There is an alternative version of FIRE that very few people talk about. The typical approach to retirement is simple: figure out how much you need to live on annually, multiply that by 25, and then invest the total amount in low-cost index funds. Once you have that amount invested, you can start withdrawing 4% each year until you die. This approach has been tested and is known to work. If you can face spending another twenty years of your life in a cubicle, I say go for it.
Personally, I would rather yeet myself into a Bond villain’s piranha tank than spend another year working in an office.
Why the Treadmill Feels So Long
The second way to achieve the same goal is far less well-known. You don’t find out about it unless you wander off into the strange corners of the internet. Instead of trying to build a nest egg large enough to produce a 4% withdrawal, you simply try to create a paycheck that is as large as your expenses. No 25x required.
The reason why the standard approach seems like a really long time to wait is because of taxes and the cost of living. For example, let’s say you make $90,000 a year. Your tax rate might be between 28% and 30%. That means about $27,000 of your money goes to the Tax man, leaving you with $63,000 to spend. From that $63,000, you have to pay for the things you need to live, which leaves you with maybe $15,000 to $16,000 a year to invest. 25x of that is obviously quite a ways away.
If you need $3,500 a month to live on, the 25x rule requires you to have $1,050,000 sitting in the market before you are allowed to quit your job. In other words, everyone is on the same treadmill. If everyone is doing it, it must be the right thing to do, right? Maybe.
What if you could bypass the waiting period and simply build the paycheck directly? Well, options trading is the approach that I am most familiar with. I learned about it from a guy I met on a walking tour of Bratislava. It turns out that financial wisdom also comes to you when you least expect it. I had just sold some cryptocurrency, and put the bulk of my money into my first options trades. My first month, I made an average of 3.6%. Pure luck, but I was hooked. Five years later, options income pays for my whole life in retirement.
With a 1.5% return per month, you would only need $233,000 to produce the same $3,500 a month. That is roughly 1/5th of what you would need according to the 25x rule. The same amount of money flowing into your bank account, but with significantly less money required upfront.
In addition, there are many ways to do it. Stock trading, high yield dividends stocks, rental properties, any of these methods would allow you to transform a lump sum into a steady stream of money that you can actually use every month. The 25x rule isn’t incorrect. In fact, it is probably the safest bet. However, it is not the only way to play the game. One last thing (I know I can already picture someone screen-shotting this), the 1.5% is just an example, results vary, do your own research and the other usual adult things.
The Expense Side That No One Discusses
In building your FIRE plan, almost everyone obsesses about the income side. Almost nobody spends any real amount of time on the expense side, which is bizarre, because honestly, it’s the easier of the two to manipulate if you’re willing to leave your home town.
It’s called geo-arbitrage. Let’s say, you need $3,500 per month to live in a big western city. What happens when the same lifestyle costs $2,000 somewhere else? Same income, expenses cut by more than 40%. And that difference goes to work compounding your income-earning portfolio.
You can move around and still enjoy growing your portfolio. The destinations are endless, and ultimately depends on what fits your personal tastes and preferences. My rotation was six months in Panama, five in Turkey, one in New Zealand.
The order was cost first, climate second, visa availability third. Make up your own rotation to suit yourself. Panama is hot, affordable, and has great taxes. Turkey is a change of scenery, different weather, different culture, and Turkish food of course. The month in New Zealand is the expensive slap upside the head. It’s where you pay more, you see the people you miss, and you remember what bacon and eggs on toast with a small cappuccino costs. Honestly, it left me speechless when she brought me the bill.
I’m not telling anyone to bathe from a bucket or sublease a bunkbed. I’m saying rent a better apartment at a third of the price, get decent healthcare, have a social life, live somewhere your income stretches further. I tell those who ask, “I just live in places where I get more life for my dollar.”
Where The Real Wealth Is Created
Change these two components and your future is looking much more rosy. Your expenses and your taxes are the two biggest influences on your compounding speed, and if you’re willing to travel, they’re also the two easiest to manipulate to your benefit. Most people take these two as constants. I learned differently, the hard way.
A few years ago, I decided I might sell some crypto and was informed that if I did, I would be giving up 40% of it in taxes. My immediate reaction, in pretty much the exact words, was f*** that. Which led me to discover that some countries don’t tax income earned outside their borders. It’s just how the system works there. And that’s when I had an epiphany. If I just moved to a place where my income was taxed differently, I could easily tweak my income so I would barely pay any tax. The synapses in my head started firing like I’d just found chocolate. Hmmm tax chocolate.
Add in a lower cost of living, a zero tax residency and your surplus income grows much faster than your average person budgets.
That surplus is the money. Your income may be $3,500 a month, but your true cost of living is $2,000? You’re now funneling the remaining $1,500 per month back into investments on top of a fully paid-for life. Back into the market, into more income-generating assets, and compounding under your current lifestyle. You’re getting richer without putting in more hours, getting a raise, or pity laughing along at your boss’ shit jokes.
That’s the income snowball right there!.
How It Helps You Right Now
Most people reach their 25x in their late 50s or early 60s, which is when they have their epiphany. They can finally retire now. Great Success!!!
I retired at age 35, in Panama, because I was able to consistently generate more monthly income than I needed to live. Even though I didn’t have more than 25x my annual expenses. Through this method I have been able to explore the world and difference between doing it at 35 versus at 65 is huge. Scuba diving, trekking around Wales, moving somewhere for a few weeks to see if you like it, all of those things become increasingly difficult as the years pass.
Reducing your FIRE number via active income, followed by reducing your cost of living via geo-arbitrage, means you can enjoy yourself while you still physically can.
I’ve built my whole life around avoiding unnecessary work. And it turns out, that’s a financial strategy too.
If you want to see this income in action rather than just read about it, that’s what my Discord is for. I share my trades as I execute them, explain why I’m doing it, and answer questions from newcomers trying it out. I offer the first 14 days of the paid channel free, so feel free to drop by and look around before committing.
Cheers
Andy
Leon, Spain
The figures in this article (1.5% monthly return, etc.) are meant for illustration only. Do your own research before making decisions based on any of the figures mentioned here.