A Portfolio to Consider – Part I: The Accounts

Now that you’re well versed with the core concepts of FIRE, calculating your FIRE number using the 4% rule, and understanding the mountain that must be climbed to achieve FIRE you may be feeling the path is pretty long and steep, especially if you’re starting your FIRE journey late. If you have feelings of not bothering or discouragement it’s normal but don’t let those feelings hold you back. Work backwards from your expenses, your FIRE number and you will get there. Everything worth anything in life takes time and commitment to build, finances are no different. It’s well worth it.

Just to frame the conversation. Think about driving down the road to a desired location, we can consider the variables in our equation: Time, Distance, and Velocity. Investing can be paralleled. If we increase our Velocity by two fold, the Time it takes to travel the same Distance can be reduced by half. While compounding interest isn’t linear, the takeaway is that there is a potential methodology to achieve FIRE faster by targeting higher rates of returns after maximizing our savings rate and minimizing our expenses.

Simplicity

For the vast majority of the population who strives for simplicity the 4% ‘rule’ is a great strategy to follow. Targeting 25x your yearly expenses invested into a combination of low fee, broad based index funds and bonds. It gives us a target to work towards, low expense ratios, and just ease of operation with a work, save, invest model. Not to mention safety for inflation and low taxes upon withdrawal. That said, for more hands on investors there are numerous but less proven investment strategies requiring homework, tax planning, and yes, buying and selling equities as newer investment products prove themselves over time. In this post I’ll be going over one of these alternative strategies in which I personally employ in my portfolio to enable my retirement with higher monthly cashflow than the 4% rule but coupled with higher risk.

If you’re chasing simplicity I highly recommend not only adopting the 4% rule but also reading the following two books:

The Simple Path to Wealth by JL Collins

A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More by William P. Bengen

The former will illustrate how just saving and investing in a broad based index fund drives successful retirements and the latter explains how the 4% rule came to be, and how it’s now modernized to perhaps even be the 4.7% rule. My mission is just to get folks financially educated and started on their path to building wealth for themselves and for their next generations. Whether you stop at the 4% strategy of continue on to learn more about the framework I’ve adopted for my retirement or alternative frameworks is entirely up to you. In any regard I wish you all the success in your journey.

Framework

First a quick disclaimer – I’m just a random guy on the internet, I achieved my FIRE milestone and I’m just here to hopefully get others to adopt a FI mindset, to free themselves and their families from income dependence on trading time for money. I’m risk adverse and my investment thesis can be best described as follow:

Optimize investment blueprints that drive current income generation while positioning for long term capital preservation, with a secondary emphasis on capital appreciation.

I’m aiming to utilize my asset base to fund my lifestyle now, at the tradeoff of caping the upside. Instead of working longer and focusing on accumulating a massive stockpile of ‘assets‘ and slowly withdrawing from it when older. I’m choosing to live life while relatively young, and potentially dying with a much, much, much smaller nest egg than if continued to grind away in the accumulation phase.

My strategy combines the 4% rule with an Income Investing strategy spanning across multiple accounts including Taxable Brokerage, Health Savings Account (HSA), and Age restricted retirement accounts (401k, Roth IRA, etc.). Here’s the breakdown of the purpose and mission of each.

We’ll first talk about each one of these accounts then we’ll move on to asset allocation, and tax efficiency in following posts.

Age Restricted

401k: This account acts as a piggy bank for later in life. Generally speaking withdraws from it are penalized if taken before the age of 59.5. Despite the restrictions, this account holds several advantages. One being tax deferral, where pre-tax dollars are contributed to the account. The theory is that you’re in a higher tax bracket while working than when retired. So you won’t pay taxes on the contribution amount today, at today’s tax bracket but you will when you take it out in the future at a lower taxation rate. The secondary benefit is that employers typically provide some percentage of matching. This matching is basically free money and everyone should be taking advantage of free money. Note that contributions to 401k accounts are capped every year, $23,500 for 2025.

With the brief description of the 401k account out of the way this is how I leverage this account type. During my working career I’ve invested at a minimum the employer match, but more importantly self directed the funds into various growth ETFs given the options my employer offered. Any time I left a company I’d roll (or essentially move) the 401k into my primary brokerage in form of a Rollover IRA account. Unlocking the entire market for investment instead of just those offered by my employer.

How much to invest into the 401k? For me this is essentially my CoastFIRE account. Invest as much as needed to achieve your target account value through compounding by the time you are 59.5 years old. To calculate this work backwards from the age of 59.5 and use the rule of thumb of 7% return a year to figure out the number in today’s dollars to hit your target. For instance if you’re currently 35 years old and you want $1,000,000 inflation adjusted dollars in your 401k at the age of 59.5 you would need $190,588.83 invested into a simple index fund tracking the SP500 assuming the US market continues to grow into the future as it has in the past. That’s it. This roughly follows the concept of CoastFIRE – where one invests just enough to let compounding interest and time work to achieve your target figure. That said, always take the employer match no matter what, even if you’ve already hit your CoastFI number for this account type. Free money, is free money. Use the calculator below to help guide you.

Roth IRA : This account allows you to invest a capped amount of after tax dollars, but all gains earned are tax free upon withdrawal. The cap for 2025 at the time of writing is $7,000/year and you must make under $150,000/yr if single from earned income sources (i.e. W2) to qualify for direct contributions. If you make over this amount you can leverage the Backdoor Roth IRA where you first contribute to a Traditional IRA and immediately transfer funds from the account into a Roth IRA. Ideally you do this in one shot with the full year's contribution. You want to immediately transfer funds from the Traditional account into the Roth account because any interest earned on funds while in the Traditional account is taxable. Not only is there a tax liability but the year end tax filing gets slightly more complicated as well. Best to just avoid all that.

This account is pseudo-age restricted but with some exceptions.

Frontdoor contributions: If you're eligible and contributing directly to a Roth IRA from the frontdoor you can withdraw your contributions at any time penalty and tax free. However, generally all gains are subject to a 10% penalty if withdrawn before the age of 59.5 AND if the Roth account has been open for less than 5 years. There are some exceptions for use of funds toward government supported programs such as first-time home purchase, disability, or death but we won't cover these scenarios here.

Backdoor contributions: Contributions have a 5 year period before they can be withdrawn penalty and tax free. So if you invest $7,000 in year 2025 you won't have penalty free access to this money until year 2030. Note that dates matter as well, it's not just calendar year but the specific dates of contribution and withdrawal. The penalty is 10% if contributions are withdrawn prior to 5 years. All gains are subject to a 10% penalty if withdrawn before the age of 59.5 AND if the Roth account has been open for less than 5 years.

In any case the earlier you start investing into a Roth IRA the better, not only to give you the option of laddering withdrawals in early retirement but to take advantage of tax-free compounding. Invest up to the yearly maximum every year of your working career if possible - and if not due to income limitations try to find a way through side hustles. This account is that good, tax free gains are extremely powerful in the long term.

Tax Advantaged

HSA: This is a unique account in which I only recommend to younger, generally healthy individuals because you'll need to select a High Deductible Health Plan (HDHP) through your employer to be eligible for the account. For those that have chronic health conditions or require frequent medical consultations or care I would recommend just choosing the right-for-you comprehensive health plan that your employer offers.

For those that do opt for a HDHP it's arguably the most tax efficient account available today. Pre-tax dollars are used for contributions, employers usually provide some matching percentage, investments grow tax free, and withdrawals are tax free if used for qualified medical expenses. After the age of 65 funds can be withdrawn tax free for any expenses. The caveat is that there are yearly contribution limits and it's a good idea to pay out of pocket for health expenses incurred to give the time necessary for the investments held within the account to compound. However, do retain all receipts in case you want to reimburse yourself when your HSA has had ample time to compound.

If you're able to take advantage of of an HSA, I'd recommend maxing it out as well since it's capped at a fairly low number every year.

Taxable Accounts

As Ari Taublieb, CFP says, your taxable brokerage account is your Super Hero account and for good reason. If you plan to retire early you don't want all your funds to be trapped, or tied up in age restricted accounts. You want the flexibility draw freely to fund your everyday life before the age of 59.5 without penalty - and this is where the taxable account comes into the picture for your overall strategy. After your 401k employer match and after investing in your HSA/Roth IRA put all your remaining investment dollars into a taxable account.

Any investment gains earned and realized in this account are subject to short term and long term capital gains taxes but as mentioned we can find tax efficiency in the assets we choose to invest in. We'll expand upon taxes and tax efficiency in another post.

This account is where most of the magic and freedom happens if you choose to retire early so please don't overlook it. In fact approximately 76% of my entire liquid worth is housed in taxable accounts across various brokerages which allows me the freedom to step away from work. This acts as the bridge for income between the stoppage of traditional work and when I can access my age restricted accounts and any social security. Build your income bridge.

Notes

We'll speak to my recommended asset allocations for each account in a following post but a couple of notes to tie off this post first.

It's important to know that each account whether a 401k, Roth IRA, Rollover IRA, HSA, or Taxable are just investment vehicles. There is some work necessary to allocate funds within these vehicles toward assets. Investments are self directed, you will need to invest the funds you contribute to these accounts. As noted some accounts are administered by your workplace and have limited investment choices and sometimes bound by trading and management fees. That said you'll likely find something equivalent to an SP500 index fund, you'll just need to spend some time to find these investment choices and direct funds into them.

I realize this is very US centric, but having spent many decades in Canada there are roughly equivalent accounts not only in Canada but in other countries as well. For instance, the Canadian 'equivalent' to a ROTH IRA account is the Tax Free Savings Account (TFSA), as the Registered Retirement Savings Plan (RRSP) is likened to the 401k. No matter where you're reading from find equivalents that your country offers. If you'd like me to create a separate post going into details around account equivalents in major countries just let me know in the comments below.

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