Overview of The Proven Path to Financial Independence by 44
This BiggerPockets Money interview (hosts Mindy Jensen and Scott Trench) profiles Stephen, an engineer who discovered he was financially independent (FI) at age 40 with $2.5M, worked several more years by choice, and then retired in early 2022. The episode focuses on the four extra working years that materially increased his net worth, his decumulation strategy (withdrawal plan, Roth conversions, 72(t) planning), health and mortgage considerations before exiting work, and how he manages variable spending while preserving ACA subsidies.
Key takeaways
- FI discovery: Stephen realized he was FI at 40 with ~$2.5M across 401(k)s, IRAs (traditional and Roth), brokerage, savings and 529s.
- One more year paid off: He continued working through 2021 and retired in 2022; assets grew to ~ $3.5M at exit and to ~$4.5M by Jan 2026.
- Spending guardrails: Instead of a single withdrawal number, he and his wife use a flexible spending range of $120k–$180k/year (initial baseline had been ~$100k).
- Tax-first decumulation: He targets the 12% federal bracket using Roth conversions (timed early in the year), standard deduction, tax credits, and ACA subsidy limits to minimize tax drag.
- Safety buffer: Maintains a large taxable cash reserve (aiming for about five years of expenses early in retirement) to avoid selling equities in down markets.
- Income supplement: Small businesses and trading add roughly $25–30k/yr to bridge part of the spending gap above a 4% withdrawal.
- Active planning: Stephen uses a multi-bucket timeline (taxable, tax-deferred, tax-free, 529) and contemplates a 72(t) to start modest distributions from tax-deferred accounts before 59½.
Financial timeline & headline numbers
- Age 40 (2018): Discovered FI — net worth ≈ $2.5M.
- Peak pre-retirement (around 2021): Assets ≈ $3.5M when he left work.
- 2023 (bear market dip): Portfolio ≈ $3.2M.
- 2024: Back to ≈ $3.5M.
- Jan 2026: Portfolio ≈ $4.5M;
60% of that in tax‑deferred accounts ($2.7M). - Taxable bucket at retirement: ≈ $1.25M (≈ $750k equities, $500k cash).
- Spending: historical ~ $100k/yr; early retirement years moved to $120k–$180k guardrail.
- Side income: ~ $30k/yr from businesses/trading.
Decumulation strategy (how they withdraw and manage taxes)
Core principles
- Plan around how much they want to spend, not only a fixed safe withdrawal rate.
- Use asset location to reduce taxes: keep fixed income/cash in taxable accounts; equities concentrated in tax-deferred/Roth where appropriate.
- Preserve ACA premium subsidies by keeping Modified AGI under the subsidy cliffs for a family of four (they optimize withdrawals to stay below those limits).
Roth conversion ladder
- Target tax bracket: 12% (to avoid the jump to 22% and to preserve ACA subsidies).
- Use standard deduction as “tax room” to convert more tax-deferred dollars into Roth (conversions done early in year so converted funds grow tax-free).
- Monitor monthly and harvest losses or shift income to stay in desired bracket.
72(t) and early distributions
- Plan to start modest 72(t) distributions at age ~50 (small “spigot” trickle) to use tax-deferred money earlier and fill tax brackets, rather than waiting until 59½ and risking larger RMDs later.
- Intention is conservative: small amounts (e.g., $20k/year) to fill unused tax space as business income declines.
ACA & tax credits coordination
- Maintain household MAGI to retain premium tax credits/subsidies; also maximize refundable/available tax credits (child tax credit, American Opportunity Credit while kids in college).
- Recognizes that household composition shifts (kids off parents’ policy) will change subsidy thresholds and tax planning needs.
Asset allocation & investment approach
- Current across-all-buckets allocation: ~75% equities / 25% fixed income.
- Tax-deferred & Roth buckets: very equity-heavy (~85–95% equities).
- Fixed income and cash mainly held in taxable brokerage and 529 accounts (to keep college funds safe).
- Investment style: started in actively managed mutual funds; has been gradually shifting toward low-cost index ETFs and lower-cost mutual funds over the last ~8 years.
- Real estate involvement: mostly principal-home transactions; used employer relocation benefits and home sale gains to invest proceeds.
Spending, lifestyle & non-financial prep
- Motivation to work one more year: loved job initially, but COVID-era burnout catalyzed exit planning.
- Preparations during the final working year:
- Financial: pad savings, secure mortgage for planned move, position taxable assets.
- Physical: full health screening (lost 50+ lbs), ensure good health before leaving employer-provided insurance.
- Mental: readiness for lifestyle shift.
- Daily life in retirement: exercise, market reading, coaching business, family time — emphasizes quality time with children and spouse.
What worked (practical strategies you can adopt)
- Don’t rush: one more year can materially increase capital (salary, bonuses, relocation benefits, home gains).
- Build a multi-bucket withdrawal timeline (taxable, tax-deferred, Roth, 529) and map withdrawals to life events (college years, ACA thresholds, Medicare).
- Keep a sizable cash buffer early in retirement (Stephen targeted ~5 years of living expenses in cash equivalents) to avoid forced equity sales after market downturns.
- Use Roth conversions strategically to fill low tax brackets or leverage the standard deduction.
- Coordinate decumulation with ACA subsidy limits and tax credits — small changes in MAGI can have large insurance cost impacts.
- Communicate and set guardrails with your partner rather than a single hard withdrawal number (range reduces stress).
Notable quotes / insights
- “Don’t seek perfection, seek progress.” — on investing approach early in his career.
- “We don’t follow the 4% rule… we go by how much we want to spend.” — reframing withdrawal planning to personal spending goals and guardrails.
- “When she’s comfortable, life gets a lot better in my household.” — on money and family dynamics.
Actionable checklist (if you’re planning early retirement)
- Run a multi-scenario withdrawal model (include tax brackets, ACA impact, RMD forecasts).
- Create a 3–5 year cash runway in taxable accounts if retiring early.
- Map out Roth conversion ladder targets and timing (consider doing conversions earlier to let tax-free growth compound).
- Identify ACA subsidy cliffs for your household size and factor that into your MAGI plan.
- Consider small early distributions (72(t)) if you need income from tax-deferred accounts before 59½ and it fits your plan.
- Agree on spending guardrails with your partner and revisit annually.
- Reassess health checks and insurance timing before leaving employer coverage.
Where to learn more / contact notes
- Stephen used FI podcasts (Jill Schlesinger, Retirement Answer Man, ChooseFI, BiggerPockets Money) to build knowledge.
- Hosts invite listeners to reach out at Scott@biggerpocketsmoney.com and Mindy@biggerpocketsmoney.com and to use BiggerPocketsMoney.com resources (calculators, templates, newsletter).
This episode is a practical example of how a steady career, intentional one-more-year decisions, tax-aware decumulation, and flexible spending guardrails can produce a comfortable early-retirement lifestyle while managing long-term tax and healthcare risks.