Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / The Flexible Freedom Number That Changes Your Early Retirement
Transcript
- Lucas: Luna, I want to talk about the one number in early retirement that nobody locks in at the start, and that's the portfolio target you set for yourself. Luna: Okay, I'm listening. Because we've done episodes on withdrawal rates, coast FI numbers, sequence risk. What's left? Lucas: The Flexible Freedom Number. It's not a fixed FI number like twenty-five times expenses. It's a range that changes based on market conditions and your willingness to adjust spending or earn a little on the side. Luna: So instead of saying 'I need $1 million and I'm done,' you're saying the target itself should flex? Lucas: Exactly. Let me give you a concrete example. Say you're 40, you spend $40,000 a year, and you want a 4 percent withdrawal rate. That's a $1 million target. But if you're willing to spend $30,000 in years the market drops, and you're open to earning $15,000 from consulting in a rough stretch, your actual needed number drops significantly. Luna: How much are we talking? Lucas: I ran a Monte Carlo simulation. A fixed $40,000 from a $1 million portfolio with a 60-40 stock-bond split has about an 85 percent success rate over 50 years. If you add flexible spending—down to $30,000 in bad years—and the option to earn $15,000 part-time if the portfolio drops more than 20 percent, the success rate jumps to 96 percent. Luna: That's huge. And the target number changes too, right? If you're flexible, you don't need $1 million. Lucas: Right. With that flexibility, the simulation says a $720,000 portfolio does almost as well—94 percent success rate. That's 28 percent less you need to save. So the Flexible Freedom Number for that person is somewhere between $720k and $1 million, depending on how much flexibility they actually want. Luna: But isn't the risk that you overestimate your own flexibility? In a real bear market, people panic and cut spending less than they planned. Lucas: That's the behavioral risk, and it's real. The simulations assume you actually follow the plan. If you spend $40,000 when the market is down 30 percent, the numbers break. So the Flexible Freedom Number comes with a commitment—you have to be honest about whether you'd truly trim expenses or take on some work. Luna: Let's talk about the earning part specifically. A lot of early retirees hate the idea of going back to work, even part-time. Lucas: And they don't have to. The flexible spending alone gets you most of the benefit. But adding a small income buffer—even $10,000 a year from a hobby or consulting—reduces sequence risk dramatically. The first ten years are the most fragile. If you can earn just enough to avoid selling stocks when they're down, your portfolio lasts way longer. Luna: So the Flexible Freedom Number is really about matching your spending to market reality, not aiming for a magic static number. Lucas: Exactly. And I think this approach changes the whole mindset. Instead of 'I need to hit $X and then never work again,' it's 'I need a range, and I'll adjust within it.' That reduces the pressure to oversave and lets you retire earlier, if you're willing to be adaptable. Luna: That reminds me of something I read—a study from Morningstar that found dynamic withdrawal strategies had success rates above 95 percent across most historical periods, while fixed ones fell below 80 percent in some eras. Lucas: Yep, the data is clear. The 4 percent rule is a worst-case planning tool. It assumes you never adjust. In reality, people adjust all the time. They take a cheaper vacation, delay a big purchase, or pick up a few shifts. So why not build that into the plan from day one? Luna: Okay, so how does someone actually calculate their Flexible Freedom Number? Walk me through it. Lucas: Start with your baseline spending—say $40,000. Then define your floor: the minimum you could comfortably live on, maybe $30,000. That's a 25 percent cut. Then estimate your potential side income in a pinch—consulting, part-time retail, whatever. Let's say $15,000. Now run a simple simulation. With a $900,000 portfolio, a $40k baseline, dropping to $30k in down years, and earning $15k when the market is down 20 percent, you have a 98 percent success rate over 50 years. Luna: So $900k becomes the upper end of your number, and the lower end is what if you had no flexibility—$1 million. So anywhere between $900k and $1 million is your zone. Lucas: Exactly. And if you're more aggressive, you could aim for $800k with the same flexibility and still be around 92 percent. The key is that you're not locked into one number. The target moves with your actual life. Luna: That feels more human than the rigid FI number culture. And I think it's more realistic too. Lucas: We deliberately don't run ads on these shows because we want the conversation to stay focused on what actually helps you. If the Flexible Freedom Number framework has helped you think about your own target differently, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show ad-free and honest. We're not selling anything, just sharing what works. Lucas: So back to the math. The other advantage of the Flexible Freedom Number is that it reduces the sequence of returns risk in the critical early years. If you retire right before a bear market—like 2000 or 2008—a fixed 4 percent withdrawal can decimate your portfolio. But if you cut spending by 25 percent and earn some income, you're effectively not selling stocks at the bottom. Luna: That's the difference between a portfolio that recovers and one that doesn't. Lucas: Exactly. In the 2000 scenario, a fixed $40k from a $1 million portfolio would have dropped to about $300k by 2009, and then recovered to maybe $600k by 2020—barely sustainable. But with flexible spending down to $30k and $15k in side income, the portfolio bottomed at $500k and grew back to $1.2 million by 2020. Luna: So it's not just about a higher success rate—it's about ending up with more money later. Lucas: Right. And that changes the whole retirement experience. You're not scraping by at 75. You have room for extra spending in your later years, or a bigger legacy, or the option to stop earning entirely once the portfolio is secure. Luna: I want to push back a little—doesn't this require constant monitoring? Checking the market, deciding when to cut spending? That sounds stressful. Lucas: It does require some attention, but you can automate it. Set a rule: if the S&P 500 is down more than 15 percent from its all-time high, you automatically trim your discretionary spending by 20 percent. You don't have to think about it. Or you use a guardrails approach—like the Guyton-Klinger rules—that dictate when to cut and when to increase. Luna: So you're building the system so you don't have to make emotional decisions in the moment. Lucas: Exactly. The Flexible Freedom Number is a framework, not a constant negotiation with yourself. You set the rules upfront, and then you follow them. That's the discipline part. Luna: Let's talk about the other side: when markets are up. Do you increase spending? Lucas: You can, but most simulations suggest you should only increase spending by a portion of the gains—say, withdraw 10 percent of any portfolio surplus above inflation-adjusted starting value. That way you enjoy the upside without overshooting. Luna: So the Flexible Freedom Number is really more of a Flexible Freedom Band. Lucas: I like that. A band you operate within, not a single target. And that band widens or narrows based on your personal flexibility. Someone with a high floor—say, $50,000 minimum spending—might need a larger band. Someone with a low floor can aim for a tighter band. Luna: And the band changes over time too. Later in retirement, sequence risk fades, and you might widen your spending again. Lucas: Exactly. In the first 10 years, you're conservative. After that, you can be more generous. The Flexible Freedom Number is dynamic by design. Luna: Alright, I'm sold. But I want to ask the practical question: how does someone actually set their floor and their side income estimate? Lucas: Start with your current budget. What are the essentials? Housing, food, healthcare, insurance. That's your floor. Then add discretionary items you could cut—dining out, travel, subscriptions. Your floor is essentials plus maybe 10 percent buffer. For side income, look at your current skills. Can you freelance in your old field? Drive for a ride-share? Tutor? Be realistic about how much you'd earn and how many hours you want to work. Luna: And the simulation tools? Are there good ones for this? Lucas: There are. FireCalc, Portfolio Visualizer, and even a simple spreadsheet with the historical returns can work. The key is to test scenarios: base case, bear case, bull case. See how flexible you need to be in the worst 5 percent of outcomes. Luna: That sounds like a weekend project for someone serious about early retirement. Lucas: It is. And the payoff is huge. You might find you can retire years earlier than you thought, or with less savings, simply by embracing a little flexibility. The math is on your side. Luna: I'm going to run my own numbers tonight. Thanks, Lucas. Lucas: You're welcome. And remember, the number isn't set in stone. It moves with you.