116: How to Retire Early (Seriously)

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0:57Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur in his 50s with lifetime revenues of over 300 million, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset.

1:36However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode? In this week's episode of the Rich Habits Podcast, we're going to share with you all the step-by-step blueprint on how anyone listening can retire early. Retirement means a lot of different things to different people. For example, I'm approaching retirement age myself, but I've actually been retired for over a decade now. But that doesn't mean I'm sitting on a beach, sipping Coronas, hanging out all day because I love what I do and I love being able to continue working on the projects that are near and dear to my heart that I'm passionate about.

2:21So this episode will be that blueprint you need and will show you exactly what to do to retire early. You might not like the answer, you might need to make changes in your lifestyle or your retirement expectations, but we're going going to tell you how to retire early regardless. This episode will be the blueprint of sorts, and it's broken down into six sections, which each section will be building upon the previous one. So let's dig into section one, which I like to think about as the foundation. Now, fundamental to a sound financial footing is knowing where your money is going on a monthly basis.

2:59And by having a budget, you can see both your sources of income as well as what you're spending your money on. Now, I know this sounds really elementary, but I'm willing to bet that more than half of you listening right now don't actually have a written budget with every single monthly expense included inside of it. You need to do this. It will change your life. I cannot say that enough. Having a written budget where you've got every line item of what you expect to spend for the next month, right? This is going to come out in the month of May. So you need to have your June, your July, your August budget figured out.

3:36It takes a couple months to get to the groove of things and figure out what things actually are and how much money you're spending. But once you actually overcome those expectations, I swear it's like taking the limitless pill. I mean, you just see the world differently. Now, once we've built our budget, we're going to begin paying for our essentials. This is rent, groceries, utilities, income earning expenses like transportation related. You have to go to work to make money. you should probably buy the bus ticket or pay for the Uber or your car payment, right? You got to go do that. Insurance is also essential.

4:07That could be car insurance, housing insurance, rent insurance, health insurance, life insurance. Now, once we've paid for our essentials, we're going to do minimum payments on all of our debt, student loans, credit cards, vehicles, things of that nature. And most importantly, stop going into high interest debt. That's simple. So keep track of all your expenses. This is going to help you understand what you're spending your money on and where you can begin to trim fat if needed. This is the literal foundation of a positive relationship with money with a long-term goal of retiring early. If you master this foundational layer of knowing everything that comes in, everything that goes out, understanding what is essential and non-essential in my daily life, the world is your oyster when it comes to financial freedom.

4:54So what I hear in the foundation phase of this, and that's a great breakdown, is just getting people to understand no matter how rudimentary it may seem, most people don't do it and don't stick with it. But it's also all about not living beyond your means. In this first phase of building your foundation, you need to have that heart to heart with yourself, your better half, and the whole family and understand where you're at and make sure you're on the right path to build that foundation as early as possible. So let's get into section number two that I think is really important is the emergency funds.

5:30We wanna see you set aside three months worth of expenses. For most of you, that's gonna be about$10 ,000 to$15 ,000, but this is your emergency fund. This is gonna take you anywhere between nine to 18 months to build from scratch if you haven't already started. And for some of you, it may be shorter, for others, it may be longer, but it shouldn't take you more than 18 months to build because you're gonna take this very seriously, you're gonna get it dialed in and you're gonna follow the plan of what we're laying out today, this blueprint for early retirement. Now, if you're having trouble building it, you need to evaluate your non-essential spending and reduce where necessary.

6:10This looks like eating out, restaurants, streaming services, subscriptions, switching wireless providers to save some money until you're on your path to building that up. This is the buffer between you and everyday life that's going to allow you to breathe easier and set yourself up for success leading into section three of this podcast. So we now have our foundation laid. We know everything that's coming in, going out. We know what our essential spending is, our non-essential spending. We cut back on some non-essential spending to build up that emergency fund. We have$10 ,000,$12 ,000,$15 ,000 set aside, a buffer between us and life.

6:50So now it's time to move on to section three, which is figuring out debt and investing. So we've said this phrase a hundred times now. Match beats Roth beats taxable. We want to ensure after you've built up that emergency fund of three months of expenses, providing a little bit of a buffer between you and your life, that you're now on track to start building wealth. The only way you're going to retire early is if you got some wealth. So let's go build it. Wealth is built in two ways, by paying off debt or by investing in the stock market. We prefer that you pay off your high interest debt first before investing in the stock market because you cannot out-invest high interest debt.

7:31Here's that example for you. Let's say you've got$10 ,000 in credit card debt at 30 % interest. you're paying$3 ,000 a year of interest to the bank on that credit card debt. Let's now say instead of paying off the credit card debt, you had$10 ,000 in the stock market. On average, the stock market goes up by 10 % a year. So by not paying off the debt with that$10 ,000 you had invested, you made$1 ,000 in the stock market, but you racked up$3 ,000 of interest. That's a$2 ,000 net negative. Y 'all see the math there? Pay off the high interest debt. You cannot out-invest it. So once that's paid off and you have no more high interest debt, now let's get aggressive with building wealth so we can retire early.

8:13And before I talk through that, I just want to make sure we're on the same page. High interest debt is double digit percentage points, maybe even 8, 9 % on the low end. But if it's, you know, 4%, 5 % like most student loans are, that's not a high interest debt. We'll figure that out later. All is well. Instead of paying that off, we'd rather see you invest, but we'll get to that. So now let's get aggressive about building wealth so we can actually retire early. Does your employer offer a 401k match? If yes, we want to see you investing up to the match because the match is free money. We also want you to head over to public.com and open up a Roth individual retirement account, contribute the maximum amount of money on an annualized basis to that account, which is $7 ,000, and then invest that money after it's contributed into the index funds and ETFs we We talk about like the S &P 500, the NASDAQ, the Dow Jones, and everything in between.

9:07Up to the match for the free money, max out the Roth IRA, back to the 401k if you have autonomy and you can choose your investments like the S &P 500, not like target date funds. And if not, then we want you to be investing anything more you have in a taxable brokerage account, which we call the bridge account, also on public.com. So let's use some real numbers and really break this down. Let's say your household income is$120 ,000 a year. That's about 100K a year take home. So if you're contributing 3 % match to your 401k, that would be around$7 ,200 a year towards your 401k, including the match.

9:46Then another 14K contributed towards your Roth IRAs for you and your spouse. That's 17.6 % of your take home pay getting invested, which is a really, really good place to start. So this$21 ,200 in annual investments between you and your spouse could turn into$1.7 million over just 20 years. So instead of retiring at 65, you could now retire at 55 with this$1.7 million. But maybe instead of starting at 35 in this example, you could start at 30 because you listen to this podcast and you take notes and take action. And that now turns into$3.3 million invested by the age of 55. And that is truly a great place to be at that age for retirement.

10:38This also assumes you make the same amount of money for the rest of your lives, and that's not going to happen. So you'll be making more over time and you can keep adding to these funds, but this is just a blueprint to help you figure out how to get there. And maybe you're doing some of this inside of your bridge account, right? We've talked about the bridge account. Let's say you're investing all this money inside of this bridge account, this taxable brokerage account on public.com. As a reminder, a married couple filed jointly can cash in on$95 ,000 of long-term capital gains per year and pay$0 in taxes on that money.

11:16Go look it up. It's real, right? That's how the taxes work with long-term capital gains. not short term, you'll have to pay taxes on the short term, but a long term capital gain up to$95 ,000 married couples filing jointly of tax free investment portfolio income here. And if you have$3.3 million invested, because you're 55, you started at 30, you're taking out $95 ,000 a year to retire off of that's less than a 3 % withdrawal rate. You know, we've talked about the 4 % rule, people think the 5%. We talk about NEOS funds and all the other ways that you can make income less than 3 % withdrawal rate on these numbers.

11:54It is so, so awesome. Yeah, it really helps people understand that you can reverse engineer what you want your life to look like in retirement and build backwards from there. And I think the 4 % rule is a great way to understand those numbers. But let's get into section four, which is one of my favorites to talk about. And that is you either have a spending problem or you have an income problem or you have both. For most of you out there, you're spending six, eight, 10K a month to live your life. And then you still complain about not having enough. The less you spend per year, the less you need in retirement and your nest egg to sustain that lifestyle that you want.

12:345K per month is 60K per year spent. Your$1.5 million retirement nest egg theoretically should generate that same 60 to 70 ,000 per year for you to live off of. So I know building a nest egg of 1.5 million sounds daunting, but we've just shared an example, an easy example that resulted in a$1.7 million nest egg in only 20 years and 3.3 million in just 25 years. And it is totally doable. I promise if you follow the structure of this blueprint and you stay consistent, it will work. Create a budget, get out of high interest debt, Invest aggressively, live on lesson you make, and practice contentment.

13:17It's really that simple because it's all about consistency. People that retire early aren't living a flashy lifestyle with brand new cars and boats and five-star vacations all the time. They choose what they value in this world and they live and spend accordingly by following the structure we're laying out here today. This episode is so much fun to talk through because I know a lot of people are saying to themselves, you guys make it sound too easy. I'm never going to get millions of dollars in retirement. No, we literally just showed you, yeah, if your household income is 120 grand, which that's on the high side, right?

13:52But maybe your household income is more than that. Maybe it's a little bit less. Tweak the numbers accordingly to your specific situation. And also, we assumed the 120K is what your household income is going to be for the next 20, 25 years. Have you ever heard of a raise? Have you ever heard of getting a new job to make more money, There's a lot of variables that will make this easier over time, but we laid out an example where you can contribute 3 % to your 401k, get the match, that's$7 ,200 a year in this instance, and then you max out your Roth IRA. Your spouse maxes out their Roth IRA. Now you've got all this money invested every year.

14:27Maybe you guys got a couple side hustles going on, and so you're investing more aggressively via public.com and a bridge account. Fast forward 20 or 25 years, and you've got millions of dollars. You might not be retired at 32 because you're a tech billionaire, but that's not reality. Because the things you see on Instagram with the private jets and the internet money and all these crazy things that people are trying to tell you, that's not reality. The reality is you're on a long journey of a life full of contentment and hope and realism and excitement that you will be able to retire maybe in your 40s, your 50s, or your 60s, but it isn't early retirement.

15:04And most importantly, I want to reiterate, retirement is different for everyone. For Robert, it means he gets to do fun real estate projects. He gets to do the podcast with me, all these cool things that he's doing because that's what makes him happy. And he's passionate about that. For other people, maybe retirement truly is sitting on a beach. Or maybe it means working part-time as a barista. Or maybe it means teaching a middle school gym class. I don't know. retirement means something different for everyone. And so understanding where you are, what means a lot to you and what you're excited about as a human being is how you can retire as early as possible, make a plan, stick to the plan.

15:43The phrase goes, adults devise a plan and stick to it. Children do what feels good in the moment. The biggest takeaway for me for this episode is getting people to understand, And build the life you desire, not the life you perceive other people think you desire. I think that's a critical, critical juncture of everyone's life because personal finance is personal. And just make sure you understand what is it you really want for the rest of your life? What are your goals? Some people just want to have a farmhouse with a nice little garden. Some people want to live on a beach. Some people want a condo on a lake.

16:22It doesn't matter. It's what's important to you. And we hope that this episode helps you figure it out and really put it down, use the blueprint and follow through with it. So years down the road, you can look back and remember this episode and think that you took notes, took action and built the life that you really desired. Robert, I could not agree more. Now, before we jump into the Q &A section of this episode, we actually wanted to bring on someone who's really making waves in the early retirement space. His name is Mike Venuto. Mike is the chief investment officer and co-founder at Tidal Financial Group, and he's really doing some cool stuff as it relates to the FIRE movement, Financial Independence Retire Early.

17:04So we thought it'd be a good idea to welcome him onto the show. Mike, thanks so much for joining us. Thank you, Austin. Thank you, Robert. Excited to be here talking about early retirement. Let's dig straight into it, right? This whole episode has been about early retirement and the foundational strategies that people need to be following as it relates to actually being able to retire early. Now, you all over at the Title Financial Group recently introduced two new ETFs, F-I-R-S and F-I-R-I, as a simpler way for people trying to retire early to have a clear two-step investing plan. So can you walk our listeners through how that plan came to be and what that plan is and how they can use these ETFs to stick to that plan?

17:48So here at Tidal, we help people launch, grow, and operate ETFs. Today, we service 200 plus ETFs, $30 billion. We love doing it. And what we saw was a lot of people were using them for income in retirement or to build a nest egg. So we decided to embrace the FIRE movement and make two ETFs, one that's about building wealth, creating a nest egg, and one that's about distributing income while preserving capital. We built these ETFs by using primarily our client's ETFs on the title platform. So we call them fund of funds or ETFs of ETFs. FIRS is the wealth builder. It's designed to help you build wealth and save and beat inflation.

18:31And it's different than your traditional index-based large cap US stocks. It's much more diversified. We own bonds, we own stocks, we own cash alternatives, we own gold, which has helped a lot this year. So it's a diversified approach to saving. The other portfolio is F-I-R-I for fire income. It's designed to get you at least a 4 % distribution while protecting the preservation of your capital. And it's doing that also through diversification. So Mike, what I'm hearing is you've got the FIRS ETF, which is the Wealth Builder ETF. So if you're someone who's trying to build up that retirement nest egg, this is the ETF to do it alongside of and through.

19:09And then once people have that nest egg that is in the hundreds of thousands, if not millions of dollars, and they're ready to actually begin realizing some of that as income, they switch over to the FIRI ETF, which has all these different instruments that will produce the income on a pretty consistent basis. Exactly. They are designed for those two purposes, an accumulation phase and a distribution phase. So I really like that. And something that's interesting to me right now is the lack of volatility your FIRS ETF has experienced year to date. Because if you look at it, the stock market was down over 15 % from recent all-time highs, and the FIRS ETF was down only a fraction of that.

19:52So what is the underlying strategy and how are you implementing that to allow you to weather the storm so well during these times of higher market volatility. It's been a great run this year for us, right? As of the recording of this, we're actually in the green for the year. And you can't say that about very many things. So the idea is based off of what's called the permanent portfolio theory. And this was written by Harry Brown, who was a politician and a market theorist from the 70s, his brain was shaped by the 70s, that high inflation concepts. And his thesis was, if you think about investing in economic regimes, being inflation, deflation, recession, prosperity, and then you equal weight those four.

20:41So you buy stocks for prosperity, you buy cash alternatives and hedges for recessions, you buy gold and Bitcoin and various different commodities and real estate for inflation, and you buy longer-term bonds for a deflationary environment. So this year, we have been trying to keep rebalancing to that 25 % due to the volatility we've had. Obviously, two or three weeks ago when there was a lot of volatility, the equities dropped below that 25%. That's a signal for us as active managers to go and bring it back to the 25%, take a little off the gold, take a little off the the bonds that had done well and get us back there.

21:21That's why we've been able to mute the volatility of the market because we're not just 60, 40, they like to say 64, bonds and stocks, right? That's not working that great because bonds have had a rough time too this year, but gold has done extremely well. Bitcoin has done extremely well. Cash alternatives and some of the hedges that we have in the portfolio have done extremely well. So what you're saying is you essentially have a pizza and that pizza is cut up into four slices, right? A quarter, a quarter, a quarter, and a quarter. So a quarter of that is invested into equities like index funds, the S &P 500, things like that.

21:56Another quarter is invested into things like gold and silver, which has done very well. The other quarter is invested into like long-term bonds and things that do well during deflationary times. And then the final quarter is invested into more recessionary focused things like cash alternatives and some dry powder. So what you're saying is you always have this portfolio, a fourth, a fourth, a fourth, and a fourth. And over a long period of time, you want to make sure that you keep that sort of weighting to be 25 % to all of those different things. And like, for example, now, when equities have pulled back in 2025, that 25 % weighting for your equities portion has shrunk to maybe 20 % in value because prices have gone down.

22:36But now the gold side of the equation has gone up so much, you're starting to trim back on the gold a little bit, put it into the equity. So it's always a rebalanced sort of portfolio here, a permanent portfolio, and it's optimized for whatever the market cycle really is. That's absolutely right. What is also important though is the active management is rebalancing, but it's also picking the best ETFs. So when we rebalanced recently, we did reduce some of the gold and we added to Tom Lee's Granny Shots ETF, things that are going to do better than just the overall equity market when things rebound.

23:10Oh, that's so cool, right? So like, for example, I'm looking at this ETF that you guys, you know, the granny shots one that you just kind of added and increased inside of this FIRS. And it's got Netflix, it's got Costco, it's got Microsoft, CrowdStrike, all the names that we know and love are inside of this. So you have exposure to those things over a long period of time as you continue to kind of wait and rebalance your FIRS ETF. ETF. So here's my other question. Where do these types of ETFs fit inside of a regular investor's portfolio? I know a lot of people listening right now are saying, I want to retire early and they might be on that path, but other people might just be hanging out and saying, you know what?

23:49I'm going to retire when I am and I'm just going to live my life and do my thing. I wish I had more FIRS in my own portfolio. I've definitely got a good chunk, but I mean, you guys are in the green this year and I'm not. My portfolio is down about five and a half percent. So I'm curious, where does FIRS and FIRI fit inside of a normal person's portfolio? So let's go back to that accumulation phase. If you're starting your accumulation phase and you're thinking it's going to be 20 years before I hit my FIRE number, I'm ready to retire, you don't really need FIRS unless you don't like the volatility, right?

24:23Unless you're not able to handle 20 % drops like we've just gone through. If you've got the stomach for a 20-year time horizon, fine. Now, you're five years from retirement. That's a different story. I don't care what your stomach fortitude is. You don't want your number being pushed out two or three more years. So we think of it as a way to complement investing in broad-based US equity, low-cost ETFs out there. This is a way to put away some of that money for your nest egg that you can feel more comfortable about and survive the volatility. Once you're past that accumulation phase, then you can start to take some of your broad-based US equity or some of your FIRS and move it towards income so that we can kind of update that 4 % rule, right?

25:13That 4 % rule assumes that you're going to be taking from principle. With FIRI, we tried to create something where you're taking from distributions and not so much from principle. Yeah, that's great. And before we get into my last question, I want to go back and talk about this permanent portfolio theory. I'm a big fan of some of the oldies. Last night, I brought up a bunch of things from inside one up on Wall Street by Peter Lynch. And it's just like, I don't understand why more people aren't talking about this theory, because obviously it's working in these tumultuous, volatile markets right now.

25:48So why do you think more people aren't looking at this four pieces of the pie and breaking them up evenly to offset volatility in times like this? Why aren't more people implementing this strategy? The last time that this strategy really helped was 2008 because bonds did really well and gold did really well. A strategy in this concept would have had a pretty decent year. It wouldn't have been positive, but it wouldn't have been down the 45s and things like that. since 2008, we've had this strange bull market in both stocks and bonds that has been, call it, who, what's the nice word? Everybody's saying mean things about the Fed nowadays.

26:28I don't want to jump on that bandwagon, but there's been a government induced bull market. So a lot of people who are in the new fire movement have never really lived through a real bear market. and diversification hasn't been your friend until a year like this, where the bingo card is full of things that we didn't expect. And when that happens, you have gold at record highs, you have Bitcoin rallying, you have bonds selling off then rallying. So that's why a lot of the things that we're doing in here are working. I think that the attention it's getting lately is because people are starting to recognize the value of diversification again.