I am attending an investing conference in Florida these days and my schedule is super packed. So I am taking this opportunity to cut and paste an article about FIRE I wrote that appeared in some Wall Street Journal outfit you may have heard of đ I should be back with a regular TBB Buzz post on Friday, God willing!
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The FIRE movement–financial independence, retire early–has become the rage, with many bloggers tirelessly writing posts and selling books promoting the idea that you can spend more years in retirement than working. A recent Wall Street Journal piece titled âThe New Retirement Plan: Save Almost Everything, Spend Virtually Nothingâ has generated almost 1,000 comments.
Letâs face it, the lure of quitting your 9-to-5 job to retire early and be financially independent is popular because itâs attractive, even seductive.
Whatâs more, the main themes of FIRE are certainly welcome: Live below your means, save more, be less materialistic. Most of what people with good money habits do so one day they can have the freedom to do what we want–in other words, retire.
But is FIRE all itâs cracked up to be? Is it even possible for most people? I donât think so.
For one thing, it appears that many of those touting the movement might have quit their 9 to 5, but they didnât stop working. Theyâve started online businesses espousing the benefits of FIRE, and are working more hours than ever before.
Most people, though, arenât cut out to pursue financial independence by building a robust online business. It requires unique skills and, letâs face it, youâre not really retired. Youâve simply moved from working âfor the manâ to working for yourself, which really means signing up for increased working hours, a healthy dose of daily stress and high personal costs.
Then there are those people who arenât starting a business. They just want to retire young and live off their savings for a lifetime. Can they do it? I have strong doubts.
A big problem is that itâs near impossible to know how much money you need for retirement as there are numerous uncertainties involved in retirement planning. I tell clients that I can produce the best retirement plan for them if they could just tell me the exact date they die, the exact investment returns of their portfolio every year, and, of course, we have to assume that life wonât  throw a surprise or two their way in the years ahead.
That isnât the only concern I have about FIRE. Iâm also not too fond of is taking the saving part to extreme levels. Living frugally in substandard housing, eating brown bananas or sharing Netflix passwords might help fund an earlier retirement. But it comes with a cost: Your life wonât be all that enjoyable for quite a few years. Whatâs more, doing it for 10 years wonât result in enough savings to sustain 30-40 years of retirement bliss.
Certainly, if you have multimillions of dollars invested in the stock market, you might live off dividend income. But relying on stock-market appreciation to pay your utility bills and other retirement-living expenses is risky. One down year could result in many years to recover your initial investment. The S&P 500-stock index lost 37% of its value in 2008, for example. If you had a $1,000,000 in an index fund, you would have ended the year with a loss of $370,000. And even though the market saw positive returns each following year, it was not until 2012, when the S&P 500 gained 16%, that you would finally recouped your $1,000,000.
If your plan was to withdraw $50,000 at the beginning of the year to live on, it would have taken you until 2014 to get back to your original $1,000,000 investment, and thatâs in large part because the S&P 500 saw a banner year in 2013 when it gained 32.4%.
Nobody can consistently time the market and there will be years of negative growth. If your retirement nest egg is exposed to a number of bad years and youâre regularly reducing your initial investment for living expenses, you could run into trouble fairly quickly. This is especially true if a sustained bear market occurs right when you begin your retirement. Therefore, it is always a good idea to keep building a cushion to account for such an eventuality.
And then thereâs the cost of health care. Leave your 9 to 5 and youâll need to purchase private health insurance each year until youâre eligible for Medicare at age 65. In 2014, the average monthly premium for individual health-care insurance coverage was $271 per month for individual coverage. Just four years later, the average cost climbed to $440.
Health-care costs are projected to accelerate over the next decade as Americans age and medical prices rise. The Center for Medicare and Medicaid Services (CMS) estimates that health-care spending will increase by 5.5% Â each year between 2019 to 2026.
Add the uncertainty with Obamacare and its important (for some it is life saving) pre-existing conditions coverage and whether that will be part of the picture in the years ahead. I believe you will see fewer people retiring, and that many who are retired will go back to work for a company offering group health-insurance benefits if Obamacare is overturned.
For most people, monthly expenses donât decline in their retirement years. While commuting and eating out costs may go down, those budget-line items are typically replaced by other expenses. In retirement with more time on their hands, many people engage in hobbies and activities that cost money. A sound retirement plan ensures your assets can sustain potential growth in spending over your lifetime.
Retiring early is as much a personal decision as it is a financial decision. And once you do achieve the financial security, itâs wise to be sure you wonât need to re-enter the job market. Technology moves so fast that re-entering the work force at the level where you left your career will be near impossible. Since you forfeited the career momentum you had in your peak earning years, youâre probably looking at a lengthy job search and less pay if you can find a decent position.
Maybe the best approach is to find something you love doing, keep healthy and never retire.
It seems to be working out well for Warren Buffett and Charlie Munger.
And I leave you with this…
TBB
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Why does early retirement have to be about doing nothing? For some retirement is quitting their crappy 9-5 job and doing something a bit more enjoyable or fullfilling and not having to worry about paying the electric bill. As far as the insurance problem, maybe you just work 8 hrs a week at mcdonalds for insurance. Besides if someone chasing FIRE and they don’t achieve it they will still have more money in savings which I fail to see as a bad thing in a time when most people are drowning in debt.
I had more direct, should I say controversial, parts that lets say was a bit too much and were cut by the editors đ
My main beef about the FIRE evangelists is…that they are selling FIRE instead of “retiring”. The Money Mustache dude brings in several hundreds of thousands of dollars…hey, it’s almost as good as traveling for free selling credit cards pretending you are a travel expert đ
Selling the FIRE sizzle..well, SELLS. In order to sell it better, they make it sound like it is an amazing thing to do that everyone can do so. Again, the more sizzly they make it…the higher the traffic of their online business, the more money they make being retired. Lol.
So, Joe Smoe sitting in a cubicle hating his job and hating more his boss….clicks on that and goes, WOW. I am going to do this. BUT most should NOT be doing this. Maybe, you know, just maybe perhaps they should take steps to actually DO get out of that shitty job! Find something they enjoy doing instead, what a concept hey!
You get a lot of that now with the market on a multi year bull run. Lets see the pain inflicted when the eventual bear market comes along and how many of these guys swear at the FIRE gurus đ
Again, the main themes of the FIRE philosophy are great indeed. Got no problem with those.
Also, what was cut, was that getting your blog to make six figures while you ride your bike around town without a care in the world…just does NOT happen without working your ass off! That comes along with possibly severe personal costs. On Friday I have a link to a post that shows all this ridiculous Instagram influencer crap that is going on…
Gotta go, free breakfast đ
Good morning!
I’m curious how sharing a Netflix password leads to a less enjoyable life….
Meant to say, I agree with most everything you say here. These people aren’t retiring, they are just building a business telling others how to do what they did. It’s complete BS. A ponzi scheme where the first to do it can probably succeed. The rest? Hosed.
But again, how does sharing a Netflix password lead to a less enjoyable life? Maybe less enjoyable for the Netflix shareholders, but who gives a shit.
The Netflix password sharing reference was in direct relation to the other WSJ article I linked to at the beginning of the article. Seattle lawyer was talking about she was way into this minimalist and extreme frugality thingie and how she was sharing the password with others…which I think it is fundamentally unethical and wrong. When we get the miles/points from the banks we do so violating nothing at all đ
And of course she had secured a book advance on a book contract she did to write about…FIRE đ
keeping it simple
spend is $100,000/yr
dead in 50 yrs
invested money is 60% VTI / 40% SWVXX
no debt, own home
how much invested money needed for 80% certainty to not go broke?
~&3M?
It can vary, you know, it depends.
Over $5 mil, assuming lifestyle is not crazy and no gambling/drugs habits, is probably the amount where you get to start not worrying so much abt dinero…
Or something like that.
Everyone is different!
Buzz-
How does that amount change if one smokes a little pot?
(Asking for a friend).
Speaker asked “who smokes pot?” and several hands went up and then smilingly all of them started putting their hands down slowly while looking around the room.
My hand was not raised. Lol.
https://nypost.com/2019/02/11/mike-tyson-smokes-huge-joint-at-weed-festival/
Given the listed criteria, yes, 50 years X $100k = $5M hiding in your mattress. Why not assume some ROI?
Very, very few will have $5M to retire on. Most will be lucky to have $1M.
Luck has nothing to do with saving 1m+.
Sure, first you need to have sufficient income. But who knows what the economy will look like in 30-50 years. Population decline will impact most western countries. China’s working age population will decrease by ~200 millions etc. Now do Japan!
There are no guarantees in life. And nobody knows when the next bank will go under. Or how the stock market will perform. Assuming the fed and China will continue to stimulate the economy for a few more decades, luck has nothing to do with it,
The hummus is phucking amazing here! Very impressed with the Diplomat Beach Resort, the Presidential Suite is great too!
Didn’t this property belong in the SPG portfolio? They left to become independent right? They did not care about being Marriott-ized? Or am I wrong?
VERY well said, Buzz, especially your reply to Nick. Canât figure out how to spend $100K/yr without a house payment (âlistenâ, above)…guess Iâm not really trying.
-itâs not what you earn itâs what you spend
-the marginal return on a 2nd income earner is far less than folks realize
-EXERCISE!!!, it lowers healthcare costs, provides endorphins & enjoyment, gets ya outta yer house, & can provide social interaction if youâre into that (note: not skiing/golf/etc. where you have to pay additional every time…
-all jokes aside, weed can be cheap and entertaining IN MODERATION, kids!
-travel to the 3rd world…using miles…youâll spend less than at home, youâll be more thankful for what you have, and youâll see happiness doesnât come from money and things
I scarily retired @46. Absolutely the 3rd best life decision Iâve ever made (hi honey, kids!)
do you know the phone number for 1-800FLOWERS?
I think there is zero revenue in a 2nd income earner. My wife has a six figure (pounds) income but knock off 45% tax, our nanny, our cleaner, travel costs, hefty clothing bills (senior female banker) and the net benefit is probably minimum wage.
Lucky that blogging is more lucrative than being a senior City banker đ