Below is an email transcript from a BiggerPockets Money listener who sent me a message about their personal financial situation and wanted my insights. We\u2019ve used AI to edit the email\u2019s content to be more readable in an article format and remove sensitive personal information from the sender to protect their privacy.<\/p>\n\n\n\n
Hi Scott & Mindy:<\/span><\/em><\/p>\n\n\n\n I\u2019m a huge fan of the <\/span><\/em>BiggerPockets Money<\/span> podcast and listen religiously. I especially love the episodes featuring personal stories and case studies\u2014they make it easy to relate and compare my <\/span>own<\/span> numbers to real-world examples.<\/span><\/em><\/p>\n\n\n\n I have a two-part request:<\/span><\/em><\/p>\n\n\n\n Here\u2019s our situation:<\/span><\/em><\/p>\n\n\n\n Our big question: <\/span><\/em><\/strong>Are we missing another option to cash flow our lifestyle without relying so heavily on selling our primary home? We\u2019ve explored ideas like 401(k) loans (not possible since we\u2019re no longer employed), refinancing our home (challenging without income), or tapping home equity via a HELOC (also <\/span>tough<\/span> without income). <\/span>We briefly considered 72(t) <\/span>after hearing it on the show<\/span>, but <\/span>aren\u2019t<\/span> sure if it\u2019s practical or provides enough cash flow if we use just one or two accounts instead of liquidating everything.<\/span><\/em><\/p>\n\n\n\n If you feature us, please keep us anonymous\u2014our friends and family don\u2019t know we\u2019ve hit FIRE, which is <\/span>a whole other<\/span> story we\u2019d be happy to explore!<\/span><\/em><\/p>\n\n\n\n Thanks for any insights or direction you can offer. Best,<\/span><\/em><\/p>\n\n\n\n [Anonymous]<\/span><\/em><\/p>\n\n\n\n Howdy!<\/span><\/p>\n\n\n\n First <\/span>off<\/span>, thank you for being a loyal listener of the <\/span>BiggerPockets Money <\/span><\/em>podcast\u2014we\u2019re thrilled to hear how much you enjoy the case studies! Your story is a fantastic example of personal financial success\u2014congratulations on approaching nearly $3M in personal net worth!<\/span><\/p>\n\n\n\n Your strategy\u2014living off cash for a few years, then selling the rental, then the primary home\u2014is straightforward and leverages your assets to create a cash runway until your 401(k)s are accessible at 59\u00bd (or <\/span>earlier, with some creativity<\/span><\/a>).<\/span><\/p>\n\n\n\n While downsizing and relocating to a lower-cost geography is a legitimate and powerful way to use <\/span>home equity<\/span><\/a>, <\/span>I believe that<\/span> you will sleep much better at night if your portfolio generates a surplus of spendable liquidity that can finance your lifestyle and then some.<\/span><\/p>\n\n\n\n I believe that the central issue in your situation is the fact that while the math of <\/span>FIRE<\/span> (4%) rule theoretically allows you to spend $108,000 per year with $2.7M in net worth, the reality is that you will have to liquidate assets <\/span>in order to<\/span> achieve that spend. <\/span>In my experience, only clear outliers will <\/span>actually<\/span> feel <\/span><\/em>FIRE\u2019d if their plan <\/span>is dependent<\/span> on drawdown and not on spending a minority of the cash flows generated by their financial portfolios.<\/span><\/p>\n\n\n\n This<\/span> is why you are exploring Rule 72(t). That, and the fact that you have a <\/span>huge<\/span> pile of wealth in these accounts, potentially far more than you need. At a 7% annual return, that $1.4M in<\/span><\/p>\n\n\n\n 401(k)s could <\/span>indeed<\/span> grow to $5M-6M (in 2024 inflation-adjusted dollars) in 15 years, giving you a hefty cushion later in life.<\/span><\/p>\n\n\n\n You mentioned 72(t)\u2014Substantially Equal Periodic Payments (SEPP)\u2014and it\u2019s worth a closer look. This IRS rule lets you withdraw from your 401(k)s before 59\u00bd without the 10% penalty, as long as you take consistent payments for at least five years or until you hit 59\u00bd, whichever is longer. For you, at 40\/41, that\u2019s a 19-year commitment, but it\u2019s flexible in how you set it up.<\/span><\/p>\n\n\n\n Using the IRS\u2019 amortization method (one of three calculation options), even with a low interest rate (say, 2.5%), your $1.4M could generate roughly $35K per year if you tap the whole balance. Or, you could consider private lending, debt funds, or other alternatives with a chunk of that 401(k) balance, say $400K, at an 8% preferred interest rate, generating $30K per year and allowing you to continue reinvesting dividends in what I imagine is likely to be a heavy-stocks 401(k) balance.<\/span><\/p>\n\n\n\n Alternatively, you could <\/span>just<\/span> start withdrawing from the 401(k) using Rule 72(t) at the 4% rule.<\/span> Note, however, that there are numerous historical cases where the principal balance declines significantly in these scenarios over <\/span>a 30-year period<\/span>.<\/span><\/p>\n\n\n\n While you could always resume working and adding back into the 401(k), I\u2019d personally be reluctant to go the whole way toward making a hard commit to a 4% withdrawal rate for the next 19 years.<\/span><\/p>\n\n\n\n You\u2019re planning<\/span> to sell your rental because it\u2019s \u201cnot making enough money to keep.\u201d Before you do, let\u2019s crunch it. <\/span><\/p>\n\n\n\n What\u2019s the <\/span>cash flow<\/span><\/a> today? If it\u2019s break-even or slightly positive, could you tweak it\u2014raise rent, cut expenses\u2014to generate $500-$1,000\/month? Even modest income stretches your cash reserves and delays the need to sell. If it\u2019s a loser, though, ditch it sooner than later\u2014FIRE is about efficiency, not clinging to underperformers.<\/span><\/p>\n\n\n\n Alternatively, could you <\/span>1031 exchange<\/span><\/a> it into a higher-performing property in your future low-cost area? It\u2019s a way to defer taxes and reposition equity into something that cash flows better, aligning with your eventual move. Just weigh the management hassle\u2014rental ownership isn\u2019t for everyone post-FIRE.<\/span><\/p>\n\n\n\n Last, you know how much I love a paid-off rental property\u2014<\/span>properly<\/span> maintained and at a reasonable cap rate, it\u2019s like an inflation-adjusted income for life, even if it is never truly 100% passive.<\/span><\/p>\n\n\n\n You\u2019ve hit walls with traditional loans\u2014no income makes HELOCs or refinances tricky. But don\u2019t give up on your $1.1M in equity yet. <\/span><\/p>\n\n\n\n Two ideas:<\/span><\/p>\n\n\n\n These aren\u2019t slam dunks<\/span>, <\/span>but <\/span>they\u2019re<\/span> creative ways to tap equity without <\/span>a full<\/span> sale.<\/span><\/p>\n\n\n\n With $200k in cash, you\u2019ve got a war chest. High-yield savings at 4%-5% yields<\/span><\/p>\n\n\n\n $8K-$10K\/year\u2014nice, but not enough. <\/span><\/p>\n\n\n\n Could you deploy some into dividend stocks, REITs, or a <\/span>small<\/span> syndication deal (or<\/span>, again,<\/span> something like a debt fund)?<\/span> A conservative 6%-7% return on $200K is $12K-$14K annually, stretching your runway without touching directly owned and operated real estate or continuing to dump it into 401(k)s. Riskier? Sure. But it\u2019s likely a lot less risky in 2025 (if you do your homework) than <\/span>it was<\/span> in 2021.<\/span><\/p>\n\n\n\n Note that you<\/span> can also do this with the home equity, should you choose to sell it in five years.<\/span><\/p>\n\n\n\n Here\u2019s what I\u2019d rule out if I were in your shoes:<\/span><\/p>\n\n\n\n If this is in the ballpark of reasonable, that brings in $60K-$65K\/year without selling your home, leaving $35K-$40K to cover from cash reserves. You\u2019d burn through $200K in five to six years\u2014right on track for your move to a sunnier\/warmer spot\u2014while keeping your home equity and half your 401(k) growing.<\/span><\/p>\n\n\n\n Adjust the mix based on your risk tolerance and how hands-on you want to be.<\/span><\/p>\n\n\n\n This couple\u2019s story highlights a key FIRE lesson: Early retirement doesn\u2019t mean \u201cdone.\u201d It\u2019s a pivot\u2014from earning to optimizing. Whether <\/span>it\u2019s<\/span> mastering 72(t), rethinking real estate, or dipping into cash flow plays, the goal is flexibility.<\/span><\/p>\n\n\n\n Run your numbers, stress-test your plan, and don\u2019t be afraid to tweak as you go.<\/span><\/p>\n\n\n\n This<\/span> is<\/span> also just one guy\u2019s initial thoughts.<\/span> Plans get better, and <\/span>\n
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Scott\u2019s Reaction:<\/span><\/h2>\n\n\n\n
Your Current Plan: Solid But Heavily Relies on Liquidating Assets<\/span><\/h3>\n\n\n\n
Option 1: Dive Into Rule 72(t) With Eyes Wide Open<\/span><\/h3>\n\n\n\n
Option 2: Rethink the Rental Property<\/span><\/h3>\n\n\n\n
Option 3: Unlock Home Equity Without Selling<\/span><\/h3>\n\n\n\n
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Option 4: Lean Into Cash Flow Investments<\/span><\/h3>\n\n\n\n
My Take: Mix and Match for Flexibility<\/span><\/h3>\n\n\n\n
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Note For the FIRE Community<\/span><\/h2>\n\n\n\n