It’s a beautiful spring day in the Twin Cities. I’m sitting at a curbside table at a nearby coffee shop with some decent patio furniture—perfect for writing. Early retirement sure has its perks.
The last time I biked to a coffee shop to write a blog post was back in spring 2018—almost six years ago. Back then I thought I’d nailed early retirement. Financially, at least.
Turns out I missed a few important adjustments.
On paper, I had the basics covered: a solid savings buffer, big debts paid off (mortgage, cars, student loans), and replacement life and health insurance since I could no longer rely on employer benefits.
But I stumbled on the CASH FLOW side of things. Everyone preaching early retirement talks about building a war chest in real estate and tax-advantaged accounts, and I did that. What I didn’t do was make it easy to use that stash to cover monthly expenses. If you don’t sort out cash flow, you’ll find yourself pacing the house trying to figure it out. Early retirement: sweat the details.
Case in point: we had to replace a sewer line unexpectedly, which set us back about $18K. I planned to keep around $30K in cash, but half of that was earmarked for planned exterior home repairs—until this happened. Ouch.
And because kids can surprise you, both older than 10 and needing braces—another roughly $5K hit. I should’ve seen that coming, but I assumed braces were a teenage thing. Missed that one.
Big expenses happen. We’re lucky that these won’t stop us from enjoying life, especially when many people struggle with housing, childcare, and healthcare.
Still, if I’m going to write about how great early retirement is, I need to get my act together so I don’t give you a misleading picture or fool myself into thinking everything’s perfect.
My biggest mistake was not preparing enough liquid cash flow before retiring. It sounds obvious, but I was asleep at the wheel.
The “big plan” was to pile money into our Vanguard after-tax account, buying $5K “bricks” of VTI (Vanguard’s total stock market ETF) whenever the market dipped. That strategy worked well. The problem was psychological: I didn’t want to spend the money I’d worked so hard to build.
This is common. Many retirees resist drawing down savings and slip into scarcity mode.
The plan required saving around 10 years’ worth of “gap year” cash to tide us over until age 59½, when 401(k) withdrawals are penalty-free. But I thought, why not keep that gap-year money intact and make it to 59½ without dipping into it?
Another issue is taxes. If I wanted to sell VTI “bricks” to fix short-term cash flow, capital gains tax would bite. VTI has appreciated a lot in recent years, so selling isn’t tax-pleasant. (Side note: donating highly appreciated stock is a great charitable option.)
For example, selling $20,000 of VTI to supplement rental income and Mrs. Cubert’s take-home pay would trigger taxes. It’s not a horror-story number like the sewer bill, but it still stings. If we didn’t have business income to help, we might need to pull up to $100,000 (partly because of the expenses mentioned earlier).
It’s not catastrophic, but I’ve got to get past obsessing over tax avoidance.
If I could rewind five years, I’d put most of our after-tax dollars into income-focused investments like SCHD. SCHD is the Schwab U.S. Dividend ETF. It holds about 100 high-yield dividend stocks and has been around since 2011.
I like SCHD because its yield is about 3.4% versus VTI’s 1.4%. That extra two percentage points matters when income is the priority.
On $100,000, that’s $1,400 vs. $3,400 in year one. And SCHD has shown over 10% annual dividend growth over the past decade, plus big price appreciation since 2019.
If you had $500,000 in SCHD for your 10 “gap years” (until you can tap 401(k) at 59½), the dividend payout would be nearly $16K after taxes in year one. And that’s just the start.
There are assumptions behind those numbers. One is 7% price appreciation for SCHD. The big one is 10% dividend growth. Since you’d be living off dividends, there’s no reinvestment or annual contributions—this is the withdrawal phase.
With those assumptions, you could live on about $69K per year until your 401(k) is available. As a bonus, your investment could nearly double to close to $1M by then.
The tradeoff is tighter living the first few years, but it beats relying on VTI alone (about $6,500 in dividends year one, rising to roughly $28,000 by year ten).
Alternatively, you could draw down $500,000 at $35,000 per year after taxes. Assuming 9% annual appreciation in VTI, you’d end up with about $430,000—okay, but not as attractive as the SCHD path.
To boost income early on, there are covered-call ETFs yielding 7–10%. They don’t offer much growth, but they do give higher income immediately.
I’m putting 25% of our after-tax money into JEPI and JEPQ (JPMorgan’s Equity Premium Income ETFs). It’s tempting to allocate more, but I’m capping it at 25% to leave room for SCHD’s growth and lower fees.
I didn’t just flip a switch and add SCHD, JEPI, and JEPQ. This was a careful rebalance inside the after-tax account. Rebalancing in a taxable account means dealing with tax-loss harvesting. For every long-term winner I sold, I had to find a loser to offset capital gains.
Luckily, I had some bad stock picks that produced losses to offset VTI gains. After selling winners and losers, the proceeds went into SCHD, JEPI, and JEPQ.
A few practical changes to make when you give up the steady W-2 paycheck:
– Start using your Health Savings Account for medical bills. It took me a while to accept this. The HSA is a fantastic triple-tax-advantaged account, but once you’re financially independent, it makes sense to use it for medical costs. (Still, keep making the annual maximum contributions!)
– Stop contributing to pre-tax IRAs if you already have a big 401(k). Instead, prioritize Roth IRAs to reduce future taxes, RMDs, and Medicare premium impacts. Also learn about Roth conversions if you’ve built a large 401(k).
– Keep side hustling. There’s value in never fully “retiring.” Quit the job that drains you, but stay busy with work that gives you purpose—volunteering, family care, part-time work, hobbies that earn a little. It’s not just about extra cash; it’s about contributing to your community and staying socially engaged.
(If only I could get paid for my new pickleball habit…)
I’d love to hear from you in the comments. What adjustments have you made in retirement, or are you still figuring out your gap-year plans?