Practical guide to living off investments in early retirement
There is a lot of discussions about "withdrawal rates" and "Do I have enough to retire" ... but very little on the actual mechanics of living off your investments.
For anyone that is interested, I retired early at 39 and I've been living off my investments for almost 10 years now. Here is how I manage my cashflow in early retirement:
- Maintain a 2 year cash reserve (combo of HYSA and laddered CDs)
- Use cash reserve to pay bills and expenses
- Twice a year (July and Nov) I "top up" the cash reserves - first with interest and dividends from my taxable accounts ... if I need to sell stocks I do but I also have a cash buffer that enables me to delay the decision a few months if I need to.
- When I "top up" I will also rebalance the portfolio if I'm overweight equities/bonds - sometimes I have "left over" income after topping up and I'll buy new securities.
- Eventually I'll have SS income that will supplement the dividend and interest income so I suspect I won't need as much of a cash reserve.
- Eventually I'll add withdrawals from retirement accounts but for now I get by on my taxable investments.
NOTE: This approach was inspired by concepts better expressed by Fritz and Karsten