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How to Go From BROKE to RETIRED in 15 Years
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- Опубликовано: 13 авг 2024
- If you want to go from broke to retired in just 15 years, you don't need to be making a 6-figure income. Nor do you have to pick up a side hustle or survive on ramen. This video covers everything you need to know about retiring early and what you need to do to pursue financial independence. Early retirement can be achieved with FIRE (Financial Independence / Retire Early). The 4% rule based on the Trinity Study states that you can safely withdraw 4% of your investment portfolio each year without depleting the portfolio within 30 years. This is your safe withdrawal rate, although some people will choose a more conservative number like 3%.
You need to calculate your FIRE number, track your money, come up with a realistic, sustainable budget, and build your nest egg by maxing tax-advantaged retirement accounts (401(k), IRA, and HSA). You need to decide between Traditional and Roth 401(k)s and IRAs, but most people in the FIRE community pair a Traditional 401(k) with a Roth IRA. Maxing all 3 of these accounts will have you contributing $29,050 per year toward retirement, not including your employer match. Assuming a 7% market return, after 15 years, you'll have just under $1 million dollars saved for retirement. Due to the wonders of compound growth, this number goes up even higher if you expand your timeframe to 20 years. And you do not need to be making a 6-figure income because contributing to Traditional retirement accounts reduces your taxable burden! If your expenses are $36,000/year (or $3,000/month), you need a pre-tax income of $80,000/year to max your 401(k), IRA, and HSA (roughly speaking - this number will vary a bit depending on where you live).
🌐 LINKS MENTIONED
SmartAsset paycheck calculator: smartasset.com...
FIRE subreddit: / financialindependence
📷 Follow me on Instagram! @alexraefinance
⏰ TIMESTAMPS
0:00 Introduction
2:00 Understanding FIRE and early retirement
4:02 The 4% rule (safe withdrawal rate)
5:34 Step 1: Calculate your FIRE number
6:47 Step 2: Start tracking your money
7:50 Step 3: Come up with a budget
9:17 Step 4: Build your nest egg
12:15 The numbers on HOW this works
15:50 Conclusion
🔴 Subscribe for more personal finance videos: www.youtube.co...
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The 4% rule is based on a 1998 Trinity study on historical safe withdrawal rates. This study found that you can withdraw 4% of your portfolio each year for living expenses during retirement to have a reasonable amount of confidence that you won't deplete your portfolio within 30 years. This number is inflation-adjusted. This study has been adapted to the FIRE movement for early retirees. Within the FIRE community, the most conservative estimate is a 3% withdrawal rate, so you can use this number for your calculations if you want to over-estimate.
Once you decide on your safe withdrawal rate, you need to calculate your FIRE number. Your FIRE number is the amount you need invested in order to safely live off the returns for the rest of your life. First, estimate how much you will be spending per year in retirement. If you're using the 4% rule, you can calculate this number by multiplying your yearly expenses times 25. After calculating your FIRE number, you need to start tracking your money. Tracking your money is the best thing you can do on your path to financial independence. Tracking your money will allow you to identify areas where you're over-spending. The next step is to create a budget. The key here is to create a realistic, sustainable budget that you will be happy with for a long time.
Next, if you want to retire in 15 years, you need to max out all of your retirement accounts. This is your 401(k), your IRA, and your HSA (if you have access to one). Maxing all 3 of these accounts will total $29,050 saved for retirement. If you include an employer match of roughly $4,000, you'll increase your retirement contributions to $33,000. Then, you just need to do this for 15 years or however long it takes to reach your FIRE number.
🎥 FILMING SETUP
Camera: amzn.to/3fwrclw
Shotgun mic: amzn.to/32pUbE3
Softbox lights: amzn.to/3hb6Yht
Tripod: amzn.to/3jcduGQ
Editing software (free!): bit.ly/2B4At5i
Disclaimer: This video may contain affiliate links, meaning that if you purchase a product I may receive a commission at no additional cost to you. I do not share any resources, products, or services that I do not personally use and believe in. I am not a financial advisor nor a tax professional. The content presented in this video is for entertainment and educational purposes only.
I finally made an Instagram! Be sure to follow me @alexraefinance. I can't promise that it will be free of cat pictures though. 😊
Following! I dont really upload mine at all but im happy to support! @calmclearfocused
@@JessieOpportunityCostInvesting Thanks! Just gave you a follow back. :)
Congratulations! Just gave you a follow! Best of luck and hope to see your growth in the future!
😂
You're really beginning to shine, Alex. It's obvious to me that you put a lot of time and energy into these videos and it's truly awesome to see you flourishing as a RUclips creator. I wish your channel nothing but success and good fortune. Keep it up!
Thank you so much!
Love the cat cameo lol! I really like hot pockets, but you're right I'm not down for living off them. Great explanation of the FIRE movement. Ive set myself up for more of a Coast FIRE set up 🙂
Haha thanks for watching! Coast FIRE is a great option too. :)
Haha, love your style! but, totally agreed, everyone can do this. thanks for sharing your thoughts ;)
Thanks for watching!
Look how proud you look in front of your plants 😂👍 Great video as always Alex!
I am so proud! I get way more upset than I should when I accidentally kill one of them. (Or when my cat eats them). 😂
Oh man. I want that Dave rant video. Move it up the list :). Thanks for spreading the word about FIRE 🔥
It seems that video idea is popular with a lot of people. 😂 I'll definitely try to prioritize it!
I've been following the FIRE movement for a while now - it's super interesting! I'm definitely bought in, I have been building a dividend portfolio for a while and always recommend it to others!
That's definitely a great strategy!
Great video! Very informative. Nice job with this one Alex!
For me, before you even begin to think about saving money, you'll need to change your money mindset. Because you see if you change your mindset about money, you tend to make better choices about how to overcome challenges. Because by changing your mindset money will no longer be a villain in your life but will become a tool to enhance your life. Second, living below your means really helps to achieve your goals. Love your video, Alex. FIRE indeed is a great way to retire early I first heard it on Mr. Money Mustache blog back in 2013, lol. Liked and subscribed to support your growth.😍
I completely agree - mindset is so important! Thanks for watching!
I respect the hustle, and the motivation to show that it really is possible to achieve financial freedom! Thanks Alex
Thanks for watching!
*Great topic to discuss ! And great ideas , thank you for sharing 🙏🏻👍🏻*
Love your clarity on step by step. Breaks down really good for people
Great tips Alex! Your channel is growing nicely! Keep it up!
Thank you!
My dividend income portfolio is going to come in clutch years down the road 💰🔥
Yes those are great for passive income during retirement!
Great tips Alex Rae! I'm also loving some of your editing. I like that you mentioned calculating your FIRE I think sometimes when we think about retiring we don't realistically take time to think about the stuff we want to do while we're retired especially if we want to retire young! I liked your point about milestones great stuff!
Thank you so much! I love editing videos so I definitely go a little crazy on the editing but it's all fun to me. :) Thank you so much for watching!
Great advice. FIRE is definitely my goal. Well done.
Thanks for watching!
Woah! Love your video quality. Keep hustling towards financial independence! Cheers 😊
Thank you - I really appreciate it!
Yessssss!!! FIYAHHHH!!!🙌🏻🔥🔥🔥🔥👍🏻 Loved this one! 💚
Haha I'm glad you appreciate that clip 😂
It is interesting that FIRE hasn't been known to enough people out there, Glad you created that instagram account!
It took me forever but I'm glad I did!
Loved this! 😍💗
Great video! Keep it up 😊 We are sub number #205 yay!!!
Thanks!
FIRE is the way to go! Working and making someone else richer until you die of old age just doesn't sound so appealing. Good video!
Couldn't agree more! Thanks for watching. 😊
This is such a great explanation of FIRE. Definitely down for a DR rant. I think learning his advice is valuable, but like with everything, take what he says with a grain of salt. Meshing and melding different methods is usually what works best for people.
Absolutely! Thanks for watching. Like I said in the video, I think he definitely has good advice for getting people out of debt, but I don't agree with a lot of his investing advice. I think Dave Ramsey is a good resource for people just starting to take control of their finances.
Keep them coming - fabulous content!
Thank you!!
I don't know if I want to retire but I KNOW i want the freedom to decide. Thanks for sharing Alex and kitty. Ps your cat looks like mine :)
Yes definitely! It's all about freedom of choice. And orange cats are the best! 😊
@@AlexRaePersonalFinance I'm only half way in but you PACKED this video, this is your best one yet!
Thank you so much! There was so much to cover. 😂 Luckily most of the topics that I touched on can and will be expanded on in future videos!
I would love to retire early, but my goal is to find a job that I will enjoy waking up every day and doing.
And PS. I clicked on this video because I like showing my support!
That's absolutely a great goal too. Sadly the things I love the most just don't pay much (or anything at all!).
Great style Alex! It would be really cool to retire early but I feel like I would get bored 😂
I think you'd be surprised at the number of things you can do to fill your days. :)
❤ just found your videos!
Great video! I wasn't aware of the Trinity University paper, so your information on the safe withdrawal rate was very informational for me! It's always great to think step-by-step for such as life long goal as well, which I think you laid out wonderfully in your video. Keep up the great work! Liked and Subbed!
Thank you so much for watching! I'm glad you learned something new. :)
Great video!
Not here to convince you to start some drop shipping business. ahahahah. love it.
.
Love browsing the sub Reddits including r/financialindependence ... You should put a link in your description!!!
That's a good idea! I mentioned it in the video but I can definitely add it in the description as well. Thanks for the suggestion!
Loved it my friend! Great video, great content! Keep creating impact and helping others. Thanks for sharing :)
Love ❤ your videos I would like to give you 1 million thumbs 👍 up !!!
Love this! On this path right now.
That's awesome!
Hahah, great b-roll with the FIRE! I enjoyed your video, you've done a great job!
Thank you so much!
Nice informative video Alex :)
Thank you!
Awesome video!
Thanks for watching!
Yay I thought that cat would come up!
Was waiting too! 😊
I will definitely have to bring him in more shots! He snuck in this one. 😂 You can follow my IG and I'll be sure to post pictures/videos of him.
@@AlexRaePersonalFinance nice, following on ig
Hi friend thanks for sharing on this video stay safe god bless ...
If you want financial independence, it's important to live below your means, avoid consumer debt, spend LESS than you make and of course invest your money!!! Personally I am looking at rental properties to be my main source of income (along with my business) once I retire early! :) Just needs a little bit of patience!
Definitely! That's a great goal to have! I'm planning on doing the same thing with rental properties. Not sure yet if it will be my main source of income, but it will definitely at least supplement my investment portfolio.
@@AlexRaePersonalFinance Yes there;s no harm in having both!
Great video, very informative. I'm also trying to learn more about non-dave investment methods once I'm debt free
Thanks for watching! Good luck on becoming debt-free. 😊
I def have thought about withdrawal rate quite a bit lately. This topic is vast and there are so many things to think about. Most of us are NOT thinking about the fact that in retirement, you'll need to DO something to fill the time; most likely, these activities will increase your expenses. We may also have kids and grandkids, which we may wish to spoil here and there. We may travel more...we may have more medical expenses. We may want to help kids/grand kids go to College. So, the point is, what I've found is that when we talk about "FIRE" a lot of people are aiming for a number without quantifying the activities that they may ACTUALLY do during retirement. One of the most common things that I'm finding is that retirees are saying "we didn't save enough" or "we underestimated medical bills" - or you didn't diversify and the market has tanked. Also for FIRE, a 30 year drawdown period is not acceptable in my book. So, I'm literally trying to read books/learn right now to figure out how I should prep...but, furthermore, I think it's important to augment your investments now and AIM HIGHER. So I started trying to create some side hustles. Also, learning from r/fatFire subreddit to see what high net worth individuals are doing.
This is definitely all great advice. Retirement will look very different from person to person. Personally, I'm planning on overestimating my expenses *and* using a lower withdrawal rate (between 3.0% and 3.5%). I'm also hoping to have some cashflow investments (like rental properties) to help supplement my investment portfolio. Thanks for watching!
rant away lol on Dave Ramsey would love to hear that !!! fellow cat mom here 🙋🏻♀️ but yes i wanna retire early
Aw what kind of cat do you have? Aren't they the best?? We just adopted him in March. :)
Alex Rae - Personal Finance he’s a tuxedo cat & that’s so cute ☺️
Good job
😁
Great video, I love your humour! I'm also very interested in FIRE and like you said, lifestyle inflation is a serious concern (for me, at least lol). My focus currently is on trying to set up a comfortable and affordable lifestyle for myself that I can carry forward into the future and that won't cost me an arm and a leg lol. Keep up the great work!!
Yes absolutely! Setting a lifestyle that's sustainable and realistic is so important, otherwise you'll just burnout trying to save money. You have to balance living for the present and the future at the same time.
A Dave Ramsey rant would be good 😂. Broke to retired in 15 years is definitely possible. I’m more in the “build the lifestyle that you want....then build the cashflow for it” camp 😁👍
Ooh I love that saying! That's a great one to keep in mind as well. Part of my retirement plan involves rental properties to supplement my investment portfolio.
Alex Rae - Personal Finance Oh yea totally! Can’t go wrong with throwing a couple rental properties in your portfolio 👍
Great video, very detailed and interesting! We are working on our own FIRE journey! New subscriber here, always like supporting a fellow small youtuber!
Also, looking forward to that Dave Ramsey rant!
Good luck with your journey! And I'm working on the Dave Ramsey rant... it seems to be a popular video idea. 😂
What if someone wants to retire early BUT they don't want to withdraw from their Roth IRA because of the early withdrawal penalty fee? As part of the FIRE movement, is that early withdrawal fee also taken into consideration when calculating the number?
That's a really good question! I am planning on making a whole video dedicated to it because it's a common misconception that you can't withdraw money until you're 60 years old. There is a totally legal, IRS-approved "loophole" that allows you to avoid the 10% penalty. Essentially, you transfer money from other retirement accounts into your Roth IRA, and you can withdraw that money penalty-free after 5 years. So you just need to be planning your expenses 5 years in advance (leaving some buffer room obviously) during retirement. If you want to find out more, just Google "Roth IRA Conversion Ladder". Otherwise I will try to make a video explaining it soon!
I think there a lot of problems with some of Dave Ramsey's ideas. I think a video on that would be really great.
Thank you! I'm definitely planning on it!
I love your videos and the clarity of your explanations. I don’t understand the HSA advice though. My employer offers an HSA, but I thought it was a short term thing for near-future medical expenses. Are they longer term? Are they interest bearing?
Good question! HSAs are "branded" that way - i.e. for short-term / near-future medical expenses. You incur a medical expense that you pay for out-of-pocket, then you can use your HSA to reimburse yourself. However, there's no time limit for reimbursements. You can incur a medical expense in 2020 and get reimbursed for it in 2040 (assuming the rules are still the same and you keep a record of the expense). This makes HSAs a great investment vehicle if you're able to cover your medical expenses out-of-pocket, because you can allow your HSA contributions to grow tax-free for as long as possible. For people who retire early, they often use HSA reimbursements are a pre-65 form of cashflow because they'll start taking reimbursements for previous medical expenses, and use those reimbursements for general living expenses. (Unless you have a lot of medical expenses in your past, this isn't likely going to be enough to fully retire on, especially because the HSA contribution limit is quite small, but it's still a very helpful strategy.)
This is really efficient because HSA money is not taxed on entry nor on withdrawal, and you can invest it in the stock market where it has the opportunity to grow. Furthermore, HSAs essentially convert into normal retirement accounts once you turn 65 - you can withdraw money for any reason, not just medical expenses. So "worst-case scenario' let's say you fully max your HSA for decades and you're extremely healthy, so you have very minimal medical expenses, all of which you paid for out-of-pocket. Well, you can reimburse yourself at any age for those few medical expenses, but the money you have leftover can be withdrawn for any reason once you turn 65, making it function exactly like an IRA or 401(k). Except better - because it's tax-free on both entry and exit!
@@AlexRaePersonalFinance Thank you for the detailed response. You more than answered my question. Looking forward to your next video.
Hi, I like your video but I'm very confused. How are we able to withdraw 36,000 per year from these accounts if they are retirement accounts? Aren't there penalties for withdrawing money before age 59 1/2? I know that a roth allows you to withdraw only your contributions. Please help explain.
Great question! There's something called a Roth IRA Conversion Ladder. Basically, you can rollover 401(k) or other retirement account money into a Roth IRA at any time. After waiting 5 years, you can withdraw the funds that you rolled over without penalty. If you're converting Traditional (pre-tax) money into Roth money, you'll have to pay taxes on it. However, you would have to pay taxes on it anyway when you withdraw it at normal retirement age, so it's a wash. You're just paying them earlier in your life rather than later. So as long as you're planning ahead and thinking 5 years in advance, you can withdraw most of your retirement funds before age 59 1/2. I'll be sure to make a video explaining the Conversion Ladder in greater detail, because it's a really fascinating "loophole" that makes early retirement possible!
Here mainly to support the Dave Ramsey video... but I do have an issue with all the YTers claiming they're retired or they retired at a young age. Many of them still pump out 2-3 videos a week for the ad revenue, then they try to sell you their e-books or their online courses, for more revenue, then they tell you to use their affiliate links for more revenue. I don't think people understand they just became entrepreneurs, they're not retired ... am I being too nit picky?!? I understand being financially independent, that's legit :p
I think that's TOTALLY fair. Pumping out 2-3 videos a week is a full-time job. I've never been a fan of selling courses/e-books etc. It's super rare to see someone selling them who doesn't give off slimey salesman vibes. But of course they're going to tell you they're retired, because that's what makes them money. :) Personally, I just enjoy making videos (and I'm nowhere near retirement yet). I don't really know where the line is drawn for entrepreneurship during retirement. Most people would agree that someone selling scarves on Etsy once a month is still retired, but just enjoying a hobby. But someone running a full-scale YT channel is definitely not retired. There's a lot of gray area in between though. I'm actually covering that in my next video (among other early retirement myths/misconceptions)!
Wow... Netflix VS. drinking... 🤯
Its' all about keeping your expenses low and invest the rest. Make sure that you have invest over 50% of income.
Definitely! Thanks for watching.
I can easily forget that people don’t obsess over the FIRE movement.
It's so fun to me, but I can understand why a lot of people don't find it as interesting. 😂
Coach, you're everywhere.
Arcane Knight
13 subs today so far 👍🏽
Arcane Knight
14*
Like you onscreen calculations, how do you do them?
Thanks! The editing software I use is DaVinci Resolve. It's similar to Adobe Premiere Pro but it's free (which is amazing, I think they could easily charge a couple hundred dollars).
بالتوفيق 👍🏻👍🏻👍🏻👍🏻👍🏻👍🏻
still waiting on that overnight millionaire course..
Venmo me $10,000 and I'll tell you all my secrets. 😉
Did you read my mind about that Dave Ramsey video I did?
Haha I need to watch that one but I'm not surprised! Dave Ramsey is definitely a little abrasive for my tastes. And some of his advice is just plain bad. No credit cards? Credit cards have gotten me free international trips!
I just watched it and OMG I agree completely. I left a comment over there but yes - the cash envelope system is not the best, at least not for me! I understand it works for some people but it just seems so risky and counter-productive.
Very Informative! Love the video !! Love the way you edit, also following on Instagram right now. Keep up the good content, new follower here, just liked, subscribed, and will share with my friends as well :) I do stock market videos too, recently started, show some love on my channel as well when you get a chance. Thanks and again keep it up, you rock :) Let's all grow together as a community :)
Thank you for watching!
Hi sis 😍😍😍
Live with parents for 15 years? This is my guess to the question. Besides the Walmart and marrying into money answer lol
Oo FIRE 🔥
I really need to figure out my FIRE number! I only want to work 10 more years.
Living with parents would definitely help. 😂 But as I said in my video, if your expenses are $3,000/month (which I think is pretty average in most cities, at least if you don't have kids), you only need a pre-tax income of $80,000 to retire in 15 years! Once you figure out your FIRE number, you can work backwards to see how long it will take + how high your income needs to be to reach your goal. Thanks for watching!
@@AlexRaePersonalFinance dang I have 2 kids a dog and live in one of the most expensive areas fml lol 😆
@KaliforniaTuffy Absolutely, it's not achievable for everyone. I was referring more to the fact that people assume you need to be making high six figures in order to retire early, which isn't true. And if you have a dual-income household, both people only need to be making $40k/year, which is more realistic.
Just invest everything in Tesla.
You might be on to something there... 😏