How to Retire Early By Age! (What FIRE Gets Wrong)
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- เผยแพร่เมื่อ 1 ก.ค. 2021
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Got job with pension. Paid into 401k as much as I could afford. Never bought a new vehicle until 45 years old. Kept debt very manageable. Retiring at 50.
I know you commented a year ago but I like your plan. I have a pension too along with a 401k and am retiring the year I turn 55. I’m assuming your pension is good enough to live on alone until you’re 59 1/2. You can’t touch the 401k until then without getting penalized. Working until the year in which you 55 allows you to be able to tap into your 401k early.
@@nino714 make that 401k high enough that if you take out $25 or $30k early you don’t care about the 10% penalty. Also if you start a “business” you could write off enough to take back that 10%.
@@PawPaws_Place In addition to putting more money into my 401k the main reason I'm waiting until the year I turn 55 is because of the IRS tax rule. "The Rule of 55" allows you/me to take withdrawals out of a 401k without penalty as long as the 401k is with your current employer and you separate employment the year you turn 55. My pension will be @ $2300 a month and my 401k will be $500k plus (hopefully $600k). Of course I gotta pay regular income tax though. Starting a business would open the door to a bunch of write offs that can mitigate my taxes owed. Hmmmm, good idea!
Glad I found this at 17 😁
Start that Roth IRA today.
I’m glad I found it at 59
Go for it youngling!
@@tomvonneefe4269 exactly! I can’t stress this enough. I compare mine which I started at 22 vs my husband at 34. Huge difference!!!
Im 20 im behind 😂
I retired in 2018 at 38. I think you missed a huge component of FIRE. If you are saving 75% of your income you don't need to replace 80%, or even 60%, of your income in retirement. You're already living off of 25%. What sold me on FIRE was Mr. Money Mustache's post, The Shockingly Simple Math Behind Early Retirement. The higher your savings rate the faster you accumulate towards your 'number' AND the lower your 'number' becomes.
This ^. The replace X of your income is a bad metric. It’s about your expenses NOT your income (as MMM also says).
If one makes $100k but takes home $80k and saves $20k annually and pays $25k annual towards mortgage payments then they don’t need $100k in retirement because they don’t need the extra $65k that went to taxes, savings and housing before.
Love MMM.
Cheers on your path to FIRE 🔥!
This is exactly what I was thinking. On my way to F.I.R.E. now and I only live off 28% my gross income so 60% gross is way overkill. Also congrats on reaching retirement at 38! I hope to be there by 40 myself.
I'm sure you all already know this but don't neglect inflation year after year. I based my financial independence number on $40,000/year in today's dollars in expenses at 3% annual inflation and my "half financial independence number" on $20,000/year at 3% annual inflation or $40,000/year at 2% annual inflation. Getting to my full financial independence number is the goal but I could probably make half of it work. That being said, I don't plan to retire until 60, but still it's something to keep in mind. FI is $3.3 million and 1/2FI is $1.65 million, but this assumes a 4% withdraw rate and not the 3.75% withdraw rate recommended for a 60 year-old in this video.
Yeah we got to 30s and could retire by living simple. Really only a question of how high an outgoing you want. At 45 now and thinking about it again. Retiring at this level of income is much better than the similar level we had a decade ago.
Have the high rates of inflation impacted your retirement Joe?
My primary goal is to retire at traditional age with dignity. I feel like for some of us average earners, FIRE can sound really unachievable but by starting with the mentality that "I may not retire early, but I can retire with dignity" it feels less daunting. I feel comforted knowing through this video that at least I'm on track for that.
Well said .
I like that. Especially for someone like me that started at 37.
Exactly! By following FIRE rules of thumb, even if you retire at 60 or 65, you are retiring to a good condition- with enough assets to sustain your lifestyle, even exceed it. Not afraid that you need to depend on the government or relatives. Not afraid of being able to take care of your needs.
I want to be financially free but not retired
I want to be retired but not financially free
It's not about retiring it's about not having to work if you don't want to and being able to work how you want and when you want to do.
Same
@@JaronPope That's the vast majority of retired seniors today. Honestly, it's a leveled playing field for us and their generation though. They got the benefit of social security and possibly pensions while we get the benefit of having so much financial knowledge and abilities at our fingertips. I personally prefer being in the latter though because retirement will feel so much more rewarding knowing that it was my journey that got me there.
@@TheDjcarter1966 exactly!
I was lucky to have an older friend tell me to invest once I turned 18. I never made much but what I could put away I did being a full time student until I was 20 working part time making minimum wage.
I managed to accumulate 130k now at 24 through systematically investing in a basic mutual fund at my bank just taking whatever money I had left over every month and putting it forward to my future.
Nice job. Continue to stay the course and your future self will thank you.
That's insane. I remember in college (during my free time not in class) learning about the importance of starting as soon as possible and I was like to myself "but I don't even have an income and might need it!" and to this day I still kind of have the mindset that it's *OK* not to start investing _as long as_ you are still in school building your employability up. Each dollar might be worth $88 but there's too much uncertainty with your life at that point. And I followed through, as soon as I graduated I started investing immediately every month.
Hearing your story is a very convincing counter-argument. I thought I was doing good getting started as early as I did, at age 22 and a half, but I'm 23 and a half now and don't have nearly that kind of net worth. I'm still proud how I did in the span of a year but still, very impressed with your story.
@@thoryan3057 OMG you didn't start *at 18?!?* You slacker!! LoL... seriously though, you are soooo way ahead. It's deliciously enviable what time and compound interest will do for you, even if you put in minimal effort (bare minimum $). You're going to have a tough time *not* becoming a millionaire, because time will pretty much guarantee it by 65 - most likely even sooner.
@@VotingForOBAMA1 Yep. :) Definitley looking forward to the millionaire life, even if it might be some decades from now. While other people waste their money playing the lottery to become millionaires, my success is nearly guaranteed
As a Fire movement member I can tell you that basing your retirement spending on 60% of your final income is not correct. Fire members base their retirement spending on their current spending, minus some expenses like a mortgage, plus things like healthcare and more travel. That’s usually WAY below 60% of our income. For example we are in our mid thirties with a savings rate of 70% and we plan to spend about the same amount in retirement since we will have paid off our mortgage and won’t need childcare.
I am a fan of FIRE and I appreciate the review of the topic through a conservative lens grounded in realism. But one of my favorite things about FIRE was shifting the conversation from a % of income to the cost of a lifestyle. I think setting "60% of income" as the base of all the analytics is the miss for the show. Obviously basing the show on average or median expenses would be more nuanced but it is a fundamental part of FIRE. It majorly shifts the math and conversations around early retirement.
Exactly. I spend only ~20-25% of my pretax income (not including charity). Having 60% of my income at retirement would be a HUGE lifestyle increase.
That is a great point. I for example spend only around 15% of my income on those months when I work full time. And I have kids whose expenses I pay currently, much larger house than I will eventually need etc. I will definitely not need 80% of my income unless I want to do a hundred trips abroad per year and only eat burgers covered in leaf gold.
True. IMO they should have factored in (subtracted) the savings rate from the % you need in retirement, because logically if you can save that much now, you don't need it for living expenses. So maybe the calculation should be something like (100 - (current effective tax rate + current savings percentage of gross)) + expected effective tax rate = target income replacement percentage.
Just pick a %, everyone's will be different. I spend about 40% of my income but I would definitely want a buffer.
I came here to say the same thing after hearing the podcast. Brian and Bo focused on the traditional % of income discussion whereas the FI movement focuses on having 20-33x your annual expenses invested depending on your circumstances. I otherwise enjoy most of the content these guys create and agree with a lot even in this video.
It's not retiring and doing nothing. It's retiring from the conventional workforce. You join the F.I.R.E. movement to be financially free and work when you want. The independence is the entire point.
Yes I'm 10 minutes in and they keep talking about retiring early. There's a reason why FI comes first. RE is optional
Well said!
43:56 when Brian tries to make the club noises had me about spit out my water.
HOW TO GET RICH QUICK - invest early and often.
There are no "Get Rich Quick" schemes unless you play the lottery; and even then that may take you a while.
@@MaxwellMax So you missed the obvious, how progressive.
@A Fridge Too Far becoming a millionaire within a 15 years time span is something I consider to be “get rich quick” for any normal Joe. 30 years+ is get rich slow. Anything below 15 years is either lottery or you have to be incredibly talented.
I am a single father. My sons are 13 & 10. I put $50 a month into a UGMA account for each kid. I started the month they were born. It’s not easy when I live pay check to pay check and struggle with inflation on day to day goods. But I make it a priority. Together my $13,800 investment ($7800 for 13 y/o & $6000 for 10 y/o) is worth $25,600. For the price of pizza 3 times a month I’ve given them a start to adulthood that most kids will never get. I hope they continue to build on this through their twenties. They’ll be retired by 35.
I would have preferred them using "expected annual spending" instead of gross income for the calculations. I don't need $3-5 million to retire as my spending is only 55% of my current income. Using estimated spending eliminates that variation (assumes people can answer those questions about where they want to live and lifestyle questions).
I would have preferred them using "expected annual spending"
Could not agree more. The objective of retirement is to "maintain you standard of living." That is related to spending not income.
I think in previous episodes they talk about 25x expenses.
Never know the future. Pray that you have manageable health issues.
I’m on track at 40 to retire by early 50s!
He said the key at about 18:30. The key is to focus on financial independence. That should be the goal. That allows the autonomy to continue “working” or not.
Great content. I really like the breakdown every 5 years. The only assumption I would question is the 60% gross income replacement for people with large savings rates. If someone wants to retire early and is saving 60% of their after tax income and losing 45% to taxes, that means they can live on closer to 22% of their gross income in retirement if their savings is 100% Roth. Of course medical expenses and non Roth savings will increase that number to some degree. Anyway the point is that your expenses in retirement are more important than your current gross income.
Ł o pillow pp
roth can't be withdrawn until 59 1/2 so wouldn't work for FIRE, I believe
@@squideze “You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA.”
@@squideze
And that is the whole point. With a mega back door Roth 401k, you can potentially invest 30%+ of your income if your contribution + employer contributions is under 50k and your employer allows it.
If you can live on 22% of your gross, you can effectively save 1 year of living expenses every year of work without worrying about penalties in withdrawal.
Do this in your 40’s - retire penalty free and tax free in your 50’s.
2.5% is most likely too conservative for any age. There's good research that anything between 3-3.25% can handle 60+ time horizons with the right bond/equity allocation, even in periods with high valuations.
Listening to them say “Are you really sure you even want to retire early?” As I listen to this with my headphones in while cleaning septic tanks.
Yes… yes I do want to retire lol
love you guys and am just repeating other comments I'm seeing here, but y'all really missed the mark on this one. one of the major tenets of FIRE (and one that many FIRE gurus maintain financial advisors think about incorrectly...) is that your income is not what needs to be replaced, it is your spending that needs to be replaced. if I am saving 80% of my income (aka spending 20%) then I just need to work until I can reliably replace that 20% of my income that my current lifestyle requires and then I am "retired". requiring me to replace 60% of my income moves the goalposts 3x further than they need to be
you guys do really interesting analyses so it would be great to see these same figures revised for replacing the percentage of income currently being spent, not just a flat 60% of income
In addition to the math issue of assuming someone saving 50-90% of their income needs 60% of their income for expenses in retirement there’s also needlessly high buffers from the 4% rule by age.
Michael Kitces does a great job of incorporating human behavior into more flexible withdrawal rates. The truth is the overwhelming number of monte Carlos at 4% withdrawal have you way ahead 10 years out. If you happen to be unlucky with sequence of return risk, you can reduce your withdrawals or work part time or something. You don’t need 40x your expenses to retire at 35
Exactly, their numbers make no sense. If you make 150k per year and live on 50k then you need to to produce 33% of your income in retirement, not 60%.
Incredible episode guys. Full of great info. So much I watched it twice 🙌
I’m 23 years old and will migrate in US this year. I’m glad that I found this channel and learn how to plan my finances and retirement. I’m planning to retire at 45 and go back to my home country which has a lower cost of living than US. 😊😊
Thank you! We really appreciate this shared knowledge. Can you guys please make a full show regarding the 3 bucket strategy, various scenarious and tax planning ideas with this? Looking forward to the next shows!
Thank you for the content Brian and Bo. The numbers provided didn’t have a personal feel for me I’m afraid. I am a bit of a math geek but my interest in FIRE is more of an emotional one. Emotional and lifestyle based. We’re not talking gold toilet seats or fine dining, but more feeling much less stress and being free from the so-called ‘rat race’…. Having time to smell the roses etc. I didn’t feel the show today catered to that aspect of FIRE. I also want to keep working part time once most of the heavy lifting is done…. Kind of like cruising to finish a project when you’ve worked hard way before the deadline and now you can enjoy the fine tuning while doing other things. Thanks for all the great content over the years, I’m a big fan of the show.
I also want to keep working part time once most of the heavy lifting is done…. *this sounds like BaristaFIRE*
Kind of like cruising to finish a project when you’ve worked hard way before the deadline and now you can enjoy the fine tuning while doing other things. *this sounds like CoastFIRE*
I struggle with the figures that financial guru's come up with regarding needing 60% of your current income. Let's say my income is 170k but I spend 18k a year. Why would I need 100k in retirement? Also, if I wanted to retire at 55, I'd need 5 million dollars. I'm a little baffled by these numbers. Hopefully I'm wrong.
No, that is just a simplification as many people get used to spending levels that are close to their income. If you do not need 100k, just pick a level that you need. If it is 50% or even less of your current income: so much easier will it be to reach your target.
I share your struggle. I live beneath my means and plan to retire on less than 50% of my income. I always have to reformulate these calculations to my scenario...
You're not wrong. I haven't finished the video, but it seems like it's based on the assumption that the amount of money you need in retirement is fixed, and it should be treated as a variable. The power of FIRE is that reducing your standard of living doesn't just increase you savings rate, it decreases how much you need to save. Rough numbers, if you make 170, live off of 20, and pay 50 in taxes, that means you're putting away 100 a year. Let's say you need 25 to live on in retirement because of taxes. Even if your investments never made a dime when you were working, you'd be at a 4% withdrawal rate ($625k) in a little over 6 years.
As others have said their examples are oversimplifications for the video's sake. In reality it is really about what your actual expenses will be in retirement. Plan for that plus any taxes you expect to pay.
Of course they are, very few people make 170k and live off 18k. If you are in that situation, congrats! But don't assume media is going to be based on your experience.
It's a funny thing, when I first found your channel 25% of income seemed like a lot to save. However, after adding up my personal savings rate we found that is exactly what we were doing based on what I expected our expenses to be in retirement. You guys are spot on in terms of the concepts being laid out in your channel. It does work. We have already hit the number I thought we would need to retire by age 60. I'm even thinking about retiring earlier, maybe 57 or 58 and have ramped up the savings for a bridge account to cover the expenses for those extra years. Whether I do or not remains to be seen. The main thing is I have options because I started saving early. Great channel guys!
I’m on the same path as you in retirement. My big X-factor is what health insurance would cost a year in those retirement years before I can take Medicare at 65?
@@chrisolivo6591 I’ve been thinking about healthcare and we are doing a couple of things. We are heading overseas for a few years where you can get quality healthcare for about $400 a month in private insurance for a couple. The ACA is also an option as you can qualify for subsidies if you keep your taxable income below 400% of the poverty line. You have to use a mix of accounts that have different tax treatments to look poor on paper to get those subsidies.
Great video again, Money Guy Show!!!!!!!!!! 💰🤑💸💲💶
Great show, guys! Thanks so much for the shout out to my blog 🙏
your milestone posts are gold...
@@30by40 Thanks! They are my favorite (and honestly the easiest) to write. I love being "forced" to reflect and document what I'm thinking. I've found it incredibly useful for me and I'm always thrilled when others find it helpful / informative content as well. -Jason 🍻
My plan for withdrawal rate is to just take the dividends at maximum. If that is not enough I just do some small projects/gigs.
I have a below-average income and I am part of the F.I.R.E movement. I have also managed to own two properties in the last five years as well as invest in the stock market as part of my journey, so it's not all about starting off with a fancy job with a huge income and socking away 100 dollar bills. It's about figuring out what kind of lifestyle you want to live and how much money you need to carry you through to the conventional retirement age when things like your pension also kick in and your spending levels go down because you have less energy or desire to consume goods and services.
I‘m so happy, I discovered your channel!
Everyone I talk to which believe in FIRE, the goal is to get out of the rat race and have the ability to do what you want when you want without having to rely on a steady job for income.
So not completely retiring but having enough financial freedom to be able to things you really want to do. My goal is to retire in my late 40’s early 50’s from my day job, but I plan on doing something else I really want to do. Then I happen to be an accountant so I also know if I hit a bump in the road there are always temp accountant roles available in which I can earn any potential yearly shortfalls. Just had some really stressful roles in the past and want to walk away from the stress.
I just stumbled upon your show a few weeks ago, this is my first comment. You guys do an awesome job on most of these videos. Keep up the good work.
Thank you Bryan and welcome 👍
Great to catch this Live for the first time!
Love this episode and this show! Especially the FIRE Spot check for people at various ages, particularly in the 20s. Adds a lot of clarity for sure
The logic for this episode is actually wrong unfortunately. I recommend reading the Shockingly Simple Math behind Early Retirement by Mr. Money Mustache.
@@Zaerki ah what is wrong about the logic?
If you've been saving 60% of your income that means you've lived on 40% of your income. Why would you then need 60% of ypur income in retirement ? I've found i live on hardly anything. No kids , no mortgage etc. You can live on buttons in retirement.
Not everyone is, maybe your retirement lifestyle is different than your working likestyle. also lots of us are planning on still having kids and mortgages.
Healthcare costs go up as you get older. Also, esp for Americans, you have to pay for your own healthcare. Depending on your employer, your premiums/deductible will be higher in retirement than they were as an employee.
@@Jack-fw4mw I can argue that's a wash against paying a mortgage currently. I'm living under 35% of my income with a mortgage of $1354. I don't think my health insurance will be anywhere near that for a while until I'm 60.
you've lived on 40% of your income.
Correct. This is the money that you want to replace during retirement.
@@Jack-fw4mw Perhaps, but retirees statistically spend LESS in retirement
Why do you guys use annual income as your base for calculating how much a person needs for retirement instead of annual EXPENSES? You can have two people making $100,000 a year each. One person is saving 60% and living on $40,000 a year and another is saving 30% and living on $70,000. Those two people have vastly different FIRE numbers yet if you use annual income instead of annual expenses it makes it look like they would need the same FIRE number.
This is my question. It seems you are missing a very big part of this. FIRE people don't want to replace their income. They look to expenses. If they want to spend more than expenses, they do a multiple (150% or whatever) but it makes no sense to replace the income that is going into savings that you nave never had in your lifestyle. This makes no sense.
@@RebeccaWardBecca These guys usually are on point but I think they really dropped the ball here. Using your annual expense or expected annual expense in retirement is the most basic part of FIRE. I hope they fix it because it's going to be misleading to a lot of people who aren't familiar with FIRE.
@@ariefraiser140 I agree. They usually are so right on but this is so wrong.
Right - in retirement you are not putting into retirement.
41:50 is the reason I worked hard to pay off my mortgage early. It's paid off at 49 and now I'm throwing everything into Roth IRA, 401K just in case I lose my job in my 50's and either have trouble finding a job or have to take a big pay cut.
I got hit in the Great Recession and had to take a 20% pay cut for 4 or 5 years. I'm making twice now what I was making before but that hurt. I also saw people laid off in their 50's struggle to find jobs.
Don't assume that your income will be ever increasing or that jobs will be easy to find. Take advantage of good income when you are getting it and invest.
My retired grandma in law said to work as long as possible. Retirement can be boring. She’s 86 and works part-time as a teacher. Purpose helps with longevity. She’s pretty well-off financially but it’s quite boring sitting at home with all that money.
Ummm... that's *terrible* advice. Working for someone else for a salary isn't the only way to achieve purpose in your elder years, and it *certainly* isn't the most rewarding way to do so for most people. Not everyone is employed in their calling.
Love the topic!
30x your income to retire at age 50 would mean replacing 100% of your income, with a 3.5% withdrawal rate. That seems like a major overestimate considering your taxes will be much lower in retirement, and you won't be saving for retirement with a large portion of your income after you're retired. I'd say 20x your income is PLENTY. A lot of the other numbers they threw out have similar issues.
I agree. Their decision to just arbitrarily take off a quarter of a percent from the 4 percent rule per five years is exactly that -- ARBITRARY. A *lot* of financial advisors will tell you that the 4 percent rule is needlessly conservative *itself* (they suggest you can probably safely go up to 5% with the right asset allocation).
So let's start there. Now all their percentages are off. So if all their percentages are off, then their multipliers are *also* off. I've been working with a financial planner for a while, and we've got things set up so I should be able to retire at 55, and I'll have about 22 times salary saved at that point. He also says that that's pretty conservative.
Great talk guys - I hope to come back home to roost. Building this wealth with my army of dollar bills right now
You can always be a hobo. Financially free and retired while not slaving for that cash
I've been a little worried, but based on this video I might be okay. And that's a relief.
Consistent investing, living below your means, right investments and withdrawal percentage are important, but the most important and always overlooked most financial advisors is how much do you really need and how much to live on. I wish I would have had all this information in my 20's.All good information
Surprised Bo is super excited for this one.
That’s why most of the FIRE community has a passive income stream! Dividends let’s go!!
I love it when you cover the FIRE movement!
Ken thanks for the comment… a comment yesterday from another viewer was very polite but said that they hated when we covered FIRE 🤷♂️ (confirmation and compliment helps counter that 👍)
@@MoneyGuyShow Thank you for taking the time to read my comment. I'm part of the FIRE movement and your FIRE videos hit home for me. I love to hear praises as wells as criticisms and shortcomings of the movement. I have a feeling there are a lot of viewers similar to me. If anything, everyone should learn about financial independence. Retiring early is just one option after reaching FI.
Love the formulas, graphics and charts! I send everyone asking for financial advice to your podcast. Thanks guys!
Great content, and helpful to know! I have already decided that if there is no way to retire comfortably in America to become an expat in a US retiree friendly country like Mexico. I have no idea how much healthcare will be, but I know it outpaces most other expenses and paying an effective mortgage in retirement due to premiums or long term care is simply not an option.
When I graduated high school in 1986, my grandfather gave me the following advice - Live very frugally for 10 years and you will be set for the rest of your life. At the time I still had 4 years of college ahead of me and also had no clue what I would be making in my career or what it really meant to live frugally. But as time when by, I began to understand what he meant. I never did the 10-year plan that he envisioned, but I did end up saving aggressively and not getting caught up in the competition with the Joneses. I can tell you that it all paid off and I was able to early retire two years ago at the age of 51. Now what I have discovered is that once you reach critical mass you can't actually spend all of the money that your money generates. But with 45-50 years of uncertainty ahead of me it is probably not a bad thing to keep letting the pot get larger. The plan works if you just trust the power of compounding.
this video made me realize the value of my equity earnings
So entertaining and educational
I like what you said. Retirement is not an age or a determination that you will not work. It is a point where you have enough money to where you do what you want.
FOO FIRE 🔥🔥🔥
This is great and love your videos but, as you guys know there are different types of FIRE. Could you do something similar but for COAST FIRE?
I'm currently 28 and saving around 1/3 of my pre-tax income. Unfortunately it's not as rosey at it first appears, because over half of that savings is going towards a house down payment, rather than retirement. I'm lucky to have a roommate and low rent, but that won't last forever. Trying to quickly move upward in my career so that I'm prepared for life's curve balls and still retire a bit early.
You are doing better than you realize🙂
My husband and I are in our mid 40s with kids not leaving the home until we are in our 50s. Our plan is to retire at 60, so we are paying off debt, upping our retirement contributions and also saving for a years worth of expenses. We realize that we probably won't retire at 60, but right now, that's the goal.
Thank you!
22 year old watching thanx for this!
You should definitely specify that you don't need multiples of your income saved up, you need multiples of your annual expenses saved up. They're relatively similar for ppl saving 10%, but financial mutants are saving 25% and many in the FIRE movement are saving 50%+. If, at 30, I want to retire at 35 and I save 50% of my income, why would I need 14.8x my income? That would be 29.6x my annual expenses, which is more than enough to retire on at the 3.5% you suggest.
Check your math.
@@General8675 which math do you think is wrong?
May I ask what is 25 times your annual spending?
@@DavidEVogel what are you asking? What 25x my personal annual spending is?
@@aaronjosephs2560 25 times spending is your retirement goal. Take 4 percent/year, and it will equal your current spending.
Its doable. Working in a HCOL area and settling in LCOL areas accelerate this greatly. Living like a college student working contracts in California the last 3 years and buying investment properties back home is making 40 seem possible and i didnt start til i was 28. Had i not made certain lifestyle changes and recently deciding on a career change starting January, i think 35 would've been entirely possible.
There’s also a growing number of us who are planning to retire early by moving to a low cost country. You can mathematically save for 10 years to attain 1.2 million (especially if you sell a house asset) have a 1.5% draw and retire comfortably in SE Asia/Central or South America/Eastern Europe on 18k a year. You use an extremely low draw rate so you can grow your funds and one day move to a higher cost country or back to the US. Mathematically if you retire with 1.2 million on an 18k draw in 20 years you will have 3.5 million at 7%.
You sure those low cost countrys are going to stay that way for 50 years?
@@General8675 where did you pull 50 years? Also 20 years in I can draw 1.5% of 3.5 million and draw $52,500.
@@General8675 Yes. There will always be a low cost country that has just enough modern amenities to support the OPs withdrawal rate as long as you remain flexible and move when the situation dictates. If you retired to low cost Thailand 25 years ago but inflation and the foreign exchange between currencies now make it expensive (not to mention worse visa rules) move to low cost Vietnam or Malaysia. Heck who knows...Many African countries may develop enough to become viable low cost options. I've seen something similar play out in Colombia which due to violence 20-30 years ago hardly anyone wanted to move there to now where it's become a hotspot and is still extremely low cost.
Thanks for sharing. In regard to the 4% safe withdrawal rule, you're able to increase your withdrawal amount each year based on inflation. That wasn't mentioned in the podcast. Separately, yes, folks retiring early should probably go with a lower percentage withdrawal rate than the standard 4%. However, you indicated that, for example, if a person retires at age 55, they should go with a 3.5% withdrawal rate, at age 45 it should be a 3% withdrawal rate, and so on.
These figures appear sensible. However, how did you come up with them? Did you do any historically data analysis or did you just figure they sound about right? If you did an analysis, can you please provide the details as nothing was stated in the podcast. Thanks.
Most analysis I've seen online in multiple places is that once you get to a withdrawal rate under 3%, you should be able to withdraw in perpetuity. Anything below that should be increasing your principal over time. I think this is just a rough rule of thumb they came up with. Which is not bad, but just not data driven.
@@petew1 I hear you. However, this should have been stated clearly--that this is a rule of thumb and not driven by any data.
I saw it; 44 minutes in you got Beau to laugh! Good stuff.
I retired at 43, and currently living iff dividends and interest alone.
Yea sure
What are a few of the stocks/EFTs you've been holding longterm?
One of the many reasons people want to retire early is they don't enjoy what they do. If you enjoy what you do for work, retire early or not doesn't really matter. For me, retiring at 59.5yo is retiring early. 😅
I enjoy my work, but I would love to retire early. I can't think of many jobs I would rather do than being on the beach =)
Will there ever be a day Bo isnt "super excited about the episode" ?
“Hey guys, I am super bummed about this episode today!”
When Brian retires?
I hope he's always excited about each episode 👌
It's not so much about retirement as it is about working on your own terms and having the ability to leave and not put up with crap. At least in your 20s or 30s.
Currently 26 and am planning out my early “retirement”. Not there yet, but I’m hopeful it can happen within the next 5 years. (Also, by retirement, I mean leaving my 9-5 job to focus on my own goals/alternate methods of earning income). This year I opened a business in cash with no debt, and that is already at a positive cash flow and is bringing me 3.5x the income that my 9-5 job is. I currently have a little over $300k in investments (mixed retirement and personal investments accounts), and I also have no debt (paid off college loans, cars, and credit cards already). My next goal is to buy a house, and after that I can really start pouring the rest of my money towards investments or more real estate to achieve my goal of retiring at the latest by 35
Would you mind us asking what the cashflow positive business is?
@@WorkFromHomeHero it’s a hair salon
This assumes lifestyle inflation of 1.5% instead of savings rate growing by 1.5% . You should have called this FAT FIRE. Instead of standard/lean fire. Mr money moustache does the years it takes to retire based on Savings rate.
I have a question. For various ... You say at age , to retire at age you need X your salary saved already. Is that your CoastFI number and how much you need saved to never save anything again until age as long as you are not withdrawing from your army of dollar bills? Or is that a number that assumes you will continue to save some percentage of your income between age to ?
I'm interested to hear your thoughts on CoastFI in a future video if you're team is up for it. You've probably done it before, but it's a great topic when you consider the 88 times over principle.
Do they have any videos relating to Fire where they talk about what vehicles to use? Should people try to max 401k, hsa, ira?
I’m a 25 year-old who doesn’t have a specific time to retire and as much as I love FI/RE take it all with a grain of salt as a performer, but also intend to start a notary loan signing business. I suppose 45-50 would be perfect to have as an optional intention.
I believe the FIRE movement focuses on annual expenses as opposed to salary
I'm 23 and saving about $1500 a month for retirement. We live in an RV and I travel for work. I hope to kick that up once my wife finishes her degree!
Nice analysis and I like how you gave a safe withdrawal rate by age. However how can you give a safe withdrawal rate and not mention asset allocations by age? Wouldn't the safe withdrawal rate vary drastically depending on how much of your portfolio is in stocks and how it is rebalanced? How can you do a deep dive into FIRE and leave one of the most important factors completely unaddressed?
Many financial planners will tell you that the 4% rule *itself* is too conservative, if you do asset allocations properly.
"The party's just startin' to heat up! You're hearin' the 'hmm hmm hmm hmm.'"
Thanks for the spot checks. According to that, I'm on track for my early 50s. Unfortunately, to carry my health insurance into retirement, I have to work for the 5 years up to my minimum retirement age of 57 at the federal job I have currently. Any alternatives you'd suggest for health insurance in retirement to retire before age 57?
ACA healthcare exchanges is the only other option I can think of.
Most fire movement people don't retire. They still work part time creating TH-cam or Blog content. Also many fire people once they have children decide to go back to work. You are right that in order to retire early, you need to have a high income and save most of it. Also creating a passive income stream also helps.
Even though I enjoyed the info in this video, I think it misses the point of most Fire subscribers. To me, fire means having enough to support me while switching to a business I will find more fulfillment in, even if making a living in it may be unrealistic. Fire changes the definition of retirement completely because it is leaving the traditional job to do your own thing… so income doesn’t totally stop, unlike real retirement. I am not on a fire path, but it does sound appealing because of the freedom to run a business without stressing over money.
Quitting your day job with enough money to float you until your small business picks up is not FIRE or retirement. Retire means; No more work.
@@loucaribou7765 You're partially right: quitting with no money is *not* FIRE. But, that last part isn't accurate... "retire" means no longer having to do *forced* work you don't love and/or long hours, which for most people means leaving the rat race/9-to-5. FIRE is about "retiring" to do work you love and spend your days/life as you wish.
I love the video! My one critique would be that I think there is too much emphasis on percentages.
As an example: Another foundational piece to the fire movement at least for me is knowing how much you need or want to spend in retirement. Let’s say for me that’s $50K. In your examples you are assuming someone has a goal of saving 60% of their income.
But since that’a assuming I’m living a lifestyle that exactly matches 60% of my income. If I only need 50K and I make 100K, then I only need to save 50% total. Going further if I get a raise to 200K then I only need to save 25% until I can replace 25% of my income instead of 60%.
I think this is a small tweak in assumptions that change a lot of the math in this video pretty drastically in favor of fire assuming your a high income earner
As someone who is also supporting parents who do not have sufficient retirement savings, it is difficult for me. But for others who can, you do you. 👏🏻
Let’s talk about money 💰
I think they are making the very simple math equation more difficult than it has to be. If you have $1 million in the stock market earning 12% (that’s the average for the last 45 years, S&P) and you take an 8% withdrawal annually. That leaves 4% for inflation (which is the historic inflation over the past 50 years). That would give you $80,000 a year FOREVER, you would never touch the principal that’s just living off of the interest. They are assuming your investment never makes money when you retire. It doesn’t matter what age you are when you retire if you have 1 million you will never run out of money.
It sounds like you're getting this from Dave Ramsey but the math on his "8% rule" has been proven not to work unless you're in your 60's already. I'd do some more research buddy.
What was the name of your friends youtube channel or podcast that retired in his 40s ?
What a difficult discussion, I think it has to do with cutting cost/lifestyle. The replacement of 60% of gross income may not be in most fire peoples plan. I think about the retirement income as what I want to live off of x25-x30 nest egg. How long will it take to make that nest egg, saving y per year.
Nobody in the FIRE movement calculates spending numbers based on replacing a % of income. Sorry guys but the numbers in this show make no sense.
Sure, but the whole basis of retirement is replacing your income with your investments.
@@tannerlawrence3462 No that is not the basis of retirement. The basis of retirement is replacing your annual EXPENSES not income with your investments. That is a huge difference. A person who has a job making $150,000 a year but who only spends $70,000 a year does not need to replace $150,000 a year they need to replace $70,000 a year. And if they want a margin for error they can aim for $80,000 or $90,000 a year but the base is always your yearly expenses and then adjust up or down as needed.
@@ariefraiser140 forgive me if I’m wrong, math isn’t my strong suit, but can’t people just change the “yearly income” number with their “yearly expenses.” And if that’s comes out to greater than 100%, then that just means their income needs to be that amount greater than their expenses… ah crumbs, idk. I’m just going to keep saving.
@@Pandorash8 Think of it like this....If you make $100,000 a year income and your yearly expenses is the same...meaning $100,000 a year in expenses where is the money you need to save and invest for retirement comming from?
Logically if you're saving for retirement that means you're living on less than your salary. The equation for your yearly expenses is:
Income - savings = annual expenses.
@@ariefraiser140 Okay, but now we are arguing over semantics of what we are defining as "income," so we agree on the main point. Your retirement returns replace your expenses or your income (hopefully tax free if you use Roth). Anything not spent would be added to your investments for later years. Correct me if I'm wrong, but if you are in the FIRE movement, you will pay capital gains on either a brokerage account or you will pay other fees for early withdrawals. Set up your life for what makes you happy. In general, I'm happy for people who succeed with FIRE, as it inspires people to invest in their future.
Gentlemen, do you know about Yotta Savings? Any chance you can weigh in on it as a place to hold my rainy day fund? Thanks in Advance.
I think you missed one very important point, in fire, the 30-40% of your income is enough to live simply, and thats something people really want, everything else, youp, great info!
How would a 4% withdraw rate deplete investments that return 10%
When using the “saved” does that mean only liquid assets? Or can that number include equity in real estate holdings?
I'm thinking anything that can provide you a (somewhat) steady source of income (because you're retiring and leaving behind the steady paycheck). So, if it's a rental that gives you actual income, then yes to including it; however, if it's just "equity"/ownership, no, because you will not get cashflow/income unless you liquidate (which puts you back into figuring out what investment vehicle to "sit" that money in, to generate income).
it was interesting!!! 😇😇
Please check your math. At 58.04 you state 28.9x your income to retire at 55 when you are 55. 100%/3.5% withdrawal rate = 28.9x . This assumes 100% gross income replacement not the 60% gross income that is stated in the audio. 60%/3.5% withdrawal rate @ 55 = 17.1x gross income
How does inflation and purchasing power come into play with these withdraw percentages?
You need to also need to plan for a bad couple of years early in retirement. Markets crash and you selling from your entire stack at the bottom of the market is very difficult from a crash near the end. Got to realise that your army isn’t dollars but thousands of individual investment. A single stock that grows for twenty years and then loses 50% is worth as much as two that lose 50% early because you’ll need to sell one to make your income.
I don't understand people that don't know what to do when they retire. I have an endless list of things for me personally! Books, Games, Movies, Friends, Family, Travel, Run, Bike, Swim, Kayak, Surf, Climb, Hike, Camp, Scuba, Tennis, Fencing, Ice Skating and that is just to name a few! Get out there people!
You're right. Also: motorsports, winter sports, learn new things, continue to invest, plan for generational wealth, etc.
Your body will be old to probably not be able to do all of that and unless you marry and have kids you wouldn't have much of a family at that age.
@@tom4097 Good point, I will change my plan and work until I am dead and not start a family because I was too busy working. 😛
My wife and I are 25 and saving 32% of our income as high earners. Super excited for our future
Does this analysis assume youll pay taxes in retirement on the income? Id guess so. Always need that clarity because I strictly have been investing ROTH
You guys have 141k subs, update the counter! ... Also when cash management plan video?
I think that means they recorded this a few week ago. It is a holiday weekend for most ppl.
This video is earnest however it doesnt mention burn rate. Gross income has no bearing except on savings rate. Its monthly (or yearly) expenses that matter and thats one of the most important if not THE most important calculation with FIRE. Passive income and frugality help the math.
They talked about burn rate a lot, they just didn't use that term. They set replacing 60% of your income as the minimum you should be aiming for. So 60% of income is their burn rate.