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.
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!
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.
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 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.
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
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.
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.
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.
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.
@@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.
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.
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.
@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.
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.
@@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.
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.
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.
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
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
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.
That is honestly the most insane kind of gift imaginable for their future. It is wonderful that this is now a method available for our future generations!
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.
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.
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. 😊😊
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.
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 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.
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.
@@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 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.
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.
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.
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.
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
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%.
@@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.
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!
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.
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.
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.
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.
@@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.
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.
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
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 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.
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. 👏🏻
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!
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!
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.
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
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.
The logic for this episode is actually wrong unfortunately. I recommend reading the Shockingly Simple Math behind Early Retirement by Mr. Money Mustache.
@@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.
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.
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.
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.
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.
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
The "average" life plan described here and elsewhere doesn't apply to me. I started actually saving late, but I am divorced without kids. So...that magic 40s doesn't fit. I JUST started a viable career (making a just average salary) in my late 30s. Before that, I was making well under but not paying rent. I am almost out of debt and looking to save for a tiny house on a plot of land in FL. Already thinking about "retirement", but I can still do some work online as I HAVE been doing. Not looking to be a Millionaire at all, just don't want to rely on another man, ever. Even the elderly owner of a share communal property didn't get it. He wanted $600 for a room and bath he built in his house. He called it an "investment" into the property, for me, it's just rent. And having a THOW there...only if I wanted to "rough" it and still pay that "rent". I hope the local governments take heed of HUD, they approve the THOW model...but the local governments have all the power there.
FIRE is all about burn rate y’all. 60% of some incomes is absurd to reach for and is profoundly high in the realm of early retirement. Particularly for those with save rates in the 60-70 percents who have gotten used to a financially cheap lifestyle.
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.
My first thumbs down for you guys after hundreds of videos watched. Usually you captured topics well, but I think you flubbed this one pretty heavily. Your numbers apply traditional key assumptions to those within the FIRE movement, which definitionally makes no sense. eg. 60% replacement of income when someone is saving 60+% of income makes no sense, and thus your downstream numbers make no sense. Most people truly in the FIRE movement are saving 50+% percent of income, thus replacement income should be less than 50% at best. As you show true early retirement is nearly impossible at only a 30% or even 40% savings rate. Perhaps it's the "you can't do this" tone instead of "here is how extreme you need to be to do this" tone. Further the "spot checks" were unclear -- does that mean no additional savings (I doubt it) -- so then what percent of savings are you assuming? Again, if you are saving only 20 or 30%, then you are a financial mutant, but not in the FIRE movement, and thus your numbers fail. It'd be interesting to see you do this with logical numbers and flipping from 'age' thinking to 'number of years until retirement' thinking -- and show how hard, but doable, it is if you can hit 50% or 60% or 70% for ~10 years. Eg. if you saved 50% of your income, how many more years do you have to work given a 1x income starting nest egg, 5x income starting nest egg -- it would also prevent the needless repetitiveness your videos have had lately. Normal (broke) < Ramsey (debt free + 15%) < Financial Mutants (20-30%) < FIRE (40-70%+). Only the most extreme Financial Mutants fit within the FIRE movement.
I agree with you. When I think FIRE, I think something like save 70% and then live off 30% of preretirement income when you retire. The numbers they gave simply do not reflect this mindset. If you make 60k+ and save 40k a year for 10 years, you'll have 400k. Assuming average market returns, there are many ways you can live off your gains from that; especially outside the US where the dollar is stronger and cost of living is cheaper. FIRE isn't about luxury, it's about freedom. Furthermore, for most of us, retirement does not mean that we will never again earn any income. It means, we can be very selective about any work we choose to do, finding ways to supplement our retirement only with work that we love. We're not lazy. Most of us will be freelancing or experimenting with self employment along the way. Most of us have passions that aren't rewarded very well by society. For example, I'm a musician, so I will still be able to go out and pick up a few hundred bucks from a gig when I so choose.
I agree that most FIRE people are capable of living off much less than 60%. I think the Money Guys tend to work with people who are good earners and want to use their money in retirement to do things like go on trips, play golf, help out family/friends, etc. Personally, I'm planning to retire between 55 and 60 and I don't want to ever have to worry about money. Being forced to live on an extreme budget for the rest of my life doesn't sound like a fun retirement. I guess the point is that 60% is a middle of the road number. For some people it's going to be a lot less. For others, they're going to want more. The show would have been hours long if they tried to encompass all mutants/FIRE people in their calculations.
@@dylancleghorn I'd even simplify is to not discuss the geo arbitrage or post-retirement work (oxymoron?) -- in fairness, that muddies the waters too much for an intro-level show and not everyone in FIRE will want to go down these paths. The conclusions they reach such as a 35yo requires saving 55% of income for 20 years to reach FIRE at 55 is absurd and based on a traditional mindset, not FIRE mindset. An upper bound on replacement would be 45% of income (probably lower, but shouldn't be higher). Using their 3.5% SWR (which is low, but not unreasonable), that means that the 45% replacement income / 3.5% WDR = 12.8x salary. Someone saving 55% of income will hit that far faster than 20 years with standard market returns (20 years of principle is ~11x salary alone!). The sad part is, this is probably one of the more common scenarios. Using their conservative assumptions (3.5% + no starting $$) with the 45% replacement shows me 14 years with mere 6% returns -- that makes their numbers off by more than 40% and thus my disappointment for missing the ball so much on this one. Note: I'm ignoring inflation and salary increases with back-of-the-envelope calculations, but I think 14 years is conservative given they somewhat wash (eg salary increases for those in FIRE means more money to save, not spend) and the conservative 6% growth (vs closer to 8+ with inflation)
@@Mekias That's the key of the FIRE movement and where they missed the boat. When you only save 10 or 20% of income, the 60% rule of thumb works reasonably well because that assumes reasonably ~20% savings and ~20% taxes that do not need replacing, which leaves you with 60% remaining to live with. When you save 50%, using 60% is absurd even to someone who wants to splurge in retirement, which is not the norm.
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.
Big fan of the show! I appreciate that you guys state your assumptions, but I wanted to share that my experience doesn’t align with your decision to pin your math against the aspiring retiree’s target being a 60% income replacement ratio. In my experience with FIRE forums, we’re dealing with high earners (~$150k-500k, or even more) targeting around the $40k-80k post-retirement income. If we take the middle of those ranges ($325k income targeting $60k/year), we’re talking 18.5% income replacement ratio, not 60%.
Hmm, this is a good calculation just that most if the time our income are not enough,but we still apply the rule, therefore one source of income osnt enough
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 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.
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.
We are blessed to have had our income double in the last couple years and it is about to double again. We are targeting living significantly Below our means at 20-30% income, debt free. Everything else is going to be invested. In addition to our salaries, I'm going to get back into construction on the side and build us a new primary residence every few years and sell the last one, taking advantage of the section 121 exclusion. If I do that a couple times I may just retire from my 8-5 and do that for federal tax free income. Could make up to $500k every 2 years.. That's the equivalent of $345k traditional taxable income from working annually.
Their figures are to replace 100% of income. Most live on a lot less in retirement, especially if their house is paid off and are debt free. In that case, I would reduce the amount saved by 50-60% and that’s not factoring in social security or pension(s).
Not sure if you guys will see this but wouldnt it be better to have your retirement portfolio to be in dividends at retirement age and just have that passive money stream forever? instead of taking money out and eventually you'd run out of shares? And then when you die your kids can take hold of the account and get that generational wealth going?
The FIRE spot check is interesting, but it's based on a target that is based on your income. Your spending is a function of your life style, location family etc - not a function of your income. If you are making $1M year at 40, and you are spending $100K/year, the claim that you need 16x your income saved ($16M) does not make much sense. Also, you are ignoring the fact that in most cases spending is something you can control. If you think are getting off track you can reduce spending through life-style changes.
Some lifestyle choices (kids, mortgages, community) are sticker than others. Keeping it at income makes it easier to follow and calculate. Like they said, it's napkin math.
No doubt that basing on income is a practical choice and it works reasonably well for most people - but they are also talking about the 1% that are able to retire in their 40s. Those people, almost by definition - are high earners that are saving huge percentages of their net income.
The healthcare exchanges may not give us the best-quality, affordable care, but neither does Medicare. Medicare B premiums aren’t necessarily nominal for many folks. The donut hole for prescription drugs is ridiculous. So, I don’t think waiting till Medicare to retire is a panacea for healthcare concerns. Immigrating to another country where affordable healthcare is a priority may be something to consider.
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.
The percentage of your current income is not for everyone and too general. For 22!years I made under 50k. In my early 40s I became an RN and make $140k. I plan on retiring at 55 with 800k. I still live on less than 50k and that is the amount I want to aim for. I own a condo in Cebu free and clear and that is where I’ll retire. I don’t need millions
The title should be “how to retire by investments while keeping same life style”. I plan on retiring at age 50 and my house is the big peace of it. My $400,000 house will be paid off which will give me 2 options. One stay in it and I get a $1400 month raise (sure would fee like one). Or I can sell and downsize into a condo and take the other 200,000 to buy a rental fully paid and get my keep my 1400 a month saving and add $1500 income from rental. This is huge.
I agree with a lot of other comments here you missed the ball by going on % of income. Yes it is hard for someone to get FIRE where they live off 60% of their income for in 5-10 years but it is very easy for someone making 200K in the tech sector to move to a rural area and live off 50k income
I'll never "retire" because when people retire, they wither away. What I want is to not have to depend on a certain job or be forced to work more than I have to.
I'm a 20 year old EMT who's working and going to school for paramedic, my wife is going to school to become a nurse while working at the hospital (she'll graduate next year) we have an 18k emergency fund in a high interest savings account, 1k in a Roth IRA, 3300 in an S&P 500 index fund (non retirement), 11k in the bank for expenses/school and we're saving 3k per month currently in non-retirement brokerage accounts, plus 6% of our income with our 401K's. All of this will be drastically increased when we both finish school and our income goes from 84k combined (pretax) to what we expect to make which is roughly 140k (pretax) combined income. We hope to work long careers but achieve financial independence by 35-40.
@@commonsense5555 You can always withdraw your roth IRA contributions. Plus, if you're a first time home buyer, you can pull up to 10k in earnings penalty and tax free. Might want to look into it!
@@caseyrichards3212 My plan is short term enough that it’s simpler to add to a brokerage account while still contributing to a 401K, I’ll definitely be maxing out the Roth after I buy the house though, and I’ll be saving plenty in other accounts including some taxable for a bridge account in case I decide to retire early. We’re likely going to be fully financially independent by 40 so retiring in my late 40’s to 50’s isn’t unrealistic but also working in EMS does things to your body that could require an earlier than usual retirement. It’s a rewarding job but puts so much wear and tear on your body when you’re lifting heavy people, climbing into vehicles, and doing other strenuous movements to save people’s lives, not to mention the constant high stress situations.
They don't even talk about passive income. That is a key point of the F.I.R.E. movement. House hacking in your 20's and also building real estate portfolio easily can and has afforded people in their 20's to "retire" from the 9 to 5 job.
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?
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!
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.
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 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
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.
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 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 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.
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.
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.
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.
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!
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.
43:56 when Brian tries to make the club noises had me about spit out my water.
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%.
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
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.
That is honestly the most insane kind of gift imaginable for their future. It is wonderful that this is now a method available for our future generations!
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 👍
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.
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. 😊😊
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.
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 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.
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.
Energized to show up every day and say the same things over and over. It’s an old man’s dream!
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 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 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.
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.
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.
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
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.
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!
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🙂
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
I’m on track at 40 to retire by early 50s!
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.
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.
Love the formulas, graphics and charts! I send everyone asking for financial advice to your podcast. Thanks guys!
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.
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
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 =)
That’s why most of the FIRE community has a passive income stream! Dividends let’s go!!
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.
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. 👏🏻
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. 😛
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!
Great talk guys - I hope to come back home to roost. Building this wealth with my army of dollar bills right now
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.
I‘m so happy, I discovered your channel!
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
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.
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!
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?
Incredible episode guys. Full of great info. So much I watched it twice 🙌
Surprised Bo is super excited for this one.
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.
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?
Great video again, Money Guy Show!!!!!!!!!! 💰🤑💸💲💶
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?
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.
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.
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.
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.
I believe the FIRE movement focuses on annual expenses as opposed to salary
I've been a little worried, but based on this video I might be okay. And that's a relief.
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
The "average" life plan described here and elsewhere doesn't apply to me. I started actually saving late, but I am divorced without kids. So...that magic 40s doesn't fit. I JUST started a viable career (making a just average salary) in my late 30s. Before that, I was making well under but not paying rent. I am almost out of debt and looking to save for a tiny house on a plot of land in FL. Already thinking about "retirement", but I can still do some work online as I HAVE been doing. Not looking to be a Millionaire at all, just don't want to rely on another man, ever. Even the elderly owner of a share communal property didn't get it. He wanted $600 for a room and bath he built in his house. He called it an "investment" into the property, for me, it's just rent. And having a THOW there...only if I wanted to "rough" it and still pay that "rent". I hope the local governments take heed of HUD, they approve the THOW model...but the local governments have all the power there.
My retirement portfolio (I am 71 and retired) is 12 times my highest annual spending when I was working. Its plenty of money.
Yea, some of these 30x suggestions were just nuts!
FIRE is all about burn rate y’all. 60% of some incomes is absurd to reach for and is profoundly high in the realm of early retirement. Particularly for those with save rates in the 60-70 percents who have gotten used to a financially cheap lifestyle.
You can always be a hobo. Financially free and retired while not slaving for that cash
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 👌
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.
My first thumbs down for you guys after hundreds of videos watched. Usually you captured topics well, but I think you flubbed this one pretty heavily. Your numbers apply traditional key assumptions to those within the FIRE movement, which definitionally makes no sense. eg. 60% replacement of income when someone is saving 60+% of income makes no sense, and thus your downstream numbers make no sense. Most people truly in the FIRE movement are saving 50+% percent of income, thus replacement income should be less than 50% at best. As you show true early retirement is nearly impossible at only a 30% or even 40% savings rate. Perhaps it's the "you can't do this" tone instead of "here is how extreme you need to be to do this" tone.
Further the "spot checks" were unclear -- does that mean no additional savings (I doubt it) -- so then what percent of savings are you assuming? Again, if you are saving only 20 or 30%, then you are a financial mutant, but not in the FIRE movement, and thus your numbers fail. It'd be interesting to see you do this with logical numbers and flipping from 'age' thinking to 'number of years until retirement' thinking -- and show how hard, but doable, it is if you can hit 50% or 60% or 70% for ~10 years. Eg. if you saved 50% of your income, how many more years do you have to work given a 1x income starting nest egg, 5x income starting nest egg -- it would also prevent the needless repetitiveness your videos have had lately.
Normal (broke) < Ramsey (debt free + 15%) < Financial Mutants (20-30%) < FIRE (40-70%+). Only the most extreme Financial Mutants fit within the FIRE movement.
I agree with you. When I think FIRE, I think something like save 70% and then live off 30% of preretirement income when you retire. The numbers they gave simply do not reflect this mindset.
If you make 60k+ and save 40k a year for 10 years, you'll have 400k. Assuming average market returns, there are many ways you can live off your gains from that; especially outside the US where the dollar is stronger and cost of living is cheaper. FIRE isn't about luxury, it's about freedom.
Furthermore, for most of us, retirement does not mean that we will never again earn any income. It means, we can be very selective about any work we choose to do, finding ways to supplement our retirement only with work that we love. We're not lazy. Most of us will be freelancing or experimenting with self employment along the way. Most of us have passions that aren't rewarded very well by society. For example, I'm a musician, so I will still be able to go out and pick up a few hundred bucks from a gig when I so choose.
I agree that most FIRE people are capable of living off much less than 60%. I think the Money Guys tend to work with people who are good earners and want to use their money in retirement to do things like go on trips, play golf, help out family/friends, etc. Personally, I'm planning to retire between 55 and 60 and I don't want to ever have to worry about money. Being forced to live on an extreme budget for the rest of my life doesn't sound like a fun retirement.
I guess the point is that 60% is a middle of the road number. For some people it's going to be a lot less. For others, they're going to want more. The show would have been hours long if they tried to encompass all mutants/FIRE people in their calculations.
@@dylancleghorn I'd even simplify is to not discuss the geo arbitrage or post-retirement work (oxymoron?) -- in fairness, that muddies the waters too much for an intro-level show and not everyone in FIRE will want to go down these paths.
The conclusions they reach such as a 35yo requires saving 55% of income for 20 years to reach FIRE at 55 is absurd and based on a traditional mindset, not FIRE mindset. An upper bound on replacement would be 45% of income (probably lower, but shouldn't be higher). Using their 3.5% SWR (which is low, but not unreasonable), that means that the 45% replacement income / 3.5% WDR = 12.8x salary. Someone saving 55% of income will hit that far faster than 20 years with standard market returns (20 years of principle is ~11x salary alone!).
The sad part is, this is probably one of the more common scenarios. Using their conservative assumptions (3.5% + no starting $$) with the 45% replacement shows me 14 years with mere 6% returns -- that makes their numbers off by more than 40% and thus my disappointment for missing the ball so much on this one.
Note: I'm ignoring inflation and salary increases with back-of-the-envelope calculations, but I think 14 years is conservative given they somewhat wash (eg salary increases for those in FIRE means more money to save, not spend) and the conservative 6% growth (vs closer to 8+ with inflation)
@@Mekias That's the key of the FIRE movement and where they missed the boat. When you only save 10 or 20% of income, the 60% rule of thumb works reasonably well because that assumes reasonably ~20% savings and ~20% taxes that do not need replacing, which leaves you with 60% remaining to live with. When you save 50%, using 60% is absurd even to someone who wants to splurge in retirement, which is not the norm.
@@_loki Thanks for your insights. I am by no means a FIRE expert, just a casual consumer of the ideas :)
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.
I saw it; 44 minutes in you got Beau to laugh! Good stuff.
Big fan of the show! I appreciate that you guys state your assumptions, but I wanted to share that my experience doesn’t align with your decision to pin your math against the aspiring retiree’s target being a 60% income replacement ratio. In my experience with FIRE forums, we’re dealing with high earners (~$150k-500k, or even more) targeting around the $40k-80k post-retirement income. If we take the middle of those ranges ($325k income targeting $60k/year), we’re talking 18.5% income replacement ratio, not 60%.
Hmm, this is a good calculation just that most if the time our income are not enough,but we still apply the rule, therefore one source of income osnt enough
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 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.
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.
We are blessed to have had our income double in the last couple years and it is about to double again. We are targeting living significantly Below our means at 20-30% income, debt free. Everything else is going to be invested. In addition to our salaries, I'm going to get back into construction on the side and build us a new primary residence every few years and sell the last one, taking advantage of the section 121 exclusion. If I do that a couple times I may just retire from my 8-5 and do that for federal tax free income. Could make up to $500k every 2 years.. That's the equivalent of $345k traditional taxable income from working annually.
Their figures are to replace 100% of income. Most live on a lot less in retirement, especially if their house is paid off and are debt free. In that case, I would reduce the amount saved by 50-60% and that’s not factoring in social security or pension(s).
Not sure if you guys will see this but wouldnt it be better to have your retirement portfolio to be in dividends at retirement age and just have that passive money stream forever? instead of taking money out and eventually you'd run out of shares? And then when you die your kids can take hold of the account and get that generational wealth going?
Great to catch this Live for the first time!
The FIRE spot check is interesting, but it's based on a target that is based on your income. Your spending is a function of your life style, location family etc - not a function of your income.
If you are making $1M year at 40, and you are spending $100K/year, the claim that you need 16x your income saved ($16M) does not make much sense.
Also, you are ignoring the fact that in most cases spending is something you can control. If you think are getting off track you can reduce spending through life-style changes.
Some lifestyle choices (kids, mortgages, community) are sticker than others. Keeping it at income makes it easier to follow and calculate. Like they said, it's napkin math.
No doubt that basing on income is a practical choice and it works reasonably well for most people - but they are also talking about the 1% that are able to retire in their 40s.
Those people, almost by definition - are high earners that are saving huge percentages of their net income.
The healthcare exchanges may not give us the best-quality, affordable care, but neither does Medicare. Medicare B premiums aren’t necessarily nominal for many folks. The donut hole for prescription drugs is ridiculous.
So, I don’t think waiting till Medicare to retire is a panacea for healthcare concerns. Immigrating to another country where affordable healthcare is a priority may be something to consider.
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.
The percentage of your current income is not for everyone and too general. For 22!years I made under 50k. In my early 40s I became an RN and make $140k. I plan on retiring at 55 with 800k. I still live on less than 50k and that is the amount I want to aim for. I own a condo in Cebu free and clear and that is where I’ll retire. I don’t need millions
The title should be “how to retire by investments while keeping same life style”. I plan on retiring at age 50 and my house is the big peace of it. My $400,000 house will be paid off which will give me 2 options. One stay in it and I get a $1400 month raise (sure would fee like one). Or I can sell and downsize into a condo and take the other 200,000 to buy a rental fully paid and get my keep my 1400 a month saving and add $1500 income from rental. This is huge.
Me: don’t do it.
My brain: Technically it would be more than $1400/Month raise bc it’s an after-tax increase in disposable income.
OMG - unless you're tied to your house, I would definitely do the downsizing option... congrats on getting to a paid off house by early retirement!
22 year old watching thanx for this!
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 agree with a lot of other comments here you missed the ball by going on % of income. Yes it is hard for someone to get FIRE where they live off 60% of their income for in 5-10 years but it is very easy for someone making 200K in the tech sector to move to a rural area and live off 50k income
My wife and I are 25 and saving 32% of our income as high earners. Super excited for our future
I'll never "retire" because when people retire, they wither away. What I want is to not have to depend on a certain job or be forced to work more than I have to.
I'm a 20 year old EMT who's working and going to school for paramedic, my wife is going to school to become a nurse while working at the hospital (she'll graduate next year) we have an 18k emergency fund in a high interest savings account, 1k in a Roth IRA, 3300 in an S&P 500 index fund (non retirement), 11k in the bank for expenses/school and we're saving 3k per month currently in non-retirement brokerage accounts, plus 6% of our income with our 401K's. All of this will be drastically increased when we both finish school and our income goes from 84k combined (pretax) to what we expect to make which is roughly 140k (pretax) combined income. We hope to work long careers but achieve financial independence by 35-40.
Don't forget, roth contributions can be always withdrawn. It's worth maxing out your roth accounts before saving in your brokerage accounts.
@@caseyrichards3212 We're buying a house in the next 2-4 years which is why we're using a brokerage account instead.
@@commonsense5555 You can always withdraw your roth IRA contributions. Plus, if you're a first time home buyer, you can pull up to 10k in earnings penalty and tax free. Might want to look into it!
@@caseyrichards3212 My plan is short term enough that it’s simpler to add to a brokerage account while still contributing to a 401K, I’ll definitely be maxing out the Roth after I buy the house though, and I’ll be saving plenty in other accounts including some taxable for a bridge account in case I decide to retire early. We’re likely going to be fully financially independent by 40 so retiring in my late 40’s to 50’s isn’t unrealistic but also working in EMS does things to your body that could require an earlier than usual retirement. It’s a rewarding job but puts so much wear and tear on your body when you’re lifting heavy people, climbing into vehicles, and doing other strenuous movements to save people’s lives, not to mention the constant high stress situations.
They don't even talk about passive income. That is a key point of the F.I.R.E. movement. House hacking in your 20's and also building real estate portfolio easily can and has afforded people in their 20's to "retire" from the 9 to 5 job.