BiggerPockets Money Podcast: The Single Biggest Risk That Could Stop Your Early Retirement (& How to Dodge It)
Release Date: April 29, 2025
Hosts: Mindy Jensen and Scott Trench
Guest: Tyler Gardner, Former Financial Advisor and Financial Content Creator
Introduction: Unveiling the Deeper Motivations Behind FIRE
In this compelling episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench delve into the profound psychological factors driving the Financial Independence, Retire Early (FIRE) movement. Moving beyond the conventional focus on spreadsheets and savings rates, the discussion seeks to uncover whether FIRE is not just about financial freedom but also an escape from a fundamentally flawed system.
“What if the FIRE movement isn't about financial freedom, but about something much deeper? Is it an escape from a system that's fundamentally broken?”
— Mindy Jensen [00:00]
Portfolio Concentration: The Predominance of Equities in FIRE Strategies
Scott Trench raises a critical concern regarding the investment strategies of FIRE enthusiasts. He notes that a significant majority of BiggerPockets Money listeners have portfolios heavily weighted in U.S. stocks, particularly low-cost index funds like Vanguard’s VOO and VTSAX. This concentration often results in portfolios with 90% or more in equities, leaving little to no allocation in bonds or other asset classes.
“A lot of folks are concentrated in like VOO, a Vanguard low-cost S&P 500 index fund... their stock portfolios may be 100% or 90% plus in equities with no allocation to bonds.”
— Scott Trench [02:18]
The Importance of Diversified Asset Allocation
Tyler Gardner responds by emphasizing the necessity of a diversified asset allocation strategy. He underscores that while growth is essential over long-term horizons (20 to 50 years), managing portfolio volatility is equally crucial, especially when approaching retirement age.
“It's not all about growth. It's also about measuring volatility and trying to keep our portfolio somewhat in check once we start needing to draw down that portfolio.”
— Tyler Gardner [04:39]
Gardner advocates for proactive portfolio adjustments, suggesting that individuals should begin shifting their investments toward more stable assets well before retirement to mitigate risks like the sequence of returns risk.
Psychological Risks: Identity Loss and Boredom Post-Retirement
A significant portion of the episode addresses the psychological ramifications of early retirement. Tyler Gardner expresses concerns about retirees potentially experiencing depression due to a lack of identity and structure after leaving the workforce.
“Retirees in general go through periods of immense potential depression based on a lack of identity and being in a world where they found purpose and structure for so long...”
— Tyler Gardner [20:02]
This fear of boredom and loss of purpose highlights the importance of finding meaningful activities or part-time work post-retirement to maintain mental well-being.
Balancing Work and Retirement: Flexibility vs. Corporate Structure
The conversation transitions to the challenges of reducing work hours within traditional corporate environments. Scott Trench shares his experiences as a CEO, explaining the difficulties in accommodating reduced work weeks for employees, especially in full-time roles that require sustained effort and collaboration.
“Most employers I believe would align more so with the philosophy that I bring to bear on what is best for the business than yours.”
— Scott Trench [26:20]
Tyler Gardner counters by advocating for a shift in corporate culture towards valuing output over hours worked, suggesting that the traditional 40-hour workweek may be outdated and inefficient.
“Why does this person on payroll? Why would this person have benefits if the only reason is when I can call them versus saying look, I get it.”
— Tyler Gardner [24:40]
Mitigating Retirement Risks: Diversification Through Fixed Income and Real Estate
To address the risks associated with concentrated equity portfolios, the hosts and guest discuss alternative income streams and asset classes:
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Fixed Income Products: Gardner recommends incorporating bonds, short-term Treasuries, or even annuities to provide stable cash flow and reduce reliance on volatile stock markets.
“If somebody has fixed income and that might be bonds, that might be short term Treasuries... that is also an option for people who really want to de-risk.”
— Tyler Gardner [21:50] -
Real Estate Investments: Scott Trench introduces real estate as a viable option for generating passive income without drawing down the principal. Rental properties can offer inflation-adjusted income streams.
“Real estate, if it's paid off and you just spend some percentage, even 80% of the cash the property generates... that’s an answer.”
— Scott Trench [50:27] -
Real Estate Investment Trusts (REITs): For those seeking more passive involvement, REITs offer exposure to real estate markets without the hands-on management typically required.
Asset Allocation Strategies: Balancing Growth and Stability
The duo stresses the importance of balancing growth and stability in asset allocation. While 100% stocks may offer higher long-term growth potential, they also expose investors to significant short-term volatility. Gardner advises a more balanced approach, incorporating a mix of equities, fixed income, and real estate to safeguard against market downturns.
“As you go out on the time horizon, the stocks became more and more critical for long term growth because the volatility was ultimately smoothed out.”
— Tyler Gardner [47:35]
He also references the Trinity Study, which validates the sustainability of a 75/25 stock-to-bond ratio for a 20-year retirement horizon, highlighting that overly concentrated portfolios may not perform as reliably over extended periods.
Conclusion: Navigating the Path to Sustainable Early Retirement
The episode concludes with a consensus on the necessity of diversified investment strategies to ensure sustainable early retirement. While the FIRE movement offers valuable frameworks for financial independence, Gardner and the hosts emphasize the importance of addressing both financial and psychological risks. By incorporating diverse asset classes and maintaining meaningful engagements post-retirement, individuals can better safeguard their early retirement aspirations.
“The middle space of saying, like, how can we be in a space where we can make some money doing things we love?”
— Tyler Gardner [20:02]
“As soon as we stop recording we'll check calendars and see when we can get you back on.”
— Mindy Jensen [53:27]
Key Takeaways
- Diversify Your Portfolio: Avoid over-concentration in equities by incorporating fixed income and real estate to manage risk and ensure stable cash flows.
- Proactive Asset Allocation: Adjust your investment strategy well before retirement to mitigate risks like sequence of returns.
- Address Psychological Well-being: Plan for meaningful activities or part-time work to maintain identity and prevent boredom post-retirement.
- Rethink Work Structures: Advocate for flexibility in work hours and focus on output rather than hours spent, promoting a healthier work-life balance.
- Educate Yourself: Continuously seek financial education to make informed decisions about asset allocation and retirement planning.
By integrating these strategies, listeners can better navigate the complexities of early retirement, ensuring both financial stability and personal fulfillment.