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Spending Your Entire Paycheck Upon Financial Independence While Still Employed

I came across an interesting question on one of my social media platform.

It relates to retirement and I would like to share my short thoughts.

Suppose you have previously set a target amount for retirement. If you manage to accumulate this target, you believe you could comfortably retire. This amount includes the necessary buffers.

Then, you hit this target amount.

If you don’t quit your day job, does that mean you could spend ALL your current income and yet don’t have to worry about not having enough for retirement?

My friend wonders if this kind of thinking is sound.

I would agree with a lot of his friends’ comments that this plan isn’t sound unless the money is ALL spent on his friends.

Jokes aside, generally this line of thought is not too wrong.

We tend to compartmentalize our wealth so that we can cope better.

One of the popular way we compartmentalize our wealth is to treat our earned dividend income as the only income that can be spent, away from our capital.

We may also compartmentalize our capital gain as “not our original money”, mentally account the distance between our original capital and the current value of our portfolio.

How Long Could You Separate Your Expenses into Two Piles?

My friend is describing the following situation:

Suppose today, and you think that you will need an income of $60,000 a year. With buffers built-in, you will need $2.4 million.

As your family live your life, your spending will change accordingly, and so does your income. You will also continue to accumulate your wealth.

At some point…. the wealth that you accumulated is able to provide the income to pay for your annual expenses then. For example, 7 years later, your annual expenses grow to $75,000 a year and you managed to accumulate $3 million in wealth.

Based on a conservative 2.5% initial withdrawal rate, you could have a $75,000 a year income that is inflation-adjusting, that last for 60 years or more.

Technically, you are financially independent.

For a lot of people, I would question whether their plan is “robust enough”. This is because most people would missed out certain things to to think about, before they are ready to pull trigger.

However, my friend did assume that buffers were in placed.

My friend’s may earn an after-tax family income of $210,000 a year.

Technically, their family can spend that $210,000 earned on whatever they need.

He has already fulfilled their retirement goal in a conservative manner. There are some assumptions though.

His family would have to keep an inflation-adjusted annual expense of $75,000 a year. If his expenses increases more than that. If not, the family would have to accumulate more.

The nice thing about financial independence is that you could choose not to retire or to retire. Financial independence give us optionality.

If you felt that there are still unfulfilled work achievements, you could continue to work.

The magic is that you can bumped up the income to spend.

In the past, my friend would need to save 40-70% of that $210,000 a year. Now, he can spend that 40-70% portion of that income.

Usually, financial independent people got to where they are because they saved 50% of their income. Not needing to save bumps up their expenses by 100%.

Alternatively, you could also choose to switch to a reduced scope of work with reduced pay, reduced commitment or try your hand on something else.

Where are the flaws in this part of the money plan?

We have to be careful about our inability to separate our expenses over time.

At the start, we may be able to separate our spending into two pile: the pile that I would usually spend, and the pile that I would not spend had I not be financially independent.

Over time, you may get used to a lifestyle where you spend $210,000 a year and find it challenging to reduce your spending again.

If you are unable to adjust your spending below $150,000 a year in the future, technically, you will need $6 million instead of the original $3 million figure, could you truthfully say that you are financially independent?

A financial independent family could circumvent this by having an honest conversation about how they look and spend their money.

They should practice living frugally in certain years to reset their habits. This will prevent their spending from controlling them instead of the other way round.

In truth, our spending do change a lot over time.

We assume that we can engage a planner to create a financial plan at the start. The planner would work out the amount we need to accumulate, what to re-allocate our wealth into.

They believe that majority of the value they will enjoy is upfront and there is no residual value.

The reality is that your life changes and that would mean your targeted retirement amount changes over time.

I was asked enough in the past: Kyith, my expenses keep going up. How do I resolve this change in expenses, with the retirement accumulation target defined in the past?

You have to revisit periodically and resolve between your income needs and the wealth accumulated.

This is not complicated math and I am sure many of you could work that out. Some of you would have your own spreadsheet. You can just iterate frequently and see whether you are closer or further away.

If you have some interesting financial independence or personal finance question, you can let me know and I could feature here.

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Monday 18th of January 2021

As your "Stages of FI" chart shows, even if you have cash flow equal to current living standards (stage 5), most people have additional life goals that they could achieve if they had a little more cashflow (stage 6) so they should save towards funding that. If they can honestly say they have no additional life goals I would be very surprised... how do such people drag themselves out of bed to work in the first place? :)

Myself, I am on target for FI by 2022 (1 year delay due to COVID), but I will still continue working after that because my additional life goal is to set up a small charitable trust so that when I retire, I can do charitable work with those additional funds.


Thursday 21st of January 2021

Hi Lim, thanks for sharing. Yeah i think for most folks, they would want to reach for something further out. We have to get in touch with what makes us tick better.


Sunday 17th of January 2021

I can draw on my experiences and those of a friend.

Once you are in the mindset of saving (and eventually living far below your income), it is well nigh impossible to change this habbit.

Every expenditure is examined to see if it provides value for the outlay, or whether it is simply an indulgence, which can be foregone.

Indeed, it even makes one unhappy to spend more than is necessary.


Sunday 17th of January 2021

this is true for me.


Sunday 17th of January 2021

This sounds like a cross between coast FIRE and regular FIRE: glide FIRE?? Where you are FI but choose to do One More Year (OMY) x n years.

Incidentally, Big ERN explored the math for OMY (One More Year) recently: So he explained how to do the calculations on the SWR when you choose not to use cashflow from the portfolio in the OMY year(s).


Sunday 17th of January 2021


This guy reached a similar conclusion using asset allocation vs withdrawal rates:

"In other words, saving 1 or 2 extra years of expenses dominates getting the asset allocation decision perfectly correct"


Sunday 17th of January 2021

Good morning retiewithfi, thanks for pointing to his article. I have his blog in my other feed reader, which I seldom use now. he calculated by putting in more contribution and not taking out income for 1 year. it improved the first year withdrawal by 7%. if the withdrawal rate is the worst case, then it helps but does not greatly improve the situation.

Planning for a 50 year retirement on 4% is just as challenging. Planning on retiring when CAPE is at this range has a 18% failure rate lol.

I think this question relates more to the notion that we still want to work and whether we are doing a stupid thing spending all our money.

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