In this episode of The Personal Finance Podcast, we’re going to talk to Jeremy Schneider of Personal Finance Club about the 6 ways to access your retirement funds early.
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In this episode of The Personal Finance Podcast, we’re going to talk to Jeremy Schneider of Personal Finance Club about the 6 ways to access your retirement funds early.
In this episode of The Personal Finance Podcast, we’re going to talk to Jeremy Schneider of Personal Finance Club about the 6 ways to access your retirement funds early.
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Transcript:
On this episode of the Personal Finance Podcast, we're gonna talk to Jeremy Schneider of Personal Finance Club about these six ways to access your retirement funds early.
What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master money.co. And today on the Personal Finance podcast we're gonna be talking to Jeremy Schneider from Personal. Club about these six ways to access your retirement funds early. If you guys have any questions, make sure you hit us up on Instagram or TikTok at Master Money Co.
That's master Money c o. And follow us on Spotify, apple Podcast or whatever podcast player you are listening to this podcast on right now and leave a five star rating and review. On Apple Podcasts or Spotify as well if you want to help out the show. I can't thank you guys enough for leaving those five star ratings and reviews.
I read every single one of them. They mean the world to me. So I can appreciate each and every one of you leaving those reviews. And if you wanna check us out on YouTube, we record this podcast on YouTube now, so you can check us out on YouTube as the Personal Finance Podcast. But our other main YouTube channel is Master Money And On Master Money.
We are really. Increase that production value over there as well. So make sure you check us out on Master Money. Now today we're gonna be talking to Jeremy from Personal Finance Club on these six ways to access your retirement funds early, and I'm really pumped to talk to Jeremy today because we have some really great conversations surrounding ways to access your retirement funds early.
And this is a major question. Almost all the time. And so learning how to do this is a great thing to understand, but also we talk about how it's not a huge deal to have your money tied up in some of these retirement counts as well. So we're gonna go through all of the different ways that you can actually access these funds early.
And I'm really ex. Excited about that part as well. In addition, Jeremy gives us a special discount code for some of his courses that he has for our listeners only. So we really appreciate that as well. So if you listen to the end, you'll be able to hear that discount code and we'll link it up down in the show notes as well.
And of course, we're gonna talk about all things investing. We're gonna talk about what wealth means to Jeremy and in a bunch of other stuff. So if you're interested in financial independence, if you're interested in retiring early, this is definitely a fantastic. Four. You can't wait to welcome Jeremy Ins.
Without further ado, let's welcome Jeremy to the Personal Finance Podcast. So Jeremy, welcome to the Personal Finance Podcast. Thank you, Andrew. Thank you for having me. I am so incredibly excited to have you here. You are one of my favorite creators on social media and online, and you do some incredible stuff in the personal finance space.
So we are really excited to have you here today, and we're gonna talk about one of the most important subjects I think a lot of people are interested in, in our. And I actually get this question all the time, which is how to access your retirement funds early. Because a lot of people are interested in financial independence.
They want to retire early, they want to get to the point where they can get to be financially independent like you are. And it's one of those things where they don't know how to actually access these funds early. So I'm really excited for us to kind of go through this today. But before we jump into that, can you tell us more about yourself, personal finance club, and how you actually got started?
Sure. My quick background is I started a internet company coming outta college, grew it for about 12 years and I sold it when I was 34 for just over $5 million, which was very nice. My share after tax was about $2 million, so it was certainly like a ton of money, but not like, never need to even think about money again necessarily.
Um, and. When I sold the company, I didn't want to be one of those garbage men who like wins a lottery and then becomes a garbage man again after they like wasted all. And so I started reading like every book I could find on personal finance and investing. So I was like a good steward of. Uh, this money.
And after you read, I'm sure you know this, after you read a few of these books, you're like, oh, they all say the same thing, like this pop culture message we hear about money, which is like day trading and crypto and investing in your uncle's company and options and futures and all this stuff. Like, all that's kind of nonsense.
In fact, like simple like investing is very, very simple at its core. And so I quit my job two years later after selling my company. I did nothing for a year, and then I decided what do I wanna do with my life? And what I really like is just helping people with personal finance and investing. So I claim I retired at 36 after I sold the company with about 3 million once my.
You know, investments started growing. I don't think I ever need to work in, so I started this as a hobby and then kind of has turned into like a little business now cuz we do have a little bit of revenue. And so yeah, that's what I do with my life now. I help people with personal finance investing.
That's what personal finance club is. And you have absolutely incredible content. I kinda love the way you teach it as well because you create these really cool graphics that can kind of. Break down really complex subjects into simplistic graphics. And I love the way that you do it because it's just such an amazing way for people to learn and it's visual.
And a lot of times for me, even like I can look at that and say, oh, that makes so much more sense if you just kind of piece it together with some of these graphics. So it is a really, really cool way that you have kind of set that up. And I love the way that you do that. And you also, when you go back and forth with like the YOLO guy and stuff like that, I usually am laughing out loud when I go through that.
So I love that part too. Um, so today you have a really cool post that I'll link up in the show notes below as well, where you talk about the different ways to actually access your retirement funds early. And we've done a couple of episodes on some of these, but I think going through all of these options, people can kind of weigh them out for their own personal situations so they can see which ones actually work for them.
So I want to kind of go through these and we can kind of talk about them back and. And kind of think through this process as well. And I think there's different ways for people to access their funds, whether they're in their thirties or their forties or their fifties and kind of the age range. They kind of think through that as well.
And the first one is one that a lot of people think of. And this is one where I think it's where most people go to. And a lot of people think this is the only option available to them if they wanna retire earlier, if they wanna pursue financial independence or fire, whatever else. And that is the brokerage account.
So can you talk through the brokerage account maybe for new investors who don't even know what that. Yes. But before I do, I wanna ask you a question. So this is, sure. One of my, I'm sure this is true for you too. One of my most frequently asked questions, which is, I don't wanna lock up all of my money inside of IRAs and 401ks.
What if I wanna retire early? How do I get access? And I get asked that question all the time. I think you do too, which is why we're talking about this. But let me ask you this, right? How many times have you been asked that question by someone who is. About to retire early. Like they say, I have millions of dollars.
I theoretically could retire early, but unfortunately my hands and my money is tied because it's all locked inside of 401ks and IRAs. How often has it actually become a. Problem. And then you hear that question. I don't think I've ever had that question ever. And if we have, it's very, very rare. Me either , me either.
And so this question, and I feel like, you know, we're, we should go through all the options. Sure. Because I think we're gonna soothe people's minds. But this question comes from people who are. Earlier in their investing journey and have this kind of unfounded fear of locking their money up. And the reality is, is like you and I, we hear from a lot of people in this world, and I've never actually heard of that problem either.
Right. And before we break down these six options, the thing that is like locking it up that people are so afraid of is a 10% penalty. And it's like, let's say you had 4 million in a Roth IRA and. Done everything you're supposed to do. You maxed every year. The investments have done wildly well, whatever, whatever.
And then you're like, oh no, it's locked up. You're gonna do the worst possible thing and withdraw every single penny of all $4 million today in one calendar year. The worst possible thing, even though you have decades of life at, and you'd normally be spreading out, and a lot of it would be after your 59 and a half, but you do the worst possible thing.
What would happen is you would. 3.6 million in cash in your checking account. You know, this is, this is the worst case scenario of locking your money up. And so I give that context because when people ask me this, I kind of wanna like grab them by their shirt collar and shake them back and forth, very violent and be like, this isn't that big of a deal.
Invest early, often. Exactly. Take the tax break when you can get it. If you happen to be in a great situation where you can retire early, I promise you you'll be fine. Worst case scenario, you take the 10%, but I've also never talked to someone who's actually taken that 10% because of these six options. So is that a fair preface to this list you're about to go through?
It absolutely is. And one other thing I can note here is, we've actually done the math on this a lot of times where we looked at the breakdown that 10% penalty. And a lot of times because of some of the tax benefits, you still come out ahead even if you had to take that 10% penalty hit. So a lot of people who are worried about this, you know, and a lot of situations is not every situation, but in a lot of situations you could still come out ahead even with the penalty in front of you on some of those tax breaks.
So it's interesting kind of once you kind of go through the math to see where people will land. Yeah. But that's perfect. So I think that's a perfect preface. Yeah, I think we're trained to be like rule followers in school and you like get in trouble and penalty sounds like you're going to jail or being naughty.
And the reality is like, yeah, of course you don't wanna lose money on a penalty, you don't wanna lose money on anything, but, right. Like you said, if you do the math, it's not that big of a deal. And like I said, even if you're going to the most extreme case and withdrawing everything on a day, you know it's still, you're gonna have a lot of money and you're gonna be fine.
Yeah, that's exactly how people should really be thinking about it. Cuz once you start to build up wealth and you really have that big, large nest egg, like you said, 4 million in place, it's just a minimal impact in comparison to everything else we should be focusing on. So I think that's one major caveat and I'm glad you brought that up.
Cause I think that's absolutely perfect. Yeah. Like this first one here is the brokerage account. This is one most people think of. They think it's their only option. And so most people, Consider not even investing in their 401ks, in their IRAs, like you said, because they think they can't access it, they don't wanna take that penalty, so they try to go for only the brokerage account only.
So can you kind of talk through the brokerage account first and maybe what it is as well? Yeah. You know, I hear both kinds of confusion. One is that people, you know, we talk so much about your Roth IRA and I think we talk about it because it's a good place to start. It offers tax free growth, but you are limited, you know, this year to $6,500 in contributions.
And so sometimes I hear people, , what if I wanna invest more than 6,500? And they're kind of like got themselves into like a little specialty account, which is the Roth ira, but they're missing the general type of account, which is called a brokerage account. It's just like a checking account or a savings account, but checking in savings accounts only hold cash.
A brokerage account can hold investments like stocks and bonds, and just like a checking and savings account, you can put money in and out of your broker. Whenever you want for any reason. There's no restrictions whatsoever. You know the trade off there is you do pay tax on the gains, which again, isn't a huge problem.
You know, you pay tax on your income, you pay tax when you buy things. That's just part of life, and so it's not quite as tax optimal as things like IRAs and 401ks, but it's got the ultimate flexibility. No income limits, no contribution limits. No withdrawal penalties or withdrawal timelines or restrictions on what you can invest in.
It's the ultimate flexibility and. Generally when you're paying tax on investments, you're paying capital gains tax and usually long term capital gains tax. And there's actually a, a minimum income required to pay any that rate's actually 0% below 40,000 bucks or so of income for an individual or 80,000 as a couple.
So for example, if you. This option one we're talking about now is a brokerage account. If you just say, I'm gonna esue all these fancy named Ira four K, four three B tsp, I'm just gonna put it all into a regular brokerage account and you, and say you're married, you and your spouse could take out $80,000 a year, 100% tax free and capital gains.
And the other thing about brokerage accounts is people who do retire early generally are like saving a lot and they save more than that can fit into IRAs and 401ks and. The overflow just has to go in a brokerage account. And so when I asked you at the beginning like, have you actually seen someone with this prom?
The answer is no. Because people who get there, once they start getting a serious about saving and investing, they have a lot of overflow money in a brokerage account. And it's like, let's say you're 50 years old and you have nine and a half year window before you can start accessing your retirement accounts, the first obvious place to go is just to the brokerage account because you could just take money out like you put it in a few years earlier.
And so yeah, that's option one. It's a great. Exactly, and I think that is one of the easiest options for a lot of people too. It's kind of the default one as well. I know we're gonna get this question, so I'm gonna ask this as well. Is there a favorite brokerage account you have or a favorite list of brokerage accounts that you'd like to invest in?
The US is an amazing place to invest right now because fees are incredibly low. Technology's really good. Investment options are great. You know, if, if you go back 40 years, there's kind of a pain in the butt to like make an investment. You have to like go to like a stockbroker and you have to have minimums and there's a bunch of fees involved and it's kind of like this rich boys club or whatever.
Now it's like, you know, Robinhood has made the easiest app ever. Robin Hood's not my favorite, the big three. Vanguard, fidelity and Schwab. I think if anyone suggests Vanguard, they have your best interest in mind because they're kind of built around the idea of low fee investments that do the best for the investor.
I also like the new wave of robo advisors, like Better Mint and Wealth Front. They charge a small fee, but they also help. Protect you from, you know, some typical human mistakes from the more complex brokerages, like the first three. And there's other ones like M one, like Robinhood and, and the, or e-Trade, TD Amer, I mean, I'm, I'm listening a ton, but you know, the, the big three, Vanguard, fidelity, and Schwab should probably be the first three you look at.
Absolutely. I agree. And I think Vanguard and Fidelity and Schwab are the three that I would say as well. Those are my three favorites by far. Vanguard was one of the first ones I opened. That's where my Roth IRAs and all that kind of stuff as well. And they really have investors interest at heart, which is what I like about them.
So definitely those are the best three and I think that's just kind of the best option to go with. They have so many different options as well. Number two is one that a lot of people are interested as well, who listen to this podcast and that's investment real estate. Now, I've invested in real estate for a while as well, and real estate I think is a fantastic option for a lot of people and a lot of people become financially independent by investing in real estate and figuring out how much money they need in cash flow and all that o other stuff as well.
So why is this a great option for people who want to access funds early? Just like most people who are on pace for early retirement have money in a brokerage account, they generally end up with some real estate too, because it's a good investment. You know, I invest in exactly two things. Generally, I invest in things that pay income while you own it and are likely to go up in value.
So if it doesn't meet those two, Qualities. I don't invest in it. I don't invest in crypto, I don't invest in gold. I don't invest in oil. All that stuff has speculative stuff you hear a lot of news about, but I invest in things that pay me while I own them and go up in value. And if you buy and hold these things, they're paying you money.
You can take that money and buy more, and then you get that compound growth become super wealthy. Most people who are on this trajectory end up with some real. That real estate is generally not contained within a tax advantaged account. You can technically put real estate inside of an IRA or something like that.
It's a little bit more complicated, but generally people don't just because it's easier just to buy a house and give them the money or whatever. And then the nice thing about real estate is it also generally has pretty good cash flow relative to like an index fund or something, which is mostly, most of the gains is usually in share price, not in cash flow.
And so again, if you're like, In your forties or fifties, you're looking to cover that gap before you're 59 and a half. You might have a couple rental properties, maybe kicking off a thousand bucks a month to a couple thousand bucks a month. Then you know that's really the first place you go for cash to live on because that cash is gonna get taxed no matter what.
And so you might as well just spend that. And so, yeah, just like people who are on their wealth building journey usually end up with the brokerage account, they usually end up with some investment real estate. That's also not generally. Protected by this tax advantage. Account penalty. You're exactly right.
And a lot of people who have retired early, you talked to a lot of 'em. They either have a couple of properties or that's like their main strategy is kind of going that direction. And it's just interesting to see how they kind of diversify. It's a great way to diversify your portfolio overall as well.
And I think it's just a cool, cool way to kind of go about this. And the math is pretty easy. So that's kind of the, the next question I want to ask you here is what are some ways that you can kind of use real estate to fund your lifestyle? To fund your lifestyle? Well, I mean, You spend a certain amount of money per year, right?
And the general number for early retirement is off quoted as 25 times your annual spending. And what that means is your investment portfolio BA has to be 25 times your annual spending. But if you can replace that spending with income, then you can basically get to a cash flow retirement situation. So like, let's say you have, you wanna spend $80,000 a year and your properties are kicking off $40,000 a year in, in income.
That's. After all the expenses and everything, then you only really need to like cover that $40,000 in other investments. So it's a great way to generate income. It's not for everyone, it's more work for sure. I personally own some real estate, but mostly index funds. I just think that my time is better spent working digitally than handling calls from tenants and stuff.
But yeah, you can't argue. Like you said, you see young retirees, there's like very often real estate part of their. I agree as well. I'm glad you brought up the non passive side of it because it is much less passive for sure than even if you have a property manager in place. A lot of times with real estate, you still will have to manage that property manager, so there's a lot of extra hours and work involved in addition to going and finding those properties as well.
But the easy way to do this is if you. Figure out how to run the numbers on rental properties. You can see how much cash flow you need and if you do the 25 x rule, then you can look at that and say, well hey, if I can cover $40,000 in our example here and I can cover $40,000 in cash flow, then I only need another million dollars invested into something like index funds and ets, where then I can draw that down, uh, at 4%.
So it kind of can reduce the amount of cash flow you need in retirement as well. And it's a great way to diversify that way. Or you can even fund your own lifestyle and figure out, Hey, I spent $80,000 a year, will I need. Properties where I can actually fund my monthly lifestyle that way with cash flow.
So it's another interesting way to do this also, you get those tax benefits and some of the other extra things as well. So I love that one. Number three is the Roth IRA principle, and a lot of people don't know this exist if they're new to investing or they're starting out very early on in retirement accounts.
So can you explain how to use your Roth IRA contributions and maybe talk about the five year rule as well? Sure. So, Again, people new to investing are afraid of like locking up their money, but it's not really as locked up as you think. And so for example, up until last year, you could put $6,000, or the last several years you could put $6,000 into a Roth ira.
So like let's say you did that for 10 years. 10 years times $6,000 is $60,000. And then let's say over the course of that 10 years, the investments have doubled in value. So now you have 120,000. The rule of the Roth IRA is you can always, for any reason, with no tax, no penalty, withdraw what you put in. So in that $120,000 account, 60,000 of it is your principle.
That's your contributions. You can take that out whenever you want for any reason. And so, It's no more locked away than the money in your savings account is, but it's also generating this growth for you along the way. That said, I think it's good to know this rule. I've never seen someone use it for a good reason.
You know, usually when people want to take money of a Roth irate, it's for a bad reason. Like they're trying to like buy a car or something, not like, Oh my gosh, I've got so much. I'm going to retire early. Like I said, the typical scenario is once you get going on this and you feel traction, all of these accounts get big and then you treasure that money.
You know? So I'll give you not just a fictitious example. I'll give you a real example of my personal wealth. My net worth now is about 4.5 million or so, but I think about 300,000 or so is. IRAs and 401ks and $4.2 million is not, this is an extreme example because I made my money all very quickly in one year when I sold my company.
Not all of it, but a lot of it. But most people have too much to fit into these accounts, and so rather than worried about this little amount of money that they want to get out, what the real concern is, how do you get more money in and leave it in? And so, sure, you should know that You can take out the Roth IRA principle whenever you want, but in.
Don't leave it alone. Let it grow. Let that grow for a long time. If you're 59 and a half years old, the actuarial tables say you probably have 20, 30 years of life left on average, and you're gonna want to use that money then for those decades. And so you can use the other money before that, like in your brokerage account.
Exactly, and I've never seen it taken out for a good reason either. It kind of reminds me of that Charlie Munger quote, never interrupt compound interest necessarily. And that's a lot of times what people are doing when they do that. So it's one of those things that I definitely think it's good to know, and it's good to have that in place.
It's gonna help with our next one too. But at the same time, just understanding that you shouldn't touch it unless you truly, truly, truly need it. And the other thing to note is there was also the Roth four oh as well, which a lot more employer sponsored plans are opening up to a lot of people. So that's another cool one that you can look at.
If you want to get more dollars into something like a. That's another way to look at that as well. And then number four is the Roth conversion ladder. Now the Roth conversion ladder is one that we've had an episode on, and I love this one just for a lot of people. There's been some great work on that from people in the financial independence industry as well.
Just kinda looking at this one. So can you tell us how the Roth Conversion Ladder works? Yes, and I didn't answer your question about the five year rule earlier, but I'll answer now cuz it's topical. Perfect. So, . The rule of the Roth is that you can take out what you put in at any time for any reason. And the reason that's the rule is because that money has already been taxed.
And so the government's saying, Hey, we've already taxed you on this. This isn't in money jail anymore. You can take out what you put in. There's another way to get money into a Roth, which is converting. Traditional IRA or 401K money into Roth. And so when you contribute to a traditional 401K or a traditional ira, that money goes directly from your employer into that account without being taxed.
So let's say you made $50,000 a year, you put $5,000 into a traditional 401k. You're only taxed as though he made 45,000. That 5,000 goes straight. Now, let's say you leave that company, you got $5,000, or let's call it $10,000. It's doubled in the value in that 401k and you wanna put it into your Roth ira, you can convert it.
That means basically transferring it from your traditional 401k into your Roth ira. But since that money has never been taxed before, it went straight from your employer into that account, you have to pay tax on that, which is okay cuz everything is, you know, all of our income is taxed. So just paying the income tax when you convert it, but then you end up with this situation where, This newly converted money is in your Roth ira.
And so that begs the question like, wait a minute. Now that this money's in a Roth ira, does that count as contributions? Does that count count as principle? Some of it is because you contributed it from your account. Some of it's not cuz it's growth, but it got converted all in this one big chunk. I know these are code words and honestly like, and everyone in my posts.
Spend less than you make and invest the difference because that's what really matters. And you can, you can get into this nuance, and I know people listen to this podcasts, some people are maybe like, oh my God, this is complex. And maybe some people are like the super nerdy people who like want to get like get every penny of tax advantage out.
So if this is over your head or this seems too complex, I ask you to not be too concerned because it's really just about Exactly. Yeah. But anyway, back to the story. You convert this man into a Roth IRA and now. Principle that you can take out whenever you want, or is that gains that you can't take out until you're 59 and a half.
And the IRS has basically said, well, since of a both, here's the deal. It's gotta stay there for five years, and then it all becomes principle. Let's say, you know, had a hundred grand in a 401k, you convert it all, then you've got a hundred grand. In a Roth, I, you'd have to pay tax, but you'd maybe pay tax outta your income or whatever.
Soon you've got a hundred grand in your Roth I, five years later, you can withdraw every single penny of that tax penalty free. And then you have a hundred grand in your savings account that you can use to buy things that you like. So that leads us to number four, which is the Roth conversion ladder. You generally don't wanna convert large sums of money all at once because the more money you convert, that's all income tax.
And income tax is a progressive tax, which means I'm higher income the more tax you pay. So you don't wanna do huge chunks at once. And this one is like kind of realistic. I've heard of people who like might be in a situation where you are high income earn. And maxing out your 401k for 20 years from like 22 to 42 or something, you could have a couple million bucks in your 401k, and what you do is like every year you convert like $50,000 from your traditional to Roth.
Then five years later you live on that $50,000 and that way you're keeping the individual, and that's why it's like a ladder because it's like step process where like you're number one, you. The money you're gonna spend. Year number six, you're number two, you convert the money, then you're gonna spend in year number seven and down the road.
And then that way you always have this like new crop of tax penalty free money that was converted five years ago without having to like do the big massive conversion and pay the big tax bill. Exactly, and that's a perfect explanation and I think you're right. This is over your head, the complexity side of this here.
Then don't worry about that. Worry about the basic stuff first if you're new to this. But at the same time, it's one of those strategies that this is the most realistic one. I agree as well. I think a lot of people will kind of utilize this one, but the hardest part about this is kind of targeting those first five years, cuz you don't really always know when you're gonna retire early, especially if you're doing this really quickly and saving up a lot of cash at the same time.
So maybe mixing this same with a brokerage account might be one thing that you want to do as well, just because it's really. Have to time those first five years in play. So maybe once you retire, you figure out, Hey, how much money do I need every single year in retirement? Then you can convert that amount every year, or you can do a smaller amount and kind of do a hybrid method with a brokerage account as well.
There's a bunch of different things that you can do, and you can get creative with it with an HSA or something else if you have those qualified medical expenses. There's a lot of things that you can do with it, but it's really, really cool to be able to have this option and be able to kind of convert that money over as well.
So this is one that I absolutely love. So, If you were in that situation and maybe you knew that you were gonna retire in the next five years, would you start that process right away, or would you just kind of think through this and kind of wait till you retire and maybe do some sort of hybrid method?
I'd look at it, you know, if you are someone who has a hundred percent of your retirement savings in a 401k, and you'll be able to retire early, then yeah, looking five years out, and you might start saying, okay, maybe I'm gonna start plowing money into a brokerage account. Maybe I'm gonna start converting some money to cover that five year span or whatever.
Again, We tend to talk about these things in vacuums as though there are like robots that have like very weird situations. I have 1 million, you know, I'm $1 million in a 401k and zero other assets, but like, things don't happen in a vacuum. Like people like, oh, okay, yeah, I do a couple rental properties. I do have some money in there.
I, I'm gonna be working part-time or I'm still gonna be consulting or, But for sure if you're looking down the barrel, you're like, Ooh, I think I can do this the next few years, then yeah, I would be planning for that. That five year window saying, okay, how am I gonna cover, do I have enough in a brokerage account?
You know, if you spend 40,000 a year and you have 300,000 in a brokerage account, then you're set and you've got 2 million in a 401k, then yeah, I would probably. Plan to live on your brokerage account for a few years and then start the conversion ladder process. Exactly. It's that flexibility is kind of the name of the game when it comes to some of this stuff and kind of thinking through what options do I have here and how flexible can I be with all of this.
The next one is the rule of 72 T, so can you explain what that is? Yes. So let's say you are in this situation that we personally have never seen where you have so much money in retirement account. So you can retire early, but it's all locked away and you have no money in a brokerage account and you have no investment real estate providing income, and you can't take the Roth IRA principle for some reason.
You can't do the Roth conversion ladder. There's yet another option that the IRS provides. This is why I get so amped up when people ask me about locking their money away. Cause I'm like, it's not locked away. Right? It. Rule study two Achieve, which is basically says if you're in some other weird situation, you can identify a five year window where you make separate, it's called spp.
Separate Equal Periodic Payments. They have to be at least once per year, but they can be more per year. They have to be at least a certain minimum amount. But you basically, it's like, you know, you probably wanna talk to your account about the selling, but you like set a form to the government being like, Hey, government, just so you know, this isn't like one big withdrawal making to buy a speed bump or a speed boat.
Sorry. I am planning to. Separate equal periodic payments over the next five years. I'm gonna take out a hundred thousand dollars per year, five times, and there's no penalty. That's just the rule. It's just a rule that says you don't have to pay the penalty as long as you're kind of like doing it thoughtfully and equal periodic payments for a five year window.
And I think that the IRS probably offered that rule for people who had a 401K and were waiting for their Roth IRA letter. Come through or whatever, you know, try to bridge those few years between, you know, until 59 and a half. Um, also to be frank, I've never seen someone actually do this in real life. My audience skews younger, so maybe I just don't have that type of client or whatever, but.
It just doesn't get there, you know, like I know lots of early retirees, none of 'em have to do this cuz they just have the other options. Exactly. And I've never seen anybody do this one as well. It's just great to know that there's an option there, but I've never seen, and our audience is usually skewing a little younger too, but at the same time, I've never seen anybody actually do this one as well.
But just show that there, there are layers to this. There's options that you have available to you. So just like Jeremy's saying, your money is not locked up, it's not something where you will not be able to access it if you retire early, you have so many different available options here that you can utilize.
And the last one is one I've never seen anybody use as well. I don't know if you have, but it's the rule of 55. So why is the rule of 55 called the rule of 50? That's about your age. And so like let's say you are a person who worked at the same employer for a very, very long time and you were maxing out your 401k and you end up at age 55 with a couple million bucks in there, and you can potentially retire early, but it's all locked away.
Uh, the rule of 55 says if you leave. Your current employer for any reason, quit laid off, wanna retire early, you can access your most recent employer's retirement Plan four 4 57 4 3 B or T S P Tax penalty Free, which just literally changes the year. The, you know, and, and I think all these laws kind of come from probably wealth ish people who write to their senators and they're like, Hey.
Blocking away my 401k and they're like, all right, whatever, 59 and a half, make it 55. Fuck it. Um, and so, yeah, again, like uncommon, you know, and it only applies to your, you know, your most recent, your, your last employer. But it is a nice option if you are someone who's like creeping up within a decade of retirement age and get laid off or something, then it's like, all right, now.
I don't need to worry about bridging the gap. Exactly. And I could see a lot of folks, especially if they are maybe, you know, investing over a long period of time, they invest a portion of their income, maybe 10 to 20%, they could kind of hit this level and maybe utilize it in their mid fifties and be able to kind of access those dollars a couple of years early.
Cause I see a lot of people in that situation. I've never seen anybody do it. But I've seen a lot of people in this situation where they're ready to retire, you know, in their fifties. They don't wanna wait till 59 and a half. So, A great option for a lot of folks, especially if you've kind of been building wealth over a long period of time.
And as we know, just investing often and early is something where you can really mass a large amount of wealth in these accounts over time, especially if you've been working the last 25, 30 years, whatever that may be as well. So if you had to choose one of these options, and you went through all of these options, and obviously there's hybrid methods, there's flexibility to this as well, but if you had to choose one of these, which ones would be your personal favorite?
My favorite. Is the good old fashioned brokerage account. People always be sleeping on their brokerage account. But , and I think it's, you know, we're, we live in this world of personal finance and so I think people get nerdy about it and they're like Roth IRA conversion letter and set IRA and Backdoor Roth IRA and Mega Backdoor Roth ira.
And at the end of the day, A brokerage account has no limits, no restrictions, low fees, and you know, you talked about running the math on actually paying the penalty and you're like, actually it's not that big of a deal. Also, sometimes if your four offers only bad investment options, like really high fee options, it's not crazy just to skip it and go with a brokerage account.
Um, you know, generally I don't recommend that. I think usually taking the tax breaks a better option than you can always roll it over to an individual. IRA when you leave that employer, but still it's not, we're not talking crazy numbers. And so I think people, it's kind of just like this fear of the unknown because there's so many of these crazy words floating around.
Like I said, broad strokes. If you live below your means and invest early and often and you end up with lots of money, there are so many options available. And you know, in my own life, like most of my money's in a brokerage account, and it's fine. You know, I think I make like 50,000 bucks a year in dividends, and so I pay some income tax on those dividends, which is fine.
If I get to use them, I get to buy you. When I bought my house, for example, you can see behind me, if you're listening, you can't, but when I bought my house, I applied for a mortgage loan. It was a $700,000 house, and I decided to put 50% down and apply for a $350,000 mortgage. And at the time, my net worth was about 3.8 million.
And the broker said, we cannot give you any loan because you are unemployed and you are not a good loan recipient for whatever reason. I was like, oh my God. And so I was like, Screw this, and I just wrote a check and I took that money outta my brokerage account. I sold some of my shares of index funds and then I just wrote a check for $700,000 and now banks aren't a part of my life.
And that's flexibility was really nice for me because then I don't have to worry about it. Yeah, so don't sleep on the old-fashioned brokerage account. It's not so bad. I couldn't agree more. I think that flexibility, having that available is a very powerful thing. So kind of diversifying into that.
Especially if you're putting all your money, if you're maxing out these accounts, like you can look at like investing order of operations, there's a bunch of 'em out there, but if you're maxing out all of these Roth IRAs, 401ks, all these different things, and do you still have extra cash left over? It's well worth it to have that brokerage account flexibility.
But if you just want to invest in the brokerage account too, there's nothing wrong with that. And I think a lot of people will make it seem like there is, but really there's not. Maybe you want that flexibility when you go to retirement and there's a lot of extra things that you can do when that happens.
So I absolutely love that as well. So Jeremy, I wanna shift gears here cuz there's a lot of questions that we ask a lot of our guests and I want to kind of see what some of your answers are on this as well. So what part of your work or life makes you come alive? It's so lame, but I still get pumped when I can like talk to people about this.
I mean, I'm pumped right now and I was fortunate to have a father and a family and a mother who talked to me about money and investing at a young age. But many people in their twenties and thirties and forties and beyond don't have that. And so when you come sit down and open someone's eyes and be like, yo, if you do 500 bucks a month and you know, you get the average return from the market over the last 40 years, that turns into about 2.9 million.
Over the course of a 40 year career and it changes lives and I think it just changes people's perspective. Like I, I know 40 years is a long time to wait and the goal isn't to like be a crippled old man die, but I think it just changes like, Hey, money is something that can work for me instead of just working every day and spending it and being in this RA race my whole life.
And so I still get pumped just like having that conversation. I also like beach volleyball. Oh, that's awesome. Yeah, I used to play beach volleyball as well, so That's amazing. You're taller. You're taller than I am, I think a little taller, so That's awesome. But yeah, that's part of like one of the most powerful things that happens and I'm sure you get so many different messages on from people and kind of the how you open up their eyes and how their financial lives are changed, and it's just so cool to kind of get that.
That's absolutely amazing. The second one is, what is your greatest fear about. So to many people listening this podcast, you know, I'm wealthy, I'm rich. My network has like 4.5 million, but I'm not even in the 1%. You know the 1% I think you need about 8 million or so to be in the 1%. I think I'm in the 1% for my age.
To my credit, most of the people, wealthy people are older because they've had more years of further wealth compound. So to many people listening, I'm probably further along, but I preface that because I think when you get there, you realize that life isn't just like all happiness and Dazs or whatever, and I think that we often.
Think that money is like this primary tension in your life, and if that tension is removed, then you will have no problems. But you don't, you know, it's still the same. You still have the same friends and you still have the same relationship problems. You still have the same health problems still. And it's for sure nice to not have to worry about if I can cover the light bill this month or whatever.
That for sure increases the quality of life. But after that, there's kind of like a limit. So like my money concern is just about, you know, am I maximizing my life value? You know, I still don't buy first class plane tickets, for example. I could, of course I could, but I was like, I don't know, like it just seems like a waste.
And so, but I'm like, is that a bad choice? Like should I be buying first class? Like that could like increase my quality of life? And so, yeah, I guess my concerns are mine at this point are just like, am I. Living the best life and using it. And I think my experience is that the opportunities to convert money to happiness are less frequent than we all assume.
You know? Absolutely, yeah. You think if you buy the next car, you're gonna be happy, but you're not. It's gonna be fun for like a few hours. It's gonna be a used car a week later. And I mean, know you think if you buy the upgraded flight, but you know that flight's gonna end and then you're not gonna have an internal sense of happiness or whatever.
And so yeah, I just want to be living the best life. Absolutely. I love that answer and I think that's kind of the best thought process to think about it as well. It sure is nice to have not have to kind of wor, have fi, financial stress, but there's still other stresses in life and it's a lot of people kind of have to realize that as they go through this.
Do you have anything that you're gonna be doing different this year to level up your finances? No . I mean, so there's two answers to that. One is that I think I mostly talk about investing and I think in pop culture we hear too much about everything you're supposed to do differently. But in reality, I think, you know, good investing strategy is to do a lot of things the same.
You know? Yeah. I literally got a text message from a friend this morning who said her dad loved her. These like long voicemails. At three, I'm telling her how the market's about to drop. 30%, pull all your money out. The political party that he doesn't like is trying to ruin America or whatever, and I'm just like, oh my gosh.
Like, no, do the same thing. Are we in a recession? I don't know. Maybe if you invest for 40 years, you're gonna see about seven recessions, cuz they happen every six years or so. And so, yeah, we're probably in one. And what do you do? You just keep staying the course and so I'm gonna keep buying. I'm not gonna.
Get tricky. I'm not gonna pull any money out. I'm not gonna switch strategies. I'm gonna keep buying, holding. The thing that you can do is your work is what you can do to actually bring in more income. And that's like my goal. It's you're just like, I wanna grow my business, actually. I'm gonna start a new business and I want to have my employees be exceedingly well compensated and um, have the business be really successful.
And, and that comes from like my actual work in the business, not being tricky with my money moves. I completely agree, and I knew what your answer was gonna be on that without even talking to you beforehand about it. But that's exactly how I feel as well, is just kind of sticking to the same strategy. I just really think that money comes down to being 90% your behavior and 10% of actually what you know.
Yeah. But your behavior is what really matters, like you're saying, you know, just that. Live below your means and invest the difference. That's the biggest thing, and that's your behavior. If you just stick to that same behavior over and over again, you really can't build wealth over time. But the perfect caveat to that is you can level up by increasing your income and increasing that income means that you can put more fuel to the fire when you invest those dollars or enhance your lifestyle or whatever else you wanna do.
But I absolutely love that. The next one is, what is the best money advice you've ever? It's hard for me not to give the same two rules. I know we've already mentioned it, but I think what you said is important because I rarely see someone who has struggles with money, where it's like a failure of the spreadsheet.
They're like, I don't understand that I should be sorting my debts by, you know, interest rate or something. It's always like a failure of. Behavior and habits. And while I'm sure there are nerdy people like me too, I don't mean to be negative about nerdy, like I'm a computer scientist. Like I was picked on through, uh, my schooling.
I'm like a nerd of the nerd, but the intricacies of maxing out little tax advantage and stuff. Aren't what makes people wealthy or not. What makes people wealthy is do you spend less than you make and do you invest the difference, the more of those two things you do. So for example, if you make half a million dollars a year and you spend half million dollars a year, you're broke.
You have zero 500,000 miles. 500,000 is zero. But if you make 60,000 a year and spend 40,000 a year, which is not crazy, you know, depending on where you live in the country and you're investing 20,000 a year, you'll easily be a multimillionaire of the course of your career. And even if you dump it all in a brokerage account, even.
Pay the 10% penalty. Like, you know, you could, you could do the worst, you know, other than like putting it on Dogecoin or something. You could be the worst kind of index fund investing and still do fabulously well. So, um, yeah, that's my tip. Spend less than you make, invest the difference, and it's the best thing that you can really do.
It's the perfect tip is to just do those two things, and it will literally change your life forever if you're not already doing it. And the last one is my favorite one. What does wealth mean to you? I think I heard this somewhere. I might have stolen it and I maybe paraphrasing or maybe I've recreated my mind, but in my opinion, wealth is when you have more than you want.
If you're like a millionaire or a multimillionaire living in a castle in the sky or whatever, and you're like jealous of the bigger castle. Then you're not wealthy, you're just some dude who's jealous of the dude that's got more. Whereas if you are living in a modest apartment and you are like, feel overly abundant with like the love of your family and the ability to buy groceries, then you are wealthy, right?
Because I'm sure everyone's like, no, no. The dude of the Tesla is definitely wealthy or whatever. But imagine the. More modest home I've subscribed compared to someone living in a third world country who can't even afford food. They would look at that person as a king, right? And so there's always another hill to climb, whatever.
And so if you are always wanting for that and feeling like you're. Behind then you'll never be wealthy. And so, and there's another famous quote, I think it was like Joseph Heller, the guy who wrote Catch 22 was at a party hosted by some hedge fund billionaire in San Francisco, and I think it was another author, but he said, he's like, what do you think about this guy?
And Heller was like, this guy makes more in a day than your fabulously popular novel has made in your entire career. And then the author said, I have something that he'll never have enough. Exactly. So you see this billionaire, but you're like, maybe that guy's depressed. Maybe he's like, you know, chasing hookers or something like, you know, maybe his life's terrible.
And Joseph Heller is like, Hey man, I got a good book. I got a good life. I have enough. And that's what wealth is. Absolutely. I could not agree more. And I think finding that enough number, honestly, that'll reduce your stress, anxiety, a lot of other things as well. Just figuring out how much is enough for your life.
And that is the perfect answer I think as well. So, Jeremy, this has been absolutely amazing. Tell everybody where they can find more about you on your socials, your courses, everything. Yeah, I'm an easy dude to find the internet. Personal Finance Club is the name of my brand. It's personal finance club.com.
Instagram is where most of the magic happens at Personal Finance Club, 99% of what we do is free, but we do have two courses. One is on investing in index funds. One is called How to Money Like a Millionaire, where we talk about budgeting and debt and banking and insurance and estate planning, and all the things like how I run those with my.
They're not on sale now cause this is a recorded, they're currently on sale. But if you use coupon code personal finance before the end of February, you can have both courses for 99 bucks. They're normally 79 each, or 1 58 total. So 99 for the bundle, or 59 each. If you just wanna buy one, they'll be on sale just for your listeners.
And you know, if you don't wanna buy the course to pie, there's no secrets in there. It's just the same stuff we talked about. But it's a nice, uh, organized walkthrough if you want. That's amazing. Thank you so much for doing that. We'll link all that up down below in the show notes as well. Jeremy, thank you so much.
This was absolutely incredible. Yeah, thank you for having it. It was a pleasure. Love your show.
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