Afford Anything - The Mad Fientist Reveals the Science of Financial Independence

Episode Date: February 3, 2016

#7: One of the M.O.N.E.Y. Show's favorite personal finance bloggers joins Paula and J. Money to talk about retiring early and hacking your HSA. For full show notes with links to resources, visit https://affordanything.com/episode7 Learn more about your ad choices. Visit podcastchoices.com/adchoices

I'm drinking some tea because my in typical cheapo fashion, I don't turn the heat on when my wife's not here. It's quite chilly. You're listening to the Paula and Jay Money Show. We'd rather be at a bar with you right now, but this is the next best thing. It's Financial Freedom Time with Paula Pant and Jay Money. Hey, Jay, remember all those conversations that we've had about financial independence? Yes. Well, guess who we have on the show today?

someone who's financially independent? How did you know? Because not me. It is you. We already talk and interview each other. So we've got Brandon on the show today. Brandon is better known as the mad fientist. Not scientist, but fientist as an fI-intist.

And so his blog is about the science of financial independence. He's super, he's a very much. math guy. He's a very numbers guy. His blog is really like deep into the numbers, the cold, hard reason of how a person can become financially independent. And by financially independent, we mean never needing to work for money again. You can choose to work. You just don't have to. So you've got enough money in your portfolio that you can cover yourself for the rest of your life. And I will say, even though he's a numbers nerd, he drinks some good beer and is a really chill dude, which is awesome to have him on the show. Yeah, yeah, exactly.

So let's bring Brandon, the mad scientist, onto the show, to talk about how he became financially independent and what his life looks like and what kind of moves he made in order to get to where he is today. And he's in, I'm not sure exactly how old he is, but he's like mid-30s somewhere, early to mid-30s. So he's a young dude. Young and smart. Yeah, young and super smart. Good. Bring it. I have questions.

I want to hear as trickery. It's on. Brandon, I want to know how you became the mad scientist. Probably back in 2011. Around that time, I had stumbled upon my first blog, get rich slowly.org. And up until that point, I really didn't even know what a block was, which is terrible because I'm a software developer by trade. So you would think that I would know internet stuff.

But I actually got into software development because I was good at math. So I wasn't like ever really like a computer geek. So yeah, I didn't really actually understand what a blog was. But I stumbled upon get rich slowly. And I was like, yeah, that's cool. That's what I want to do. And wow, this is just some random guy that's writing it. This is cool.

And he's just, you know, talking about everything that he does. So, you know, I got into that really big because money has been a big focus in most of my life. My parents tell me stories about how they would keep me busy by just like throwing coins into the deep end of the pool and I would spend all day like searching for coins and nearly drowning in them. That's awesome. So like I've always been, I had a big focus on money and I always wanted to have like a big portfolio to manage and, you know, do cool stuff and invest and things like that. So money's been a big focus, but I never really had any big goals for the money. And it wasn't

And so shortly after I stumbled upon get rich slowly that I stumbled upon early retirement extreme. And that just completely changed my life. It was just like, whoa, this is what I'm saving for. Like freedom is the most important thing to me. And the fact that I could just save really hard for like five more years and never have to work again is just a huge thing. So that completely changed, you know, my outlook and my plans. And after after I realized that was possible, I thought, well, you know, there's a lot of research

I could do that could help make me get there quicker. Potentially, you know, if I read a bunch of tax documents and find out how to make my financial life more efficient, then I could potentially reach financial independence sooner. But I knew that I wouldn't really do all that stuff unless I had sort of some external motivation to do it. So, yeah, I thought, well, I'll start my own site, you know, my own blog about early retirement and, you know, I'll write about all these strategies that I uncover with my research. And I also thought it would be cool to start a podcast. So I started a podcast at the same time. And the reason for that was like, oh, I want to talk to all these cool people that are already doing it. And, you know, like, just get to ask them any questions I want because it's a podcast. But really, it's just me asking all the questions that I want answers to. So that's how I became the mad fight.

Podcasting is a great way to have like a free consulting session. It really is. Yeah, absolutely. So we were just chatting before we started this interview. And yeah, we just realized that I interviewed Paula way back in April of 2013. 13. And back then I was a nobody and Paula was, you know, afford anything. And it was like, yeah, and it was a way for me to call her and talk to her for an hour. And it was, it was awesome. Tell me a little bit more about how you, specifically your interest in early retirement. Jay and I were talking a little bit before we called you about like, you know, what do we want to talk to Brandon about? And I was like, you know, I want to know who is the little boy who turned into the grown up who decided to retire early. How does that happen? Yeah, it's interesting because it keeps evolving and it really is getting less and less to me about

early retirement. And it's something that I've actually struggled with because I just keep kicking the can down the road. Like I tried to quit my job back in August. And then my employer said, hey, why don't you just keep working remotely from Scotland? Because I was like, hey, I'm moving to Scotland. So that's it for me. But they were like, well, you can just keep working. And that's turned out great. And I keep delaying it. But I really. you know, it's really not about retirement at all for me. It's just about freedom. I really, I don't deal well with authority, I don't think, do. I don't like being trapped. I don't like, yeah, I don't like having my entire day planned out for me. And I hate like, oh, just like,

if I need to just go to the store, I don't want to ask somebody if I can go to the store when the store is open and think just little things like that. But I think it's just, mainly a control thing. I'm a bit of a control freak. Are you supposed to be working right now while you're podcasting with us? We will not discuss that. Who says I'm not? Yeah, technically, yes. But since I now work remotely, I can just do work whenever I feel like it. So that's been good. But yeah, technically, probably.

Do you think like a lot of early retirement people are always talking about like the last year being the hardest because it's always like one more year of saving one more year. Like are you afraid of going years into it and then like, oh shit, I should have stopped like five years ago kind of mentality. Yeah, yeah, no. So this is something I've chatted. I was actually at an event in May with Mr. Money Mustache and he had a Q&A and, you know, I was sitting there and chatting with them as well.

And I was saying, you know, like, I don't know if it's the case of I actually am enjoying my job the way it stands right now. Or if I'm just convincing myself that because I'm actually scared to pull the trigger and quit. And I don't know if that's a bad thing because if I feel like I'm enjoying it, then I guess I am enjoying it, right? So there's definitely the risk of that. And part of me is like, well, maybe I could be doing something even more fun or even more important. important with my time if I did quit. But then the other part of me is like, it's Parkinson's law, right? The amount of time you give something to get it done, that's how long it takes. So the fact that I do have more time constraints makes me more focused and more productive. Once I had all the

free time in the world, then I would worry that maybe, you know, I would just get lazy and would just keep putting off things that I want to do. So yeah, so it's really become a lot less about actually retiring. It's just more about, well, now, what am I going to be? do with this freedom. What's my next big project? The blog has just been so rewarding. I've met so many incredible people. I've had amazing things emailed to me and sent to me from readers saying how big of an impact it's had on their lives and things like that. And it's like, this is great. I don't want to just go and sit on a beach for the next 30 years. I want to keep doing meaningful work. And so it's more now about me trying to figure out what that next meaningful big project.

is because that's one thing. Actually, when I was talking to Todd Trussiter, who was on my podcast, he's like, it's really important to retire to something rather than retire from something. So a lot of people in the early retirement space, I think, are just retiring from their job. They don't want to be trapped. They don't want to keep working at the same thing for 30 years. So they're retiring from that. But then once they actually hit retirement, they're like, oh, well, what do I do now? And they're sort of left bored or aimless. And it's like, you're my mind. You're higher success rate if you retire to something. So you have, you know, you're going to do something that's even more meaningful. And then that way your, you know, time has taken up with important

things in your life that are really rewarding. So what I'm trying to do is try to build those things now before I actually pull the plug on work. And that way I have a lot of momentum going into it. And then I can, you know, still be productive, but still be happy as well. Right, right. So are you, are you technically, let's say your job, heard this podcast like that, Brandon, he's always goofing off. You're fired. You're out of here. Like, are you technically financially free right now? Like, maybe not like in a perfect world. Of course, you want more money saved or invested. But if you had to right now, could you live off of your portfolio for the rest of your life? Yeah. So I hit my number last year, which was why I was

okay, just saying to my employer like, hey, I'm moving to Scotland. So yeah, I could definitely just stop. That's awesome. Yeah. That's been like the best thing, really. It's the mindset shift that comes with that freedom is amazing. And it's completely changed my relationship with work. So a job that I really didn't like three years ago when I was trapped there, I now love it. You know, I've been able to use that power that I get from having enough money to not have to work. I was able to, you know, put that into this situation now where I just demand everything that I want out of my job. and I just don't do the things that I don't like, which has been great.

It's like fantasy land. Yeah, it's good. And that's my biggest regret on the entire journey was focusing too much on the end goal. Like I was just so hyper-focused on that final number that when I hit that final number, it was like a letdown. I was like, oh, you know, I'm not actually happier with that extra dollar in the bank that wasn't there yesterday or whatever. Yeah, you're hitting it on the head. That's like the point of money is to give you the freedom and everything. and it's not so much like I need $10 million in the bank.

It's what does the money get you in the end of it all? Absolutely. Yeah. And I wasn't focused on that at all. Like it was, all right, every single dollar needs to go towards this goal so that I could hit this number as soon as possible. And I completely wasn't focusing on my happiness or my wife's happiness or anything.

And it was, there was a couple year period where it was like, you know, it wasn't good. I got quite depressed. My wife wasn't happy. It wasn't good. But then once I started getting close to that goal, I was like, okay, now, you know, we actually need to make a change and start focusing more on what's going to make us happier now rather than just delaying it until this time when everything's going to be, you know, rainbows and butterflies and things. Had I done that earlier, it would have been, it would have completely changed everything because, like I said, once you get that some money in the bank, it doesn't have to be like all of the money that you're trying to get, but you can still use that to just, you know, shape your job into exactly what you want or find a new job. because you can handle a few months of unemployment, obviously, at that stage.

So you can find a better job or, yeah, just using that power to make positive changes in your life before you even get close to your number is a much better way of going about it. And sadly, I didn't realize that until after. Yeah, this is a good thing that you realized it, though, and you didn't, like, go off the deep end even more, you know. Right. It's interesting, too, the job stuff. Like, anytime I mention, like, early retirement, like one of my friends, he always jumps

it was like, I love my job. I hate, how you guys always talk about retirely is if everyone hates their job, even if I had 10 million in the big, I would still do my job. And I'm like, that's great. Like the power, the money is supposed to give you like that freedom feeling. You could do whatever the hell you want once you're financially free. You could work. You can go on the beach. You can podcast. You can do whatever the hell you want, you know. But he's always harping on like get it away from the job and more into like the freedom aspect of stuff. Yeah. No. I see that's exactly where my wife was. as well. So when I stumbled upon early retirement extreme back in 2011 or whatever, like, I was just so

into it. I was so pumped, which is probably the worst thing you could introduce to your spouse if you're wanting to ease them into, ease them into this sort of lifestyle. Like she, like, an extreme. Yeah, it's so extreme. He's, you know, he was living in a trailer with his wife, spending $7,000 a year or something like that. So it was definitely really extreme. And that was just and not a very good introduction. When I was trying to convince her, like, hey, this is a really good goal. She's like, well, I love my job. She's an optometrist.

She loves eyes. I don't know. She's like obsessed with eyes. So she's like, I always want to be an optometrist. I don't want to, why would I, you know, live in a trailer for $7,000 a year when I'm not, you know, I'm going to keep working for whatever next 30 years. I had no answer for her. So luckily for us, like we had, we had kept separate finances our entire time we've dated.

Like, we dated, she's Scottish and she lived in Scotland when I was here studying. So we always just kept separate finances because, you know, we lived on separate continents for some of the time. And we dated for over 10 years before we got married. So then when we got married, it was like, well, we didn't change anything. We just always have separate accounts. And then we have a joint account for all our joint expenses. And that worked for us. So it was like, well, we're married now.

but, you know, we make the same amount of money. You know, we definitely want to do different things with, with our money. So we'll just keep it the way it is. So it was never like I needed to try to convince her. But it would have been nice had she known why I was, you know, so strict with my savings and things. You know, after I realized that for a few years I was getting way too intense with it and, you know, neither of us were really happy. We sat down and try to put together like our perfect life. And it was just a, you know, you, you.

you just expect your life is just this sort of set thing. So for her, it was really hard to sit down and be like, well, if we could do anything, what would that be? And a lot of it was just like spending more time with family, you know, having more free time to travel around and see all our family and friends all over the world. And so after we did that perfect life exercise, then she's like, oh, okay, so, you know, I can still work. But having that financial backing will allow us to do all these other things that would really improve our life. So once it was not about the money for her, she then saw the point, whereas for me, you know, I'm a numbers guy, so I just, you know, I love the numbers and the money aspect of it. And it wasn't until I reframed it into, well, this is what

your life could be like if we, you know, if we just saved really hard for a bit, that she got it, which was, which was great. So now we're on the same page. And it's a lot more fun. Yes. Well, but it's funny, the three of us, two of you are financially free. technically and I am not. So I'm the only three trying to reach it. So I'll take all of y'all's word for it. And it's great once you get there. It's even Paula, right?

She's hustling. She doesn't need to. She can live off of her real estate, you know, earnings if she wanted to. But she's still hustles. You know, and she's always like, I don't know if I should do this project or this. And it's like, man, like you don't have to do anything. Like, this is all that good problems. But there's still like it's, you need something to move you.

You need that project like you were saying that Paula's great at. I mean, she's building all this stuff when she doesn't have to, but she loves it. Right. You're living the dream too, man. You've been doing this for five years and you're living, you know, you're at the point where I am almost at now where I can just work on projects that really interest me and you've been doing that for five years. So you figured out a better way to get there. I like to say, I like to say I'm retired, but I still have to work for money. Like when everyone asks, what would you do? I'd say, oh, I'd probably blog and I'd probably podcast. Like, that's exactly what I'm doing except I want to do it without caring about the money. Like, there's a difference, you know, or hire someone to do all this stuff of maintenance and stuff you don't want it, you know. Absolutely. But yeah, yeah, that's exactly why I just don't, I don't say, I really don't say early

retirement much on my site. It's always financial independence because that's really, it's really what it is. It's, you know, financially independent rather than early retired because, yeah, I don't think I'll be slowing down at all, even if I do quit my primary career at some point. So how long did it take you? to get to financial independence. How did you determine what your number was and then how did you move from point A to point B? Like I said, I was always quite frugal even before I had a goal. So right after graduated college, I moved to Scotland. So I met my wife Jill when I was studying

in Glasgow, Scotland, my junior year. Then I went back to graduate my senior year. And then as soon as I graduated, I moved back over. So shortly after moving back over, we bought a house and started, you know, saving money and things because, like I said, I always wanted to have money and have a portfolio to manage and things like that. You bought a house in Scotland? Yep, bought a house in Scotland. Got really lucky, actually. So let's see, I graduated in 2004, so I bet we bought the house in like 2005 or something. So we bought it, lived in it and did it up for like two and a half years. And then sold it, I think the end of 2007 for 50% more than we bought it for. And the week we were going to close on it, Northern Rock, which is a big bank here,

had a big bank run because that was like the beginning of the whole House of Cards tumbling down. Wow. And I just have never been more stressed in my entire life because I was like, wow, this is really going to, you know, set us up for the future. And this is just amazing. we got the max that we could have got because over here there's something called stamp duty so like any house at that time or you know i think like it was above 125 000 pounds any house above 125 000 pounds gets a stamp duty tax of i don't i forget how many percent but 125 and below

there was no stamp duty so it was like a huge fence or you know to stop the price from going higher than that and I never thought we could even get that threshold value but we did and here it was the perfect offer couldn't have been higher because of the stamp duty and yeah just the whole financial world started crumbling around us luckily it went through so that that set us up really nicely just as like a little head start and then yeah just just saved you know quite a bit of money over the years and then back in 2011 just really went crazy with savings and it's best It's been a consistent four or five years of, you know, 70, 80 plus percent savings rate. Because we're very lucky. We both make good money, but we also, like, I'm very frugal.

You don't have the heat on right now. You're right at your place when your wife's gone. I know you're a little secret. Yeah, that's true, yes. It is December when we're recording. Brandon's in the UK and he doesn't have the heat on. He's not there to catch him. Yeah, no, that is true. But that makes me enjoy my tea more. So you just got to look at it in a different way. So I really enjoy my cups of tea during the day.

So, yeah, I'm very frugal. And yeah, I just don't get much joy out of buying things. I do like to travel a lot, but luckily I've got quite good at travel hacking over the year. So we do a ton of traveling, but it's really not that expensive. So it was really just, yeah, you know, a solid base, luckily from the house. And then, you know, above average savings until when I stumbled upon early retirement extreme and realized what was possible. And then it was just like hardcore savings. And we've, and we've just kept our expenses low. So you start out with real estate. And then now are you like I'm like a like a like I in my perfect world to reach early retirement or financial freedom. It's all investments. Whereas Paula is like a real estate. Mughal, you know, that's like her drug of choice. Is yours investments now? Or do you, have you built real estate stuff too? Or no, yeah. So it is all investments. So we've owned two houses. We also bought one in Vermont back in 2012, I think, and then sold it again. And last year,

whenever we left Vermont. And that one didn't turn out as nicely as the first one. But we sort of knew that going into it. So those are my only two dabblings in real estate. So the rest has just been investing. And my thing is really simple. I just pump a ton of money into like total stock market index funds. Most of them are with Vanguard. A lot of them are also with Fidelity because that's where my, my employers for a 3B and stuff is. But yeah, it's just pump as much money as I can into those. And then I would love to, I'm really interested in the real estate game, which is why I wanted to talk to Paula back in 2013. And I still am. There's such a, there's such a draw to me, but I haven't dove in yet. And I always remember, like the most stressful times of my life

have been selling that Scottish house and selling that Vermont house. Those have been the absolute worst times of my adult life. And I, I would hope that investment property is a bit different. Maybe you don't have that sort of emotional attachment. And, you don't see like all the stuff you have to do every single second of the day. You're like, oh, I should fix that. I should fix that. And it's maybe more out of mind. So I think one day I will, I will give it a shot.

But I'm sort of like trying to talk myself out of it because it's like, well, I don't get stressed with my Vanguard index funds. And it's working. Yeah, it's working great. And yeah, I'm sure there's going to be some stressful times as, you know, the markets can't just keep going straight up all the time. But 2008, I was real pumped about that. So I'm hoping that I'll be pumped about it the next time it happens, but we'll see. It'll be a bit different if I don't have a full-time job because obviously when it, when it did it back in 2008, I was like, oh, this is great.

Everything's going down. It's all cheap. And I'm really excited. So, but yeah, it'll be, it'll be different if I'm actually living off of that money. So, so yeah, long story short, yes, just mostly total stock market index funds really don't have any bonds at all. I'm sitting on a bit too much cash right now. I plan to get a little bit into bonds later, but I'm in no hurry, especially with, you know,

the interest rate environment right now and the fact that I'm still working. So I don't mind the additional volatility for the additional expected return, hopefully. So, but yeah, and hopefully one day real estate and I will be knocking on Paula's door to get all her tips because I know nothing about it. So given that you live in, you know, your life is kind of in between both the U.S. and Scotland, do you focus on the U.S. Total Stock Market Index Fund or do you go into international, the total international stock funds? How do you balance living in, on multiple continents with your exposure to different currencies when you invest? Sure. Yeah. So right now I'm still working for an American company. So I'm getting all my paychecks deposited right into my American

bank account. And it's like I'm still in the country. So that's been great. So my money never actually makes its way over here. My wife pays the rent and stuff out of her, her Scottish checking account because that stuff can't be paid with a credit card. And then I just use my zero foreign transaction fee American card to pay for everything else. And so that's been working out great. So I do invest in Vanguard's total international stock market fund only a very small amount. You know, Jim Collins from J.L. CollinsN.H.com. He wrote a couple good articles about, you know, maybe not actually even needing international funds because there's so much, you know, globalization is just, you know,

taken over and, you know, all U.S. companies are greatly affected by what's happening in other countries as well. And most of them are multinational companies and obviously all around the world. So he doesn't advocate, you know, spending the additional money for the increased expense ratio to go into an international fund. So he just puts all his stuff into total stock market fund. That's what I did too. Yeah. Yeah, he told me to do that. So I cashed out all 60 funds I had scattered all the cross, God knows where. I literally dropped like all 400,000 into one fund, which I thought was scary, but made sense after talking to him. But it was the Vanguard total index. I just have one.

Yeah, that's good, man. That's, yeah. He's an influencer that guy. Yeah, no, he knows what he's talking about, definitely. So, yeah, so that's definitely in my mind whenever I make that decision. I almost sold the funds that I had, you know, a very small percentage from out, I think maybe 5 to 10% was an international fund. And I was going to sell it.

But then I decided to tax lost harvest it instead because it was because Europe was going crazy at the time. and I was able to harvest quite a few losses and things like that. So I still have them, but I doubt I'll buy any more. I'm quite happy with that small percentage. And maybe one day I'll just ditch it and get the total stock market just to make everything even simpler. But as far as investing like foreign currency, yeah, luckily when we sold our house, we had transferred all that money over to the states, which was amazing. That was, we got really lucky with that as well. That was the highest it's ever been, the exchange ratio. And I think we got

$2.097 dollars for every pound that we transferred. So that was huge. That was an amazing lucky thing as well. So most of my monies and dollars and I just invested in the total stock market fund. Going back to when you're determining what number you needed, like I know you wrote a really awesome article on the like the withdrawal rate when you're retired. Oh, yeah. Can you go into it a little bit? Like a simple calculation for anyone listening, like if you could tell, oh, can I retire right now, multiply this by this and that'll give you an idea kind of thing. And then what's that based off of basically? Because I've read the article and know what you're an answer. And it's a good one. It makes it easy.

Yeah, absolutely. So the common rule is, you know, 4% withdrawal rate, adjusted every year for inflation has a good likelihood of lasting for a long time. So there was a study called the Trinity study and they looked at all the historical market returns and they said, you know, if a balanced portfolio, how much could you withdraw every year and not run out of money? Considering all that's happened in the markets, you know, the Great Depression, Black Monday, everything. And they sort of settled settled on 4%. So that's pretty much like an easy way to calculate it is just to take your spending and multiply it by 25. And that'll sort of tell you how much you need to to save up before you can retire. Your annual spending, right? Not monthly spending. Right. So yeah. So if you're,

yeah, if you spend 25 grand, you can, you know, times that by 25 and you'll need to save up $625,000. Did you just do that in your head? I was, I'm not going to multiply this right now. I'm a quick example. Well, 40,000 a year would be $1 million. Right. Okay. So if you're spending $40,000 a year and you have a million dollars sitting in investments,

not tied up in real estate, like someone that you can actually fully pull out cash from, then you can retire starting today if you wanted to. Yeah. And if you have money in real estate, then either. that's going to be productive for you, like for Paula, and it's going to be generating an income if it's a rental income, or if you're living in it, that's going to reduce your housing cost, which then obviously plays a part into how much spending you have in a year. So, yeah, it doesn't, all your money doesn't have to be in the stock market or anything. You can,

these different types of investments alter the equation slightly in good ways as well. So, yeah, so it was just, it was really just coming up with an annual spending amount. And I track everything and have for years. So I, you know, I had a sort of a good idea. And then once we planned what our perfect life would look like, we sort of tried to predict what that would cost and everything. And yeah, it's just really, it's really just that equation. So, you know, obviously the past can't predict the future entirely or anything like that. So it may be fallible, but it's the best thing we have to go on. And yeah, the article you mentioned, it dove into a lot of research that Michael Kitsis has done, which is really great stuff, and just showing how robust

the 4% rule is, because it is computed using the worst returns, you know, that have ever existed and survived most of them. And a lot of people that would then say, well, hey, you may be retired for 60 years rather than the 30 that the Trinity study was based on. But that actually doesn't make too much of a difference either. You can link to the article because I don't want to get too much into a lot of numbers and things, but the biggest risk to a portfolio is the first 10 years. Because if you're withdrawing 4% every year and just that for inflation, most years you're going to be doing really well because the market over the life of the market, a balanced portfolio is returning well above 4%. So on average, that's good. But the problem is average doesn't really

matter because the good example that Michael Kitsas gave was, okay, so say you have a million dollars and you want to withdraw $500,000 a year. All right. So say after year one, the market tanks 50%. So the market goes down. And so that means your investment's good down to 500,000. Then you withdraw that 500,000. And then you're left with zero dollars. And then the market doubles. You're still left with zero dollars. So you're screwed. If it was the other way in the first year, it went up 100% and then got cut in half, that would, you'd have a lot more money than $0 because it was the sequence of returns that mattered.

Right. So that's sort of the issue. So if you have a really bad sequence of returns, the first 10 years of your retirement and it depletes your portfolio so that when the good returns eventually come, which they will, because the good and the bad are mixed together and you're going to have some great years, you're going to have some bad years. But if your portfolio is depleted so much because you've been withdrawing from it for those 10 years as well as the market beating it down, then you're not going to be able to benefit from those gains.

So since it's the first 10 years that matter, adding additional years at the tail end really doesn't affect it too much. So it does affect it somewhat. So you should maybe be a little bit more aggressive in your asset allocation. and you should maybe have a slightly lower withdrawal rate to start, but it's not as much as you would think. So adding an extra 10 years or adding an extra 40 years on your retirement really doesn't matter too much because hopefully by then if you've survived that potential poor sequence of returns early in your retirement, then all those gains are just going to make everything else pretty meaningless because you'll be able to ride out all the bad times because you have so much more money

than you need. Right, right. Yeah. And I definitely will think to the article. It's a really good one because there's so many, of course, anytime you say anything like this, you get a whole bunch of hoopla and haters and blah, blah, blah, and focusing on all the details without, you know, they'd rather just, they should just be saving and investing their money and paying attention to stop that matter. But, but no, it's a great article for all you to read later. Yeah, thanks. And the main thing that I also wanted to try to get across in that article is early retirees are so different than standard retirees. So you think about, you think about someone who's 65, they've worked the same career their entire lives, and they step away

from work, it's less likely that they're going to be earning unexpected income along the way or picking up a new entrepreneurial venture or diving into real estate for the first time. Or things, you know, it's less likely. So for someone retiring maybe when they're 35, they could reenter the job market. They could pick up part-time work. They could start a new business on the side and maybe try some new things. So there's all these other like sort of safety nets. I think people get cut up on like, well, I'm going to start withdrawing 4% every year and I have to be able to do that for the next 60 years. And it's like, well, if you've got to a point where you can retire that early, I think you're flexible enough that you could maybe decrease spending

possibly in some years or you're resourceful enough to come up with a good idea that maybe earned you money in retirement and things like that. And obviously you don't want to plan for that, but I think people get really scared and think that they'll never earn another dollar again, whereas I think people are going to be really surprised how much money they do end up making after they leave their full-time job and have all this creativity to use elsewhere. Yeah. And speaking of creativity, so something that I've noticed that you talk about a lot, And a lot, like Go Curry Cracker, that early retirement team talks about is taxes. And you all, like you guys, I just mind boggling to me that, A, you can live off of a 25 or 30,000 a year because I haven't been able to yet.

And then two, that you don't, I know like Go Curry Cracker and probably seem with you, like, he doesn't pay any taxes because he's gained in this. He's figured out how taxes work. And if you pull a certain amount, under a certain amount, you're considered, you know, poor or below whatever you need to be taxed on. Even though you're very wealthy. And so because of that, you don't pay taxes, which of course then keeps everything growing and then changes the game. Yeah, absolutely. It's amazing. Actually, what you talk a little about that. Yeah, sure. It's so that, so when I was when I first started the site, I was like trying to figure out ways. All right, I was like, because as I said, I wanted to optimize my path to financial

independence and I was trying to figure out ways to do that. So, you know, first I looked at spending and it's like, well, I was already really frugal. So I didn't want to cut too much. there and then it was like the income side yeah I could I could try to do some stuff to try to increase my income but I was already making quite a good wage and so then so then that led me to taxes and I was like all right well there's got there's bound to be ways to really reduce my tax burden because that's that's money I spend every that I don't like it's not like enjoyable spending right and it really could make a difference so I started looking into the tax strategies that you hear about and read about in mainstream media they just really don't

apply to people who are potentially going to step away from full-time work early in their careers because, you know, everyone just assumes you're going to be working, you're going to be earning all this money and it's going to keep increasing until you eventually retire when you're 65 and then you can live off of what you saved. But these early retirees, it was like, all right, work really hard and then stop working at 35 and then have this big period of time where you could, you're going to be in a very low tax situation. So yeah, so I started looking into strategies for converting from these tax advantage accounts. So like 401k, 403B, traditional IRA, HSA, these things that are tax-free going in. So like I maxed those out

constantly because I was like even if I start having too much money in those accounts that I, you know, I won't need once I'm retired. It's okay. I want to I'll figure out a way to get it out or I'll pay a penalty because I was like the tax advantages of putting that money in now when I'm at this high tax bracket are just too great to miss. And once you obviously once you give up that opportunity, you don't get it back. So if you don't, if you don't max out your 401k in 2013, you can't change your mind in 2016. So I was like, all right, well, I'm just going to keep maxing these out and I'll worry about, you know, getting that money early later. And then so I did a lot of research and realized there's something called a Roth. conversion ladder so you can convert from a traditional IRA or a 401k or you know you convert your 401k into a traditional IRA and then you can roll that over into a Roth IRA so you pay the tax on that conversion because once it's in the Roth then it's going to be tax free and you can withdraw it five years after that conversion it's like well that's perfect because I'm going to be in a very low income tax bracket once I leave my job so then I could use all those years between whatever

35, say in 65, and I can roll over the entire 401k, 403B, traditional IRA balances, and roll them all into a Roth, pay little to no tax at all on the rollover because I'll be in such a low tax bracket. And then that's pretty much like all tax-free money. So that's every single dollar will be tax-free. So that completely, that really changed. Changes everything. Right. So that changed my strategy. So like I said, I was maxing them out anyway and I was like feeling bad about it. And I was like, oh, man, I should really maybe put this into taxable accounts so that I have money for pre-retirement age and post-retirement age.

But then it was just like, all right, once I realized that was possible, it's like, okay, forget it. Now I need to just figure out how I can put as much money into these types of accounts as I, as possible so that I can lower my taxable income now when I'm working. So it really changed the game for me and I think a lot of people as well. And, and yeah, and I've done a lot of things on my site. I have a guinea pig experiment where I follow two hypothetical scenarios. They make the same amount of money.

They invest in the same funds. They spend the same amount every year so their lives are completely the same. And the only thing is one person just does normal taxable investing. And then the other person does all of these optimizations that I've written about over the years, all the tax optimizations and everything. And so we're almost two years into the experiment in the optimized version. can already retire over two years earlier, so nine years instead of 11 years. And it's only, and their lives are exactly the same. They spend the same amount so they, you know, can enjoy the same amount of spending. They make the same amount. So, you know, they have the same jobs or whatever.

And the only thing is different is just being smart about what you're doing tax wise. And yeah, it took two years already off of an 11 year working career for this hypothetical situation. So it really makes a huge difference. When you have a lot of, I mean, I was, I, I, I've, I, I, I, It's been a couple months since I went on the homepage because I get all your stuff through RSS and emails and whatnot. And I'm like, holy crap, there's all this resources here. There's like spreadsheets you can download. Can you just kind of like go down? Like you're not going in depth.

Just say like all the resources like if I'm new to early retirement or financial freedom. And I'm like, I don't know where to go. I want to, I'm a nerd. You know, I'm a nerd. I want to play with numbers and play with calculations and all this stuff. Can you tell us what we could access through your site that's free? Yeah. Yeah.

So like I said, I'm a software developer. So I love just creating software and different tools and things. So the main thing I have is the FI Laboratory, so Financial Independence Laboratory. It's a completely custom web application I wrote. And it allows you to track your progress to financial independence. So every month you would just put in your current net worth, your monthly spending, and your monthly savings. and it charts out your progress,

like probably the most famous book on financial independence, your money or your life. In that book, they recommend that you have this big wall chart and every month you draw on it and you track your progress to financial independence. And I was like, yeah, that sounds like a great idea, but I don't want to have to have a big graph paper thing on my wall

and have a ruler and color pencils and stuff. So I wrote this web application to do exactly that. So yeah, you could, it's lab.madfcientist.com and you can just sign up for a free account there. And yeah, just start graphing your progress to financial independence. In the lab, I also have a bunch of different calculators and things that I've also written just custom calculators either relating to some of my articles. Like, for instance, that safe withdrawal rate article that you mentioned, like I said, like I said, said the first 10 years are really what plays the biggest part in whether a withdrawal rate is going to be successful or not. And the great thing is that you can use Schiller's Cape ratio. And

that's a very, you know, it's obviously not a perfect predictor, but it is a nice, reliable predictor of the next 10 years of real returns, which is exactly what matters. And there's a big correlation between that CAPE ratio and the safe withdrawal rate. So I put together another calculator that takes the current CAPE ratio and sort of like, like suggests a reasonable withdrawal rate considering the valuation environment of the current market situation. So, so, so, like, that's in the FI laboratory as well. And I also, I also give away my own spreadsheet that I've used for, you know, over the years to track my own progress to financial independence before I created all these tools for the mad scientist. I just had a spreadsheet that I used.

One of the articles on your site that I love the most is this article that you wrote called How to Hack Your HSA, which I recommend to everyone. And so for the listeners who aren't familiar with this, and an HSA stands for health savings account. And if you are in a certain type of high deductible health insurance plan, then based on the health insurance plan that your plan might make you eligible to open up an HSA account. What society tells us is that the HSA is functionally an emergency fund for health-related bills or for medical bills, right? So for years, that was exactly how I was treating it. I would contribute money into an HSA. The limit is just north of $3,000 a year for an individual or like a little over $6,000 a year for a family.

So for years, I would max out my HSA contribution, and that money is tax deductible. It's treated similar to a 401k. It's tax deductible when you put that money in, and then that money grows tax deferred. And for years, I would put money into an HSA, and then whenever I had a medical bill, I would pay for it out of my HSA account, which is what we're all taught to do. And then, Brandon, you made the excellent point in your article. You were like, wait a minute, this money is growing tax. tax deferred, why would you prematurely end that tax deferred growth? Just pay out of pocket for your

medical bills. Let the money grow tax deferred for as long as you can. And hooray, you get many, many, many more years of tax deferred growth. Right. And as soon as I read it, I was like, oh, you know what, you know those ideas that they're so good that in hindsight, they sound obvious? Right. Like the structure of a DNA molecule or something. You know, it's like it's so perfect that in hindsight, the whole thing looks obvious, but you just never thought about it. And I read that article and I was like, oh my God, I can't believe I never thought of that. Right. Yeah. So once I realize I should take advantage of every single tax advantage account I can because I can get most of that money out during early retirement anyway. So that was sort of the period where I was like, all right, well,

I'm already maxing out my 403B, which is like a 401K for nonprofits who for people who work. at nonprofits. I was already maxing out my IRA and I was like, all right, what could I do next? I really want to bring this taxable income down. And I was contributing to an HSA and I was like, well, I don't need to take that money out. So I started looking into different ways to maximize the HSA even more because it's already an amazing account. So if you contribute it to HSA through a payroll deduction, you already save on FICA taxes, which is like 7.65%. That's the only way I found that you can not pay FICA tax on any of your income. Like I haven't found out a better way or any other way of not paying FICA but that's one of them. So if you have an HSA and you pay, you contribute to it

directly through payroll, then you don't have to pay FICA tax on that money. So it's already amazing in that sense. It's an amazing in another sense because it's triple tax advantage. So it's tax free going in. It grows tax free. And it's tax free coming out if you pay for medical expenses. So I was like, well, that's amazing. So, you know, this is a great account anyway. And then, yeah, I started looking into, if I don't take out that money, is that okay? And can I just leave it in there to grow tax-free? And it is. There's nothing in the IRS documentation that says you have to reimburse yourself immediately for a medical expense. So I had a appendectomy a couple years ago. I just came down with appendicitis, how to get the appendix out. I hit my deductible, which at the time was like $2,500. And I just left that whole $2,500 in there to grow because I was already maxing out every single other. tax-advantaged accounts. So there was like, there was no other tax-advantage place that I could put that $2,500. I had the $2,500, you know, in my taxable accounts anyway. So at that point, it was just like, well, would I rather take out $2,500 that's going to be taxed as it grows? Or would I rather

take out $2,500 in an account that it's just growing tax-free? And it was like, well, obviously, do the one that's getting taxed. So, yeah, I just kept, I took a picture of my receipt. So now I have a digital copy that won't disintegrate, hopefully. And yeah, I can take out $2,500 at any time over the next whatever, 30 years, completely tax-free. And all the growth that is accumulated on that $2,500 will just continue to stay in there and compound, which is great. So the other thing to mention is if you don't end up using the money for health expenses, it just acts like a traditional IRA. So worst case scenario, well, I guess it's not worst case scenario because it means you've been really healthy and you haven't spent health expenses. But, but yeah, worst or best case

scenario is when you turn 65, it's just treated like a traditional IRA. So you could just take out money for anything, non, everything, it doesn't have to be healthy related at all. You just take it out and pay tax when you take it out, but you're not penalized in any way. So at worst, it's just a traditional IRA when you hit 65. But at best, it's amazing triple tax-advantaged account that you can then let all this money just grow tax-free and you can use some of the money for your early retirement years. Like I will with my $2,500 appendectomy fee that I can, you know, maybe when I'm 40 and don't want to take out of my taxable account, I can just take it right out of my HSA tax-free. So yeah, it's like, so yeah, the original article I wrote was the ultimate retirement account and

then how to hack your HSA was the following years sort of optimization of that and made a nice little image to show how it all works. But yeah, it's definitely the ultimate retirement account, so I only wish the contribution limit was a bit higher. I know. Right. Yeah, that always upsets me too, because I always come up against the contribution limit, and I'm like, that's it.

Really? I know. That's it. So sad. But it's amazing how much it adds up. My HSA has grown quite about. it. I invest the whole thing. And I know some custodians don't allow investing at all, and some of them don't allow investing a portion of it and stuff. But I've just invested the whole thing.

And so, yeah, my little, my little HSA with all those, you know, $3,000, roughly $3,000 contributions have just really started to grow. So I've got this nice big pot of money that is there in case I need it for health expenses, but I'll just hopefully let it ride. It's exactly what I do with mine. I invest the entire thing. You know what I do with mine. What do you do? I don't have one because I'm a loser. Oh.

I hate health insurance stuff. All that stuff, I can't stand so I make my life do. But every time I remember these articles, I'm like, damn it, this is why they're financially free and you're not because you're not listening. Even though logically it all makes sense. Everything logically makes a lot of sense. So for those of you feel like idiots, don't worry, I'm with you. You're self-employed.

So you're almost certainly in a high deductible health plan. Yeah, we just, I pay like a thousand bucks a month and I still have a high. I mean, it's crazy. Yeah. It's like the one part of finance that I kind of ignore and I'm stupid about it. I mean, my wife does so I know we're not like doing something stupid, but I make her do all this stuff. But maybe one day, I'll get back on to it. Man, that's your next personal challenge.

You're going to tackle your health care. Oh, that would be a hell one. But yes, I do like all the trickery behind it. So that part does excite me. It might excite me enough to actually do it. It's actually super simple. Literally, I open an account with HSABank.com. Do you have to go there to do that? No, there are other banks too. Oh, it has to get to bank. Like I can't go to Vanguard and do it. Correct. You can't go to Vanguard and do it. So you have to have a specific HSA account that only a particular HSA account provider can provide.

Okay. I opened one with HSABank.com. Every January, I just throw up to the maximum contribution level. I literally, I already have the money like accumulated and sitting in a savings account. As soon as January hits, boom, I'm immediately going to make the entire contribution in one go, so I only have to think about it once a year. I never have to think about it again. Okay. Yeah, I'll just throw it all into HSA Bank, wait for like two or three days for the money to settle. And then from HSA Bank, they have, that particular bank has a agreement with TD Ameritrade. So unfortunately, I can't invest through Vanguard. I have to go into TD Ameritrade. So then I just move it into a TD Ameritrade account, put the entire thing in

a total stock market index fund and then call it a day. And that's it. Nice. First you have to come up with the $2,500 and then you put it in that's a problem for another day. You can trickle it in everything here. But yeah, see, I've never opened my own because I have mine through my employer. So that's awesome to hear it's so simple because a lot of people ask me and they're like, oh, where should I go and what should I do? And I'm like, I don't know. mine gets done for me. That's awesome to hear. I will point people to this episode now and say, well, just listen to Paul.

It's that easy. Yeah, it's super, super easy. The one annoying thing is HSA Bank charges a fee of $2.25 a month. Oh, how dare that. I know. And it annoys me. It really annoys me. I'm like, Brandon will find a way to optimize that somehow.

Yeah, I will have to. So right now my employer covers the fee. But when I leave, I'm going to have to figure out a way. so maybe there'll be an article about it. They'll waive the fee if you hold a cash balance of some X amount, but of course then your money is sitting in cash. I'd rather just pay the fee and not have my money sitting in cash. You can put that money anywhere for people that I don't understand, right?

You could put it in cash, you can put it in bonds, stock. Yeah, yeah. Whatever the hell you want to invest it in. Yeah, exactly. Before I realized that I could invest it, I actually had it sitting in cash for a couple of years. And then I figured out that I could invest it. And I was like, this is even better.

Nice. This is awesome, man. Thank you so much, Brandon. I want to ask you some rapid-fire questions. You got me on some of these when I was on your show. I know. All right. I'll ask you five questions and then you just answer whatever comes to your head.

I'm nervous. They're really hard ones. Are you ready? Okay. All right. And this is the first one's important because every time I see you, you're holding one of these. Because I only see you at like bars and like conferences. The first one, if you could only have one beer,

forever, which beer would it be? Oh, man. So this is, yeah, my forever beer. So I've actually talked a lot about this with various friends. That's funny. So, yeah, it's, it's, obviously, there's a lot of better beers out there, and there's tons of beers that I like more than Guinness, but I have always said that my forever beer is Guinness. So that's, that's an amazing question. And I can't believe you asked it, because, yeah, that's something I've talked about. I can't believe you had an answer. Yeah. I wouldn't know his answer. Yeah, no, it's a solid go-to. And especially over here in Scotland, like,

there's nothing that's nicer than sitting in a warm, cozy pub and having a real nice pine against and listen to some, like, Scottish music and things. It's, yeah, it's pretty good. Yes, my life, I hate it right now listening to you. Okay. What was your dumbest purchase you've made that you can remember? Oh, okay. It can be a small one.

It doesn't have to be a big one. No, this one's a big one. So we, my wife is an optometrist, like I said, and she had to go, she had a study again when we moved to America because her qualification didn't count in America, which is ridiculous. But so as part of her study, she got to do a three-month rotation. This is before I stumbled upon early retirement, but I would just use my savings to like take months off of work. So she had to go to China for three months to work.

And I was like, well, I'm going to go with you. So I quit my job. I taught myself on a program iPhone apps because the iPhone had just come out. So I just went over there and hung out with her. So then when we came back, she had another three-month rotation in Vermont. And it started right after we got back from China. And we had nowhere to live. And we had no car or anything.

So I was like, man, I really can't buy a used car because I have no time to look into it or research it. And so I ended up leasing a brand new Toyota RAV-4 for the winner. Oh, shame on you. I know, man. And so I was actually just at the conference, the same one that Apollo was at, but just a week later. And at the beginning of the conference, we all had to tell a truth and one lie. And Mr. Money Mustache was there. And he's become a good friend of mine over the years.

My truth was that I at least 2010 Rav 4, Toyota Rav 4. And everyone thought that was the lie. And then I had to admit that it was actually true. So that was a huge mistake. And I blame my dad because he's like, just lease it. He's like, you know, it'll just be three years of paying this amount of money. Was it three years? Oh. It was a three-year lease, man.

And then obviously you got the big insurance payment because it's a brand new XUV stupid thing. You got the bad gas mileage. It was just like such a bad decision. And that's what happens when I have rushed decisions. I hate being rushed with anything. So that's a big one. So good question.

That was a fun one. This one should be a little easier and you should know the answer. Who's better? The Washington Redskins are the Dallas Cowboys. The Redskins. Yeah, that's right. You're welcome back anytime you want on the show. But they're all terrible.

The Steelers are the best because that's where I'm from Pittsburgh. Oh, gosh. And we are the best because we have six Super Bowls and nobody's even close to that. Okay, okay. That's supposed to be rapid response, not a commentary response. All right. What's something you wish you could be better at? It doesn't have to be money.

It could be anything in life or could be. money. Singing. I wish I could sing. Yeah. I think you should have a sample of it or is that too? Is that too scary? Oh, no chance.

No chance in hell. Not with your tea. I would love, yeah, I would love to just have a really nice vibrato like Tom York from Radiohead or something. It's like, yeah, really nice. Your voice is pretty deep though. Like I feel like you could do some good like voice acting side hustle.

Maybe that could be your next thing. Barry White. That's right, man. All right. Last one, ready? Who would you rather be stuck in a room with for a couple hours? Warren Buffett or Britney Spears? Am I married? No. Not married. I've had Warren Buffett still. No, I'd still go Warren Buffett. I think that would be a pretty awful hour. That would be pretty unbearable, I think.

But yeah, Warren Buff would be the man. That would be pretty cool. Awesome. Those are great questions, man. That was a lot of fun. You'd steal them for your show if you'd like. Thanks. Thanks for being our very first interviewee ever on this podcast. Thanks for asking me. That's been a blast.

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