $242,400
  • Roth IRA = $101,000
  • Inherited IRA = $5,500
  • 401(k) from former employers (have not rolled over to IRA) = $257,000
  • 403(b) = $119,800
  • House (in my name only, not counted in financnial net worth): current FMV $520,000, mortgage $120,000 at 3.25% (I plan to pay this off in 10 years)

That looks like a pretty impressive nest egg! How about pensions and Social Security income?

Retirement income:

  • Pension 1: $486/mo (at age 65), or $530/mo (at age 67), or $600/mo (at age 70).
  • Pension 2: current employer = $467/mo (at age 65), or $350/mo (at age 62), or $295/mo (at age 60), or $194/mo (at age 55)
  • Projected Social Security (if I stop working in May-2019) = $1,647/mo at age 65

Nice! That’s a very nice supplemental income and will make a huge difference in the safe withdrawal rate calculations. We will get into the pros and cons of taking the pensions at different ages!

How about expenses?

Projected annual expenses after I “retire” in 2019 ($48,000 plus inflation from years 2020 to 2027; $33,600 plus inflation thereafter):

  • I’m expecting the annual expenses to remain fairly constant until Oct-2027 when the mortgage will be paid off.
  • After I quit my job, I plan to do the yard myself (saving $720/year).
  • Auto related expenses would reduce by $2,000 due to downsizing to 2 cars and no more long work commutes.  But medical/dental insurance will be higher by $??.
  • I plan on getting a dog which will cost ~ $1,200/year.  So overall expenses may actually be slightly higher.
  • Once the mortgage is paid off, I expect annual expenses to drop to $33,600.
  • After boyfriend retires, our plan is to move to a more affordable state with no state income tax.  Hopefully, the move will further lower our annual expenses.

It sounds like your expenses will go down by $14,400 per year ($1,200 per month) when you paid off the mortgage. Sounds like a plan!


  1. Do you have any recommendations on whether I should take my pension and/or social security earlier than age 65?
  2. One of my main concerns is the possibility of long-term care expense.  My mom had Pick’s disease for 15 years.  My dad and I took care of her for the first 10 years and she had to be in a memory care facility for the last 5 years until she passed away.  The memory care facility was very expensive and it practically drained all of my parents’ retirement savings.  How do I prepare for this scenario?  Does it make sense to pay for expensive long-term care insurance?
  3. After I quit my job in 2019, I plan to do the Roth conversion ladder each year unless the rules change by then.  Does it make sense?
  4. I am worried about the sequence of returns.  Are there any preventative measures I can take?
  5. Until the house is paid off (in 10 yrs) and my boyfriend retires and starts getting social security and pension payments (in 9 yrs), I’ll be withdrawing money from my savings/investments to cover expenses.  Is this feasible and will I have enough money to last 45 years?  Do I need to work a couple more years past 2019?  If I need to do a part-time job after I “retire early”, then I’d rather just work a bit longer at my job since it pays better than any part-time job I can think of.
  6. I have quite a bit of cash savings and have been transferring a bit at a time this past year to my Vanguard VTSAX.  I know I should probably invest it lump sum, except for emergency fund, but I’m worried the market will tank right after I invest it.  Any suggestions for how to invest $140k cash?

All great questions. We will get into that soon!

Newsflash: You are already able to retire

Yeah, you heard that right! I started calculating the scenario of a January 2019 retirement but I realized that you are actually able to retire now. If you still like your job and want to go for another year, no problem. You also mentioned that you are planning to have some medical procedures before leaving the workforce. Maybe also prop up that 401k some more. But even under the relatively conservative assumptions, it looks as though you can retire now:

  • I assume your expenses after paying off the mortgage are $38,000 per year, a little bit higher than your $33,600, just to be sure.
  • I assume you and only you cover the expenses during retirement with no help from your boyfriend. You indicated that your boyfriend can chip in up to $14k per year, but he is older and has much less saved for his retirement. Let him save that for now to catch up on his own retirement savings but you can always ask him to contribute later if the stock market doesn’t cooperate.
  • I assume that you will require an additional (!) $8,000 per month (in today’s dollars) for long-term care starting at age 87 (in 40 years). That is an extremely pessimistic assumption. You will probably be able to get in-home care for much less. But you might also require care earlier than age 87, so use the level of service to adjust for that.
  • I assume that you stay in your current relatively high-cost-of-living area. Selling your house, buying a cheaper house in a lower-cost and lower-tax (or zero-tax) state will give you at least another $250,000 in investable cash.

Mortgage vs. Cash

I believe you have too much cash. With equities sitting at nosebleed-high valuations I can understand your anxiety of putting more money into the market now. But I’m sure you had the same uneasy feeling when the S&P500 crossed 2000 points, right?

To make the cash reduction easier, I would encourage you simply to pay down the $120,000 mortgage. You’ll save 3.25% times $120,000 =$3,900 per year in interest. I wrote a blog post on exactly this issue a while ago: The Ultimate Guide to Safe Withdrawal Rates – Part 21: Why we will not have a mortgage in early retirement. If you no longer enjoy the mortgage interest deduction and claim the standard deduction, and your cash returns are hovering at around 1-1.5%, you’re better off to just pay off the mortgage.

Long-term care insurance?

In the calculations here I can’t really do the pros and cons of LT-care insurance because I don’t have a personalized quote for you. My suspicion is that it’s best to not get this insurance. Fritz over at The Retirement Manifesto had a post on why he’s going to self-insure: This insurance is prohibitively expensive! Especially if you have to disclose that both of your parents required care.

Health insurance

One item I couldn’t adequately examine from this far away is health insurance. Even though you’re not married, you should be able to sign up for “spousal” health care through your boyfriend since you live in a committed long-term relationship and under the same roof. Another option would be Obamacare. Because you should be able to keep your adjusted gross income relatively low in the beginning (withdraw from cash holding, sell shares with highest cost basis from the taxable account), your “visible” income might be so low that you qualify for generous subsidies.

Pension and Social Security Timing

I looked at the numbers and concluded that it’s pretty much a no-brainer to take both pensions at age 65. Under a pretty wide range of parameters (different discount rates, different lifespans) claiming at 65 was always the best. That’s because the first pension rises way too slowly between ages 65 and 70 to justify forgoing 5 years of benefits. And the second pension has benefits that increase so rapidly between ages 55 and 65 that it’s actually worth to wait.

Case Study MsAlmostFI Table01
Discounted values as a function of different (nominal) discount rates, when taking the two pensions at different ages. Assuming life expectancy of 95.

For Social Security, let’s stick with the assumption of benefits at age 65 for now. You want to revisit this decision later and see how your health holds up. I believe it might be worthwhile to delay Social Security until age 70 to max out benefits in the later years when you might face those huge potential long-term care expenses! If you and your boyfriend decide to get married in the future there’s is also the joint Social Security timing issue to consider!

Safe Withdrawal Historical Simulations

The SWR calculations are in this Google Sheet (you will not be able to edit this, so please save your own copy). I assume a 53-year horizon to age 100 and plug in the supplemental cash flows as follows:

  • Social Security at age 65, though I apply a “haircut” of 10% to factor in potential future benefit cuts
  • Both pensions at age 65, but since they are nominal I have to discount them by an estimated 2% inflation p.a. and then further deflate them every year by that rate.
  • Long-term care expenses starting at age 87 (40 years after retirement) of $8,000 per month. In today’s dollars. And this is over and on top of your withdrawals!
  • A zero final value target.
Case Study MsAlmostFI Chart01
From the Google Sheet: 18 years into retirement you generate close to 0.2% of the initial Net Worth in monthly income from Social Security and Pensions. But this decays a little bit because the pensions are not adjusted for inflation. 40 years into retirement you have to cover a large additional cost in the form of LT care. This chart goes to month 720 but the simulations stop at month 636!

I played around with different equity/bond/cash shares and found that 80%/17%/3% equity/bonds/cash generated the best overall safe withdrawal rates. That’s a bit of a surprise because for someone in their mid-to-late forties with substantial pension and Social Security benefits I would have thought that a higher bond share would be ideal. But you also have that potentially huge future expense 40 years down the road that requires the high expected return from equities.

In any case, here are the results:

Case Study MsAlmostFI Table02
The main output from the Google Sheet. Probably target a 3.75% SWR!

With an elevated CAPE between 20 and 30, you’ll be OK with a 3.75% SWR. Some folks will note that today’s CAPE is actually above 30, but I counter and note that the CAPE will soon drop again when we roll out the bad earnings in 2008/9. So I consider even today’s CAPE of 31 to be more comparable with the elevated CAPEs in the 20-30 range and not so much with the crazy bubble CAPEs in the late 1990s.

In any case, with 3.75% and an initial portfolio of $1,283,900 you can draw over $48,000 per year. Even at the absolute failsafe SWR of 3.35%, you can still draw roughly $43,000 per year. More than enough to cover your expenses and a moderate tax bill.

Just as an aside: I also ran the SWR simulations without the $8,000/month long-term care expenses. You’d look at a 4.15% withdrawal rate to target a 5% failure rate or 3.84% overall failsafe rate. Self-insurance costs you around $6,000/year in lower withdrawals. But given how low your budget is that shouldn’t be a problem!

Cash Flow Simulations

As I always do in these case studies, I like to check if you run into problems with not having enough reserves in taxable accounts and/or overaccumulation in the 401k account that would trigger large required minimum distributions at age 70.

So here are the assumptions:

  • The mortgage is paid off, you transfer $27,200 of cash into the taxable account and you keep $100,000 in cash in the beginning.
  • I lump together the 401k, IRA and 403b into the column “401k”
  • Taxable and Roth are both 100% equities and the tax-deferred accounts have 70/30.
  • Retirement expenses are $38k initially, then increase by 2% inflation every year. All numbers in the table are nominal $, except for the column “Real.” Duh!!!!
  • For the first few years, you fund your retirement through a $10,000 annual withdrawal from cash, the interest income in the cash holdings, and dividends and withdrawals from the taxable account. That should help somewhat with Sequence Risk.
  • You withdraw $10k from the money market account until you reach 1-times annual expenses. At that time you’ll just let the cash account grow with inflation and withdraw only the net interest income.
  • You do a Roth conversion to max out the newly created $12,000 standard deduction (for singles) under the Trump Tax Plan. Since you create some ordinary income from the cash holdings already the Roth conversion is slightly below $12k per year, though. If the old tax rates prevail you might want to look into maxing out the zero percent range (std deduction plus exemption) as well as the 10% bracket for the Roth Conversion.
  • I assume you live in a state with a 5% marginal tax, and with a $10,000 deduction. Out of privacy reasons, we won’t reveal what state that is and your actual numbers might differ a bit, but not much!
  • You draw from taxable savings until age 59, and at age 60 you take money from the 401k. (I wasn’t sure when you reach age 59.5, so you might start with the 401k distributions penalty-free even in 2030).
  • I assume relatively conservative returns for S/B/C, as in previous case studies. The 5.75% equity return for 10 years comes from my recent post on that topic.
Case Study MsAlmostFI Table03
Cash Flow Table, Part 1. (all nominal, except for the column “Real”)
Case Study MsAlmostFI Table04
Cash Flow Table, Part 2. (all nominal)


  • Looks pretty good! You draw down your taxable account pretty substantially. It’s something to keep an eye on! But keep in mind that you’ll still have other means of income if the market doesn’t cooperate: the boyfriend can help out, you have a Roth from which you can withdraw the principal penalty-free, you got the SEPP/72(t) route, etc. And let’s not forget the 1x spending in the money market account!
  • Your assets increase even in real terms up to age 70. You do have a little bit of over-accumulation in your 401k. That’s despite the Roth conversions and relying heavily on 401k distributions after age 60. But it’s a good problem to have: Too much money! You would still have a huge Roth IRA cushion you can tap in emergencies!
  • So, your plan is in very good shape if you retire on January 1. It would look even better if you delay it a little bit.

Additional safeties

Not only does your retirement plan work if you retire now, you have a significant number of safeties built in that you can rely on when things don’t work out as planned:

  • You can rely on some of the savings that your boyfriend has already accumulated.
  • You can ask your boyfriend to chip in some of the cash flow he’s currently saving (up to $14,000 p.a.) to help with expenses.
  • You can sell your house in your relatively high cost-of-living area, buy a cheaper place somewhere else and pocket the difference.
  • If it comes to this and you find yourself with cash running low at age 80 or 85 you could consider a reverse mortgage on your (paid-off) house. I really, really hate reverse mortgages so this has to be the last resort!


You should work for as long as it’s fun, but to the extent that you are already a bit annoyed by the corporate B.S. you might as well pull the plug already on January 1. Or today! Because your budget is so low and you expect a decent size Social Security and generous pension benefits you can still afford a pretty decent safe withdrawal rate of almost 4%. Long-term care is a serious issue, but your case would probably call for simply self-insuring. No more sleepless nights, please! You are good to go to retire early! Best of luck!!!

We hope you enjoyed today’s post. Please share your comments and suggestions below!

29 thoughts on “Ask Big Ern: A Safe Withdrawal Rate Case Study for “Ms. Almost FI”

  1. You gotta love it when you can tell someone such great news. You arrived. Welcome to FI! Cool. So many people are not saving enough for retirement and think they are fine. This is the opposite situation. Thanks for sharing!

    1. In the spreadsheet Why is the monthly cash flow zero (for first 480 months) when she’s withdrawing $38k+ per year starting next year?

      1. Sorry for the typo. In Miss AlmostbFI I’m confused about the first chart showing cash flow as % of initial nw. You have hers cash flow listed as 0% until 18 years into retirement. But your cash flow tables later show miss fi is spending $38422 inflation adjusted starting in 2018. I’m confused: should 2018 be (-38422 divided by 12) / 1283900?

        1. The cash flows are just the supplemental flows over/below the SWR-generated cash flows. Remember: SWR is what the sheet solves for (an output). Supplemental income is what you input.
          That first dot in the cash flow chart is: Social Security $1482 plus Pension: $953 in nominal dollars = $681 in today’s dollars. Combined: $2163 in month 205. = 0.168% of today’s NW.

  2. Good analysis ERN and I agree. She is very well set indeed compared to many of her age cohorts. She should change her name to “Ms. FI Already”. 😊 For people like her who consult with me, I often have difficulty in convincing them about even 3.25% SWR that I tell them is like a perpetual endowment, like the Hershey Foundation! Still, such folks ask “are you sure?” and bring that down a notch to 3%! It’s amazing to find people on opposite sides of the risk tolerance spectrum.

    1. Yeah, there seems to be a bifurcation: very, very risk-averse people who don’t realize that they could have retired yesterday. And others who push the 4% RUle or 4.5% or 5% Rule a bit too fat!
      Thanks for stopping by, TFR!!!

  3. Thanks for another case study. Keep them coming!
    Once I saw the assets and expenses, it was clear to me that she could have retired yesterday. But there’s always that OMY syndrome. I sometimes think that it’s so hard to be responsible and hardworking. It’s hard to trust those ‘pretty’ numbers on the paper.

    I have a quick question to the Ms.FI. How does her father support himself after their assets were drained due to her mom’s illness? Does she have to help him financially? What if he needs LTC in some facility? I do not to scare her even more but I’m genuinely curious how people cope with such stuff in reality. Well, I also should admit that such real stories scare me and make me think that I should work much more than I would like to.

    Thank you.

  4. ERN, I downloaded your case study spreadsheet and played with the Projected future real returns values for stocks. I’m getting some results in Excel that I’m hoping you can clear up for me. If I set Stocks for next 10Y and Stocks after that = 100% I expected the failure rates to be unchanged, but instead they drop to a bit more than half their original values. Since future rates can not be categorized into any CAPE regime and 100% gains would guarantee success, I didn’t expect this to affect the initial results or at least drop the failure rates to 0%

    I’m obviously not understanding something with the spreadsheet and hope you can clear up my misunderstanding.


    1. Good question. We are talking about the fields where you gauge the “expected returns” for equities, not the equity weights, right?
      Since very few failures cover the range that will be affected by the 2017+ time span, I would suspect that messing around with the expected returns has some but not a major impact. For example, a 53-year horizon and a start date of 1965/66 (kind of the worst case scenario for these SWR simulations) would only include a year or two of that very high return. The 1929 episode will never reach the 2017+ era.

  5. This is Ms. Almost FI here. I was so relieved and happy to see the words “You are already able to retire.” Bad day at work today and this just perked me up knowing that I can quit my job whenever I want. ERN, I really appreciate your thorough analysis and providing the assurance I need to hear that I’m finally free of my job whenever I want to pull the plug. I will however work one more year until my foot surgeries are done since I have very good health coverage right now through work. Mentally, I think just knowing I don’t need this job will make this final year tolerable. I can finally get a good night sleep tonight! 🙂

    Mrs. Greece, I tried to be brief in my response to your question but I failed miserably since it’s not a simple answer. So here it goes…My dad and I took care of my mom at home for 10 years so that helped with not draining any of their retirement money. My mom started to exhibit symptoms of Pick’s Disease around late 50’s and had to stop working at 60 and then progressively deteriorated over the next 15 yrs. When my mom needed much more care (24/7) than my dad or I can provide (I had a full-time job), it was a struggle emotionally and financially to place her in a memory care facility (it was either that or I have to quit working to care for her). My sister found a nice place where the set up is more like an apartment (a studio with a kitchenette and a separate bedroom and bathroom) within the memory care unit, so my dad went to live with my mom at the facility to watch out for her. All of their retirement savings were drained within 5 years. I moved into my parents’ house after they moved into the memory care facility and I paid rent to provide extra income for them in addition to their pension and maintained the house since my dad did not want to sell the house. My mom passed away after living there for 5 years. We had developed a good relationship with the facility director, so my dad continued to stay on for a low cost which was covered by his pension and the rent I paid (he did move into a smaller private room in the assisted living section). We were planning to sell his house if his room/board cost was increased. My dad passed away unexpectedly earlier this year, 18 months after my mom passed. I think because of what I went through with my parents over the years, I know that I don’t want to work until 67 since life is uncertain and my mom missed out on things she wanted to do after she retired. At the same time, I worry about the potential of running out of money since I don’t have kids who will look out for me. So I was in this quandary for quite some time until my dad suddenly passed away this year. So I’m planning the next chapter of my life (life after FI) to pursue doing things that make me happy and do things that I’ve always wanted to do instead of waiting till some day in the distant future.

    1. Thanks for sharing. I don’t have children or LTC insurance either. I figure that SOMEONE (human or state) will have to provide SOME kind of care for me if I need it. The state won’t let us die! Might not be pretty and we might lose assets but I’m always perplexed by the LTC concern. If we need it at 80 will we really care where we are? And again and in any event, fact is that we won’t be left to die or suffer without any care. Every state has assistance programs of some kind for folks that can’t care for themselves and can’t afford to pay others to do so.

  6. These case studies are just fantastic. They really walk you through a logical, thoughtful process step by step. Having read this I am 100% committed to drilling down on my own personal situation and figuring out when I can kiss the corporate world goodbye! Thanks!

  7. Another great analysis, BigERN. Congratulations Ms. Almost FI. Pull the plug and retire, if you are ready. It’s amazing!

  8. Another great example of how future SS and a pension can impact the SWR. And given the age(s) i.e. closer to 62 than 32, more confidence in projections that won’t involve SS being swept away completely.
    I also smile when I see that we are not the only ones who should have been retired yesterday….!!


    1. Great point! I think the closer you get to age 55 the more you’re in the clear for future SocSec benefit cuts!
      Yeah, quite amazing how many folks are FI without realizing it. Or we realize it but have that OMY-syndrome. 🙂
      Thanks for stopping by, Dr. PIE!!!

  9. Another great post. Any thought to calculating SWRs under tighter CAPE bands? For example, would be curious how different SWRs would be for CAPE between 20-25 and 25-30 versus just analyzing the full 20-30 range.

    1. Good point! The problem with having too many CAPE bins is that you’ll have too few observations in each bin to really draw conclusions. I like the 20-30 bin because it captures a variety of cases from not quite crazy overvalued (late 1990s, but well before the peak of the bubble) and the 1960s, which was not a good starting point for retirees.

  10. Congrats to your reader on the early retirement. I would have to agree with you that I would want to be mortgage free if I retired early. Do you still carry a mortgage currently?

  11. Mr ERN, in this case the question until may be moot as I see a 403b account which usually says that a pension is DB, but in my case I had a DC pension that had a cash value of 66K but when I was laid off at age 50 the PV of the pension that I rolled to an IRA was just north of 90K (the govt has some sort of calc the company is required to perform). That coupled with the dismal 3.5% non-employee return made it a no brainer to roll it over into my IRA and get far better returns.

    1. Thanks for stopping by! Depending on the individual numbers sometimes it pays to wait and sometimes it’s best to get the pension and sometimes it’s best to cash out. It all depends on the parameters! Cheers!

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