How You Can Retire In 10 Years (Starting with ./ Dollars!)

Discussing the step by step method on how to retire early! We talk about safe withdrawal rates, your magic number, and capital gains over passive income.

In this video we’re going to break down exactly how much you need to retire early and how to actually achieve that number there really is no exact step-by-step method that’s taught you in school to get there and when i entered the workforce about 12 years ago i was shocked to find out a few things i was shocked that 99 of my coworkers just thought retirement age

Was over the age of 60 and that by investing in a 401k and saving my money that by the time i was 60 or 65 years old i could retire when i questioned my co-workers as to why retirement age was only 60 and up they said i’d be stupid to think that i could retire earlier and that this was the only way they knew to retire you are serious it seemed like everywhere

I looked the only people retiring early were those that were making boku bucks after selling their startup or having equity in a company that went public or someone who got hit by a bus and got a massive settlement but i’m happy to report that i’ve learned a lot since 12 years ago and retiring early is actually a lot more straightforward than it seems and it can

Be achievable so long as you break down your goals and do some planning so let’s get into how to do that step by step together step one is to figure out how much you need to retire comfortably based on your projected living expenses when you’re in retirement for example by the time you retire you may not have a mortgage anymore since that’s been paid off now if

That’s the case your living expenses could just consist of food housing maintenance travel and other discretionary expenses the flip side is is that if you plan to retire early you may still have to account for bigger expenses like a mortgage so we’ll need more money in that case so i love examples let’s use an example here say you want to spend 60 000 a year

Without working for the rest of your life there’s a general personal finance rule out on the internet that states that we should multiply this 60 000 by 25 so that we get to a grand total of 1.5 million dollars that means according to this rule we want to target 1.5 million dollars to comfortably retire and if we’re able to reach that number then we can withdraw

Four percent of that 1.5 million dollars every single year without ever running out of money now the math works out so that you guessed it if you take 4 of 1.5 million that’s actually 60 000 now here’s the thing though that rule is entirely dependent on how long your projected retirement actually is and this is where most people get it wrong if you want to retire

Early this next part is going to be super important if you’re retiring at the age of 65 you may live for another 20 to 30 years so this 4 rule would be a perfectly acceptable guideline however if you want to retire at the age of 40 this rule needs to be changed dynamically since you’ll have 40 to 50 years of not working that you need to account for and that you

Need to fund the earlier you plan on retiring the more money that you’re gonna need for retirement since your retirement time horizon is now longer if that makes sense now there’s a great website called with a ton of great articles that go very technically deep into this subject but a good rule of thumb here is that the longer you expect

Your retirement to be the more conservative you should be with your retirement withdrawal rate per year according to their research study paper on safe withdrawal rates the chances that you run out of money using withdrawal rate of 3.5 percent or under is very low that’s even if your time horizon is greater than the traditional 30 years i’m gonna leave a link to

That website and the study in the description below so that you can read it later for the sake of today’s video the rule of thumb is that your magic retirement number should be about 28 to 30 x your expected annual spend so that means if you want 60 000 a year in retirement you should aim for between 1.7 and 1.8 million dollars as your magic number so now that we

Know how to calculate our magic number how do we actually make that much money 1.7 to 1.8 million dollars for example is quite a lot of money you can do so in numerous ways but before we even talk about methods to compound wealth we need to discuss one thing that will absolutely kill your dreams of retiring and that’s high interest rate debt now not all debt is

Bad there’s good debt such as having a mortgage with a low interest rate a mortgage at least helps you build equity in a home that will be hopefully worth way more later on the higher interest rate then i’m talking about is like credit card debt with an apr of over 15 or if you have loans greater than five or six percent or if you bought stuff online using a buy

Now paid later program we didn’t make sure that the debt is handled first because paying off high interest rate debt is likely to provide a better return on your money than almost any single investment out there so it’s important that we have that taken care of once that’s paid off we can start building our wealth in a way so that we can get to our magic number

As soon as possible so this next line is quite possibly the most important part of the video but the fastest way to retiring early is simply maximizing your income that’s because maximizing your income while keeping your expenses low will compound your wealth and gets you to that magic number as quickly as possible a lot of people and articles online will tell

You that you need to cut out your coffee you got to try to save 50 cents here and there and you need to have a frugal lifestyle to make it now for this video i was browsing the frugal section on reddit and i actually found a post that said that you can use a sprouted onion instead of a houseplant for decoration to save on costs that’s a little bit ridiculous i

Know so let me ask you guys this question which is would you rather stress out about having to save a few dollars a day like on a cup of coffee or use an onion as decoration or would you just rather make a hundred more dollars per day and not have to worry about any of those things i’d personally just want more income because you can cut all the costs that you

Want and that’s certainly a good practice to have but at the end of the day we still need to maximize our earnings if we are to retire early all right so how do we earn more money one of my favorite podcasts is by naval ravikant where he details how to get wealthy there are many takeaways from his three hour long podcast and i highly suggest that you guys listen

To it but here are the three biggest takeaways for me that helped me earn more money number one the basic rule of getting rich is that quote you will get rich by giving society what it wants but does not yet know how to get at scale and to do that he says that you should number two arm yourself with specific knowledge accountability and leverage in reference to

Specific knowledge number three specific knowledge is knowledge that you cannot be trained for if society can train you it can train someone else and replace you specific knowledge is found by pursuing your genuine curiosity and passion rather than whatever is hot right now he lays out a framework for earning more money through specific knowledge and scale if you

Have a skill that can’t be easily taught or if you’re really good at a specific thing you can charge more in the marketplace for your skills think about what a lawyer gets paid a lawyer gets paid a lot of money because he or she has gone through the rigors of law school past the bar and has probably worked 80 hour weeks at a law firm learning the ins and outs of

Law and how to interpret them for the benefit of their client what they do for their clients is not easily replaceable and it’s because of this that they get paid a lot in their market the same goes for a heart surgeon not any joe schmo can become a heart surgeon but if you have the skills to be a heart surgeon you automatically can command an amount of income

That is higher than that of the average american salary it’s really hard to increase your earning potential through labor jobs like trading time for money especially if we need to wait years between our scheduled raises at work so a quick way to increase your earning potential is by increasing your specific knowledge which we can either get through experience or

Through education everyone has different skills so when it comes to maximizing your earning potential think about the skills that you’re naturally good at and see if there’s an intersection between your skills and the job market if you are interested in that podcast at reference i’ll leave a link for that in the description as well okay so now you’re hopefully

Earning more money or you know at least how to earn more money but now you also need to invest your money to get to that magic number quicker what should you invest in when investing to grow your wealth we should do so through the primary means of capital gains aka the stock market the reason we want to focus on capital gains instead of passive income streams like

Owning a small cash flowing business or side hustles like drop shipping or dividend income has to do with two reasons the first reason is tax capital gains doesn’t get taxed as much as dividends or ordinary income cash flow sources if you’re buying and holding stocks for the long term your long-term capital gains tax rate then becomes 15 or maximum 20 if you own a

Passive income stream that allows you to pull out cash monthly don’t forget you’re going to be paying ordinary income rates on your cash flow that range between 22 to 37 for most people which is already much higher than capital gains rates the second reason is time there is such a thing as completely passive income but in most cases what you’re seeing online with

Passive income streams is that they all require significant time investments up front for example some people will say that starting a youtube channel like this one is passive income because once you make the video it earns passive ad revenue well that’s true and all but you still have to make the video which is taking time and the same thing goes with owning a

Vending machine or atm business you’re still going to have to go to that vending machine or that atm to pick up the money to maintain the machine stock the machine troubleshoot problems etc with equities you can compound your returns and reinvest your earnings into more asset ownership rather easily that way you can focus your time on earning more money which

Is probably going to give you the most leverage and scale when it comes to investing okay so what equities should we look to invest in if we want to do this approach at the minimum we should be buying etfs that track the market etfs are baskets of stocks whereby making one purchase buys into a small percentage of every single company that that etf owns this is

Probably the easiest way to invest your money because the s p 500 etf on average returns about eight percent a year you can also invest in stable growth companies that aren’t going anywhere and constantly reinvesting their earnings so companies for example like google apple and amazon if you go with this route you’re hoping that on an annualized basis you earn

Slightly higher than the index benchmark of eight percent a year but again there is some downside to investing which is that stocks can fluctuate up and down and the worst case scenario is that the market crashes when you’re actually ready to retire but assuming you invested in stocks and you made somewhat of a decent salary let me give you two real world salary

Examples and how soon you could retire off of them if you’re earning 90 000 a year you’re realistically seeing around 6 000 a month after tax if you save half your income which is pretty aggressive and you’re able to put that in the market every single month and earn a 10 return you can feasibly retire in about 17 years that means if you’re the age of 25 earning

90k right now you could look at retiring in your early 40s and you’re able to live off of the 3.5 withdrawal rate or it’s around 55.8k a year that’s a pretty first world scenario as in i bet most of us aren’t making 90k a year and saving half so let’s actually go with another scenario which is instead you make 60k a year and you save 33 instead at a 60k a year

Salary you’re taking home 4 100 a month and if you invest 33 of it given the same numbers in 24 years you’ll have 1.6 million dollars so in this scenario it takes you seven more years than our earlier example but that means if you’re 25 right now you could still retire early before the age of 50. now this also assumes you’re earning the same amount every single

Year while you’re investing which hopefully is not the case hopefully we’re earning more money as time goes on it also assumes a withdrawal rate of 3.5 percent and that you want to live off of 55 to 60k a year in retirement now hopefully you guys see that this video is a framework because as you change all these variables your goals and your required investment to

Get there is going to change as well if you can live off less money per year in retirement then your goals will be easier to achieve and you can probably retire even earlier i strongly encourage you guys to take some time to project out exactly how much you think you’ll need in retirement and work backwards from there it may take you an afternoon but it’s going to

Be well worth it because you can get on your way to retiring early and at least have a game plan if you enjoyed this video make sure to subscribe and leave any questions in the comments again my name is humphrey yang and i’ll see you guys in the next video peace

Transcribed from video
How You Can Retire In 10 Years (Starting with $0 Dollars!) By Humphrey Yang