4 things F.I.R.E. seekers should consider
Updated: Jan 17, 2022
So you want to achieve Findependence (Financial Independence) before the age of 65... So do I. We aren't alone. There is actually a whole movement of people who want to break the this time barrier. There are a lot of obstacles to this, mainly uncertainty and IRS laws, but it is achievable. This blog posts serves as a thought provoking look into questions you should consider on your F.I.R.E journey and how FFG can help.
1.) How do I commit to saving such a high percentage of my income?
A rule of thumb of the community is to save at least 50% of your income. Obviously it depends on how old you are and when you want to be findependent. Regardless, you will certainly have to save a large portion of your income even if it is not 50%. FFG uses budgeting software that you have access to as a client to aggregate all of your accounts and automatically create a detailed breakdown of spending and saving. We can hold you accountable to your goals if you need an accountabili-buddy. You can also use apps like Mint to track your budget.
2.) How is it even possible to retire early when Social security can't be taken until 62?
There are a few barriers to retiring early including the fact there is a 10% tax penalty on withdrawals from certain retirement accounts before 59.5 years of age, you are not eligible for social security until 62, and optimizing the order of cash flow when distributing your money to make it last as long as possible. We call this cash flow planning. The truth is that it is best to start planning for this early so that you have options. At FFG we can model this out to find the optimal investing strategy and distribution strategy. We can decide when you should take social security, how much to put into a Roth, when to do Roth conversions, how much to invest into a taxable account, and in which order to withdrawal these contributions.
3.) When can I afford to retire?
The F.I.R.E. community has a rule of thumb about how much money you need in a total stock market mutual fund to retire at a certain age with a particular withdrawal rate. We do not like to use that rule of thumb. We like to look at your whole financial situation and make an individualized model of your life. With this model we can make predictions of the probability of your plan succeeding with retirement at different ages. We will run a monte-carlo simulation, which will test 1000 different outcomes to define the probability of success. We can also stress test the plan. We like our clients to feel more certain about their retirement date.
P.S. We also like our clients to be more diversified than a total stock market mutual fund.
4.) How can I save more?
I believe that the easiest way to save more is to make more money. I believe the easiest way to do this is to maximize your income at your current job or business and to create alternative streams of income. To maximize the income at your current job we can do an analysis of your position, experience, annual reviews, and trajectory to see if you should be making more money and we can prepare you for the negotiation of your salary. The people that make more money are the ones that show value then ask for it! In regards to income diversification: real estate and business ownership are both ways to potentially increase your income. Rental properties, house flipping, ecommerce... these are all ventures that either I have had success in or have close friends that do it (house flipping). There's no one better to help than someone who has been through it.