George Kamel - Why Retiring At Age 35 Is A Bad Idea

Episode Date: October 4, 2023

Today, we’re talking about F.I.R.E. 🔥(AKA Financial independence, retire early). And while early retirement sounds pretty awesome, we’re breaking down what F.I.R.E. is all about, plus the right way to reach your retirement goals.   Links: Ramsey Retirement Hub EveryDollar Budget Deal: I love a good deal, when you sign up using this link , I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Honest Math Withdrawal Simulation Learn more about your ad choices. Visit megaphone.fm/adchoices

Ring of Fire, girl on fire, I'm on fire, we didn't start the fire. What do all of these songs have in common? Well, they have nothing to do with the fire movement. That's right, today we're talking about the new wave of younger workers that are part of a movement taking the dream of early retirement to the next level. I'm talking about financial independence, retire early, or for short, fire. Oh, man, the building is on fire. Now, while early retirement sounds pretty awesome, I'm going to break down the fire movement

and share what I like about it, plus why I don't think it's the right way for you to reach your retirement goals. But as always, safety first when it comes to fire. Stop right where you are. Drop a click on that like and subscribe. And roll this red-hot content onto all your friends. That's right, share it.

Roll that beautiful being footage. And if you still don't have it down, pause and take a screenshot so you can complete this crude coloring page to help the message sink in. It's very important. Only you can prevent fire movement. No, no, that's too much responsibility for me.

I gotta find a new way out of this. All right, in a nutshell, the goal of the fire movement is to retire in your 30s or 40s, which means to reach that goal, you have to save and invest aggressively. Think Karen getting cut in the T.J. Max line, aggressive. I'm not scared of you, all right? I want to bless this mess blanket, too. You're not the only one who has it in Navy but wants it in gray. And no, I don't want to open a T.J. Max credit card to save 10% today.

What this amounts to is saving and investing 50 to 75% of your income. Let that sink in. You need to save at least half of your after. tax income just to have a chance to retire 20 or 30 years early. Now, to get your fire retirement number, you got to follow two rules. Number one, the rule of 25. This means you want to have 25 times your annual expenses saved in order to retire. So let's say your monthly expenses are $6,000. That's $72,000 a year. So multiply that by $25 to get to your fire number of $1.8 million, meaning you need $1.8 million in a non-retirement account to achieve your goal. Number two, the 4% of the 4%

rule. This says that once you've reached early retirement, you can withdraw 4% of your savings each year, adjusting for inflation in future years if necessary. And the reason for that is you avoid running out of money, assuming a 30-year retirement goal. You see, if you withdraw 4%, but your investment is making more than 4%, you will keep that party rolling on till the break a dog. But wait, there's more. Like everything in life these days, fire can get extremely customized. Maybe not like Grande No-Wip, half-calf, white chocolate mocha with an extra pump and a coconut milk customized, but pretty dang close. Let me get a frate motetae.

And then let me get a Trenta Pinkety drinkety. So I'm just gonna fly over the most common. Trigger warning, no idea why they use body-shaming terminology for these. I'm just here reporting the facts. I didn't make this up. So first up, there's Lean Fire, which I assume is what I would fall into. I have no idea. So Lean Fire involves reaching that 25 rule by living on an extremely lean budget.

We're talking like sirloin-tip lean, like flank steak lean. So these people spend less than the average of 40 to 50 grand a year. or 25 grand for an individual. Then, moving on, there's fat fire. Oh, Lord Jesus, it's a fire. So this is for people who want to live large in retirement. For example, they may currently live on about 100 grand or 200 grand annually, and they want to keep up that lifestyle in retirement,

so they have to invest more and save more for a longer period of time. By the way, if you're wondering where regular fire falls on the spectrum, it's right in the middle, planning annual expenses to be about $40,000 to $100,000 a year. Another popular one is barista fire, And I hate to disappoint you, but Grande No-Wip half-calf white chocolate mocos with an extra pump and coconut milk have nothing to do with it. Drinkety-pinkie and a Prate-Mate.

You see, these people don't intend to stop working forever. They just want to save enough to retire to be able to do part-time work, like barista-ing, if that's the term. This is work you don't need to earn huge amounts of money from. All in all, fire folks are always looking to make as much money as possible and keep their expenses extremely low. I'm talking like limbo champ Queen Chamika low. The general idea is that the higher your income and the lower your expenses, the faster you can reach the sunny destination of financial independence. It's like Reading Rainbow, but with more money.

Reading Rainbow. This means you don't have to work a full-time job if you don't want to, which is a great goal. Very cool. I'm not mad at the goal. But I do want you to understand the reality of what it takes to reach that goal and the risks that are involved. So let's get to it. First of all, to follow the fire movement, you obviously need a very large income.

And I mean sizable, dare I say prodigious. I said it. I dared. Because no matter how much you cut down your lifestyle, it's going to take a hefty income to save enough to retire way before you're illegally old enough to rock these bad boys. Another flaw with fire is that they say you can withdraw 4% of your nest egg, but you really need to withdraw closer to 3% if you retire that early. So look at this. If you've saved $1.5 million by your 30s, that amounts to living off 45% of $45,000,000,000,

$5,000 a year. We're talking about living for 55 years off one account and not depleting it. And if you withdraw 4%, there's a higher chance that money's going to run out well before that time is up. This isn't a wet finger in the year. I don't know why wet fingers are in the air, but they are sometimes. This is just honest math. Literally, there's a site called honestmath.com, and they ran 10,000 different financial simulations to get this chart and show you these numbers. All right, so let's look at this chart. On the left side, we see years in retirement. On the top, we see the withdrawal rate. And as you can see, if you have a 30-year retirement

with a 4% withdrawal rate, you're gonna have 3% of that account balance remaining 30 years later. That's kinda scary, considering you're gonna retire at 30? And so a 30-year retirement means at 60, you're flat broke. And you still might live another 35 or 40 years. I'm never gonna financially recover from this. But when we move on to the 3% withdrawal rate, you will see that even 35 years into retirement,

if you withdraw 3% a year, you'll still be left with 90% of the account balance. That's pretty impressive. And you can even see if you go down 45 years, you still have 37% of that account balance remaining 45 years in. Are you happy? We did math. No, I'm not happy. If you want to check out that chart for yourself,

I'll drop a link to the honest math website below. All right, the next problem I have with fire is if you're drawn to it because you hate your job and daydream of excusing yourself from the monthly ops meeting only to never return, then there's a deeper problem that lies beneath the surface. and fire isn't going to solve it. Because you go with you.

You know what I mean? Like if you hate your life and it's your life and then you just move your life, then you still hate your life. Plus, if you hate your job, what you really need to do is hire a barbershop quartet to interrupt the ops meeting with a custom rendition of bye, bye bye by bye. I'm kidding. Don't do that. Choose a much better song like I want it that way. You know, get a little soul in there. I want it. Oh, chills.

Literal chills. So if you really hate your job, you either need a new environment or a new career path. Because here's the truth. Work is not evil. Okay, I know you guys hate the big, bad corporations, and they want us working 40 hours a week. Work is not the problem. Doing something you hate at a place you hate is the problem. When you're doing something you're good at and something you love in a healthy environment, it's an amazing feeling.

Look at me. I'm loving this, okay? I wouldn't want to do anything else. And I'm not just saying that because it's in the prompter and they made me say it. I'm saying it because I believe it. And my friend, career expert Ken Coleman says this. You're designed to play a unique role in your life. And someone out there needs you.

to do it. And so if your work doesn't have that kind of impact, go find it because it's out there. And that's the reason why feeling burned out doesn't mean work is as bad as inhaling paint fumes and you should just stop doing it altogether. It probably just means you're not doing the work you should be doing and you're not doing it in the right place. Now the fire movement can also be rather short-sighted. I mean, you don't even know which of your teeth will hold on until your golden years.

And you're trying to tell me you think you know what your expenses will be later in life and where your goals and dreams will be 30, 40 years from now? The facts are, we don't know what's going to happen. You don't know what's going to happen to the economy, with inflation, you don't know how long you're going to live. And so your dreams will change 40 years from now. Your lifestyle will change. And if you're stuck trying to live on $45,000 for the next 45 years, I can pretty much guarantee that your quality of life is going to go down, not up. You're going great value, not Whole Foods.

Heck, even the fire movement pioneer Sam Dojan is now going back to work at 45 years old so that he can afford his kids' college tuition after he already retired at the age of 34 with $3 million. And here's a direct quote from Sam. Life is full of ups and downs and unknowns. You're trying to predict the future. You don't know what's gonna happen. I couldn't have said it better myself, Sam, so I'm glad you did. You did it for us, and we thank you for that.

Now, don't get me wrong here. I'm not against being financially independent. I'm not even against retiring early. Heck, I would love to be able to retire at 52 to spend more one-on-one time with the dogs. No, not those dogs. Those will be long dead by then. I meant the dogs in my biker gang slash barbershop quartet,

the Acapella Outlaws. I'm so close to this. All I need is a bike and three friends. The gang's all here. Now, I don't necessarily want to stop working. I just want to have options. But what I'm not a fan of is taking things to extremes for a long period of time, which is what fire is all about.

And it's my experience that extremes are generally bad for your quality of life, for your family, and for spray tans. Oh, and it gets worse. But credit where credits do, there are some principles of fire that I'm a huge fan of. Number one, it reaches the youth. Thank heavens. I love that it's getting younger, workers to actually think about the future and think about retirement, especially since only

43% of people age 18 to 34 have any type of retirement account. Number two, it encourages budgeting. You see, fire followers have to define their wants and needs, and they've got to keep track for their monthly expenses. They've got to make sure they're living on way less than they make, and the best way to do that is with a monthly budget. Number three, it makes saving and investing a priority. Because if you want to retire at all, ever, you have to save and invest.

There are no ifs, ands, or buts about it. No ifs, or buts about it. If ifs and butts were candy and nuts, we'd all have a Merry Christmas, wouldn't we? Happy Christmas is Christmas. Merry crisis. And lastly, I love that fire is all about keeping your lifestyle in check and keeping you out of debt.

You're not out there flexing with big car payments and giant houses when you're trying to achieve this goal. These people live very frugally, and they're all about delayed gratification. And to that, I say kudos. No, not their granola bar from the 90s. Take that down. I just meant kudos.

Man, I miss a kudos bar. That was literal fire. The kudos with the M&Ms? You were like, I mean a grown-out. This is healthy. My mom-mate said this is a healthy treat for me, but it's got tiny M&Ms in it. So listen, if you still really want to retire early, here's how I suggest going about it the smart way. For starters, get out of debt as soon as you can.

Then build up an emergency fund of three to six months of expenses. Once you're out of debt with a fully funded emergency fund, start to invest 15% of your gross income every single month in retirement plans like a 401k or a Roth IRA. While you've got that plate spinning with investing, get intense about paying off your house early so you can throw even more money towards retirement. Because think about it, the lower your expenses, the less money you need to be able to retire early. And not having a mortgage payment is a huge part of that. Now, once you have a paid for house, no debt to speak of, this is when investing 50% of your income for retirement becomes a legitimate possibility. So you can go back

to that 401k and IRA, max out your contributions, plus you can take advantage of other kinds of investments as well. Now, keep in mind here, in most cases, you can't withdraw the money from your 401k or IRA before the age of 59.5 without facing some huge penalties. But there's a great way to avoid paying this troll toll. You trolled the troll. It's called a bridge account. And this helps you bridge the gap between when you want to retire and when you can take the money out of your retirement accounts when you hit 59.5. So how much will you need in that bridge account? Here's an easy way to figure it out. Number one, figure out your retirement age and how much money you'll need to live on each year. Then multiply that number by how many years you expect to use that

bridge account. That will give you the magic number. Now let's walk through this. Let's say you want to retire early at 54.5 so you can finally start up that YouTube channel on noodling with your buddy Jake. It's called noodle buds and I have no regrets. It's a good name. If you don't know what noodling is, Google it. Okay, it's nothing to do with actual noodles. It's about grabbing catfish with your bare hands, like a real American. So if you want to retire 54 and a half, you need to have enough money in that bridge account to last five years to where you hit 59 and a half. So let's say you expect to live off $65,000 each year in retirement, your goal then should be to have at least $325,000 in your bridge account by the time you hit 54.5. Now, I suggest using a taxable

brokerage account for your bridge. I like these because you can take out money anytime you like, there's no contribution limits, and you still have plenty of great investing options like index funds and mutual funds. Now, the one big drawback here is that you pay capital gains tax on the growth of your investments inside of these non-retirement accounts. And regardless of what you do, I highly recommend sitting down with an investment professional to work through the numbers and be strategic about your taxes. And if you want to find an investment pro you can trust, I'll drop a link below in the comments. Now listen, there are no shortcuts to retirement. You have to save and invest, which takes time. There's no such thing as a retire quick scheme, which is why the fire movement

requires you to get radical about throwing huge chunks of your income toward retirement. Now, if you're worried about retirement, here's the truth. No matter how close you are to retirement age, there's still time to grow your savings. There is hope for you yet. No matter how old you are or how much you've saved so far, you can still do something about it. You just have to get started. The best time to plant a tree was 20 years ago. The next best time today. So let's get about the business of investing.

Think about it this way. The more time your money has to grow, the more compound interest can work in your favor. All right, guys, let me know in the comments what your retirement age is and which retired dad's shoe you're going to be rocking. I think I'm going to be a Dr. Scholl's guy myself. That guy's got a Ph.D. He knows something about shoes or doctor stuff. I don't know what he's a doctor of, to be honest. While you're at it in the comments,

go ahead and share this video with your friends who bought tickets to Fire Festival number two. They really need a dose of reality. It's not going to go well. They just want to be on Netflix. That's all it is. Let's be honest. As always, thanks for watching.

I'll see you next time.