FIRE: How to Retire Early and Own Your Life

Want to retire early or take control of your time? Brian and Bo break down the FIRE and FINE movements, covering saving strategies, withdrawal rules, and how to align your money with your purpose to live life on your terms. ⁠Jump start your journey with our FREE financial resources⁠⁠⁠ ⁠⁠⁠Reach your goals faster with our products⁠⁠⁠ ⁠⁠⁠Take the relationship to the next level: become a client⁠⁠⁠ ⁠⁠⁠Subscribe on YouTube for early access and go beyond the podcast⁠⁠⁠ ⁠⁠⁠Connect with us on social media for more content⁠⁠⁠ Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web. Like restoring a vintage motorcycle from a 50-page restoration blog. Or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18 plus.

• 0:27Speaker 01

  Born from the intensity of a night in the eternal city. Introducing Born in Roma Fragrances by Valentino. Feminine perfume Donna Born in Roma features juicy black currant, central jasmine, soft cashmerin and warm vanilla. Masculine leaning but unisex Womo has notes of fresh violet leaf, aromatic sage, green vetiver and mineral salt. Shop holiday gifts at Macy's.com.

• 0:56Brian Preston?

  You want to own your life sooner? Maybe even retire early? Welcome to the fire? Maybe even the fine movement?

• 1:09Speaker 03

  And Brian, I am so excited to talk about this because some people love the idea of fire and some people hate the idea of fire. What I think is interesting, no matter where you fall on that spectrum, there are some wonderful lessons that we can learn. If you are someone who wants to be on this path, on this trajectory, I think there are some nuggets you're going to be able to take away.

• 1:33Brian Preston?

  I think we've been given a bad rap in the past because we've covered a lot of fire content. And Bo, you specifically have taken some wrath. Because you've expressed some concerns about this whole retire early. Not necessarily financial independence. And that's why when we found out about the fine movement, which means financial independence next endeavor, it really, you know, lit us up because we were like, that's exactly, I think this is where we all have common ground. I think what fire movement, fine movement, everybody's trying to capture the point where if we can live a Live in a way that most Americans are not willing and own our life that much sooner.

• 2:16Brian Preston?

  That's healthy and we want to kind of encourage that and I even want to kind of share some of the things that I think anybody can put into play with their portfolio, with their retirement and planning and that's what we're going to cover today.

• 2:29Speaker 03

  So for those of you that are maybe brand new to this, or maybe you're not familiar with the vocabulary, the FIRE movement is simply a movement that stands for Financial Independence Retire Early. It's this idea of I want to reach financial independence on my terms right sooner than maybe the traditional, normal working career. And you maybe have even heard some different versions of this. Maybe you've heard of COAST FIRE, or FAT FIRE, or LEAN FIRE, or just regular FIRE. Maybe there's even the crazy ones like Barista FIRE.

• 3:04Brian Preston?

  That one's not so crazy, but the Flamenco FIRE?

• 3:07Speaker 03

  Flamenco FIRE.

• 3:08Brian Preston?

  I had to think about it and I love the content team. This is why it's so great that we have a team and it's not just us two old guys on the front porch here is because they said, hey, it's because you're saving half, so you're standing on one leg, kind of like a flamingo.

• 3:22Speaker 03

  Well, you nailed it. You got it.

• 3:23Brian Preston?

  There you go. Now you know.

• 3:24Speaker 03

  No matter which one of these you've heard of, you're familiar with, they all kind of center around this central concept and the concept is financial independence. This idea that you own your financial future, your financial future no longer owns you. And when you get there, it's not just your future that you own, but you actually own your financial present as well.

• 3:45Brian Preston?

  Yeah, I love, the parts I like is that we have always talked about the three main ingredients to wealth creation is discipline, living on less than you make, so you can create that margin in your life that creates the money and then you give that money enough time, it really does create, and that's why if you look at the key tenets of FIRE, the first thing is living below your means. Hello, discipline. I love it.

• 4:10Speaker 03

  Some folks in the FIRE community take this to the extreme and it's all about like living frugally. I want to have, live as far below. Below my means in the most minimal way possible. But other folks say, hey, that's not what it's not about. Living frugally, it's not about having the smallest footprint possible. It's about, uh, living the life I want to live. But the common trait, no matter where you fall is if you're going to do this and if you're going to be able to live below your means. They do so in such a way that they are able to save a huge proportion of their income towards this goal.

• 4:46Brian Preston?

  We're math nerds, so we even put some numbers to this is because it's not uncommon to see these super high saving investment rates. Think about if you wanted to reach the level where you could retire and live off essentially. If you're saving 70% and living off that 30%, you could do it if you save 70% of your income in 11 years.

• 5:06Speaker 03

  It's why just over a decade, so you think about it, you could be financially independent in just over a decade. Most people have to work for like 40 years to be able to be financially independent retire. And yet folks who subscribe to this can do it in a quarter of the time.

• 5:20Brian Preston?

  But you're saving 70%. That's, that's remember, we're always talking about that fine line between financial mutant versus financial miser. If you're, if you're saving 70%, there's lots of sacrifice going on. I thought it was, you know, even if you bring it down, still part of this, this, this movement. You could take somebody who's just going to be, have an accelerated savings rate that's twice of our 25% of 50%. Meaning they're going to live off of 50% of this. They could potentially reach this financial independence level within 23 years. Much more accelerated than the 30 plus to 40 years of savings and investing that the traditional American plans for.

• 5:57Speaker 03

  But in reality, the actual savings rates and timelines of FIRE can vary drastically because, and we say this all the time. Personal finance is very personal. Some folks want to retire in their late twenties and some people are perfectly content retiring in their mid 50s. Some people think that they can live off of $50,000 a year. And some people want to construct their retirement where they get to live off of $500,000 a year. And none of these are right or wrong. It's more about what your ultimate goals are. And are you able to live below your means in such a way today that you can build towards your future? So that first tenet of FIRE that we can take away is living below, living below your means.

• 6:42Speaker 03

  But there is another tenet, and this is beautiful because it's a wonderful Money Guy echo. A lot of FIRE proponents, a lot of people who participate in this movement, believe in investing in diverse, long-term, and tax-advantaged investment strategies.

• 6:55Brian Preston?

  Yeah, let's talk about this. You know, tax advantage. You know, you want to load up, obviously, the Roth accounts, those employer accounts. I love that it's very common you hear when you talk about these movements, index funds.

• 7:07Speaker 03

  Oh, I love it.

• 7:07Brian Preston?

  Go look at our portfolios, you're gonna find a lot of index funds because they're low-cost, they're tax-advantaged, there's all kind of benefits. Also, I love the fact that it's buy and hold is a key strategy. This is not, these people are hyper-accumulators, but they're also people that understand, hey, volatility is your friend. Even when you reach volatility, if you buy and hold, you're going to be okay, no matter what the market throws at you. These are all healthy things that help you build your army of dollar bills.

• 7:35Speaker 03

  It almost seems like people who are part of this movement recognize, I don't have a lot of time to waste. If I'm gonna try to do this as quickly as possible, I'm not gonna go try to figure out how to chase the hot dot, or pick the individual stock, or find the next get-rich-quick scheme. They just go and fast-forward to the type of wealth-building that actually works. So that's the process that they apply. And then the other tenet, and I think this is something that we can all learn from, is that a lot of folks who subscribe to the FIRE movement, they believe in living a very intentional life. The reason they are most often pursuing this type of aggressive savings strategy, aggressive retirement strategy, aggressive financial independence strategy, is because they want the time that they spend doing the things they care about to matter, and they want to be able to do

• 8:20Speaker 03

  it on their terms.

• 8:21Brian Preston?

  Well, I think this is something definitely Americans can learn about. Here we are, driven by this consumption society, where it's telling everybody to fake it until you make it, put it, you know, you can live your best life right now. And I think a lot of these movements recognize, that is a lie. You know, if you really want to live your best life, figure out what's important to you. Is that, you know, you want to spend more time with your family members? So if you are, maybe you're gonna make some sacrifices where you put it in, the hard work now, so that when you're in those child-raising years, you're actually around more. Maybe you want to actually not just be... Stuck in an office, you want to travel more.

• 8:58Speaker 03

  Love it.

• 8:59Brian Preston?

  So these are things. Now, I will tell you, sometimes I pause a little bit is because it's back to my point. I like financial mutants. I get nervous about financial misers is because if you are working a job that you absolutely hate, I mean, you literally have dread and you're chewing on your fingernails every night to go to work, but you make a great income. I don't know that I love the fact, even if you're only doing that for 10 to 15 years.

• 9:26Speaker 03

  Is it worth it?

• 9:27Brian Preston?

  That's necessarily

• 9:28Speaker 03

  Is it even worth it?

• 9:28Brian Preston?

  Healthy, but I do love that these people are very intentional. They're taking an active role in their financial life. Whereas most Americans typically don't wake up until they're like in their 40s and say, hey, wait a minute. I'm going, that retirement is right over the horizon. I better start paying attention. I love the intentionality that most FIRE or FIRE movement people figure this out at a pretty early age.

• 9:54Speaker 03

  Well, I think that intentionality allows them to recognize that it's more than just money. Money is nothing more than a tool. It's just a tool that they have figured out how to effectively use to accomplish the goals that they have. And so the question becomes, okay, well, what does this really look like? How do I want to actually pursue this? If this is something that's interesting and intriguing to me, there's all these different ways to do it. How do I actually reach this? So we thought it'd be helpful. Let's just kind of break down to start. Traditional FIRE, just like a standard financial independence retire early. What would be required and how would I need to behave if I wanted to be part of this movement?

• 10:35Brian Preston?

  Well, let's get into the numbers because this is Money Guy style, but let's make it as simple as possible. You often hear if you start doing any type of this, this, this type of off the napkin planning to be part of the FIRE or FIRE movement, safe withdrawal rates, the simplest, you know, road tested one that's out there is 4%.

• 10:55Speaker 03

  Yep. So the mathematics is, okay, if I want to think about what does financial independence look like? I just take the amount of money that I've saved up, whatever my portfolio value is, and I Supply that times 4% and that tells me how much I can live off of annually, how much my portfolio should be able to sustain for the rest of my life, inflation adjusted. So if you have, for example, a portfolio with $2 million in it, and you just took $2 million times 4%, you would be able to surmise that I can live off of $80,000 a year, every year, for the rest of my life, and I should be able to sustain that with keeping up with inflation over the long term.

• 11:37Brian Preston?

  We even did a mini show on this, Bo, and it's, once again, got a great picture of you.

• 11:42Speaker 03

  Oh, look at that.

• 11:43Brian Preston?

  But, but we talked about, and this is one of those things, because we talked about safe withdrawal rate, 4% is kind of like the accepted

• 11:49Speaker 03

  Standard.

• 11:49Brian Preston?

  Standard rule out there, but there are all kinds of rules out there, you know, including up to 8%, and we wanted to kind of walk through the math. So I'd encourage you, if you haven't checked out that mini show, you would benefit from seeing, hey, why, what are the, what does the math say? So that you can balance out what life needs and the numbers need, but also so you don't get too far out over your skis and use projections that are dangerous.

• 12:13Speaker 03

  Now, this is something we want to bring to your attention, though, because we talk about 4%. It's kind of like the standard, as like the typical safe withdrawal rate, based on a standard retirement timeline, or maybe even a standard slightly early retirement timeline. But a lot of FIRE proponents don't want the standard, or even slightly better than standard. They want to exit the workforce in their late twenties, in their mid thirties, in their early forties. And so what we know the 4% withdrawal rate can sustain is a normal lifespan in retirement. But if we are going to begin expanding those lifespans, how long these dollars need to take care of us, then we ought to rethink, okay, how should we adjust our safe withdrawal rates

• 12:53Speaker 03

  if we're going to have a substantially longer retirement than traditional? So we actually have a small adjustment to the 4% rule when it comes to figuring out what you believe your portfolio can sustain. And we think It should be age-based. So if you think that you're going to retire at age 55 or later, then a 4% withdrawal rate seems perfectly plausible. That seems to be reasonable and you would likely be okay with that being sustainable. If you are someone though who's going to retire earlier and maybe it's between like ages 45 and 55. So now you're talking about a 50, maybe even 60-year retirement time horizon. We do think you should decrease that safe withdrawal rate

• 13:34Speaker 03

  down to 3.5%. If you're someone who is like uber-fire and you're thinking you're going to really exit the workforce and you're going to need to live off of these dollars beginning before you hit the age of 45, we think a sustainable long-term withdrawal rate probably falls closer to the 3% range.

• 13:51Brian Preston?

  And look, you want to be conservative with this. This is definitely one of those measure twice, cut once because a lot of you, you know, when you're in your peak earning years and because, let's face it, the FIRE movement, the FINE movement, a lot of these people are in high-income positions. That's how you're, that's, that's really the driving factor for a lot of people to be able to save 40-plus percent towards retirement is that you want to be careful about leaving the workforce too early because the opportunity that you left might not be there. Especially like if you're in technology, the medical field, a lot of these things, the moment you're out and you take a year, two years, three years off, it's hard to get fired right back in and make, have the same peak earning years. So that's

• 14:33Brian Preston?

  why we like adding a level of conservatism to this safe withdrawal rate so that you, you don't find yourself caught in a bad situation.

• 14:42Speaker 03

  So how can we practically use these? What, what sort of math can we employ to figure out how this works? Well, we've already told you that the way you calculate what your portfolio can sustain is you just take your retirement portfolio or the pot of assets you've built up and you multiply it times your safe withdrawal rate. So if we're going to use 4%, you would take portfolio value times 4%. You can actually reverse engineer the math, though. If you know what you need to live off of, if you know what your annual living expenses will be in retirement, you can do the reverse math. You can take your annual retirement expenses and you can divide by .04. And what that's going to show you is, okay, how big does the portfolio need to be in

• 15:24Speaker 03

  order to provide me with this sustainable cash flow for the remainder of my life? So you don't have to just do the portfolio value. You can also back into the expenses. So maybe it'd be helpful to walk through a little case study to see what this looks like.

• 15:35Brian Preston?

  Well, I think also, I want to tell people, don't skip the homework. A lot of people, I mean, it's amazing when we have prospects reach out and I say, how much, you know, you tell me you want to retire, how much do you need to live off of? And they go, well, I haven't done that exercise. I think I give credit to what I like about the FIRE movement, the FINE movement, is that they consistently, people catch that they need to really fine tune where each dollar is going on expenses. So that's a key step in here is actually what is your annual retirement expenses going to be? If you haven't actually done a budget, if you haven't actually tracked your expenses, that's the first key part because that is going to be the driving factor to a lot of this math.

• 16:14Speaker 03

  And when you know that number, then you can begin to actually put some pen to paper and figure out what your number is. So let's do this. Let's say that you assume that you need $100,000 of cash flow in retirement. And we're going to apply the Money Guy adjusted safe withdrawal rate. So if you thought that you were going to retire, at age 60, we know that a sustainable long-term withdrawal rate is 4%. So if you need $100,000 and you're 60 years old today, you would need a portfolio of about $2.5 million. If you're someone who is 50, we're going to decrease our safe withdrawal rate down to 3.5%. And so if I'm a 50-year-old today that's going to retire and I need $100,000 to be able to last me for the remainder of my life, my total portfolio I need to have accumulated

• 16:59Speaker 03

  at 50 is about $2.85 million.

• 17:03Speaker 03

  If I'm someone who's 40, now I'm going to drop my safe withdrawal rate down to 3%. And again, if I'm 40 years old and I need $100,000 every year for retirement, I'm going to take 100,000 divided by .03 and I actually need a 3.3 million dollar portfolio if I'm 40 today. But there's a problem with this.

• 17:22Brian Preston?

  Well, I will say, I like that people will say, well, why, why is there a difference between 60 versus 40? There's a lot of life that happens there. We'll get to even more details. And there's also a sequence of return risk. There's just so many things. And to be conservative, if you are retiring early, it is, like I said, measure twice, cut once. You're going to need to make sure to, to give yourself enough runway of protection. You're going to need more capital.

• 17:50Speaker 03

  Yep. And most people say, okay, they're not looking at the situation. Okay, I want to retire today. How much of a retirement portfolio do I need today? They're normally saying something like, hey, I'm 30 years old and I think I might want to retire when I'm 50. Well, obviously, when, if you're a 30 year old today, when you get to 50, $2.8 million will not be the same then as it is today. So we have to take the formula just one step further. This is going to get a little mathy and a little nerdy, but I think you're going to like it because what we're ultimately-

• 18:22Brian Preston?

  I think you're up to it though, but I think you can do this.

• 18:24Speaker 03

  I think I'm going to, I think what you're going to appreciate is this will inform you of how to actually figure out what is a realistic number for you. So let's assume that you are a 30 year old today and you want to retire at age 50 with $100,000 in today's dollars. We want to account for today's dollars, but it's not going to be for 20 years in the future. Well, here's how you do the math. You would take your cash flow need and then you would divide that by your sustainable long-term withdrawal rates. When the example we just did, $100,000 cash flow need in today's dollars divided by .035 or a 3.5% withdrawal rate because I'm going to retire at 50. Then what I want to do is I want to take that number that I get and I want to inflate

• 19:07Speaker 03

  it out into future dollars. So I just multiply it times one plus my inflation rate. So you can assume a 3%, 4%, 5%, whatever number. And then you're going to raise the one plus inflation rate to the number of years until your goal. So the math would be if we assume 3% inflation, one plus 3%, so 1.03, raise to the 20th, which is 20 years into the future. And if I do this equation, I'm going to arrive at the conclusion that my number's not actually $2.8 million I need to save for. The fact that it's 20 years in the future, I need to save 5.12, I need to save 2, 5.12 million by the time I get to age

• 19:51Speaker 03

  50. I'm sorry, 5.16 million by the time I get to age 50.

• 19:55Brian Preston?

  What I, what I love about this is that-

• 19:57Speaker 03

  I thought you were checking my math right now.

• 19:59Brian Preston?

  No, no, it's like, because it's, I'm a financial calculator guy. I'm like, whenever, you always have amazed me, you can write equations out and actually in a really good way. And it's important to understand how things are done so you can have a good foundation underneath you. But if you're somebody who uses a financial calculator, or maybe you got, you know, Sheets or Excel, really all we're doing is we're doing the, the easy retirement of taking what you need, dividing it by a safe withdrawal rate, but then we're just basing, that's the, that's the present value. That's what it's worth right now. But we've got to gross it up for inflation. So we're just taking the years in the future and figuring out what that future value is. And that's why you can take the $2.8 million,

• 20:42Brian Preston?

  if you just did 100,000 divided by .035, it comes out to be 2,857,000, to gross that up for the next 20 years. So you have the same purchasing power in retirement. Now you see your actual savings goal surprisingly is 5.1, close to 5.2 million. Don't skip that step. That's why when people tell me, I just think I need to save $3 million. If I have $3 million, I'll have it, I'll be like, you sure?

• 21:08Speaker 03

  Like 3 million a day or 3 million in 20 years from now?

• 21:10Brian Preston?

  Is it 1 million? People who come up with just a number without the understanding the why or why you have to gross things up, you're skipping a step in the whole process.

• 21:19Speaker 03

  Okay, so as a reminder, we're talking about traditional FIRE proponents. Let's talk about some of the practical application here. One of the things we want you to recognize is while there are wonderful tenants that we can take from FIRE, we want you to be careful not to rush toward the end goal too quickly. Brian, you talk about this all the time. For us, in our time on this planet, you get one run at your twenties, and you get one run at your thirties, and you get one run at your forties, and one run at the so on and so forth. And so if you are so hurried and so rushed and forcing yourself to sacrifice so much today so that you can reach financial independence in your forties or fifties or whatever, one of the questions you have to ask yourself is, did I give up too much and was it really worth it?

• 22:04Speaker 00

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18 plus.

• 22:31Speaker 01

  Born from the intensity of a night in the Eternal City, introducing Born in Roma Fragrances by Valentino. Feminine perfume Donna Born in Roma features juicy black currant, central jasmine, soft cashmerin, and warm vanilla. Masculine leaning but unisex Womo has notes of fresh violet leaf, aromatic sage, green vetiver, and mineral salt. Shop holiday gifts at Macy's.com.

• 22:59Brian Preston?

  Yeah, I don't want you to have regrets. You'll get, one day, you're gonna blink and you'll be my age in your fifties and you'll go, did I really, did I enjoy my twenties? Did I enjoy my thirties? I want you to have a special sweetness for every decade you're on this planet. And that's why, balance that out. I get, well done, that you have obviously exercised and you Have a great discipline muscle, but just make sure you don't have regrets. Cause I mean, look, I think in my 50s, I'm actually in great shape for my age. But I'm still not the same person and I can't handle the same things as I could as in my twenties or thirties. You know, I'm bougier now. I expect the nicer, you know, hotel rooms and all kinds of other things.

• 23:42Brian Preston?

  I like, you know, if I go on a guys trip, I want my own bathroom. When I was in my twenties, I would have slept in the closet, you know, on a mat, you know? It just, it's funny how life changes and I just want you to take that, that don't sacrifice. Also relationship wise, I don't want you to, to lose key people in your life because you missed out on a moment because you were so disciplined. Look, the early part of my career, um, I had to, I missed out on going to some really cool things because I was studying for certification exams and other things. And I still have some regrets that I missed going to some of those celebrations because I had to take all these certification exams and it just didn't allow me. I can't imagine if I took a whole decade of my life just so I could live like

• 24:25Brian Preston?

  this super disciplined decade so I could retire. It's very valuable if the why aligns with your life, but just make sure it doesn't hit into that miser category.

• 24:34Speaker 03

  And then another practical application is there's still a lot that can change when you have a long time horizon. If you're thinking about retiring in your 40s, there's a lot of life that can happen between age 40 and age 100. So as you're thinking through this and as you're planning for fire, as you're trying to navigate your numbers, make sure that you build in some conservatism. Make sure that you don't get too aggressive. Make sure when you're doing your 3D glasses, you don't just focus on the dream outcome, but you are being true to yourself and focused on the down to earth outcome and even the do do outcome. So that if things don't quite go the way that you thought they would based on the brochure, you're still going to be okay if you make this decision.

• 25:14Brian Preston?

  I think we've done a good job of setting the table. So people now understand, okay, what is this whole fire movement? What is, how's it work traditionally? But now let's, let's add some flavors in there, Bo. What are some, because we talked earlier about there's lean fire, there's fat fire, there's slow fire. What, what do these flavors mean?

• 25:30Speaker 03

  So yeah, so there's some different. Flavors of fire and they're generally based on two different metrics. Some of them are based on expenses and some of them are based on timeframe. So for example, if we look at lean fire, this is really focused on frugality and sort of minimalist living. So these are folks who say, hey, I want to get to the point to where my portfolio, my army of dollar bills can create for me a lifestyle of somewhere between like 40,000 to 60,000 dollars a year. It's not extravagant. It's not going to be a huge lifestyle, but I want to focus on that minimal living. Or maybe you're on the other side of that and you're someone who subscribes to fat fire. This is also based on expenses, but this is more extravagant.

• 26:11Speaker 03

  This is a more comfortable lifestyle. This might be someone who wants hundreds of thousands of dollars. Obviously, if you're going to fall into one of these camps and you're going to subscribe to one of these flavors of fire, it's going to dictate and impact the type of strategy that you employ to end up reaching them.

• 26:29Brian Preston?

  And then so that covered the expenses. I want to talk about the timeframe. Because this one was intriguing to me because I was like, did I qualify for this? Like, because you think about slow fi, this is where you're, you're working towards financial independence, but you're not necessarily in a rush to achieve it.

• 26:46Speaker 03

  Not trying to do it a decade.

• 26:47Brian Preston?

  Yeah, you're not trying to do it in 11 years, like we showed in an example. You're not even trying to do it in 15 years. Now, look, this could be, I think this is something that already people in the fire, fire movement or fine movement have going for them is a lot of people who are part of this movement discovered personal finance and the power of compounding growth in their twenties, maybe even earlier than their twenties. And that's why I said, when I graduated at 22 from college, I right then set the goal that I was going to retire at 50 years of age.

• 27:17Speaker 03

  So that's still going to be early. That's still going to be fire, but that is a little bit more slow fi.

• 27:21Brian Preston?

  But yeah, so I had, I was actually just turning it upside down in the fact that I knew I had decades of compounding growth that was going to work for me. So I didn't have to do some crazy 50% savings rate. I knew if I was, as long as I was saving 20, 25%, I was going to be in a great place. Now, what I love about when any of these type of things. Is it does give you additional flexibility, no matter what changes because as everybody can see, I'm still sitting here. I'm still working and that's the great thing of making great financial decisions. Young. It's not like it hurts you. It actually gives you more flexibility and opportunities.

• 27:56Speaker 03

  So where lean fire and fat fire and even slow fire are kind of like flavors of fire. There are some different versions of fire that actually are a little bit different. And one of those, and I think this is probably one of the most common ones that we see is coast fire. And let me explain to you what coast fire is. It's this idea that I'm going to work really, really hard to build up a certain pot of money so that once I hit that number, even though I'm not going to retire today, if I just let that money continue to grow until I reach my retirement age, I'm going to be covered. I'm going to get there and essentially I can coast into retirement. So I'm going to work really, really hard to hit a specific number. And then I'm just going to make sure that through my working, through my income, through the resources I have,

• 28:41Speaker 03

  I can pay for my living expenses until one day in the future, I will then allow for my portfolio to then pay for my living.

• 28:48Brian Preston?

  Well, what could be really helpful before we even talk about why you even consider doing coast fire is let's, let's walk through the numbers because I think a visual of this would probably help with, with the learning experience.

• 28:58Speaker 03

  So let's say that we have an individual. This is coast fire Carly and coast fire Carly says, you know, I'm going to start working at 25 and I'm going to work for 10 years and I'm going to be as aggressive as I can. And over that 10 years, I'm going to build my portfolio to half a million dollars. So building up a half a million dollars by 35 is pretty impressive. And what coast fire Carly says is, hey, I know that if I do that and I just let that half a million dollars sit, but I'm going to let it continue to be invested, continue to grow at eight percent from now until the time I turn 65. That half a million dollars by itself will turn into almost five and a half million dollars. All coast fire Carly had to do was have a job that could provide for her living expenses and pay for her needs and pay for bills.

• 29:42Speaker 03

  And that 500,000 she built up could grow to five and a half million dollars. And coast fire Carly knows that at age 65, that Five and a half million dollars can generate about $218,000 based on a sustainable 4% safe withdrawal rate, which is the equivalent today of about $77,000. So she can do the hard work for 10 years to create a future where she can live off of $77,000 indefinitely from her portfolio.

• 30:12Brian Preston?

  So what's intriguing about this is, is that first, mad props that this actually works towards building some type of critical mass. Cause that's the biggest thing. When I, when I find somebody who has a great income in their twenties and they're already trying to cut it off because they think that they can expand their lifestyle. I'm like, are you sure? Because you haven't built that critical mass. I do like that CoastFi at least has this number in mind of discipline that we're going to work towards and build. And why would somebody do this? Is because maybe you realize, hey, I'm in these peak earning years. I'm in this career. I don't necessarily love this career. I'd love the opportunity to maybe be super aggressive now and then transition to a lower paying job, or maybe even volunteer or do something that I know is just not going to be as

• 30:56Brian Preston?

  economically beneficial, but something that I think I would really enjoy doing with my time.

• 31:01Speaker 03

  I love it. Maybe this is the thing where say, okay, I know that I want to be working right now and my spouse is working, but we really want to be in a position where one of us leaves the workforce. But when that spouse leaves the workforce, we're going to save the same way. So we're going to approach CoastFi and while we have two incomes, we're going to save to a certain dollar figure. And then once we have that dollar figure, we are then going to have, go down to one income and just live off that income and allow our dollars to continue to build. That's a perfectly plausible reason why someone might want to pursue.

• 31:31Brian Preston?

  And once again, I didn't even realize, because I, I think I was doing this stuff before these things got branded and labeled. But you know, I used essentially this type of CoastFi when I started my company. I mean, it's because I saved up for two to three years, I hyper saved, building up additional cash and other things so that I could have enough money to go on a new career path, start a business. So I think that these type of things, it's great. Once again, you're taking an active role instead of being like the typical American where you're just. letting life happen, you are actually taking an active role so you can take on a new risk, a new career path. And then some people even use this, this coast fi so that they can increase their lifestyle.

• 32:13Brian Preston?

  Maybe this is the part where you've saved, saved, saved, but now you're saying because I have this critical mass, it's okay that I'm increasing my lifestyle because I've built up this, this nest egg. I would caution those people though, be careful. This only works is if your living expenses stay within a disciplined amount. If you start expanding what your lifestyle looks like while you're in your twenties and thirties and that, you might outspend what that pot of money you initially started with can actually support.

• 32:44Speaker 03

  All of a sudden coasting might not be enough to get you to the level that you want to be at. So how do you figure this out? How do you calculate how much you need? So again, let's kind of look at a case study. Let's assume that you want the equivalent of a hundred thousand dollars of cash flow in retirement. Let's assume that when you invest, you can invest your dollars at an eight percent rate of return. Again, we, we like to use conservative assumptions because you'd rather plan conservatively and things turn out better than plan aggressively and things turn out worse. Let's also assume that we're going to have a three percent inflation rate. And since we're planning on coast fi, we're going to not reach true retirement until age 65. We get to apply a four percent safe withdrawal rate at age 65.

• 33:25Speaker 03

  So the question becomes if this is the path that I want to move on, where are my benchmarks? Where are my checkpoints? Well, if you want to move on this path and by the age of 30, you need to have accumulated a portfolio of at least 432,000. If you are 40, you need to have accumulated a portfolio of 713,000. Or if you want to wait until 50 to begin coasting, you need to make sure that your portfolio has grown to at least 1.2 million dollars in order to coast you to age 65, or you can then count on a hundred thousand dollars of income.

• 34:02Brian Preston?

  I can already hear the peanut gallery in the audience is that people are like, okay, you guys just randomly chose a living, I mean, retirement expenses of a hundred thousand. What if I'm going to be part of this? Fat fire part or fat fi and I want to have 200,000, just double the number. If what if you're part of this and you're going to do it the lean side of things, then just cut it in half. If you only think you need 50,000 of living expenses, not 100,000 like we use in the example. The math still holds up so you can customize this however you see fit.

• 34:31Speaker 03

  So where do we see this actually planning? Like, what's the practical application of coast fi? Because in reality, if we see our clients hit their coast fi number, if we see them hit the number to where they're going to be able to reach all their goals. Odds are we tell them to keep saving unless there are other things that they want to be doing with their dollars. There are other goals that they want to achieve, but most folks, at least if they're going to continue working for another five, 10, 15 years. They say things like, man, I really want to max out that Roth IRA still, man, I really want to max out my 401k. Yeah, okay, I recognize rather than hitting coast fi, maybe I could just continue to save for another three, four, five years. And maybe I could just hit true fire, true financial independence.

• 35:17Speaker 03

  And I don't have to actually just coast all the way out until age 65.

• 35:20Brian Preston?

  You just said what the next risk is, is you know, the problem with coast fi is that you're not truly financially independent. I mean, like I said, life has a sense of humor. It tends to, the reason we talk about your 30s is the messy middle. Is that you have a lot of life things happen, whether it's family planning or just, you know, and then you get in your 40s and there's health issues that can come. There's just lots of things that gives me a little pause because you're not truly financially independent. You've got a lot of assumptions built into that that money's going to be able to grow without you actually touching it.

• 35:49Speaker 03

  And then in reality, this is more of a concept, at least in our opinion, helps shift the mindset. A lot of people will use coast fi as a mathematical calculation to check how they're progressing towards their goals. Hey, okay, I know if I hit this number by 40, technically I'm good if I were going to do coast fi, but I'm going to keep saving. And then if I hit this number by 45, okay, I'm still good. Okay, this number, okay, I'm good. It allows you to give yourself freedom to maybe take some pressure off. Say, okay, I've now done the things. I need to do, I'm moving in the path, I need to be moving, I know what my financial future is going to look like, and even if I didn't save anymore, anything else, I'm going to be okay. But if I do continue to save, if I do continue to build, I'm just

• 36:34Speaker 03

  going to be able to reach my goals that much faster. That's how we see people using it much more in reality.

• 36:40Brian Preston?

  Okay, let's put a bow on this thing, because we've made this thing seem really good. I think we've probably attracted a lot of people saying, hey, I want to own my time, I want to be able to do things on my terms. What are some of the other considerations? Because we've thrown a lot of math at this so far. Here's some things we want to make sure you don't have blind spots on. Healthcare.

• 36:58Speaker 03

  It's a big one. You know, one of the things that a lot of fire people are super concerned about is, okay, if I'm going to leave this job, and I'm going to exit the workforce, but I'm not yet age 65, I now have a gap in healthcare. I no longer have employer coverage, I'm not able to be on Medicare yet, how do I solve that? And well, it's gotten maybe a little bit easier over the years, but it doesn't necessarily mean that it's super inexpensive.

• 37:22Brian Preston?

  This is, I don't want you to skip the homework. You might be surprised, I'm amazed at how many people leave employment for, you know, work for a company and leave before like a pension vest. It's the same way, a lot of big companies, if you work for a Fortune 500, they have, like, if you work a certain number of years, and plus your age, or there's a whole formulation, formula there, you might qualify for health insurance. So just don't skip the step of seeing what type of health insurance you might qualify as a retiree, if you give them enough years of service. The other opportunity is, is there's Marketplace.

• 37:57Speaker 03

  That's right.

• 37:57Brian Preston?

  I mean, you can go out there on the exchange, you can check it out, there's a lot of, I know here in Tennessee, we even have some bureaus and other things that offer unique opportunities to get into health insurance for your family, that we see people, and then don't sleep on Barista-Fire.

• 38:12Speaker 03

  That's a big one.

• 38:13Brian Preston?

  I mean, this is, you could go, I know people that go work at, I mean, I'll just say, you go work for a coffee, there's a nationwide coffee shop, that you could go, you know, mix all the coffee you want in the morning, and they offer retirement plans, they offer health insurance. There's a potential you could go work a job, part-time, To, you know, that you would really enjoy that could cover up and give you these benefits.

• 38:36Speaker 03

  Another consideration that we often see people not think about is what does your account structure look like? If you are someone who's like, "Oh, I'm gonna, I'm gonna do FIRE, I'm gonna, I'm gonna sign up for this, I'm gonna leave the workforce early, so I'm gonna start just maxing out my 401K every single year, every single year, every single year." And maybe you do it, and you hit your number, and you reach financial independence, and you're 45 years old, and you put in your two weeks' notice, and you go to retire, and now you're there, and you're like, "Oh, I'm here, I've done it." And then you recognize, "Holy cow, all my money's in a 401K. Uh-oh, I did not think through. Not just I need to have enough money, I need to have my money in the proper place that I can actually access it when I need it, especially if I'm gonna need it before age 59 and a half, or before age 55."

• 39:21Brian Preston?

  Well, you just talked about 401Ks. I think about a lot of the people I know who are part of the FIRE or FINE movement. A lot of them work for big companies that offer RSU's, stock options. It's not only just the account structure, it's also those type of income strategies you can optimize to make sure the money's available when you need it the most. How about deferred comp?

• 39:42Speaker 03

  Huge.

• 39:43Brian Preston?

  I mean, these are, all of these are strategies, we've worked with clients, that, I'm telling you, life, the more success you have, the more complexities will come your way. And when you're part of the FIRE or FINE movement, you're going to understand a lot of these things, you're going to need to make sure you pay attention to account structure, as well as additional opportunities.

• 40:01Speaker 03

  We actually have content out there. If you are someone who's interested in distribution strategies for early retirement, we have a show titled "Three Ways to Retire Early" that you might not know about. We walk through, "Okay, here are some ways that you can access these dollars. Here are some ways you can set up your account structure, so that if you are part of the FIRE movement, you are part of the FINE movement, you can access those hard-earned dollars that you've built up over the years."

• 40:26Brian Preston?

  Guys, we, we love creating this type of content, because...

• 40:32Brian Preston?

  We know that, but I'm just gonna be honest of where the shortcomings are. It's personal finance is very personal.

• 40:39Speaker 03

  That's right.

• 40:39Brian Preston?

  And you have to make sure that you're taking all of these things into account. And this is why we work with clients all across the country. It's one of those reasons why I want to encourage you, go to moneyguy.com/resources. Look at all of our free stuff. We've shared a lot with you today. We've shared with you some shows. We even have some tools to let you see if you're ahead of the curve, behind the curve, or right where you need to be if you want to go to learn.moneyguy.com. But the big thing is, is be an active participant. Most people who are already signing up for this movement are doing that, but just make sure you're not skipping the homework. And I also want you to understand that if you really want to know what abundance is, abundance is actually the intersection of wealth and purpose.

• 41:23Brian Preston?

  And I think anybody who's thinking about the FIRE movement or the FINE movement is you need to make sure you're taking a measure of both of those elements. It's not only how much money you're building, it's also understanding what your why is and what wakes you up in the morning. Thank you for tuning in. I'm your host, Brian Preston. Mr. Bo Hanson, Money Guy team, out.

• 41:41Speaker 03

  The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.

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