The Effect of “One More Year” – SWR Series Part 42

January 13, 2021 – Happy New Year, everyone! And welcome to a new installment of the Safe Withdrawal Rate Series. Today I like to write about the One More Year Syndrome (OMYS) – the fear of retirement and the decision to just work another year. What I find intriguing about OMYS is that procrastination normally works the other way around. You opt for the fun and easy stuff and promise yourself to do the hard work tomorrow. Only to repeat that charade again tomorrow and postpone the unpleasant tasks to the day after tomorrow. And so on. 

But why procrastinate a fun-filled early retirement and keep working? Physician on FIRE and Fritz at The Retirement Manifesto have written about their rationales. The number one reason is that you grow your nest egg and put your retirement finances on a better footing. That was certainly my main rationale, too. I could have retired comfortably in 2017, probably even in 2016 but I delayed that decision until 2018.

So, qualitatively it’s obvious. But can we quantify by how much the OMYS improves your retirement security? Is it worth the additional year in the workforce? How can we incorporate OMYS in the Big ERN Google Safe Withdrawal Simulation Sheet? Is it possible that OMYS will boost your retirement health so substantially that it’s not as irrational as it’s sometimes made? Let’s take a look…

Baseline assumptions

Let’s start with the following parameters, to be fed into the Google Sheet (See SWR Series Part 28 for more details):

  • A 30-year retirement horizon (stay tuned for longer horizons later).
  • A 75/25 portfolio, i.e., 75% in a U.S. S&P 500 index fund (e.g. iShares IVV), 25% in a U.S. Intermediate Treasury ETF (e.g. iShares IEF).
  • No additional cash flows along the way. (but there will be a version with Social Security benefits later) 
  • A $2,000,000 initial portfolio value. The exact dollar value is irrelevant because all numbers will scale linearly. I just like to use a round number for illustration.
  • A final portfolio value target of 25% (i.e., $500,000) after 30 years.
Inputs in the main parameter tab.

The reason I like this scenario as the baseline is that it easily applies to both early retirees and traditional retirees. This could be a traditional retiree with a 30-year horizon, where all the supplemental flows from Social Security and pensions are treated separately and you simply add that to your retirement budget. And the retiree has a bequest target of leaving a quarter of the initial nest egg – adjusted for inflation – to their heirs. Or one can think of this as an early retiree at age 35 or 40 trying to bridge the 30 years until Social Security and company pensions start that are almost sufficient to cover the budget then. Hence, the 25% final value target to supplement that late-stage retirement.

Let’s see how the safe withdrawal rates and safe consumption amounts look like in this example. I always like to monitor the failsafe consumption amounts, both overall but also by decade to see in what environment the really bad outcomes materialized. In the tab “Cash Flow Assist” I display a table “Failsafe by Decade” to do just that, see the copy of that table below. Notice how in this example, the 4% Rule is clearly not safe. Both in 1929 and the 1960s you had multiple occasions where this rule would have failed you. The safe withdrawal rate was closer to 3.6%, i.e., around $72k for a $2m initial nest egg.

Failsafe consumption amounts by decade. 1929 and the 1960s gave you some of the worst-case scenarios. SWRs were about 3.6% (=$72k/$2m) annualized.

So far, so good. Let’s see how much of an impact you’ll get from delaying retirement by one year…

Modeling the “One More Year”

I assume that in the “One More Year” case, our retiree can contribute $5,000 per month to the nest egg. So, the boost from the OMY comes not just from the one year reduced retirement horizon but also the additional contributions while working for another year.  This raises the big question:

How do we implement this “one more year” scenario in the Google Sheet?

I can think of two ways. First, one could make “some assumptions” about the portfolio returns over the first 12 months and then tag on a 29-year retirement horizon simulation with that projected portfolio value. I don’t think that’s the most appropriate and elegant way, though. What I’ll do in this post here is to use the tools in the Google Sheet (See Part 28 for the details) and use the historical asset returns not just during retirement but even during the OMYS period. So, there’s no need to “make up” asset returns during the OMYS phase. 

Now, how do we implement the two twists, 1) additional contributions and 2) the lack of withdrawals during months 1-12? Very easy. Let’s go to the tab “Cash Flow Assist” and…

  1. Enter the $5,000 as a positive number in the supplemental cash flow column.
  2. In column P we can apply a “scaling” to the withdrawals and we simply set the values to zero during months 1-12. (For the math geeks, check out Part 8 of the series, where I derived the mathematical formulas used in the SWR simulations, including the ones that utilize the scaling of withdrawals. The scaling feature allows you to model all sorts of neat non-standard, non-Trinity-style withdrawal patterns. For example, the OMYS or consumption profiles that grow x% faster than inflation, or many other other bells and whistles)
  3. And also, I set the initial portfolio value to $2,000,000. Notice that this has to be the initial value before the OMY because the portfolio value upon retirement, 12 months into the simulation, is now a random number; it relies on uncertain historical returns. 
Inputs in the “Cash Flow Assist” tab to model the OMYS. Add the contributions as supplemental cash flow and set the “scaling of withdrawals” to zero for the first twelve months.

How much of an impact does the OMYS have on our failsafe withdrawal amount? Let’s do the OMYS adjustments in two steps. 1) delay retirement but hold off on the additional contributions and 2) in addition to the delayed retirement also apply the additional contributions.

Here are the results, see the table below. Delaying retirement without any new contributions already gives you an increase in the failsafe amount by more than 4%. The additional contributions bring you to just under +7.8%. Pretty impressive!

OMYS gives you a boost of just under 7.8% in the failsafe withdrawal amount. About 4.2% of that is due to delaying retirement by one year.

50-year horizon

We can also simulate the longer horizon of 50 years, though (for now) without any additional cash flows (Social Security, pensions) and with a zero final value target. See the results below. Despite the zero final value target, you’ll get a significantly lower failsafe consumption amount ($67,874 vs. $71,683) in that baseline. Longer horizons simply require a more cautious withdrawal rate. I have been preaching this since 2016. See Part 2 of the series! Distilled in the title image of that post:

But the percentage impact of the OMYS is roughly the same: A boost of about 4.2% from delaying retirement and just under 7.9% for both effects – delay retirement and additional contributions.

A 50-year retirement horizon pushes the safe withdrawal rate to about 3.39%. The effect of the OMY is almost identical to the 30-year horizon when measures as the percentage gain

50-year horizon plus Social Security/Pensions starting in year 30

And finally, let’s also add the scenario with the 50-year horizon but with a $3,000 a month Social Security and/or pension benefit starting in year 31. Quite intriguingly, this scenario gives you similar failsafe withdrawal amounts as the 30-horizon plus 25% final value target ($72,031 vs. $71,683 in the baseline without the OMYS). Which was exactly my point at the beginning of this post: a 30-year horizon with a substantial final value target is not that different from a 50+-year horizon with some substantial Social Security and pension benefits later in retirement.

And the OMYS gives you a similar boost in the failsafe consumption amounts: +4.18% (delay retirement) and 7.53% (delay retirement + $5,000 monthly contributions). Notice that even with the OMYS you’ll still remain under $80,000 annual safe withdrawals, as implied by the 4% Rule. If we push the OMYS to a Two-more-years-syndrome, we’ll certainly get above the $80k mark with a 15+% boost in the failsafe consumption amount. (actually, the cross-over point was at 18 months to make the 4% Rule 100% safe). 

50-year horizon plus Social Security for the final 20 years.

Lessons learned so far: 

  • The 4% Rule was not safe in historical simulations, not even with a one-year delay in retirement and additional contributions.
  • The impact of OMYS on the safe withdrawal amounts is surprisingly uniform. Whether it’s a 30-year horizon or 50-year horizon, whether it’s with or without additional cash flows, you boost the failsafe withdrawal amount by about 7.5-8%.
  • The part of the extra failsafe consumption that’s coming solely from delaying retirement is about 4%. That’s a big impact because in the case of the 50-year horizon you reduced your withdrawal duration by only 1 year, i.e., only 2% of 50 years.

OMYS with a 4% fixed withdrawal rate

Another interesting exercise: instead of raising the sustainable withdrawals we could also fix the withdrawal amount, say, at $80,000 a year or 4% of the initial net worth, and then simulate the portfolio value over time with and without “One More Year” to see how the OMYS reduces your failure rates of the 4% Rule. That’s what I do in the table below. I use the same scenarios as above, but now the results for each scenario are in the rows of the table. 

As always, I want to caution against using the naïve unconditional failure probabilities. See the table below. For example, if we look at the 30-year baseline, the unconditional failure probability is 6%. But conditional on the Shiller CAPE below 20, the 4% Rule failed only 2% of the time, while at a CAPE>20 you fail 18.8% of the time. Most of the failures of the 4% Rule are clustered during the times of very expensive equity valuations. Some people can live with a 6% failure probability (I couldn’t). But with today’s CAPE north of 30 and an implied historical failure probability of 18.8%, it seems like a no-brainer to reduce the withdrawal rate to less than 4%.

Failure probabilities of the 4% Rule. Both overall (unconditional) but also conditional on the absolute equity valuations (CAPE regime) and the relative equity valuation (equity index relative to its own all-time-high).

OMYS significantly reduces that failure probability to 0% in low-CAPE environments and 4.3% when the CAPE is above 20. Also, notice how the conditional probabilities are very similar to the 50-year baseline with Social Security, which is why I really like the 30-year baseline with a 25% final value target because it has a very similar risk profile to the longer horizon with substantial Social Security at the end. Also notice that in the 50-year case without Social Security, the OMYS helps reduce the CAPE>20 conditional failure probability but it only goes from 31.8% to 18.3%. Still quite scary! 

A similar picture, qualitatively, emerges when you condition on the “relative” historical valuation of the stock market, i.e., where we are relative to the all-time-high (up to that point). Failure probabilities are in the double-digits if the S&P 500 is at or within 10% of the peak in all the baseline scenarios (without OMYS). But essentially zero when you’re more than 10% under the equity all-time-high. With the OMYS assumptions, you cut the failure probabilities by more than half and with two more years, all probabilities go down to zero.


The OMYS is often portrayed as an irrational fear of retirement: Procrastination of work-addicted corporate slaves. But there is some reason for this insanity: a relatively brief delay of retirement will add a lot of additional safety margin to your retirement. You could either significantly increase your retirement budget or, for a fixed budget, you’d seriously reduce the risk of running out of money. Call it pre-retirement flexibility! It’s probably easier to pull off than the often-touted post-retirement flexibility. As I showed in Part 23, cutting your retirement budget and/or going back to work in response to a bad Sequence Risk event can last much longer than just the duration of the Bear Market. Hence, my decision to delay retirement until 2018 to grow the portfolio to over 30x while working in a cushy corporate job. I was also reminded of the case study for Mr. Stop Ironing Shirts, where just 9 months of extra employment put him on a much safer path through retirement, thanks to some deferred compensation vesting at that later date. He’s now retired, check out his blog, and seems to be happy with the decision to work just a little bit longer.

But just to be sure: don’t overdo the OMYS! I always like to rationalize that with the beautiful Dietrich Bonhoeffer quote:

“Time is the most precious gift in our possession, for it is the most irrevocable” 

In that 2017/18 case study series I certainly urged several case study subjects to retire ASAP because the extra contributions didn’t add much to an already very safe retirement picture. Personally, we count our blessings every day knowing that we retired when we did. In 2018, we were able to travel for 7 months and then for another 4 months in 2019. With our daughter in school now and pandemic travel restrictions, we will never have that liberty again anytime soon. Be sure to carefully weigh the benefit of more retirement security against the lost time!

Thanks for stopping by today! Please leave your comments and suggestions below! Also, make sure you check out the other parts of the series, see here for a guide to the different parts so far!

Title picture credit:

92 thoughts on “The Effect of “One More Year” – SWR Series Part 42

  1. Or one could just have a diversified portfolio of 50/50 TSLA/BTC and retire much sooner 🙂

    On a more serious note I believe flexibility is the key. We can run all possible scenarios and prefer OMYS or be ready to accept whatever comes our way and be flexible.

    With the advent of MMT how do you see the SWR changing? I wrote an extensive post on CBDC and MM but was curious on your thoughts..

    1. Haha. Very diversified, indeed! 🙂

      MMT will replicate the very unappealing Japanese scenario over the last 30 years. High debt loads will stifle growth and inflation. Europe has been doing the same for the last 10 years with the exact same result. I hope we resist the temptation

  2. Fascinating stuff, Karsten. Good to know that OMY = 7.5% increase. More importantly, a huge peace of mind throughout decades of retirement. Priceless! I’m glad I did OMY, no regrets. I don’t think I could have survived a second OMY, and agree w your warning of becoming a corporate slave. Get out as soon as practical, but recognize the value of OMY.

    1. Another great post, and good new use of the base spreadsheet SWR Toolbox. I like the ability to tailor your posts to my exact scenario (pension, retirement target, soc security).

      Did I miss the post where you talk about new updates to SWR Toolbox? Maybe not full post worthy, but I had not noticed the non-US option and custom series before.

  3. Great post BigERN! Quantifying the effects of OMY (or TMY – two more years) is certainly a helpful tool in the arsenal of financial / retirement planning. I would not have expected such a uniform SWR improvement over those two horizons. Neat! These are great ballpark numbers for napkin-math discussions, too.

      1. regarding your put writing. how long on average is the put written? Do you write puts mainly on stocks you will own at a lower price or generally close them out ?

        1. See Part 3 of my put writing series ( for the most recent implementation. Also, check Part 5 for an independent review/simulation and Part 4 for the performance during the 2020 bear market.

          In short, I trade 3x a week: M/W/F with the shortest possible expiration, i.e., only 2 days to expiration or Friday->Monday, i.e., only one trading day. I write only SPX index puts (CBOE). I don’t close out anything before expiration.

          1. Karsten – Wouldn’t you likely earn additional premium on a sale by closing out your postition when it reaches $0.01? Since the position cannot drop any lower, but the premium of the new position will, all things being equal, continue to drop as a function of time remaining to expiration, I would think there is something to be gained from closing prior to its expiration. Your thoughts?

            Thanks for all of your great work!

            1. Since he’s only opening the short put two days before expiration, I’d bet they reach that $.01 threshold very late trading hours on the day of expiration. I think he’s also very much interested in keeping it simple and minimal amount of time to manage. That’s one of the advantages of using the SPX index puts vs. SPY ETF — he never has to worry about assignment. He will simply take the loss and move on to the next trade.
              Hopefully Big Ern chimes in and sets me straight if I have any of this wrong!

            2. For SPX index options the option price goes in 0.05 steps. But that aside, I do (almost) exactly whet you propse. On expiration day, when the old options are trading at essentially zero, I’d already sell the new options with a later expiration date. I would not close the old options. Not worth the transaction costs. They will just expire worthless that day.

  4. Who knew that OMYS would have such a uniform effect on SWR. Great find!

    Thanks for quantifying this concept. The 8% figure will be useful when having those napkin-math discussions.

  5. As always, amazing content Karsten. We’re currently entering our OMY and have no regrets. We’ve set up life to be very enjoyable (one of us retired in 2018 and the other switched to part time in 2019) so it doesn’t feel like a grind during the transition process.

    The only thing I would have loved to see in this post is a table showing how OMY impacts other withdrawal rates, not just 4% but say a range from 3-4% or 3.5-4%.

  6. Hi Big Ern,

    Love this post. You demonstrated an important principle: flexibility in pre-retirement is more reliable than in post-retirement. No wonder so many of us in the FIRE community suffer from OMYS!

  7. Great post as always and makes me feel better about my OMYS this year, especially during these uncertain times. However, I have to say my favourite part of this post is the Dietrich Bonhoeffer quote. That’s been my perspective through all this, but never in such a concise mantra. Will be borrowing that from now on. Thanks!

  8. Helpful analysis! I am currently in this exact same scenario with OMYS. It helps me sleep at night! I have been able to downshift to 20 hrs/wk, though, so it seems really easy and relaxed. Having employer insurance and padding the pension is the biggest bonus. Once we have moved beyond the pandemic, I might consider completely FIRE, and join my hubby who will be done next month.

  9. Very insightful, as always. Rather than OMYS, how can you use this approach to calculate the reciprocal of this, meaning how much lower than 4% would your withdrawal percentage need to be to reduce your failure rate to zero or an acceptable amount?

  10. OMY for me and wife is a savings about 150k a year. i would have pulled the plug last year if still had the 2 hr commute but working from home is not so bad .

  11. Interesting. Why is your baseline SWR only 3.6% for 30 years? That contradicts works by Kitces and Bengen. Or is that because your SWR is based on min 25% leftover instead of zero? Thx.

    1. The results here are very consistent with the Trinity Study. If you look at 75/25 and 0% final value (instead of 25%) you get the exact same failure rates as in the Trinity Study. Note: 4% is not 100% safe in the Trinity Study!
      I can’t speak for Bengen or Kitces. Differences could be due to their assumption of using annual data, while I use monthly data (and thus have a higher chance of capturing the all-time stock high).

  12. Another wonderful analysis Prof ERN. As a retired healthcare administrator who operated cancer centers for over 25 years, trust me when I urge those who made their retirement number to do it as quickly as feasible. Why? You can’t delay the grim reaper. Your time on the planet is the unknown variable.

  13. I think there is an additional benefit of OMY. Presumably many of the retirement cohorts with the lowest ‘failsafe’ withdrawal rates saw market drops in their first year of retirement. I think you are assuming that the OMY group always retires after exactly one year, even though in those cases their portfolios are now smaller than what they had when they thought they were ready to retire. In reality the OMY group has preserved the option to delay retirement even further.

    “one more year if the market is at least flat, otherwise two+ more years” presumably does significantly better than you are modeling.

    1. Great post! A couple of questions:

      1. How do you treat the retirement term after OMY? Do you reduce it to 29 years or keep it at 30? I think that the distribution phase of 29 years makes more sense for apples-to-apples comparisons.

      2. I am wondering what is your view on
      with the idea of using annual recalculation of withdrawal amounts based on a fixed failure probability but with the new portfolio value and new (reduced) retirement term. This may allow higher withdrawals in early retirement (by choosing a lower than usual probability of failure) if you are flexible enough to reduce withdrawals later in retirement. Do you think that the reduction will be too dramatic (to the level of way below of 4% of the initial portfolio value) for this to work?

        1. Still using a 30y retirement term after one more year of work implies that one expects to live one year longer if one chooses OMY rather than retirement. I wouldn’t expect that.

          I think that just like in part 37 you have used 357 months instead of 360, you should use 29 years here instead of 30. It’s a minor issue, though.

          1. No, sorry about the misunderstanding. It’s a 30-year horizon in the baseline. With OMY it’s now 1 more year of contributions and then 29 years of retirement. So, still 30 years from today, 29 years from retirement.

    2. Excellent point. That option is extremely valuable. It’s much easier to simply stay in the job than find another job.
      And also: you might lose the job after a year but you’re offered a severance package. Another nice option value. 🙂

  14. I gotta say that this article was awesome w/o all that fancy PhD of economics/finance talk. I was even able to understand and relate to it. Just to confirm, all the spending over the years is shown in today’s dollars, right?

    I have a question though about running personal cases on your SWR file… When you did simulations for your article, you chose $2m to reflect some random starting portfolio value, but what should a couple do when they aware of the fluctuating value of their portfolio?
    If I sat down to run our case, what portfolio size should I use? Should I be more conservative and use portfolio of 3/23/20 as the starting point or the one as of 12/31/20?
    Then, if partners are more than 5 years apart in age, should the length of retirement be more dependent on the younger person’s age?
    Another concern is that your simulation chose 2% constant inflation. Isn’t it a tad too low vs. say 3%?

    Unless I misunderstand your SWR spreadsheet (sorry, I haven’t read your other articles in depth…too hard), I like it because it doesn’t ask how much I plan to spend like all other retirement calculators. Instead, I give the starting portfolio value and it spits out a list of safe spending amounts per year or decade…you like what you see or not. If that’s correct, I should consider to give it a spin.

    I’m probably on my 3rd OMY now but it might be closer to the 1.5 OMY because as my kids approach teen years, it does feel that our expenses are edging up (except last year) that I didn’t estimate properly + the wild card with healthcare if to continue living in this country. Indeed it’s not that awful to work from home but sometimes I question myself especially when they drop a load of work I didn’t plan for.

    1. The $2 is the financial net worth right now. The prospect of asset value fluctuations is taken into account in the simulation sheet. Obviously during retirement. But even during the OMY phase. Which is the whole purpose of the post and why I set the scaling parameter.
      You should calibrate the horizon to a joint life expectancy. If there’s a large difference in age you might account for the fact that with only one survivor for the last 5-10 years you have smaller expenses later on.

      My inflation expectation in that sheet has no impact on anything in the current form. It only matters if you try to use nominal payments, which we don’t have right now.

  15. Great article!
    I apologize if this question is missing the mark- but doesn’t OMY (or TMY! ) change the SWR calculation just by virtue of a larger denominator? 4% of 2M is 80k, but if I work OMY my 80k withdrawal is no longer 4%, right? My 2M is now 2M + 60k contribution + 100k growth (@5% real) =2.16M so my 80k is now a 3.7% withdrawal.
    So aren’t we just restating your position that 4% is generally too high for SWR?

    1. The WR is still calculated as a % of the initial net worth, ($2m) not as a % of the uncertain future portfolio value after the OMY/TMY passed. The % WR after you finished your OMY can be higher or lower than 4%.

  16. ERN,
    Thank you for another great post. Have you ever considered adding in the cost of long term care? We have decided not to purchase long term care insurance since we don’t trust the rates won’t go up astronomically, they won’t sell out to another company, or won’t release benefits when we need it. (Reviews of long term care are generally awful). We plan to not access $500,000 to $600,000 of our retirement money and let it grow to cover any long term care we need, but it is really a shot in the dark and we would really like to know if there is a better way to manage this possible expense. Any insight would be appreciated.

  17. Timely post, thanks! We are in OMY and good to know the benefit mathematically.

    I also have felt that the extra cushion will make post corporate life easier in many respects – less worry during market downturns, more ability to take on the unpredictable expenses down the road, longevity insurance – all at the expense of an extra year or two post FI. It’s one of the biggest silver linings to COVID that for those lucky enough to have WFH that we can use this time to pad our SWR.

  18. I’m finding that the OMY was a real concern 2 years ago when I was still working but it quickly faded. My issue is that now, I’m finding (probably due to Covid lockdowns) that I wouldn’t even mind working a bit. If the day-to-day projects yield additional income, that’s a great outcome and I no longer feel the need to stop all income-producing work. It gives me a sense of purpose plus income for fun and travel as well as enough time to spend on family time and hobbies.

    For people scared about stopping, there’s no rule that says you must stop. Why don’t you just do part time or 3-day a week, or start something on the side and should it gain traction switch to that. I feel that stopping work completely is bad from a challenge/mental perspective. You can retire and travel and family and still earn income – of course this all only applies to those that have OMY and tie their identity to their work.

    1. Good point. Maybe shifting to part-time as a transition is a good idea. Wasn’t n option for me but should be considered if available.
      Also, since there isn’t much to do outside of work these days, you might as well work longer.

      1. Finance is a funny space. I haven’t found much in terms of doing it part time, except for people in back-office doing financial management or CFO roles, like 8-2pm. Front office seems to be more 9 to 9pm.

  19. Great post as always. Thank you for your contributions to the community. I hope this is an appropriate place to ask a tangential question (if not please feel free to disregard). I’m just curious, given the extraordinary liquidity environment we’re living through, what your thoughts are on CAPE’s predictive value moving forward. I’ve seen recently even Shiller himself starting to reference an “Excess CAPE Yield” based on a comparison to bond returns rather than simply equity valuation. Do you think this has merit and have you ever thought about running your SWR analysis based on this metric?

    1. High CAPE means low future return. I think Shiller will still agree with that. But given that the equity earnings yields are still quite high relative to bond yields (very different from 2000!) there might not be a big drop in equities around the corner. I think that’s what Shiller is trying to say.

  20. One more year syndrome is definitely real. I bet when I reach my retirement number, no matter how many times I complain now, I will be going out and still working. Just less stressed out so my work will be more enjoyable. A post on how to break free from that mindset could be interesting, hmm.

    1. Yeah, for us it was “easy” to finally pull the plug. We got a good deal when selling the condo in SF in January 2018. So without a place to live there we had pretty much tied our hands to leave. That did the trick. 🙂

    2. For sure. I haven’t hit (or even established) “my number” but I’m feeling less and less stressed about work the closer I get to FI. I couldn’t do an extra year of 2016 if I had to, but if I’m in this 2021 mode when I get close to pulling the trigger I don’t feel afraid of OMYS.

  21. I wonder how OMY decisions would be impacted with respect to the amount of capital gains one is sitting on in their taxable accounts. With the current equity runup and cap gains rates at likely all-time lows I could see it being worthwhile to lock in your cap gains and working an extra year or two to pay that tax bill. People could easily have 20-40% of their account value in capital gains and during the early years of ER those equity holdings would need to be sold. That could easily bump up someone’s expenses higher than they were planning and into an uncomfortably high SWR. By working the extra year and upgrading basis one could then have a very small tax bill early in retirement.

    I wonder if it would be possible to translate a capital gains tax to the SWR and show the impact for portfolios having gains/losses of -20%, 0%, 25% and 50%. I’d guess it could easily impact the SWR by at least .25%.

    1. I doubt that’s a good idea. You certainly don’t want to realize the capital gains while still working due to the higher marginal rates. It’s best to do the capital gains harvesting (maxing out the 0% cap gains bracket) during the first few years of retirement. If you’re afraid of higher taxes in the future, that’s actually a reason to retire earlier.

  22. “Failsafe by Decade” doesn’t seem to appear in 2.0 under Cash Flow Assist. Is there a later version of the spreadsheet?

  23. Nice post, but… why the 75%/25% baseline assumption, when you’ve already shown earlier in this series that you get higher failsafe WR using 60% stocks, 25% intermediate bonds and 15% gold? You demonstrated that the 4% rule for 30 years fails a *lot* less often using that mix. Exactly zero times since 1926, in fact, even with a 25% remainder value – at least according to your Google sheet.

    I get that your post was more about the value of OMY, and *maybe* it’s the case that the benefit numbers for OMY are similar with the different mix assumption. But you spent so much time on 4% rule failures, seems to me you were confusing a couple different messages.

    1. Yeah, gold worked quite well in the past. But it’s not really arrived yet in the mainstream retirement community. Until then I will run my baseline simulations without gold.
      And as you correctly stated: this was an exercise about the difference between retire now vs. OMY. You will get a similar % difference if using gold in the portfolio.

  24. One more advantage of OMYS, keeping W2 income and paystubs for easily financing a home after moving out of California. 🙂

  25. My one more year paid off pretty well I think because it let me get a big bonus and vest in a lot of stock. So I doubled my normal pay that year. The next year, when I had already retired, there was no stock and no bonus and no raises across the company, so my timing was pretty near perfect. But that was just good luck on my part, not prescient thinking.

    1. Ha, that’s good timing. Impossible to plan for this perfectly, though, because the next bonus might have been even bigger and could have enticed you to stay another year and another year, etc. 🙂

  26. Suppose I am at 25x right now. I decide to conditionally retire on a 4% WR. In two years, I will return to work for another year or two unless and until my WR is down to 3.6%. To stay retired would require the portfolio to appreciate 11.1%, even after my withdraws (so about 19% appreciation across 2y).

    Wouldn’t this algorithm capture all of the benefits of working another couple of years, but also capture the option value of possibly not working those years?

    1. You could simulate that by using the same spreadsheet and set the scaling to 1 again, but to 0 during year 3 and 4.

      It’s hard though to model this as a true optionality where the scaling depends on past returns…

  27. I am also concerned about the S&P’s CAPE of 35 and P/B of 4.27. There is good reason (see article) to believe these numbers portend low or negative returns in the next 10-15 year period, and double-digit failure rates for the 4% rule.

    So in the midst of the everything bubble, what do you think about the following ways to try to escape a correction across risky assets:

    1) Allocate a larger percentage of funds to put-selling – like 50% of AA. Try to earn 6-7%/year with only a portion of the allocation, and stay waaaay OTM.
    2) Use options strategies like the collar to avoid SORR big drop-offs.
    3) Switch entire portfolio to “C” grade physical real estate, rented for 1% or more of the purchase price per month, with an expected return on cash around 5-6% per year after management fees. The return grows with inflation and acceleration of mortgage payoff.
    4) A “cash and calls” strategy where only the value of call options is exposed to the risk of loss, and the call options control stock worth the entire portfolio. Lose a maximum of maybe 12% in exchange for underperforming by about 3%/year.
    6) Just go to cash for a year or two. Thank yourself (and retire at a high WR) when stocks are 40% lower.
    7) Go all-in on the next reddit wall street bets meme stock. -jk!

    1. Agree with the concern about the CAPE. I budget only about 3% return plus inflation over the next 10 years..

      Unless you have a lot of experience with options trading, start with less than 50% in put writing.

      I can’t speak for real estate. It’s too local. But I like the returns we currently get from our private equity funds. But watch out for the delinquencies.

      6: I would never want to time the exact date of the crash. Careful tiwh that! 🙂

      7: Haha, now I missed the boat on that one. 🙂

  28. Hi, I came across your website I believe while I was searching for options. I just wanted to say all your posts and information have been incredibly educational and have given me a lot of insight. My main focus is to create exposure to equities in a lower vol. situation via puts like you have.

    I was curious when you sell your puts, do you use your brokers analyzing software to find a price that is 1.5-2 SD outside the current price for your strikes ?

    I’ve been playing with this particular issue of balancing a higher success rate with lower premiums vs. a lower success rate but slightly higher premiums. Thanks again !

  29. I love that you gave us the Dietrich Bonhoeffer quote, “Time is the most precious gift in our possession, for it is the most irrevocable.” I relate to if I had a crystal ball and knew that I had a 30-year horizon left with exactly 1/3 in go-go years, 1/3 in slow-go years, and 1/3 in no-go years; then every year of OMY reduces my go-go by 1/10th–yikes!!

    1. It’s ironic that Bonhoeffer is remembered as an opponent of the regime, when in fact all he was agitating for was church independence from the government. There is no evidence he spoke on behalf of the Jews until after the holocaust. If anything, he missed the opportunity to be heroic and take the Confessing Church another direction.

      Still, I suspect he learned something through the process and it’s a great quote!

      1. No irony at all, because you might have gotten your history mixed up. Are you sure we’re talking about the same person? Bonhoeffer did indeed speak in support of Jews. Bonhoeffer couldn’t speak after the holocaust because he was killed by the Nazis in 1945.

        Specifically, from

        When German synagogues and Jewish businesses were burned and demolished on Kristallnacht, November 9, 1938, Bonhoeffer immediately left for Berlin, despite having been banned by the Gestapo, to investigate the destruction. After his return, when his students were discussing the theological significance of Kristallnacht, Bonhoeffer rejected the theory that Kristallnacht had resulted from “the curse which had haunted the Jews since Jesus’ death on the cross.” Instead, Bonhoeffer called the pogrom an example of the “sheer violence” of Nazism’s “godless face.”

        The Confessing Church resistance expanded its efforts to help “non-Aryan” refugees leave the country. […] With international contacts in the ecumenical movement, [Bonhoeffer] became a crucial leader in the German underground movement.

        So, let’s all agree on Bonhoeffer having said some pretty neat and intelligent stuff and that he was also a bona fide supporter of humanity in general and religious/racial/ethnic minorities in particular.

  30. Great analysis! There’s also a simple way I like to think about it.

    Say you plan to RE at $1.5M with a 4% WR of $60k/yr. Assuming a 60-year horizon, 100% final asset target, 100% stocks, the success rate is 86% (per your research).

    If you work two additional years, saving $75k/year (this is how much I save) and earn a 7% return, the portfolio will grow to $1,872,600. (I applied the return, then added the savings on top).

    Again, our desired spending was $60k/year. We’ll adjust that for 2.5% inflation each year to arrive at spending of ~$63,000.

    This puts our new effective withdrawal rate at 3.36% (63,000 / 1,872,600), which has a success rate between 96 and 99%. A lot of extra security for reducing your retirement from 60 years to 58 years.

    Some final thoughts: the 7% assumed return is pretty conservative. Given the volatility in the market, there’s a decent chance you’ll see double digit returns for one or both of those years, propelling your portfolio vastly higher (thanks compounding). If market returns are low or negative, no biggie. Your extra working years have helped prevent a potential SoRR issue.

    Finally, let’s say you planned an already-ultra-safe 3% WR on that $1.5M portfolio. The two extra years of working increased the portfolio’s value by almost 25%, meaning now you can spend an extra $11,250 per year, adjusting for inflation, pretty much forever. That’s almost $1k/mo extra just from working two more years. Pretty compelling.

    1. 60 years in retirement?…gimme a break!

      I’m in my early 50s and the engaging-data dot com retirement calculator (aka “rich, broke, or dead”) says I have a 2/3 chance of being DEAD by age 85!

      So, for guys reading sites like this one who are in their 20s, 30s, or 40s…you’d better be working hard toward being able to retire by age 55 because 30 years (not 40+) is all you’re likely to have for retirement.

      1. I trust the following site for actuarial calculations:
        (recommended by an actual actuary,

        A husband and wife in, both 50, both in excellent health, both non-smokers:
        With a 25% probability, the last survivor will last 49 years,
        In my personal situation (husband 44y and wife 35y when retired) I got to a 62-year combined horizon with a 25% probability. So, you can laugh about a 50 or 60-year horizon all you like. It is the prudent thing to do for healthy young retirees.
        But one can also custom-tailor the analysis to 30 years if you like. Shorter if you smoke 2 packs of Marlboro Red a day. 🙂

  31. Definitely. I’m still working (quite a bit!) but the flexibility I’ve gained during the pandemic has shifted my thoughts of RE from “I absolutely must flee to Spain the day I can afford to” to something more like “I want to travel a lot more and do some work that interests me without worrying too much about the money”
    If I’d been on the cusp of RE right as covid hit I’d have been sitting around the house bored, but now I’ve actually learned my work isn’t so bad when I’m setting most of the parameters.

  32. Hi ERN, maybe a silly question, but when you calculate the Two More Years, do you consider only 0 withdrawals or the 5000 $ monthly contribution too?

  33. Another wonderful post – thank you! When comparing the baseline to the delayed scenarios, should there be an inflation adjustment to the baseline minimum safe withdrawal amount to determine the real differences after 1 or 2 years? Appreciate your insight, as always!

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.