Most FIRE advice is about getting there. Far less is about how you actually spend once you arrive. My FIRE drawdown strategy is simple, and it’s built around one rule. I don’t sell investments to pay for living.
Reaching financial independence changed my main money question. It used to be “How much do I need?” Now it’s “Where does each dollar come from?” This post walks through my answer, layer by layer.
Why I Needed a FIRE Drawdown Strategy at All
Without a set order, every spending decision becomes a fresh decision. Should I use dividends this month? Should I sell a few units of an ETF? Those choices are easy to make badly, especially when markets are falling.
There’s also a real risk in selling at the wrong time. It’s called sequence of returns risk. If you sell investments during a downturn early in retirement, you lock in those losses. Fewer units are left to recover when markets bounce back.
So I decided the order in advance. That way, a bad market changes nothing about how I pay my bills.
Rent and Cash: The Money I Actually Spend
My first layer is rent. I have two paid-off properties, and the rent covers my everyday living costs. It arrives monthly, and it doesn’t depend on the stock market. That’s why it sits first.
My second layer is my cash buffer. Rent isn’t perfect. There are vacancies between tenants, and there are repairs. When rent falls short, the buffer covers the gap. Dividends and bonds don’t get pulled in.
That same buffer protects me in other ways too. It’s also part of how I plan for a dividend cut before one arrives. It buys me time, and time is what stops me from selling in a panic.
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Dividends and Bond Coupons Go Back to Work
Here’s the part that surprises people. I don’t live on my dividends or my bond coupons.
Most of my dividends get reinvested. My bond coupons are reinvested too. They go into equities, either globally diversified ETFs or dividend-paying REITs and banks on SGX.
This means my portfolio keeps growing while I live on rent. Compounding didn’t stop when I stopped working. In a way, it’s working harder now, because I’m not drawing it down.
It also makes my income sturdier over time. Each reinvested coupon buys a little more future income. That future income is a cushion I may never need, and I’m comfortable with that.
What My FIRE Drawdown Strategy Never Touches
So far, I’ve never sold a holding to fund my spending. Not once.
Selling sits at the very bottom of my order. It’s the last layer, not the first. If I ever need to sell, I want to choose the timing. I don’t want a market crash choosing it for me.
A book that shaped this thinking is The Psychology of Money by Morgan Housel. His idea of leaving room for error stayed with me. My cash buffer and my reinvested income are exactly that room.
Your structure may look different from mine. Not everyone has rental income, and that’s fine. The lesson isn’t to copy my layers. It’s to decide your order before you need it. When you have a clear FIRE drawdown strategy, a bad year becomes an inconvenience, not an emergency.
— Eunice
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