How To Retire Early (The 3 Numbers You Need To Know)

The Three Numbers That Determine Early Retirement00:00

There are three numbers that determine whether you retire early or work until you're 65. Most people don't know any of them because nobody ever taught them. Income isn't one of these numbers. There are people making $200,000 a year who are completely broke on paper, and people making $50,000 who are multi-millionaires on track to never need a paycheck again. The difference is these three numbers.

Number One: Net Worth00:30

Net worth is your financial report card. It is every dollar you own minus every dollar you owe. Assets weighed against liabilities. Most people avoid looking at it because they're scared of what it's going to say.

According to the Federal Reserve Survey of Consumer Finances, the average American's assets break down roughly like this: about a third is sitting in retirement accounts, 28.5% is home equity, and only 12% is actually in stocks. The rest is a mix of vehicles, business assets, rental property, and bonds.

The speaker's own breakdown is: roughly 45% in stocks and equities, 33% in real estate, 13% in alternative investments, and the last 9% in cash.

Think of your net worth as a pie where each slice is a different asset class. Once you've added everything up on the asset side, subtract your liabilities. The most common ones are student loans, credit cards, medical debt, and auto loans. Whatever is left over is your net worth.

Benchmarks by Age

Fidelity's research recommends aiming for:

• 1 times your salary by age 30