“Build wealth your grandma would be proud of.”

SWIPE GRANDMA’S KEY STRATEGIES WITH “WHOLESOME WEALTH RECIPES.”

Grandma always said, “Eat your vegetables.” Would you create a financial diet of cookie-cutter strategies that make you feel bloated with fees? Wouldn’t you rather build on time-honored wealth strategies served with balance and trust? It’s your personal money goals at stake.

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Ignite the FIRE!

Retiring into your 60’s and 70’s can seem like an enormous challenge to pull off. But some people are following the ‘FIRE’ movement, retiring early and parting from their careers in their 30’s and 40’s.

In today’s episode, we talk about the ‘FIRE’ movement and what it actually takes to achieve this ‘financial independence/retire early’ goal.

Here Are The Show Highlights:

– A ‘must-read’ book to transform your relationship with money and achieve financial independence ([2:20])

– Crucial steps needed to achieve financial independence ([3:20])

– What everybody is getting wrong about the ‘FIRE’ movement ([13:00])

– How to recession-proof your money and protect it from the next financial crisis ([17:20])

 

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Remember to download Grandma’s free wholesome wealth recipes book by dropping into http://www.grandmaswealth.com. Time-honored wealth strategies served with a helping of balance and trust.

If you’d like to see how Grandma’s timeless wealth strategies can work in your life, schedule your free 15-minute coffee chat with us by visiting https://www.grandmaswealthwisdom.com/call…just like Grandma would want us to do.

Read Full Transcript

A hearty welcome to Grandma’s Wealth Wisdom with your hospitable hosts, Brandon and Amanda Neely. This is the only podcast for strategies to grow your wealth simply and sustainably like grandma used to. Without further ado here are your hosts.

Amanda: Hi, I'm Amanda and welcome to Grandma's Wealth Wisdom where we help you build wealth that grandma would be proud of.

Brandon: And I'm Brandon and today we're going to kick off a series about fire. We'll warn you, there are a lot of puns lighting the way for this series. But first, we need to define "fire". Now we're not talking about fire with a match and all of that, we’re talking about a movement spreading like wild fire around the nation. In this movement, people are attempting to be financially independent and/or retire early. Hence, fire – FIRE, financial independence is the F I and retire early is the R E, if you didn't figure that out already.

Amanda: So with that in mind, that that's what the acronym stands for. What does grandma think about FIRE?

Brandon: So as I was talking with her, she told me at first she was skeptical but then she was proud that people in the FIRE movement are taking their lives and their money seriously and just not going with the flow of your typical corporate drone or consumeristic American like a lot of people are.

Amanda: Right. So we've defined what FIRE stands for – financial independence retire early. We've shared that grandma is proud of some of the people in the FIRE movement and the whole idea that they are taking their money seriously and not going with the flow. But at this point, you might be asking yourself what really is the FIRE movement? You're not actually telling what it is. So let's do that. The FIRE movement is kind of hard to define because there are so many voices describing their own versions of what FIRE looks like for them. I found it most interesting to return the book that start the movement and has really continued to inspire the movement. The book is called, "Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence." The book is written by Vicki Robin and Joe Dominguez.

Brandon: And from what I've heard they just released a 2018 revised edition so you can check out the new edition as well.

Amanda: And they have also created a helpful book summary on their website. The website is www.yourmoneyoryourlife.com and then you can go find the book summary from there. The book is really a nine step program and it goes deep into money mindset. For instance, when we talked about FIRE, we only used the FI for financial independence but in the book they actually have the FI can stand for financial intelligence, financial integrity, and financial independence. I really love their definition of financial independence. I'm actually going to read it from that book summary. "Financial independence is defined as having an income sufficient for your basic needs and comforts from a source other than paid employment. It's also independence from crippling financial beliefs from crippling debt and from a crippling inability to manage modern conveniences from repairing your car to fixing your central heating. Financial independence is an experience of freedom at a psychological level. You're free of guilt, resentment, envy, frustration, and despair that you have felt about money issues. Financial independence has nothing to do with rich. Financial independence is the experience of having enough and then some. The old notion of financial independence as rich forever is not achievable. Enough is. Enough for you may be different from enough for your neighbor but it will be a figure that is real for you and within your reach." So that's how they define financial independence. Then the RE retire early is simply the result of financial independence. You have sources of income other than a job and that income is sufficient for your basic needs therefore you can leave your job. You can retire early.

Brandon: I mean that sounds awesome really. Financial independence sounds really good. But I have some very important questions I like to ask. For example, how do you know exactly how much to spend from your nest egg to make you never run out of money that you always have financial independence? Even PhDs in economics debate this and have changed the number over time, how much do you actually need.

Amanda: Right, so many FIRE promoters use the four percent rule. You may have heard of the four percent rule. The four percent rule has been taught in average financial planning for 20 to 30 years. Yet in 2013, an organization called Morningstar which is a global investment research and investment management headquartered right here in Chicago where we are at recording this episode.

Brandon: Love it.

Amanda: So Morningstar published this report in 2013 called "Low Bond Deals and Safe Portfolio Withdrawal Rates".

Brandon: Oh that sounds like clickbait right there. Sounds like a great title.

Amanda: Right.

Brandon: Everybody is reading that one.

Amanda: Everyone wants to read this report, right, "Low Bond Deals and Safe Portfolio Withdrawal Rates". This report was literally written by a few scholars with acronyms like PhD, CFP, and CFA after their names. They did the research and they come up with some pretty huge conclusions. The bottom line is that we're way off the former averages. You can see our last episode where we talked about the Roaring 20s and the stock market and we are off the averages for the stock market but they are also talking about that we are off the averages for bonds as well. If you've listened to the last episode what I'm about to say will not surprise you. So they are saying we're way off the former averages and with the new way of the financial world the four percent rule only have a 50/50 chance of success for a 30 year retirement.

Brandon: What did you say?

Amanda: A 50/50 chance of success for a 30 year retirement if you're following the four percent rule.

Brandon: A 50/50 percent chance a 65-year-old will run out of money before they are 95. That's pretty scary.

Amanda: That's what that means.

Brandon: Or in the case of early retirement if you want to retire early, a 40-year-old is half likely to run out of money by the time they reach 70 so before they are even at the age of retirement, they might run out of that money right there.

Amanda: Depending on how you define, if they retired early by the time like normal people would retire, they might have already run out of money.

Brandon: I wouldn't get on a plane if I had a 50/50 chance of crashing.

Amanda: Right. But you would still get on the plane if you had a 99% chance of making it. You know like we're willing to some risk.

Brandon: Some risk but not like a 50/50 chance that's a little too much for me.

Amanda: Yeah so the report goes on to say that if you want to increase your success rate here's what you need to think about. So if you have a 40/60 blend of stocks and bonds, 40% stocks, 60% bonds you increase your success to 90% for a 30 year retirement. If you reduce the amount you take out to just 2.8%.

Brandon: So this new rule is really the 2.8 percent rule rather than the 4 percent rule, is that what you are saying?

Amanda: Possibly. What the report is really saying is that you have two choices, you can live on less like take the 2.8% instead of 4% or alternatively you could save more. To be exact they say need save 42.9% more.

Brandon: There is a third option, not mention in the report. This is a little bit morbid but I mean it is morbid. It is dying early. So if you die early you can take 4%.

Amanda: If you plan to die early that is a good point.

Brandon: Which again, if you don't have money often times stress and all that stuff feeds into dying early.

Amanda: We don't have all the stats to back that all up but just in...

Brandon: That's for another ...

Amanda: Another episode, I'll do the research on how much stress – financial stress decreases your mortality.

Brandon: But there is three options.

Amanda: But what I'm guessing from the FIRE people is that they would say something like try to do number one and number two. You know try to save more and try to live on less. You definitely don't want to die early.

Brandon: Yeah, let's not go for that. I wouldn't and grandma wouldn't want to see you die early either. So grandma would be about living longer.

Amanda: Yeah, so let's break this down into some actually scenarios. What's the reality for many when they retire whether they are retiring early or later?
Grandma always said, “Eat your vegetables.” She loved making home-cooked meals with healthy food and from-scratch desserts. Would you create a diet of fast food or cookie cutter financial products that made you fat and bloated with fees or would you like wholesome time-honored wealth strategies served with balance and trust. Get started with your healthy money planning by downloading wholesome wealthy recipes; your moola cookbook is waiting for you at grandmaswealth.com.

Brandon: So let's say you saved $4 million that's a pretty good amount of money to be saving, $4 million. If you follow the four percent rule you could have $160,000 in income each year but you got to take out taxes so that would be $128,000 or so after taxes. If you follow the revised 2.8% rule of that $4 million it would go down to $112,000 in income or again taxes, you got to take out the taxes, $89,000 per year in retirement. That's a $39,000 difference accounting for taxes each year and that's $4 million going to $89,000.

Amanda: So you have $4 million in your nest egg but you can only spend $89,000 per year on everything you and your family need. So that could even be less if you want to have a cushion for emergencies or what they call in the book, Your Money or Your Life, a cache. This cache, this fund, this cushion is there to finance your service work, to reinvest, to produce an endowment fund, to use to replace high cost items, you can use it to compensate for if there are periods where there is large inflation, you can give it to charity, it's there if you need long-term care or you have high medical costs that's what that cushion is for. So if you have the $4 million, you might set aside a portion of that as your cushion and live on 2.8% of the other portion of it. You might even be living on less that $89,000 per year.

Brandon: Wow. You got to think. Most people...

Amanda: Don't have $4 million.

Brandon: ...don't have $4 million saved. I don't know, there are not that many people I know that have that so let's be conservative and let's say you saved $1 million.

Amanda: That's still a lot.

Brandon: Yeah, it's still a lot of money that you saved a million dollars towards retirement. So then you're down to $28,000 income and that's $22,000 after taxes to have a 90% chance of not running of money over a 30 year retirement period using that 2.8% rule. Maybe, just maybe $22,000 works for an 80-year-old who plays chess with their buddies or whatever an 80-year-old does all that – I'm not that so watching Jeopardy or something – but if you're a 40-year-old retiring early and have a family of four, you're below the Federal Poverty Line so that's a big deal.

Amanda: Maybe once you're old enough you can start to take social security or maybe you can pick up a part-time job or some other freelance work maybe like so many in the FIRE movement, you can start a blog and figure out how to monetize it. But taking those options out of the scenario, you're a millionaire on paper whose annual income is below the Federal Poverty Line. That's a reality of many who pursue FIRE and they are actually proud that they can live on so little. But in other words, for the rest of us, more like average, normal people, we need to be thinking about creating a considerable nest egg and then living on a small portion of it just the growth. You might try 2.8% instead of 4% but who knows if between now and when you reach financial independence the PhDs might change their minds again and give you a different number.

Brandon: I mean this sounds really stressful, Amanda. Like hearing all those numbers, it's scary sometimes which leads me to the next question I have for you. It's maybe I think the most important question, I'd invite also our listeners to ask themselves, do I want to be stressing over this for 30 years or maybe even 60 years because you know we are living longer – so the question is do I want to be stressing over this for 30 years or maybe longer?

Amanda: Right because also if you're retiring early, it could be a longer too.

Brandon: Not to mention, you'll live longer but you're retiring early so.

Amanda: Yeah, a lot of years to potentially have stress from this. Now from what I can tell the first founders of the FIRE movement are people who love crunching numbers, playing with spreadsheets, they might get excited when they see their stock account tumble or they have potential major expenses that come along because they have new problem to solve. They can attempt to reduce their expenses even more or find new ways to bring in money then there's also the more environmentalist or more spiritual camp within the FIRE movement who would be happy to live off whatever they could grow themselves and they enjoy meditation so much, they have mastered the original nine step program and don't have a worry in the world regardless if their income producing resource dips by 50% or more in the next recession.

Brandon: Sounds woo-woo to me.

Amanda: Well, I'm totally exaggerating here. Chances are even for those listening to this podcast; you might be somewhat interested in finances and money. But you do not want to lose sleep over it or spend your free time trying hack your budget or hack your investments. You know it's something – you're willing to listen to a podcast that kind of thing but you don't want to stay up late at night thinking about these kinds of things. Remember the original FIRE sacred text, this book, Your Money or Your Life, is all about your money mindset and their words, what they are trying to help you do is take the power you have given over to money and become a conscientious, loving steward of your life energy. It's not about spending hours a day trying to save money or to concoct clever ways to generate money. It's really about taking back control of your life, having less worry, less stress in your life.

Brandon: I mean that sounds amazing to be able to be in that position and following the FIRE movement if that's what it does for us that's what I want. So in episode 10, Eating Twinkies All Day will Kill You, we talked about making your financial plan as automated as possible. We're talking about more than setting up an auto-pay on our bills though, we're talking about getting peace of mind where you don't have to watch any stock tickers or make any emotional decision because of the crash or the lack of or whatever, creating a stress-free, worry-free financial life sounds a lot like what financial independence is supposed to be. Let's imagine some ways that could look like.

Amanda: Yeah so just imagine your financial independent and you have this whole team of people that you hired to grow your money for you and what if you paid for that team's salary when you're in the first five years of your FIRE journey, you never had to pay them another nickel and that team was growing your money for you and they had a 100 year track record of returns every single year or growth every single year.

Brandon: So imagine what if when the next major recession hits your money isn't impacted one bit from it. Or what if you happen to contract cancer, you get cancer and your fund suddenly has more not less available to cover your bills for that cancer.

Amanda: Yeah, that sounds like financial independence. In the original book for step nine, Joe suggests using bonds as your saving vehicle. He's using a highly conservative approach. In the 2018 version, they expanded the criteria to include things like conservative and balanced use of mutual funds, real estate, and other investment vehicles. Now grandma had this really cool strategy that half of Americans were using in the 1940s. Grandma's strategy gives you access to the highest rated bonds but shifts the risk because bonds still have risks, shifts the risk to that team that you hired to grow your money for you. This strategy fits very well with FIRE and safeguards you from most of the worst case scenarios.

Brandon: But we're out of time for today and we would love to share more and we're going to in the next episode for sure but if you want to talk with us, let's continue the conversation in voice on the phone. So all you have to do is go to GrandmasWealthWisdom.com and click "Request a Meeting". We would love to hear from you. We would love to chat and see if some of these strategies that we're talking about can serve you and help you.

Amanda: Yeah, so this is the beginning of this little, mini series we're doing about FIRE. There are some really great things to learn from grandma that the FIRE movement has caught on to. Today, we hope you've gotten a good idea of what the FIRE movement is and at least and inkling of desire of that FI part; financial intelligence, financial integrity and financial independence. Even if you feel a huge nest egg is way out of reach there are ways to make your life less stressful and begin your journey toward financial independence. Brandon and I would love to help you do just that. All you have to do is schedule a call with one of us at GrandmasWealthWisdom.com. There is no cost to this call and there is no obligation either. You just have to go the website, click "Request a Meeting" and we'll take the time to talk with you.

Brandon: So Amanda thanks for lighting the match with the FIRE movement, the FIRE series that we have. So in the next episode, we're going to be exploring some FIRE extinguishers that could get in the way of anyone's quest for a sane financial life whether you subscribe to the FIRE movement or not be sure to tune in to our next episode so that way you know what extinguishers are out there and how to overcome them because we all want financial independence and all that kind of stuff. We want this match light and we don't want it to go out.

Amanda: Yup, so until next time, keep building your wealth simply and sustainably for your own future and the future of our grandchildren's generation.

SWIPE GRANDMA’S KEY STRATEGIES WITH “WHOLESOME WEALTH RECIPES.”

Grandma always said, “Eat your vegetables.” Would you create a financial diet of cookie-cutter strategies that make you feel bloated with fees? Wouldn’t you rather build on time-honored wealth strategies served with balance and trust? It’s your personal money goals at stake.

Enter your email address below to unlock your financial future.

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