Can you achieve early retirement? While it may seem too complicated or something only available to the super-rich, it’s not a mirage. With a step-by-step framework, it can be within reach.
Tom Wheelright, CPA and Rich Dad Tax Advisor created the "Early Retirement Blueprint" to show anyone how to retire early.
The blueprint — which teaches people how to increase wealth, reduce taxes, and take less risk — was designed for people who want to retire early.
Read further to learn how to retire early with the Early Retirement Blueprint.
Traditional Advice vs. The Early Retirement Blueprint
If you want to retire early, traditional financial advice won’t get you there.
Here’s 3 ways how the Early Retirement Blueprint diverges from traditional advice to shorten your path to retirement.
Most of us have been taught the same timeline for financial success: work hard for 30-50 years, stash away money in your 401k or IRA, and retire and live off of your savings for the remainder of your life.
Unfortunately, many of us work and save diligently to live on less money in retirement than we do during our working years.
The Early Retirement Blueprint flips that timeline.
The goal is to obtain a financial education and invest differently, retire, and spend the majority of years — not your final ones — living your dream, and leave behind a legacy for your family or a favorite charity.
The key to the blueprint is that you’re not necessarily earning any more money — instead, you’re investing differently.
Timing of Diversification
Traditional advice tells us that we should earn money from our job and stash it away regularly in diversified investments. These diversified investments are meant to keep our money safe, but not necessarily make us rich.
The Early Retirement Blueprint also tells you to put your money into diversified investments, but the key difference is the timing.
Instead, when you’re in the first 5-10 years of wealth building, you should focus on getting the best return on investment.
To improve your return, this blueprint has you focus on building your wealth through financial education so that you become an expert in the investments that you choose.
By following the retirement blueprint, your education will increase and a few things can happen:
- the rate of return on your investments increases
- the risk associated with your investment decisions decreases
- the taxes that you pay decrease
Being a CPA and the Rich Dad tax advisor, it’s not surprising that Wheelwright places great emphasis on reducing or eliminating the amount of taxes you pay.
While some traditional advice discusses maximizing allowable deductions at tax time, one of the key elements in the Early Retirement Blueprint is to actively seek out opportunities to earn money and pay little to no taxes.
Your plan is built around investments that will allow you to legally reduce your tax bill so you can put more money towards additional investments.
These investments and the tax advantages that come along with them are legal, but they aren’t well known to an investor taking a traditional path.
For example, with the blueprint, you might focus on investing in oil and gas wells. Why? Did you know that up to 100% of your investment is tax-deductible?
Or you might choose to own a business and deduct a portion of the cost of a car that you use in that business.
These examples of investments not only earn money, but they also reduce your tax bill.
How to Retire Early: Investing Fundamentals
If you want to know how to retire early, it’s important to understand the investing fundamentals.
This isn’t your typical advice discussing stocks, bonds, and index funds.
Wheelwright teaches that there are three levels of investments and one you should exclusively focus on when learning how to retire early. The three levels are:
- Retail Investing
- Wholesale Investing
- Factory direct Investing
While the Early Retirement Blueprint focuses on the third level, let’s break down each one.
At the highest level, you have what Wheelwright refers to as the retail level.
This is where you’ll find the lowest rate of return and the fewest tax benefits, but it’s where you’ll find most financial advisors telling you to put your money.
This level includes investments like:
- mutual funds
Investing at this level is safe, but will not help you retire early.
The mid-level is where you’ll find your syndicated investments, or what Wheelwright refers to as buying investments at wholesale.
These investments come with a better return opportunity and better tax benefits, but few people are able to invest at this level.
Investors here are required to be accredited investors.
What does that mean? To become an accredited investor, you need to have over $1,000,000 in net worth, not including your home, or earn over $200,000 per year if you're single or $300,000 per year if you’re married, which is certainly an exclusive club.
Factory Direct Investing
The base level is where the early retirement blueprint model focuses.
This level, which Wheelwright calls the factory direct level, is where you’ll see the biggest returns and the best tax benefits.
Investing at the factory levels means you’re making direct investments.
You’re buying or investing directly in a business, buying real estate, or investing directly into a commodity, like an oil and gas well.
People learning the framework for how to retire early know that this is the level of investing where you need to focus.
The tax benefits here can help you make the most of your wealth-building years.
When you pay less in taxes, you have more money remaining to reinvest.
The Early Retirement Blueprint
There are four steps to the Early Retirement Blueprint. Once you’ve learned these four steps, understanding how to retire early is no longer a mystery.
Step 1: Create Your Strategy
To start your Early Retirement Blueprint, you need a plan of action.
This plan of action, this roadmap, is going to be your strategy to take you from where you are today to your dream or goal.
To create your strategy, you have to know your numbers:
- How much money do you have today?
- How much does your dream cost?
- How much does your legacy (what you will be leaving behind to loved ones) cost?
To get from the money you have today to the money you need for your dream and your legacy, you have two concepts that come into play:
- return on investment
Picking the right investment means that your money will work as hard as possible for you over the next 5-10 years.
Step 2: Pick Your Investment Niche and Focus
As the saying goes, a niche will make you rich. This is a crucial tenant of the Early Retirement Blueprint.
According to this plan, investors should pick one investment and focus on that and nothing else.
In the blueprint, you learn that during the wealth-building years, you don’t diversify your investments. Instead, you pick an investment option at the factory direct level and focus on building wealth with investments in that category.
At the factory direct level there are four asset classes that you can choose from:
- Real Estate
- Paper (stocks, bonds, and mutual funds)
- Commodities (food, water, oil & gas, coal)
Pick one of these asset classes and a single type of investment within that asset class. Then get as focused as possible on that investment.
For example, rather than focusing on real estate as a broad category, get more specific as to exactly what type of real estate you’ll focus on, such as renting out 2 bedroom, 1 bathroom units in a specific region.
This will be key in developing your criteria in step 3.
Step 3: Clear Criteria
Once you’ve picked your niche, it’s time to create clear criteria for what you’ll invest in. The most difficult thing for people to do is to decide which investment will work for them.
Creating a clear set of investment criteria will help make your decision before you go looking for investment opportunities.
If you’re focusing on real estate, these specific criteria will include:
- The type of real estate (for example, residential or commercial, single-family housing or multi-unit)
- The location or market you’ll purchase real estate in
- How much cash you’ll use and how much you’ll borrow
- The cap rate (the rate of return you expect)
Having these very specific criteria will reduce your risk with investing because you’ll become an expert in one specific type of investment.
This specificity is what sets professionals apart from amateur investors.
Amateur investors are generalists. They are constantly having to research and answer new questions because they don’t stick to one investment.
Professional investors become experts in one niche investment type.
Step 4: Create Your Dream Team
Lastly, you’ll want to assemble your dream team because creating wealth isn’t going to happen if you try to do everything on your own.
The first and most important member of your team is you. While most people will choose to work with a financial advisor who wants to take care of everything for them, building wealth through the blueprint requires you to be involved and educated.
The truth is that no one cares more about your money — and your financial future — than you.
Next, you’ll want to hire a bookkeeper and a CPA. The bookkeeper will make sure you have accurate records so you can make sound decisions.
The CPA is there to help you analyze data from your bookkeeper and look for strategies to legally reduce your tax liability.
As you continue building your team you’ll want to hire a lawyer who is in direct communication with your CPA. A lawyer will make sure you are protected.
Finally, you’ll want to hire a finance person, someone who can go out and help you find the money you need for your investments.
Keep in mind this isn’t the entirety of your team. You’ll still want to hire people who are critical to helping you with the asset class you chose, for example hiring a property manager if you’re investing in real estate.
Creating Velocity For Your Plan
The choices that you make with the money that you earn during your wealth building years determine how quickly you reach your dream life. Most middle-class Americans spend their money to buy liabilities: a car, a boat, a house. These liabilities, though, don’t add to your net worth.
Alternatively, the Early Retirement Blueprint tells you to take the money that you make and invest it in income-producing assets.
This means investing in an asset from the asset class that you’ve chosen.
With that, you’re able to strategically use your money to create more income, lower your taxes, and build even more wealth. Using your income to continue reinvesting in assets is the gas pedal for your retirement blueprint. It’s your opportunity to create velocity and is how to retire early.
Here’s how creating velocity works. Say you have $50,000. You could spend that $50,000 on a liability like a car. Or you can use this money to create velocity:
There are two ways to create leverage in your business — leverage other people’s money or other people’s time. Here you’ll use your $50,000 to borrow $200,000 and leverage other people’s money to buy an asset.
Because you’re choosing an asset from one of the four tax-advantageous asset classes outlined in the Early Retirement Blueprint, you are lowering the amount that you have to pay in taxes.
The lower taxes increases your cash flow from the investment.
With the additional cash flow from your decreased taxes, your investment is now making even more money each month.
You are using compound interest (interest on the interest) to have your initial investment produce even more money.
Your money is now working for you and making money.
The final step accelerating your wealth building is by creating velocity.
To do this, you’d take the money that you earn from this first investment and make a second investment, following the same approach.
After every investment you make, you pour the money back into new investments. The more you do this, the faster your wealth is created.
How To Retire Early
If traditional financial advice of saving for a long career and living off a retirement nest egg in your golden years has never felt in line with what you want for your life, the "Early Retirement Blueprint" is an alternative option for you.
These strategies aren’t easy, but for someone who is wondering how to retire early but doesn’t know where to begin, this blueprint lays out a step by step framework for you to get started.
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project.