How Do I Start Saving For An Early Retirement?

[00:00] [Music]

[00:05] alex is in houston texas hey alex what's

[00:07] up

[00:09] hey nothing much dave and john hey so

[00:11] i've got this question that i haven't

[00:13] been able to find a good answer to

[00:15] and essentially it has to do with

[00:18] early retirement and how best to fund

[00:21] that via mutual funds

[00:23] or or however that best looks as to be

[00:26] able to access it you know when you're

[00:29] oh so you'll need an income prior to the

[00:31] 59 and a half to be able to cash out

[00:33] your other stuff

[00:35] yes sir gotcha okay how old are you now

[00:39] i'm 26 right now okay

[00:41] and

[00:42] um so you are debt free

[00:46] debt-free um currently cash flowing my

[00:49] wife's college

[00:50] but trying to get a few things lined up

[00:53] uh once that's over and and kind of hit

[00:55] the ground running okay

[00:57] well my point is i want you to work the

[00:58] baby steps before you worry about the

[01:01] answer to this question so that this

[01:03] this discussion

[01:05] is fine to have but i want it to be a

[01:06] little bit theoretical for right now

[01:08] okay

[01:09] okay i don't want you to take your eye

[01:11] off the ball and go work on this stuff

[01:12] we're getting ready to talk about until

[01:13] you've worked the baby steps

[01:16] in other words you're jacking up your

[01:18] regular retirement first

[01:21] because we don't need to talk about

[01:22] retiring early and you have no money in

[01:25] your 401k or roth iras you follow me

[01:28] yes sir okay now

[01:31] two ways that you can do that once you

[01:34] are debt-free housing everything and

[01:36] you're starting to really load up your

[01:38] regular retirement funds

[01:40] and you want to do some additional

[01:42] investing that you can access earlier

[01:45] before 59 and a half

[01:47] one is you can begin to save and pay

[01:49] cash for real estate

[01:51] and obviously real estate throws off an

[01:53] income from the first day if it's income

[01:54] producing real estate which is the only

[01:56] comment i'm suggesting right now but you

[01:58] save up and buy a rental house you save

[02:00] up and buy a a small apartment complex

[02:02] or a little office building or something

[02:05] and you begin to work that way that is

[02:07] obviously money you can access

[02:09] at any time

[02:10] and you you have to access it the rent

[02:12] that comes off of it it's not optional

[02:15] the second thing you can do

[02:17] is you can invest in

[02:19] uh what are called low

[02:21] turnover mutual funds

[02:24] now the way a low turnover mutual fund

[02:26] works is they don't turn the stocks in

[02:29] the mutual fund over they don't sell

[02:31] anything it's a buy hold

[02:33] strategy by and large so if you have a

[02:36] five percent turnover ratio that means

[02:38] they only sell five percent of the

[02:40] holdings a year does that make sense

[02:43] yes sir and that if it if they don't

[02:45] sell it and you don't sell it it's a

[02:48] capital gains growth meaning that you

[02:51] have the growth

[02:52] but you don't pay any taxes on it until

[02:55] you actually sell some of it so an

[02:57] example of that that's easy to do is an

[03:00] s p 500 index fund

[03:02] and so i dump some money in an s p 500

[03:05] index fund almost every month i've got a

[03:06] good deal in there uh as my overflow

[03:09] funds

[03:10] because that money then grows and i

[03:12] don't pay any taxes on the growth or

[03:14] hardly any

[03:16] until i actually pull it out and use it

[03:18] and if i've left it in there at least a

[03:20] year when i pull it out and use it i pay

[03:22] capital gains rate on the taxes

[03:25] rather than ordinary income rate on my

[03:27] taxes so in in most people's cases

[03:29] that'd be 15

[03:31] instead of 30 or 40 or whatever your tax

[03:33] rate is okay my case i make too much

[03:35] money so my capital gains is way more

[03:37] than 15 but

[03:39] um so because i'm rich and i must be

[03:41] punished and that's how that's how the

[03:43] thing works these days but

[03:44] uh but anyway the the

[03:47] the point being that you're getting two

[03:49] benefits here one you're not paying

[03:50] taxes until you take it out and then

[03:52] b when you do take it out you're paying

[03:55] less taxes

[03:57] okay

[03:58] so the low turnover mutual fund works no

[04:00] matter how much you take out exactly

[04:02] whatever you take out is going to be

[04:04] taxable on the gain

[04:07] so it works like it works like this easy

[04:08] way to remember is let's just take a

[04:10] single stock let's say you bought a

[04:12] stock of a share of home depot and i

[04:16] don't even know what home depot sells

[04:17] for okay i'm just making this up

[04:19] but um

[04:21] you bought it for fifty dollars

[04:23] and next year it's worth sixty dollars

[04:26] you do not pay any taxes on that ten

[04:28] dollars in gain

[04:29] unless you sell that stock and you'll

[04:31] pay taxes on that ten dollars then

[04:34] but if you hold it ten years

[04:36] and it goes up from fifty dollars to 150

[04:39] you don't pay taxes on that hundred

[04:40] dollar gain until you sell that stock

[04:44] and what we're doing inside that low

[04:46] turnover mutual fund is there's a whole

[04:47] bunch of home depots in there they're

[04:49] just holding them all

[04:50] and they're all going up up up up up up

[04:52] up up up up up up up up up up and you're

[04:53] not selling them and so you're getting

[04:55] the value going up without paying any

[04:57] taxes until you do sell it and you only

[04:59] pay taxes on the amount it went up and

[05:02] the amount you sell and it's only at

[05:04] capital gains rate so it's at a reduced

[05:06] rate and it is uh gives you a delayed

[05:10] a tax deferred growth the capital gains

[05:13] growth on it and that's that's what a

[05:15] whole lot of people do for their what we

[05:17] call bridge

[05:18] uh investing to make the bridge between

[05:21] 50 and 59 and a half work

[05:23] dave i hear this question a lot from

[05:26] people in the early 20s what do i have

[05:28] to do to be able to retire sooner rather

[05:30] than later

[05:32] my initial pushback on that question is

[05:35] always

[05:37] why are you already planning on

[05:39] what what is it about the life you're

[05:41] setting up for yourself that you can't

[05:42] wait to do something else with it yeah

[05:45] and agreed is that a great am i off

[05:47] because there's something about like man

[05:49] if you love coaching then be the best

[05:50] coach you can be and love coaching and i

[05:52] don't i don't have any plans to quote

[05:54] unquote do nothing you know what i mean

[05:56] that's not one of my life goals

[05:58] i like what i do

[05:59] i've always liked what i do to your

[06:01] point if that young man is

[06:04] uh wanting to do this his motivation is

[06:07] because he hates his job today right but

[06:08] go and change shout outs

[06:10] yeah get ken coleman's book paycheck to

[06:12] purpose and start making plans to go do

[06:14] something you love and you'll make more

[06:15] money anyway so uh if you're doing

[06:17] something you love if that's the point

[06:19] i have already done the flip and

[06:21] sometimes it's wrong when i've done it

[06:23] because i'm when i hear people say

[06:25] retire

[06:26] what they're really saying is i want

[06:28] wealth that i can i want to be able to

[06:30] access some of my wealth there you go

[06:32] okay before i'm 60. gotcha before i'm 59

[06:34] and a half and so that's how i

[06:36] interpreted the question okay and if i

[06:38] was wrong and you were right then your

[06:40] advice is actually correct because i

[06:42] don't know i didn't ask him that i

[06:43] didn't i didn't think about that

[06:44] question that's i just i just you know

[06:46] how can i get to some of my money before

[06:48] i'm 60. uh okay because i don't want it

[06:50] all kind of trapped over there

[06:53] in retirement and he's already he's he's

[06:55] running spreadsheets this guy's running

[06:56] spreadsheets that's exactly right he's

[06:57] he's 26 and he's projecting he's nerding

[07:00] out right and uh because i know him

[07:02] because i do it all the time so i did it

[07:03] all the time when i was here how quick

[07:04] can i get out of this this quote unquote

[07:06] life thing right yeah well how how quick

[07:08] can i get to make get access to some of

[07:10] this money the live like no one else

[07:13] portion of dave said yeah yeah yeah yeah

[07:15] if that's what he's saying then i'm fine

[07:16] with it but if he's saying oh i hate my

[07:18] job and i can't wait to figure out a way

[07:20] to not have to do it anymore

[07:22] that's what retirement means that's when

[07:23] i look at the retirement data and that's

[07:25] where people just die yeah right or

[07:26] their bodies fall apart yeah man and so

[07:28] it's time to go and start doing

[07:29] something set up the life you love yeah

[07:31] something and you don't have to make

[07:32] less money to do it either no you just

[07:34] get king coleman's book and you learn

[07:35] the clear path that he's got there it's

[07:37] very clear on exactly what to do we talk

[07:39] about in the ramsey show all the time

[07:41] but you're exactly right so

[07:43] it's uh i didn't thought about that

[07:46] chris hogan was ramsey personality did

[07:47] that book retire inspired we kept

[07:49] dealing with that

[07:52] a lot that you know one of the things

[07:53] chris used to say is beautiful saying

[07:55] and i'll steal it uh is uh

[07:58] uh

[07:59] retirement is not an age it's a number

[08:02] yeah yeah

[08:03] and and really what we're saying there

[08:05] is wealth is a number yeah

[08:09] accessible accessible that i can get my

[08:11] hands on so it's a good good

[08:13] clarification to talk through