- Kiersten and Julien Saunders joined the FIRE movement and retired in their 40s.
- In their book “Cashing Out,” they share the decisions that helped them make their first $100,000.
- They fired their financial advisor and decided to manage their investments independently.
At the top of their corporate careers, Kiersten and Julien Saunders delayed their honeymoon for months to accommodate their demanding work schedules. When they finally took their long-awaited vacation, the couple still found themselves checking their work emails compulsively.
That’s when they realized their lives needed to change. Julien had already heard about the Financial Independence/Retire Early (FIRE) movement through his friends and online research. After their honeymoon, the couple decided to buckle down and start living minimally — at one point even saving 70% of their combined income — to be able to retire early.
Now in their 40s, the Saunderses have left their full-time corporate jobs, live modestly on passive income from their investments, and travel across the US helping the Black community achieve financial independence.
In their new book, “Cashing Out: Winning the Wealth Game by Walking Away,” they share the key moves that helped them make their first $100,000 toward early retirement.
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Julien researched the term ‘expense ratio,’ the hidden fee he paid to manage his mutual funds
In the past, Julien relied on a financial advisor who invested his retirement savings in mutual funds. Mutual funds are groups of securities purchased with money pooled from a large group of investors. They are managed professionally by fund managers who monitor the market all day and make trades on behalf of the fund’s investors.
Determined to make the most of his money, Julien researched investing for months. He learned that mutual funds charge a fee called an expense ratio, which covers the fund’s operational costs. Expense ratios may seem small at first — typically they range from 0.25% to 1%, though certain firms may charge a premium for their expert analysis of the market — but they dramatically affect your portfolio’s return.
For example, $20,000 in assets with a 5% annual return and no additional contributions yields a gross value of $52,065.95 over 20 years. With a 0.25% expense ratio, you’ll end up paying $2,471 in fees. If the expense ratio is 1%, you’re looking at $9,243 in fees.
In the end, the fund with a 0.25% expense ratio ends up with a net value of $50,595, while the fund with a 1% expense ratio has a net value of $43,822 — nearly a $7,000 loss just from fees associated with managing the fund.
The Saunderses had to fire their financial advisor in order to move their money into index funds
Julien’s research led him to index funds, passively managed investment vehicles that track the performance of specific groups of stocks in the market. Because they are passively managed, their expense ratio is around 0.49%, with some as low as 0.03%.
“Investing in index funds had been around for decades but had been cast as a boring, predictable, and lazy approach to investing. Nevertheless, I was intrigued and ready to give it a try,” he writes.
When he told his financial advisor what he wanted to do with his portfolio, Julien was met with resistance. This led him to research how financial advisors get paid in the first place.
“It turned out Martin’s pay was largely based on commission,” writes Julien. “Whenever any of his clients purchased specific funds or financial products he recommended, he earned money from that transaction.”
While Julien’s financial advisor wasn’t intentionally malicious, Julien was shocked to learn that his financial advisor wasn’t legally obligated to make recommendations in his best interest.
He writes, “In theory, he could recommend funds that earned him and his company a handsome commission, even if they were not the most cost-effective for me.”
In legal terms, financial advisors are not always bound by fiduciary duty, an ethical obligation to give a client the best advice for their financial situation. Certified financial planners are always fiduciaries.
The couple went all in on index funds
After making the difficult decision to break up with his financial advisor, Julien transferred all of his retirement savings into index funds. The couple also went into their individual employer-sponsored 401(k) plans and reallocated 90% of their portfolios to index funds, and the remaining 10% to bond funds.
The couple made their first $100,000 by maxing out their respective 401(k)s until the end of their careers. They write, “On occasion, whenever we received a surprise influx of cash, we’d invest in a separate brokerage account purchasing, you guessed it, more index funds.”
In the book, the couple compares investing to basketball. On a given day, any player can be anointed “the best” depending on who’s having a good season. Trying to bet your money on the best player is a risky investment, since you may or may not get it right. If you do, you can earn big, but if you don’t, your investment may be lost. That’s similar to how investment managers manage mutual funds — they spend the day chasing the best stocks to buy.
On the other hand, you could bet your money on the fact that basketball fans will keep watching, no matter who’s on top. It’s a safe, boring bet, but you’re pretty much guaranteed to make some money. That’s index funds — kind of boring, but a safer place for your cash over the long run.
“When you’re investing in index funds, you’re betting on the fact that overall a given index will continue to deliver favorable results,” the couple writes. “You understand that some companies will succeed and fail far beyond anyone’s imagination, but you don’t let those individual wins or losses distract you from the overall performance of the market. This is because you’re paying attention to the market as a whole and its performance over the long run, not day to day.”