The Single Biggest Risk That Could Stop Your Early Retirement (& How to Dodge It)

Summary

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

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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:

1. 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]

2. 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]

3. 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]

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Key Takeaways

1. Diversify Your Portfolio: Avoid over-concentration in equities by incorporating fixed income and real estate to manage risk and ensure stable cash flows.
2. Proactive Asset Allocation: Adjust your investment strategy well before retirement to mitigate risks like sequence of returns.
3. Address Psychological Well-being: Plan for meaningful activities or part-time work to maintain identity and prevent boredom post-retirement.
4. Rethink Work Structures: Advocate for flexibility in work hours and focus on output rather than hours spent, promoting a healthier work-life balance.
5. 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.

Transcript

[Mindy Jensen]

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? Today, we are not celebrating spreadsheets and savings rates. We are pulling back the curtain on the real psychological engine driving thousands of people to obsessively pursue financial independence. We're driving deep into the uncomfortable truth. What are you really running from? And can financial independence truly set you free? Please note that this recording with Tyler is so amazing, we're bringing him back for part two. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me, as always, is my newly mustachioed co host, Scott Trench.

[Scott Trench]

Hey, Mindy. Great to be here. Yes, this is my money mustache that I have been growing. Biggerpockets has a goal of creating 1 million must. I mean, millionaires. You are in the right place if you want to get your financial house in order. Because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting, as long as you finish with a port portfolio capable of sustaining financial independence.

[Mindy Jensen]

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[Scott Trench]

Today we're going to dive deep with Tyler, a former financial advisor who loves to push back on the sacred tenets of financial independence. Tyler, welcome to Biggerpockets Money.

[Tyler Gardner]

Oh, thanks for having me, Scott and Mindy. I appreciate being here and I'm looking forward to having a pretty nuanced and detailed conversation about all of it.

[Scott Trench]

Awesome. Well, let's start off with the big one here. You know, last couple of weeks we've uncovered data that BiggerPockets, Money Listeners, and perhaps many Americans are heavily concentrated in US Stocks with their financial portfolios. Or inter or total market index funds more specifically. So there's a lot of folks who are concentrated in like Voo a Vanguard low cost S&P 500 index funds. And there's a lot of folks that are in vtsax, VT Saxon Chill, for example, the total market index fund put together by Vanguard is a popular phrase in the financial independence and Boglehead communities here. That has led to a situation where a lot of folks 90% of Biggerpocket's Money listeners, for example, express that their stock portfolios, their financial assets may be 100% or 90% plus in equities with no allocation to bonds, despite an increasing percentage of them getting to traditional retirement age. What's your reaction to this and what would you suggest for those folks?

[Tyler Gardner]

Sure. I mean again, it's going to be incredibly nuanced because Rule 1, as I'm sure your listeners know, is that personal finance is and always will be personal. You know, every single person, every single family is unique and everybody is going to have different cash flow needs and different investing needs. But I think to start the conversation, it would be worth at least getting to exactly where this idea of 100% stocks comes from and why it's so popular right now, especially the low cost funds. Is that predominantly, and I think this is where it will tie into the 4% rule too is these come from the idea that, that if you want growth over 20 to 30 years plus you need growth assets, period, and you need to control low costs. So the majority of people right now are pretty familiar with low cost funds and investing in low cost funds. But I think this will ultimately get us to also one of the concerns I have is that the majority of people partaking in the fire movement don't necessarily know much about asset allocation strategy and why asset allocation strategy matters immensely when we're Talking about a 20 to 30 to 50 year time horizon with investing and what that does. So the short answer is 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.

[Mindy Jensen]

Okay, so you said once we start needing to do you mean like the day you retire, then you move it over or would you, when you are retired, do it before then? Because this isn't recommendations, this is just what we would do if we were in that situation.

[Tyler Gardner]

Absolutely. It's never advice and it never will be. But I would start thinking about this from the day I start investing. I mean, if we want to be as Proactive as possible and not reactive. We need to start shifting our investments to accomplish our goals long before they actually happen. Because, again, we're taking on this incredible risk. If we just have, let's just say, 100% stocks, and we're assuming that we're going to retire in 2026. But then what happens in 2000 or 2001 or 2008 happens when you retire? Well, you're. You're out of luck. You're already past the point of no return because of the volatility. So if we're at a point where we say, look, in 2026, I want to start drawing down x percent of my assets, then there are ways to set up a portfolio responsibly. And again, it can be tilted towards growth, it can be tilted towards balance, it can be tilted towards conservative cash flow that will accomplish your goals, but it can't happen in one day because you're just taking on too much risk if you choose to wait for that one day to do that.

[Mindy Jensen]

Okay, so you sound a little knowledgeable, Tyler. What is your money background? Because you're not just some, like, guy on the Internet.

[Tyler Gardner]

I'll start by wholly and humbly making sure that everyone never sees me as a money expert. I never have been what I would call a money expert. And even having worked in professional finance and being a professional portfolio manager, I don't consider that alone to be expertise. That said, you know, probably about 20 years ago, I was a teacher. I was a high school teacher, and I started to realize that I liked talking to our faculty about retirement accounts more than I like talking to the students about English. And so I spent a lot of time actually helping faculty members think through retirement allocation strategies. And when we would have representatives from tiaa, CREF come in and talk about target date retirement funds and expense ratios to 99% of my colleagues, this was a foreign language. And for some reason, I latched onto it. I loved it. I loved learning about it. So I did what any good teacher or student would do. I sat in my apartment for the next couple weeks and I read every single thing I could. You know, I picked up every book I could on personal finance, even the very dry, dense ones, and just tried to educate myself. Because as we know, even though it's cliche, it's also true that there's not a lot of personal finance taught at any level, especially asset allocation. So then after a couple years of teaching, I decided this, professionally, is what I wanted to do. So I went back and I got my mba. I started cold calling different investment firms who had no business hiring me. None of them should have hired me just to be very honest. I was so green. But the demographic of financial advisors and portfolio managers, especially in small towns in Vermont, is older. It is an older demographic and many of the firms were looking for people to come in to capture some of the 30 to 50 year old affluent wealth that was out there. So luckily I started working with a great firm and for two years was a portfolio manager professionally in Vermont and had a great time doing that. But once I started creating short form content and the SEC wasn't as excited about my creating short form content, decided I wanted to do financial content free all the time. Because the one other thing is we we were working primarily with high net worth individuals and I do believe that part of the mission here is to make financial education accessible to everybody.

[Mindy Jensen]

So the SEC has a problem with you, a educated person doling out financial advice, but they don't have a problem with all those tiktokers making up stuff.

[Tyler Gardner]

Isn't the irony astounding? But it is so true. This is something that is really interesting and most people don't get this, is that when you hold your financial licenses you are held to a standard, rightfully so, that you should not be on social media doling out mass advice. Ironically, if you don't have those licenses, you're allowed to say whatever the heck you want on social media. So we're in this era of quick education sound bites where people are getting all of this and I'm putting education in quotes here from self proclaimed money experts who I hate to say don't actually have any professional expertise, they don't have certifications, they don't have credentials, they haven't actually managed money. And it's problematic because there's a lot of misinformation out there.

[Mindy Jensen]

What do you think of the fire movement overall? And then like dive deep and nitpick on things if you want to.

[Tyler Gardner]

Sure, I'd love to start. Honestly, I mean I know, I know you asked me the question, but I think one of the things I'm interested in is actually also learning from both of you about your thoughts on the fire movement too. Because one philosophical component that I can't wrap my head around, and I guess I do need an answer to this, is what is the goal of the fire movement as far as what are people trying to escape to? Because all I've picked up on is that people are trying to escape from this concept of the drudgery and the 9 to 5 work. But I'm interested in knowing like is the goal to do nothing? Is the goal to be living in a van? Like what is the goal once you've retired? Let's just say you're a 35 year old couple and you've reached this principal amount of money. What are people escaping to?

[Scott Trench]

Yesterday I woke up, did a couple of things around the house to get set up for our baby, went for a 90 minute bike ride, took three work calls, went out and had a picnic with my wife and kiddo at the park. Like that's it. Tuesday. That's what we want in the fire community. Like I want to do that many many days for the bulk of my life on there and have yes, a little bit of work involved in there. Be productive to to to a certain extent, but have that time 90 minutes, two hours in the middle of the day when the trails are completely open and empty, all to myself essentially with a couple of other folks out there, few and far between. That's what we want.

[Mindy Jensen]

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[Mindy Jensen]

Welcome back to the show. We are joining in with Tyler Gardner. Tyler had a really great point. Everybody is escaping. They, they hear about this, oh, you can set yourself up financially so you can retire. You can quit your job. And they're like I want to quit my job. That's because they work for horrible people or they work at horrible corporations. Our dear Scott here had the the honor of working at the company that was voted the worst ever to work for or something. What was that? What was that, Scott?

[Scott Trench]

That was a catalyst. That, that's the beginning of it, right? The beginning of the journey for a lot of folks is I want to escape. But escape, escape is relative. Once you get a couple of years under your belt in terms of moving along the path, like the shame on you if you're Continuing to be stuck in a job you completely hate after you've amassed your first several hundred thousand dollars of liquidity. And there, there are other options at that point. The chase towards fire, the grind towards fire provides optionality that it geometrically compounds throughout one's life as you build those assets, culminating in the the ability to make work life optional.

[Mindy Jensen]

I think that a lot of people when they discover financial independence, they are all about the re. The when they discover fire, they are all about the re. Luckily, it takes years to achieve financial independence for the most part. Some people are like, oh, I'm already fire. But for the most part it's like a 10 or 15 year journey and some people drop off because it takes too long and some people kind of grow in their ideas of what life is going to be like. I think podcasts like ours and Choose Fi and you know, stacking Benjamin's opens up your mind to ideas that I could have this Tuesday that Scott's talking about, I can design my life. So I have this great option. But I think that you're right, Tyler. A lot of people discovered and they're like, I can't wait to quit my.

[Scott Trench]

I also want to point out that as my journey, like it started as an escape, but by a couple of years later, I really liked what I was doing. I've like, I like what I'm doing here at Biggerpockets. Right. Biggerpocket's a great company. It's a great, great mission. With that I've worked harder than I thought I would. Not, not necessarily just for Fire, but because I like what I'm doing. Those the option to work at Biggerpockets is presented because of the pursuit of fire in the first place. And then last, I think there's a misconception about fire in other areas where it's like, oh, your life is so much more terrible than your counterparts during that journey. I house hacked a few times. So I lived in a place that was a little less nice than I could have otherwise rented and I drove a cheaper car and now I have a very large financial portfolio and I have all of those nice things and my asset base pays for them and which is a really wonderful place to be and that and as long as I don't do anything particularly dumb, hopefully your. Your advice here today. Well, your non advice here today will help me out with that on there. I should be able to sustain that for the duration of my, my life. And that's the benefit of fire. That's what we believe here. At Biggerpockets Money and I think in the fire community.

[Tyler Gardner]

But interestingly and interestingly, what I think you're both touching on is that at least what I'm hearing is that, and this is kind of what I'm driving towards is that one of the things that I do like about the impetus of fire and the philosophy behind it is let's figure out a better way to move forward and be more deliberate about how we live our lives. But my only point is that I don't think that needs to happen based on quitting a job period, as much as shifting until you find the meaning meaningful work with thoughtful people that equals a sustainable and successful life. Because, Scott, your day mirrors what I do. And I work a to. I work 80 hours a week, but I love it. And I same thing before this, I went out for a three hour walk with my bloodhounds and I won't trade that for anything. I don't want to pick up a call from a boss ever again. I don't want to ever rely on a W2 paycheck again. I don't ever want to feel like there's some deadline looming that I've got to partake in because that's this type of toxic culture that I think so many people are responding to via a movement like fire. But I don't quite know how it got associated with stop working. And I'm just trying to wrap my head around even if you're financially independent, you're going to be bored to tears if you don't have something fruitful to work on. Even if it's again, just a podcast.

[Scott Trench]

I think that's right. And I'll just push back here and keep going and defending the fire movement here. At some point in my life, I absolutely won't work. I'll just chill for a long period of time. Maybe there will be some work as a byproduct of that. But like, I am totally of the type of person that can work 10, 12, 15 years in a row with very few breaks and then take three years and do nothing. And I think that that is the mindset of a good number of people in the community from an intent perspective. Right. Mindy's going to be the same way with that, I would bet. Right, Mindy? Is that, is that true?

[Mindy Jensen]

Yes. But also no. I'm not going to retired to do nothing. But I also have the benefit of having a husband who has been retired for I think eight or nine years now. I have watched him his first year. He's like, oh, I'm gonna do this thing. And he decided that that wasn't something that he really loved to do. And we, we live in flip houses so we have been fixing up our house. That's what he's doing right now. You can't hear the nail gun behind me, thank goodness. But he's doing something. He's just not doing something for money. And that's actually not even true because he's doing it for money. Because we're gonna, when we sell this house, we're gonna make a lot of money because we bought it, it was a dump. And you know, now it's nice. But I am looking forward to eventually being able to go to the gym for a couple of hours a day. I wanna hop on my bike. I haven't gone on a bike ride in a really long time. I wanna hop on my bike and ride. I wanna go for hikes, you know, in the middle of the day. And it's, it's hard when you've got an eight hour day every day.

[Scott Trench]

Yeah. And I think everyone's version of it is a little different. But like, make no mistake about it, the people listening to BiggerPock intend to retire early, to literally live the retired early lifestyle. They may not do it forever. Someday maybe if my journey with bigger pockets ever comes to an end, that maybe I take three years off and start another company at that point or whatever that looks like, but that, that's not. But there will be a early retirement period in my life. That is what I've worked towards the whole time. I know hundreds and hundreds of people, many of whom have been on this podcast, who do exactly that. That is the, that is the goal.

[Tyler Gardner]

And ultimately I just worry about it as far as identity and structure goes. And that might be a my own biases and 100% just the way that I'm wired, you know. But I look at some of the leading data of recent retirees. Let's forget about early retirees. But 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, only to go to this sense of nothingness. Right? And the antithesis of happiness to me always will be boredom. Boredom terrifies me and the idea of nothingness terrifies me. And so I find that for most people, I guess this. I'm always worried that people aren't giving themselves enough credit of saying, look, you can find ways to make money by doing something that you really want to do. And With a schedule especially. This is why I love. I mean, I hate to kind of phrase it this way, but as we all know, the silver lining of COVID is that work culture shifted. And I know some employees are trying to shift it back to office life, but there's a big resistance. And I know part of that's fire, but part of that's also just a generation coming up saying, we don't want to go back to that culture. And again, if I want to take that bike ride, if I want to take that walk, I'll do it and then find my own time to work. And so I guess that's kind of what I'm looking for is this middle space of saying, like, how can we be in a space where we can make some money doing things we love? We can have the schedule that we want, but we won't all of a sudden at 40 years old to say, I'm relying on a 3 million dollar portfolio to get me through the next 45 to 50 years of my life. Life. I mean, I don't know. That's taking on a risk that I'm not comfortable taking on in my life.

[Scott Trench]

Love it. Okay, so let's talk about that though. What with this. It sounds like your first. Your favorite answer to defraying the risk is plan to make more income in there. Is that, Is that, is that right? Is that. Do you think that should be more people's plan?

[Tyler Gardner]

A definitely fair to say. Yep. I really, I. It's. It's almost as if when we think about going from work life to retirement, it's kind of like this 60 to 0 mentality of I can't wait to do nothing, it would be so healthy for portfolio planning purposes and it would eliminate almost every market risk that you have. If the idea was to phase out of work, because then you would always have a supplemental type of fixed income. Obviously not saying everyone's job is guaranteed, but to phase it out allows you a lot of flexibility and to do it in a way where you say, I'm still motivated to go do X, Y, and on Tuesday, Thursday and Friday, and now I've got four days a week off. It really helps mitigate the biggest concern for people going into retirement, which is called sequence of returns risk. Right. And I don't know how much the fire movement talks about that, but that's a really big deal mathematically for portfolios.

[Scott Trench]

Let's talk about this from. From a practical standpoint, right? If a bigger pockets employee came to me and said, I want to work I say I want to work four days a week. Right. There's a practical. Start with a practical example here. BiggerPockets does not provide benefits to employees who do not work full time because we can't in most. With most benefit programs. So the minimum to be considered a full time employee is 32 hours a week. Mindy would be one of those people where we're like, of course, like we, of course we can be flexible with that. You can work as many or a few hours as you want. Mindy works 32 hours a week because that's the minimum we can get or get around the full time benefits package with the way things are set up with, with. If she were to go fewer than that, she would be considered a part time employee. There are a few people at the company who I might say, yes, that makes sense for the company. Right. My job is to make sure to make the best decisions for the company in bigger pockets. Who I would say, yeah, yeah, that makes sense. But many, it would be like, no, this is a full time role here at this position. So is this something that is in practice is widespread or is this really the privilege of a few exceptional performers very close to that are willing that are maybe, maybe could make a ton more money elsewhere or have a huge. Are really giving their employer a gift with their services to a certain extent.

[Tyler Gardner]

Personally, I love how you phrase that because I do actually, I think it is in part a privilege. But to me, privilege always comes across as something that's inherited versus something where if you do have a gift and you actually just provide immense output. It's the idea. I'll just challenge the idea. For any employer ever to say you've got to work X amount of hours a week. That's the most archaic nonsense I've ever heard to say you've got to work X amount of hours, what's your output? I could sit at a desk and stare at a screen for 40 hours, but if you're not measuring my output, you shouldn't pay me a dime.

[Scott Trench]

Do you run a company?

[Tyler Gardner]

I do.

[Scott Trench]

Is that the mentality? You have folks that you pay full time salaries and there's no.

[Tyler Gardner]

I don't even come close to paying full time salaries. I pay gig work and I pay for projects because I want to see how someone works. I want to see what they do before I come close to taking them on a team. So there's no concept to me of I would never take the risk of hiring someone for the sake of hiring them. And then just thinking that I could come up with 40 hours of work for them to do and that I could putting it on myself and that I could actually manage that effectively. I'm a terrible manager. So like I would, I would be inefficient just thinking I could come up with real output to do versus saying in the next two months I need X, Y and Z. Here's what I'm willing to pay for it. Have at it.

[Scott Trench]

I would say I take the completely different philosophical approach as a CEO and leader. Yes, we have plenty of contract folks who do projects by the hour where I'm looking for specific output and we contract those out. But full time employees are expected to bring the best of their intelligence to bear on a problem that is long term in nature around it, right? Like how do we think about all the ways to grow biggerpockets, money audience. It is expected to be a full time effort with all of the best energy of that person at the during and it's gotta be during work hours, right? Like I can't be having a meeting. I, if I'm working we ought to be able to collaborate between the same blocks of time. And I'm. And I understand that there's some folks that have different thoughts here. I love it that you think that you think differently on that. Tyler. I would never run bigger pockets that way where we would have that because it requires, I believe, the full time efforts of folks working together at the same times throughout the course of a similar day on there. But 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. Would you agree with that?

[Tyler Gardner]

100%. Not even a question. And I don't disagree with the fact that what it does to me is it alleviates a little bit of management responsibility by saying, look, you're just here and when I want you, you're here and I expect you to be on call. I know so many people who have these 40 hour work week jobs and they're just sitting there by their email, they're sitting there by their phone. And I look at that as one of the most glaring inefficiencies a company could have of saying, 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. Like I love the idea of meeting in person and I actually love the idea of office culture fully. I would love to get everybody together and come in and do that, but I just can't wrap my head around work for the sake of work or hours for the sake of hours. So that's where I'm with the fire movement of like, something's gotta change to open that up. I just don't know if it's monetary based versus finding an employer who's willing to say, we'll figure this out in a way that works for you and a way that works for the company. But Scott, I'm with you. I'm big time in the minority here.

[Scott Trench]

Yeah, perfect. Okay. So I love it. There's a philosophy, and we can agree in some cases it's an appropriate philosophy. And in some cases we will have a relationship like that with somebody. We will not call them an employee in that particular case. Right. There would be a contractor or gig worker in there. But so, so let's say that I'm in this, I'm in this situation. And, and let's, let's be realistic about this person who's at the close to the end, the finish point in fire, right? This person is likely worth between 1.5 and $3 million by the time they hit the finish line. Very few people who are worth 1.5 to $3 million at some point in their 30s, 40s, or very early 50s is earning less than $100,000 a year. Right. So these folks have at some point over the course of their career, grown their incomes to be in that position. And most of these folks work at corporations. Most of the. Most of the folks that we're talking about that do not share your philosophy. So how do I bring this up with my boss in that setting or begin that phasing out a piece of work? And this is a great conversation. I'm challenging you the way I would hope a listener would be questioning, like, Yeah, I make 200 grand a year and I am, you know, in my 40s and I've got $3 million net worth. How can I actually apply that? Like, is it, you know, I work at Home Depot in corporate or Target and corporate.

[Tyler Gardner]

Well, you're not going to accomplish it working at a Home Depot in corporate. Right. And I think that's part of, again, being a small business, you have immense flexibility, whereas we just have these inherited ideas of how business runs. And that's how business is going to continue to run until you have a large group who says, look, it can be done a different way. And where I don't think we can challenge it is those. The want right now is very clearly there. The need is very clearly there, as is evident by a movement like the fire movement or just the remote work that has opened up. But if we now open up a remote work, we've now opened up global work. Once we open up global work, to use a concept of work hours, it doesn't make sense because if I'm working with someone in Beijing and I'm working with someone in Sydney and I'm working with someone in Berlin, we don't have the same work hours. And I'm not going to expect an employee to be up at 3am because I want to hold a conference call, right? We would say we now have a responsibility in a global remote culture to be able to do gig type of work and say, what are the outputs that need to be granted at this point in time? If that's a strategy call, great. We meet at 8pm, we coordinate a time and we go from there. But I do think it's ultimately, I don't think it's the employee's responsibility. Like, I like how you brought that up of like, what could you say to a boss? It's not their response. They're not gonna change it. Right? It's an employer responsibility. It's a corporate responsibility to say, how are we gonna change it? If at all? And again, I might be very wrong, Scott. My business might be out of business in a year, right? Going down this way, who knows? But at least at this point, I like the flexibility that is offered and I like not being responsible for thinking about 20 people and how they're spending 40 hours a week, because it brings me so much more joy to think that they're doing what you are doing, doing on a daily basis. I would always rather have someone who gives me a solid two hours of focus a day. And I guess that's like, that's one more point I would probably bring up is that I don't buy that someone gives you their best for eight hours a day. I'm sorry, I cannot buy into that, that any of us as humans can give eight hours of this immense, amazing effort. And like, I'm a morning person and I can go like 6am to maybe 10 or 11am and then I'm out. Like, I can't do it. I could talk in the afternoon, but I can't give you my best. I'm siesta mode. I'm nighttime mode. I'm love is blind mode. I'm out, man. Like, I can't.

[Scott Trench]

This is great, right? And again, please, please hear my challenges with total respect on all these things, on this. And with that, with that caveat I want to say we used to put the word but in here, but I totally disagree. Right. Every day I show up to bigger pockets and I put in eight to 10 hours of my very best efforts the entire time. I've done it for 10 years. I'll come up my 11 year anniversary. I know many of my colleagues do the same. I know both my parents did the same, have done the same, did. My mom did the same until she retired recently. My dad still does the same every single day at his job. Most of my friends give their best. I believe that many of the people listening to this, about half of them will be earning over 125,000, $150,000 a year. I believe many of them will say, you know, like, sure, like, do I take a break for 10 minutes at 1 point in the day and go kind of recharge for a second here? Do I take 30 minutes of lunch? Yeah, but I give my bet, my best. Or a version that's very close to it all day, every day for my employer for a very prolonged period of time. And I think that's the fear. Like, that's what I'm trying to help. I believe, you know, comment in the YouTube section, folks, if you agree or disagree with that. But I think a lot of people will by and large agree with what I just said there, that that represents their efforts and what they bring to work on a daily basis. And I think what happens with that is there's a fear here, right? I am super good as a VP of customer contact strategy in the marketing division at Target or my old employer, Dish Network. I'm super good at that. How does that translate to a bridge of, of work that will help me supplement, supplement my, my, my fire portfolio. I'm good at this and I want to stop doing it in three years. But it's not clear to me how I, how I then translate that into an 8 hour or 12 hour a day, 12 hour a week job. Because the job is inherently coordinating tens of millions of dollars in budgets or whatever. And then 30 people that I have to manage with recurring meetings and invites and calendars and okrs and all those types of things. And I think that's the challenge. I think that that's what people fear here and that's why they're so obsessed with this number, is because it feels like an all or nothing decision for this person in there. And how would you advise them? And again, hopefully these are helpful challenges for that listener. And again, if I'm taking this off the rails, mindy you let me know.

[Mindy Jensen]

No, I'm going to challenge you, Scott, before I let Tyler talk. I'm sorry, Tyler, but.

[Tyler Gardner]

No, no, no, please. I was about to ask what you think about all this.

[Mindy Jensen]

Yeah. Scott, you're the CEO. I'm not. I've never been the CEO of a company. I will never be the CEO of a company. And I don't feel at all bad about that because I don't want your job. I've seen how hard you work, and you're right, you absolutely do work that hard. But I have worked at a lot of other companies. I can tell you there's a lot of people who don't work that hard. And should they have their job? Probably not. But how many of us listeners, how many of us have been sitting there like Bob over in accounting, really needs to lose his job because he doesn't do anything, and I have to ask him 76 times to do stuff? Yes, there are a lot of people out there who are employed and should not be because of their poor work performance, which just makes those of us who are amazing look even better. And allow us to ask our employers, hey, I don't want to work five days a week anymore. Can I go down to four days a week? And those employers say, yes, absolutely. I don't want to lose you. If you can do it in four days, that would be awesome. Which is actually what happened.

[Tyler Gardner]

So well said. And it reminds me, Mindy, that one of my early mentors talked to me about the curse of competency in any organization. And. And ironically, and highly problematically, the better you are and the more work output you perform, the more you're tapped to complete projects. And those who are not performing at the same level, those who are apathetic or who have checked out or who are just doing it because they're stuck or because they have nothing that they want to go to or they're terrified of going to something else, which I think is one of the biggest reasons people don't leave. But those who are competent and actually show up and do the work end up working way harder. And it's really problematic in my mind. And one of my favorite people of all time, this was a friend of mine probably 15 years ago, who at one point I walked up to him and kind of said something similar where I said, look, it looks like you're really good at your job, like you're doing X, Y, and Z. Can I have you come into this other project? And he turned to me and he said, you shut your mouth. You shut your mouth and you never tell anyone what you saw. As far as his competency goes, because he understood in his late 20s that he didn't want to be loud, he wanted to be under the radar, he wanted to do his job. And he actually again, he worked very hard, no doubt. But he also understood that the better you are at your job, the more you're asked to do things. And, and Mindy, I think is is dialed on this idea that if I come up to you as a really good employee who you've had for five years, let's say 10 years, and I do want to phase out and I say, look, you have an option and that's fine, that's up to you. I don't have that choice. But you as the CEO or manager does. I'm either going to leave or I'd like to continue working three days a week. It's not an ultimatum in a negative sense as much as you. I'm not going to be offended if you say you're fired. That's fine and you want to find someone else. But if I'm that good at what I do, I'd challenge. That's a hard decision.

[Mindy Jensen]

We have to take one final ad break, but we'll be back with more right after this.

[Tyler Gardner]

This.

[Mindy Jensen]

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[Scott Trench]

So let's, let's play this out, right? Let's play this out in two examples. So one is Mindy coming to me and saying I'd like to work three days a week. Sure, Mindy, great. Let's do it.

[Mindy Jensen]

Because I've been there and I have proven myself. It's not just a day one conversation.

[Scott Trench]

And your role is not there.

[Tyler Gardner]

Right.

[Scott Trench]

We would say, okay, yeah, we'll just, we'll pay you for 3 days a week, same ish rate. Continue going on with that, that. Right. But if some, if, if our CFO wanted to do that, I, I use an example. He's one of our absolute stars. Right. The job of CFO cannot be done in three days a week. Not at bigger pockets for that. And, and that's why I want to get to this. Like, like, so Tyler, what I think the issue is for a listener, and I'm trying to ask this empathetically for them is I'm, I'm, I'm a cfo. I'm an executive at a company or whatever. And I'm at this two, not an executive, but right in that bubble, director executive level where a lot of people I think will be right when they hit fire right to Fire to have the capability to be on the brink means that you've accumulated millions of dollars in assets, which means your income is huge, most likely, which means your expenses are low, which means you're capable of managing a million dollars.

[Tyler Gardner]

Maybe that's one I'd love to get to. I don't know where the tie is because you have a lot of money. I talk to people with a billion dollars on some day and they have no idea how to manage money. So I think there's a big distinction between what we earn and how good we are at managing money. Just to throw that out there, but.

[Scott Trench]

Okay, I think I'm good at managing money because I'm in the fire community and I have a high income. I have a job there. And it's like I'm always perpetually facing this problem of I'm at the peak of my earnings potential as I'm moving towards fire. Right, because you're 30 or 40, that's why you're firing. Right. Fire is retirement early. Right. So, so the next year you could or the year after you could make more money. So you're stopping here at the peak of your career almost by definition and you're saying, how do I go to that part time role? And I think that's the piece that terrifies folks is like that is that item. So now let's take that counterfactual of hey, your boss says no, can't do it. That's where the portfolio theory comes in. Right. And how does that person, what can that person then expect? How can that person defray that risk? So. So I've got one and a half to three million bucks. I'm approaching my boss. I want to work three days a week. You know, we're not going to do that for you. Well, no hard feelings, but the role, we don't have a role for you. That's three hours a week. Sorry to see you go. Love to see what. Send me a picture. When you're on the top of Mount Kilimanjaro and you're fire here, but we can't pay you for continued work here. We're going to promote so and so instead. How does that person de risk that situation when they don't have that entrepreneurial skillset because they've come up in the corporate ranks, which is I think the majority of our listenership phenomenal question.

[Tyler Gardner]

So one way that people don't tend to look at their jobs income, which is too bad, is fixed income. It's a type of fixed income. So if you give up that paycheck, you need a fixed income, right? You need a cash flow. And so this is to bridge kind of back to this idea. What we initially touched on was this idea that a lot of fire movements want to retire with 100% stock portfolios. And again, on one hand, I'm all for it, right? As far as 30 years plus time horizons, 100% stocks will win out every time over 75, 25. That data has been. Now again, we don't know what's going to happen going forward, but historically that's what the numbers show. That said, your question is spot on, which is how do we reproduce cash flow that I need on an annual basis? And I would not ever rely on stocks to do that, even though I have made tons of content. Why I'd like to be invested 100% in stocks, as most people would, because of the growth potential. If you're all of a sudden looking to replicate, let's just say $100,000 annually, now we need to get into fixed income products. Especially if you decide I cannot afford to live off of $50,000 next year, right? That's the flexibility that if somebody has that flexibility and says I could do it, I could weather a down market, I could weather a spouse job loss and we could live on 40k next year, fine. But if they can't, you need fixed income and that might be bonds, that might be short term Treasuries, right? With the corporate government, et cetera, that might be, I hate to say it, even an annuity. I know that that's like the problem word. I don't sell annuities, by the way, just so you all know. But that is also an option for people who really want to de risk, right? And just get cash flow. There are options out there to do that. The problem is, and I guess this is like one more challenge to the fire movement is every single dollar every I put towards a fixed income product, I inherently cannot put towards a growth product. So when we're looking out 30 to 40 to 50 years, that's a pretty big opportunity cost. So when we were once talking about 15 to 20 year retirements or even 25, the numbers show one thing. But as we go past the 25 year mark, all of the data comes back 100% stock portfolios are optimal.

[Scott Trench]

What does optimal mean?

[Tyler Gardner]

When I say optimal in that sense, it means you have the highest likelihood based on what's called a Monte Carlo scenario, which is just running every single possibility that the market could have on over the next 30 years, you know, whether 30 down years in a row, 30 up years in a row. And you basically come up with a statistical chance, a probability that you won't run out of money and you'll be okay. Right. So you have a 100% chance. Just to go back to the Trinity study of not running out of money. If you were in a 75, 25 stocks bond split up to 20 years, that's where everyone got the 4% withdrawal rate from. That's literally where it comes from, is that you had a. It was the only allocation strategy where you had 100% success rate. With 75, 25 split, you had a 98% chance with stocks, right. But you had a 75, 25, 100% chance. But once you went out to 30%, you didn't have 100% chance anymore. It was lower, but it was higher than if you had the 7525 stock bond. Does that make sense that it, that 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.

[Scott Trench]

So you're basically all the way back at stocks. Right. There's just a massive bunch of stocks here.

[Tyler Gardner]

But I'm with you that I really, I want to communicate the importance that if you're 100% stocks, this is mass, and everyone needs to hear this. If you are going into fire or retirement with 100% stocks, you need to put yourself in the position of going into fire in the year 2000. In 2000, the market lost 10%. In 2001 it lost 13%. In 2002 it lost 23%. So we're up to 46% just on market loss in the S and P. Additionally, if you were trying to live off of 4% each of those years, we're now at a negative 58% loss in your portfolio. Had you retired in 2000. Yes, worst case scenario. But yes, you're officially screwed because you've now lost over half of your fire portfolio because of this short term volatility. And that 4% that you were hoping to live off of is now mathematically 2%. You're not living off of 4% anymore. So if so someone kind of has to basically say, if I can handle that volatility, sure, 100% stocks. Great. Because Tyler said the long run and the numbers say the long run. But in the short run, man. Oh, you can screw yourself very quickly with that.

[Scott Trench]

Yeah. So this is, I think is the root of one year, one more year. Syndrome for a lot of folks. I think a lot of folks come to this conclusion for themselves in there. And I think it goes part and parcel to what I was saying, the argument I was creating for this fictional executive that has spent 20 years optimizing for a very specific role that doesn't feel, at least in the moment, like it is conducive to generating income in another way on that front. And so what is the answer here, right? If the answer is you can be screwed if you start, if you, if this is another 2020 on there, is it, is it one more year syndrome? Is it get over this notion of no income. There are ways to make income, you just can't see them from your vantage point. Executive looking to fire. What is it? Is it fixed income, is it annuities? What do you recommend for this person?

[Tyler Gardner]

It terrifies me. I'll just tell you that when I think I'm doing a lot of writing on this topic right now and the topic is basically our psychological response from going from a lifetime of being told to save and accumulate to a shift to drawing down and seeing that number potentially go down. There's no answer answer to that. There's not. I mean there is no answer to saying here's exactly how you're going to feel comfortable all of a sudden giving up $100,000 a year. I couldn't do it. I'll tell you right now. If you were to say Tyler will give you 200,000 bucks a year, you know, or you'll be able to draw it down from this portfolio, at least that's what the numbers say. I wouldn't trust that I'd be in one year syndrome the entire time. I'd be terrified to leave it behind unless I had a type of fixed income. Right again, whether either call it the annuity or call it a part time job, I guess that's like my father's 76 and he continues to work three days a week as a doctor.

[Scott Trench]

One more question I'd have here is you mentioned annuities, you mentioned stocks, but you haven't discussed cash. We didn't talk about real estate. There's no alternatives in this discussion out there. Like my answer is real estate, right? Like real estate, if you, if it's paid off, right? If you just keep it at simplest level, if it's paid off and you just spend some percentage, even 80% of the cash the property generates with conservative assumptions and holdbacks for vacancy and capex or whatever, I view that as an answer, right? It's an inflation adjusted income stream. I never touch the principal, so I never draw down my rental portfolio in the same way I would on a stock portfolio, for example, because I'm just spending a minority of the cash flows on it. Are there other answers out there?

[Tyler Gardner]

That's a phenomenal answer. If. And again, I know that the people who are in real estate, you know, obviously have their views on it, but real estate, as I, as I hope you're willing to admit, it's not passive income. And that's all I want to get out is like, I get that once you either like doing it or you have generated positive cash flow. And that works for you. Absolutely. Like, I would love to have the cash flowing properties because that would be an incredible way to obviously help the transition. And if I were to design my ideal $2 million portfolio, I probably would have 20% in real estate investment trusts because to me that's just a little more passive of an approach, but still adding the asset class that does have positive tilt because it has underlying physical assets. Right. So that would be in there. And that's where I would like all your listeners to make sure that they're with you too. Is that whether it's active management of rental properties or passive holding of real estate investment trusts to avoid that short term sequence of returns risk having different asset classes, alternatives, real estate, commodities, et cetera, is pretty important in the short term.

[Mindy Jensen]

I think that I have seven more hours that I want to talk to you, Tyler.

[Scott Trench]

I think so too.

[Mindy Jensen]

Yeah, we're going to have to bring you back.

[Tyler Gardner]

I love this. I hope I didn't monopolize the space too much.

[Mindy Jensen]

No, it was great. Did you hear Scott? He's talked a lot too.

[Scott Trench]

If anything, that was me pushing back on a bunch of these things. But hopefully I'm trying to help out this fictional person, this user, I think is the average of our listenership who are facing this problem.

[Tyler Gardner]

Yeah.

[Mindy Jensen]

And I think that we have not presented this in such stark phrasing on the show so far. And I think it's great. I think that people, it's so easy to be like, oh my God, fire's so amazing. Just do it. And it's, it's another thing to have somebody say, hey, what about this? And be like, ooh, I didn't think about that.

[Tyler Gardner]

And I love it. I love, I love, I love the idea of like, I want to go. I mean, just going back to Scott's original point, like, it would be incredible if that just plain. Even if it just served as an impetus to get people out of toxic culture where they can design more of their time. Phenomenal. And as long as they can figure out how to get the right education through shows like yours to make good asset allocation decisions, great.

[Mindy Jensen]

This was wonderful. Well, we are definitely going to have you back on so as soon as we stop recording we'll check calendars and see when we can get you back on.

[Tyler Gardner]

Oh, always would love to chat. This is thanks for I seriously feel honored to be on a show like this. This is really, really kind of that.

[Mindy Jensen]

Wraps up this episode of the Bigger Pockets Money podcast. But before we go, I want to make sure that you are following our guest Tyler on social media. You can see him on Instagram at Social Cap Official and that's cap like a baseball cap. Definitely follow him. He's got so much great information on his Instagram. He is Scott Trench. I am Indi Jensen saying so long.

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