The Capitalist Investor - Episode 38

What are the 5 things you can do NOW to retire early? Is it even feasible? What would your life have to look like to retire by 30? What about by age 40? In this episode of The Capitalist Investor, we share 5 things that we think are key to building a retirement income—and if we think it’s possible. We also share what you can do to get ahead as quickly as possible. Don’t miss this one!

Outline of This Episode

  • [0:24] The 5 keys to retiring early
  • [3:00] Key #1: Live within your means
  • [5:01] Key #2: Pay yourself first (save)
  • [12:44] Key #3: Don’t misbehave
  • [14:25] Key #4: Have multiple streams of income
  • [19:01] Key #5: Build a financial plan—and follow it
  • [22:29] Why you should rollover your 401k plan
  • [24:43] Why an optimal distribution strategy matters

Key #1: Live within your means

Hypothetically speaking, straight out of college, you’d be lucky to make $50,000 in an entry-level position. Let’s say you decide to contribute the max that you can to your 401k ($19,500) and your employers match a percentage, bringing it to $25,000 a year. If you get a 10% annual return—pretty generous—by age 32 you’d have $398,000.

To do that, you have to live within your means. Develop a budget, figure out what’s important, and prioritize your money. Make decisions that put you ahead financially. Maybe you don’t get the cool car or the biggest house. On the flip side, Derek points out that you don’t want to be so frugal that you’re miserable. There’s a fine line between making smart financial decisions and hating life.

Key #2: Save + invest your money

You need to take a portion of every paycheck for savings, then invest it. If someone saves $25,000 a year for 10 years and gets a 10% annualized return, they’ll have just under $400k, right? If you save $25,000 a year for 20 years with the same return, you’ll have $1.4 million. If It’s a more realistic 7% annualized return, you’ll likely end up with just under $1 million after 20 years.

But once you get to $1 million, you’re going to want more. We recommend you 10x your goal and do everything you can to get there. Even if you don’t make it to $10 million, you’ll still be retiring as a millionaire. If you’re living below your means you can be a millionaire in 20 years. So how should you invest your money? What’s the best route to take? Keep listening to hear our thoughts.

Key #3: Don’t misbehave when managing your investments

If you’re 26 years old you may not necessarily need a retirement plan, but you do want to set target goals. Where do I want to be? How do I get there? Work backward to decide what you need to do. If you’re young, we don’t recommend playing around with more than 10% of your savings on Robinhood. That way, if you pick all of the wrong stocks, your financial plan is not ruined. It’s a safer bet to invest your money in index funds. Then, when you get to $100,000 you move out of index funds and start investing in companies that you actually like—and have someone qualified help you make those decisions.

Key #4: You NEED multiple streams of income

You NEED to have a side hustle. The truth is that no one gets ahead working only 40 hours a week. It won’t cut it, you have to do something else. I don’t care if it’s Uber, cleaning carpets, renovating homes, etc. You need a side hustle. If you want to save as much as you can, you have to generate additional sources of income. Most successful people have a story like that. Working 40 hours a week can get you to retirement—but not early retirement.

65% of self-made millionaires had 3 streams of income. 45% had 4 streams of income. 29% had 5 or more. Working more than the minimum is the key to getting ahead. It amazes us when people work only 40 hours a week and complain they’re living paycheck-to-paycheck. It’s simple: Work an extra 10 hours a week.

Key #5: Build a financial plan—and follow it

The bottom line is that you need to build a financial plan and follow it. There are so many ways you can do that. One that people don’t often think about? Life insurance. Life insurance is a good way to save when you’re younger. It pays a lot more than a savings account. You can use it as a tax-deferred cash accumulation vehicle. It grows tax-free and you can take it out tax-free as a “loan”. It’s something you can set on auto-pilot. What other opportunities exist? Should you have multiple IRA accounts? Listen to the whole episode to find out!

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Keep Listening to The Capitalist Investor:
Episode 12:
Fiscal Stimulus Bazooka, Ep #12
Episode 28:
First Investing Experience: Baseball Cards, Ep #28
Episode 44:
Presidential Debates and the Possibility of a Contested Election, Ep #44
Episode 60:
GameStop, Reddit, and the Power of the Retail Investor, Ep #60
Episode 76:
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Episode 92:
El Salvador Welcomes Bitcoin, Ep #92
Episode 108:
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Episode 13:
Fireside Chat with a Firefighter, Ep #13