There is a catch, though. If the "coasting" income is only sufficient to meet expenses, then the time to FI is entirely subject to the investment returns. Suppose a 60% savings rate, and assume 6% real investment returns. If the person starts with 50% of the net worth goal (say 12.5x, with a target SWR of 4%), then continuing to work will result in 25x being reached in 4.9 years. If semi-retiring to a 0% savings rate (without touching investments), then 25x is reached in 11.9 years. This is just 7 more years, but freedom starts immediately. Sounds great!
Now take the same example, but instead of 6% investment returns, let's use a less optimistic assumption and compound at 4%. If continuing to work, 25x is reached in 5.7 years (an increase of less than 1 year). However, the semi-retirement case now reaches 25x in 17.7 years. The rift widens to a point where it is nearly indistinguishable from normal semi-retirement. Table 1 can be used to explore several possibilities. Maybe instead of targeting a 0% savings rate in semi-retirement, something more like 30% would considerably reduce the variability of the FI date due to investment return uncertainty. However, to achieve a 30% savings rate in semi-retirement requires 43% more work or serendipity.
Table 2 is just simple arithmetic but the point is to show that at these higher (optimistic) rates of return, the person is already essentially FI with 12-16x expenses saved. In any case, the idea compares favorably to saving 25-33x in a high-powered job and waiting until FI to start developing new skills and alternative sources of income. There's a real risk of over-accumulating (i.e. could have left the job earlier) because net worth is already in runaway mode at the time new income sources are added. Yet another reminder that FI is not a discrete net worth but rather a fuzzy and somewhat subjective milestone.
Table 1 - Years to 25x/33x from Net Worth Midpoint
Code: Select all
Years to 25x/33x Years to 25x/33x
Job Job From 50% NW Target From 50% NW Target
Savings Savings (Compound at 6%) (Compound at SWR)
Rate Per Year 25x 33x 25x 33x
------- -------- ------------------ ------------------
0% 0.00 11.9 11.9 17.7 23.4
10% 0.11 10.7 11.0 15.3 20.2
20% 0.25 9.6 10.1 13.0 17.2
30% 0.43 8.4 9.1 11.0 14.5
40% 0.67 7.3 8.0 9.1 12.0
50% 1.00 6.1 6.9 7.3 9.7
60% 1.50 4.9 5.7 5.7 7.5
70% 2.33 3.7 4.5 4.1 5.5
80% 4.00 2.5 3.1 2.7 3.5
90% 9.00 1.3 1.6 1.3 1.7
Code: Select all
Starting Real Rate of Return
Assets 0% 1% 2% 3% 4% 5% 6% 7%
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10.00 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70
12.00 0.00 0.12 0.24 0.36 0.48 0.60 0.72 0.84
14.00 0.00 0.14 0.28 0.42 0.56 0.70 0.84 0.98
16.00 0.00 0.16 0.32 0.48 0.64 0.80 0.96 1.12
18.00 0.00 0.18 0.36 0.54 0.72 0.90 1.08 1.26
20.00 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
25.00 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75
33.00 0.00 0.33 0.66 0.99 1.32 1.65 1.98 2.31