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Top 5 Reasons to Exceed 25 Years of Expenses Before Retiring

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Financial independence is defined as owning assets that will support your intended lifestyle for the remainder of your life.

While those assets may include rental properties or cash flowing businesses that provide passive or semi-passive income, the most common scenario, particularly for high-earning professionals, is to accumulate a portfolio consisting primarily of stocks and bonds.

A couple of studies in the 1990s showed us that a historically safe withdrawal rate for people wanting their money to last at least 30 years was not the 6% or 8% that many financial planners were quoting, but actually only 4% to have an excellent chance of your portfolio surviving some of the worst periods of investment returns in modern history.

To start withdrawing 4% of your portfolio while maintaining your desired spending level, you need to accumulate 100/4 or 25 times that annual spending number.

You can then increase your annual spending with inflation and the odds of your money lasting at least three decades, based on historical returns going back to the early 20th century, are about 97% when invested in a reasonable mix of stocks and bonds.

Is 25x enough for you? There are more than a few reasons you might want to exceed that number, as I did, before you leave your career behind.


Top 5 Reasons to Exceed 25 Years of Expenses Before Retirement


#1 Your Safe Withdrawal Rate May Be Less Than 4%.


A particularly poor sequence of returns combined with a lengthy retirement of more than 30 years could lead to premature depletion of your portfolio.

The 40+ part Safe Withdrawal Rate series from Ph.D. economist Karsten Janske at Early Retirement Now has shown that a safer withdrawal rate for those of us expecting a retirement as long as 60 years is on the order of 3.25% to 3.5%. You may have to lower that a bit further if you want to “play it safe” with a bond-heavy portfolio.

How stable is your marriage? If your annual expenses are the expenses of a couple or a family, don’t expect the number to be cut in half if the size of your household is.

One financially independent couple can sadly become two people who no longer have enough money to support themselves independently, and that’s not even factoring in how much of the couple’s assets can be lost to lawyer fees in the unfortunate situation of a divorce.

Some expenses may rise annually at a higher rate than overall inflation. In recent decades, we’ve seen this with both healthcare and higher education. Housing costs can increase at a faster pace than inflation, especially in up and coming neighborhoods.

A 4% withdrawal rate is going to be safe in most circumstances, but a withdrawal rate closer to 3% is more bulletproof. Saving up 30x to 35x your anticipated retirement spending can go a long way towards ensuring your money will outlast you.



#2 Future You May Want to Spend More than Current You.


The issues raised above are mostly out of your control. However, there are circumstances within your control that can change and require you to have more money.

It’s a fool‘s errand to make detailed life plans more than five or ten years into the future. Has anything changed about your wants and needs or position in life over the last five or ten years?

It’s possible that your spending needs will go down over time. Maybe you’ll travel less once you’ve had a chance to explore the world. You might trade in your golf clubs for a good pair of hiking boots and a walking stick.

On the other hand, you may find that you prefer higher-end hotels to the chains you once deemed adequate. Your new friends might be into driving sports cars at the track on the weekends.

Lifestyle inflation may be a part of your future plans whether you know it or not. I’ve argued that you do not have true financial freedom until you could double your discretionary expenses without violating the 4% rule. I came up with a number of about 36x for my family, and we exceeded that multiple before I retired from medicine.




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#3 It’s Easy (for a high-income professional)


I challenge my readers to live on half of their takehome pay. If they do, they’re setting aside one year’s worth of expenses each and every year. I was setting aside closer to three years worth of expenses towards the end of my working career.

Also, consider the fact that your investments will also make money most years. If you’ve already saved up your 25x, a normal year with returns of 4% to 8% will give you another one to two years of living expenses.

By working one more year, you could add two to five years worth of living expenses to your portfolio. Work a few more years after achieving financial independence and you’ll likely find yourself with an initial withdrawal rate of less than 3%.

You don’t even have to work that hard to make it happen. If you earn just enough to cover your living expenses, your portfolio can do the heavy lifting. That is, unless you happen to time your cutting back on work with the onset of a prolonged bear market.


#4 Bear Market Insurance


When you decide to time your retirement not by date but rather by a portfolio value, you’re more likely to retire after the market has treated you well. We are certainly seeing this in recent years as a now decade-long bull market has allowed many aspiring early retirees to meet their retirement savings goals.

A substantial market correction could come along without notice. If the next one looks anything like the two nasty bear markets we saw in the 2000s, 25x could become 15x or less in a hurry with a stock-heavy asset allocation. We got a taste of this in March of 2020 with stocks down nearly 35% in a matter of weeks.

One form of insurance is to switch to a safer asset allocation when your portfolio is most vulnerable to long-lasting damage from a terrible sequence of investment returns.

The first five years of retirement are the most influential, but the five years before retirement and years 6 through 10 afterward are also years in which big market downturns can torpedo your retirement tugboat.

Oversaving for retirement is another way to combat the bear. If you started with, say, more than 40x your anticipated retirement spending, even a 40% drop should leave you with about enough to allow you to withdraw 4% safely.



#5 Allow You to Maintain an Aggressive Asset Allocation


Stocks have a higher expected return than bonds over the long haul. They also have more volatility, which is why it makes sense to dial back the stock allocation, particularly early in your retirement, and perhaps in the years leading up to it.

Let’s say you want to have an allocation of 50% stocks and 50% bonds when you begin your retirement. If stocks lose half their value, bonds will probably see a bit of a rise, and your portfolio value would drop by less than 25%.

By playing it safe, though, you will also miss out on half of the stock market gains, and historically the market has been up for the year about 70% of the time.

If you want to have your cake and eat it too, play it safe with your first 25x and any additional money you have saved up can be invested aggressively. You can put the extra in 100% stocks if you like. You could also invest in a small business or diversify with crowdfunded farmland and other real estate investments.





My plan has been to own at least five years worth of bonds in retirement. That would represent 20% of a portfolio with 25x expenses. As the portfolio gets larger, the bond portion becomes proportionately smaller.

At 50x, 5 years worth of bonds is now 10% of the portfolio. Of course, the greater your multiple, the more likely your portfolio is to grow as you’ll be spending a smaller percentage of it, and the lower your bond percentage can safely be.

This is the reverse glidepath that has become popular in recent years. Once you’re safely past the first five to ten years of retirement where poor returns can inflict the most damage, you can afford to safely increase your stock allocation.

The venerable Dr. Bill Bernstein is known for the quotable “If you’ve won the game, why keep playing?”

I think that’s a great way for a retiree with 20x to 25x to think.

However, the more you have, the more you can afford to remain aggressive with your portfolio. Why play that game? If not for yourself, for your heirs or favorite charitable organizations. I’m sure there’s someone out there who would love for you to run up the score.

With substantially more than 25x your annual expenses in your portfolio, you have the opportunity to achieve a very high score.

If, on the other hand, you’re more interested in freedom sooner or later, be sure to check out this followup post: Top 5 Reasons to Retire With Less Than 25 Years of Expenses.

I've got my 2 acres of non-leveraged, crop-producing, cashflowing farmland via AcreTrader. Get yours.


Do you plan to retire with 25x expenses or less? Do you have a target number? Can you think of a 6th reason to rack up more than the 25x for a 4% withdrawal rate?

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21 thoughts on “Top 5 Reasons to Exceed 25 Years of Expenses Before Retiring”

  1. Pingback: Top 5 Reasons to Exceed 25 Years of Expenses Before Retiring
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Are you talking about 25x or 35x of expenses that are NOT covered by an annuity, pension, etc? Or 25x or 35x of all expenses even the portion covered by annuity, pension, etc? Thanks.

    • I touch on this in the followup post, the Top 5 Reasons to Retire With Less Than 25 Years of Expenses.

      Most people ignore Social Security — the closer you are to electing to receive it, the more it makes sense to factor it in.

      Obviously, if 100% of your expenses are covered by defined benefit plans, you don’t need any additional retirement savings, as long as those income sources are iron-clad. Adjust accordingly.


  4. Seems to me that if you were to annuitize a portion of the portfolio you could could save much less. 30% of spending is often mentioned as an optimal amount. We will likely have 50% through pensions at fire date and the longer we work the larger the portfolio portion will be. Just gives another option other than working longer for security reasons.

  5. Health Care costs are the biggest unknown. Had some severe injuries over many years after RE and 35x worked for us. Would have been doomed if we had RE at 25x.

  6. 25x is a great starting point. That’s already very difficult to achieve for regular people.
    Once there, you can figure out the next step. We saved 30x before I retired, but our expense increased quite a bit. Luckily, our portfolio did very well over the last 7 years. We’re still over 30x.
    The solution for me is to work part-time. If you can minimize withdrawal in the early years, you’ll do okay.

  7. Did you know pension funds are at best funded at 66% of need?. Let’s imagine you’re 65 and retire at 66 cents on the dollar. Probably going to have much discontent in your life.

    I don’t understand why this community keeps hawking a formula the result of which is like owning a 66 cents on the dollar pension. 4×25 IS NOT A GOOD START. It’s a 35 year old simple minded formula that clearly does not cover the present day macro risk in the system. 30 to 35x on a 40 year retirement with assets spread across several tax regimens and 5 or 6 non correlated asset classes in the portfolio is a good start for today’s environment. 35x probably will not be a good start for my kids as the macro risk works its way through the system. The idea the “formula” is “immutable” is an act of denial.

    4 x 25 was based on a war resetting the national economy and the war gen and baby boomer addition to national productivity. The war gen is dead and Boomers are retiring and dying so boomer economic mojo is kaput. Karsten speaks of 3.25 to 3.5 as likely safe but his projections are based on the war gen – boomer economy which is dying. In the calculation you can have a high leverage on a small principal or a small leverage on a big principal to reach Nirvana. Passive indexing is entirely dependent on economic productivity, and if productivity is small, but your leverage is large, you’re hosed. Don’t be hosed, no future in that. Size your retirement correctly.

  8. Reason #6 to have more than 25x at retirement:

    It helps make my very cautious wife happy.

    She is very smart and worked in banking before staying home with the kids. Saving more than we need compared to what “most” people prepare for at retirement (4% rule) helps put her mind at ease.

    For me, as the only one in the work force now, I would never dream of RE without including her in the details.

    I’m 40y, plan to RE at 45y. Planning a 2.5-3% WDR for which we will have plenty of flexibility. I also haven’t included the value of my practice in my assets and will use any money from the sale at retirement to help weather any early sequence of return risk.

    I also plan some extra funds to enjoy the many fine Michigan craft brews ?

  9. I’ve found one of the most fun parts of hitting FIRE and still making money is losing the need to be as frugal.

    I have a cleaner who comes to my house weekly. It’s not very FIRE friendly but damn do I hate cleaning.

    Spending way more doesn’t really help make me happy but adding an extra 10-20% expenses to your life makes you feel like a king once you are used to your current lifestyle.

  10. I think that estimated retirement length, portfolio distribution between pre/post tax investments, as well as fixed/variable spending expectations all play a part in driving “the number”. More important, however, was option to improve quality of life and to spend time on things that are important to me. So I targeted 25x, but then ended up at 30x anyway…

    • All good points. The more in pre-tax you have, the higher your annual “spending” needs to be, as you ought to factor in the income taxes you’ll owe annually. They might be minimal or substantial, depending on how your portfolio is constructed.

      Congrats on your success, and your 30x should serve you very well in retirement.


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  12. As noted 25X is a good place to start, but doesn’t account for life’s curveballs. You noted the risk of divorce, but as we age the possibility of disability, cancer, assisted-living or nursing home can come into play and the need for extra $$.

    One thing rarely discussed is individual portfolio distribution between taxable/pre-tax/Roth. If your SWR is 3% but most of your portfolio is pre-tax, it’s really going to suck when you turn 70 and Uncle Sam requires you to take out 3.65%. The IRS cut only goes up from there as your RMD hits 10% in your 90s. Sure you can reinvest the remainder in taxable, but it’s not very efficient asset management.

    The Reverse Glidepath is an interesting concept if your SWR is low enough. In a real world example, I recently took over my parents investment management after my father passed away earlier this year. They could basically live on SS plus a little extra with their withdrawal rate <1%. The portfolio was 90:10 equities:cash, no bonds. I don’t think I could be this aggressive with my own, but if you have a low enough SWR why not keep playing the game?

    • To your last point, precisely. I actually think that asset allocation in the face of a withdrawal rate makes perfect sense.

      Regarding tax diversification, I like where we’re at with under 20% of our money being tax-deferred. I went into some detail in “My Money is Worth More than Your Money.” I think one commenter had me beat.


  13. Your #5 reason cracks me up because it is totally something us type A folk think about. After optimizing investments to get to FI it just feels wrong to get lower returns because of managing risk on a tight drawdown plan. #4 would be my biggest concern today If I was a doctor and did not have the option of returning to work if needed (per previous commenters). It is not crazy to be concerned that the longest bull market ever in history could also be accompanied by the Longest correction or a substantial crash that chops a portfolio at the knees. We are in a historically unique place after all

    • It really is Type A thinking, isn’t it? “But I don’t want to de-risk! Guess I’ll just work a few more years, instead.”

      It’s true that it would be difficult to go back to work as a doctor after more than a year or especially two years away. But clinical practive is not the only way an MD can make money, fortunately.


  14. Your reasons are my same reasons for continuing to work once I reach my FI number. I’ll likely only be 45 when I reach my magical number, but rising health care costs concern me. Plus, I know there are a lot of things I want to do with my life and I plan to be very active well into my older years, hence, I’ll need the income to do those things. Even though I know I’ll likely hit 25x my current spending in 5 years (give or take, depending upon the market), I want a buffer just in case. I like my job anyway, so it’s not a big deal to work, especially if I reduce my hours at that point.

  15. Thank you PoF. This is a necessary yet neglected topic.

    The Shockingly Simple Math is a great entry point to Financial Independence. The rule of 25x is just the starting point. Once you get past the basic math, you begin to see the complexity of investing (let alone life!) 30-60 years in the future.

    On the flip side is flexibility and ingenuity, qualities that FIRE promotes in spades. Few are going to live off of accumulated assets and actually retire and just draw down 4% regardless of consequences. Be flexible and earn more or spend less in bad years rather than fix your spending. Be creative and do everything you can just a little bit better than before.

    Getting to 25x is just another beginning, not the end!

    • As FI Physician mentioned, I think 25x is a great starting point when you first implement a FIRE plan but I found that when I got close to that number I sort of moved the goalposts to have far more margin of safety.

      By retiring early you are giving up a massive amount of human capital, especially if you are a physician, with a lot of earning power that will vanish when you pull the plug. Sure you think you can go back if things don’t work out, but it is much harder than it seems (especially if you do not keep up with licenses, insurance, and latest trends).

      That’s why when I retire I want to really treat it as a point of no return. Personally I am tending towards the 3.25-3.5% SWR. I also know that I have a large safety of margin as my planned annual spending amount has a huge buffer for discretionary expenses (shooting for $125k/yr).

      As FI Physician also mentions, there is no law that says you have to have a constant annual withdrawal. In lean years, tighten the belt and draw less, in boon years you can loosen it if you want.

      • Flexibility in your spending is a great way to deal with a poor sequence of returns. And it’s a lot easier to be flexible when you build a fair amount of fluff into a fatFIRE budget as many high-income professionals will.



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