The Truth About FIRE - Is Early Retirement Actually Possible?

this video is sponsored by skillshare the first 1 000 people to click the link in the description below will get a free trial of skillshare's premium membership so what if i told you that you could retire in your 30s there's no way that's possible it just doesn't seem feasible right believe it or not there's actually countless people out there who have in fact retired as early as 30 years old today we are here to tell you that we are financially independent and have retired early in today's video i'm going to show you how you can

go from zero dollars at just 20 years old to being retired by 30. and i'll go over exactly what you need to do to be able to retire by 30 years old so you've probably seen a video or two talking about the fire movement which stands for financial independence retire early the idea that by saving aggressively through your career you can reach a point at which your investments cover your expenditures allowing you to spend the rest of your life traveling the world or doing whatever without needing to work you'll find plenty of youtube videos on

the topic sharing stories tips and tricks around fire and while this isn't to discredit people who have achieved fire the idea does serve a healthy dose of skepticism retirement is after all something most of us only expect to achieve in our 60s and even that is an impossibility for some a federal reserve study from 2019 showed that only 45 percent of non-retirees in their 60s believed their savings were on track for retirement with 13 having no retirement savings whatsoever but advocates argue that by doing some simple math following important strategies and abiding by the famous

four percent rule or some variant financial freedom is achievable earlier than most expect so is early retirement possible well yeah actually but there's a pretty big asterisk that comes with that choir is arguably achievable for the average show but there are many misconceptions of what early retirement actually looks like and likewise many risks not often explained by fire promoters that's not to say there aren't positive aspects to the strategy indeed many of us could learn a thing or two from the fire movement but retiring early probably won't be the 24 7 partying on private beaches

you might be expecting so before you decide to say deuces to your boss let's go over how you can retire early and why you might not actually want to on today's plane bagel when it comes to regular retirement the general idea is to save enough money throughout your career so that when you reach your 60s you can stop working and live off the amount you've accumulated this amount is often referred to as your nest egg and if you know your desired retirement age your life expectancy and how much you plan on spending on an annual

basis in your retirement you can actually estimate how much you'll need for example if you expect to retire at the age of 65 live until you've reached 95 and you need 50 000 a year for living expenses then with a few assumptions you can calculate the nest egg you need to reach by age 65 in this case 899 000 of course the assumptions you use here play a critical role in the calculation and variables like your investment returns and inflation will likely vary from what you assume not to mention this approach grossly oversimplifies the taxes

involved but at the very least this provides a rough idea of how much you've got to put aside over time if you want to continue your current lifestyle after you've left your job also as a quick aside for this video i'll be tossing out some hypothetical figures for the purpose of providing a running example but i have no idea whether 50 000 is enough or too little for your own retirement needs so don't use these numbers as a basis for your own retirement plan if you really need help in terms of formulating something for your

own financial situation seek out the advice of a professional now just like regular retirement the objective of the fire movement is to build a nest egg that you can live off of this means quickly paying off any and all debts that you've accumulated saving money from each paycheck and investing typically in passive index funds to fuel the growth of your wealth but fire followers aim to achieve their nest egg much earlier on in life often at some point in their 30s that means a lot less time to reach the needed amount and a larger nest

egg required since you'll be living off of it for much longer to make things even trickier true financial independence means living off of the income from your investments and not needing to draw on your capital to fund expenditures so whereas our prior calculation assumes that you deplete your savings by the time you reach 95 many fire followers look instead to follow the four percent rule the four percent rule is something that came from a research paper known as the trinity study which demonstrated that if someone only withdrew four percent annually from their investment portfolio it

was unlikely for them to exhaust their capital over a 30-year period with investment returns sustaining the withdrawal requirements in other words if you're able to live off four percent of your investment portfolio then your savings should be able to fund your retirement for at least a 30-year period now early retirement obviously calls for a much longer retirement period so in practice many people will actually try to limit their withdrawals to only three percent of their portfolio the handy thing about this approach is that it could theoretically fund your retirement forever something that's important for someone

looking to spend most of their life retired and it's pretty simple to figure out how much you'll need to save using this rule since you simply divide your desired retirement income by three percent problem is it means you'll need a much larger nest egg to avoid drawing on your capital for a retirement income of 50 000 a year you'll need to save roughly 1.7 million dollars by your mid-30s now unless you've locked out by starting a successful business early on in life or making it big on youtube because your viewers smash the like button and

subscribe most people simply don't make enough money to achieve this goal even if you are able to earn an after tax and inflation investment return of six percent which is pretty impressive it would require that you save 59 000 a year or roughly 5 000 a month starting at the age of 18. so rather than trying to get rich quick and boost things on the income side of the equation many fire followers look instead to lower their costs through frugality both during their work years and in retirement by lowering how much they expect to spend

in their retirement say from fifty thousand dollars a year to twenty five thousand dollars individuals can decrease the amount required for their nest egg in this case from one point seven million dollars to eight hundred and thirty three thousand dollars meanwhile spending less now will mean more money from each paycheck that can be put towards this goal so many fire hopefuls will save aggressively when they're still working and when i say aggressively i mean it whereas a conventional budget may put aside something around 20 of one's salary for retirement fire followers look to bank the

vast majority of their income sometimes as much as 80 percent of what they bring in which makes sense because even with their smaller nest egg you'll still need to save roughly 30 000 a year or 2 500 a month using our prior assumptions and really this aggressive frugality is what makes the fire movement the community it is these saving objectives are tough and people have come together to form forums blogs and websites dedicated to sharing these tips and tricks with fire hopefuls there's even a bit of a culture behind the movement with many although certainly

not all fire followers broadly rejecting consumerism and debt in favor of minimalism placing less value on paid for products and experiences and quite frankly there's a lot to be learned from that mindset sure i'm a capitalist at heart myself but most of us will agree that we could all benefit from reigning in our spending to some degree and fire strategies like paying yourself first and eating out less are incredibly powerful tactics for discipline saving that are sure to benefit anyone trying to retire but there are a lot of people who misrepresent what early retirement actually

looks like as you can see frugality is at the heart of the approach and it's something that continues well into your retirement so you can probably forget about ever leasing a brand new car again or any extravagant vacation plans that you might see other people enjoying online there are also a lot of risks with fire that are often overlooked for example while the four percent rule is helpful in gauging how much you need to retire it doesn't guarantee a lifetime of passive income even a nest egg based on the three percent rule is susceptible to

market and inflation risk and if your portfolio experiences large losses early on it will see its longevity greatly impaired there are also more personal factors that may throw rent in your fire plans being laid off from your job a disability that prevents you from pursuing meaningful work an unexpected expense that forces you to spend more now than you've budgeted for and while living off of 25 000 a year might sound great on paper in practice it can be a lot trickier to pull off which is why many early retirees actually continue to work that's right

as counterintuitive as it sounds achieving fire doesn't usually involve a complete exit from the workforce in fact i would go as far as to say that the fire movement isn't actually about reaching a point where you get to sit on the couch all day and do nothing many early retirees still end up working to some capacity after they've left their day job often taking on a part-time casual role or pursuing passion projects with the potential of making money but the idea is that they'll have a lot more flexibility to work when they want to work

and do what they want to do if they don't rely as heavily on their regular employment income for some there's a lot of value in that someone who hates their day job may be willing to accept a less frivolous lifestyle if it means they can do something more casual while still paying the bills on time but the point i'm trying to get at here is that early retirement isn't as glamorous as it's sometimes made out to be and that's okay none of this is to discourage fire hopefuls from chasing an early retirement and if you

believe that you have the capacity to reach a sufficient nest egg earlier on in life than most awesome but too often i'll see someone promoting fire as something that comes down more to mindset than your circumstance as though it's something available to everyone and i personally just don't believe that of course attitude plays an important role and there are people out there who could greatly improve their financial well-being with some adjustments to their lifestyle i've seen that firsthand but fire is not exactly accessible to everyone where you're born your upbringing and the opportunities available to

you all greatly impact your chances of achieving fire again all the power to anyone who is able to retire early and enjoy the life that they want and there's nothing wrong with picking up a few tips from youtubers on the topic i'll even leave some links to the videos i referenced at the beginning but be wary of anyone enjoying an extravagant retired life trying to convince you that you can do the same especially if they're selling some sort of course or product to get you there so it's up to you if you want to pursue

fire but keep these points in mind before you make a decision fire often comes with changing one's lifestyle and spending less than you would be able to at a standard retirement age since a later retirement means more time to save and more time to let your salary grow there's also risks involved with relying on a pool of investments to fund your lifestyle so you may need to return to work to cover your expenses and of course there's no guaranteed method for achieving fire so while attitude is important you can only do so much within your

circumstances and there's no get rich quick course that will change that whether it's worth taking on these risks and downsides comes down to your own values i myself am lucky enough to enjoy the work i do so i'm not passionate about leaving my job early and pursuing fire but if someone can't stand their job and would easily trade off some discretionary income for less stressful work that's their decision to make just ensure that you cover your bases and reassess your position regularly either way frugality is something we can all agree is sure to help your

retirement so even if you don't plan on retiring early it can be helpful to pretend like you're going to live like a student as some people put it and use the many free resources available to you to help keep track of your savings and your progress towards this goal but if you're going to play with fire be careful not to get burned craig wanted me to add that that's his fault you can blame him for that one what are your thoughts on the fire movement and is it something you're interested in pursuing yourself or is

it something that you think is more of a pipe dream let me know in the comments down below of course make sure to like and subscribe so that i can pursue my own 24 7 vacation and check out the plain bagel mug for the plain bagel my name is richard kaufman i'll see you at the beach today's video is sponsored by skillshare as mentioned there's not really any course out there that can promise to generate you passive income so you can achieve fire but if you're looking to learn a skill or hone one you already

have for other reasons then skillshare is a platform you might want to check out skillshare is a learning platform with videos covering a range of skills both professional and well less so i for example have recently gone through advanced video editing with adobe premiere pro 2020 which helped me improve my editing capabilities quite a bit for the channel i've also really been into home renovations lately and how to give your bathroom a makeover was a really interesting course that gave a lot of insight into design and colors that quite frankly i don't have a great

eye for naturally it's a service that i've personally turned to for a lot of different areas and for under 10 a month you get unlimited access to their library of videos but if you remain skeptical you can try it out for free by clicking the link in the description below the first 1000 people will get a trial of skillshare's premium membership anyway it's there if you'd like to try it out and support the channel and hey if you're going to retire early you're going to need something to do with all that free time right yeah

anyway thanks skillshare for sponsoring today's video [Music] you