Dude ACTUALLY Retires at 47 Using the 4% Rule (and Never Looks Back)

Summary

BiggerPockets Money Podcast: “Dude ACTUALLY Retires at 47 Using the 4% Rule (and Never Looks Back)”

Release Date: February 7, 2025

In this episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench sit down with Bobby Beck, a successful early retiree who achieved financial independence (FI) at the age of 47 using the 4% rule. Bobby shares his journey, strategies, and insights, providing a comprehensive look into how he managed to retire early and sustain his lifestyle without tapping into active income sources.

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1. Introduction to Bobby Beck’s Early Retirement

[00:00] Mindy Jensen:
Mindy introduces the episode by questioning the practicality of the 4% rule in achieving early retirement. She sets the stage for Bobby Beck’s story, highlighting his success in retiring at 47.

“Do people really retire using the 4% rule? Is it actually possible? Today we're joined by Bobby Beck, who retired at age 47 and is doing just that.”
— Mindy Jensen, [00:00]

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2. Motivation Behind Reaching Out

[01:15] Bobby Beck:
Bobby explains his motivation for sharing his story. He wanted to validate the promise of the financial independence movement and demonstrate that the 4% rule can work in real life, despite the non-linear nature of financial journeys.

“I just want to make sure that other people are aware that this is possible and other people are doing it.”
— Bobby Beck, [02:00]

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3. Transition from Active Income to Portfolio Reliance

[03:15] Scott Trench:
Scott inquires about the timeline of Bobby’s transition from active income to relying solely on investment income.

[03:23] Bobby Beck:
Bobby recounts ending their jobs in January 2022 and relying exclusively on their investment portfolio since then.

“We have been financially independent and retired early for three years now. We're entering into our fourth year...”
— Bobby Beck, [03:15]

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4. Building the Investment Portfolio

[06:01] Bobby Beck:
Bobby details the evolution of his portfolio. Initially, it consisted mainly of savings and 401(k)s. In 2018, inspired by the financial independence movement, he and his wife shifted to index funds, primarily investing in Vanguard Total Stock Market Index Fund (VTSAX, VTI).

“Our portfolio still looks the same. It's super simple... we have single stock in one of the magnificent seven companies... in Vanguard Total Stock Market Index Fund.”
— Bobby Beck, [06:01]

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5. Real Estate Strategy and Primary Residence

[10:49] Bobby Beck:
Bobby explains his real estate holdings, including a rental property in Mexico and their primary residence. He distinguishes between total net worth and FI net worth, excluding certain properties to reflect investable assets.

“Our plan is to use the rental property and some of the equity in our current house to buy a house in the future...”
— Bobby Beck, [10:56]

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6. Handling Market Volatility During Retirement

[03:36] Mindy Jensen:
Mindy addresses the challenge of retiring during the COVID-19 pandemic, a period of significant market volatility.

[05:27] Bobby Beck:
Bobby describes how they navigated the market downturn by maintaining a cash buffer and adhering to a long-term investment strategy.

“The moment that we retired in 2021, the market went down that year... but luckily we did it bounced back.”
— Bobby Beck, [17:58]

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7. Withdrawal and Cash Management Strategy

[19:29] Bobby Beck:
Bobby outlines their withdrawal strategy, initially living off cash reserves and later transitioning to selling stock quarterly to fund their expenses.

“We have about two and a half years of cash in the bank to kind of weather the storm.”
— Bobby Beck, [17:08]

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8. Health Insurance Planning Post-Retirement

[21:20] Bobby Beck:
Bobby discusses their health insurance strategy, utilizing the ACA marketplace in California with subsidies during their early retirement years.

“For the first three years we spent about $500 a month on healthcare... this year... it's jumped up to about $1,100 a month.”
— Bobby Beck, [21:29]

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9. Tax Implications from Business Sale

[23:09] Scott Trench:
Scott probes into the tax consequences of selling Bobby’s businesses, highlighting the differences between LLC and C Corp structures.

[23:43] Bobby Beck:
Bobby confirms significant tax liabilities from the LLC sale but benefited from favorable tax treatment for the C Corp.

“We paid a big chunk on the LLC side... the first 10 million is tax-free.”
— Bobby Beck, [23:43]

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10. Lifestyle Changes and Satisfaction Post-Retirement

[31:40] Bobby Beck:
Bobby shares insights into his lifestyle post-retirement, emphasizing travel and personal fulfillment.

“We travel, we do about four big family trips per year... we have created the life that we want.”
— Bobby Beck, [31:48]

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11. Risk Management and Asset Allocation Adjustments

[33:16] Bobby Beck:
Bobby discusses their asset allocation, maintaining a 70% stock, 20% real estate, and 10% cash distribution. He emphasizes the importance of a cash buffer to manage market downturns.

“We think about it right now... our High Yield savings account is yielding more than the bond bonds right now.”
— Bobby Beck, [37:26]

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12. Concluding Insights and Philosophies

[40:35] Bobby Beck:
Bobby reflects on the personal growth and opportunities that financial independence has afforded him, highlighting the importance of personal development and health.

“FI is like you won the game of life... it opens up life to look at yourself and deal with personal development.”
— Bobby Beck, [40:35]

[44:15] Bobby Beck:
Bobby underscores his resilience and optimistic philosophy in achieving and maintaining financial independence.

“Life will always catch you on the other side... you have to believe that it'll work out.”
— Bobby Beck, [44:15]

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Key Takeaways:

• 4% Rule Viability: Bobby Beck's successful early retirement demonstrates that the 4% rule can be effective when combined with disciplined saving, investing, and strategic asset allocation.

• Diversified Portfolio: Balancing between index funds, real estate, and maintaining a cash buffer provides stability and flexibility during market fluctuations.

• Real Estate as a Financial Tool: Including rental properties can offer additional income streams and diversify investment portfolios.

• Health and Tax Planning: Proactive management of health insurance through ACA and understanding tax implications from business sales are crucial components of early retirement planning.

• Personal Fulfillment: Financial independence opens doors to personal growth, travel, and a lifestyle tailored to individual preferences and values.

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Bobby Beck's journey serves as an inspiring case study for those aiming to achieve financial independence early in life. His pragmatic approach to investing, combined with a resilient mindset, underscores the potential of the 4% rule when implemented thoughtfully.

Transcript

[Mindy Jensen]

A question Scott and I often ask ourselves is, do people really retire using the 4% rule? Is it actually possible? Today we're joined by Bobby Beck, who retired at age 47 and is doing just that. So how has he done it? Let's find out. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me, as always, is my booming co host, Scott Trench.

[Scott Trench]

Well, a good conversation is looming today with Bobby Beck, who is a true 4% rule early retiree. Couldn't be more excited to have him on the show today. Biggerpockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order, because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting, and we really hope that you are zooming towards that goal. All right, enough of the terrible. I don't even know if those account as puns. Let's not even give it that much credit. Bobby, welcome to the BiggerPockets Money podcast. We are so excited to have you on today. Thanks for joining us and thank you for reaching out with that wonderful email.

[Bobby Beck]

It's a pleasure. Pleasure to be here.

[Unknown]

Bobby, tell us what was going through.

[Scott Trench]

Your mind when we put out that call to action about the skepticism about you existing and what prompted you to reach out? And then we'd love to hear about your portfolio.

[Bobby Beck]

Sure. Yeah. For me, I wanted to reach out because it's kind of the promise of the financial independence movement in a lot of ways that. That we can save up an investable portfolio that's 25 times our annual expenses and live on 4% for 30 years with a 95% success rate. That is kind of the promise, a little bit that the simple path to wealth that a lot of we base our financial independence journey around. And I'm not the only one. I want to be clear. So I just wanted to reach out to let other people know that that works. I mean, it's working for us. Of course, I don't think financial independence is a straight line. I think there's, you know, life is lumpy. Right. There's a lot of things that happen along the way, and you need to make adjustments as you go. We'll talk a little bit, maybe more about what the 4% rule is, but that was kind of based on a set it and forget it for 30 years, and that's kind of not how life works. So I think that for us, so far, we've Been financially independent and retired early for three years now. We're entering into our fourth year now, and we are living on the 4% rule and kind of plan to keep doing that if the market continues to support us in the ways that we see that it is doing. So there's also this cool Facebook group called finally fi. So I joined it once we became FI to kind of meet other financially independent people. And there are a lot of other financially independent people that are living on the 4% rule there. And I think people like myself and people on that particular forum thread on Facebook tend to be more maybe in the shadows. You know, we're not like, hey, we got this cool side hustle and all this kind of, you know, which is awesome. It's great. You know, we're kind of living our lives. So that was what prompted me to kind of step forward and say, hey, I just want to make sure that other people are aware that this is possible and other people are doing it.

[Scott Trench]

When's the last time you earned any type of active income whatsoever or had had any type of income on your tax return that wasn't from your investments?

[Bobby Beck]

Yeah, we both ended our jobs at the same time in January of 2022, and then have been five since then, or 2021. Sorry. And yeah, no other income is coming in, just our portfolio.

[Mindy Jensen]

I got some questions. I have a ton of questions. I'm not going to throw them all at you at once, but let's talk about the. The. Well, it's my elephant in the room. You ret 2021, that was the middle of COVID which had a ton of uncertainty. How did you mentally handle leaving during that time frame? Because, like, the stock market in 2020 went down and then it went right back up. I think it was what, three or six months? It was back to. To where it was before or almost back to where it was before. But there are so many people who are like, oh, I'm on the path of phi. Everything is not Covid times. One more year. One more year, one more year. There's so many of one more years that they call it one more year syndrome. So how did you leave in 2021?

[Bobby Beck]

Well, my wife had already made the choice to leave her job in January of 2021, and it was in July that I sold. I had two companies that I was running, and I sold both of those companies in July. And then I had a six month kind of stay on and make sure things transition well. So my time period then became January as well. So I Was kind of forced to stop work then. Originally, the plan was to sell one of my businesses and work on the other one. However, the people that acquired my business liked both businesses, and so they made an offer for both. And so it just wound up like my wife was already going to take a sabbatical. I sold my businesses, both of them. And then we kind of looked at the numbers as we were kind of staring at the numbers a lot up until that moment, and we kind of realized we were pretty much just right at our phi number. And then we decided to just give it a shot. Like, let's. Instead of let's take one more year, it was like, let's take a year and be financially independent and see what it's like to retire early and see if we like that and go from there.

[Mindy Jensen]

Okay, so what kind of businesses are we talking about here? Were these, like, small businesses? Were you the sole owner?

[Bobby Beck]

I had two partners in both businesses. One was a technology online education company, and the other one was the platform that ran that business. And so I spun that out into a second business because the platform, we. We built it from scratch and then could leverage that into other verticals.

[Mindy Jensen]

So what did your portfolio look like before you sold the company, and what did it look like after you sold the company? Are you. Were you in stocks and bonds beforehand, or was the bulk of your wealth in this? In these companies?

[Bobby Beck]

Yes. In 2017, my wife and I kind of had a. What we call our financial awakening. And the financial awakening was finding out that we were spending more than we were bringing in, and that was not going to sustain us. We weren't really investing in our future. We were doing a little bit in 401ks, but that was pretty much it. And the rest of it was just kind of spend as we wanted. And we realized that that wasn't sustainable and we had to make some changes. So at that point, our portfolio was largely a little bit of savings and a little bit of 401. That was kind of pretty much it. My wife worked for one of the magnificent seven companies, so she also had some stock in that company as well. And then it was in January of 2018. That's when I found the financial independence movement. Choose a phi. All these different resources, Mr. Money Mustache, the mad scientist, simple path to wealth. And at that moment, you know, I kind of came in and told my wife, we're going index funds. We're going to charge towards this thing called financial independence and retire early. And at first she wasn't on board, and then over time she did get on board because we started just putting a lot of money into taxable brokerage account because we knew that was going to be the money that we could actually access the soonest versus having to wait until we were 59 and a half to get access to some of the other accounts. So we essentially we maxed out our 401ks at that point from 2018 forward and then just put any kind of bonuses that we got any extra income into the taxable brokerage account. So and to this day, our portfolio still looks the same. It's super simple. We have single stock in one of the magnificent seven companies that my wife had. The rest of it is in vtsax, vti, in Vanguard Total Stock Market Index Fund. And then we have all our, our 401ks are also in a total stock market fund as well. And then we have some real estate and real estate. I can explain what that means. It's not like Scott Trench style real estate. And then we've got cash. So. And that's our entire portfolio. We don't have a Roth ira. We just never, our income limits didn't, didn't allow us to do that. We found out later that we could do backdoor Roth, but it was a little late. We also don't have an HSA just because we, we didn't take advantage of that in the, in the time that we knew it was available.

[Mindy Jensen]

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[Scott Trench]

All right, let's jump back in with Bobby. Tell us about the real estate and can you lump in your primary residence and tell us about that as well?

[Bobby Beck]

Sure. So we track our net worth in two ways. One is our total net worth and the other one is our financial independence net worth, our FI net worth. And the total portfolio includes a rental property that we have in Mexico that we own outright, and the rest of that is our primary residence. All of that is included in our total net worth. And the fine net worth is it doesn't include the property that we have in Mexico and it doesn't include a certain amount of money in our primary residence. Our plan is to use the rental property and some of the equity in our current house to buy a house in the future so that we take out and with those two things excluded, that's our FI net worth. All the rest of it is investable assets that we can pull from.

[Scott Trench]

So walk me through this concept of your future Home. I think that's an important piece of the puzzle here and an interesting nuance. So are you saying that your current home is much, much bigger, nicer, more expensive, whatever than the future home you plan to live in, and that you're including that equipment portion of the equity in your FI net worth because you plan to invest it? Is that the right way to understand that?

[Bobby Beck]

That's correct, yes. Our current house is large and it's nice and it's in an expensive area. And our FI number was calculated based on living in the Bay Area, California. And so it's a very high cost of living area. We did move from a super high cost of living area in Silicon Valley to a lower cost of living area, but it's still a pretty high cost of living area. And we did that in preparation for financial independence and retiring early. We wanted to pay off this house in full and just be done with a mortgage. But the way that we, we have it is, yeah, our future residence will be smaller. It will be somewhere else. It might be in California. And that's kind of what we've planned for California prices, but for a more smaller, modest home.

[Scott Trench]

I love that and I want to call out that. I kind of think about it the exact same way. Right now. I, my, my kiddo is 2 and yours is 13. So I imagine that my, my time horizon for living in my current house is closer to 20 years, and yours is probably closer to 7, 10 years maybe right, right around there. So I, but I love that framework where, hey, there's a house you might want to have where you're raising your kids and there's a house that you would have afterwards. And now we can include a portion of our, of our home equity in our 5 net worth. We had this whole debate, we have this debate over and over and over again hundreds of times on the Bigger Pockets money podcast. Should you include your home in your financial independence? I love the way you've answered that and said, no, I don't include it. Except for this piece, which I do intend to actually use as part of my investment portfolio on an ongoing basis when I downsize my house. So I think that's an awesome answer to that question.

[Mindy Jensen]

Yeah, I love the two different net worths. The total net worth. I mean, your house is worth X and you take away the mortgage if you have one. Let's say your house is worth a hundred thousand dollars. You have a $10,000 mortgage on it. That's $90,000. That's actually money that you should count towards your net worth, but separating it out for your fine net worth. Because in this situation, you wouldn't be selling the house that you're living in, or you would be selling it, but then also taking that money someplace else. I really like that idea so much, the fine net worth. And that kind of quiets a lot of the, the naysayers who are like, well, you're not going to sell your house, you're not going to do this, you're not going to do that. Well, here, Bobby has fixed that problem.

[Scott Trench]

For you also, for what it's worth. Right. And I'll be wrong on this, like I am. I'll be wrong about every macro prediction I make, but I'm going to make it anyways for this. I am 34 years old, and my graduation class was the peak year in 2009 for high school graduates in the United States of America. Declined from there at that point. And my friends, my peers, are all having kids later than previous generations, but they're having them. And in five, 10, 15 years, houses in good school districts are going to be, I think, in the most demand they'll ever be for that. So I wonder if your timing is going to be absolutely perfect for your financial independence journey with that on a real, real adjusted basis. When you, when you go to sell this thing in five to seven years, assuming that it's the reason you're living there is because it's in a good school district for your, your kiddo on that front. So I wonder if you're going to actually be really well rewarded.

[Bobby Beck]

That'll be cool to see. Yeah, definitely. The reason to move here is where we were before, it was all private school from middle and high school, and that expense was just going to add so much extra. So, yeah, we moved to a lower cost of living area where the schools are outstanding. So, yeah, I mean, that was the reason why we made that bet. So, yeah, we'll see. We'll see how it works out.

[Scott Trench]

So walk me through the other property here. What is that? Can you give us just a little bit more detail on that? Does that produce any income or is it just for, for your use?

[Bobby Beck]

Yeah, it is a rental property that we will have on Airbnb. It just completed being built in December, and we went there in December this year, December, January, to kind of see what it was like. And it's amazing and we're so excited about it. It's in a great area. And yeah, so it's going on the market as we speak. Photos have been taken. All that Kind of stuff. So, yeah, And I will say that that one property is way more work than our entire portfolio, and it makes up a small percentage of our portfolio. So, I mean, it is. It's like property management and all the different things that go into it. So it's not something that we want to repeat. We don't want to do more rental properties. This was more in an area that we enjoy, that we like. That's an appreciating kind of hot area. And so, yeah, the plan is just to hold that. And as we sell our primary residence in like, seven years, we'll also look to sell that property at that time as well.

[Scott Trench]

So is this where I get an aha? No, this is not technically a true pure 4% real portfolio. Just kidding. This is a small percentage of your overall portfolio, right?

[Bobby Beck]

Yeah. And that house is indexed for. It's like earmarked for a future residence. So, yeah, we don't. We think it's still true. 4%.

[Scott Trench]

And walk me through your cash position relative to your annual spending with this portfolio.

[Bobby Beck]

Yeah, our cash position right now is we have about two and a half years of cash in the bank to kind of weather the storm. If the market goes down, we can kind of use that to recoup. We did in the first three years post re. Retiring early. We lived on cash to kind of let our portfolio have a chance to kind of. To see what happened. You know, we're always looking at sequence of return risk. We want to make sure that. That we're good, that we're not, you know, retiring into a down market. And of course, the moment that we retired in 2021, the market went down that year, so it was kind of a little scary for us.

[Scott Trench]

Yeah. I was going to say, there's. Your timing was actually terrible. Right. Because you had a 22% or 25% drop or whatever it was from peak to bottom. And sounds like you retired right at that peak, essentially. So how was that? Emotively.

[Bobby Beck]

Yeah, it was scary. But as everybody knows, I think in this community in particular, you just stay the course. I have friends that are like, pull out. Sell everything. And I'm like, no, just stay the course. And luckily we did it bounced back. The next two years have been absolutely incredible. And now we feel like we do. We have a nice buffer, that it makes us feel comfortable to proceed with the plan. But it did. It was trying. It was a little moment of like, did we just do the wrong thing? You know? But so far, so good.

[Mindy Jensen]

Okay, let's talk about Your portfolio, how frequently are you checking in on your numbers?

[Bobby Beck]

I'm not like Carl, your husband. I don't check it every day, but yeah, no, we check it once a month. We have a meeting, my wife and I, the second Friday of each month called our Freedom Fridays meeting. And in that meeting, we review our expenses from the previous month to see how we did to plan. Like, are we kind of on target? Where do we spend a little bit more? Like, do we need to make adjustments for next month? And we look at our overall net worth and how the portfolio is doing, we can kind of like, make adjustments as we go. And it also just gives us a moment to kind of reflect on the plan and keep it close to us so that we remember that, like, this plan is working, you know? So, yeah, it's. It's that we have 12 of those meetings per year. And there's something that we both look forward to each month.

[Mindy Jensen]

And what is the actual mechanics of the withdrawal? Are you withdrawing every month or every quarter? Every year? How does that work?

[Bobby Beck]

Well, we just did our first withdrawal ever for actually from our. From our portfolios, because the first three years we lived on cash, so that was pretty easy. We just had that in a high yield savings account, and we would just move money over, and I would do that every three months to kind of do like, every quarter. Now, what we did for this year, since we sold stock, we sold six months of stock. So then I put three months of that in our checking account, and that's kind of what we live off of. And I put the rest of that three months into a high yield savings account just to get a little bit of interest there.

[Mindy Jensen]

When you retired three years ago, as Scott alluded to, you probably retired at the peak, and then your portfolio went down in terms of like, your fine number or like, starting, starting number. When you retired, where is your portfolio at now? Is it. Is it higher than or lower than when you started?

[Bobby Beck]

Yeah, it's significantly higher than when we started. Now. When we retired, we were pretty much right at fi, like our phi number. And so that was like, hey, we hit it. We're in January. You're not going to be working anymore. And I just sold my companies. Like, we don't have any income, but we're pretty much right at our FI number. So again, let's give this a try and see how it works. First year was a little scary, but we liked our new life that we were cultivating, and so we decided to give it a second year. And then the second year it actually bounced back fully and then some. So we did pretty, pretty well. It went down 15% in the first year, it came up 19% in the second year, and in year three it came up 16%. So it's kind of, it's doing quite well right now. We're feeling good about the buffer now that there actually is buffer there.

[Scott Trench]

What do you guys do for health insurance?

[Bobby Beck]

We are on the ACA covered California. Yeah, we love it. It's been amazing for us.

[Scott Trench]

Could you give us like an idea of what that costs and how you plan for that?

[Bobby Beck]

Sure. Okay. Well, this is a little bit of a hack. Like our first three years we lived on cash, so our income that we had was relatively low. So we were able to have subsidies cover a big portion of that. However, what we did in those first years is we did sell some stock from, from the magnificent seven single stock that we have and moved it into the total stock market index because we don't like having a lot of our portfolio in a single stock, even though it is one of the great ones right now. We don't know if that will always be the case. So just being safe, we would sell some, but we would always look at the tax situation, what the taxable event would be, what the impact is to the ACA subsidies. So we did quite well, I'd say for a family of three. For the first three years we spent about $500 a month on healthcare. And then going forward in this year we are living off of our portfolio. That's jumped up to about 1100 bucks a month for the family of three. But we did factor in actually it's cheaper than what we factored into our overall phi number. So that works for us.

[Scott Trench]

I got to say, I'm a little jealous here. I mean, living in California with a paid off house, no income that you have to realize essentially, or very, very low income that you have to realize in a high net worth. Sounds pretty awesome in the Bay Area. It sounds like a pretty good, pretty good little set up you got there on that front. And I think, you know, there's the problem with California, of course, for folks in your situation is the super high taxes, but you don't have to deal with that anymore. Was that a factor though? Did you pay that on the front end, but the sale of your business in a pretty meaningful way.

[Bobby Beck]

One of my businesses was an LLC and the other one was a C Corp. And the taxes on the C Corp are great because if you hold that company for three years or more, then you get an exclusion of this qualified small business stock which essentially means that the first we didn't get this but the first 10 million is tax free. So anything you make in that is completely tax free if it's a C Corp. The LLC on the other hand is a flow through entity as a lot of us know. So that was kind of came and hit the personal taxes. So yeah, we paid a big chunk on the LLC side.

[Scott Trench]

So the sale of the business, let's say it was million dollars, 2 million, whatever it was. Right. That is all ordinary income is what you're saying on the LLC sale.

[Bobby Beck]

That's correct. Yeah.

[Scott Trench]

So that's a big misnomer for folks. People think they're going to be a favorable tax when you sell a business. Depends on that front. And the C Corp is not a pure all either because all the income that is just that you're paying corp. You know, corporate income tax rates on all the income in the C Corp for the entire time you have it and you're getting taxed if you distribute a dividend to yourself from the C Corp. So there's no free lunch from a tax perspective. It's just a guess about whether the business will be worth more in a few years. On the. On a total sale basis you go to sell a C Corp or whether you're going to generate more income for the LLC argument.

[Bobby Beck]

Exactly. Yeah.

[Scott Trench]

You paid into the system and you did your part.

[Bobby Beck]

Yes.

[Scott Trench]

To reduce the federal deficit a few years ago when you sold your business in a very, very meaningful way. And now for. And then for the next two or three years you had low income and were able to qualify for subsidized ACA care. Seems like a pretty. Seems like the American taxpayer benefited greatly from that trade over the last couple of years. So thank you. Thank you Bob. Because some people like to be like to get snippy in the comments about whether high net worth individuals should qualify for low income subsidies on insurance in there. I just wanted to point that out that this is not one of those cases of Bobby mooching on the system. This is Bobby. Bobby did his part here.

[Bobby Beck]

No, thanks for saying that. It's something I think about a lot too is just, you know, you get a lot of the questions around like what are you going to do? How are you going to contribute? Like you're not contributing anymore, that kind of thing. But yeah, I mean with my company I ran it for 16 years and I will say that we definitely paid our fair share in taxes along the way and at the end So I do feel like we contributed in a, in a meaningful way to that.

[Scott Trench]

Yeah. And also people have no problem, you know, take playing all these crazy games to reduce their income tax burden and then they get all snippy about taking the ACA benefit on that, on that front. So I think that's an interest. That's another debate for another time.

[Mindy Jensen]

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[Mindy Jensen]

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[Mindy Jensen]

Thanks for sticking with us. Well, you're playing under the established rules when you have a tax deduction. That's because the IRS said if this applies, then here's your deduction. Likewise, the ACA is saying if your income is this, then you get these, these benefits. It doesn't say anything about net worth. It doesn't address that at all. And in fact, if your income goes low enough, the state will put you on Medicaid. So when I was on the aca, I actually was doing some tweaking to make sure that I stayed above the Medicaid subsidy line because I didn't feel that that was a program that I qualified for. And again, that's my personal opinion. If somebody else want be on the Medicaid program, even though they have a high net worth, that's your business. I don't know why all these people are in your business. And oh, you didn't do your fair share. You're playing by the rules. These are the rules and I'm going to play underneath them. And also I would like to point out that there are some very, very, very wealthy people who pay very, very, very little in taxes because they pay tax professionals to find all of these, I don't want to say loopholes, but to find all of these like rules to work with in so that they are reducing their taxable income. Frankly, I'm a better steward of my money than Uncle Sam is.

[Scott Trench]

Sounds like you're able to do probably most of the things you want to do. Travel pretty frequently, eat out frequently, have some toys. Is that, is that right?

[Bobby Beck]

Yeah, I mean, I think, you know, Paula pants thing is you can have anything or you can buy anything, but not everything. I mean, I think that's how we look at it as well. Living in the Bay Area is a high cost of living area. So there are certain things that just cost a lot to exist. But yeah, I mean, I think yeah, we travel, we do about four big family trips per year. We do one just my wife and I trip and then I do usually one or two solo trips on my own to kind of go explore and fulfill that adventure value that I have. I do a lot of long distance backpacking and stuff. So. Yeah, I mean, we've kind of created our life to be the life that we want there definitely. Believe it or not, there are things that we have had to kind of cut back on overall. But I mean, I think we are very happy with the life that we have and we definitely feel incredibly grateful that we are here in this position.

[Scott Trench]

Well, congratulations on it. It seems like a wonderful environment that you've created and it sounds very, very sustainable for this. I will ask this because I've been noodling on this one too. I. I believe, and I think your portfolio is a reflection of this, that the fire community is. Does not. Even though the 4% rule calls for a 6040 stocks bonds portfolio. And I believe the fire community, by and large, does not invest in a 6040 stock bond portfolio. They're all in stocks, essentially. Is that true for you?

[Bobby Beck]

Yes. I mean, we are 70% in stocks.

[Scott Trench]

Okay, so you do have a 30% allocation to bonds.

[Bobby Beck]

Well, 30%, 10% is in cash and 20% is in real estate. But 70% is in stocks.

[Scott Trench]

Your stock portfolio is. Is. No. No bonds. How does that. You know, I woke up a few weeks ago and was like, I was in the same, relatively same, similar kind of asset allocation as you at that point. I was like, I cannot handle the idea of a 50% loss on my stock portfolio at this point. Even though, yes, I'm beyond the 4% rule. And, you know, all these. I just don't want to. I don't want to go through that from an emotional standpoint. And so I'm reallocating that to real estate. Are you comfortable with that? Is that not a. Is that not a risk or not an issue for you psychologically in terms of how you think about your portfolio?

[Bobby Beck]

Yeah, I mean, I'm definitely. We think about that for sure. I think the way that we look at it is that most recessions tend to last like, what, eight to 12 months? I mean, of course, it takes time for it to recover as well, but we do have that cash buffer for us. That feels pretty good. It should give us a little bit to weather that storm. So that's kind of the way that we look at it right now. And the growth that we had, of course, it's a gamble. Right? I mean, unfortunately, it's not something we can predict. Like, how is the market going to do? Is it going to. Past performance doesn't equal future gains. Right. So, like, we have to be aware of that. That is a true possibility in our portfolio. But I think the way that we've done it is just buffered in that cash position. That's, that's how we look at it right now.

[Scott Trench]

Okay. And I love the fact that you, and of course now several years in, you're ahead of your 4% withdrawal rate number. So you actually have a big nice cushion on top of that at this point. But you were, you retired, you fired at the 4% rule where that was a serious risk and then experienced the 20ish percent decline or say, what is it, 16, you said your port for your portfolio decline in net worth, that followed that and still felt comfortable and went through that. So that's not that, that was why I was so interested to talk to you here and, and hear about that. That, you know, it seems like if you can handle that, that, that risk, which you literally went through, you should be pretty good.

[Bobby Beck]

Yeah, I mean, I think, you know, there's the JL Collins meditation that you need to listen to. Right. It's like he does a little thing about stay in the market. And you know, you got to, you just got to believe that staying in the market is, is the path, you know, and as hard as it, as it can be, that's just something that my wife and I have, have fully embraced, you know, for good or for, for bad. And we've experienced a little bit of the bad, but, you know, hopefully it'll be somewhere in the middle or good, but, you know, you never know.

[Scott Trench]

Lindy, you have any last questions before we adjourn here?

[Mindy Jensen]

Yeah. Back to that 60:40 stock bond portfolio that Bill Bengan said would last you for 30 years. Do you have any thoughts about putting into a bond fund in the future? You have the cash right now. You have the real estate right now. I don't feel any pressure to put money into a bonds because I, I, we've reached our fine number and Carl retired. I'm continuing to work. We're not living off of our portfolio right now, but even when we start to, I don't feel the need to put any money in the bond fund.

[Bobby Beck]

The way that I think about it is that our High Yield savings account is yielding more than the bond bonds right now. So for me, it makes sense to keep it in the High Yield Savings account. Once that flips and the ratio changes, we are definitely comfortable looking at T bills, treasury bills, putting our money there. So we're kind of looking at. And that again, is why it's not just a straight line like you have to make decisions as you go. And one of the decisions we have right now is that bonds don't make sense for our portfolio at this time. But the high yield savings account is kind of filling that need right now.

[Scott Trench]

Just to give the academic counter argument to that, because I do not own any bonds and I pull a bunch of bigger pockets money listeners, and they just can't do it. They can't do it because the bond yield is so low on there. And I think if you really want to get technical, if you look at a Vanguard Total Market bond fund, the interest is like 3.6 or something like that on the pearls at the price, but the yield to maturity, what your actual return is, is like closer to 4, 6. So it is a little higher than the interest rate on pretty much all savings accounts and most money market accounts. But it's not enough of a spread for folks to be that interested in it. But I think the academic argument is in the event of a really disastrous recession where prices plunge, the Fed would then lower rates dramatically and that would increase the equity value of the bond portfolio, which would not happen to the dollars in the cash position or in a treasury, for example, at least not a short term treasury. So that, that would be the academic argument for it allocating some to bonds. But to your point, and you know, to your real example here and the data that we've collected on all the bigger pockets money listeners through our YouTube polls, nobody does that. It's very tiny fractions of people actually do that.

[Mindy Jensen]

And I don't, I think that it, it comes down to your level of risk. And I'm very fortunate to be in a position where I don't have to live off my portfolio right now. I'm still trying to, now it's a game. I'm still trying to grow my portfolio just to see what I can do with it. Like is the knowledge that I have, have collated and that Carl, and Carl has collated is this knowledge. Can we turn that into bigger money? And bonds aren't going to get us bigger money.

[Scott Trench]

They're smaller money. Yeah, Smaller money podcast for, for bonds. It's been announced here. But yeah, I will say that in, in, in some ways, in a lot of similar, in a similar situation to Bobby, I am making a different decision and I'm reallocating a big chunk of my index fund portfolio to a rental property because I can't handle it the same way mentally that Bobby can. Bobby will probably be richer than me in 20 years and perform better. And I'll But I just wouldn't sleep well over the next five or seven with that same allocation, personally.

[Mindy Jensen]

Well, and I think that's really important. It's how you can sleep.

[Bobby Beck]

Yeah. And that's the thing that being retired early, it affords you. It affords you the chance to like, open up new doors. Right. Like, you know, whether it's health or spirituality, like, you get to ask new questions that are kind of difficult to ask when you're inundated with work every day. You know, I think phi is one of those things, like when you reach it, it's like you won the game of life, you know, not really, but like when you take money off the table and you're not really feeling like you have to think about it, it just opens up life. You have to then look at yourself and deal with the things that, you know, deal with the personal development that you might need to do and deal with the health things that you might want to take care of. And you know, that that is such a luxury. That is the biggest thing for me that I'm so grateful for, that this community has unlocked for me.

[Scott Trench]

One last question here, because I think it's going to be on the minds of some listeners. You sold a business, presumably making millions in the sale to make this happen for this. Would you say that that is more common in the group that you're part of on Facebook or among the other people, you know, maybe in high cost living areas than just a high income earner achieving fi Is that. Is it just more common among the people who retire at your age? There's typically a business sale as a component of that.

[Bobby Beck]

Not from my experience. Nope. It seems just like people saving and everybody has a different cost of living. That's the key. Once you know your expenses, that's the goal. Right. You're like, oh, now I know what my life costs. Now I multiply that by 25 and now I've got that amount of money. That's my fine number. And once I get that amount of money in investable assets, I can essentially live on that and for about 4% of that. And so somebody's life somewhere else might be significantly less, but it's the amount that they save that gets them to that goal. And I think the real key, a lot of times on different groups and stuff, people post like their entire portfolio and then they ask if they can retire and they're missing the key number. The key number is what is your life cost? Like, that's like step number one. Like if you do that you're like you. You now have the goal, like you now know what you're marching towards. And then getting to Phi is just a matter of following the steps. Like you follow the steps each day, each week, each month, each year, and little by little, you get there. It's just a matter of time. It's a long schlog and longer for some than. Than it is for others. But yeah, I think everybody's journey is different. For us, it was the sale of a business and also the single stock that my wife had in her company that kind of allowed us to get to this kind of in an accelerated pace.

[Scott Trench]

Let me also point out something else here that is. That is a really important concept. Your house is paid off. Presumably that payoff came around the same.

[Bobby Beck]

Time as your business sale in 2020. We. Yeah, I guess around. Around that time. Yeah.

[Scott Trench]

And. And I don't know what the mortgage was, but would it be fair to say that a home in that area would come with at least a 6, $7,000 mortgage today?

[Bobby Beck]

That's correct, yeah.

[Scott Trench]

Let's say a $7,000 mortgage payment times 12 for the annual. That's 84,000. Just principal and interest for that if you want. If your portfolio, if you're living off the 4% rule, you need another 2.1 million on top of what you got just to pay your mortgage payments on that front. So that's. I want to call that out here. You talk about spending being a key variable. At some point, a decision was made for Bobby for that to be mortgage free instead of investing some very large number in the market, which would have led to a much larger net worth in 10 to 20 years and a very different looking Tuesday. Is that, is that a fair way to say it?

[Bobby Beck]

Yeah, absolutely. Yeah. I think for us, we were living in a different area in the Bay Area that was significantly more expensive. When we sold that home, the equity that we had from that, we were able to take that and buy the house that we're in now in cash and have some leftover and put that in and put that back into the market.

[Scott Trench]

And if you had instead taken out a mortgage and put it in the market, you might be richer, but you would, you would be working, I believe.

[Bobby Beck]

Yeah, we would definitely be working. And I know like, at that time, mortgages were still like 3%. So I look at that sometimes and I'm like, oh, maybe that wasn't the smartest decision. But ultimately it allowed us to get to freedom faster.

[Scott Trench]

I think those are the paradoxes of fire Here, if you do that, you will be less wealthy and you'll be freer. And that's like, how do you. How do you make that decision? Well, you made that whatever. Whatever set of decisions you made around that, you were right. Because I think a lot of people hear that Tuesday, and they're like, that's what I am trying to do. So congratulations for living the dream, Bobby.

[Bobby Beck]

Yeah, I think that's another thing about life is like, I know that there's a lot of people that have the one more year syndrome. And I think sometimes every time, like, when you make a leap in life, life catches you. It might be completely different than you think it's going to be. But for me, I've always just believed that if I make this leap, I'll figure it out. Like, if it doesn't work out, something else new will happen and it will work out. And that for me is just a mantra that I have. I have several little mantras in my life that have helped me through this journey and made life incredible. And that's one of the big ones, is just knowing that life will always catch you on the other side. It might look different, but it will catch you.

[Scott Trench]

I think that's a great philosophy. I think that is gonna be true in most cases, and it's even truer when your house is paid off.

[Mindy Jensen]

All right, Bobby, this was a lot of fun. I really appreciate your activity in our Facebook group and I also appreciate you coming on the show to share your story that it is actually possible to retire on the 4% rule without extra income. So thank you so much for your time today.

[Bobby Beck]

It's a pleasure. Thank you for having me.

[Mindy Jensen]

Oh, it was a lot of fun. Okay. And we'll talk to you soon.

[Bobby Beck]

All right, thank you.

[Mindy Jensen]

All right, Scott, that was Bobby. And that story was a lot of fun. I'm really glad we had him on because he just re reinforces my opinion that you absolutely can retire on the 4% rule.

[Scott Trench]

Yeah, I like the fact that he didn't Quite retire the 4% rule. He's got a rental property. He's got a big pile of cash on there. So I'm still, you know, I still am technically correct, but. But mostly wrong on this one. So I think that was great for him to come on and email me and love the, the, the. The adherence to. And then the rewards of on a day to day, from a day to day lifestyle. Lifestyle perspective that he's reaping from the 4% rule. So I think it's fantastic. And you know I'll be waiting now for the 4% rule. Early retiree who still hasn't paid off their mortgage and lives on the 4% roll. So that's the next one. Please email me if you are or know that person right now with a stock, with a true stock bond portfolio, relatively small cash position, no other meaningful assets, and has not paid off your mortgage and are living the retired lifestyle. I'll be interested to see if that person exists.

[Mindy Jensen]

Okay. Well, I do have somebody coming up who is living off the 4% rule and I'm going to dive deeper into his numbers. I don't know if he has a mortgage paid off or not, so that'll be just as big a surprise to you as to our listeners, Scott. But yeah, if you know of anybody, if you are living off the 4% rule with no other sources of income, dividends don't count, but everything else counts. No other sources of active or even passive ish income, email [e-mail] or [e-mail] because we want to talk to you. All right, that wraps up this fantastic episode of the Bigger Pockets Money podcast. He is the Scott Trench and I am Mindy Jensen saying see you around the playground.