[0:00] [Music]
[0:05] alex is in houston texas hey alex what's
[0:07] up
[0:09] hey nothing much dave and john hey so
[0:11] i've got this question that i haven't
[0:13] been able to find a good answer to
[0:15] and essentially it has to do with
[0:18] early retirement and how best to fund
[0:21] that via mutual funds
[0:23] or or however that best looks as to be
[0:26] able to access it you know when you're
[0:29] oh so you'll need an income prior to the
[0:31] 59 and a half to be able to cash out
[0:33] your other stuff
[0:35] yes sir gotcha okay how old are you now
[0:39] i'm 26 right now okay
[0:41] and
[0:42] um so you are debt free
[0:46] debt-free um currently cash flowing my
[0:49] wife's college
[0:50] but trying to get a few things lined up
[0:53] uh once that's over and and kind of hit
[0:55] the ground running okay
[0:57] well my point is i want you to work the
[0:58] baby steps before you worry about the
[1:01] answer to this question so that this
[1:03] this discussion
[1:05] is fine to have but i want it to be a
[1:06] little bit theoretical for right now
[1:08] okay
[1:09] okay i don't want you to take your eye
[1:11] off the ball and go work on this stuff
[1:12] we're getting ready to talk about until
[1:13] you've worked the baby steps
[1:16] in other words you're jacking up your
[1:18] regular retirement first
[1:21] because we don't need to talk about
[1:22] retiring early and you have no money in
[1:25] your 401k or roth iras you follow me
[1:28] yes sir okay now
[1:31] two ways that you can do that once you
[1:34] are debt-free housing everything and
[1:36] you're starting to really load up your
[1:38] regular retirement funds
[1:40] and you want to do some additional
[1:42] investing that you can access earlier
[1:45] before 59 and a half
[1:47] one is you can begin to save and pay
[1:49] cash for real estate
[1:51] and obviously real estate throws off an
[1:53] income from the first day if it's income
[1:54] producing real estate which is the only
[1:56] comment i'm suggesting right now but you
[1:58] save up and buy a rental house you save
[2:00] up and buy a a small apartment complex
[2:02] or a little office building or something
[2:05] and you begin to work that way that is
[2:07] obviously money you can access
[2:09] at any time
[2:10] and you you have to access it the rent
[2:12] that comes off of it it's not optional
[2:15] the second thing you can do
[2:17] is you can invest in
[2:19] uh what are called low
[2:21] turnover mutual funds
[2:24] now the way a low turnover mutual fund
[2:26] works is they don't turn the stocks in
[2:29] the mutual fund over they don't sell
[2:31] anything it's a buy hold
[2:33] strategy by and large so if you have a
[2:36] five percent turnover ratio that means
[2:38] they only sell five percent of the
[2:40] holdings a year does that make sense
[2:43] yes sir and that if it if they don't
[2:45] sell it and you don't sell it it's a
[2:48] capital gains growth meaning that you
[2:51] have the growth
[2:52] but you don't pay any taxes on it until
[2:55] you actually sell some of it so an
[2:57] example of that that's easy to do is an
[3:00] s p 500 index fund
[3:02] and so i dump some money in an s p 500
[3:05] index fund almost every month i've got a
[3:06] good deal in there uh as my overflow
[3:09] funds
[3:10] because that money then grows and i
[3:12] don't pay any taxes on the growth or
[3:14] hardly any
[3:16] until i actually pull it out and use it
[3:18] and if i've left it in there at least a
[3:20] year when i pull it out and use it i pay
[3:22] capital gains rate on the taxes
[3:25] rather than ordinary income rate on my
[3:27] taxes so in in most people's cases
[3:29] that'd be 15
[3:31] instead of 30 or 40 or whatever your tax
[3:33] rate is okay my case i make too much
[3:35] money so my capital gains is way more
[3:37] than 15 but
[3:39] um so because i'm rich and i must be
[3:41] punished and that's how that's how the
[3:43] thing works these days but
[3:44] uh but anyway the the
[3:47] the point being that you're getting two
[3:49] benefits here one you're not paying
[3:50] taxes until you take it out and then
[3:52] b when you do take it out you're paying
[3:55] less taxes
[3:57] okay
[3:58] so the low turnover mutual fund works no
[4:00] matter how much you take out exactly
[4:02] whatever you take out is going to be
[4:04] taxable on the gain
[4:07] so it works like it works like this easy
[4:08] way to remember is let's just take a
[4:10] single stock let's say you bought a
[4:12] stock of a share of home depot and i
[4:16] don't even know what home depot sells
[4:17] for okay i'm just making this up
[4:19] but um
[4:21] you bought it for fifty dollars
[4:23] and next year it's worth sixty dollars
[4:26] you do not pay any taxes on that ten
[4:28] dollars in gain
[4:29] unless you sell that stock and you'll
[4:31] pay taxes on that ten dollars then
[4:34] but if you hold it ten years
[4:36] and it goes up from fifty dollars to 150
[4:39] you don't pay taxes on that hundred
[4:40] dollar gain until you sell that stock
[4:44] and what we're doing inside that low
[4:46] turnover mutual fund is there's a whole
[4:47] bunch of home depots in there they're
[4:49] just holding them all
[4:50] and they're all going up up up up up up
[4:52] up up up up up up up up up up and you're
[4:53] not selling them and so you're getting
[4:55] the value going up without paying any
[4:57] taxes until you do sell it and you only
[4:59] pay taxes on the amount it went up and
[5:02] the amount you sell and it's only at
[5:04] capital gains rate so it's at a reduced
[5:06] rate and it is uh gives you a delayed
[5:10] a tax deferred growth the capital gains
[5:13] growth on it and that's that's what a
[5:15] whole lot of people do for their what we
[5:17] call bridge
[5:18] uh investing to make the bridge between
[5:21] 50 and 59 and a half work
[5:23] dave i hear this question a lot from
[5:26] people in the early 20s what do i have
[5:28] to do to be able to retire sooner rather
[5:30] than later
[5:32] my initial pushback on that question is
[5:35] always
[5:37] why are you already planning on
[5:39] what what is it about the life you're
[5:41] setting up for yourself that you can't
[5:42] wait to do something else with it yeah
[5:45] and agreed is that a great am i off
[5:47] because there's something about like man
[5:49] if you love coaching then be the best
[5:50] coach you can be and love coaching and i
[5:52] don't i don't have any plans to quote
[5:54] unquote do nothing you know what i mean
[5:56] that's not one of my life goals
[5:58] i like what i do
[5:59] i've always liked what i do to your
[6:01] point if that young man is
[6:04] uh wanting to do this his motivation is
[6:07] because he hates his job today right but
[6:08] go and change shout outs
[6:10] yeah get ken coleman's book paycheck to
[6:12] purpose and start making plans to go do
[6:14] something you love and you'll make more
[6:15] money anyway so uh if you're doing
[6:17] something you love if that's the point
[6:19] i have already done the flip and
[6:21] sometimes it's wrong when i've done it
[6:23] because i'm when i hear people say
[6:25] retire
[6:26] what they're really saying is i want
[6:28] wealth that i can i want to be able to
[6:30] access some of my wealth there you go
[6:32] okay before i'm 60. gotcha before i'm 59
[6:34] and a half and so that's how i
[6:36] interpreted the question okay and if i
[6:38] was wrong and you were right then your
[6:40] advice is actually correct because i
[6:42] don't know i didn't ask him that i
[6:43] didn't i didn't think about that
[6:44] question that's i just i just you know
[6:46] how can i get to some of my money before
[6:48] i'm 60. uh okay because i don't want it
[6:50] all kind of trapped over there
[6:53] in retirement and he's already he's he's
[6:55] running spreadsheets this guy's running
[6:56] spreadsheets that's exactly right he's
[6:57] he's 26 and he's projecting he's nerding
[7:00] out right and uh because i know him
[7:02] because i do it all the time so i did it
[7:03] all the time when i was here how quick
[7:04] can i get out of this this quote unquote
[7:06] life thing right yeah well how how quick
[7:08] can i get to make get access to some of
[7:10] this money the live like no one else
[7:13] portion of dave said yeah yeah yeah yeah
[7:15] if that's what he's saying then i'm fine
[7:16] with it but if he's saying oh i hate my
[7:18] job and i can't wait to figure out a way
[7:20] to not have to do it anymore
[7:22] that's what retirement means that's when
[7:23] i look at the retirement data and that's
[7:25] where people just die yeah right or
[7:26] their bodies fall apart yeah man and so
[7:28] it's time to go and start doing
[7:29] something set up the life you love yeah
[7:31] something and you don't have to make
[7:32] less money to do it either no you just
[7:34] get king coleman's book and you learn
[7:35] the clear path that he's got there it's
[7:37] very clear on exactly what to do we talk
[7:39] about in the ramsey show all the time
[7:41] but you're exactly right so
[7:43] it's uh i didn't thought about that
[7:46] chris hogan was ramsey personality did
[7:47] that book retire inspired we kept
[7:49] dealing with that
[7:52] a lot that you know one of the things
[7:53] chris used to say is beautiful saying
[7:55] and i'll steal it uh is uh
[7:58] uh
[7:59] retirement is not an age it's a number
[8:02] yeah yeah
[8:03] and and really what we're saying there
[8:05] is wealth is a number yeah
[8:09] accessible accessible that i can get my
[8:11] hands on so it's a good good
[8:13] clarification to talk through