The Financial Order of Operations for FIRE (Step-by-Step Early Retirement Plan)

Summary

BiggerPockets Money Podcast Summary Episode: The Financial Order of Operations for FIRE (Step-by-Step Early Retirement Plan) Release Date: April 18, 2025

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Introduction

In this insightful episode of the BiggerPockets Money Podcast, host Mindy Jensen teams up with guest Amberlee Grant to delve into the strategic sequence of financial steps essential for achieving Financial Independence, Retire Early (FIRE). With Scott Trench on paternity leave, Amberlee brings fresh perspectives to supplement the discussion, emphasizing the importance of not just saving, but when you save.

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Reevaluating the Emergency Fund

Mindy challenges conventional wisdom by questioning Dave Ramsey's first baby step of building a $1,000 emergency fund.

Mindy Jensen [00:15]: "I don't think that a $1,000 emergency fund is enough. However, it's a great start, especially if you're starting from a position of no emergency fund whatsoever."

Amberlee concurs, suggesting a more robust buffer:

Amberlee Grant [02:15]: "Three months is a good buffer. It takes about three months for someone to find a new job...I would say three months and then move on and come back to it."

Key Takeaway: Aim for a three to six-month emergency fund to navigate economic uncertainties effectively.

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Securing Free Money: Maximizing Employer Benefits

The conversation shifts to capitalizing on employer-provided benefits, particularly retirement savings.

Amberlee Grant [02:45]: "Free money. Things like matching your 401k or something that you can't get back."

Mindy emphasizes the importance of understanding and utilizing these benefits:

Mindy Jensen [03:15]: "If you don't know if you have one or not, now's a great time to talk to your HR department."

Key Strategies:

• 401(k) Matching: Ensure you're contributing enough to receive the full employer match.
• Health Savings Accounts (HSA): Consider high deductible health plans paired with HSAs for tax advantages.

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Prioritizing High-Interest Debt Paydown

Addressing debt is crucial for financial health. Mindy and Amberlee discuss strategies to eliminate high-interest debt efficiently.

Mindy Jensen [05:32]: "Anything over 8% that is not your mortgage, I would focus on paying that off."

Debt Repayment Methods:

1. Debt Snowball: Pay off debts from smallest to largest amounts for psychological wins.
2. Debt Avalanche: Tackle debts from highest to lowest interest rates to minimize total interest paid.
3. Hybrid Approach: Combine both methods for balanced progress and motivation.

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Tracking Expenses: The Foundation of Financial Awareness

Amberlee passionately advocates for meticulous expense tracking as a cornerstone of financial independence.

Amberlee Grant [10:08]: "Track your expenses, whether that's an app and you do it over a year period or just in an Excel spreadsheet for a couple months."

Mindy shares personal experiences to highlight the transformative power of tracking:

Mindy Jensen [11:31]: "Within two weeks, I saw where the big hole was in my spending and was able to fix it."

Recommendation: Use tools like YNAB, Monarch Money, or simple spreadsheets to track and categorize expenses over a three-month period for accurate budgeting.

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Calculating Your FIRE Number

Understanding your financial goal is pivotal. Amberlee introduces the concept of the "FIRE number."

Amberlee Grant [17:24]: "We have to calculate your FIRE number. If you have no goal to work towards, then what are you doing?"

The FIRE number is typically 25 times your annual expenses. For instance, if you spend $40,000 annually, your FIRE number would be $1 million.

Mindy Jensen [18:29]: "If you need $100,000, that's $2.5 million. That's doable."

Action Steps:

1. Determine Annual Expenses: Track spending to establish a realistic estimate.
2. Multiply by 25: This gives a target nest egg to aim for in your investments.

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Optimizing Retirement Accounts: Traditional vs. Roth

The debate between traditional and Roth accounts is explored, with Amberlee advocating strongly for Roth IRAs.

Amberlee Grant [19:53]: "For IRAs, I say Roth IRA all the way."

Mindy adds her perspective on balancing taxable and tax-advantaged accounts:

Mindy Jensen [20:22]: "I'm contributing to a traditional 401k because I am trying to reduce my taxable income...you have to ask HR if a Roth option is available."

Key Points:

• Roth IRA Advantages: Tax-free growth and withdrawals.
• Backdoor Roth: For high earners, converting traditional IRAs to Roth IRAs to bypass income limits.

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Leveraging Health Savings Accounts (HSA)

Amberlee outlines the benefits of HSAs, especially when paired with high deductible health plans.

Amberlee Grant [24:03]: "The HSA is even better than a Roth plan because it's triple tax advantage."

Benefits of HSAs:

• Triple Tax Advantage: Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
• Investment Growth: Can be used as an additional retirement savings vehicle.

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Diversifying Investments to Avoid the Middle Class Trap

Mindy and Amberlee discuss the importance of having after-tax brokerage accounts to ensure liquidity and avoid being confined to retirement account restrictions.

Amberlee Grant [27:01]: "Don't have all of your money being in a house or somewhere else."

Investment Options:

• Brokerage Accounts: For accessible funds outside retirement accounts.
• Real Estate: Diversify income streams through rental properties or other real estate investments.
• Side Hustles: Additional income sources to accelerate financial goals.

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Preparing for Retirement Withdrawals

The conversation shifts to strategies for accessing retirement funds without penalties.

Mindy Jensen [33:08]: "The Roth conversion ladder is when you pull money out of your 401k and you roll it over into a traditional IRA...then convert it into a Roth IRA."

Withdrawal Strategies:

1. Roth Conversion Ladder: Gradually convert traditional retirement accounts to Roth IRAs to manage tax liabilities.
2. SEPP (72T): Allows penalty-free withdrawals by adhering to Substantially Equal Periodic Payments.
3. 4% Rule: Withdraw 4% annually from a diversified portfolio to sustain retirement for 30 years with a high success rate.

Additional Tips:

• Monitor Portfolio: Regularly review and adjust investments to optimize returns and preserve capital.
• Maintain Cash Reserves: Keep 1-2 years' worth of expenses in high-yield savings to buffer against market downturns.

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Conclusion

Mindy and Amberlee wrap up the episode by reiterating the importance of a structured financial plan tailored to individual goals and circumstances. They encourage listeners to continuously educate themselves, leverage available tools and strategies, and remain adaptable to achieve and sustain financial independence.

Amberlee Grant [39:07]: "I want to keep this in mind so that I can start learning about it and making my portfolio look the way it needs to look to get to complete retirement."

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Connect with Amberlee Grant:

• Website: amberlygrant.com
• Email: [e-mail]

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This episode serves as a comprehensive guide for those on the path to FIRE, offering actionable steps and expert insights to streamline the journey towards early retirement.

Transcript

[Mindy Jensen]

What if I told you that most people pursuing fire are doing it completely out of order? The difference between reaching financial independence in 10 years versus 20 isn't just about how much you save. It's about when you save it. Today, we're breaking down the exact sequence of financial moves that will supercharge your path to financial independence. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen, and with me while Scott Trench is out on paternity leave, is my friend Amberlee Grant. Amberly, thank you so much for joining me today.

[Amberlee Grant]

Hello, Mindy. I am happy to be here on this wonderful day in Colorado.

[Mindy Jensen]

We are so spoiled. It's like the best kept secret. I tell people that I live in Colorado. Like, ooh, isn't it cold there? Sure.

[Amberlee Grant]

Nope. I'm from Ottawa. I know what cold is. This ain't cold.

[Mindy Jensen]

I'm from Wisconsin. That's like Ottawa.

[Amberlee Grant]

South 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 are starting.

[Mindy Jensen]

I think you're really starting to get the hang of that, Amberly. Another octave lower in your voice and you're going to be Scott's twin.

[Amberlee Grant]

Excellent.

[Mindy Jensen]

All right, let's get into today's episode. We want to add a few caveats to this conversation. This episode is for someone who has already started building towards financial independence. So we're going to quickly breeze through the fundamentals you hopefully already are doing or have done before we get into more tactical steps that you should be taking on your path to fire. So first up, Dave Ramsey's baby steps. The first three of them, I think, are really, really great. His first one is build a $1,000 emergency fund. This is where we part ways, because I don't think that a 1000 DOL emergency fund is enough. However, it's a great start, especially if you're starting from a position of no emergency fund whatsoever. I would say three to six months emergency fund, unless you have a lot of different buckets to pull from. And I'm leaning more towards 6 months just with all of the economic uncertainty that we are experiencing here in America right now.

[Amberlee Grant]

You know, Mindy, I actually think three months, personally, there's something to say, say about having to tackle some debt which might come into one of our steps here. And three months is a good buffer. It takes about three months for someone to find a new job. And I know six months with our current state might be better, but if I were advising someone to save right now, I would say three months and then move on and come back to it.

[Mindy Jensen]

That's a good. That's a good plan. Okay, so what would you move on to next?

[Amberlee Grant]

Free money. Things like matching your 401k or something that you can't get back. So, you know, HSA contributions end, you know, when tax, when you file your taxes or in April, so you can no longer contribute for the year beforehand. Your 401k is a yearly amount. So again, something that once you pass that year, you're not going to be able to come back to it. So I really think it's important to try and get free money or things that you can't come back to within the year, like within the next year.

[Mindy Jensen]

Okay. And that would be the retirement savings, like your IRA, your Roth IRA, your 401K, the free money. I think you're talking about that employer match, if you have one. If you don't know if you have one or not, now's a great time to talk to your HR department. Ask about all of the benefits that your company has, not only if they have a match, but also do. What kind of 401k options do they have for you? Do you have a roth do you 401k option? Honestly, I would just ask them what are all of the benefits that come with this job? Because I have heard of people having healthclub paid. I have heard of people having reimbursements for college. There's all manner of benefits that exceed just the 401k and the health care.

[Amberlee Grant]

I agree completely. Yep. And with health care, a lot of people don't realize that maybe a high deductible health plan that comes with that HSA with an employer match or an employer contribution may actually do well for you and your family versus say a plan that you are just paying a copay with. So high deductible health plan versus other plans, it may be a better option. So just take a look into that as well.

[Mindy Jensen]

Yeah, and now's the time to start thinking about that because at the end of the year is typically when you have the renewal. So do the math. Now, what would it cost for the current plan? You out of pocket paying your deductibles through your company versus paying the higher. Having the higher deductibles. We had a listener do some math on a spreadsheet. It's in our Facebook group. And I will bring that back up to the top of the Facebook group. Just so you can see what I'm talking about. This was such a great bit of information. He said, essentially there is only a very small subset of people where not having a high deductible plan is the better choice based on the amount of out of pocket, the amount of your premiums per month and the HSA benefit. So it doesn't work for everybody. This was even chronic illnesses. There was just a very small percentage where this wouldn't be the best choice.

[Amberlee Grant]

So if someone's getting free money, what's next?

[Mindy Jensen]

Mindy oh, prioritizing high interest rate debt pay down. Now, back when interest rates were really low, Scott and I had this idea that if your rate was 5% or less, don't pay it off any faster than just the minimum payments. If it was 7 or 8% or more, pay it off as fast as you can. So when I say high interest rate debt pay down, I'm talking about your credit cards that are in the double digits. I'm not talking about your mortgage right now. I want to make sure that all of your extraneous debt is gone. Your mortgage, if you have a 3% that's in that don't pay it off any faster than you have to category that Scott and I prefer. However, I will say that he has started changing his tune and as you get closer to retirement, he is advocating more for having a paid off house. I am still going to always keep my 3% mortgage for as long as I can because it's 3%. But again, high interest rate pay down. So anything over 8% that is not your mortgage, I would focus on paying that off. Now there's two ways to do that. There is the debt snowball and the debt avalanche. The debt snowball is you make a list of your debts from lowest amount owed to highest amount owed and you don't pay any attention to the interest rate. You pay off the lowest amount. You. So you make the minimum payments to everything but the lowest amount. You take every spare dime you have and throw it at that lowest amount. The idea is you get the the mental win that you are. You have paid off a debt and then you, you attack the next debt in the same fashion. The debt avalanche takes into account highest interest rate to lowest interest rate debt. So you, you kill the highest interest rate debt first and then move down to the next highest interest rate debt. The problem with the debt avalanche is that it could take a long time to see that first win. I like a hybrid. If you have multiple debts make both lists lowest to highest amount owed and highest to lowest interest rate. Pay off that lowest amount owed first, really attack that, get the win, and then move over to the other list and start attacking the highest interest rate first. It's it's six of one, half a dozen of the other. Ultimately you just need to pay off the debt.

[Amberlee Grant]

Agreed. It needs to go My dear listeners.

[Mindy Jensen]

We are so excited to announce that we now have a Bigger Pockets Money newsletter. If you would like to subscribe to this newsletter, go to biggerpockets.com moneynewsletter while we take this quick break.

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[Mindy Jensen]

Thanks for sticking with us. Okay Amberly, let's say that we have an emergency fund we are contributing to get our employer 401k match if there is one. We are making our HSA contributions if we have one and we don't have any high interest rate debt. Where would you tell somebody to go next?

[Amberlee Grant]

Well, first I give them a high five and then I would say track your expenses. This is my absolute favorite thing to tell people. It's annoying, but there are a couple apps out there that can really help you with tracking your expenses. Things like ynab, Monarch Money, even an Excel spreadsheet. That's what I get people to do so they can really feel it and see what they're doing. And I love a three month expense tracking. So I like to go three months back, no matter what those three months were and put down every dollar that happened in that month and see what comes out of it and categorize it. People are always so bewildered with how much money they spent and they're always like, Amberly, but I planned a vacation in February and December was Christmas and I'll be like, great. And March is, you know, another big expense. There's always a bunch of big expenses. And for me, tracking some sort of three month time period and averaging it out is probably pretty accurate. The thing I also recommend for you guys to do before you actually track your expenses is take a guess. I love when people tell me, oh, Amberly, I only spend about $2,000 a month. And then we track it for those three months, see the average and I guarantee it's going to be 50 to 100% more than whatever number you told us. So track your expenses, whether again, that's an app and you do it over a year period or, or just in an Excel spreadsheet for a couple months.

[Mindy Jensen]

So I love absolutely everything you said and I'm going to go a little bit further. When I first started tracking my expenses, it was on a notebook paper on the kitchen counter right where I always walked in. And it was a physical reminder, oh, I have to write down what I spent. And I know that I went to the gym this morning and on the way back I went to the grocery store. So I would write that down. And then the next day I would come in from the gym and oh, and I also went to the grocery store and Target and I started seeing face in front of me within two weeks where the big hole was in my spending. So if you aren't going to fill out these, these expense reports and these, well, not expense reports, these. The tracking expense. You know what it is an expense report. If you're not going to fill these out in real time, then you have to go back at the end of the month and do it, which A can be daunting and B doesn't stop the problem in the middle of the month. I was two weeks into checking my expenses and I was like, oh, look at that. I go to the grocery store every single day and I only go in for one thing. But do I come out with one thing? No, I come out with a lot of things. So that was very easily a way for me to fix the hole in my budget because we were absolutely oh, we only spend $2,000 a month. Where did all of our money go? We're only spending $2,000 a month. Well, that's not true at all. We were spending so much more than $2,000 a month because we weren't tracking it.

[Amberlee Grant]

We have to take one final ad break, but when we're back, Mindy and I are going to dive into what options you have when you're nearing your fine number.

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[Amberlee Grant]

Thanks for sticking with us.

[Mindy Jensen]

Okay, Amberly, let's move on to the next level. Let's call it 80 to $100,000 in income. And you start to see that you have a little money left over at the end of the month, and you want to achieve 5 in 10 to 15 years. What kind of options should we start looking towards?

[Amberlee Grant]

We got to calculate your fire number. If you have no goal to work towards, then what are you doing? So we just talked about, you know, you've got. You're tracking your expenses, so you can actually see what your expenses are today. And then we take that times it by 25, and that is your fire number. So, you know, if you are spending about $40,000 a year, your fire number is $1 million. You need $1 million to cover all of those expenses should they not go up over time.

[Mindy Jensen]

Have you calculated your fire number, Amberly?

[Amberlee Grant]

Mindy? I'm the worst fire person in the world. Yes, I have. But I have to get clear on what my spending will be in retirement. So my fire number, I think, is a little higher than it probably needs to be, especially because I have some rental income. But let's just say for the sake of this, my fire number is for sure $2.5 million. I need $100,000 to live, to maintain the lifestyle I have today.

[Mindy Jensen]

Okay. And I think that that is valid. I want to stop you right there and say you're not the worst fire person ever. And there are some people who get a little. And I don't know that this applies to you, but get a little embarrassed by how much they think that they will need in retirement. Oh, I'm going to need $100,000. Okay, then own that. You need $100,000. Great. That's 2.5 million. That's doable. I caution people who say, oh, I need 10 million in retirement. Really? Why do you spend that much now? Or. And these are people that I know are not spending that much now. So you've got this great big goal. You could potentially retire early, earlier than. Than this $10 million potential. So I just. I think it's really important to know your fire number to see where you're going.

[Amberlee Grant]

I agree. Yep. And I think some people have complicated situations like me, where it's real estate and investment. So I get to kind of dabble in both worlds. Meaning my real. My investments don't have to be 2.5 million to make $100,000 a year. If I've got real estate income, which I don't know. Am I retired then? I don't know, but let's move on.

[Mindy Jensen]

Okay, Amberly, Scott and I have had a difference of opinion on traditional versus Roth accounts. Where do you come in on that.

[Amberlee Grant]

For IRAs, I say Roth IRA all the way. From the time that you start earning money, I think you should put all of your money into a Roth ira. Even if you are a low income earner or a high income earner. The $7,000 discount in a sense for taxes isn't going to be enough for me to really move a needle. But that bucket needs to be filled and we need to fill different buckets for retirement. So say IRAs need to. Well, in my opinion, should be a Roth IRA and let that baby grow.

[Mindy Jensen]

And I am right there with you. I am contributing to a traditional 401k because I am trying to reduce my taxable income. But again, if you're younger, perhaps the Roth option is better. And that is going to send you back to the HR department to ask them if a Roth option is available. I know the bigger pockets didn't have a Roth option for a while and I believe Scott was the one who got us the Roth option because that's what he wanted to do. Amberly, let's remind our listeners that the Roth IRA has income limits. For contributions for 2025, you can your modified adjusted gross income for single filers must be less than 150,000 and for married filing jointly it must be less than 236,000. I can tell you one year I put, I maxed out my roth Ira on January 2nd. I was so proud. And then December 30th, I'm like, oh, how do you do a clawback? It was such a complicated math problem to try and figure out. Like how much did you put in? How much did it grow? You have to pull all of that out because I made too much money. Now, let's be honest, this is a great problem to have.

[Amberlee Grant]

I agree. That problem is a great problem. And that's actually why some people recommend not maxing it out at the beginning of the year and instead waiting until you've either done your taxes or you get a good idea of what where you stand if you might be on the cusp of that. So but if you're making $80,000 a year, this isn't for you. If you're making 145 with maybe some additional income and you know your modified adjusted gross income is going to be sitting teetering on that balance, it might be a good time for you to wait and then do it later.

[Mindy Jensen]

Yep. Or if you have not yet maxed out your 401k, pull that income down so that you can contribute to the Roth. But let's say that I make way more money than I could ever possibly make. How can I contribute to a Roth anyway?

[Amberlee Grant]

Backdoor Roth, Yahoo. If you don't know what this is, it took me like a year to figure it out because for some reason, my brain just didn't understand how to do this. There are fantastic guides, literally, step by step, based on the institution you invest in, on how to do a backdoor Roth. Essentially, what it is you can have. You don't want to have any IRA, specifically traditional IRAs. It's the easiest way to do this. So blank slate when it comes to any IRA. You open a traditional IRA, you put your $7,000 into it, and then you. There's a button normally in Fidelity and in Vanguard that says convert to Roth. And you want to do that. They sometimes say, wait three days. From my understanding, the IRS doesn't really care, but this is, you know, your. You might vary in regards to how this works for you, but you can do it within a couple days. You try to not have gains on that amount, but you transfer the entire amount into your Roth ira, and then it can grow tax free from there.

[Mindy Jensen]

You are paying taxes on Roth contributions no matter what. If it's traditional, if it's a regular Roth, like, flat out, you don't have to do the back door. If it's a backdoor, you're still paying taxes on that money. So it's not like you're doing anything different. You're just getting more money into your Roth account.

[Amberlee Grant]

Exactly.

[Mindy Jensen]

So now that money is growing tax free. That's what's so great about the Roth, is you. You pay the taxes. Now it grows tax free. When you withdraw it, you are paying $0 in taxes on that.

[Amberlee Grant]

And again, you're filling another bucket that you can pull from later on. And we'll talk about that in just a little bit.

[Mindy Jensen]

Hey, Amberly, we talked about the high deductible health care plan. Do you have one?

[Amberlee Grant]

I do. I have done the math with two babies. Like having two children at two different years. High deductible health plan still made sense.

[Mindy Jensen]

That is amazing. I actually had babies before the high deductible healthcare plan came into. Came into my life as an option. But that is. That is really awesome that you had. You did the math, and it's still the hsa, the high deductible plan won out. I'm going to say the guy in the Facebook group did the math and I couldn't, I can't remember exactly what scenario it didn't work in, but almost every scenario it works in. So I'm going to encourage you to talk to your HR department, look at what the current premiums are and do the math. How much? Because the HSA is. It's even better than a Roth plan because it's triple tax advantage. With a Roth, you pay tax and then it grows tax free and you pull it out tax free. With an hsa, you don't pay the tax, it grows tax free and you can pull it out for qualified medical expenses tax free. Now, what I know a lot of people in the FI community do is they just cash flow their medical expenses unless they have a big expense. They cash flow their medical expenses, save their receipts, and then once they retire, you could start pulling that money out. You can pull it out all at once. You can pull it out a little bit to kind of supplement your income. I had two kids in braces, so I have at least $12,000 in bills that I can pull out once I retire. Plus I keep all of the bills for the random prescriptions we pick up, the random doctor visits, the you can't use HSA money for health care, deduct health care premiums, but you can use it for any other expense. There's a lot of expenses that aren't even like medical expenses really, like contact solution or band aids or like things like that. There's a whole list of what is it, like 130,000 different products that qualify for HSA and FSA money. So investing within your HSA. This is a super awesome plan. I encourage you to find a way to max it out every year. But please note that you have X number of dollars to put in there. If your employer contributes on your behalf, that just reduces the amount that you can put in because it's a total. It's not an employee match. Does that make sense?

[Amberlee Grant]

Makes perfect sense to me.

[Mindy Jensen]

Amberly, I know you've been listening to the Bigger Pockets Money podcast for a long time. You've heard Scott and I talk about the middle class trap. We want to make sure that our listeners who are somewhere in the middle of the path of to financial independence are not falling victim to the middle class trap. One of the easiest ways to avoid the middle class trap is to have after tax, brokerage investments.

[Amberlee Grant]

Yep, I actually learned this from Talking to my retiree, early retiree friends who got stuck not having cash for today in their early retirement because it was all in their, you know, 59 and a half, 60 plus accounts. And so they'd have to take a penalty or Roth conversions to get to it. And that was like really difficult for them. So I learned about three years ago that I need to start splitting up some of that cash into a brokerage account. And that's what I started doing. And it. And it's really exciting for me because it means that I can retire early and not get stuck with all of my money being in a house or somewhere else. Something else is real estate. Making sure that not all, like not all of your money is going towards your primary residence. So you're not maybe paying that down super early if you have a low interest rate. But also again, making money on the side, using your real estate to actually get you money. Things like house hacking. We talked about flipping, maybe investing in different properties, but making sure that your primary residence maybe isn't your only real estate holding.

[Mindy Jensen]

I do like real estate as an investment strategy and Scott very famously in January of 2025, sold 40% of his index funds and turned it into cash flowing real estate in Denver. I'm going to caution people, we are, Amberly and I are both in love with real estate. Scott loves real estate as an investment strategy. If real estate is not something that you want to do, don't listen to this episode and say, oh, well, I guess I have to invest in real estate. There are other options such as the after tax brokerage account. You don't have to go into real estate, but it can be a really great way to generate income, generate cash flow so that you don't fall into the middle class trap.

[Amberlee Grant]

Agreed. Number one thing you should ask yourself, if you're listening to this episode, you're not quite sure if you want to have real estate. Do you want to be a landlord? If the answer is no, maybe just move on to step two, side hustles. I have friends who have made some really good money off things like Rover. I don't think driving for Uber or Lyft is actually all that profitable anymore, but I know that like things like dog walking, dog sitting, because you can get, you know, $100 for a night to watch people's dogs. What are the side hustles? Have you heard of Mindy that actually cash flow?

[Mindy Jensen]

Well, I have a friend named Nick Loper who has a whole podcast about side hustles. It's called Side Hustle Nation. And he has some pretty amazing side hustles. One of the biggest side hustles, one of the best side hustles that I've ever heard from him. And we subsequently had Mark Wills on our episode 74 is loan signing. Being a notary. And, and you know, when you bought your house, a notary came to your house and you signed all the papers. You didn't have to go anyplace to buy the house or when you refinance. And it's not as popular now, it's not as lucrative now as it was in, you know, 2021, 2022, even 2020 when we had Covid and you weren't going into the title companies to sign your documents. That was a really amazing side hustle. But Nick has a ton of awesome side hustles. We also interviewed Jackie Mitchell on our episode 470. She was in the middle of a 100 day, $100 a day side hustle challenge. And she had some really great side hustles. One of them was some sort of AI thing. I don't understand AI. Our listeners already know that I'm not tech savvy, but it was, it was translating and correcting AI documents and she was making quite a bit of money from that one. She has a great outlook on different side hustles, and she has some side hustles that she would never do again because it just took too long to make that $100. But episode 470 is another great one.

[Amberlee Grant]

When you're within two years of retirement, is now time to start upping that cash. You're going to want one to two years of cash in some sort of high yield savings account. And you might be thinking, oh man, Amberly, two years of cash sitting there not making any money and not working for me. But the thing is, it's not supposed to be working for you today. It's supposed to help you in case something happens during retirement where the market takes a downturn and you need to pull cash instead of your investments. So you want to make sure that you've got something, some sort of reserve for that first few years of fire.

[Mindy Jensen]

Amberly I think that fire adherence are really, really focused on optimizing everything. And with cash that's not optimized, that's not investing, it's not growing, it's just sitting there in my high yield savings account making very little return. And I want to point out that your responsibility for that one to two years of cash is to preserve the value of that cash. It is not to put it in the stock market and try to make it grow one to two years. You could have a super down event where you take that two years of, two years of cash, you put it into the stock market and then it goes down for two years. You're selling when the market is down. That's the worst time to sell is when the market is down. So I just want to point out the cash is not losing money. It's not, it's not a bad investment. It is preservation. So it gives you options. You can make a decision based on time and, and thinking, not snapshot decisions and split second decisions that you have to make because oh my goodness, I don't have any money at all. All right, now let's get into what happens when you actually retire. Amberly, let's say that you are retiring today. What's your first order of operation?

[Amberlee Grant]

Start your Roth conversion ladders. You are now in a either extremely low tax bracket. So you can start doing this. Mindy, do you want to talk a little bit about what this is?

[Mindy Jensen]

The Roth conversion ladder is when you pull money out of your 401k and you roll it over into a traditional IRA that is not a taxable event. But then you take that IRA and you turn it into a Roth IRA that is a taxable event. So you want to make sure that your income for the year is going to be such that this makes sense for you. This is why people do this after retirement. Because you are paying taxes on that conversion. You are converting to bridge any gap between the income that you already have and the actual expenses that you have. So let's say you're going to live off of $40,000 and you cannot access your retirement funds and you're going to take all $40,000. You would pull $40,000 out of your 401k, put it into an Iraq, convert it to a Roth and then you let that sit, that sits for five years. Those that $40,000 has now become contributions. And you can withdraw your contributions at any time. You do that every single year. And you are paying much lower income tax on just the conversion versus if you converted a million dollars, you're paying taxes on the million dollars. So you need to do a little bit of math for this. But it's a great way to have buckets to pull from five years after you do your first conversion. Another opportunity in early retirement is the 72T. We have had Eric Cooper on to explain how he has done his 72T. And I know that Darren and Jolene were also on the Life After Fire YouTube series. They have also done the 72T. Essentially it is similar but different to that Roth conversion. You're taking a chunk of your 401k, your pre tax 401k and you are converting it into an IRA. That IRA now funds your 72t. 72t is also called SEPP, or substantially equal periodic payments. Every year you have to pull the same amount out of that, that new IRA that funds your 72T. So let's say you're doing $50,000 every year for at least five years or until you turn 59 and a half, whichever is longer. You have to pull that money out during the course of every year. So it's a great way to get access to your 401k before you have traditional timeline access to your 401k money. You're not paying any penalties on this, but again, it is a taxable event. So you are paying taxes on this.

[Amberlee Grant]

Those are some pretty high level things to be doing once you've retired. So definitely look into the different episodes that Mindy mentioned. Something that's a little less difficult is just pulling money from your portfolio. So we know that you should have a bucket of brokerage, a brokerage account that you know doesn't have anything to do with retirement. So you can start pulling from that. You can obviously get cash flow from your rental properties if you did end up going that route. And when we're talking about pulling money from your investable assets, something we want to always think about is the 4% rule. So you can pull 4% out of those, again, investable assets essentially into perpetuity. So you can, without pulling down that principle. So you can essentially use that money over and over and over again at 4% every single year, at least for 30 years, with a 96% success rate. Right. And of course, in down years, maybe you pull a little less and in really good years you can obviously do a little bit more. There's a big debate in the fire community of whether or not you should even change that 4% or go to 3.5%. But I believe personal finance is personal. And you know, sometimes we will buffer that 4% with cash and sometimes we can just take less from our portfolio.

[Mindy Jensen]

Yeah, there's a lot of different options to help you preserve your portfolio when the market is down. I think that I was actually having a really great conversation with a friend of ours, Amberly, and he said it's not like you're going to get to a Position of financial independence, retire early and then never look at your portfolio again. You're going to continue to look at it. You're going to continue to check in. And if that isn't your plan right now, make it your plan. Check in and see what's going on. Because on a, on a year that you're 22% up, yeah, you could probably take more than 4%. On the same year when you're 22% down, maybe you look to that cash buffer that, that 22% up year, maybe you just pull out a little bit more and replenish your one to two year cash buffer so that on that 22% down year, you can just step back a little bit. And I'm making these numbers up. Of course, the 22% I am going from, I think wasn't 20, 22 down, 22 or something. It was down a lot. And then 23 we came up. Or maybe 23 was down. I don't know. It's so hard to remember all these numbers. But either way, like if your portfolio has gone up significantly, you can use those funds to replenish your cash so that when the market goes down, notice I said when, not if, when the market goes down, you can either not pull out that money or pull out less and live off of some of that cash until the market goes back up again.

[Amberlee Grant]

For me, right now, I'm actually not even close to this part where I'm going to do these high level parts. I'm actually just still stuck in that, you know, what should you be doing when you're in the accumulation phase? So this is really helpful for me just to start planning what my future is going to look like in the next five to 10 years. Because I want to keep this in mind so that I can start, you know, learning about it and making my, you know, my portfolio look the way it needs to look to get to complete retirement.

[Mindy Jensen]

Emily Guy Birkin has a really great book out called the Five Years before youe Retire, which is more of information about planning your future retirement before it's too late. So that's also a great book to check out. All right, Amberly, I think we've kind of covered it. We've given our listeners things to think about. Lots of, lots of opportunities to make changes now during the their path so that when they get to the end of the path, they are financially prepared for their retirement.

[Amberlee Grant]

Yeah, Mindy, this is a great conversation. I learned a lot. Thank you.

[Mindy Jensen]

Thank you for joining me. All right, that wraps up this episode of the Bigger Pockets money podcast. She is Amberly Grant. Amberly, where can people find you online?

[Amberlee Grant]

You can find me@amberly grant.com or biggerpockets. Yeah, you can email [e-mail] all right.

[Mindy Jensen]

And I am Mindy Jensen saying see you around, Bloodhound.