Approaching FIRE While Still Working: How to Think About Safe Withdrawal Rates, Lifestyle Creep, and “Spending Permission”
When you’re close to financial independence but still earning a high income, the hardest part often isn’t the math—it’s the behavioral transition. You can feel simultaneously “rich on paper” and anxious about raising your baseline spending. This article walks through practical ways to think about safe withdrawal rates (SWR), discretionary upgrades, and the kinds of expenses that are easy (or painful) to unwind later.
What SWR Is (and What It Is Not)
A “safe withdrawal rate” is best understood as a planning convention, not a promise. The classic “4% rule” style research used historical return sequences to estimate how often a portfolio survived a given time horizon under specific assumptions (asset mix, inflation adjustments, rebalancing, and spending rules). It can be a helpful starting point, but it does not remove uncertainty—especially around early retirement horizons, market valuations, and personal spending flexibility.
A withdrawal rate is not “safe” because it can’t fail. It’s “safe” only in the limited sense that it was historically resilient under a specific set of assumptions—and your real life will differ from those assumptions in multiple ways.
If you are still working and saving, your situation is already different from a typical SWR scenario: future contributions, optional retirement timing, and the ability to adjust spending all change the risk profile. In practice, many households end up using SWR less as a strict ceiling and more as a feedback signal that helps guide decisions.
The Two-Budget Problem: Working-Years Spend vs. Retired Spend
The most common mental trap near FIRE is mixing up two different budgets:
- “While working” budget: Higher, because the paycheck absorbs surprises and your savings rate is still strong.
- “Retired” budget: Lower (or at least more structured), because the portfolio is now funding life.
If you raise spending now, the key question is not “Can we afford it this year?”—it’s: Are we building a lifestyle we will want (and be able) to maintain when paychecks stop? That question becomes especially important for expenses that are recurring, identity-linked, or socially reinforced.
Lifestyle Creep: The Real Risk Is “Stickiness,” Not Splurges
Not all spending increases behave the same. Some are naturally self-limiting (a one-time purchase, a capped hobby budget). Others are “sticky” and hard to reverse (housing, school choices, household staff, frequent luxury travel patterns). A simple way to reduce anxiety is to classify spending by reversibility before you approve it.
| Category | Examples | Why It Matters | Reversibility |
|---|---|---|---|
| Baseline commitments | Housing, property taxes, insurance, long-term leases | Often hard to reduce quickly without major disruption | Low |
| Institutional choices | School decisions, ongoing childcare structures | Social and logistical inertia can lock spending in | Low to Medium |
| Service layers | Housekeeping, part-time help, meal support | Convenience becomes “normal” fast, but can be adjusted | Medium |
| Discretionary upgrades | Wardrobe refresh, capped luxury purchases, electronics | Easier to budget as a fixed allowance or one-time plan | High |
| Travel patterns | Frequency, cabin class, hotel tier, trip length | Can balloon quietly; also adjustable with guardrails | Medium |
| Identity and status spending | Keeping up with a peer group’s norm | Can escalate without a clear “enough” point | Variable |
If you’re worried about “cascading” spending, start by protecting the categories with low reversibility. Put most experimentation into categories with high reversibility, where you can learn what truly improves your life without locking in a permanent cost structure.
A Guardrails Approach to Spending Increases
A helpful middle path between “strict SWR ceiling” and “spend whatever feels fine” is a guardrails system. The idea is straightforward:
- Define a base lifestyle you’re confident you can fund through good markets and bad.
- Layer on variable spending that expands in strong years and contracts in weak years.
- Pre-commit to what you will do if markets drop (so you’re not making emotional decisions during stress).
This often feels more realistic than pretending spending will be perfectly inflation-adjusted every year. Many households find they can accept modest year-to-year variability if it buys them peace of mind and more freedom overall.
One practical method is to create two buckets: Core (non-negotiables) and Flex (nice-to-haves). Then attach simple rules to Flex—for example, “Flex increases only when the portfolio is above a target band,” and “Flex pauses after a large drawdown until recovery.”
Stress-Testing Your Plan Without Over-Optimizing
If you are still working, you have powerful levers that retirees often do not: you can delay retirement, increase savings, reduce spending later, or earn supplemental income if needed. That said, it’s still wise to sanity-check a few scenarios:
- Immediate drawdown: What happens if the market drops materially next year?
- Lower return decade: How does the plan look if real returns are muted for an extended period?
- Spending surprise: What if key costs rise faster than expected (taxes, insurance, education, healthcare)?
The goal isn’t precision; it’s confidence that you can respond without panic. The closer you get to FIRE, the more useful it becomes to focus on the “shape” of risk: sequence risk early on, then later the risk often shifts toward inflation, longevity, and large one-off expenses.
A Practical Playbook for the Next 12–24 Months
If you want to loosen the budget while still protecting the future, this structure tends to work well:
Define the “forever number” first
Decide what annual spending level you would be comfortable maintaining indefinitely, including taxes and recurring big-ticket items. Treat that as your retired-core baseline. Then measure everything else against it.
Turn splurges into a planned allowance
Instead of approving upgrades ad hoc, set a clear annual “quality-of-life allowance” for discretionary items (fashion, gadgets, hobbies, small luxuries). This reduces guilt and prevents decision fatigue, because spending is “yes by default” within the allowance and “pause and discuss” outside it.
Use a “one-time vs. recurring” filter
One-time purchases are easier to absorb and easier to stop. Recurring upgrades deserve higher scrutiny because they become your new baseline. If you’re unsure, test it as a 12-month experiment rather than a permanent lifestyle shift.
Protect the categories that are hardest to unwind
Be extra deliberate about decisions that create long-term obligations. If you do upgrade sticky categories, consider doing so only after you’ve added an additional margin of safety (for example, a more conservative spending rate, or a larger buffer above the number that initially made FIRE feel “reachable”).
Pre-commit to what you will do in a bad market
Write down a simple rule: if the portfolio falls by a meaningful amount, which Flex items pause first? This keeps the plan from relying on willpower during stress.
Remember the trade you’re making
Near FIRE, every extra year of work can buy either: (1) more security, (2) a higher permanent lifestyle, or (3) more optionality for generosity and family goals. None is “correct” universally. What matters is making the trade intentionally rather than drifting into it.
Useful References
If you want to go deeper on withdrawal-rate thinking and flexible spending frameworks, these are common starting points:
- Vanguard overview of retirement spending approaches, including dynamic strategies: Spending strategies in retirement
- Vanguard discussion of dynamic spending concepts (floors/ceilings for adjustments): Dynamic spending research overview
- A widely circulated version of William Bengen’s classic withdrawal-rate research (PDF): Determining Withdrawal Rates Using Historical Data
- A discussion of “guardrails” style flexibility in retirement spending: Guardrails and flexible spending concepts
Post a Comment