← BiggerPockets Money Podcast
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- [00:00]
A
Financial independence means building enough wealth to live on without depending on a W2 income. It's freedom to choose how you want to spend your time, and that could be early retirement, switching careers, starting a business, or simply working on your own terms. Today's episode is the ultimate guide to financial independence for 2026. We'll be covering everything from setting your number to how to grow your portfolio and then ultimately deciding what you want to do with that freedom. Let's jump into foreign. Hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my financially independent co host, Scott Trench.
- [00:44]
B
Thanks, Mindy. That was a fire intro. All right, this is the annual update for the ultimate guide to financial independence here at Biggerpockets Money. You're going to see a new version of this every year where we're going to make fine tunements and small tweaks, hopefully small tweaks as we our knowledge base evolves and as we talk to experts pioneering new thought leadership on the journey to financial independence to make it easier, faster, safer, cheaper, happier for you. This is our latest version. Let's get into it.
- [01:10]
A
Let's get into it. Scott, this is exciting. I love talking about fi, of course. Do you have some slides for us?
- [01:18]
B
Yes, I do have some slides for us. This is the ultimate guide to financial independence in 2026. So we'll start off by answering, what is financial independence?
- [01:26]
A
Mindy, Financial independence is that unique state of bliss that happens when your investments can kick off enough liquidity, enough spendable income that you can replace your traditional job, your other source of income, with all the money coming in from your investments. Let's say you have a rental property and you're spending $100,000 a year and your rental property now kicks off $100,000 a year, this fictitious rental property. That is when your investments are generating enough income that you can live and you don't have to work out another job anymore.
- [02:06]
B
That's right. Yep. Financial independence is the option to retire. Many people who are financially independent choose to go on to start businesses, build empires, continue working, work lifestyle jobs, work part time. Some do truly live a early retiree lifestyle, but financial independence is the option.
- [02:23]
A
So, Scott, how do I know when I have enough money so that I can quit if I'm not doing some sort of easy math with a retire a rental property that kicks off the same amount that I'm spending?
- [02:36]
B
The classic answer to what is financial independence is the is this concept of the 4% rule when you have enough assets such that you can live off 4% or less of your investment portfolio, you are considered financially independent, according to the vast majority of people in the financial independence community. The 4% rule derives from a study that CFP Bill Bangan did in 1994 trying to ask the question of what is the safe withdrawal rate if I want my portfolio to last three years, 30 years? That study assumed that the investor had a 6040 stock bond portfolio. It assumes that they adjusted their spending for inflation every year. So if you wanted to spend 100 grand and had $2.5 million in assets every year, even if you increase that withdrawal for inflation, you would have survived 96%, almost all of the historical periods that were available at that time in the study. That's a very, very high success rate. And we can further strengthen that success rate to effectively 100% if we're willing to do things like be flexible with our spending, earn any additional income, consider Social Security or subsidies for aca, healthcare subsidies, for example, into our retirement plan. So this is widely considered the answer for the financial independence community. And it's only been layered in to get more secure with additional research done by Bill Behnken himself in recent years, including with a book that he released here in 2025. And this research has only been updated to confir that the 4% rule is safe. With additional research Bill Bingen did in 2025, it suggests that the safe withdrawal rate for a 30 year retirement is actually closer to 4.6, 4.7%. But that fire, or the folks that are retiring early should assume something closer to that 4% rate.
- [04:24]
A
Are you sure, Scott? I mean, CFP Bill Bengen said it, but are you sure?
- [04:30]
B
The question, the reason this is discussed so much. If you're new to this community, why do you keep Talking about this 4% rule when you're discussing what is financial independence? It's because it's so important. If you're going to leave your job and forego the earnings power that you could otherwise have early in life, you want to be dang sure that your portfolio is going to last. And the 4% rule has been debated so thoroughly and is still kind of the gold standard for the starting point for the early retiree because of all of these additional safety metrics that are not factored into it. The 4% rule does account for inflation. It does not have a success rate in every 30 year period. But further research has increased that safe withdrawal rate once you get into more complex portfolio compositions like things that include other Assets, uncorrelated assets, and even negatively correlated assets. The 4% rule assumes that you are never going to take Social Security. It assumes you never work again. It assumes that you are not flexible with your spending. It assumes that you have no other assets like rental properties, pensions, no cash cushion, no private business, no. No inheritance, no nothing. And so if any of those things are true, you extend or increase the success probability well past 96% with this 4% rule.
- [05:48]
A
Okay, Scott, I hear what you're saying. I actually am a huge Bill Bengen fan, but I can hear people saying, okay, well, what if my portfolio changes? What if there's a huge drop in my portfolio? Or what if there's a huge increase? Like, do I increase it when my portfolio goes up and decrease it when my portfolio goes down?
- [06:09]
B
Yes. So I think, I think that the first of all, the 4% rule already takes into account that fear of a drop early in retirement. This is a real challenge for early retirees. It's called sequence of return risk. And if returns are very poor in the first few years after you retire, you may be forced to sell assets at a low valuation and not give them time to recover, which is why things like a cash cushion can reduce that. But the best way, I think, to increase the safety of a retirement portfolio is with a concept called flexible spending or risk based guardrails. Mindy, you want to cover this one?
- [06:48]
A
Yes. So this is a concept that was introduced by Aubrey Williams, who is another CFP. All these people are CFPs coming up with this. It's not just making it up. Aubrey Williams came up with the idea of these guardrails where if you are starting in his example with a $1 million portfolio and your portfolio drops, you can continue to withdraw at the same rate that you were before. If your portfolio drops to 975,000, if your portfolio drops to 900,000, if your portfolio drops all the way down to 524,000, you can still continue to withdraw at the same rate that you were withdrawing from when you first started. It's only after your portfolio drops below the $524,000 mark or a 46% plus reduction in value. Do you tweak your withdrawals. And according to Aubrey, you tweak your withdrawals by $190 a month. That's pretty minimal.
- [07:57]
B
So, yeah, this is just with a 5% flexible spending. Basically what he's saying is you greatly increase the probability of success if in a disaster scenario, you're really unlucky and you retire right before Your portfolio drops by nearly 50% and you just reduce your spending by 5% adjusted for inflation, you can survive your retirement horizon. That's a really powerful concept. Many people, I think when you go through and look at your expenses in great detail, can, can create buckets of spending that are fixed, like your mortgage payment or your property taxes and that are flexible, right? Maybe your food budget has a component that is fixed groceries and a component that is flex dining out. And if you're in that really unlucky cohort, you eat out less for a year, for a couple years, maybe a couple months or a couple years until the market bounces back, you're able to stabilize that portfolio and that's what flexible spending does for this portfolio. Mat those fixed unrelenting expenses. Our real challenges we have to work around in retirement planning. But the more your portfolio that's flexible, the easier this game gets.
- [09:01]
A
We have to take a really quick ad break. We'll be right back with more after this message from our show sponsor. Welcome back to the show.
- [09:09]
B
Let's talk about what this portfolio is and is not. So we have this. If we want to retire early, we need to say and we want to withdraw at the 4% rule. We can't treat all of our net worth as equal when we're considering this. For this financial independence portfolio, let's define.
- [09:28]
A
What net worth means.
- [09:30]
B
Scott, Net worth is everything you own, less everything you owe, right? So it's all the equity in your house, it's all of the financial assets you have. It includes your personal property. It includes beneficiary accounts. It includes all the things that you own. Their fi portfolio includes only the financial assets or income streams that you're going to use to actually generate income or harvest to fund your early retirement or financial independence journey. But the financial independence portfolio only includes the financial assets that you intend to harvest for early retirement or financial independence. So typically we're going to exclude home equity in our financial independence number. You can be an exception to that if you plan to sell your house and harvest the gains or reinvest them as part of your financial independence portfolio in the near future. But if that is not in your near future plans, don't include your home equity in your financial independence number. Now that brings up another question here. Stocks and bonds and the portfolios have been widely studied, are certainly included in a fi portfolio. But how ought you to think about pensions, Social Security, rental properties or business equity? Mindy, you want to take that one.
- [10:43]
A
So pensions and Social Security are worth something. You will get money for them, but you can't sell them. If I had a pension, I can't sell it or will it to Scott. It's just there. Same with my Social Security, with very small caveats to that, but for the most part it's not mine to do with as I please, the actual product. It's just cash flow to me.
- [11:11]
B
So, so what we do with that is, let's say I want to spend a hundred grand a year as my retirement spending target. And in, in a tradition, if I had no, none of these other income streams, no rental property, no pensions, no Social Security, then I would assume I need a $2.5 million portfolio such that I could withdraw 4% of it or 100 grand a year to count myself financially independent. But let's say I had a pension that produced $40,000 a year adjusted for inflation, for the rest of my life. Well, now I could reduce my FI number from $2,500,000 to $1,500,000. I have $40,000 in the income stream from my pension and I have $60,000 from my financial portfolio. And together those two add up to $100,000 and allow me to live my financially independent lifestyle. A rental property that is paid off can be thought of the same way. If after conservative, appropriate conservative projections for vacancy capital expenditures, maintenance, property management, all those kinds of things, I have a rental property that's projected to produce $40,000 per year, perhaps a paid off property, for example, then I can similarly take that income stream and add it to my stock bond portfolio to figure my financial independence spending number.
- [12:25]
A
Okay, I'm on board. I am going to start saving. How long is it going to take me to save so that can retire?
- [12:34]
B
A lot of the math around early retirement or financial independence boils down to that traditional financial independence portfolio, the 60:40 stock bond portfolio, or a liquid financial portfolio. And in the context of that journey, we can boil down the math into one number, which is your savings rate as a percentage of your take home pay. Mr. Money Mustache wrote about this, what, 15 years ago now, discussing, hey, if you save 5% of your take home pay every year and invest it at a 5% after inflation return, it will take you 66 years to retire. You may never retire. If you can save 20% of your income, it'll take you 37 years to retire. You shave almost 20 years with almost 30 years off of that journey. If you can increase that savings rate to 50%, you're going to be able to retire in just 17 years and the numbers get even more absurd from there. A lot of traditional retirement planning advice before the early retirement movement, the financial independence movement based retirement savings target off of replacing one's income, which is very difficult. But when you reframe it around how much you want to spend, the game becomes much more achievable for an increasing percentage of of American households. Not everybody can do this, but an increasing percentage of American households are beginning to have this option in recent years. And that's why we're seeing this fire movement balloon so much in recent years. If this is how long it'll take you to get to retirement, let's frame the journey here. Mindy, can you give us a high level overview of how in a practical way people can move towards financial independence?
- [14:14]
A
Number one, lowering your expenses. The less you are spending, the less you have to accumulate to cover your expenses.
- [14:24]
B
And the faster you accumulate wealth.
- [14:25]
A
And the faster you accumulate wealth. Wow, that's a double. That's a double benefit right there. Number two, increasing your income. It's so much easier to save more money when you're bringing more money in in the first place. Number three, investing. You can invest passively for relatively average returns or you can invest a little more aggressively. Higher risk can equal higher rewards. Number four, minimize your tax burden. This is your tax burden currently by investing in pre tax retirement accounts. This is investing in tax advantaged special investments like being a real estate professional. Real estate professional status is a specific IRS designation. It allows you to write off active income against business losses on paper. Same with a small business. There are lots of tax advantages to owning a small business and strategic tax planning for when you are withdrawing in the future.
- [15:31]
B
Let's translate that all to a clear and aggressive plan to reach financial independence in a seven to 15 year period. That plan is going to take what we just discussed, that diagnosis. You're going to have to drastically cut your spending because that's going to increase the rate of accumulation dramatically and it's going to reduce the portfolio size you need to sustain financial independence. We're going to ramp our income as much as possible because that scales infinitely in theory in a way that cutting our spending does not. And we're going to invest very aggressively because we want to hit a fairly big target early in life. We're going to invest very aggressively until we begin to approach that target. And then we're going to make a hard pivot and build a retiree portfolio that can last a lifetime. So that is the plan in a nutshell. We'll start off with the details around spending less here, and I like to start the discussion around spending less by looking at average spending in the United States and addressing the obvious right. If you look at one person households, this is a single person from 2023 data, the most recent Bureau of Labor Statistics data available. You're going to see and you look at this pie chart of spending. Nearly two thirds of spending for Americans comes in the comes in from housing, transportation and food. And I do not believe that unless you can really ramp that income, you are going to be able to achieve financial independence in a reasonable period of time. Like a decade, like plus or you know, plus or minus five years off a decade if you don't control those three expenses. Personally. I live with roommates my entire throughout my entire 20s and I house hacked for most of my 20s to keep that housing expense very low or even actually make it a net negative. I was actually, you know, not having to pay any rent at various points there. Transportation, I drove a beat up old car and biked most of the time I could in a fairly bikeable city here in Denver, Colorado. And for those first few years getting started on the financial independence journey, I made most of my food with reasonable purchases from reasonable grocery stores. And those three changes alone really enabled me to spend even more in some of these other categories like entertainment and recreation and still have an absurdly high savings rate.
- [17:43]
A
This is our final ad break and we'll be back with more right after this. Thanks for sticking with us.
- [17:48]
B
One tip I'll say by the way, is is use some kind of net worth tracker, right? There's a bunch out there that are free. Our favorite is Monarch Money. Mindy and I both use that. It's like 50 bucks a year. We actually have a code with them pockets. If you go to monarch.com and you can get 50% off your first year, that'll automatically track all these expenses and it automatically categorizes almost all of them using, using its AI into the appropriate bucket. I look at it every single month with my wife and that keeps us in control, you know, all these years later.
- [18:18]
A
Yeah, it's a very powerful tool. It takes a little while to set up, but it's so worth it because once you've done the setup, then every day, every week, every month, however frequently you want to go in there, you can pop in there and it's automatically doing everything for you. Scott, let's talk about the next one income generation.
- [18:38]
B
Yeah, so this is one I think that is, is is a challenge for a lot of People, because you know the concept of early retirement means by definition you're starting out. If you're watching this video and you're trying to retire early, you are starting the journey something other, you know, some, something fairly early in your life. And what people miss, I don't know why this is so hard for people to comprehend is your income is not going to stay where it's at over the next 10 years. Almost certainly if you are watching this video and you're 25 making $41,000 per year here in the 50th percentile by the time you're 35, you should expect to be making $60,000 a year, adjusted for inflation, if not a little more than that, right? If you stay at the 50th percentile for paying your age bracket, you're going to be making $67,000 a year when you're 45. If you stay in that age bracket, your income will grow over the course of your career if you are average. But if you're a personal finance nerd in the fire community, you're likely to want to accelerate even past that average. And that's not unrealistic for many of the young people that are going to be watching this video. So some of the tips we have there are around self education. I think I will challenge you. Come back. Email me at scottiggerpocketsmoney.com or mindyggerpocketsmoney.com if you read 25 Finance, Business or self development books over the course of 20, 26 or the next 12 months after you watch this video and your income does not grow at least 10% in the next two years, call me out, tell me I'm wrong. I do not believe that will happen. I believe that that kind of self education and training will help you find that next opportunity or grow your skill set, earn that next promotion at work or set the stage for some kind of entrepreneurial pursuit, some kind of side hustle that will help you make more money. I believe it to the core of my being. I think it's a fundamental thing that many people who want to get ahead in life can do for free or very low cost.
- [20:40]
A
But Scott, I also think that those people who are reading the 25 books in one year are not going to stop with your self education. They're going to move on to the next one which is networking, meeting, learning from and helping other people in related or adjacent fields helps you grow your network. And it might not seem at age 25 that having a network is really important. Having a network is super important. It allows you to get a leg up on a lot of opportunities that may not be available to you without that same network.
- [21:17]
B
When you want to go and earn more income, we introduce the element of luck and chance. And we have to do a number of things to increase the opportunities, the luck and chance that afford you that chance to earn more income. Those start with self education. It comes with networking. The more hard skills in the areas that you're looking to develop in that you can develop will help you out with that. The fact that you know how much you ought to be paid, what is your market value, and you are revisiting that with your boss, you are willing and able to test the market and get a new job on there, and you have some kind of written performance plan and understanding of what it takes for you to get to the next level to earn your raise or your bonus for this year. Those are all things that are within your control that can drastically increase the likelihood of you earning that next raise or getting that next job that will boost your income, but it's not guaranteed. It's all chance. One other non intuitive way to grow your income is to take a job that offers upside down. This seems very obvious, but the catch is that a lot of people let's say you're making 80,000 bucks a year and you spend $75,000 a year. If you wanted that job with upside, you might have to take a job that only pays $60,000 a year, but offers a 100% bonus potential or offers commissions potential that could carry you well into the six figures, but it's not guaranteed. The person spending $75,000 a year can't take that job because they'll be running out of money. They'll be depleting their cash position because they spend more than that base salary. The person who spends $50,000 a year, however, will see that job for the opportunity it is to get ahead. And so that's another powerful dynamic and why we start with spending less on the journey to financial independence. It just opens up so many opportunities, makes the whole game of finance that much easier.
- [23:11]
A
Okay, Scott, let's talk about accumulation. When we say invest, we're not saying take the money that you're not spending and put it in a savings account.
- [23:22]
B
When we invest, we want to generate real returns in advance of inflate inflation that propel us along the journey to early financial independence. We want to get the best returns that are reasonably accessible to us that we can, that we can, that we can have reasonable odds from a historical view point of view and helping us propel us to that journey. And this is going to call for two different investing. There's going to be two different investing approaches we're going to use on the journey to financial independence. In phase one, which is the bulk of the journey for the bulk of people in the fire community, the accumulation phase, we're going to invest very aggressively. That might look like 100% stock portfolio, a small amount of cash as savings, and maybe some, you know, creative plays on the side, like a house hack where I'm going to move into a duplex, put 5% down, rent out the other units and use that to cover my housing expenses. It might look like a rental property investment that's leveraged there. We're going to make aggressive plays that are designed to grow our portfolio. We're going to have an indefinite time horizon. As we think about those, we're going to be investing as if it's for the very, very long term, indefinitely, because that allows us to take historical averages and get a chance to ride those. But we know that at some point we are going to want to switch to a more diversified portfolio. The time for that switch is going to come when we are within five years or 80% of the way to our financial independence number. At that point, we're going to flip or begin the process of flipping to a more diversified portfolio that has research tied to it and is diversified and with uncorrelated assets. So we protect our wealth. Financial independence is about building enough and then ensuring that we keep enough, not growing forever in perpetuity. Mindy, do you want to tell us about some of the principles and rules of thumb here in the accumulation phase and the decumulation phase?
- [25:08]
A
Scott, in the accumulation phase, this is where you want your money to grow so you are a little riskier than you would be later down the road. So this is a 100% stock portfolio instead of the what you referred to earlier, the Bill Bengan mix of 60, 40 stocks, bonds. This is leveraged real estate portfolios, where you are putting a small amount of money down and getting a loan for the rest so you can continue to grow your real estate portfolio. Private business opportunities, these, these can be a little bit riskier speculative investments. You're looking for something that is going to grow and grow at a rate that you're comfortable with. A, you know, high risk has the opportunity for high reward. And this is where you're at. In the accumulation phase, you have a longer time horizon like you said so you can be a little riskier, especially in the beginning as you move towards the decumulation phase. Your goal isn't to continue to grow it. Your goal is to preserve the amount that's there so you can continue to withdraw from it. We are going to diversify our holdings, coming from 100% stocks into more diversification, something like the golden ratio portfolio, which is instead of 100 stocks, now we're at 42% stocks, 26% bonds, 16 alternatives like gold, 10% managed futures, which is just investing in trends, and 6% international stocks split between growth and value. Both the 42% domestic stocks and the 6% international stocks should be split 50, 50 between growth and value to help preserve the wealth that you have accumulated.
- [27:04]
B
Yeah. And just for the record, none of this is in, none of this is investment advice. We're not telling you to invest 100 stocks. We're not telling you to invest in a golden ratio portfolio. We are provid examples that are common in the financial independence community of where people invest in the accumulation phase and where they invest in the decumulation phase. And the theme is invest for growth. Invest the way that you think will propel your net worth forward in the accumulation phase. When we get to the decumulation phase, constructing these portfolios, moving assets around, reallocation decisions, those can have fairly substantial tax consequences. And that's when I think a growing number of people in the financial independence community want that extra eye, that professional eye, and begin to talk to financial planners. If you decide to talk to a financial planner, Mindy and I recommend you talk to a flat fee financial planner, somebody who does not charge you for assets under management, or someone who does not, certainly does not charge or does not make money selling commissioned financial products like permanent life insurance products. Talk to somebody you're going to pay by the hour for advice only or based on with a flat fee model, both are viable. So we've talked about this accumulation and decumulation phase in terms of what we're going to be investing in and how we're going to think about our investments mechanically. What is a good order of operations? How do I think about. I'm going to invest in maybe a total market index fund, maybe I've read The book from J.L. collins called the Simple Path to Wealth. And I like his VT SA X or its ETF equivalent VTI suggestion. And I'm going to be investing in that. But I can invest in my 401k or my HSA or I can invest after tax how do I think about that? What's a good order of operations that is efficient for helping me avoid taxes or pay the least amount of lifetime taxes on my journey to financial independence?
- [28:56]
A
Okay, assuming that you are starting from scratch, I want you to build a $1,000 cash buffer. You want to be able to weather an emergency and this $1,000 will help you start. Next up, I want you to pay off all your bad debt. I don't personally consider a mortgage to be bad debt. Everything else, anything with a 7% or higher interest rate, credit cards, car loans, things like that, let's pay those off. The only thing I would suggest keeping is something with a 6% or lower rate, that is, and if like 2 or 3%, no brainer, don't pay those off. But you want to get rid of the high interest credit card debts and the high interest debts that aren't doing you any favors by holding onto them. Next up is the 401k contributions to the match that your company gives you, if any. That is literally free money that your company says, hey, if you put some money into your 401k, I'll match it, let them match it for you. Next up is to take any other free money that your company gives you. The like the employee stock purchase plan. After that has all been satisfied, I want you to build and maintain a six month emergency fund. And sick by six months, I mean six months of your expenses in an account, in a high yield savings account, not in the stock market ready to access just in case something happens to your job. Job. After your emergency fund is fully funded, I want you to max out your HSA. Then I want you to max out your 401k followed by your Roth IRA. And then anything left over goes into your after tax brokerage account. Okay, Scott, that was the accumulation phase. What about decumulation phase?
- [30:52]
B
Yep. So there's an order of operations for getting money into your accounts and there's another order of operations for getting money out of the accounts. Decumulation is a really interesting concept that we are really starting to dive into. There's a lot of considerations for the early retiree about how to think about this. Right. And there's a couple of different schools of thought. Right. There are ways for a early retiree who's not earning active income to stay in the 0% tax bracket by for example, basis recovery. Let's say you invest, let's say you have a million dollars in your after tax brokerage account, but you invested 500,000 into that over your working years and the other $500,000 is gains on those original investments. Well, you could extract some of that wealth, that money you put in, by selling the stuff you put in last or tax loss harvesting or those types of things. And that can enable you to pay no taxes for a long time claim while you're just basically extracting wealth that you put in. There are ways to pay lots of taxes in retirement by for example, withdrawing from your 401k early using some of the tools that we've talked about on biggerpockets money, like the 72t or substantially equal periodic payments rules that allow you to access that money early. You can also convert money in a 401k to a Roth IRA and that is not subject to penalty, but it is subject to taxes at ordinary income rates. So there's a lot that goes into into an optimal order of operations for decumulation. Right? And it depends the right answer to which accounts to withdraw from depends on where your money is, how it's invested and what your long term goals are and what your schools of thought are. So we are going to provide three options and encourage you to go read a book that came out in 2025 by two of our friends, Sean Mulaney and Cody Garrett, called Tax Planning to and Through Early Retirement. Some of these schools of thought though on decumulation are one, to basically minimize taxes. Now that involves generally speaking prioritizing withdrawing from your taxable accounts in that basis recovery to keep your taxable income in the 0% or very low income tax brackets. Then when those run out to withdraw from your tax deferred accounts, then to withdraw from your Roth accounts. The second order of operations is around the school of thought of never wasting the standard deduction or the 0% long term capital gains tax bracket which can be up to like $96,000 for a married couple. In this second order of operations I might withdraw from my 401 early using a 72T or substantially equal periodic payment rule. Or I might do a Roth conversion with those funds up to the standard deduction which for 2026 will be $32,200 for a married filing jointly couple. And then I might want to use my taxable accounts and withdraw basis or gains up there all the way up to the long term capital gains. In 2026, the married filing jointly 0% cap long term capital gains tax bracket will be 98,900. So I'd want to use up the rest the of rest of that using my tax deferred accounts and realize all of the gains I can up to that amount because I don't want to waste that 0% tax bracket. So that's this school of thought. And then after, of course, I've run out of tax deferred and or taxable accounts, then I would only then withdraw from my roth accounts. The third order of operations is we're going to call RMD suppression when you turn 75. For the vast majority of people watching this particular video, the IRS will require you to begin distributing money from pre tax retirement accounts like your 401k. And if you have a huge balance of retiring early and you don't really touch it because you work part time or otherwise generate income in that early retirement, you don't really need to do these other strategies in order to optimize your retirement because you have other income sources. You may find yourself with a huge pile of Money in your 401k. And if that's something that you are worried about or is realistic for you, you may want to conduct yourself or take a strategy that goes to additional lengths to get money out of your 401k and tax deferred accounts and into the Roth IRA early in life. And in that case, we're going to withdraw from our tax deferred accounts using our 72T or substantial equal periodic payment rules, and we're going to do Roth conversions on anything that we don't need up to a higher federal income tax bracket, for example. A popular starting place for that discussion is to say, you know, what if I'm worried about if most of my wealth is in my 401k, let's say I got like 2 million bucks in a 401k and that's really most of my financial assets. I'm, you know, late 40s and I really want to retire early. Well, maybe what we do is we actually convert our 401k over to a Roth IRA using a Roth conversion up to the end of the 12% federal income tax bracket, which for 2026 will be up $100,000, $100,800. So those are the three schools of thought on decumulation order of operations. This gets complex. It's a pretty big model. There's some guesswork in here. It's going to depend on how returns go and what your spending patterns look like and all these other income sources. So again, this is a really great place if you're approaching early retirement. Probably worth it to spend a few thousand bucks talking to a professional financial planner on how to do this. Just avoid the traffic of handing your money over to a financial advisor who charges an assets under management fee or that is that makes the bulk of their money selling commissioned life insurance products or other financial investment products.
- [36:52]
A
Scott, what is the number one question we get about early retirement, health care, healthcare, what do I do for health care?
- [36:59]
B
And there's a reason for this, right? Like I, I still think that even as much as healthcare is discussed in the financial independence community, people still don't really get what the problem with health care is for the early retiree. And I think if you're no longer working for an employer and you want health insurance, most people who are not super high income earners will want to purchase health healthcare programs on the Obamacare exchange or the Affordable Care act exchange. And these plan costs can vary dramatically based on where you live. If you're in Colorado, for example, we're going to have relatively lower costs healthcare premiums than a place like Vermont, at least for somebody who's my age in the 35 year old age bracket. So that makes it relatively affordable. But in Vermont, that policy that cost me 1200 bucks or 1000 to 1200 bucks for my family here in Colorado might cost $2000 or more for my household in Vermont. And that can be a real problem. Luckily, or at least for now, parts of those premiums are subsidized for people who earn below a certain amount of income. Early retirees are able to control their income and many early retirees will want to talk to their financial planner or be very cognizant of their modified adjusted gross income, their magi to make sure that they qualify for subsidies for their health insurance. I personally believe this is a very bad thing to plan on. I'm not saying not to take the subsidies if they're available to you here, but I do not believe that your early retirement should depend on the American taxpayer paying for your health insurance premiums as a multi millionaire early retiree. Take them if they're there. But I believe you should pay plan on paying the full price for health insurance premiums in your spending model when you are thinking about early retirement. And you should note that those health care premiums that I mentioned that are a little lower in Colorado for a 35 year old, they can go up a lot as I approach in my 60s and I'm still not yet qualified for Medicare. Health insurers are allowed to scale those costs three to one. So they can charge a 60 year old based on age. They can charge a 60 year old three times more for example than a 20 year old. And they do in most states. Exceptions include Vermont and I think one other state, maybe New York for that. So you really want to be cognizant of that because if your plan is I'm going to spend this much on health care, I think you may have a risk of that going away to some extent in future years where those subsidies change or are diminished and you're not getting that same amount of subsidy that you were expecting for your health care. And if the unsubsidized health care is like 20 grand today and goes to 35 by the time you're 60 and you're getting subsidized, your out of pocket is only 5,000 or $6,000 and then those subsidies go away. That's a big difference in your spending per year. So I think the only rational approach here is to have enough margin of safety in your financial independence plan so that you could support yourself if you were required to pay the full price in inflation adjusted dollars for health insurance today and then treat those subsidies as insurance against your overall plan. That's probably going to be a contentious topic. I would love your feedback in the comments here on YouTube, but I think that's the only sane way that you can approach this if you're retiring in your 30s here in America today.
- [40:44]
A
Until we have a single payer health care system, health care is going to be a line item in your budget and it's going to be a fluctuating line item in your budget. My health insurance went up 25% this year, 2025 to 2026. And that is with the full subsidies. I take the full subsidies during the year and then I pay them back at the end of the year when it's tax time, because I don't actually qualify for them, but it reduces my month to month expenses. And always hoping that maybe there's like this is a good problem to have. This is a really good problem to have that I don't qualify for the ACA subsidies. So even with subsidies, my health insurance went up 25%.
- [41:34]
B
I think that this is an area that we're going to get much more advanced in over the course of 2026 here. And I think it's going to be controversial. I think that politics begins to get involved here. Like you said, until we get a single payer system, I'm not sure we will ever get a single payer system here in the United States of America. I'm not sure if that's the right thing or not for the United States of America. But I do know that this is going to be a point of risk and discussion in the early retirement community for sure. And I think that if subsidies go away, we're going to see non insurance alternatives like health shares, which I think make a lot of people like me a little uncomfortable with, but they're going to be, have to be taken seriously if the alternative is a $20,000 increase per year in health insurance premiums. So we'll see how this goes. But this is a real risk in the healthcare community and I think the way you do this is, hey, if you want financial, financial independence is a life lifetime of doing whatever the heck you want. And this is an expensive risk mitigation. This is, this is an expensive and real risk to early retirement. I think you just gotta plan for.
- [42:47]
A
And it's, it's just gonna be a line item in your budget and make sure that you are being very conservative and guessing really high.
- [42:55]
B
Absolutely.
- [42:56]
A
Okay, Scott, we have talked about the beginning of journey, the middle of the journey and approaching the end. Let's talk about the actual end of the journey.
- [43:05]
B
Yeah, well, the end of the journey is the beginning, right? I mean, I mean this is, this is where you, you wake up in your 30s or 40s and increasing numbers people are actually doing this and you're like, huh, I actually don't have to really earn money now. What do I want to do with the rest of my life? 50 plus years. It is a glorious problem. It is absolutely worth significant sacrifice in other areas of life. It is absolutely worth that grind. I believe, I think many more people should achieve this. But you gotta begin to actually make the most of it because this is a wonderful opportunity afforded to few in all of human history to have this much opportunity and access and optionality in life this early in life. And once you have it, you gotta have a plan and make the most of it. Really find that meaning in there. Maybe cast a vision for your life. Figure out what you want to do if you have a partner or family, what you want to do with them and really make, maximize the most of this, this wonderful opportunity that you've built for yourself through, you know, the hard work and sacrifice of, of getting to financial independence.
- [44:06]
A
And what you want to do is start thinking about this now at whatever part of your journey you are at now. Now is when you start thinking about the end. You don't get all the way to the end and then start thinking, oh, what am I going to do now? Have something that you're thinking about that you're retiring to not just quitting your job. The bucket list is a great exercise. Sit down and think about all the things you wish you could do but don't have time for, all the places you would want to see, all of the experiences you would want to have. But you can't do it right now because of work. You can't do it right now because of whatever time suck is happening that isn't allowing you to do whatever you want on your day. And your bucket list should be a very fluid thing. You should, should always be adding and you should always be crossing things off. In 2026, Carl and I are starting our see a game in every NFL Stadium bucket list. We're not going to finish it in 2026, but we are going to start it and I'm super excited about that. But don't put your life on hold waiting to hit financial independence. Start living the life you want right now.
- [45:18]
B
Yeah, and I think, I think that there's been the fire community in particular got a little bit of a bad rap for being so hardcore frugal that they were really sacrificing. And this is a small component, right? This is the straw man that various finfluencers like to attach to the entire fire community. But there's a real section of the fire community that went so hardcore into this that they made themselves miserable and missed out on life on there. And this is a straw man. You can achieve financial independence by controlling the big three expenses, housing, transportation and food. Spending a wonderful amount, even perhaps above the American average or well above the American average on other things that provide really great meaningful experiences and achieve financial independence early in life. And don't let people tell you that that's not possible. Don't let people tell you that financial independence and the option to retire early, whether you choose to continue working or not, is not obviously a good thing here. Don't let people tell you that money and building wealth does not produce happiness. Of course it does. It produces much great, substantial amounts of happiness. There's lots of studies on this. And that happiness continues to grow as you accumulate more income and wealth in life. Okay? Money is not this evil thing in society. It is a tool that allows you optionality in life. And financial independence is the ultimate form of that optionality. You can do whatever you want when you get there. And again, it's about maximizing what that means. For Mindy, it's that bucket list and making sure that there's a large number of life experiences. I'm more of a homebody and just enjoy my days here every day. Building, tinkering with things for early financial independence, playing some games, hiking, skiing, and hanging out with my little girls here.
- [47:05]
A
I love that, Scott. My kids are no longer in the hangout with mom and dad phase, so my life's a little different. But either way, enjoy where you're at right now. This was super fun, but that wraps up this episode of the Bigger Pockets Money podcast. Happy New year. Welcome to 2026. I am Mindy Jensen. He is Scott Trench. Saying out the door, dinosaur.