15 Ways To Retire Early and Achieve Financial Independence, According To Humphrey Yang
Early retirement starts with financial decisions being made long before leaving the workforce. For individuals wanting more freedom, FIRE is a financial movement based on building enough passive income to cover living expenses, allowing individuals to retire earlier than the traditional retirement age.
According to YouTube finance guru Humphrey Yang, these practical strategies can help create a path toward retiring earlier with greater financial security. While he cited 15 different strategies, there are four that stand out for how most people imagine themselves exiting the rat race.
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1. Coast FIRE
Yang said to save aggressively until reaching a goal amount. Then, he said, stop saving, let a portfolio compound for years and retire at age 65 if there is enough money in the account to cover daily expenses. You can retire earlier if the numbers support it — after all, that's the RE part of FIRE.
Coast FIRE is a flexible strategy that involves saving enough early for investments to grow toward a retirement goal with minimal additional contributions. The strategy aims for a specific crossover point, where investments begin to generate returns at a yield in excess of what you can individually contribute. You don't quit your job to pay for daily living, you just stop using it as the basis of your retirement growth.
After reaching a large enough sum, even if it's not enough to retire on yet, you don't bother with contributions because they won't change the trajectory of your retirement. That said, do get your employer match on retirement and investment accounts, because that's just free money.
2. Barista FIRE
Yang said this strategy is considered to be semi-retirement: Leave a highly stressful job and work at a part-time job such as a barista to stay in the black and procure benefits like healthcare coverage.
For this strategy, working part-time in retirement can help reduce withdrawals from savings and provide benefits. The idea is similar to Coast FIRE, in that your goal is to simply not lose money while the real nest egg grows on its own. You can think of Barista FIRE as Coast FIRE for people who are a little further along in their savings and/or have a life that allows them to keep spending minimal. The barista job (or other gig) is just a buffer to cover expenses without working a stressful amount.
3. Lean FIRE
This strategy concerns frugal spending of $35,000 to $40,000 annually and saving the remainder, said Yang. You have to excel at adhering to a budget to succeed with Lean FIRE, and also have deep reserves saved for any kind of emergency.
Of course, you can still work in Lean FIRE, but typically people committing to this kind of austerity are doing so to enjoy their free time and self-determination. It might be a good lifestyle for someone who has a specialized side hustle that pays well or works in a field that will always furnish work when wanted. Otherwise, you're operating without a net.
4. Fat FIRE
Fat FIRE is only possible with rare and desirable opportunities, like having a very high-income job, cashing in on a huge IPO or selling a successful business for millions, according to Yang. He also said that having at least $5 million or more in a portfolio is needed before being able to retire.
"The reality is that most people here are not getting to Fat FIRE," said Yang, describing it as the classic portrait of someone filthy rich who has it made: In Fat FIRE, expensive purchases are possible without even needing to deliberate on them carefully.
Other FIRE Strategies
Here are the other approaches Yang enumerated, though each is only a fit for people who can live a certain way.
5. Traditional FIRE
Saving as much as 30% to 50% of income, investing in lower cost index funds and following the 4% rule makes up this strategy, Yang told viewers.
6. Entrepreneur FIRE
Yang said that Entrepreneur FIRE involves building a successful business and either selling it for a generous amount or generating enough income to permanently cover expenses. He also said selling the business within five years for at least $2 million is one way to achieve this type of early retirement.
7. Digital Nomad FIRE
In order to retire with this strategy, Yang recommended building a type of remote business (e.g. freelance work or an online business) and combining those funds with a small investment portfolio to cover expenses.
8. Extreme Frugality FIRE
Yang suggested that it is best to be as frugal as possible when saving, living on about 25% to 30% of income. If making $100,000 and spending $30,000 annually, then a sum of $750,000 would be needed to retire early.
9. Hybrid FIRE
This is similar to Barista Fire. Yang described it as blending investment income with any kind of income, such as from freelance work.
10. Geo-Arbitage FIRE
Yang told viewers that this strategy is about working at a higher income job in a major city and then relocating to a city with a lower cost of living to save enough to retire early. Think digital nomads, remote workers and others focused on low-cost locales.
11. Expat FIRE
Yang said that Expat FIRE is similar to Geo-Arbitrage, except that it means relocating permanently.
12. Real Estate FIRE
Yang explained this strategy builds income from rental properties, starting by living in one property and renting out the others, which may allow you to qualify for an FHA loan with around 3.5% down. He also said that part of the rental income could help cover the mortgage while the remaining money is saved to invest in another property. This process can continue until the monthly income is enough to cover expenses and build savings.
13. Dividend FIRE
This consists of building a portfolio of dividend-paying stocks and living off the dividend income without selling the shares, said Yang. He also reminded viewers that reaching that goal requires saving and investing long enough to generate enough income to cover any retirement expenses.
14. Pension FIRE
Yang said this strategy involves acquiring a government, military or union job and keeping it long enough for the pension.
15. Slow FIRE
Yang described this more manageable version of early retirement, saving 15% to 20% of income and retiring between age 57 and 59. It won't get you to retirement much faster than the regular path, but it could get you there will you're still spry and healthy enough to enjoy your dream adventures.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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