The Truth About FIRE: 5 Types of Financial Independence

16:23Brett Dvoretz:It's reasonable, doable. Now, look, I don't know that they're going to want to live off of$50 ,000 a year, even adjusted for inflation when they've been making$100 ,000 their entire career. But that's the decision they made. But the Fat Fire person, look at this. They would have to be saving 40.5 % of their income. That's a lot. And like I said, I think it's great that you have this goal of having$200 ,000 and retiring that much sooner, living off of that luxurious income and being able to spend like you won't in retirement, but at what sacrifice to now is what I get concerned about.

16:57Brian Preston:Because you think about it, for the entire working career for this fat fire person, at$200 ,000 a year of income, you're in a higher tax bracket, so more money you're going to taxes, and you have to have a 40 % savings rate. You are living a very likely frugal lifestyle at that stage, and then all of a sudden you get to 55, and your lifestyle is going to magically change and magically blow up. was it worth it? Was the sacrifice that you put in worth having this fat fire goal? Or might there be another example? Might there be another scenario that might get you to where you want to be? And I think a lot of people recognize that.

17:34Brian Preston:I want some mixture of the attainability of lean fire, but maybe some of the flexibility of fat fire. And so another type of fire burst onto the scene. And I think this is one that's maybe one of the most popular, and this is known as Coast Fire. And the idea of Coast Fire is that when your current investments, you've saved up enough to grow your current investments to 25 times your annual expenses by your additional retirement age without having to contribute any more money. So I'm going to save early, early, early, build up a pot of money, and then I don't have to save any more because I know that pot of money will do the heavy lifting for me.

18:11Brett Dvoretz:Just as name implies, you're going to coast. That's right. We even have some experiences. We did a Making a Millionaire with Danielle, and she was a great guest. And she had this goal of doing Coast Fire, but we had to modify her scenario. I'd encourage you, go check out that episode so you can see the actual math, where we kind of created an intersection of giving her her best life where she could do the Coast Fire, but made sure she measured twice, cut once, and didn't sacrifice anything in her life.

18:37Brian Preston:Well, and I think she had some incorrect assumptions going into her planning, going into her equation, because here's the way the math works. Let's think about, we'll sort of make up a case study here. Let's assume that you have Coast Phi Carly. Let's say that Carly, from age 25 to 35, was able to build up an investment portfolio of$500 ,000. And she says, okay, I'm going to stop there. I'm not going to save anymore. And I'm not going to actually fully retire until I get to traditional retirement age of 65. So what I'm going to do is I'm going to do something different at age 35 where I don't have to save.

19:13Brian Preston:Maybe I take a different job. Maybe I pursue a passion. But that$500 ,000 that I built up, I'm just going to let it grow at 8 % compounded over the next 30 years. Well, because she did that hard work from age 25 to 35, that$500 ,000 that she saved has the ability to turn into five and a half million without her saving any more. So I think a lot of Coast Fire love this idea. I can do hard work early, similar to the Fat Fire folks, but I don't have to do it forever. I can do it for a season and then I can Coast.

19:49Brett Dvoretz:Well, I mean, it is one, it's an interesting thing though. when you look at this, you say close to$5.5 million. That's the equivalent when you take in the safe withdrawal rate of pulling out about$218 ,000 a year. That sounds like a lot, but if we bring this back inflation adjusted, that's only$90 ,108 in today's dollars. Which is great.

20:11Brian Preston:It's not fat fire, but it's great.

20:12Brett Dvoretz:But this is why you have to pay attention to inflation. I do like what Coast Fire does, though. It's just a matter of, once again, And we've got to make sure you get the right numbers because to pull your foot off the accelerator too early could jeopardize your army of dollar bills if you're not careful.

20:29Brian Preston:So why is this popular? Well, I think the main reason Coastify is popular is because people love the idea of taking their foot off the gas. The idea of saving for 40, 45 years at these aggressive levels, 20, 25 percent might sound daunting. But a lot of folks say, you know what? I can do it. I can go real hard till I get to 30. till I get to 35, I'm okay, again, taking a little bit of discomfort for a small amount of time in order to have more comfort later on, and it gives them something to work towards.

20:58Brett Dvoretz:Well, I mean, because you've got such a head start, there is comfort in knowing that you're actually still going to increase your funding in retirement by just taking your foot off the accelerator. That's a good thing. There's a lot of comfort in knowing that number.

21:12Brian Preston:You know you've already checked the box. You've done the thing that you have to do. And I think people really like it because being able to increase your lifestyle by decreasing your savings sounds like a win-win. It's an easy sale. Okay, so I can save really aggressively now, but at 35, I can start living the life that I actually want to live and I'm not sacrificing my retirement to do that. I think a lot of people like the idea that it provides a way to live the life I want today and a way to live the life I want tomorrow.

21:42Brett Dvoretz:So here's the areas of concern. Here's what we think. and these things are kind of interconnected, is that I often worry, are you going to just because you can, does it mean you should take your foot off the accelerator? It's just because it's really, you don't know what life is going to throw your way. So I just want to make sure people are measuring twice, cutting once, doing the homework to actually know what the numbers are saying. Because I find that too many people are probably cutting off the savings a little too early.

22:11Brian Preston:Yeah. And another thing is it's a long time horizon. Cutting off that savings too early can have a huge impact because there are so many variables that can come into play that can affect if your number was right. In Danielle's scenario, she'd done such a great job of thinking through what the short-term strategy was, not recognizing that that traditional retirement number, that big number at age 65 needed to be enough to provide for the rest of her life. And I think far too often people underestimate that. They do great with the short-term goal, but not so great with a long-term goal. And if you're going to really do Coast Fi and you're going to stop saving and you're going to miss out on those years of savings, you better make sure that you've done the math correctly.

22:55Brett Dvoretz:Well, it's also, how many of your variables have kind of like, they firmed up? I mean, for instance, if you're a single person when you come up with this goal and you leave the workforce thinking that in your 40s you're going to have this and then you get a spouse later, your variables are going to change just based upon that right there. What about the fact that maybe you have a spouse, but then you'll have children later? Variables changed. You know, variables are going to change. That's the thing that gets me a little nervous. And that's why, once again, I'll say it, you have to measure twice, cut once to make sure you've really accounted for all the different variables so you don't get yourself in a pickle of a situation because time is that valuable with the compounding growth opportunity that you just don't want to leave anything and have regrets later.

23:43Brian Preston:So I think a lot of people recognize that there are some big implications with coast fire when you say, all right, I'm going to take my foot off the gas. I'm going to back down. I'm going to leave the high paying job. I'm going to fill in the blank. And so another type of fire has become prevalent where I think it removes some of that nervousness. It removes some of the unknown and allows you to smooth those variables. And this is known as barista fire. And the idea behind barista fire is you want to be able to quit your day job. similar to what someone who's doing Coast Fi would do. And you partially want to live off of your investments, but you recognize that I'm still going to go out there and create some sort of income to offset my expenses in retirement.

24:25Brian Preston:I'm not actually planning on a full retirement where I'm never working. I'm always planning on having some sort of job to cover the base level, to cover the difference, and likely that job is going to provide much-needed things like access to health care and those sorts of things.

24:39Brett Dvoretz:Now, look, this is why I do love these middle versions of fire that we're doing. I love the fact because they require you to save a lot in the beginning, but you're still not committing to the extreme like lean and fat fire dead. But this appeals to the hallmark version of myself. I mean, I watch these things coming through the holidays, and I'm like, yeah, it would be fun to work at a bakery or do something like that. I feel like that's what a lot of people, especially if you don't like your current job, this probably appeals to a lot of people. Bo, how does the math with this situation work?

25:11Brian Preston:Yeah, so the math is very similar to some of the other math we've looked at, except for now, what you get to do is you get to take your cash flow need and you get to subtract out the supplemental income that you're going to achieve. So let's assume that you're a 25-year-old that wants to retire at 55 and you're going to need $70 ,000 in today's dollars to live the life that you want, but you recognize you can get a part-time job or a lower-paying job that's going to pay you$30 ,000 a year in retirement. You would take your cash flow needs,$70 ,000, minus your supplemental income,$30 ,000. You would divide that by your appropriate withdrawal rate, in this case for a 55-year-old to be 4%, multiply it times the rate of inflation, raise to the number of years until you need the money.

26:00Brian Preston:And you can see that for barista fire, if your goal were to just fund that shortfall of$40 ,000 a year in today's dollars, you would need a portfolio of about$2.4 million at the same time maintaining a job all through retirement, producing$30 ,000 a year.

26:17Brett Dvoretz:Or it doesn't have to necessarily be a job. Maybe be social security. There could be a bridge where you work until something else fills in what you were making down at the local coffee shop or in my situation, the bakery and making cookies and cakes all day. But it is something that at least allows you to have options because you did so much saving in the beginning. Two and a half million dollars, that doesn't sound crazy. And this is especially popular for people. If you don't like your current day job, I can imagine that this is one that just starts growing from a small idea to a bigger and bigger idea because every day you wake up and that alarm clock goes off, like I got to do something to get out of here.

26:57Brett Dvoretz:This might be a way to make yourself feel better about that.

27:00Brian Preston:Another thing that it does is it provides greater flexibility while still needing to hit a lower number. You're not trying to chase that huge fat fire number or some of the other difficult coast fire numbers to hit. you can still have a lower number to hit, but have flexibility in how you're going to get there and how you're going to achieve that.

27:19Brett Dvoretz:Well, and it also, a lot of people, we've been making it, and I thought the exchange was going to fix this, but it hasn't because the exchange in a lot of states is pretty slim, is it covers health insurance. A lot of people, you can go work. I mean, Starbucks has great health insurance. So, you know, a lot of people will go, and that's why it fills in the gaps nicely that you get to pull the income lever, still have some income coming in, but cover the big risk of health insurance, that's a good thing. And that's why even when we think about what we think about this, I do like that it covers that big gaping hole that a lot of fire people, yes, you've saved well, yes, you have assets, but how do you make sure you don't have something like a medical emergency blow up your entire financial situation?

28:03Brian Preston:We see people all the time, clients of ours that say that they want to retire. What happens is they get that volunteer job or that lower paying job or that low-benefit job, but it covers their baseline. And so then what the portfolio does is it's able to supplement the extras, the travel, the bonuses, the car replacements, those sorts of things. So it is a really, really flexible way to be retired. But the reality is you may not want to have to work that job even in a part-time capacity forever. So you are gonna figure out, okay, if I'm going to step away from the workforce completely at some point, if I am gonna lose those benefits, if I am going to lose that income, is there something else that's going to take its place?

28:45Brian Preston:Do I have Medicare coming up? Do I have Social Security? Do I have some other solution that's going to make up for that gap when I actually do truly leave the workforce?

28:54Brett Dvoretz:Well, this leads to, and I feel like this brings the culmination of everything, and this is probably going to give you a little context on why we feel the way we do, is that, look, this FIRE movement has been branded this way for really the last 10 plus years. 20 years, yeah. But it's not a new concept. I mean, if I think about my 22-year-old version, I already promised myself, hey, I want to save a ton of money so that I can leave the workforce when I'm 50 years of age. Well, here's the thing. Fast forward. I'm beyond 50 now. And you'll probably notice I'm still working. And that's why I like the next thing that we're going to talk about is the fine movement or financial independence next endeavors because I resemble this is because I do thank myself for all the sacrifice I made when I was in my 20s.

29:38Brett Dvoretz:But I've realized I don't necessarily want to retire early. I like to do things on my terms. And that's why I love this concept of financial independence, next endeavor, because it doesn't necessarily make you have to tap out of the workforce necessarily.

29:55Brian Preston:Yeah, what's great is when it comes to financial independence, next endeavor, the math, the way you calculate your number is the same as traditional FIRE. How much do I need to be able to live the life that I want on my terms the way that I want to need it? So the math is the same as regular fire, but what shifts is the mindset. There's a different way that you think about why you're moving towards that goal and why you're saving up those dollars so aggressively.

30:24Brett Dvoretz:Yeah, we're definitely bringing in purpose and the why factor. What we like about the fine movement, and we've kind of covered this, is that instead of you just saving up a pot of money without purpose, you kind of now get to control the terms of what does your next step look like? You know, it shifts the focus from retirement to what's next for what gives me purpose. When I wake up in the morning, this is when I wake up energized. Instead of chasing a dollar value, I'm chasing a greater purpose.

30:53Brian Preston:Yeah, it allows you to be in that place where you're living a truly intentional life. A lot of people think about, oh, well, my job is just this thing I clock into and it's a means to an end, means to an end, means to an end. Financial independence next endeavor says, okay, I have now solved the money problem. I want to do the things that I want to do on my own terms. that may be still doing the vocation that you do. It still may be being an accountant, being an architect, being a teacher, being a fill in the blank, or it might be doing something else. But now the reason that you do it is because you want to do it, not because you have to do it.

31:31Brian Preston:You had to do it to get to the financial number. And now that you've solved the math, now you get to focus on the purpose.

31:37Brett Dvoretz:I mean, and it's worth repeating is that I was saving like I was going to retire at 50 back in the 90s, and fire didn't even exist back then. So this is not a brand new concept. It's just a very well fine-tuned. A lot of people have kind of created this movement where they're really thinking a lot, and I commend them. I know for all the people who think we're fire extinguishers, we're actually not. I want to make sure that people live their best life, and what are the blind spots that you might not be thinking about? Because we all know money is nothing more than a tool. And I just want you to know, what do you value?

32:13Brett Dvoretz:What gives you purpose? What gets you out of bed? Because money as a tool can give you security. Money as a tool can also give you the freedom. And then if you do this right, and this is one of the powerful things that fire gets right, is if you build up enough pot of money, there's opportunities for you to have a choose your own adventure. Anybody who's my age loves those books and loves the fact that you don't have obligations. You don't have commitments unless you want to do something. And if you can build up your resources and your army of dollar bills, it just opens up the world to you. I'm just trying to make sure that you don't sleep on those blind spots or areas that a lot of people just think that it's set in stone, that this is the fire movement.

32:55Brett Dvoretz:It's going to do this for me. And I'm just telling you, life changes. Like I said, you can live in a hotel room with three other friends on vacation and be completely happy in your 20s and 30s. your life will change. And I just want to make sure you plan accordingly.

33:10Brian Preston:Yeah, money can give you these things. It can provide the security and the freedom and the opportunity, but only if you steward it well. Only if you begin with the end in mind and you understand, okay, what's the reason I'm making the decisions that I'm making? And you aren't someone who just lets life happen. That's why if you go out to moneyguy.com slash resource, you go check out any of our tools, any of our calculators, any of the content we put out there, it's there for you because we really do believe that there is a better way to do money. And the sooner you figure that out, the more useful of a tool money can be for you.

33:47Brett Dvoretz:Well, and look, I don't mind sharing. We give away tons of free information because we know no matter how good you are with money, even if you keep it as simple as possible, it's going to get complicated because you're successful. is we've covered every one of these fire movement choices is going to be the intersection of both math as well as mindset. You've only got one retirement likely, maybe multiples if you're doing this different versions of the fire process, but you have blind spots. We've done this hundreds, thousands of times if you take the whole firm together. And I just want to help you be the best version of yourself.

34:24Brett Dvoretz:So that's why consider, if you reach that level of complication, Go out to our website, moneyguy.com, become a client. We'll leave the porch light on for you. That way you can continue to live your best life because you've been so purposeful. Let's just make sure there's not something with your measure twice, cut once, that doesn't derail all that preparation and success. I'm your host, Brian, joined by Bo, Money Guy team. Out.

34:49Brian Preston:The Money Guy Show is hosted by Brian Presson 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.

35:19Brian Preston:All investments involve a degree of risk, including the risk of loss.