If You're Thinking Of Retiring Early... Watch This

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. What if you could retire five or even 10 years earlier without sacrificing your lifestyle, but you never realized it because you never ran the numbers? Listen, if you've ever felt like you're in this grind, wondering if freedom is even possible before age 65, or even fear that maybe you just waited too long, missed your chance to even enjoy it, now this episode's for you. Because I'm about to break down exactly what it takes to retire early. How much do you really need? The lifestyle choices that you make that would make it possible and the trade offs you might face. Also, we'll look at the things to avoid the biggest mistake that most people make, which is waiting until it's too late.

If you're even thinking about retiring early, stop scrolling. Seriously, this could be the most important conversation that you have this year. Because most people don't retire late because they have to. They retire late because they never asked the right questions. They never asked the questions soon enough, and they didn't know what questions to ask. So they keep working and they keep trading time for money and they assume that retirement will be easier sometime later. What if you could retire maybe five or even 10 years earlier than you thought? What if you had more time while you were still healthy enough to enjoy it? Let's break that down. The math, the lifestyle, the trade offs, the risks, and the opportunity. All right, listen, I'm 63, going to be 64.

To me, functionally retired, you know, five, six, seven years ago. But I still do what I do because I have a money machine that allows me to have the choice. I get up every morning and I put my feet on the ground as I get out of bed knowing that I'm making a choice today. See, what I want you to have is a life of choice, not a life of demands. And having that ability to do that, knowing the questions to answer will allow you to make that happen. Because I've seen too many people wait. I've seen too many People late. And by the time that they finally get the freedom that they work so hard for, they're just too tired or they're too sick or it's too late to enjoy it. Listen, I had a man. Yeah, it was. It was a client that worked hard. He saved diligently, he played it safe. He did all the right things. He retired at 65, just like planned. And you may have heard these types of stories before, but literally a year after he retired, his wife got seriously ill. Two years later, she passed away. Now, all those plans for travel, the new hobbies, the quality time, they disappeared. And he literally, he told me, I thought I was buying freedom, but I waited too long to use it. See, I don't want you to wait too long to use it. Yes, we're buying freedom. It's our ultimate purchase. And it hit me because so many people of us sit back and go, can I afford to retire? And they don't even ask the question. It's also a question of will I still be healthy enough to enjoy it? When I do, I, working with my nutritionist, I keep telling them, I said, I want you to make sure that I'm vibrant enough to do the things that I want to do, to serve at the level I want to have the life that I choose to. So I want to talk about numbers. Let's talk about the numbers at the beginning. We'll talk about some other things. Let's assume that. And these are hypotheticals. Well, they're not hypotheticals. They're examples that I ran for a client. And I'm going to change the names here. Okay? There's a formula. There's a math to retirement. So let's just call them Alex and Taylor, okay? They're 55 and 53. They've saved $1.3 million. And it's in IRAs, it's in 401 s, it's in taxable brokerage accounts pay. And they want to retire now. They want to retire basically a decade early at 55 and 53. They currently spend $72,000 a year, $6,000 a month. So the question is, can they retire? Well, if they retire at the traditional age of 65, and your retirement horizon then is typically, we plan for 30 years, so 65 to 95. And you use the 4% rule. And I've done other shows on the 4% rule, what you would look at is say that in order to have $72,000 a year, which is what their current spending is, divided by the 4%, in order to have that every year, they need a portfolio. A minimum portfolio of 1.8 million, 72,000 divided by 4% or multiplied by 25, gives you 1.8 million. So if you have the 1.8 million and you draw down 4%, that gives you $72,000 a year. Now, I know it's simplified. We're not talking about taxes. We're not talking about which account it's coming from, all kinds of other things. But I just want to demonstrate the math around it for a moment. So in order for them to retire at age 65, they need 1.8. They currently have 1.3. That means that there's a $500,000 shortfall. So their alternative is that they, they have 1.3 million and they draw down 4%, and they can only get $52,000 out a year. That's a 28% cut from their goal. Okay, so this is the kind of math we do. This is simple math I use in the Money Machine master plan. We go deep into this and run a lot of different scenarios. But let's just look at it a little differently. They want to retire earlier. So let's say instead of 65, they want to retire at 65 years earlier. What that means is that your money has to actually last more than the 30 years it needs to last 35 years. So typically, you're going to reduce the withdrawal rate. So instead of 4%, you'll take out, say, 3.5%. But now we still need $72,000 a year divided by 3.5% instead of 4%, because we need it to last longer. Instead of 1.8 million, you need a little over 2 million, $2.06 million. So now instead of a half million dollar shortfall, there's a $760,000 shortfall. That means that if they were to retire five years earlier, they couldn't even spend the $52,000, because 1.3 million at 3.5% is only going to give them 45,005. That now, instead of 28% reduction, is now a 37% reduction. Okay, let's keep going. Just so you see what's happening, let's say they wanted to retire at 55 now. So now their retirement horizon is 40 years. So now we look at it and say, well, at 40 years, we need the money to last longer. So Instead of a 3.5% withdrawal rate, we go to a 3% withdrawal rate. Longer horizon, more risk, there's more exposure. $72,000 divided by 3% now says we need $2.4 million.

To be able to sustain a $72,000 spend at that rate. So now the shortfall, because they have 1.3, they need 2.4, is over $1 million. $1.1 million. So if I take a 3% withdrawal over 40 years, instead of getting 72% out, I mean 72,000 out, I would only get $39,000 out because it's 1.3 million times the 3%. I know I'm throwing a lot of numbers at you. Hopefully the graphics help here, but that's a 46% haircut. Okay, so when we start to look at these things, you start to go, wow, wait a second. I don't know that I can retire early. See, the thing is that there is a trade off here. And that trade off is if you want to retire 10 years earlier, in this example, you either need $1.1 million more or you need to live on half as much. Now, the good news is this. You get to choose which lever to pull. Save more money, spend less, earn a little longer, or mix and match it. But without that knowledge, you don't know which levers to push. You don't know which buttons to push, you to know when dials to turn.

And so this is where I want you to start to, to look at things and just run the rough math. And I have a, a calculator that we will hook up below. That is your basic freedom number calculator will help you run these numbers so you can start to understand that. Okay, but here's the part that I think is really important, is that most people skip this entirely. Retirement isn't just about not working. In fact, I feel like I'm retired, but I'm still working. But it doesn't feel like working. It's about creating a life that feels meaningful without needing a paycheck. Now, granted, I am getting a paycheck, and I still get a paycheck, which is totally meaningful. Totally fine. The key is that we do it by choice. So when you ask when you start to look at this retirement question, what I don't want you to do is I don't want you to just ask, when can I retire? And try to answer the question of when to retire. But to ask what you're retiring to, that's a really important question. To design your life by saying, what does my ideal day look like when I choose to go a different path? Where do I live? Who am I with? What are the passions? What are the projects? What are the missions that maybe I delayed, that I can get into to start asking yourself that retirement is a transition to something else. But not. I just get off the treadmill and I do nothing. I can't imagine doing nothing and drive my wife crazy. So here's the thing. Think about your retirement. Think about maybe in three different optics, three different ways. One, what does essential living look like? What is your housing, your food, your healthcare, your basics? Then ask yourself, what does comfortable living look like? The dining out, the hobbies, the memberships, the clubs, those kinds of things.

And then the third thing is to think about it from a freedom living. What are the travel, the adventures, the gifting, the time and the family, the things that you want? Retirement doesn't mean cutting everything. In fact, I think that your lifestyle should grow during those years that the, the retirement system that we have, at least in the US is broken. Because what we do is we have people save, save, save, save. And then they say, reduce it and we'll give you 70% of what you earned. And I'm reducing my lifestyle. Yeah, maybe you're now gonna have to save and you've got some lower costs, but you might have some higher costs like medical and everything.

Retirement's about being able to decide what you do with the time you have and what matters most to build a life around that. I think the journey should be that way too. But we need to build the bridge to make it happen. You don't just leap into retirement. You could build a bridge to make it happen. And I think there's some steps here, and I want to walk you through the steps to make that happen so you know it. The first is what we've talked about. To know your number. What is your freedom number? Not only your freedom number, but know what your spending is. Know what your real spending is. Don't guess, but dig in and really know. Now, sometimes people are going, I don't want to know. I don't want to know. I get it. But it is important for you to understand because without that knowledge, you can't make a plan that's going to work. So don't guess, know it. Multiply that number. Multiply that number between 25 and 33, depending on when you want to retire, okay? That's going to put you between a 3% and 4% withdrawal rate. So know that number by doing that again. I have a calculator that will help you do that. Okay? That's step one. Step two is to look at the three buckets I just talked about the now Bucket. Okay, what are the things that you have need to have liquidity now for? So this should be money that you have in cash, CDs.

High yield savings accounts, things that you aren't exposing to the market. Then you're going to have a bucket of, of, of midterm assets, five to 15 years. This could be your Roth, your moderate growth assets, 401k, that kind of thing. And then you have the later bucket, the 15 plus years, the long term stuff that you can go. This is a much more complicated question because your plan needs to think about how you're drawing things out when you can draw things out if you're 55, some buckets you can't touch because you'll get hit with tax and penalties. Some you can. Sometimes you have to wait till 59 and a half. When are you going to take Social Security? Step two is about trying to figure out the sources.

Step three, I think is something that also gives us latitude and that is to create multiple income streams. Whether it's part time work, maybe it's real estate, maybe it's projects that you can get involved with, maybe it's dividend income.

Freedom isn't about some big number, it's about a predictable income that gives you flexibility. And that's what we're trying to create. Okay, but in order to do this, you might have some trade offs because you can do almost anything, but probably not everything. And you gotta ask yourself what are you willing to trade for more time, more time to yourself, more time with the people you love, the things that you care about and that kind of thing. And the trade offs that you might have to deal with to buy more freedom is maybe downsizing on the home, fewer cars, maybe keeping cars longer. Like I don't, we don't drive a lot, so we keep our cars for, for a good seven years. Okay, maybe it's less stuff, more experiences. My wife and I here, we have stuff, but by and large we love the experiences. Whether it's with our grandchildren, with our dogs or with ourselves. We travel a lot. We'll travel in off seasons to, to make it more cost effective. Okay, but I still work, she's still going to do things. So you work part time for a few years. These are the things that you can design. There isn't just one, one way because retirement isn't this cliff you just jump off of one day on a calendar somewhere. It's this gradual transition. It's, it's something that you get a chance to do. And in fact, what I would tell you to do is maybe try.

A test run at it, a sabbatical or reduced work hours. You know, it's not an all or nothing proposition to get acclimated, to get an understanding of what matters to you, what you can do. Kind of do it that way. Because I think the greatest risk isn't running out of money. I think the greatest risk is running out of the time.

And the health to enjoy it. Because you can always earn more, you can always, you can always go make more money, but you can't buy back energy, you can't buy back health. Look at Steve Jobs, Medicare, you know, health care, it can be a landmine if we're not careful. Okay? Social Security certainly doesn't cover everything you need. So if we are delaying the freedom and waiting for absolute certainty, we might delay it too long.

I don't know that you need to be 100% ready, but you just need to be ready enough to test, to adapt, to refine as you go, to be okay with it. But I think that you also look at your journey to it and ask, am I finding joy points, things that actually give me joy on the journey? Because here's what I know. If you are not enjoying the journey and the path to financial freedom, you will not enjoy the destination.

So I want you to find the things that bring meaning to you, that bring fulfillment to you, the people you love, the, the people you're sharing life with. And if, if truly retiring early is a goal, then chase it, plan for it. Don't delay the joy in the name of, like, certainty or security.

Okay? Start now by tracking your spending. Start now by knowing what your number is. Start now by visualizing the lifestyle. Start now by having the conversations with the people you're going to share life with. Start now by testing the math. Start now by making small, smart changes. But above all, build the life that feels free even before you retire to live a life that you don't feel like you have to escape from. Because life isn't measured in how much you earn, it's measured in how it's fully lived. And I think we need to live it as much as we can, while we still can. So if you want to know how close you are to actually early retirement or something, if you want to run a plan or anything, let me know. We'll see if we can help. I've got my basic freedom calculator to help you out. But the bottom line is I want you to start to think about it. Whether you're 20, 30, 40, 50, it doesn't matter. Because what really truly matters is not what you're going to do in those golden years, but what you're going to do in the journey to the golden years to make them golden, but also the journey golden too. I hope that this helps. I hope you start to look at things through a different light and look at things where you start to understand the math behind your financial freedom, the math behind making it work and what it takes to maybe retire five or even 10 years earlier. And to look at it and say, don't use it as a discouragement. Use it as the fuel, the catalyst to do the things that you need to do to make the trade offs, to make it really happen. Right? And if I can help on that journey, please let me know. Reach out to me. I would love to hear from you. I'd love for you to hit that like button, share this out and even subscribe, whatever it is. I always say this. Always, always live a life that lives you right. I hope to see you on your road to financial freedom till the next one. Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building your money Machine where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.