5 Tips From My Wealthiest Clients On How They Retired Early

Welcome back to the Early Retirement Podcast. I'm your host Ari tbl, and I could not wait to film this podcast today. I don't know if any of you guys wake up and you're like, I have that one fun meeting I'm gonna get to do later, or I'm gonna get to take my kids to practice or whatever. It's today. My fun thing is recording this.

Podcast episode. Now, I hope that doesn't sound too sad to some of you, but I'm telling you, this is exciting stuff and what I'm gonna tell you today, I just cannot wait. And it was prompted by a listener question who said the following, and it comes from Jackson. And Jackson says, Ari, love the podcast and appreciate the work that you put in.

You're welcome, Jackson. I love doing it. And Jackson goes on to say, Ari, what are the best strategies that the richest clients of. Do to put themselves in the best position? Well, Jackson, I'm gonna re-invite you to think about this a little differently, and I'm gonna replace the word rich with wealthy because there's plenty of rich people, but rich people have a lot of money and they don't always have a lot of time.

So my clients, I don't want them to be rich. I want them to be wealthy, which is not really a dollar amount. In fact, it's not a dollar amount. It's really about saying how do you have enough money to do everything that you want to? Now, I'm not gonna stop there. I'm gonna flush it out, of course, throughout this episode.

But I hope that's a helpful starting spot. Jackson, another quick comment. I always like to say I'm trying to make the podcast experience even better. I keep trying to just enhance it and more people are listening to the show, and that's all because of you. So thank you for those that keep sharing it with your friends, that keep sharing it with family.

It's more fun to retire with them, not on your own. And it could be awesome if you're retiring and you're, you're waving across, um, a few homes away. Friends happen to buy one nearby and you can say, Hey, great. I no longer need to work, but if they're also working, it's just not as fun. So want to encourage you all to please share this with those that you think would take value from it.

Once again, it's all because of you. I'm gonna highlight a recent. Comment on the podcast, a recent review, and this comes from K Adam eight titling Money Mindset. Thank you, Ari, for sharing great information on Money Mindset. You have emphasized on value-based spending and plan retirement according to what's important to me.

I like that your podcast is concise and with relevant data. Keep up the great work. Well, you're very welcome. Kay. Adam eight. I am glad that it is concise and clear. I have a strict anti fluff policy, so I'm only gonna include in these podcast episodes what I think is most helpful for you all, and a lot of you have been submitting questions to the show.

Thank you. Please keep submitting those questions. A lot of you have inquired about working with me, and I love to go through the process. If you don't know what that's like, I, it's a couple of meetings to show you what the work looks like that I do, and I want to help as many people retire early. Which once again, if you've been listening to the show for some time, you know it's really not about an early retirement that I love.

What I love is knowing that you can do more of what you want to do. So let's hop now right into the episode, which is, here are the five tips that, how did My Wealthy Clients retire? Well, number one is they didn't. Just feel bad about their previous poor decisions. They didn't just feel bad about them.

They said, Hey, I recognized it. I made a poor decision and we've all done it. I've done it many times, and I want you to know that you're human. And that's a big step. Now, a lot of you might go, Ari, that that's obvious, but. Whether it was purchasing an annuity that didn't work out, whether it was a divorce, whether it was just, Hey, we made this one financial decision, whatever that is, I want you to just let go of it.

And I'm not expecting it to be easy. I'm not expecting you to do it overnight, but slowly over time, let go and, and really say, you know what? I'm in a good position now. Yes, I could have had more, but we all could have had more. If we invested in Amazon 20 years ago, we all could have had more if we knew exactly what would happen with market conditions and.

I think there's actually a sense of calmness and a sense of joy, of going, Hey, what's happened has happened. I'm now in a good spot. How can I put myself in the best spot possible? That's why people reach out. They wanna put themselves in the best spot possible. That's why they listen to these podcasts. So I'm grateful that there are all of these resources available, but you still have to say, you know what?

I'm not gonna be so hard on myself. And what's happened has happened. That's number one, which is don't feel bad about the previous poor decisions and then do nothing. It's no, you can feel it. You have a right to those feelings. But now let's use those feelings to really just almost amplify, if you will, how good you can do in the future.

So that's number one. Number two is, People who wanted to retire early know they need to save, invest more. But the wealthiest clients that I have who retired in their early fifties, they said, I know I need to invest and save a whole lot more than the average person, but that you are also not the average person.

So what if they wanted to save and invest a whole lot more? But the reality is they wanted to spend less than the average person. Okay. Well those are two really big variables. We don't want to just focus on one and the wealthiest clients, I. They focus on two, which is number one, they focus on how much they need to invest to reach their goals, so they never have to work ever again.

And number two, they focus on how much they wanna spend in retirement. Too often people just save and invest more and more and more. And because of that, they go, great. I'm in a good spot. But they never have that. Ultra confidence, that peace of mind of, Hey, I don't wanna work and have you second guess retirement.

I don't want you to second guess. Going out to eat second guess travel. That's defeating the purpose in. In fact, that's when I'm coming to clients and saying, Hey, you're not in a position to retire early. Now at the end of the day, it's your decision. I am simply the guide here. But I would tell clients I'm not comfortable with you retiring early and not having to go back to work or bring in any other income if these tweaks weren't to be made.

Now, on the flip side, I'm only telling clients, yes, you are in a comfortable position to never work again if you don't want to. But here are other options. If you want more buffer, you could work a few more years, you could spend less, you could use this tax strategy. There's always options at the end of the day.

It's just which do you want to go with? What resonates with you? So going back to number two here. The people who wanna retire early and the the wealthiest clients of mine, they invested early of course, but they said, you know what? I need to do more than the average person. And even if they wanna spend the same of an average person, you're probably wondering, Hey, what's an average amount?

Well, I've gone here and made a quick example. Just make the most efficient use of your time. Going to the listener's review earlier of just clarity and concise, I just want to get even better. Giving you guys helpful information. So you know, I love examples, so I prepared this. And if you started investing and maxed out your 401k from age 25 to age 50, so let's assume that you go into the workforce maybe after college, or maybe you don't go into college and you're getting on your fee and you're saving a little bit here and there, but.

You don't start maxing out your retirement accounts until 25. And by the way, that's early. So if some of you are listening to this going, Hey, I didn't do that and I'm still in a good position, awesome. Maybe you invested really well. Maybe you sold a business. There's a million things that could go here.

But just humor me with the example of what if you started at 25, that's when you don't have any dollars. And now at 25, you're beginning your 401k. You're maxing it out until age 50. That's 25 years. Now, let's assume that you get a 10% rate of return. Where do I pull that from? Ari, you're, you might be wondering that, well, that's coming from the s and p 500.

Not saying we're gonna get that. In fact, it's unlikely. Maybe we get exactly that. We're gonna get a little less than that, maybe more than that. Every single year of course, is gonna be different based on your portfolio, but you guys already know that you've been listening to this for some time. Here's where it gets interesting.

Well, let me put an inflation rate of 3% on that. Now, I know historically, inflation recently, should I say, has been much higher, but let's just use this over the course of time. We could use three or four or five, whatever you want. I'm gonna use 3%. So once again, we're investing for 25 years, from 25 to 50.

Now all of a sudden you've gotten a good rate of return, 10%, but there's inflation. So let's account for that. So now, how much money do you think you have left over? Maybe even take a fun guess in your head. I like guessing when, when my partner and I go walk, you know, after work, we will guess, Hey, how much do you think that home is worth?

And you know, we're in Santa Monica, so in California we're. So far off, it's much millions above what we expect. And other times we're like that little home, I'm sure it's $10 million and it turns out it's $500,000. So I'm not a real estate expert. I'll be the first to know I'll stick to the financial planning

But when it comes to this answer, the answer is 1.4 million. So you would've 1.4 million. And then what we would do is, okay, you're age 50, is that enough? Now you are max out your 401k, but there's some big considerations. Like, Hey Ari, I've heard you talk about this in other episodes. I can't pull from that 401k.

Good example, but that's not useful because I need to pull from these assets. I've heard you talk about a rule of 55 and a 72 T distribution. These strategies you talk about, this is not helpful. Well, here's why I'm gonna show you this right now, this 1.4 million, this is just a super basic example. If you wanna retire, , you need a brokerage account.

You need some other accounts to pull from other areas. And yeah, maybe we're giving up tax benefits, but I'm gonna show you in other episodes, which I, I have titled, tax Gain Harvesting and Roth Conversions, and just how to save on taxes, how to retire early and not get penalized with both the penalty, the 10% penalty, and paying taxes.

Trust me, I don't want you guys to do any of that. Back to the topic here. There I go ranting again. The 4% rule is a standard withdrawal rate. So let's pretend we have 1.4 million in a 401k and we're 50 years old. Well, we can't touch that, of course, until 59 and a half. So now what good is this? Well, it's still some good, and I'm gonna pretend for just a moment that this is all in a brokerage account.

Okay? So you said Ari. I didn't get any tax benefits and my cash flow was great. In fact, I maxed out my 401k the, the full amount, but instead I just put it into a brokerage account, so I didn't get any tax benefits, no tax deferral, none of that. I have 1.4 million in a brokerage account. Well, The reality is, if that's you, you have a lot of capital gains, which is a very good thing in the sense of you made money.

But it's a very bad thing if you're saying, you know what, Ari, um, I'm gonna willy-nilly go at this and just pull funds from wherever and no, no, no. You might have a lot of taxes. And I. I'm always saying to clients, I'm all for being patriotic, but you don't need to be so patriotic that you pay more in taxes than you need to.

So with this example, once again, we've got 1.4 million. It's in a brokerage account in this example, so fully taxable. You put money in, it grows and grows and grows. You can pull from it without a. Without, should I say, um, a penalty in the sense of you're not gonna be penalized now there are gonna be taxes.

So now we've got 1.4 million. I know I'm going a little long around this, but I promise there's a reason I don't wanna waste your guys' time. I find that valuable. Now let's look at a safe withdrawal rate. Well, safe rules will say you can take 4%. I've gone over this in previous episodes, which is the 4%.

4% of 1.4 million. That would say that you could take $56,000 every single year and not run the risk of running outta money, but it's not looking at a very diverse study. So the 4% rule, it's based on just 50% US intermediate term bonds, and 50% US large companies. So I don't love that study. I like to use John Gein, which talks about the five and 5%, 5.2%.

Can we use something in that range? Why? Well, we're following a. Set of rules to be able to really optimize how we withdraw income. And we're not just diversifying two asset classes. We have international and real estate and small caps, and there's a whole episode I do just on optimized withdrawal rates.

So feel free to check that out. But back to the example here, let's assume you want to live off of $56,000 a year. . Well, if this is all in a brokerage account and you can pull from it, you can realize gains at 0%. That's right. You can pay 0% in taxes using tax gain harvesting. So you might have really low income and you're thinking, Ari, oh my gosh, I should have done this four.

I, I hear, you know, my neighbors got a four  my coworkers got a 401k, and oh my gosh, why did I put this in a brokerage account? What was I thinking? Well, you are actually outsmarting them because you wanted to retire early and now you can realize gains at 0% taxes. And I'm looking at my tax bracket sheet right here, this cheat sheet, which is in the description below.

If you guys don't already know it, you can realize taxes up to $89,250 and pay 0% in taxes. Now this is if you have no income at all. So if one spouse is still working and you're, you know, not working well now all of a sudden, Let's just pretend taxes are at, let's assume your income's at a hundred thousand dollars of taxable income.

So not gross income, but gross income minus deductions. Your taxable income is at a hundred thousand dollars. Well, now you're gonna pay 15% on these gains. So we might not wanna do that. That's where the 401k can be helpful. But I'm not saying, Hey, do four  I'm not saying just do Roth ira. I'm not saying just do brokerage account.

Uh, what I'm saying is what the best people do is they look at their individual situation and they d. Wow. Is $56,000 a year, is that enough for me to do what I wanna do? Could I be done at age 50? Well, what if we use the John guidance approach of 5.2 to five and a 5% so we're not withdrawing 4%, which by the way, was only designed to last 30 years.

So if you're 50 and you're saying, I'm gonna rely on the 4% rule, that gets you to 80, that's not a super safe. Comfy Cozy Retirement. Let's go a little further with John Guidance's approach. And that gets you to age 90, so not 30 years, but 40 years according to his study. And what I like about that is you're also withdrawing 77,000 a year, not 56,000.

And this also assumes no other income sources. So if that's you and you're going, Hey, that's. That's plenty to me, Ari, I could live off of 6,000 a month or 72,000 a year. You know, that to me is, is great. That's what I want to do. The big question is how do taxes play a role in that? And then of course, what account is this in?

So wanted to just illustrate, okay, that's in a brokerage example, here's a 401k, Roth ira. Accounts we can't touch for longer. Yes, that's always applicable, but please know if you wanna retire early, a brokerage account in being really efficient with taxes, that's what the, the wealthiest people that are my clients who retired early, have utilized number three here.

They know they need a different withdrawal strategy to make their money last longer than the average. Once again, they don't just hear the 4% rule by bill banging and go, that's what I heard. I saw an. I'm done. No, no. They go, you know what? What other strategies exist and how can I be most efficient with this?

And hey, I heard interest rates are going up. Should I get a CD and should I park more money there and get 5%? You know, at the end of the day, you really wanna dial in, how do I optimize what I've worked so hard for? That's what I help clients to do. But I also wanna help you through these podcasts to understand what strategies are out there.

The number one thing that people say when they reach out to me, I'm gonna let you guess for a moment. Okay. I gave you about a moment there, but here it is. The number one thing people say is, I don't know what I don't know. I've been in my field. I'm a doctor, I'm a lawyer, I'm an accountant. I'm in real estate.

I know my business. Well, what else am I missing that the wealthiest people are doing? Well, they're doing tax key and harvesting. They're doing Roth conversions. They're saying, Hey, how can I lower my tax bill and how do I make sure my investments are aligned properly in a way that allows me to ride these waves?

Not always gonna be fun, but in a way that has a strategy that says, you know, I'm not gonna make a tweak here and here's what I am gonna make a tweak and I'm not gonna rebalance my portfolio just based off of, you know what, I'm gonna do it every quarter. No. There's some times where when the market's doing what it's doing, I'm telling clients we're rebalancing 2, 3, 4, 5 times.

There's other times where I'm saying, Hey, I know everyone else is rebalancing. Here's why we're not. Because it didn't go through these barriers. It didn't go down by this amount. It didn't go up by this amount. So it's not, I don't believe in a cookie cutter retirement, it's just not as impactful. Um, that's number three there.

Number four. The wealthiest people, they spend a lot of money on what they care about, and they spend very little on what they don't care about. They don't just say, you know what, um, I don't love going out, but you know what, it's kind of fun. So I'm gonna go out with my friends. We're gonna get a few drinks and you know, but I also have these other passions.

That's where I'm really spending their money. So they're almost double dipping, if you will, of, Hey, they don't love this other thing of going out to friends and, and drinking. They still spend good money on it. Now, they also spend good money on their hobby, and if they're in a position to do both, I'm the first person to say, go do it.

I hate when people say, you know, and hate's a strong word, but maybe I should say dislike. When people say you can't do both those things well, what if you're in a position to do them, then you certainly can. I just want you to know what are the trade offs, and so sharing with you. The stories from my clients.

I have one client in particular and they just love golfing, but they also love motorcycles. And so they said, Ari, you know, do I have to prioritize these? They were in a position where they did not have to, where they could easily do both and they could do everything that they wanted to do. Now it meant an extra two years of work.

But once he knew that trade off, he said, oh my gosh, you're saying for the next 30, 40 plus years, I now at 90, I hope he's not on the motorcycle for his safety. Um, but uh, unless he's really good in which. Feel free to stay on the motorcycle. Um, and if you're listening to this, um, I'm not gonna of course say your name, but you know who you are.

So I hope you're enjoying this episode, which is, Once again, what are the trade-offs? Can I work longer to do more of what I wanna do? Great. Maybe you say, you know what? Work is just so detrimental to my health. I'm okay with the trade off of, I'm gonna prioritize going on the motorcycle, but it means I'm golfing less.

Whatever it is, understand the trade-offs, and you can't do this, in my opinion, without really going through a planning process. So once again, you can see in the description, you can reach out to work with me or another advisor on our team, and we would happily walk you through that process. Number five.

They don't forget about taxes just because it's not sexy. I know you're not always seeing tax brackets and legislation changes and look, I'm seeing that stuff because I nerd out over it. But if all of you are seeing it, I would be very impressed. But I want you to know that it's not just about focusing on investments and just focusing on returns.

No, they focus on taxes and how to minimize them. They focus on withdrawal strategies. They focus on when they pull income, how is the most efficient way to do that? So there's more that goes into. On the tax piece when it comes to Irma surcharges and RMDs and just setting themselves up to not get screwed by taxes, which is, I know an not, not very candid way of saying that.

I just, at the end of the day, want you to make sure you are set up well. So this was a longer episode, I'm aware. What my wealthiest clients do, who retired early, who had said, you know what? I wanna retire. I wanna do everything I wanna do. I don't wanna second guess my retirement. Here are some of those strategies.

So hope that this was helpful. Once again, I'm doing all of this and more on my YouTube channel. Feel free to check that out there. I do have an ebook, a complete Guide to an Early Retirement. Feel free to check that out in the description below. And then lastly, I kindly ask that you share this with someone else who you think might find value from it.

I love that these podcasts are free to you all. That is my only request. Um, thank you all for listening and I'll see you all next time. 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.

Early retirement podcast.com. That's early retirement podcast.com, 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. 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.