How To Retire Early

Everyone dreams of retiring early and drinking cocktails by the beach, but nobody has a concrete answer when asked how they plan to do it. In fact, “Win the Lottery” is the most common response. Winning the lottery may be a funny answer, but how most Americans plan for retirement is not far from that strategy because most Americans invest for retirement to gamble and leave everything to chance. How?

There are two ways that Americans have been taught to invest:

  • Do it themselves by playing the stock market.
  • Leave it to the experts.


Neither strategy is effective because “80% of U.S. pre-retiree households are financially unprepared for a secure retirement.”

The do-it-yourself investors who take investments into their own hands all have one goal, to beat the market. They play the timing game – hoping to swoop into a stock before it takes off, then get out before a drop. This strategy is not effective. “All the evidence supports the disappointing fact that regular investors underperform the market. As long as they try to ‘beat the market,’ they underperform,” said Todd R. Tresidder, founder of

Timing the market is no better than gambling. 

You may win occasionally, but over the long term, your losses will exceed the wins. Even a broken clock is right two times a day. The prospects aren’t much better for those leery of doing it on their own and would rather entrust their investments in the hands of professionals. Those same professionals are playing the same timing game, and they’re no more successful than the retail investor, except they get paid in the form of fees whether their clients make money or not, so they come out as winners even if they’re losers.

Active fund managers, like the ones that manage the mutual funds in your 401(k)s and IRAs, are terrible at their jobs, and you risk underfunding your retirement if you go this route. That’s because almost all fund managers can’t even beat the market in the long run. Every year, S&P Dow Jones Indices does a study on actively managed funds. Last year, they found that after ten years, 85% of large-cap funds underperformed the S&P 500, and after 15 years, nearly 92 percent trailed the index.

If it’s not clear already, stocks and traditional retirement plans like 401(k)s, and IRAs are not the answer to retirement.

If you want to retire early, take a cue from the wealthy, who approach money and investments differently than everyone else.

See the charts below:

Notice the difference in money habits between the poor, the middle class, and the wealthy. The poor live paycheck to paycheck. Their income goes entirely to expenses like rent, gas, and food. They typically have bad credit, so they don’t qualify for loans, so they don’t have any liabilities, but what money they do have goes directly to expenses. Living paycheck to paycheck is dangerous as most are unprepared for emergencies.

The Middle Class may have cars and homes, but many live paycheck to paycheck, just like the poor. It’s not just the poor that are unprepared for minor financial emergencies. The middle class is just as vulnerable. According to a 2022 survey by Bankrate, 56% of Americans can’t cover a $1,000 emergency expense. The middle class may make more money but also have more financial obligations in the form of liabilities like car loans, mortgages, and credit card debt that stretch their finances.

If you notice the major difference between the poor, middle class, and the wealthy, the wealthy have assets that generate income. They eliminate their liabilities to concentrate on allocating more of their income to acquire even more income-generating assets to build wealth.

The key to early retirement isn’t timing; it’s passive income.

The key to early retirement isn’t the traditional way. It’s not what Wall Street, universities, your family, corporations, and other institutions have been telling you all these years. It will not come from stocks or 401(k)s but investments that generate passive income – income that can be reinvested to compound income exponentially.

Think of wealth as a machine.

At the heart of the wealth machine are assets that can generate cash flow (i.e., passive income). Common assets that fit this description are commercial real estate that produces cash flow from rents and income-producing businesses that generate cash flow from selling products or services.

Cash-flowing assets are at the heart of the wealth machine, and you can grow this machine in one of two ways:

  • Reinvesting the cash flow generated.
  • Increasing outside cash infusions from sources such as income from a job.


That second source is usually the stumbling block for the poor and middle class.

Instead of saving their income to acquire cash-flowing assets, the poor and middle class drain their assets on things they don’t need, like big TVs, fast cars, and excessive homes. The wealthy minimize debt and expenses to feed the wealth machine.

If you want to retire early, take a cue from the wealthy. Avoid speculative and non-performing assets like stocks and 401(k)s and allocate to cash-flowing assets that can build wealth.

Don’t just change your investment strategy. Change your daily money habits as well. Avoid debt and unnecessary expenses so that you have more to feed your wealth machine to acquire more cash-flowing assets or expand the ones you have. That’s how to retire early.

Alternative Mindset:  Passive Income Builds Wealth

Savvy investors don’t seek out income investments to shelter from volatility; they seek income investments to build wealth. The following illustration from Robert Kiyosaki perfectly encapsulates the wealthy mindset regarding income investments.

Assets that generate passive income are the key to wealth. That’s the difference between the traditional and alternative mindsets. While the average investor seeks out fixed-income assets like CDs and treasuries in the mistaken belief their capital will be preserved from market volatility, smart investors seek out income assets that generate cash flow for building and preserving wealth.

Winning Strategy: Play Offense, Not Defense

The winning strategy for income investments is to play offense, not defense. Don’t put your capital in assets you think will protect your portfolio while inflation eats away at your wealth. Allocate to assets that will stay ahead of inflation. Only by running up the score against inflation by generating multiple streams of income will you be able to not only achieve your goal of financial freedom but preserve capital for this and future generations. Only by playing offense will you be able to achieve financial independence.

You’ve already figured this out, but smart investors are not one-dimensional investors. They’re not happy with just winning in one aspect of their investments.

They want to take advantage of every possible investing benefit an asset has to offer. That’s why they’re drawn to private alternative assets that offer cash flow from a tangible asset.

Here’s a summary of why these assets appeal to sophisticated investors:

  • Passive Income.
  • Long-Term Growth.
  • Illiquidity for Protection Against Volatility.
  • High Demand Asset with Income that Outpaces Inflation.
  • Tax Benefits.


To be a winner in the investing game, you have to change your mindset from settling for lower returns to minimizing risk to seek out higher returns while ignoring the crowd’s cries of high risk.

The wealthy ignore the noise and the traditional mindset that says you can’t achieve high returns at reduced risk. In the private markets, it is possible to achieve higher returns from income investments at lower levels of risk.