BiggerPockets Money Podcast - The Proven Path to Financial Independence by 44

Episode Date: January 23, 2026

Should you retire the second you hit financial independence, or is there value in working just a little longer? Steven faced this exact decision at 40 and chose to work four more years. The result? He added $1 million to his net worth and entered retirement at 44 with $3.5 million and a bulletproof plan. In this conversation, Steven shares his complete early retirement strategy, including why he delayed retirement past his FI number, how those extra years set him up for flexible spending of $120K-$180K annually, and the specific withdrawal tactics he uses to optimize taxes and health insurance subsidies. This Episode Covers: Steven's journey from engineer to early retirement at 44 Why he chose to work four more years after hitting his FI number Career transitions and strategic income optimization Investment strategy and asset allocation for early retirement Planning the transition to early retirement Flexible spending strategy: $120K-$180K annual range Navigating the ACA subsidy cliff for health insurance Strategic Roth conversions and tax optimization Safe withdrawal rates and managing inflation Starting new business ventures in early retirement What daily life actually looks like in early retirement at 44 Steven's story proves that "one more year syndrome" isn't always fear-based procrastination—sometimes it's strategic planning that pays off big. Whether you're close to your FI number or just beginning your journey, his practical approach offers a roadmap for retiring early with confidence. Follow BiggerPockets Money: Website: https://www.biggerpocketsmoney.com Facebook: https://www.facebook.com/groups/BPMoney Instagram: https://www.instagram.com/biggerpocketsmoney/ Learn more about your ad choices. Visit megaphone.fm/adchoices

You hit financial independence at age 40 with $2.5 million. Do you retire immediately or do you work one more year? Our guest today, Stephen, chose to wait and it paid off big time. In this episode, you'll learn how four more years added a million dollars to his net worth and why one more year syndrome isn't always fear-based procrastination and the flexible spending strategy that lets Stephen spend up to $180,000 per year in early retirement. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen, and with me as always is my flexibly employed co-host, Scott Trench.

Thanks, Mindy, great to be hybrid-fi alongside you and Stephen. We were excited to welcome Stephen today to the Bigger Pockets Money podcast. I think this is going to be one of our best shows ever. I'm very excited about this interview. Stephen has a really, really wonderful story, a really wonderful life. And I think a lot of what he did is achievable and repeatable by the portion of our audience who are in that engineer in, you know, category that can that can bump their income over a 20 year period into that $100,000 to $200,000 a year range. And I think that this is a really powerful story, an example of that. Stephen is incredibly detailed with his net worth, income, and withdrawal strategy details several years into his early retirement.

And it's going to be a real privilege to hear those numbers today. You're going to hear how Stephen and his wife design their specific withdrawal. strategy, why they had a five-year cash buffer, and how they use Roth conversions as a central component of their plan. You're also going to hear about how they manage variable spending between $120,000 and $180,000 per year with a pretty heavy emphasis on optimizing or making sure that ACA subsidy cliff for the Affordable Care Act subsidies for their health insurance. So this is going to be a fun episode. We're going to ask a lot of really tough questions and get into the details. It's going to be a little bit of a longer one. And again, I think one of our best ones ever.

With that, Stephen, welcome to Bigger Pockets Money. Mindy, Scott, how are you guys doing? We're doing great. Super excited to be here. Always a privilege to get to record a podcast and a particular privilege to get to record a podcast with you today and hear this fantastic story. Thank you so much for listening for many years, I think,

and thank you so much for coming on the show and reaching out. Yeah, I'm truly blessed and I'm not stressed. I'm just so happy that just this opportunity to speak with both you all about my story and kind of what I've doing for, for financial dependence and my life during financial dependence. And we really look forward to getting a discussion on the decumulation phase. I think that's always like a big interesting topic right now.

Let's go back in time a little bit here and talk about the moment when you discovered you were five. How did that feel? When was that? What was your situation like? Basically, I was at the age of 40. This is 2018. And what I was doing was,

I've always been an accumulator, I've saved money, We invested very well just throughout my working years. I found about the financial independence movement by accident. I was talking to my coworkers about a pension that we have, and we were talking about options of do we want to take the lump sum, or do we want to take the annuity? So I went on, you know, went on Google and just Google, hey, what's the best option,

lump sum, you know, or an annuity payment. And it turned me on to a couple of podcasts. Jill Schlesinger, Jill on Money, and Roger Whitney, the Retirement Answer Man. I listened to those podcasts, and then it just got me connected. They had people on the shows, and it got me connected to other members of the FI community, such as Paula Pan and Joe Saul C. High, which then I listened to their shows, and then got me connected to more folks and their stories. And then I got to, you know, that rabbit trail of different podcasts, such as Bigger Pockets

money, choose FI, and all I know suddenly, I just discovered, wow, these are people just like me. They like talking about money. You know, they're not ashamed about it. And I said, wow. And that's what I discovered the 4% rule. I looked at our finances and did a quick calculation and said, hey, I asked what? Surprise. I'm already at financial independence and I wasn't even aware of it. Was your plan just to work until you were 65? My plan was to work till 60, really, to a 59 and a half. And the reason why, 59 a half, that's when we can have full access to our retirement accounts. So, you know, it was just one of those was just doing our typical job of saving and investing, you know, maxing out all our retirement accounts, putting money away to kids' college

savings plan, and also putting money to our brokerage account as well. So, but again, the plan was always to leave work at 59. Okay. And what was work? I was an engineer. I worked in the oil and gas industry. I got an opportunity just to live in different parts of the United States. So I started off in Texas, and that's where I actually met my wife, and we got married and had two kids. After working in one location there, I transfer off to a different location. We moved to Seattle, Washington.

That was actually a great experience because my wife, she was a teacher at the time when we met in Texas. But then we moved to the Seattle, Washington. an area. We had no friends and no family. So the best thing for her was to move into a different role called a domestic engineer. I don't want to call stay-at-home spouse. I was also a domestic engineer for a while. And that's a good way to phrase it because you're juggling a lot of things and you've got some engineering to do in that job. And it is absolutely a job. It is. I mean, let me tell you someone, she switched to that job. I gave nothing but respect for the duties that is.

I mean, it's a full-time job. You're always on duty whatsoever. And so, We went from a dual-income household to a single-income household. But however, when we was living there, we were saving more money. And part of it was just because we were doing things different. It's very beautiful up there in the Pacific Northwest. You can do a lot of hiking, do a lot of biking. You know, I tell everybody my kids were born in Texas, but they were raised in Washington State just because of all the outdoor experiences. We wasn't going out to eat as much.

We didn't have to do a lot of shopping for clothes because up there, You know, it's either you're wearing rain gear or t-shirts and stuff. Let's put some numbers behind this story here, right? So you discover that you're five at 40. You're living in Seattle, right, the Pacific Northwest at this time. Is that correct? Not necessarily. So we were there in Seattle area from 2011 to 2018.

And then I made my second move with transfer with my company to Louisiana area. And that's where you discovered you were financially independent. Yeah, when I made the second move to this new location, And that's when I made that discovery at that time. How much wealth or what was your position like when you discovered at age 40 that you were financially independent living there in Louisiana? Yeah. So what we had totally saved was $2.5 million.

And that's across 401ks, you know, traditional and raveys, brokerage accounts, savings, and also 529 plants. Let's talk about how we got there as well. You told us, you know, when you moved to the Seattle region, that your wife became the domestic engineer, right? So your one-income household. What was household income like throughout this journey? Where did it start and where to kind of end up at its peak during your working years?

When we left Texas making our first move, my wife and I was bringing home about $180,000 a year. I was $135. Her was $45. And then we moved to the Seattle, Washington area. We dropped down just to my salary about $135,000 a year. And we were there for seven years and just through promotions and bonuses and everything. The salary rose back up probably, you know, at that time, about to 180. And then when we moved to Louisiana, you know, and I worked there for my last four years,

my ending salary with my company was around $250,000 a year. And was there anything else that we should know about your financial position? Was this generally speaking invested in, you know, in stocks and bonds? Were there other assets that we should consider like real estate or pensions? What did the situation look like in terms of where that net worth was allocated when you discovered at age 40 that you were five with two and a half million? It was just pure investing in stocks and bonds through mutual funds. So I want to make a confession, because I might lose my FI card. That wealth was generated through actively managed mutual funds.

You can have actively managed mutual funds in your portfolio. you can have a financial advisor that charges AUM in your portfolio. I want you to know what you are choosing before you choose it. Not everybody has time to do these deep dive research into what they're doing. And not everybody understands that index funds exist. I didn't even invest in index funds until like eight years ago. I didn't even know they were around. Having him in an actively managed mutual fund,

if anybody has a problem with him doing that, you can email Mindy at biggerpocketsmoney.com. and I will tell you my thoughts personally. You're fine, Stephen. Thank you, Mindy, because I would just say, I wasn't against index funds. It's just that, one, I didn't know about it when I first started investing. And second, the investment choices I had was very limited. So what I just said, hey, let me just take what I have and make it work.

You know, don't seek for perfection, seek progress. Just by doing that, that let me down the road. Perfect. And I mean, you retired early. So anybody who has a problem with the way you did it can, tell somebody else. We will be right back with more of Stephen's fantastic story after a quick word from our show sponsors. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing.

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police would not give them at least some minor citation. So I think you're clear. I guess the other thing I would add to it, so, you know, real estate. state was a component of generating a wealth, but that wealth was generated through buying and selling of our primary home. One of the things that's so helpful is that, you know, through my job and through job transfers, they provided a lot of benefits where they would help you sell your current home and also pay the closing cost on that and also pay the closing cost on your new home. It's very financial incentive, so you really just got to go in and find a house that you can

truly afford. And they give you that incentive. There's like relocation money and other things as well to get you started. And what I did with that was, hey, let's make this relocation expense very little as possible. And then I took that and invested into the market. Plus the proceeds that we made on all our homes, I invested. So right now, this is our fifth home that I'm on. So every home that we bought and sold has been nothing but strong profits. We have this one more year or so. several more year component to your story. Tell us about, hey, we discovered five, why do we decide to continue working that extra time before transitioning to full retirement? When I discovered five, it was nice. I was happy to know that, hey, this is a great option. However, I was in

my dream position and dream job. I mean, I love my job. I love to come to work. I love the challenge and the opportunity that it provided. So it wasn't like I was looking to move away from my job. I just continue to keep moving forward. So this is 2018 when I found by in 2020, things changed. And I think everybody can least remember what took place in 2020 besides the stock market going down. Did you have plans to retire before COVID happened? Like, did you plan like, oh, in July of 2020, I'm going to retire? And then COVID, you're like, no, I'm not going to.

No, actually, I didn't. Again, when COVID happened, just things at my job. changed you know all of a sudden I just wasn't lit up anymore that burning desire to continue to put in the effort to come to work which is burnt out and eventually by the end of that year I was more existing versus living being in my position as an organizational leader I said this is not good you know it's not good for me it's not good for my family and it's not good for the company and the people that work with me as well so at the end of the year

That's when I put my financial plan together. I already knew we can do it, but it's like, well, let's put a plan together. It's time to exit out and go do something different. So this is at the end of 2020 when I made the decision and I talked to my advisor just to validate what I was going to do. And then after that, I had a conversation with the boss at home, which is my wife and said, hey, ready to move forward with this? How do you feel? And she said, let's do it. And the plan was, let's work one more year.

let's work a full year, 2021. Then I'll retire the first quarter of 2022. So you decided 2022 will be the year that you retire. What did you feel like you needed to do in that next year? I need to get myself prepared financially, physically, and mentally. So let's talk about those three things, preparation. Financially, A, I wanted to go ahead and just pad our finances and savings. Just wanted to be sure, hey, we had just extra enough.

It was in the middle of the school year. We wanted to move from Louisiana and to Houston, Texas area. I wanted to be sure I keep a job while trying to secure a mortgage in a new location. Now, I know some people say, well, hey, you know, it's okay if you don't have a job and they'll still give you a mortgage. No, they won't. It's, yeah, you could have millions of dollars in the bank, but if you don't have income coming in, they can make it very difficult. So that was the financial preparations to make sure I had a mortgage secured in our new home in Houston. On the physical preparation side, I wanted to make sure my health was intact.

You know, I was out of shape, and I said, hey, I need to get myself checked out, have all my cancer screenings, you know, make sure that I'm in a good position to leave. Because right now, this company provided great insurance. And I would hate to have some type of ailment in moving in retirement, not have that type of insurance. Luckily, though, came positive feedback response on my cancer screening. And also, I don't know what happened. My body just decided, hey, you know what?

I heard that you're retiring, I started losing weight. I had lost over 50 pounds. My blood results came back. Like my cholesterol level came back below 200, triglycerides. Everything just came back in range. And I just said, wow, this is truly a blessing. We always think that early retirement is the cause of better health after it. But it seems like it was the effect in this particular case.

So I love the mental and physical preparation here. Tell us about the financial preparation. What was your position like at the beginning of that year? What was it like at the end of the year? And why did that year make a difference there? Yeah, let me just paint the picture. So at the time that I was about to leave, so one, our assets have built up to be about $3.5 million. Again, it was vested across all our different types of accounts from tax deferred, tax free, taxable, and also $529 plans. We sold our home in Louisiana.

We're all moved into our new house in Texas with a great low interest rate. So thank God as well. And at that point, during that 90-day sabbatical, I was still getting paid but a company because I haven't left. I really got a chance to really position all my assets, and particularly the money that's in our taxable accounts. I was able to get it positioned where we had full enough that I was going to give as a good runway to live off of before we had to tap into our retirement accounts. So give you some particular numbers. So in that taxable bucket, we had about $1.25 million. $750 of it was invested in equities. and then 500,000 of it was in cash, cash equivalent.

If you do that math, our taxable bucket was really a 60-40 split from equities to fix income. The only difference is instead of having bonds, we just had cash. And I can get to why whip that high level of cash? Because I know that sometimes that's going to get people kind of wonder like, that's too much. Why did you choose to have so much money in cash? Are you spending $250,000 a year? Was this just two years of spending? We wanted five years of living expenses because our living expenses over the last three years up to my retirement, we're spending $100 grand a year.

You know, if you took that, you know, $100,000 divided by our investible assets, it was still, what, less than 3%. We don't follow, and I know this is probably about to get in some hate mail from this. We don't follow the 4% rule for a withdrawal standpoint. And we can get in that when we start to the accumulation. We always go by how much we want to spend. I like to go by dollars a mile. And the reason why I understand what the 4% rule, I think it's a great rule of thumb to get yourself accumulated,

but it's one of those ways that it kind of gets everybody on the same even keel. And what I mean by that is, and I don't want to get biblical, but when you go to church, people always say put 10% in. You know, if Scott put 10% in, Mandy puts 10% in, that's all that matters because it doesn't matter to the amount, as long as you put 10% in. And I feel the same way with the 4% rule is just it gets, everybody kind of on the same even keel and stuff.

I like to just work on out, this is how much we want to spend versus not. This is how much we're precisionage we're drawing. I love it. So walk me through what this means with the spending. How much did you want to spend an annual basis? What did that look like? So we wanted to spend 100 grand. That's what we spent for last three years up to my retirement.

And that really covered just our base essentials, our life, going out to eat, taking vacations, maybe one big vacation a year. I mean, we were living, you know, pretty okay. I have a comment really quick. You said we went with how much we wanted to spend, which is great when how much you want to spend is less than your 4% rule. And your 4% rule on 3.5 million would be $140,000. So we want to spend $100. That's great. You're pulling out less than. I can hear somebody saying, oh, I want to spend $100,000. Yeah, but you only have $500,000. You can't spend $100,000 in call yourself retired or, well, call yourself retired for very long. But you're clearly spending below the threshold. In the years that you've been retired, have you spent a lot more or have you kept it pretty much at $100,000? After the first year in my retirement, you know, we spent about $105,000 and during the second year, my wife said, babe, this feels like a constraint. I know we've

always spent this and I know I'm trying to manage our expenses, you know, but this is not what retirement should be for us. I like for us to at least feel that we can spend more. And you know what? She was absolutely right. Yeah. The 4% rule says she's absolutely right. What I love about that is that she felt comfortable coming to you and talking to you about money. And I love that you're having these conversations. Test out your retirement numbers. Oh, you know what? We've been spending 100. I want to spend a little bit more. How much did she want to spend? So we got together and we said, all right, let's figure this out. Instead of shooting for a single number, let's come up with a spending range or what we call in financial service guardrails. And we came up with a spending number

and we looked at, okay, what is a known cost? What are some unknown costs? What are some unknown costs that might come up? What are some things, the opportunities that we like to do, such as, like, be house projects or helping out a family member? But the most important thing is, what are some fun things? So we got more creative. And so we came up with a spending, so a minimum them spend was 120,000. But then we said, you know what, why we're in this phase of life or season of life, where we still have our kids at home, they still like us and want to be around us. Let's go up a little more to cover any additional things that we like to do. Plus, the variables that teenagers bring, especially when they start driving. Yeah, I've got that teenagers driving phase right now.

Our spending range changed from 120,000 a year to 180,000 a year. And what was your asset base at this point in time? Okay, so our asset base, we came with this range of 2023. Portfolio had dropped because of the bare market. And it dropped it down to about $3.2 million. When we started spending this new range was in our third year of retirement, which is 2024. And by that time, our portfolio got back up to about $3.5. Okay, but we have our early retirement police here.

The $3.5 million portfolio at the 4% rule only supports $140,000 a year. spending, not $180,000 a year in spending. So how did you reconcile that mentally in terms of how you think about your spending relative to your overall portfolio position? The retirement, police, you can come arrest me because while we're in retirement, we're like, hey, let's use some skills and passions that we want to do. And we both open up our own businesses. I started my own financial coaching business after got a chance to work at a couple of financial firms, because I just decided that the financial service industry was not for me, either because they want, we sell an insurance or we were focused on strictly, you know, getting more assets under management,

which again, either one of those is okay. I have nothing against that. But for me, I wanted to do more financial coaching, planning, and advising. And I was able to get all the necessary licenses as well. So I'm a licensed investment advisor representative. That makes me being a fiduciary, but I can charge a fee for, you know, for financial advice. Okay, so you saw one whole life insurance product per year and that bridges the entire gap between the 140 or 150,000 supported by the 4% rule and the 180,000 in target spending. Is that correct? Absolutely not, man. Between my business, my wife's business that she started and also I started doing some trading online through, you know, doing some swing trading and selling options. We only brought in about 30 grand a year. So that's about

20, you know, 20% of our overall spend, which, I mean, at the end of day, you know, that's not a lot, but it's not a little either. You know, the money I brought in for my business, man, that funded my Starbucks, you know, crave and everything. Love it. You're spending 5.2% instead of 4%. And if you look at Bill Bagan's original research and his updated research, I mean, his updated research says, what's got 4.7%? So you're not that far off. But that's, but that's, That's the safe withdrawal rate based on historical, including like the time that it really didn't work was the late 60s into the 70s when we had that incredibly high inflation. All the other times, you could have been taking out 6, 7 percent and still had enough money

to get you to 30 years of retirement, which is what his original study was. So I don't have a huge problem with your land because you're thinking about it. When I start to have a big problem is when people are like, yeah, you know, I just wanted to spend more so I did. You've thought about it. You've got reasons behind it. Your wife wants to spend more. You have the money to spend more. You're generating extra income. So the money that you are generating this, you know, 30-ish thousand dollars a year on top of your 4% of 140,000 is pretty close to what you're actually spending. Are you enjoying your life? We're really enjoying it because when we came up with that spending range, Mindia Scott, what we didn't want to do was be held every year. Like, man,

okay if we're gonna spend a hundred grand or 110 grand that's all we're gonna do that's all we're gonna no it's like hey if we spend 140 this year it's still within the range if we spend 170 it's still within the range if we spend 130 it's in the range we didn't want to have to constantly worry about it because it's like hey we're still good and not coming back and like uh maybe we can you know cut back or so because again my wife said she wanted to enjoy it i want to enjoy it i want her to have comfort because when she's comfortable life gets a lot better in my household. I think all of us can attest to that.

I have a couple of more detailed questions here. So let's use this last year, 2025 as an example, right? What did your portfolio look like in terms of stock bond ratio or asset, you know, the types of things you're investing in? You said, are you still in active funds right now? What does that look like? Since I found about index investing, I've been slowly moving my mutual funds over to index funds. I still got some that's mainly like in our 401

and in our traditional account as well. But usually low cost ETS and also I would call them mid-cost mutual funds where the, you know, I guess you can say the basis points, you know, that we're paying is probably about, you know, 25 basis points or so. I guess to answer your question from an asset allocation across all our portfolios and I mean all our four different buckets of 529s, tax deferred, taxable and tax free, our asset allocation is a 75 percent equity and 25 percent fixed income. Where do you put the fixed income? Is there a specific asset location like the tax deferred account that you typically hold those? Most of our fixed income is in

our taxable brokerage account and also our 529s because our kids are now, at least with my son, he's in college currently and so we're drawing down his 529 plan. So we got that mostly in conservative investments. As well as my daughter who's a junior, she's going to be starting school to within the next year and a half. So I want to, you know, make sure that her money is available and safe as well. But between our tax deferred and our Roth RAs, we're talking about 85 to 95% equity and very little, you know, fixed income in those. You mentioned this casually, but walk us through how do you think about tax optimization in the context of your current situation? How are you realizing income and you said you were doing Roth conversions, I believe? How does that work?

and what tax bracket are you optimizing for, generally speaking, in that world? One thing when it comes to the accumulation, the first thing you got to ask yourself, one, how much do you want to spend? And a second, how can you take out the money at the lowest cost as possible? And that's where you've got to have a good tax strategy. So for us, our plan was, if we're going to speak for at least 2025 as an example, we wanted to be in the 12% tax bracket. And the reason why we want to be in 12%, that's, I would say, a very low.

cost bracket that gives us a lot of you know a lot of flexibility to have allowed of our taxable brokerage account money to go farther as well because you know the next bracket up is 22% so that's a 10% jump so we want to stay in the 12% we also utilize the standard deduction and using the standard deduction to do Roth conversions as well because I don't want to let that standard deduction to go to waste I think that's a great you know thing that the government has given us, you know, especially this enhanced standard deduction to say, hey, you know, like for 2025, you're able to put 31,500. And if you realize that, that's

more than four times than what you can contribute just to a Roth if you're under the age of 50. Because, you know, the Roth contribution amount is 7,000. Well, man, you're able to put, we're able to put in four times as much, you know, doing that through rough conversions. That is a wild way to think about it. I've never actually internalized what you just said there in terms of the power of Roth conversions in contributing to that. But that, you know, especially that 0% tax bracket. But that's an awesome way to frame it. Yeah, I love it.

I think that makes a lot of sense. And I think that, you know, I would almost argue that it seems to me at this point, not, you know, still kind of amateur in really understanding optimization for decumulation. But it seems like best practice for me would be optimizing up to that 12% tax bracket on moth conversions. That would be my heavy bias going into a decumulation phase. And at the same time, balance out the amount we convert with also getting some Affordable Care Act subsidies as well.

Yep, that was the next piece I was going to ask about, yep. What I always put into my tax strategy each year is what's the maximum income limit that we have to maintain in order to keep our subsidies? So, for example, we're a family of four. And so the poverty level for a family of four, you know, for last year was 31,400. So you multiply that by four. If I do my public math right, that's $124,000. And the other thing that we're doing is also fully utilize all qualified tax credits that we have. So we have two kids, so we get child tax credits right now, and eventually those two will move into just dependent credits. However, now when they get into college, they also qualify for the AOC, which is the American Opportunity Credit. And that credit is

basically $2,500 per year per child, and you can do it over their four years of college. That was our strategy last year was, again, pulling money out of our brokerage. We got money coming in from our business, and we also doing rough conversions just to stay within that 12% tax bracket and still get subsidies as well. That's been our decumulation process. However, it's going to change down the road. Yeah, what's going to change to? You mind if I share something on my screen?

Please do. kind of what I call our retirement plan on a page. So originally when we first, you know, these what we call our four buckets. So for your audience to understand what I have showing is just the illustration of four buckets under label or tax-free, tax-deferred, college funds, and taxable. What we do is we have a timeline showing from the time that I retired. And there's different phases on this timeline for the different ages of how the money. is being withdrawn from each of these buckets. So again, in our taxable brokerage account, you know, when I first retired, we had at least 12 to 15 years of runway, which was great.

That's good. You know, so we felt, hey, we really felt comfortable. So we was pulling some of that down to live off of. And we're also in the phase of withdrawing money from our college funds from the 529s to fund lease my son who's a freshman in college right now. And this is going to be a period between the ages of 48 and 54. I'm at age 48 right now. Now, where things are going to change is this. So originally, my plan was just to withdraw all our money from our taxable account and then still continue to do rough conversions that we're doing every year

to take advantage of the standard deduction and then pull out on our tax deferred and tax-free buckets at age 59 and a half. However, at age 50 a couple of years, my wife and I just realized both are children. children will be in college for most of the year at that time. So we decided, let's scale back on our businesses then. Let's go do more traveling. And since we're going to do more traveling and we have less income from our business, we now have more income room available within our tax bracket. And at the same time, I said, hey, this tax deferred bucket is just growing astronomically. It's at that right now, our current portfolio value, you know, we're sitting in

January of 2006, all of this is at 4.5 million. And what's in this bucket is 60% of that. Nice. So you have been withdrawing from your

accounts and you're still up a million dollars over when you retired. A million dollars more. And so what we're going to do is we're going to put in a 72T two years from now

and just let it just start trickling out. Just, you know, a little bit of cash. And when I say, you know, And for basically, say if we're reducing our business income about 20 grand, let's just start 20 grand of a 72D every year. We may need that money.

We may not need that money, but let's just start trickling it out and to fill up our bracket some more. Fill up our tax bracket because we, you know, we don't want to leave any money, you know, wasted within that 12%. And at the same time, we know now the taxes that we have in place are at the lowest they're going to be. there's something to change down the road. I don't know when. I don't have a crystal ball. But, hey, let's get a little sum of it out right now at age 50 versus wait until 59 and a half. I love that. And I love that you are thinking about this. I have a question about your Roth conversions. Do you wait till closer to the end of the year just to see where all of your income shakes out before you do your Roth conversions? Or are you doing those throughout the course of the year?

No, ma'am. I do them at the beginning of the year because if we have a great year, I'd rather that at money. that's been converted grow in a tax-free space than in a tax-deferred space. Ah, okay. Every month, I check my taxes on how we're doing each month, kind of first give a little estimate. And over each month, I get it more refined and refined as I know what other income sources that we have coming in from dividends, interests, self-employment, income as well. And then I'm able to shift around maybe take some losses on some equities that, you know, are depressed. to maybe offset some income to help me stay within the tax bracket.

It makes perfect sense why you're setting up a 72T the way you explained it. But if I were to be a devil's advocate and say, hey, one of the biggest risks I see for someone in your situation is the tax brackets going up over the next couple of years. And in your case, I would imagine you are a potential candidate for one of those RMD tax bombs down the road. If that's the case, would you consider changing your withdrawal strategy to be much more, to be bumping up to that 22% tax bracket or doing much larger Roth conversions at the end of the year

to preempt that problem? Like how, like, does that worry you at all? Or do you think about that at all in your situation because of your large tax deferred balance here that's grown so much? Not at all. I mean, one, if we convert to the 22%, that actually is going to push us out of being eligible for subsidies as well. So I don't want to do that.

And our plan would be when I turn 65, when I'm on Medicare, then we'll bump up to the 22%. And the other side is with RMDs, Scott and Mindy, I've ran the numbers. I looked at it. And I know people make it such a fearful thing. Like, man, you know, you're going to have, you know, going to be so much. Got to get it out. Got to get it out. Well, here's why I look at success.

If I get to age 75 and I still have maybe $2 to $3 million in my tax deferred bucket, The RMD at 75 is like little over 4%. It's like maybe 4.06% that life expects you that you got to pull out. So let's just call it $2.5 million. So $2.5 million. So what I have to pull out is little over $100,000 at that point. I'm actually going to be using that money. I would expect my expenses or so would be high or so.

Now I've done some modeling of my RMDs. The financial software has said, hey, based on this plan, this is even modified strategy I'm doing. your RMB is going to be $800,000. Guess what? That's based on, hey, getting the same rate of return every year for, you know, getting like at least an over 9% rate of return. You know and I know in reality, your rate returns can go up. We can have 10%.

I can have minus 20 or so. But let's just say it's half right. Instead of being 800,000 RMD at 875, I may be 400,000. You know what? It's just going to be Christmas that year for my family and everybody else, just dishing on out. Your line of thinking here, I think, opened up another question for me. You know, frankly, my question's premise was wrong entirely, not just because of the great rationale you just shared, but because of the ACA. That is actually much more dominant of a

concern at this point here because that going over that cliff is a huge game changer. I mean, it's going to cost, it's going to be probably a matter of $20,000 or so in terms of health care costs for you, given the expired enhanced premium tax credit. So the game for 2026 has got to be to stay under that federal poverty line cliff, 400% of the federal poverty line, which I think is $83,720. Does that change your withdrawal strategy in terms of the timing of your Roth conversions? Are you going to do those at the end of the year to be sure that you can get there, even though your bias typically is to do those conversions at the beginning of the year

and to have them grow tax deferred or tax free? Not at all, Scott. I'm still going to continue to do it for 2026. And because here's our limit right now for a family of four, for ACA income for our against what you're magic. It's $128,600. And I'm just converting up to the standard deduction of $32,000. So I have probably, you know, what, so what's that?

Probably what, $96,000 or something of income or so that I have to, you know, you know, use or that's my limit that I can use. I got all these different buckets right here of cocktails of mixing different incomes that I can have to whip it up for that income. I suppose if in the unlikely event that you had extra income or an opportunity to generate extra income, you could just contribute it to your tax deferred account as well, right? So, I mean, there's that as well to keep that low. Right.

And the other thing I have is within our taxable brokerage account, I know we didn't go there, But when I first started our early retirement, I had five years. I used Lithoff strictly cash my first two years because of the down market of 2022 and all. And since then, we still got almost three years of cash still sitting in there. You know, it's still getting good interest rates of 4% or more. But I can just use that without selling any equities or so to keep that income low. The real thing, though, Scott Mendi, to bring upon ACA subsidies is this is kind of like the next step in our plan that we're going to change.

So at age 55, that is the year that hopefully if my kids, there should be both out of college, successful and off our payroll. So now we drop down to a household of two. Then all of a sudden our ACA income limit is compressed significantly. I think right now if we were just a family of two, our income limit would be $84,000 versus is $128,000. So that's a $44,000 difference of income that I have to stay low. So what I'm going to do is, hey, at age 55, I've already had 10 plus years of Roth conversions that I've been doing and, you know, a ladder already started. Let me just now put a little spikin on this bucket and start

just trickling out just a little bit to help me. All right. We're going to take a short early retirement and come right back to work after this. Tax season is one of the only times all years. year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life,

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management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. evaluate debt funds, I look for things like first position loans, personal guarantees, deep experienced by the fund operator, low fund leverage, fast liquidity, and consistent returns. These are some of the reasons why I'm excited to partner with Pine Financial Group. Their fund six offers investors exposure to real estate credit, largely for construction and rehab, with loans originated by an experienced originator with over $1 billion in origination volume.

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performance. has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful is its breadth. Beyond audiobooks, you also get Audible. You also get Audible originals, podcasts, and a massive back catalog across business, health, parenting,

and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Thanks for sticking with us. I have our most important question here before we get out of here. What do you do with your day? Today's Thursday, If you weren't recording this podcast with us, what did your day look like from wake up till bedtime? Man, let me tell you, I wake up, I'll go have coffee and watch the news with my wife until 9 o'clock. And then we would go into our respective gyms.

I'll go hit the weights, play some basketball, come home, have lunch with her, watch the market, look at some things, all that fresh articles. And then wait for my daughter to come home from high school and find out how did her day go. Living the dream. Man, I am. I mean, I'm going to tell you right now. This early retirement thing, you know, I've been doing it for four years and, you know, now I'm a fifth year. There's a lot of wins that I got from this a lot.

It's just awesome to hear that power. That kind of thing being just like an exclamation point on what sounds like a wonderful day-to-day life, but that's real meaning and value that you've gotten out of this early retirement for your family and your son. Thank you. Yeah, thank you. That's what it's all about. There's no money. There's no bonuses.

nothing that can ever take the place of just getting that love and admiration from your children. Well, thanks for making me cry. Uh-oh. I'm sorry. Uh-oh. Scott, you okay? I hope to get there one day, you know, when my three-year-old graduates from high school. Let me tell you something.

You're doing it right. Congratulations on this new adventure. You're on, you know, stepping down as CEO and stepping into your version of retirement. Number one, you've done a good job as well of your company. but I think you're going to like this new transition as well to spend quality time with your two kids. You know, your daughters are going to really, really appreciate that. And Mindy, I know your daughters have really appreciated the time and effort that you and Carl has spent with them as well. Yeah, thank you.

My oldest one is in college. She's a freshman too. And she goes back on Monday. She goes back to college. I'm like, oh, I've kind of gotten used to having you home again. Yeah. Yeah, my son, he just knocked on my door and he wanted to come in and see me. And I'm like, I can't get right now, not right now.

This is a great place to wrap up here, and especially now that your son's back here. And so thank you so much for joining us here on Bigger Pockets Money, sharing such great detail about your journey, the emotions, the mental, the physical, and the financial across that. And the wonderful outcome that you've achieved here in a day-to-day life and with your family. So congratulations on everything. I hope you enjoy many, many more years of your early retirement. And I get to travel the world coming up with the bittersweet. departure of your daughter to college in 18 months here. Yes, sir.

Thank you so much, Mindy and Scott. Really enjoyed it. Take care. Stephen, thank you so much for your time today. This is a great story. And we'll talk to you soon. That was Stephen with his amazing story of how he got to FI and then his decumulation plan. And I love that there is so much thought into his decumulation plan.

I love that he's thinking ahead with regards to his 72. and the fact that his children will be out of the house and no longer dependent children and thinking about his Roth conversions now so that he'll have a bigger Roth bucket to pull from down the road. Scott, I know you're a big fan of this episode. What do you think of Stephen's story? I loved it. I think Stephen has achieved what folks who listen to Bigger Pockets money and are interested in financial independence want to achieve, right? This is a guy who worked hard, built a career step by step, scaled his income. And, you know, I hear the retirement police saying, oh, you're in this huge income. Yeah, like after 15 or 20 years in a career as an engineer,

you're going to probably scale your income into that $150,000 to $200,000 range. It's not going to be an outlier outcome for that kind of consistency across a career to field like engineering. And many people who listen to a show like Bigger Pockets Money will be able to achieve that over the course of a 20, not everyone, but many people, many people listening to this, will be able to achieve an income trajectory where their end state income is that high for a few years. And then I think that the life that he lives now is exactly what I think a lot of people really want. That's the American dream, I believe, is to be able to do what you want with your day.

Maybe you're in a little extra income here and there doing something you're interested in and spend time with your kids before they graduate and move on, you know, to college or the real world. And so what, what a wonderful story. What a wonderful example of the power of financial independence and the achievability of financial independence. I can't speak highly enough of Stephen and the outcome that he's achieved for himself and his family. just one of my favorite interviews we've ever done here at Bitter Pockets Money, Mindy. Scott, Stephen, was inspired to reach out to you based on our recent episodes with the different decumulation strategies.

And he said to himself, you know what? I've got a slightly different one on that. I'm going to reach out to Scott. I'm going to share my decumulation strategy with you. I think having that visual bucket was so interesting. And I can't wait to share that with our newsletter audience in a blog post when this episode comes out. It's really always a privilege when people reach out to us here at BiggerPockets Money.com, and Mindy at BiggerPocketsMoney.com.

It's wonderful to hear from folks. We try to respond to every single one of them. And Stephen reached out to us. And that's how we were able to put this show together. So please, if you're ever thinking about reaching out or asking a question or just want to say hello, we love to do that. That's why we do this podcast. So please feel free to reach out anytime. We do typically, I mean, I don't know if I hit every single response.

I try to hit every single response that comes in. over time, I may have missed one or two, you know, a handful over the years. But we respond to them and we love hearing from you guys. If you have a criticism or complaint, we have a no email form for that as well at I don't care at tell somebody else.com. I believe that's Mindy's doing there, putting that one up there. But for everybody else, feel free to email us at Scott at biggerpocketsmoney.com and Mindy at biggerpocketsmoney.com.

And this is not the only place you can find more financial independence information from Scott and I. We have a Instagram account, Facebook group. We're on YouTube at BiggerPocketsMoney. You can head over to biggerpocketsmoney.com, our new website, for free resources, calculators, and templates to accelerate your FI journey. And don't miss our weekly newsletter. It is packed with actionable tips delivered straight to your inbox every single week.

You can sign up on our website, which again, biggerpocketsmoney.com. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. Here's Scott Trench. I am Mindy Jensen saying, until we see you again, Penguin. When I evaluate debt funds, I look for things like first position loans, personal guarantees, deep experience by the fund operator, low fund leverage, fast liquidity, and consistent returns. These are some of the reasons why I'm excited to partner with Pine Financial Group. Their fund six offers investors exposure to real estate credit, largely for construction and rehab with loans originated by an experienced originator with over $1 billion in origination volume. They offer investors an 8% preferred return paid monthly and a 70-30 LP-GP split of everything over 10% paid annually.

The lock-up period is nine months with liquidity available within 90 days after that nine-month commitment. The fund is open to accredited investors only. The fund's minimum investment is typically $100,000, but Pine Financial is able to reduce that minimum for bigger pockets money listeners to a minimum of $25,000. Full disclosure, I am personally invested in this fund through my self-directed IRA. Pine Financial is sponsoring this message and our podcast. Go to biggerpocketsmoney.com slash pine, P-I-N-E. Please note that returns are not guaranteed and may vary based on fun performance. I love Matt, said no one ever.

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