In all my years of working, I have yet to run across someone who didn’t appreciate getting a raise or become really agitated with the prospect of taking a salary cut.  Justified or not, the way that income level sets personal expectations seems to be ingrained in each of us from a young working age.  And after thinking that way for perhaps decades, it should come as no surprise that such a mindset doesn’t necessarily immediately evaporate the day we retire.  If you have a choice, do you really like the idea of leaving retirement income on the table?

So when studying the ins and outs of retirement finance, one little detail tends to really nag at the minds of certain optimization-oriented people — the assumption about the retirement spending method.  

Several years ago I discovered the concept of financial independence, and the idea was a revelation.  Life too often becomes a series of developed habits, and the process of questioning the basic assumptions behind those habits and envisioning a system where your investments can do the work for you to fund your lifestyle in perpetuity was a life-changing exercise.

As an engineer with a math minor, I was especially taken by a few prominent retirement studies on the subject of safe withdrawal rates.  They famously came to the conclusion that for a traditional mix of stocks and bonds one could have retired with a 4% safe withdrawal rate, adjusted their expenses for inflation each year, and had a successful 30-year retirement with a high amount of certainty historically.  The process they used for back-testing retirement scenarios was fascinating, and the results form the backbone of the vast majority of retirement advice today.

So I dove in and explored the data and assumptions and engaged full-force in various early retirement communities online.  I played with a few of the prominent retirement calculators out there and tinkered relentlessly.  Anyone else who has done the same can understand how intoxicating it all can be.

So much so, that after building my own models I realized a lot of people totally misinterpret the conclusions and get it all wrong!