Sometimes I hit the jackpot in my quest to find old material about retirement and early retirement. Last week, for instance, I was reading Early Retirement Dude's history of the financial independence movement when he mentioned a Life magazine photo essay about early retirement from February 1957. Say what?

Within minutes, I was reading the article via Google Books. Within an hour, I had ordered not just that issue of Life but three others with retirement articles. Within days, the magazines were on my doorstep. I'm telling you: We live in the future!

I am both a money nerd and a book nerd. Naturally, I get a little giddy when I find old books about money I've never heard of before.

While browsing Oregon's best used bookstore earlier this year, I stumbled on a 1989 book called How to Retire Young by Edward M. Tauber. Tauber retired at the age of 43 from a tenured full professorship as Professor of Marketing at the University of Southern California. He's written a number of marketing textbooks, but this was his first (and only?) foray into the realm of personal finance.

How to Retire Young is one of the oldest books I've found on the subject of early retirement. It's fun to see how much of the modern financial independence movement is foreshadowed in the book's pages.

It's also fun to see how closely How to Retire Young adheres to my own "get rich slowly" philosophy. "Much [financial advice] is oriented toward the quick buck," writes Tauber, "taking paths that often have a low probability. In short, you might as well play the lottery."

Tauber has a different philosophy. He urges readers to "take the high road". He wants them to follow the path with the greatest odds of success, even if that path might not lead to quick wins. He also cautions that "there's no best way for everyone", just as I say "do what works for you". There are certainly best practices and mathematically optimal options, but there aren't any right options.

You Can Retire Young

Tauber's premise is that many people can retire early -- if they plan and remain dedicated to the plan. He writes:

"If you want to retire early, there are no magic formulas. It requires hard work to make money and requires smart work to learn how to invest on a pretax basis. If you invested 15 to 20 years in school to learn how to make money, why not spend a little effort to plan how to capitalize on your earning power to be able to enjoy it for a third of your life on your terms in early retirement?"

"Think of life has having three periods: schooling, working, and savoring," he says. Most folks spend the first 20 to 25 years of life in school, work for 40 to 50 years, then leave what's left for "savoring". He suggests shifting our perspective. "Why not plan life in three equal installments?" he asks. Spend 25 years in school, work for 25 years, then savor another 25 years -- or more.

The issue, as you know, is that there are trade-offs. The opportunity cost of retiring young is the stuff you could have had (and the things you could have done) during your working years. "Early retirement is like anything else that you can purchase," Tauber writes. You probably won't have as much discretionary income while you're saving or when you retire, but you will have the time to enjoy what you do have."

Tauber says the reason most people don't retire early is they don't think it's possible. More than that, they're not willing to wait to spend their money. They want to spend it now. They're working hard, earning money, and they feel like they deserve to indulge themselves.

What's more, the average person "cannot visualize the possibility that [work] might slow or stop". People fall victim to the forever fallacy. As a result, they get trapped in what Tauber calls the work-spend cycle.

When you want everything now, you get it now -- but that means exactly what it implies: having it now, not later. "It's a prescription for a lifetime of work and spend," Tauber warns. It's also a prescription for living on less when you're older. If you want money now and later, you have to plan for it. You have to want it badly or it won't happen. And "if you want to retire early, you have to do it yourself, using the system to your best advantage."

I'll admit it: There are times that I think everything that needs to be said about personal finance has been said already, that all of the information is out there just waiting for people to find it. The problem is solved.

Perhaps this is technically true, but now and then -- as this morning -- I'm reminded that teaching people about money is a never-ending process. There aren't a lot of new topics to write about, that's true (this is something that even famous professional financial journalists grouse about in private), but there are tons of new people to reach, people who have never been exposed to these ideas. And, more importantly, there's a constant stream of new misinformation polluting the pool of smart advice. (Sometimes this misinformation is well-meaning; sometimes it's not.)

Here's an example. This morning, I read a piece at Slate by Felix Salmon called "The Millionaire's Mortgage". Salmon's argument is simple: "Paying off your house is saving for retirement."

Now, I don't necessarily disagree with this basic premise. I too believe that money you pay toward your mortgage principle is, in effect, money you've saved, just as if you'd put it in the bank or invested in a mutual fund. Many financial advisers say the same thing: Money you put toward debt reduction is the same as money you've invested. (Obviously, they're not exactly the same but they're close enough.)

So, yes, paying off your home is saving for retirement. Or, more precisely, it's building your net worth.

But aside from a sound basic premise, the rest of Salmon's article boils down to bullshit.

The July 2018 issue of the AAII Journal -- the monthly publication of the American Association of Individual Investors -- includes an intersting article about how to "increase your retirement resources". This plain English piece summarizes some of the findings from the authors' research paper "The Power of Working Longer".

According to the article, there are three primary factors that determine "the adequacy of retirement resources". Those are:

• When a person begins participating in an employer-sponsored saving plan,
• What percentage of their earnings they save in such a plan (i.e., their saving rate), and
• At what age they retire and begin taking Social Security benefits.

Until Elon Musk invents a time submarine, it's impossible for a worker to go back to their youth and begin saving for retirement earlier. Because of this, the authors focused their research on the relative power of saving more and working longer.

Last week, I wrote about the problem with retirement spending: How much should you spend during retirement? If you spend too much, you run the risk of depleting your savings. But if you spend too little, you're sacrificing the opportunity to make the most of your money, to "drink life to the lees".

One of the guiding principles in retirement planning is that there's a "safe withdrawal rate", a pace at which you can access your investments so that your nest egg will last for thirty years (or longer).

For simplicity's sake, a lot of folks talk about the "four-percent rule": Generally speaking, it's safe to withdraw 4% from your investment portfolio every year without risk of running out of money. (This "rule" manifests itself here at Get Rich Slowly when I say that you've reached Financial Independence once you've saved 25x your annual spending -- 33x your annual spending if you want to be cautious.)

Today, I want to take a closer look at the four-percent rule for safe withdrawals -- then explore why the theory behind it doesn't always mesh well with the reality of our daily lives.

The Four-Percent Rule Defined

Last August, William Bengen (who first proposed the 4% rule in a 1994 article), participated in an "ask me anything" discussion at the financial independence subreddit.

Here's the top question and answer from that thread (with additional formatting for readability):

Question
Is the 4% rule still relevant in today's economy? What safe withdrawal rate would you recommend for someone planning for longer than 30 years of retirement?

Answer
The "4% rule" is actually the "4.5% rule" -- I modified it some years ago on the basis of new research.

The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you "throw away" the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year's inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950.

Now, on to your specific question. I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count:

• If you encounter a major bear market early in retirement, and/or
• If you experience high inflation during retirement.

Both factors drive the safe withdrawal rate down.

My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%!

However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things.

In my opinion, inflation is the retiree's worst enemy. As your "time horizon" increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006...

If you plan to live forever, 4% should do it.

That's some helpful information, and it comes directly from a man who has been researching this subject for 25 years. Obviously, it's no guarantee that a four-percent withdrawal rate will hold up in the future, but it's enough for me to continue suggesting that you're financially independent once your savings reaches 25 times your annual spending.

But here's the catch -- and the reason I'm writing this article: From my experience, spending in early retirement is not a level thing. It fluctuates from year to year. Sometimes it fluctuates wildly.

I spend a lot of time talking with people who have retired early or are otherwise financially independent. From a purely anecdotal point of view, I'd say most of these folks are well-adjusted. They work to maintain balance in life, and especially with their personal finances.

That said, I've noticed that a lot of retirees -- early retired or otherwise -- struggle to know how much they should spend. I believe this dilemma exists for a couple of reasons:

• First is the life expectancy problem. You don't know how long you're going to live. If you did know the precise date of your death (or even the year of your death), retirement planning would be much easier. You'd be able to say, "Okay, I have ten years left and $300,000 in the bank. Based on that, I should be able to spend $30,000 per year." But you don't know when you're going to die, so a lot of retirement planning becomes guesswork.
• Second is the question of what your money is for? Do you want to leave a legacy for your children (or somebody else)? Do you want to maintain a chunk of change for possible end-of-life medical issues? Or do you want to use your wealth to live life to the fullest while you can? In my case, my ideal would be to die broke. If I could spend my very last penny on the last day of my life, that'd be perfect.

The general response to these two problems is to follow what has been dubbed the four-percent rule. Generally speaking, it’s safe to withdraw 4% from your portfolio every year without risk of running out of money. (There are a lot of caveats to this guideline. To learn more, follow that link to my Money Boss article -- or wait for that story to migrate to Get Rich Slowly in a few days!)

The AAII Journal -- the monthly magazine from the American Association of Individual Investors -- has published two articles in recent months about the problem of spending in retirement. Let's look at what they have to say.

Vanguard, the mutual fund company, recently published a free retirement planning guide for folks like me who aren't interested in hiring a professional financial advisor. Vanguard's Roadmap to Financial Security is a 32-page document intended to provide DIY investors with a framework for decision-making in retirement.

Here's an excerpt from the intro to this retirement planning guide:

All his life, Paul Terhorst wanted to be rich. Even in grade school, he looked forward to having a corporate job, to joining the world of big business. "I didn't just dream about money and power and expense account living -- I planned for it." He grew up and made it happen.

He got his MBA from Stanford. He became a certified public accountant and joined a large accounting firm. At age 30, he became a partner in the company. He had "a huge office, a leather chair, and a view of a polluted river". He'd achieved everything he'd always dreamed about.

But at age 33, while on a business trip to Europe, he overhead two guys talking about a friend who had retired early. Terhorst was intrigued. "I began toying with the notion that if I could come up with a way to live off what I already had, I'd never have to work again."

It took him two years to figure everything out. But in 1984, at age 35, Terhorst made the leap. He retired. (And he's been retired ever since.) In 1988 he published Cashing In on the American Dream to share his experience -- and the experience of others who made an early exit from worklife to pursue their passions.

"We need to find new opportunities for sharp, hardworking people who leave the corporate structure," he writes. "Up to now, those outlets have been second careers, the Peace Corps, turning a hobby into a business, and the like. Those outlets give you at least some money to live on. The route I describe in this book offers more freedom."

It Takes Less Money Than You Think

The first part of Cashing In on the American Dream is devoted to Terhorst's three-part formula for achieving early retirement:

• Do your arithmetic, by which he means crunch the numbers to see how low you can trim your expenses and how much you need to have saved in order to cover your costs.
• Do some soul-searching. Decide if early retirement is right for you. If so, what does it look like? How will you find meaning after work?
• Do what you want. Terhorst advocates a life of "responsible pleasure": Do what you love, but don't spend a lot of money to make it happen.

It takes less money than you think to retire early. "Millions could retire right now," Terhorst says. But many folks are bound by "golden handcuffs". Their high incomes fund lavish lifestyles, which means they remain voluntarily shackled to their jobs.

In 1984, Terhorst believed you needed a net worth of $400,000 to $500,000 -- which would be $972,000 to $1,216,000 today -- to retire early. With this level of wealth, he thinks you could live well on $50 per day. (According to official government inflation data, $50 in 1984 is equivalent to $121.62 in 2018. That means Terhorst advocates spending roughly $44,000 per year.) If you opt for what he calls "bare-bones retirement" -- what we might now call LeanFIRE -- you can retire much sooner.

Today's "money story" is a guest post from Bob Clyatt, author of the outstanding Work Less, Live More, which is one of my favorite books about financial independence and early retirement. [My review.] It's an update on what his life has been like since moving to sem-retirement fifteen years ago.

I had the good fortune to start a digital design firm in 1994. I sold it during the dot-com frenzy, leaving me with a bad case of burnout and full retirement accounts. It seemed like the right time to pull the plug, so in 2001 — at the age of 42 — I left full-time work.

I embarked on a self-funded post-career lifestyle that wasn't quite retirement (at least not in the traditional sense). I chose to do part-time, work-like activity in order to stay challenged and engaged while also closing budget gaps. Five years later, I wrote Work Less, Live More, which popularized the notion of semi-retirement.

So, I guess the big question is: Does semi-retirement work? What has it been like for me and my family? What lessons have I learned since embarking upon this path?

The Way to Semi-Retirement

The quick answer is: Yes, semi-retirement can and does work. The investing approach outlined in Work Less, Live More has sustained our spending since the day my wife and I quit work in early 2001. Our savings have allowed us to have part-time, low-paid (but intrinsically fun and meaningful jobs) at a time when the normal people in those jobs can’t actually make ends meet — and can't enjoy them as a result.

My wife works ten or twenty hours a week in a large specialty women’s clothing store. Her job allows her to stay connected to her interests in fashion while spending time with a younger generation of women: her co-workers and managers.

Meanwhile, I got to pursue my dream of becoming an artist. I went to art school, then built a sculpture studio. I now show and sell my work everywhere from Hong Kong to Paris, from trendy art fairs in Miami to galleries in Manhattan. [Check out Clyatt's contemporary sculpture at his website.]

I've certainly had fifteen-hour days and eight-hour weeks in semi-retirement, but mostly I putter around in the morning before going to my studio after lunch. I spend an active afternoon sculpting. At night, I'm parked on the couch just like the rest of the country.

Like all artists, I sigh that I don't have as many sales as I'd hoped after an art fair or gallery show. But then I pinch myself and remember that the art itself is getting better. I remind myself that creating the art is deeply meaningful and our financial needs are still covered by our savings.