# How Much Money Do You Need to Retire Early? The Math Doesn’t Lie

## Метаданные

- **Канал:** Our Rich Journey
- **YouTube:** https://www.youtube.com/watch?v=1d3UNFWCFi8
- **Источник:** https://ekstraktznaniy.ru/video/44974

## Транскрипт

### Segment 1 (00:00 - 05:00) []

The only financial number I care about is my fire number, my financial independence, retire early number. That is the ultimate personal finance goal. And that is the question that everyone should be asking and be able to answer because once you know that number, the amount of money that you need to never have to work again, it's like the sky opens up. It's like you can see exactly how to get there and you realize that it's actually achievable for anyone. Hey guys, it's Aman — and Christina — from Our Rich Journey. — So in today's video, we want to break down the absolute basics of financial independence and retiring early. So it's not flashy, it is not complicated, it is just the simple math that allowed us to reach financial independence and retire early. And once you know this math, you will understand the foundation of financial independence. — The simple math of early retirement. You know, we retired before the age of 40 because we did the simple math. Now, most people think that achieving financial independence is this complicated strategy. You have to have a lot of money coming in. You have to devise a fancy investment plan. No, it's actually very straightforward. You see, financial independence at its core involves knowing how much you need to live off of every single year and then building a portfolio that supports that. And once you understand that relationship, once you understand how much you need to live off of each year and how much you need to have in an investment portfolio, everything else becomes so clear. — So, let's break this down. It involves understanding two numbers. how much you need to live in retirement which are your expenses and then how much you need in a portfolio. So let's start with the first number which is how much your expenses are. So to understand how much you need in order to retire early, you first have to look at your annual expenses in retirement. It's not your current expenses, it's not your income, it's not how much money you make, it's your annual expenses in retirement. So this number includes housing, food, transportation, health care, travel, or anything else that matters to you. This number is personal. So there's no right or wrong answer. And I love how you said it's the amount of money that you need in retirement. So you're going to have to look forward a little bit. Estimate in your early retirement life, if you don't have to work, how much money you are going to be spending every single year. And once you have that number, the math gets even simpler. You multiply that number times 25. Your annual expenses in retirement times 25 equals your financial independence retire early number. So this is the number that you would need in a stock portfolio in order to reach financial independence, retire early, and never have to work again. So let's give an example of how this works. Let's say you do the math and you determine that your annual expenses in retirement are going to be $40,000. You would multiply $40,000 times 25 and that would give you your FIRE number, which would be $1 million. That means you would need $1 million in a stock portfolio in order to retire and never have to work again. Now, let's say you expect your annual expenses in retirement to be $60,000. In that case, $60,000 times 25 would give you your FIRE number, which is $1. 5 million. — You know what? Let's do something fun. You guys, in the comments, tell us what you expect to spend every single year in early retirement and we will tell you what your fire number is. So, just put it in the chat and we will respond. I think it will also be fun if you put down where you live, the city or the state or the country, because depending on where you live, the housing costs, all the cost of living can be very different. And I think that's really helpful for people to see the different ranges of fire numbers based off of where people live. — Oh yeah, folks are going to love the comment section because you'll get a real idea of how much money people need to live in early retirement to truly be financially independent. and I think it's going to surprise and inspire a lot of us. — Okay, so let's get back to the math. Now, when you calculate your fire number, this is based off of the 4% rule, which originated from the Trinity Study. So, the Trinity study looked at historical market data with different asset allocations between stocks and bonds in different withdrawal rates to determine how long a retirement portfolio could last under different scenarios. So what researchers found was that historically withdrawing 4% per year allowed portfolios to last for 30 years without running out of money. So let's slow this down a bit because we really want you to understand the math behind it. A lot of people say, "Why do

### Segment 2 (05:00 - 10:00) [5:00]

you multiply your annual expenses times 25? Why not 15 or 35 or whatever it is? " Well, it all relates back to the 4% rule. So, let's go to the example where we talked about someone who has annual expenses in retirement of $40,000. Their FIRE number would then be $1 million because they multiply that by 25. Now, if you look at $1 million, a 4% withdrawal rate of $1 million is $40,000. That is the amount of expenses that person said that they would have in retirement. So, that's how the whole times 25 4% rule relates to each other. So the key assumption behind the 4% rule is that your money stays invested. You're not putting it in cash. You're not pulling it out all at once. What you're doing is you are withdrawing a small portion while the rest of your portfolio continues to grow. And that is why portfolio structure really matters. — Okay. So let's talk about structure because for this portfolio to work, it needs to be growth focused. Remember, you are going to be pulling 4% of your portfolio value year after year. So, what you want to make sure is that you are not diminishing your portfolio year after year. So, your portfolio must be growing and you are only taking a portion of that growth. So, in order to do that, based off of the Trinity study, your investment portfolio should be made up of a certain asset allocation, which typically means at least 75% invested in stocks like a total stock market index fund or an S&P 500 index fund and no more than 25% bonds. This is so crucial because stocks provide growth and the average return of the stock market has been about 10% annually. So if it's growing at 10% annually and you are only living off of 4% of that growth after you take into account inflation and other things like that, your portfolio is still growing. So, this is so important to recognize because stocks provide growth that keep up with inflation and allow you to withdraw from your portfolio safely. — So, let's bring this together with another example. Let's say someone says that their expenses in retirement are $50,000. You multiply that by 25 and like we said, the fire number then becomes $1. 25 million. So, if that $1. 25 $25 million is invested in a stockheavy portfolio, that person can withdraw $50,000 annually and still allow that portfolio to grow. So that is really the math behind retiring early. — So you are creating a stock portfolio that you can withdraw from indefinitely. That is so incredible and why having a fire investment strategy is so important. You know, your financial advisor is not going to talk to you about fire. Most people when they think about retirement, they build up a nest egg to a certain amount and then they withdraw from that nest egg until it goes to zero. But with a fire strategy, you are building a portfolio that sustains itself and in fact gets bigger and bigger over time. So the math can be really straightforward. What is interesting and what we talk about in our fire master class is how you can put together a strategy that takes into account some of the other extra passive income that you may have coming into your life. Let's say you have a rental property. royalties, a pension. How does that change the math? This is very interesting and we don't have time to get into it in this video, but we just wanted to introduce this concept to you because once you know how much you spend every single year, the math is very straightforward. You multiply it times 25 and that's how much you need to grow in an investment portfolio. And once you have that in your investment portfolio, you are financially independent. So, if you are looking to build your fire plan, find the exact specifics of how to build your fire plan based off of your unique situation and calculating your fire number, even if you are considering other passive forms of income that are coming in for you, you must check out our FIRE master class. It goes through all of those details and really helps you build a plan that's unique for you. If you are interested, you can go to ourrichjourney. com and we'll also leave a link in the description below. So, for a lot of you, you may be new to investing. And the whole idea of living off of your investments might sound a little scary. I mean, for us, when we retired early, that was all we had was our investment portfolio. But we pulled the parachute. We left our jobs with confidence because

### Segment 3 (10:00 - 10:00) [10:00]

we did the math, we did the studies, and we knew that we could live off of our investment portfolio forever. And so in the next series of videos, what we want to do is talk more about how to invest in the stock market and how to gain that confidence so that when you do build that portfolio, you're able to leave your job with confidence and without fear and take your life back. And so if you've liked this video and if you want to watch the next videos in this series, please give this video a thumbs up, subscribe to our channel, and join the journey. I