3 Tips For A Successful Early Retirement (Story)

If you want to retire early , what can you do about that ? For those that are new , I reframe that fire movement . I don't believe in that traditional financial independence retire early . I believe in financial independence , recreational employment . Most people don't want to do nothing . They want to do something . They just want it to be fulfilling .

And today's episode is a fun one because I'm giving you insight from a current client of mine . They didn't want me to disclose their name , so let's just call them John and John , I know you're listening to this episode because you tell me listen to all of them . So glad that you keep doing that and hope that these are fun for you .

Now , today , this framework , like I said , it , comes from John . I'm going to put my insight and my twist on it , but I'm giving you the three tips that when I asked John , what would you tell yourself 10 years ago , as well as 30 years ago , for an early retirement . What would that be ?

And they said already I'm excited to tell it to you they didn't want to be a guest on the podcast . I am going to have other current clients come on the podcast in the future , but for now just sharing the information this way .

So I'm going to walk through the framework and , as always , I have more information like this on YouTube If you want to follow along visually . In addition to that , I'm going to highlight a recent review . This one comes from Lewis L O U I S 5 , 4 , 2 , 3 , 6 . And Lewis , I hope I'm saying that right .

They say I want to make sure that I'm not leaving anything on the table . I feel I've done a good job , but just aren't sure . How do I know ? Question mark I want to make sure . Sorry , three question marks there . I'm going to tell you Lewis , I want to make sure because I've worked so hard that once again I don't go dang . I wish I did this instead .

So I like the way you said that , lewis . You're making me laugh . I want to go through this and show you how you don't go Dang . I wish I did this instead . So the first thing that I'm going to go through is what John alluded to , which is the true power of compound growth . Now there's a really fun fun in my eyes .

I'll let you guys call me a nerd , but there's something fun called a matrix book , and this matrix book is what I'll show a lot of clients that that come on board with me , and what it does . It shows you all the average returns over the last 100 years , depending on how you invest . So some people go Ari , I get it , that's why we invest .

It's going to show me a high number . I go , yes , but you don't want to just invest in the S&P 500 alone , and here's why the average return over the last 100 years is 10.5% . That's the average return of the S&P 500 from 1926 to 2021 .

When they finalized this study which of course they're updating , but just the book I'm looking at and then we said what if we put $1 in ? $1 would have turned to $14,000 ? And that is significant . That is why people invest . Now that's the S&P 500 . But if you invest in small companies , instead of 10.5% , your average return was 12.1% .

So that 1.6% higher return over the last 100 years turned $1 not to $14,000 , but $46,000 . So you didn't work any harder , you didn't do anything differently , but you invested well , with intention , and you have a lot more money . Now , that's if you had small companies . But what if you took it one step further ?

So not S&P 500 , not small companies , but small value companies . Not penny stocks or anything like that , but these are the companies , excuse me , that become the apples and the Netflix and the Googles of the world . But they have to start somewhere . And these are the companies that .

When people say , ari , you know , small companies or big companies , what's the difference ? One word , and that word is price . And so if you were in small value companies , your average return was north of 13% , 13.4% to be exact , and $1 didn't turn to $14,000 or $46,000 , but $136,000 . So people say why do I invest ? Why am I loving investing ?

Because I want you to be able to do more with your money . So my number one example here , the first tip that comes from a current client with that little bit of context , is invest for compound growth . Compound growth does not traditionally have to be large caps versus small caps versus real estate .

It can be a training , it can be certification , it can be a degree , it can be anything that develops your skill set . What if that led to an average 1% extra growth rate per year ? It would be significant .

I just showed you , if you invested well for many , many years , that even if you just got 1.6% higher and you can do that , of course , investing through paying less fees , getting better returns it is significant .

But think about doing that in your actual life , where you could look at a role that you're in and go what if I could get a raise and that would tremendously allow me to invest a whole lot better ?

Okay , well , we tend to just look at compound growth on a chart , on a graph , showing great , if we invest this way , here's when we can double our money and here's where we'll be if we keep investing . Awesome . But don't forget about compounding growth in your actual day-to-day life . Most people just overlook that .

So that was a really wise , I think , piece of advice that John , once again using the pseudonym there that had advised me . Number two is while you're doing all of that , don't burn out .

Let's assume that right now you're well into your career , you're 60 years old , peak earnings years , but you're just totally burned out and you're saying , all right , I can only do this for one more year and let's say that you're earning a very healthy income . Let's just say $350,000 or $400,000 . Let's say $350,000 .

And you find that there's part-time work that you just love , but it pays a whole lot less . So you're just saying I don't know if it's worth it , I don't think I'd be able to meet my goals . Okay , but what if you could ? Let's take an example If you could meet your goals and we'll walk through what that looks like . But if you could , would you do it ?

That's the first question . And that part-time work that you love , let's assume that that pays $50,000 a year and you could do that until you're 66 . Okay , and once again , let's say you're 59 today . It seems the same , meaning $350,000 you could make in one year or $50,000 for seven years . But really $350,000 is really only taking 198,000 home .

Assuming you live in California because of federal , state and FICA taxes , which is Social Security and Medicare , payroll taxes versus $50,000 a year every year for seven years also equals $350,000 , but you're actually taking a little over $40,000 per year net , or $281,000 total .

So earning the same amount over seven years is actually $83,000 more profitable , a 42% increase On top of this . That's just financially . You enjoy it , which means I think you're going to keep doing it longer .

A lot of my clients that retire early once again , they retire early that financial independence , recreational employment mindset is they don't want to do nothing , they want to be fulfilled . I'm going to bet you don't want to retire at 55 and then do nothing until age 90 or 100 .

They want to make sure that you live a fulfilling life and for some of you it's volunteering and not required to make finances work .

But for a lot of you , if you want to retire early , you do need finances to play a big role still , and I want to make sure you get the most out of it , and I'd rather you leave a job that's not allowing you to take care of your health or get totally burned out .

As you can imagine , john , who came up with , of course , this concept here they were alluding to this is saying hey , I was burned out , I didn't love what I do . I do part-time income . Now I love it , and they wanted to share their story .

So if you can rent yourself from pulling money out of your portfolio for longer , that's a huge impact in terms of the income your portfolio can create in the future .

Because if you were to stop working , meaning you make $350,000 in a given year at 59 , you retire at 60 , your portfolio is now going to get withdrawn significantly for your living expenses , versus making $50,000 a year , paying less in taxes along the way .

Meaning a higher net takeaway and less is coming from the portfolio , allowing it to compound even more over time . And then the real last one here live within your means the way you see fit . I want you to spend a ton of money on things you love and be very frugal on things you don't love spending on .

You cannot out-earn any bad money habits when you have something that is human capital . When you first start working , you're fresh out of college , you're worth a lot of money in terms of your ability to earn that . Over time , as you get older , that human capital starts decreasing . There are only so many more years you can earn that .

This is why you translate that human capital into financial capital . You take your income , you save it , you invest a portion of it Over time . Your hope , of course , is that financial capital becomes more and more valuable . So let's take an example here . Look at Warren Buffett .

What's the value of the work he continues to do in terms of the income he receives it's very high . But the actual value there is in his financial capital , the money he saves and invested , so that even if you stop working altogether he has a tremendous amount of financial capital . Now that's obvious .

To grow your financial capital you have to maximize first the human capital . But what most people do just speaking of my experience that come to me they fall in one of two categories . They either go I have saved and invested so well . I want to get the most out of this . I want to make sure I can retire early .

I don't love doing what I'm doing , but I don't know how much is enough . So I'm just going to keep working . One more year , and then one more year , one more year and then they never stop . And of course they come to a spot where they do stop .

But they worked five , seven or 10 more years than they wanted to because they didn't have a plan that gave them the confidence that if they were to retire early they'd be okay in their 90s , even with long-term care policies , and otherwise they were not confident . So that was the number one group .

The second group is we don't have enough to retire early because we lived large and we had a great time up until this point , and we do want to retire early because we don't love what we want to do . We don't love what we do right now , excuse me . However , we don't have the ability to do so financially .

So it's the first group of people they have saved and invested well . They tend to keep working because it's what they know , they're comfortable in it and they're maybe scared of the unknown . That means they don't know how they're going to spend their time in retirement , which I know a lot of you are listening going already . That's insane .

If I could retire early , I know exactly what I would do . Awesome , if that's you . But a lot of people aren't that way when they retire and they're like I don't know what I'm going to do , I don't know how I'm going to fulfill my time . I've poured so much into my employment that I really don't have a ton of extracurriculars I'm looking forward to .

So they just keep working and they keep working . And it's not a bad thing for your financial plan , but it is for your life plan , because what is that financial impact ? And then what's the health impact ?

A lot of you are working really hard right now and if you knew that you could retire two or three or four or five years earlier , then you think what would that do to your day-to-day work , meaning most people and this is what John had told me hey , I want you to really get this across to your audience , which is most of you are just thinking if you're 50

years old right now , or 55 or 60 , I want to retire in two , three , four , five years . I don't know if I can do it . Or I want to retire next year . I don't know if I can do it . Go find out . And if you find out that you can't retire early through going through a process with myself or another advisor , that's okay .

I think you're going to feel better knowing you have a plan there , and I relate this back to what I call the I don't know phase of planning . I am a soccer player . I played college soccer . In addition to that , my brother and I we actually bought a semi-professional team .

We didn't get a lot of playing time in college and because of that , we wanted to control our playing time . We bought a semi-professional team and we were just having the time of our life , and so we're based here in Los Angeles , california , and I hurt my hip playing soccer . The worst time was when I did not know my PT , my physical therapy .

I was in agony . Once I got an MRI and I got a diagnosis . I went okay , now I saw my physical therapist . Here's the plan . I wasn't in misery for the three months of physical therapy . I was in misery before I knew . Once I knew I was like , got it . That's what I have to do . I think it's the same for a lot of you . You just don't know .

Are you on track or are you not ? That's the first temperature check . Then you find out wow , I'm three years out from an early retirement . Okay , I think it's going to work every day a little bit easier because you know that light is there . You might go wow , there's a creative way of looking at this . I want to get creative .

What if I'm able to do some part-time income for a limited amount of time ? I'm going to love it . Yes , it pays less than I'm bringing in today , but wow , that's an attractive tradeoff to me . Okay , consider that that's a real plan that a lot of people just don't implement because it's not traditional .

I invite you become not traditional , but don't be cookie cutter . Make sure that when you're looking at your plan , if you could do creative tax planning and that means you can work six months less , good luck quantifying that on your health . If you don't love your job , what if that's more time with family and more time fostering quality relationships ?

That's why I love an early retirement . It's not the sake of retiring early for early sake . A lot of people retire early and a lot of people retire early with confidence . And there's a big difference .

A lot of people will retire early and those second guests take in that big trip , or second guests go not to eat , and to me that kind of defeats the purpose of a good early retirement where you're doing what you want to do . So to summarize all of this today , as John brought up , wisely , compound growth . Think of it in investing terms .

Yes , please , invest well . At the same time , think of it in your skill set , certifications , degrees , training . Number two is don't burn out and consider part-time income as part of your financial plan . And then , number three , live within your means the way you see fit . Expenses are the number one factor in retirement .

Taxes might be one of the biggest expenses , but expenses alone determining what's going to allow you to feel really confident . It's hard and I want you to actually go through that exercise and if you're going , wow , I want a spreadsheet or a way to think through this . There's a ton out there .

I've hopefully distilled it into the most effective one out there in the market . You're going to see it in my description . If that's something you're interested in seeing , click that link and you will get my custom retirement expense spreadsheet so you can at least know what you would need to spend , so that you're on track .

Some people it's 80,000 a year , some people it's 200,000 a year . Whether there's right , neither is wrong , but it's about determining what an early retirement looks like for you , for success , not just the sake of . I did it . I retired early , but now I'm second guessing things To me .

I imagine most of you would rather work another year or six months or part-time , if it meant you'd be really comfortable in early retirement . So hope that this episode was helpful today .

I know not quite as nuanced as some of my other episodes , but my goal here is for you to start thinking about your financial life a little differently and think of an early retirement in a really transparent way . So that's it for today's episode . Hope it was helpful . See you all next week .

Thank you for listening to another episode of the Early Retirement Show . If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .

Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .

Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only .