finance
Intermediate to advanced personal finance strategies for people serious about the FIRE (financial independence retire early) movement—not just dreaming about it. Tune in on Tuesdays and Fridays for new BiggerPockets Money episodes with your hosts, Mindy Jensen and Scott Trench! Or visit BiggerPocketsMoney.com with additional resources.
Evan Lawler defines Coast Financial Independence (FI) as a hybrid approach where individuals front-load their retirement investing to a point where investments are projected to grow sufficiently by retirement age. This strategy allows them to 'coast' in their later years, covering day-to-day expenses without further investment.
Evan Lawler addresses skepticism about Coast FI, clarifying that it doesn't enable early retirement like traditional FIRE. However, he argues it provides significant flexibility, acknowledging that many who pursue FI will likely continue working in some capacity, perhaps on more fulfilling or less demanding jobs.
Scott Trench views financial independence as a spectrum, with Coast FI representing a crucial milestone. He suggests that reaching this stage grants individuals more power over their employment choices, allowing them to potentially take less demanding or lower-paying jobs that offer greater personal fulfillment.
Scott Trench suggests that Coast FI is particularly beneficial for individuals with young children, as the demanding nature of early parenthood can make aggressive savings strategies less appealing. He posits that Coast FI can serve as a more attainable intermediate goal, providing a breather before resuming the pursuit of full financial independence.
Scott Trench outlines his strategy for accumulating the first million dollars in net worth for those starting in their 20s, dividing the journey into three buckets. The first involves cutting 'big three' expenses (housing, transportation, food) and potentially taking side jobs. The second is accumulating cash for opportunities, and the third is long-term investing.
Brian Preston and Beau Hanson of The Money Guy Show discuss the 'achiever's trap' with podcast hosts Mindy Jensen and Carl, a couple who have accumulated significant wealth but are now facing potential future tax liabilities due to their aggressive tax-deferred savings. They aim to strategize ways to access their 401(k) funds to minimize future Required Minimum Distributions (RMDs) and create a more favorable tax situation for their heirs.
Carl, who retired in April 2017 at age 42, shares his experience of the past decade. He describes retirement as fantastic and not something he'd trade for any amount of money, stating he works harder than ever but on his own terms. He's currently involved in personal projects like building a house and installing solar panels.
Mindy Jensen, co-host of the BiggerPockets Money podcast, discusses her current work in retirement. She enjoys her roles as a real estate agent and podcast host, emphasizing that she works low hours and finds fulfillment in helping people find the right homes. She does not anticipate leaving these roles in the next 10 years.
Carl details his career path, explaining that he was primarily a software developer. Towards the end of his career, he transitioned to being a contractor, which significantly increased his hourly pay from $85,000 annually to $85 per hour. This financial success allowed him and his wife to maximize their retirement accounts.
Carl attributes his strong savings habits and frugality to his father, a surgeon who was also a spender and worked until age 72 to avoid burdening his children. This personal history motivates Carl's own financial discipline.
Carl and Mindy Jensen, aged 52 and 53 respectively, have amassed a net worth of approximately $9.8 million, with the majority held in retirement accounts. They are seeking advice from The Money Guy Show to optimize their finances, particularly focusing on their substantial retirement savings and cash reserves.
Scott Trench and Mindy Jensen discuss a new budgeting tool developed by BiggerPockets Money. The tool uses government spending data, adjusted for geography and household type, to provide a realistic view of expenses rather than aspirational ones.
The BiggerPockets Money podcast identified Santa Cruz, California as the most expensive market in the US, with a median monthly spending of $12,600 for a couple with kids. Beckley, West Virginia, was found to be the least expensive, with estimated median monthly spending of $6,500 for a similar household.
A comparison between Charlotte, North Carolina, and Manhattan, Kansas, highlights how housing costs greatly influence overall spending. A couple without kids in Charlotte is estimated to spend $9,000 monthly, compared to $5,900 in Manhattan, Kansas, with housing being the primary factor in this $800 difference.
Evan Lawler, a 25-year-old pursuing 'Coast FIRE', aims to reach $500,000 in retirement investments by age 30. He projects this amount will grow to $5 million by age 65, providing a $200,000 annual retirement income based on the 4% rule. Currently, he has $200,000 invested and contributes $3,300 per month.
Evan Lawler began his retirement investment journey at age 17, with his parents contributing his summer job earnings to a Roth IRA. He credits this early start and compounding growth for a significant head start in his early twenties. He emphasized the importance of balancing current enjoyment with future financial security.
Evan Lawler defines Coast FIRE as a hybrid financial independence strategy where individuals front-load retirement investments. The goal is to reach a point where no further contributions are needed, allowing the existing investments to grow to support retirement. This approach is seen as less daunting than traditional FI for younger individuals.
Mindy Jensen and Scott Trench on the BiggerPockets Money podcast delved into six frameworks for early retirement withdrawal strategies, noting that accumulation is simpler than withdrawal sequencing. They highlighted that withdrawal planning is more art than science and requires understanding underlying theories rather than just following rules of thumb.
Mindy Jensen outlined a traditional withdrawal order of operations: after-tax cash flow, after-tax brokerage, pre-tax accounts, HSA reimbursements, and finally Roth accounts. She cautioned that listeners with significant gains in after-tax portfolios should consider all available accounts before making decisions, as this can impact subsidies.
Scott Trench explained how Modified Adjusted Gross Income (MAGI) impacts Affordable Care Act (ACA) subsidies, noting that a lower MAGI can lead to higher credits. He highlighted that maximizing these credits in a given year might conflict with Roth conversions, adding another layer of complexity to withdrawal planning.
Scott Trench expressed skepticism about many financial products but endorsed term life insurance, suggesting a 'ladder' approach instead of a single large policy. He recommended Ethos as a platform for online life insurance applications.
Scott Trench discussed the value of professional financial advice, specifically mentioning Domain Money as a flat-fee service that provides unbiased and personalized roadmaps. He suggested listeners book a free strategy session with them.
Mindy Jensen suggested that individuals can balance a large Roth conversion in a given year by also making a significant contribution to a donor-advised fund. She emphasized the benefit of consulting with a tax professional or CFP to ensure comprehensive financial planning.
The FIRE (Financial Independence, Retire Early) community's target savings number has increased significantly over the past decade, with $1 million once being the benchmark and now closer to $2.5 million or even $5 million. Hosts Mindy Jensen and Scott Trench discuss whether these higher numbers are necessary or if people are becoming overly conservative.
Mindy Jensen shared her personal spending journey, noting that 10 years ago her household spent $30-40k annually. Currently, her spending is averaging over $12,000 a month, significantly higher due to building a house, which led to a $200,000 spend last month alone.
Scott Trench discussed his current spending habits, averaging over $12,000 a month, a significant increase from his younger years. He attributes this rise to having a child and associated childcare costs, though he anticipates these expenses will decrease once his children attend public school.
Scott Trench highlighted a divergence within the FIRE community, noting that while a significant portion of BiggerPockets Money listeners (two-thirds) intend to have ongoing business or active income after reaching financial independence, a third still desire complete passivity. He suggested this might explain why BiggerPockets listeners often aim for higher FIRE numbers, like $2.5 million, compared to other FIRE communities.
Mindy Jensen shared her struggle to reconcile her increased net worth with her deeply ingrained frugal habits developed from childhood. Despite enjoying a more comfortable lifestyle, she sometimes feels like an 'imposter' in nicer settings, attributing this to her upbringing of shopping at garage sales and using coupons.
Mindy Jensen and Scott Trench discussed a generational shift in the FIRE community, where the focus is moving beyond mere frugality to enjoying life's extras. Jensen cited a friend's sentiment, 'I'm not going to fly coach so that my kids can fly first class when I'm gone,' reflecting a desire to spend more on current experiences rather than solely deferring gratification.