Drawdown Strategy Analysis – using “Power of Zero”

After reading The Power of Zero  I decided to do an analysis on how effective this would be versus my current drawdown plan.  Some of the key aspects of the analysis include:

  • Withdrawal amount after taking into account taxes
  • Effect of revenue on social security
  • Effect of revenue on medical subsidies

As you remember from my review, the book breaks your funding down to three buckets:

  1. Taxable bucket (savings accounts, CDs, brokerage accounts, etc.)
  2. Tax-deferred bucket (401Ks, IRAs, etc.)
  3. Tax-Free bucket (Roth IRAs, LIRPs, etc.)

The way I chose to do my analysis is as follows:

  1. Identify specific FIRE date to start. This is controversial, in that it is committing me to “retire”, not just hit FI, but keep working
  2. Determine the amount of money I would have in each bucket at that time
  3. Estimate growth of investments while taking out inflation from growth, tax rates, etc.
  4. Determine withdrawal strategy for the two options and apply
  5. Determine a time frame for investments. I am going to assume Mrs. 39 Months and I live till we are 99/97.
  6. Determine if plan will enable us to survive

When going through our budget for retirement, I came up with a spend of $65,104/year, which included $8,892 for medical (insurance, co-pays, deductibles, etc.). Tack on $5,615 for state & local taxes, and I’m coming up with $70,719/year. For the basis of this analysis, I’m going to use $66K/year for expenses (again, I will adjust out for inflation) and $5K for taxes – bringing total to $71K. Just to be “extravagant”, I’m going to assume a spend of $84,000/year. Based on current tax rate and allowances, this would have me paying about $8,500 in taxes (Fed & State).

For investment returns, I’m going to assume 70% stocks (6.8% returns after inflation) and 30% bonds (1.6% returns after inflation) for a blended return rate of 5.24%.

At my FIRE date (21 months from now) I should have the following assets:

  1. Taxable bucket: $364,030 (including $156,689 in deferred that I will have just paid the taxes on)
  2. Tax-Deferred: $729,284
  3. Tax-Free: $294,922

So, unless being spent, the items listed will grow at 5.24%.

  • Year 2020 (6 months): Pulling $42K out of Tax-Deferred account (Pop’s IRA). Taxable, but I just got hit with a lot of taxes for my Deferred.
  • Year 2021 & 2022: Withdraw $63.5K from Taxable bucket & $6K from Pop’s IRA. Pay reduced taxes because Deferred account already paid for them in 2020
  • Year 2023: Withdraw final $45,448 from Deferred, $6K from Pop’s IRA, and $18,052 from Taxable bucket (investments). Again, paying reduced taxes because Deferred account and investments already paid, or income small enough for Cap Gains
  • Year 2024: Pull $63.5K from Investments, $6K from Pop’s IRA. Reduced Taxes
  • Year 2025: Pull Final $3K from Investments, $14K for wife’s Soc Security, and $76K from Pop’s IRA. Wife’s Soc Security pays full taxes on 85% because Pop’s IRA is treated as regular income. Since I am over the ACA limit, my medical costs jump up from $8.8K to $19.4K (ouch!)
  • Year 2026: Pull final $27K from Pop’s IRA and $14K from Soc. Security. Begin drawing down Tax Deferred IRA money ($54.5K). Again, over ACA limit, so high medical. Not taking Mr. 39 Month’s Soc Security at this time.
  • Year 2027: Mrs. 39 Months starts getting medicare, so medical costs drop to about $13.2K (overall revenue needed drops to $89,364/year). Pull $75.5K from Tax Deferred IRA and $14K from SS. Now left with $713K in Tax-Deferred and $430K in Roth IRA.
  • Year 2028-2031: Continue pulling all money from Tax-Deferred Pulling $70-$75K and $14K from Wife’s IRA. All of this is taxable. At 65, Mr. 39 Months converts to Medicare and costs drop
  • Year 2032-2045: Mr. 39 Months begins taking Soc. Security at age 67. However, I’m going to assume that, due to issues with Soc. Security, I am going to assume that I am only going to get half of what I will get (i.e. 50% cut in benefits), so that works out to $16,908/year. So, each year roughly $30K in Soc. Security and $41K from Tax-Deferred accounts. All of this is taxable.
  • Year 2046: Tax-Deferred IRA runs out of money, and have to switch to Roght IRA. At this time, Roth has about $1.02M in it, so the 5.24% return rate will cover this out till we pass away.

So based on that, my excel chart came in at roughly $1,102,346 remaining in my Roth IRA (all of which I could pass on to my heirs tax free). Not bad, though it shows that I could have taken out more and “lived a little more” in my years. In addition, I kept the $9K in medical spending stable, which might not really be accurate. This also assumes the tax rates stay the same in the years ahead (a big “if”).

Tune in next time when I take the “Power of Zero” lessons and try to do even better.

Other blogs on this topic


Mr. 39 Months


Quarterly Update – Oct 2018

Well, it’s early October, and the year is three-quarters done. Some of the goals have been completed, some are still being worked on, and some have been dropped – a pretty typical year for most folks. So how am I doing in comparison to my goals for 2018?

My Goals for 2018 (some financial, some not):


  • Save $81K in tax-advantaged accounts (saved almost $37K in 2017): Grade A. Saved almost $65K after 9 months, and on track to get about $80.5K in by the end of the year.
  • Save $9K in regular: Grade A. Got this done in 1st Qtr 2018.
  • Increase dividend income from all accounts to $24K/year: Grade B. I’ve gotten over $17K for the year, so I’m on track to get to $24K by the end of the year.
  • Passive income covers 33% of base living expenses in retirement, i.e. $24K of my $72K expected expenses: Grade B. See above. If I hit $24K, that is 33% of my expected $72K annual budget upon hitting FI
  • Beat net worth growth rate of 7%: Grade D. So far, I’ve only made 1.5% this year, beyond the money that I have already deposited. If the market stays flat or drops, I won’t hit this number. I need the market to pop up a bit in the last quarter.


  • Begin attending regular meetings of my local real estate investors association. Grade D. Attended two meetings in 3rd quarter. Slowing down a bit. Some of the meetings have been for info that I’m not interested in, and some of the meetings that I was interested in got blocked by business travel for my job.
  • Double the number of blog visitors in 2018. Grade A. I’ve already hit this goal, and actually working on tripling the number of visitors before the end of the year. Thanks to all of you for tuning in!
  • Write/publish a book on finance.  Grade: Incomplete. Did some initial work on it, but really haven’t put as much work into this as it needs.


  • Increase weight lifted by 10% from 2018 (increased by 12.7% in 2017) Grade B: Up 5% from the beginning of the year, but I’ve had some health issues which have set me back here. Still working on it
  • Average 2 hours of cardio per week (currently averaging about an hour).Grade C: Averaging about 1.2 Hours a week for 3rd quarter. Really need to work on this. .
  • Backpack over 100 miles on AT (did over 100 in 2017) Grade: C. Completed only 79 miles this year. Personal issues got in the way of completing other hikes. Looking to rebound in 2019 and get over 130 miles in.
  • Begin volunteering at Pennsbury Manor at their joiner’s shop (woodworking) Grade A: Volunteer training completed, and I’ve been volunteering since May. Year coming to close, but plan to assist in 2019.
  • Reduce weight by 20 lbs. from Jan 2018 (lost 9 lbs. in 2017). Grade D: Dropped down 11 lbs by July 1, but gained most of it back. Health issues are keeping me from aggressively losing more weight right now.
  • Read at least one book a month. Grade A. Read seven (7) books in 3rd qtr – two fiction, 2 financial, three history. I’m going to need to bump this goal up in 2019, cause I’m enjoying it.


  • Visit a national park (visited Shenandoah NP in 2017). Grade: A. Visited two parks in May  (Redwoods NP in California and Crater Lake in Oregon) Planning on visiting another park in 2019
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Grade B. Visited family in TN in March. Plans to visit TN in Oct and Nov (Thanksgiving) and Mrs. 39 Months in early November. Missed out on visiting Vermont this year (plan for 2019)
  • Visit Portland, OR and northern California. Grade: A
  • Visit Ellis Island. Wanted to do this in 2017, but didn’t make it. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it Grade: F. Still haven’t been there and I have had the opportunities.

Overall, I’d give myself a B. Got a lot done, but still have a few more to close out.

Other updates in 2018

How are you going on your goals for 2018?

Mr. 39 Months

Another reason to pursue FI – Health

Well, for those older FI people, it’s a tale we have all experienced. You go in for testing, either your annual checkup or due to a medical procedure – and something pops up. In my case, I’m going in for an outpatient procedure for kidney stones, and I had to get a pre-Op checkup. The EKG came back with some “anomalies” on it, and suddenly I had to get a cardiologist to check me out before I could continue with the procedure.

Do I have a major health issue? I backpack, workout 4-5 times a week, do yardwork, etc. I have always considered myself a healthy person (maxed the Army PT test when I was in, never been operated on, etc.) This was a major slap in the face….

Well, the cardiologist ordered a stress test and an Echo Cardiogram (something that is a lot more accurate than an EKG). After a lot of back-and-forth, it turns out I have a healthy heart – just a genetic “tic” that will show up on my EKG. I can continue with the procedure.

Still, the world is full of stories of people who worked their whole lives, and passed away right before they were going to retire. FI people don’t want to be that person, so most of us practice two things:

  1. Saving significant money so that we can become financially independent and (potentially) retire early
  2. Enjoy life as we go through it, rather than saving excessively only to pass away before we can enjoy it

Mrs. 39 Months and I have started vacationing more and going to some of the sites we would like to see. We are both seeking to “de-stress” our day-to-day lives as well. In our conversations, we each have noted that “free time” (vacations, days off, etc.) is more important to us now than pay. I’m sure it’s the same with you.

So don’t work till you drop. Enjoy yourselves while you are on the journey, even as you prepare for FI.

Wish me luck on my procedure today!

Other posts of interest:

Mr. 39 Months

Well, there goes that travel card…..

I think a lot of folks in the FIRE community who engage in “travel hacking” feel a little guilty over exploiting the credit card companies and their free offers. We sign up, charge, pay them off immediately, get the bonus points/miles and then drop them like a “hot potato.” It almost feels like stealing. We comfort ourselves with the fact that the credit companies must be making money offering this, and our small percentage of “hackers” is just a drop in the bucket to their massive profits. Still…..

Well, in August, I added another card to my bank of cards, the Hilton Am. Express card. I stay in Hilton’s a lot for my company, and the offer was a card with no annual fee, and 60,000 points if you spent $1,000 in the first month. With a lot of my business trips causing me to spend that in one week, it was a no-brainer. Sign up and go!

Well in late August I went on a business trip, and had some business expenses. I tend to pay my credit cards off several times a month. When I get my travel reimbursement back, I transfer that exact amount onto the card (so I can track what got paid for business and what still needs to get paid for personal). It’s just the way I keep work.

Unfortunately, American Express wouldn’t let me do this for the first 30 days of the card. They told me that it was an issue at the beginning, but would end after the first 30 days. I was OK because I had gotten the money back for my travel reimbursement and paid the $1K bill for that on Sep 12th. The date for the new bill was Sep 16th. I also tried to finish paying the card off entirely on Sep 15th (even though these charged had happened on Sep 10th). Again, as a travel hacker, I knew I wanted to pay the card off as soon as possible, even if I could have let it “ride” for another couple of weeks.

Well, I finally get to the point where its past 30 days, and I can pay a second time within the 30-day period, and I see a charge for $14.29 on a remaining balance of under $200. What the heck? Turns out that I needed to pay my bill by Sep 11th, not the 16th (when the printed the bill) and because they wouldn’t let me pay twice in the first 30 days, I had extra funds still on the card – funds I could have paid off but they wouldn’t let me.

Well, that was “outside of enough” for me. I had the bonus points already to my Hilton account, so I called them up and asked to cancel the card. They said they’d pull the interest rate charge out and apologized, but I believe that if they played these games in the first 30 days, they’d keep playing them. I may have been at fault for not reading all the fine print (i.e. knowing that I had to pay the bill by the 11th) but not being able to pay the bill multiple times a month and track my spending really irritated me. Best to be done with them.

So I did the good travel hacking thing, got the points and cancelled the card – and I don’t feel any guilt about this one.

Other posts of interest


Mr. 39 Months

Addicted to Saving….

One of the big “kicks” I got from joining the FIRE community was ideas on how to improve my savings and accelerate my timeline to reaching financial independence. For over a decade I thought that my mid 20% savings rate was very good – until I started reading articles and realizing what I was letting sit on the table. By paying off the house and making a few adjustments, I was able to have my savings rate shoot up to almost 47% in 2017, and it’s definitely going to be over 60% for 2018!

As you may remember, if we counted in Social Security, I would already be at FI; I am still concerned about counting that in, as the trust fund is due to run out in 2034 (when I am 70). At that point, they would only be able to fund 75% of expenditures. My bet is that they’ll fund folks who have lower numbers at 100% (since that is all a lot of those folks have to retire on) and “cap” the higher folks. This would mean a much lower amount for us (or none at all).

One of the aspects of hitting FI is that you don’t necessarily have to retire. You can keep working, but now use the opportunity to work on stuff you enjoy. You often see blog folks in our community who continue to work at their jobs after hitting FI, because they enjoy what they are doing. There are a parts of my job that I really enjoy (the engineering part) and parts I do not (the management part). So I’m thinking of going to my boss in April next year (after bonuses are paid) and requesting a job change. This would hopefully enable me to continue to work on what I enjoy, while allowing others to get promotions and manage people.

If I do that, one of the issues would be a significant cut in my pay (about 25%). That money has obviously been almost entirely devoted to increasing my savings rate. When I went through my numbers, I saw that my rate would drop down to around 50% (still pretty respectable) and it gave me pause. The question comes down to continuing in a job I dislike somewhat to keep the rate up, or try to rearrange my lifestyle to be more in line with my life goals. My FI date wouldn’t really change much.

I know what you all are saying and what you would all suggest. I thought I would share the decision criteria with everyone so you could see some of the issues that pop up occasionally.

Mr. 30 Months


Related Posts


Book Review – The Power of Zero by David McKnight (revised and updated)

An excellent book that starts from the basis that taxes will be increasing. The book is short, but full of good information and ideas for the reader. This book has been revised from the original 2013 edition, to take into account the new tax law changes that are coming into effect in 2018.

The author talks about the all the underfunded mandates of the federal government (Social Security, Medicare, etc.) and how the future must see a rise in tax rates in order to help fund these costs. He jokes about a CPA on a national radio show who talked about the grim financial situation of the country and asked listed to come up with a four-letter word to explain the problem. After shooting down “debt”, “wars” and “kids, he finally gave the answer – “Its Math.” The key question of the book is “are you prepared?”

The first part of the book, the author goes into some detail of our current financial situation in the US, the history that led us to it, and how politicians have tried to deal with it (or not deal with it) over the last hundred years. He states that due to these issues, the tax rates are due to rise, in some cases dramatically. He then posits and answer – do what you can to get your tax rate to zero, so that even if the tax rates double, it won’t affect you. The method involves using the historically low tax rates now, to put you in the driver’s seat in the future.

The Author then goes into the three primary buckets that people have their retirement finances in:

  1. The taxable bucket (brokerage accounts, savings accounts, etc.)
  2. The tax-deferred bucket (401Ks, 403Bs, Regular IRAs, etc.)
  3. The Tax-Free bucket (mostly Roth IRAs, non-deductible IRA, )

For each of these, he discusses their strengths, weaknesses, optimum uses, and optimum amounts to have in at retirement, based on the current tax code. He doesn’t discuss asset allocation (% of stocks vs. bonds, etc.), just the amount that should be in each, based on the 2018 law. For example, with 401K/IRAs, if you can keep your RMD (required minimum distribution) under the standard tax deduction ($24K for 2018) then that money comes to you tax free.

The author also covers a Life Insurance Retirement Plan (LIRP) which is a method of using a life insurance policy to put away money tax free, and then withdraw it tax free in the years ahead. It’s a complicated product, and doing it incorrectly can cause you to have tax penalties. Depending on the policy, it also can be used to help pay for Long-term care. The author lays out its advantages, but also urges the reader to get professional assistance in setting it up.

The author closes out by going through a case study, and showing how an individual can take advantage of today’s tax rates to set themselves up for being tax free in the future. Some of the methods include:

  • Using money in bucket 1 (taxable) to pay the taxes for assets in bucket 2 (tax-deferred) into bucket 3 (tax free)
  • Shifting the deposits from your paycheck from a tax-deferred item (like a regular 401k) into a tax-free item (Roth 401K or Roth IRA)
  • Using LIRPs to save tax-free money and prepare for potential costs for Long-Term care
  • Using the rule 72(t) to begin accessing your 401K/IRA before age 59-1/2
  • Using the standard deduction to be able to access some of your tax-deferred money in retirement
  • Dealing with Social Security and Pension payments as you seek to remain at a 0% tax rate

I’d rate it an A, and a must read for any FIRE person who wants to learn about how to handle their money going into retirement.

  • MinaFI walks through how he is going to use a similar strategy to pay $0 in income tax

Mr. 39 Months

Keeping your professional knowledge up to date while working on FI

As I spoken about before, I’m an engineer in the supply chain field. My primary role is to design warehouse operations and equipment, so that the operation can operate as efficiently as possible and be successful. In order to do this, I need to continue to learn new methods of work, as well as work to better understand existing equipment and work methods.

As part of that, I took a trip the first half of this week to a racking manufacturer in Wisconsin.  This company takes spools of steel in long runs and bends them into rectangular tubes (after which they weld them). From there they either punch holes at regular intervals (for uprights) or weld hangers on the end of these rectangular lengths (for horizontal beams).

Once this is done, the run them through an oven to burn off the impurities, let it cool a bit, and then powder coat/paint them prior to running them through an oven again (to set the paint). Once that is done, they stack them up and prepare them for shipment.

These are the storage systems that we are all used to seeing in the big box stores, Ikea, and many retail establishments. They can be setup to hold cases below and full pallets of merchandise above. Depending on how you want to set it up, they can be very complicated, or very simple.

The operation we visited had two sides, one that had been in operation for 30 years, and one recent addition with more modern equipment (5 years). What was fascinating was that the basic processes were the same, but the more modern operation had only 40% of the workers. A lot more of the work (especially the welding) was being done by robots and more of the product movement was done by overhead conveyors and automation.

As an engineer, watching this manufacturing operation, where raw materials come in and finished goods go out, is thrilling for an engineer. I could tour sites like this all day.

So what do you do to keep yourself “up to date” in your profession?


Mr. 39 Months

As an older FI blogger, do you ever get the feeling that technology is passing you by?

While I’d like to consider myself technologically adept, I have to admit that over the last five years, I’ve fallen further and further behind. The pace of technology (especially communication tech) is mind-boggling, and the numerous ways that people and business communicate. Just when I think I’ve got the latest tech down, it gets superseded by some other form.

This is happening at work as well. I hate to be the “old fuddy duddy” but there are a lot of new engineers being hired with a lot of tech savvy (and a desire to do robotics and computer simulation) but who don’t have much hand-on experience in the field. My boss, and our customers, are enamored with potential for this (because we are all having a hard time finding labor) so I sometimes feel like I am the odd man out, and becoming obsolete.

The reason I bring this up is that we had the annual “icebreaker” for my professional society this weekend, which was at a distillery in Philadelphia. It was a great time, with a lot of good fellowship, good food, and some drinking. Some of the members there were older (like me) and some were younger (late 20s, early 30s) and the topics eventually settled into our engineering profession. A lot of what was discussed was basic engineer and leadership “blocking and tackling” but some of it was the effect that technology was having on their business and their work. It’s exciting, but also troubling (am I obsolete?).

In the end, one of the concepts of FI is never stop learning, so if I choose to stay in this profession, I need to dedicate myself to continued work in the field. You never stop learning.


Mr. 39 Months.


Book Review – A Random Walk Down Wall street by Burton Malkiel

This classic book was originally published in 1973, and has been updated every few years to reflect updated data (the version I purchased was from 2003, so it had the dot.com bust in it, but not the 2008 meltdown). The general theme of the book in 1973 was that “an investor would be far better off buying and holding an index fund than attempting to buy and sell individual securities.” Over thirty years later, the data still bears out this lesson – one that most FIRE folks agree with.

Why follow-up editions over the last 30 years? The author states that there have been enormous changes in the variety of new financial instruments over that period, and these will need to be evaluated against the basic thesis of the book. Overall, it’s a very “readable” book, especially for those with an interest in investing and financial instruments.

The first part of the book is a history course of investing down the years, starting all the way back with the Tulip Craze of the 17th century and moving through the great depression, the 60s, 80s, and all the way up to the dot.com bust. In each era, the author points out the prevailing investment theories and provides data on how they performed. It’s a great read for those who want to understand how people have been investing throughout the centuries.

The second part of the book describes the current state of the investing world, and describes, in detail, the two main theories of stock analysis (Technical and Fundamental analysis). He again goes into some detail of the methods of each, their strengths, weaknesses, and effectiveness based on history. In the end, the author uses the findings to state that “investors might want to reconsider their faith in professional advisors.” He notes that most do not beat the market average – although some do, and some do consistently. His final conclusion is that the historical evidence does not support a theory that professionals can do better than the individual investor.

The third part of the book goes through more of the modern investing theory (Efficient Market Theory, Modern Portfolio Theory, etc.). Again, the author provides a wealth of data and comparisons so that the reader can make his own judgements. In the end, the data points to a very efficient market that is difficult for a professional to manage successfully and beat the market.

So what do you do then? The author provides a road map of exercises to follow to build your financial plan, including determining your objectives, insurance, tax avoidance, bond and other investments (real estate, precious metals, etc.). It’s a great read on how to diversify, plan for your life cycle, and winning the investment game. Just for the last quarter of the book alone it’s a valuable read.

I’d rate it an A, and a must read for any FIRE person who wants to learn about the Wall Street Game.


Mr. 39 Months