Welcome to Saving Money with Andrew!
In Your Neighbors Are Retiring in Their 30s. Why Can’t You?, the NYT takes on the FIRE movement. For those who don’t know, “FIRE” stands for “Financial Independence Retire Early”, or the idea of aggressively saving to be able to retire long before others.
FIRE generally means reaching a target level of savings/investments (e.g., $1 million) that would allow someone to live indefinitely, albeit modestly, at a certain hypothetical safe withdrawal rate (e.g., 3.5%, or $35,000/year). FIRE has many variations, including LeanFIRE (achieving FIRE by living extremely frugally) to FatFIRE (saving up so much that one could live an extravagant lifestyle indefinitely). But the core idea of FIRE is that once someone reaches their “number”, they stop working entirely.
Achieving FIRE is exceedingly difficult. Amassing enough money to live for decades without outside income is impossible for most people, or may require difficult sacrifices, including moving to a low-cost of living area and living on a tight budget.
I’ve had mixed feelings about the FIRE movement for a long time:
The Good
At its best, FIRE forces us to reconsider our spending habits. Many of us live on a kind of financial autopilot, with our spending scaling with our income. But making steady progress toward FIRE forces people to aggressively track (and cut) spending and decide what is truly essential.
Even if FIRE isn’t a practical goal, thinking about retirement and long-term savings is a good thing at any age, and it can put you on a conservative path that will serve you well, even if you retire at a normal age.
FIRE is also refreshingly contrarian in a society that highly values financial success and outward displays of wealth.
The Bad
FIRE is simply not feasible for most people, and many of its assumptions rely on faulty math, unrealistic expectations, and ignoring increasing cost of living. Using some rough math, building a level of savings necessary to support a modest $50,000 per year of living expenses with an indefinite 3.5% withdrawal rate would require building savings of nearly $1.5 million, unreachable for most people.
It’s quite telling that the main subject of the NYTimes article achieved FIRE not through years of dedicated savings, but instead via an app that earned over $250,000 per month of revenue. Many others achieve FIRE through working in very highly paid occupations, or through receiving financial windfalls (e.g., a large inheritance).
In particular, I don’t understand how one subject of the NYT article could have possibly reached FIRE at the age of 49 by saving 40% of their “five-figure salary”, reaching $1.3 million savings within years of learning about the movement. Similarly, the author’s calculations of how long it would take to achieve FIRE seem to ignore taxes (a major omission!).
And achieving FIRE is likely to bring its own set of challenges. For those retiring in their 40’s or 50’s, how will you spend the remaining decades of your life? Without a job, one could easily go adrift and struggle to find a sense of purpose. Notably, the NYT article’s main subject retired in his mid-30’s and spends his days playing pickleball and talking about FIRE online.
What do you think about FIRE? I’d love to hear from you.
And now, Andrew’s pick(s) of the week:
Sneaky Sasquatch is one of the most fascinating mobile games I’ve ever played. It’s complex enough to be challenging for an adult, but easy enough for a five year old to play. Educational value is…minimal…but at least it’s inspiring my younger son to improve his reading so he can follow the dialogue.
Unfortunately, it’s Apple Arcade-only, but if you or your kids play mobile games, Arcade is a terrific deal. More details on our family tech setup in Kid-Friendly Tech Setups - A Post For Families on What's Worth Paying For.
Also:
Desperate for Workers but Dead Set Against Migrant Labor: The West Virginia Dilemma
Not Lost in a Book: Why the “decline by 9” in kids pleasure reading is getting more pronounced, year after year (via: The Browser)
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
Hey Andrew, my notes got so long :D
FIRE is not for everyone since it takes a kind of mentality/personality but it is not inaccessible. There are several reddit threads of people having achieved it at different income levels. I give 3 references that are math and research oriented.
1. Spx investing returns. If you started during the top of dotcom bubble saving $1000 a month today you should have $1.2 million
https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/
2. There are many bloggers in this space but Mr. MM is patient and calm:
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
https://www.mrmoneymustache.com/2018/10/05/the-fire-movement/
https://www.mrmoneymustache.com/2018/04/10/hacking-hedonic-adaptation/
Important to know - Hedonistic adaption and law of diminishing marginal utility are real and not easy to be conscious about.
3. An old classic written by an economics professor and a good read
The Millionaire Next Door: The Surprising Secrets of America's Wealthy https://g.co/kgs/9Yur77E
Also easy read
Quit Like a Millionaire: No Gimmicks, Luck, Or Trust Fund Required https://g.co/kgs/kTps8FY
P.S. - 1. what do you do after FI? if job's your purpose continue it - coastFI.
Or America is built on innovation, take a risk now, knowing your family will be fine financially.
2. Taxes become less important- remember there are 401k, HSA, FSA, home, childcare deductions maxing out would do at least $30,000 ($2500 per month) savings tax free every year. From the calculator above it says if you started at the peak of 2007 recession you still would have $1.6 million now.
And during withdrawal there is Roth conversions.