I’m not sure exactly when I realized that I needed to start taking retirement seriously. By this I mean traditional retirement at age 62. Sometime in my mid to late twenties an internal switch flipped. The light randomly came on in some nether region of my brain. I suddenly understood that I would not be in my twenties forever and that my future self solely depended on me to take care of him. I began to worry about a tomorrow decades away. Some might call this maturity.

Before this “switch” flicked on I was solely concerned with near term events and thought my retirement was something that would happen to another person in another lifetime, let alone my future self. This was a hectic short sighted time, and one I don’t miss all that much.

Once that retirement switch flicked on, I couldn’t stop thinking about it. It was like a nagging dull pain I felt knowing I had to take action now for a reward later on down the road. This thing, that urge to prepare has a name that’s thrown around quite a bit in our FIRE space. It’s called delayed gratification. If you’ve read enough FIRE blogs or listened to a few money podcasts, then you’ve surely heard the term. It’s the common bond that all investors share; sacrifice today for a better tomorrow.

I needed to do something, so with no knowledge or guidance, I opened an e-trade account in 2007 and started buying individual stocks. I had no idea index funds existed. I made a few dumb and lucky purchases. Either way the recession made me sell and close the account once my work hours were reduced due to the economy.

In 2013 I opened up a 401k with my union. The same year my oldest daughter was born.

Being in the carpenters union, 401k’s are a supplement for the main retirement program in the union. There’s no matching from an employer in our 401k plan to incentivize this(though we do have different version of matching through the annuity fund I’ll get to). There’s no day one orientation with the company who hires us where we might go over 401k and benefits where a switch might be flipped. And 401k’s are a fairly recent addition to the union carpenter benefit program, recent being 2008.

The primary retirement benefit the typical union carpenter cares about, and sadly solely relies on, is their pension fund. Yes, that legendary relic from better times does still exist for some private sector workers. Union labor being a major player in the pension game. My Northern California Carpenters trust fund plan is a “defined benefit plan”; meaning I will get a set amount of money per month for the rest of my life, and if I die first, my spouse will get money till she kicks.

There’s no set amount of time I have to work to get my pension, so no, I will not lose my pension if I FIRE and don’t work the full 30 years available to max it out. The pension is based on credits I receive each year that can also be broken down into 12ths, depending on hours/month I’ve contributed.

I can activate my pension at 55 if necessary at a reduced amount. But I’ll wait till 62 to get the full amount owed to me.

The secondary retirement vessel a union carpenter has at their disposal is the “annuity fund” that supplements the pension plan. Here’s quote from the plan itself:

“The Carpenters Annuity Plan is an IRS Qualified defined contribution money purchase retirement plan. Simply put, it’s a fringe benefit plan where Employers pay a fixed amount into your Individual Account for every hour you work. That money is converted into Shares, and your number of Shares continues to grow as long as you continue working. When you Retire, you will be able to withdraw money from your Individual Account.”

Our collective bargaining agreement dictates how much is paid into the annuity plan by my employer. Another great benefit of this annuity plan is that I can self direct the money, just like my 401k, to a Vanguard S&P fund. So the annuity fund is pretty much the missing “employer match” to my 401k–but it’s paid out regardless of whether or not we contribute to a 401k. And the company cannot suddenly cut what they contribute, because they’ve signed a bargaining agreement contract. Not bad.

It’s called an “annuity” because there are a number of payout options that guarantee a fixed payment through an insurance company. But fixed insurance is not the only option, and it’s certainly not what I’ll be doing. I will likely roll this over into an IRA and have complete control over it with lower fees.

Participation in the pension and annuity are automatic and funded without the need for me to do anything. And I’m so thankful it is, because I’ve essentially been investing since I was 22 years old, starting way back in 2006. We simply work and these get funded per hour as part of our package.

Having a pension is amazing when I stop and think about it. It’s also a bit complicated.

But how does one fit in a pension into their retirement plans? How do I calculate this into my “FI Number”? Or do I?

A pension does change the way I approach retirement. It gives me confidence. It’s my reserve calvary in the distance ready to come swooping in to mop things up if the battle gets tough.

I’ve dabbled in posting my retirement plan for some time. Now’s the time I feel.

This is a high level look at how I’m looking at funding my life with no work in a few years. As I get closer and closer to the date, I will be refining this as I learn and take into consideration the markets in 2026…the soonest I can retire now due to unforeseen circumstances. I’ll write about this new 2026 development in a later post.

Anyway, here’s the plan from 30,000 ft.

The Happily Disengaged Retirement Plan

My early retirement plan is split into two parts which I call Phase 1 and Phase 2.

I’ve written out a word document for the plan and have a detailed numbers sheet to help support the document with forecasts and historical data. I’ve been pursuing FIRE for some 4 years now and I’m still learning–mainly about safe withdrawal. I’m open to change in my ideas about the draw down phase, so I wouldn’t be surprised if my plans change slightly overtime as I learn more.

A few words on bonds.

I plan on using what would be called a bond tent coined by Michael Kitces. Increasing the amount of bonds I hold at the time of retirement and then easing back as retirement continues and risk of bad ‘Sequence Of Return Risk’ diminishes. This has been written about pretty extensively. If you haven’t read his stuff or not, Early Retirement Now is full of good stuff on all things retirement: here’s what Karsten says about bonds and where to keep them. Karsten also advocates for an increase in bond holdings when entering retirement.

To get to our ‘bond tent’, where we currently hold no bonds, we will rebalance in our tax sheltered accounts.

Why not taxable?

Two reasons.

1. The tax hit on capital gains to rebalance.
2. Dividends that come off bonds are taxed as ordinary income. The IRS does not consider them qualified dividends.

Making the moves in a tax sheltered account will shield me from these tax hits (or at least shield me immediately till I withdraw at a future date). I probably will start to buy bonds sometime this year, but nothing greater than 2-3% of my portfolio. I’m still trying to maximize and nurture the freedom egg.

Phase 1:

Will last 20 years. From my age 42 to 62. Geographic arbitrage is a key element to our plan. We will reduce our expenses by living in low cost of living countries for the first 5 years of retirement, likely South East Asia and Latin America.

Funding: This phase will be primarily funded from two sources: index funds and real estate.

• Index Funds: Will be withdrawn from my taxable and tax sheltered accounts at a rate of 4% a year.
  • When I retire I will have a 70/30 equity to bond ratio. I will slowly ease into a 90/10 ratio as market performance dictates. Bonds value will always fund a minimum 3 years of retirement.
  • I plan on utilizing a Roth Ladder Conversion as soon as I get a year clear of W-2 income.
  • Equity breakdown will be 80/20 domestic/international in my current funds.
  • Bond breakdown will likely be 90/10 government/corporate bond funds.
• Real Estate: We plan on renting out our house and traveling.
  • Income from my home is projected to yield 5%-6% return on equity. This is close to what this money would do in the markets. Even if it went as low as 2%-3%, this would be more in line with a bond return.
  • Yes, I’ve taken into account taxes, management fees, insurance, and a maintenance fund.
  • How does this figure into my FI Number? I deduct the positive cashflow from my retirement expenditures.
  • The annual net income would be about 25% of what I’m forecasting to spend in a year.
  • A mortgage can be a potential “poison” to FIRE, I will ensure I have a minimum 6 months rent stocked up for vacancy.
• Cash: The last 8 to 9 months before I pull the trigger will see us stocking up on cash as a priority. I’m already saving cash aside in a high yield savings account, though not at a turbo pace yet.
  • The cash will take us through the 1-2 years of retirement and the amount will serve as a bucket for holding cash reserves between selling shares and actually spending money. Meaning this bucket/savings account will send an automatic set amount of money to my checking account each month.

Thoughts on Phase 1:

I really wanted to follow a KISS plan for Phase 1, but alas it will not be so. Good thing I’ll have plenty of time to focus on this when I’m not working. The accumulation phase of FIRE is simple enough, the problem is that withdrawing successfully is complex. Add in I will have taxable real estate revenue to contend with–not all of which I will be able to spend on myself. Avoiding the tax man (legally of course) will be my biggest challenge.

How often will I sell shares? Well that’s not yet worked out. I do know I want to have 6-12 months cash on hand at all times. I’m leaning towards a variation of Retirement Manifesto’s bucket strategy. Mainly for how I hold and use cash. The simple strategy for selling will be: Sell stocks during a bull. Sell bonds during a bear.

This why bonds are a critical element to my retirement plan.

4% withdrawal? Isn’t that risky? What about the in vogue 3.75%? Here’s the thing. This rate is adjustable in my case. I’ll be living overseas and play the expenses as Mr. Market dictates. If markets are down and things are looking bad, I won’t spend as much. I’ll go back to work. Or a combination of both. Retiring in my early forties is inherently risky. For now I’m basing it all off 4% when I run simulators.

Home equity in my FI Number? The house you live in is not an investment while you are living in it. The thing is I do not plan on living in it when I retire, it will become an income producing investment. The rental will produce something and Uncle Sam will tax me on it regardless. So I can’t ignore this income stream. Simplest thing to do is deduct the projected income from my retirement expenditures, which lowers my FI Number. The bad part is the revenue alone puts me in the 12% tax bracket. Combined with what I intent to withdraw from savings, I will very likely end up in the 22% tax bracket! Yikes.

So back to the question. Is my home equity included my FI Number? Not directly, but yes it is, because I’m basing my retirement expenditures and in turn my FI Number based on what the home will yield. If I use a very conservative cashflow number and times it by 25, this could be viewed as part of my FI Number.

Will I truly not work and/or produce other income in Phase 1? Who knows. If things go well, maybe my writing can turn into income. I enjoy writing. This blog being a sort of shadow career. But my passion is writing fiction. I went through a phase of serious writing and submitting before I had kids. The results and quality were trending in the right direction, going from slush pile generic rejection letters to personal encouraging letters from editors. But that petered out when I realized I needed to support my family, and all my focus went into elevating my career and raising kids. It’s hard to bunker yourself away to write on precious free time when you already don’t see your family enough due to work.

Maybe I’ll consult with my construction scheduling abilities? Maybe my wife can consult in her HR network? Lots of unknowns. We will likely do something with our time, hopefully that something produces a few dollars. Yes, I’ll be slow traveling, but I’ll be doing a bunch of writing too, that’s the goal anyway.

Phase 2:

Will last an unknown amount of years. From age 62 to death. I will consider a move back into my old home at any point or sell the home and move somewhere low cost. I probably won’t be traveling in my later years, so finding a place close to my daughters might be in the cards.

Funding: This phase will be funded with the above index fund and rental income, with additions of my pension, social security, and annuity fund.

• Pension: I can and will access this at 62.
  • Income is projected to yield 60% of what I’m forecasting to spend annually. Will change based on survivor benefit choice. But will essentially have a “gap” of 40%. If I were to stay working till 62, the pension might be pretty close covering it all if I move to a LCOL area.
  • This seems like a lot now, but my pension is not inflation adjusted.
  • Another thing to consider, a pension is not guaranteed. My union (and all unions) are under threat by political forces. Diminished union labor will hurt the fund. Also, there can be mismanagement of the pension.
  • I do not include my pension in my FI number.
• Social Security: Yes, there will be social security in 2045! What form it will be is still uncertain, our lawmakers have till 2035 before it runs out. But I’m certain this worst case will not happen.
  • Whatever the income I get from SS, it will help.
  • I project 3.5k/month combined in today’s dollars using their calculator, but I do not include this in my FI number or any plans.
• Annuity: This will be rolled over to a Vanguard IRA hopefully in the early part of Phase 1.
  • With this current value (it should be higher in the next 2 years as my employer contributes), I forecast this thing to spit out around 30% of what I’m forecasting to spend annually.
  • There is a possibility I will Roth convert this earlier. The goal is not to, but who knows what my future self will want to do.
  • I do include my annuity fund in my FI number.

Thoughts on Phase 2:

My pension and annuity combined alone will likely fund 90% of what I’m predicting to spend annually in retirement (not a California annual expense at least). Key word is predicting. Social security will help. And all of this will be supplemented by Phase 1 income.

Couple things to keep in mind here, will I really spend what I’m forecasting in old age? I’ll definitely want some comfort around when I’m a senior, so maybe I’ll spend more. Though I’ve read that people spend less in traditional retirement, so who knows? Also, as I’ve stated before, my pension will be eaten alive by inflation, all the more reason to ignore this from my FI Number.

Where will I live? I don’t know. A few options pop into my mind. Moving back home and paying the house off. Selling and moving somewhere cheaper in the US. A condo in a warm place on this side the world, like Mexico or Costa Rica. A lot is unknown, but I do want to be around family and have a small and simple home base.

An Inconvenient Life

Investing was, and more importantly still is, like a medicine to ease my anxiety and worry about the future. Now some 10 years since I first opened my 401k, I will have enough to call it quits soon. And if I don’t early retire in 2026, the feeling is even more reinforced. Looking back, whatever triggered that switch to flip, was a fantastic primer for when I discovered FIRE at the age of 36. I already had a good amount saved, so I wasn’t starting with zero.

It wasn’t easy at first though. Especially being young and broke and dealing with the economy of the Great Recession and my own self made problems. Even after the recovery started in 2009, the economy was still in shambles. Everyone was scared. To save and invest at that time was inconvenient to say the least.

In 2013 I began to save modestly. My inconvenience was mental. I wasn’t putting a ton of cash in, so on paper the inconvenience was limited.

In 2016 I turned it up big time. This time the inconvenience was real. I felt it in my monthly spending. I opened a taxable account for the first time since 2007.

In 2018 I first discovered FIRE, but it didn’t seem realistic at the time. In 2019 I started reading and listening more to the movement as work burned me out. I started playing with some numbers and seeing that I was closer than I thought.

2020, the year I completely accepted FIRE, and sold my wife on it. Inconvenience still dominated my life, but in another way. It wasn’t that I felt the inconvenience because of what monetary amount I had left after investing. No, at this point every dollar spent was seen as an inconvenience. The inconvenience had flipped! I wanted more to invest not spend. I’d somehow mentally shifted how I saw the world over time by training myself to save.

Two subsequent bear markets and recoveries have boosted my savings to all time highs. Ironically, as I write this, the S&P just closed at an all time high. Where would I be now if I’d never challenged myself by the inconvenience of investing? When I quit drinking that was super inconvenient. Exercise is inconvenient. Working hard is inconvenient. Inconvenience makes us better people. Inconvenience is the path to freedom.

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Has inconvenience ever benefitted you?

Do you have a retirement plan? Or if you’re retired, how did it go following the plan?

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