Here are my notes from a speech I gave yesterday at the Port Orange Toastmasters club contest. While I came in 2nd out of 3 contestants (Dr. Charles Carroll won with his speech on smiles), it was a great experience to compete in a club contest for the first time, and we had a larger audience than usual—about 25 people. I actually ended up speaking without the notes at all, though I set them on the table as a psychological device and could have looked at them at any time.
What Is Financial Independence?
Speech by Richard Thripp | 5–7 minutes
Port Orange Toastmasters Club Contest
February 22, 2017
How to FIRE yourself and never work another day in your life unless you absolutely want to.
Imagine never having to work another day in your life
You might think at Age 65 or Age 70
What if it could be earlier?
Financial Independence and Retire Early
Big online community: Reddit, blogs, et cetera
Many retiring at 40 or even 30
What do you need to FIRE yourself?
Ideally, about 20 times your annual cost-of-living
This is a lot
40 times a 6-month emergency fund
If your cost-of-living is $50,000 per year, you need to invest 20 times that = $1 million
Live off dividends
Invest where? Mostly whole-market or S&P 500 index funds [with Vanguard]
Max out 401(k) and IRAs for tax savings
NOT money market savings — must be stocks [Can put 401(k) + IRAs in stocks]
Whole market reduces risk
Long time horizon reduces risk
After maxing retirement accounts, use taxable investment accounts
Yield of whole-market index fund = Average 7%, INFLATION ADJUSTED, per year
Money doubles every 10 years
MUCH HARDER to achieve financial independence without stocks
Long-term (> 1 year) capital gains tax only 20% max, compared to 39.6% for earned income
What is financial independence?
The ability to not work another day in your life
It doesn’t mean you MUST not work
Many people enjoy working
If freelancing, et cetera, the 20× rule might become the 10× rule
HOW to become financially independent?
MUST save tons of money
Maybe 50% of income
Hard if you’re a “shop-a-holic”
Hard if you have kids
But, many tricks
Example: Moving to a lower cost-of-living area when retiring
MUST change your money mindset
More tools available than ever
Get online and start reading
Here are the notes I took on my speech performance immediately after giving the speech. Yes, I wrote them in third person, which is weird.
How do you become financially independent?
Save save save
Invest in stocks
Low-fee index funds
Told story about TIAA charging 14% management fees and making it very hard to get money out
Trump’s in; Stock market going “bonkers” — why was my TIAA money going down?
Richard engaged audience many times by asking them to raise their hand — how many know what financial independence is? How many believe a CD is a good vehicle (none)? How many believe all bonds is good (none)? Then, Richard joked how smart the audience was. He also joked about being able to leave a job where the boss is making inappropriate jokes requiring an uncomfortable smile to keep one’s job (referencing Charles’s speech).
A fellow Toastmaster approached me after the speech, incredulous that the stock market produces 7% annualized inflation-adjusted returns on average. Here is additional information I wrote for him:
Here is a source on the 7% annual average returns in whole-market or S&P 500 index mutual funds:
The FIRE (Financial Independence, Retire Early) calculator at FIREcalc.com can show you projected returns based on all prior year periods based on how much money you intend to retire with and how many years the money needs to last.
If you have enough money, you can just live off the dividends of this index fund: personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT
Of course, we are in an unusual time right now (market is up 22% in the past year). It’s hard to say whether investing now is a good idea (is the market in a bubble?), but generally, trying to time the market doesn’t work well, so most people advise investing now, or a little bit each month.
Obviously, if you put your money in stocks just for one year, there is about a 25% chance you will lose money, and maybe a 40% chance you won’t earn 7% returns. But, if the money is in there 10 years, the odds of at least 7% annualized inflation-adjusted returns are higher (which means your money could double—1.07^10 is 1.97), and over 20, 30, or 40 years, even higher still. This is why a long time horizon is important, and why retiring early with hefty investments is not only psychologically powerful, but financially powerful.