Reaching your FIRE number is the beginning, not the end. Here's how early retirees actually withdraw money from their portfolios — the mechanics, the account order, and the common mistakes.
The 4% rule says withdraw 4% of your starting portfolio value in year 1, then increase that amount with inflation each year. If you have $1,000,000 and inflation is 3%, you withdraw $40,000 in year 1, $41,200 in year 2, and so on.
In practice, most early retirees don't follow rigid mechanical withdrawals. They withdraw what they need, reducing spending in bad market years and spending more in good ones. This flexibility significantly improves portfolio survival rates.
Withdraw from accounts in an order that minimises tax and preserves compounding:
The biggest risk in early retirement is a market crash in the first 5 years. A portfolio that loses 30% immediately and withdraws $40,000 is far more damaged than one that earns 30% first. Mitigations: keep 2 years in cash, be flexible on spending in down years, consider working part-time in severe downturns.
As you withdraw, your portfolio's asset allocation drifts. Rebalance annually — typically by selling appreciated assets and buying lagging ones. This naturally enforces "sell high, buy low."