Alright folks, gather round. You are about to witness a true spectacle. While it’s not hard to get me all fired up (you like that pun? :) ) topics that implicate false realities about the good life, and what it takes to get it, make it quite easy for me to start smoking at the ears. It’s why I have such a hard time with social media- the stories told and pictures taken show bliss and beauty when in reality, life is hard. Really hard. But who wants to show pictures of that? The tough stuff?! We always want to see the after, not the before. That’s why I’m writing this article, I want to talk about what this movement is all about.
So let’s jump in, have you heard of the FIRE movement? I’m sure you’ve heard of the FYRE Festival. It was an elite music festival on a remote island that promised models, sun, and amazing music. After paying $1000’s to get there, it turned out to be tents and white bread sandwiches with no way of getting off the island. If you haven’t already, check out the Netflix documentary… it’s jaw-dropping. The creator of the FYRE Festival is going to prison for 6 years and will pay $26 million in restitution.
Ok so if we’re not talking about the worst festival vacation ever, then what’s the FIRE movement? Within the last few years, there has been increased attention towards this “movement” ever since popular bloggers like Mr. Money Mustache began talking about/implementing the lifestyle. FIRE stands for “Financially Independent Retire Early”. Well now, doesn’t that sound pretty nice?
To understand the FIRE movement, we should know what each of those terms are actually supposed to mean; because, I don’t know about you, but I have to ask: what does financially independent actually mean? Does that mean I can buy whatever I want, whenever I want? Trips to Europe, massages, clothes, cars, homes…#nbd (for my non-millennial audience that means “no big deal” #learning). “I’m financially independent, I can do what I want”. [Insert one of the chicks from Clueless doing their “whateva” hand wave]
Well, friend, after doing some research, it turns out that the technical, textbook definition of “financial independence” is making enough money to cover your expenses. Hooray! You’re financially independent! You’re living paycheck to paycheck, but you’re paying all of your bills. Therefore, you have upgraded to being financially independent. Boy am I glad I worked really hard all of these years to get there.
WHAT!? How is covering your basic expenses and paying your bills (your expenses as of the day you retire not 10 years later) considered financial independence? Don’t get me wrong; the FIRE movement is very clear about being frugal. The more you save, the better. But what does this actually look like?
Basically, living the FIRE life looks like 10+ years of #thecollegelife with no going out to dinners, buying clothes, gadgets, buying gifts for family, or traveling. Some suggest you save a whopping 75% of your income. While your other friends are traveling, buying homes, having weddings etc. you’re just hunkering down and saving towards, well, living on about the same expenses you just did for the last 10 years, but without having to work. Here’s an article that talks about a gentleman who quit at 43 and lives on $40,000/year which means trips to Cotsco and a need to be handy. Note, for some people this will never happen. Also, his wife still works.
Conceptually, this makes sense though. Earn as much as you can, and not only save that money but invest it. Eventually, you will have enough investments that you can live off of distributions from that money. Outside of potential social security payments, that is what retirement really means. Living off of savings without having to go to work. Who doesn’t want to retire as soon as possible?!
“Magda, we FIRE folks don’t actually, or necessarily, retire." Turns out most of the FIRE believers don’t retire. They either take a break and go back to work, or just work a part-time job so they can keep healthcare benefits (Note, it’s harder to get healthcare when you are a part-time employee). So… they are neither retired, nor actually financially independent, if they’re having to work a part-time job. Not only is it frustrating that the title, financially independent and retired early, is blatantly inaccurate but it also makes me wonder why people are trying to retire early. Why are so many people doing jobs they don’t like?
If you quit your high-paying job so that you can “retire early,” but then you don’t get to have any form of fun and you have to just go get another part-time job, why were you dong that high-paying job in the first place? I thought this life is about being happy? If waiting tables makes you happy, wait tables! If working in an office setting seems like death in a cubicle, don’t work there! I can only think that maybe it’s just about the stress. Working hard is hard work, it’s not always fun. There’s stress, there are challenges, but how you face those challenges can help you grow. And if you’re someone who goes back to work just so you can finally do something you’re passionate about, why weren’t we there to begin with?
Another reason that they don’t recommend actually retiring when you’re young is that when you hit your 30s and 40s, that is most likely the time when you are at some of your most expensive years. You may have a mortgage and children (talk about a money pit). They will need money for education, clothes, sports, tutoring…etc. Also, at this age, you may start to have some health scares. Even with insurance, a trip to the hospital can cost you a couple thousand dollars, if not more.
If people use financial advisors to help them retire with enough money for 30 years (retire at 60 live to 90), how is a 30 year old supposed to figure out how to save the right dollar amount to live for double that? I guess that becomes your full time job. To me, that is not independence, that’s constant fear and concentration. You will be budgeting for the rest of your life to make sure you don’t spend more than the life of your portfolio.
While the FIRE movement dates back as early as 1992, when Vicki Robin wrote a book Your Money Your Life, it’s no wonder it didn’t gain a meaningful amount of traction until recently, when we’ve been in one of the best financial markets of our lifetime. Too many millennials weren’t looking for employment during 2008, nor did they have any investments to see how it feels when your “income” drops by 40%. What happens if you don’t save enough, the nation goes through another recession, and you can’t get a job because you haven’t been working for 5-10 years? Many of you know I’m a long-term investor and I believe in the stock market. But I would never tell someone who is close to retirement, or in retirement, to take on as much risk as might be necessary to pay yourself a salary for 60 years.
There is one main study this movement uses to back most of its data: the Trinity Study. The movement uses the study’s “4% rule” which means if you keep your expenses (and therefore your withdrawals) below 4% per year, inflation adjusted 4%, you should not run out of money. What the movement does not point out is how sensitive that number is. For example, (1) the 4% rule came out of the success rate of portfolios living just 30 years (not the likely 40-60 years the average FIRE alum might need (2) If you happen to take closer to 5% (just 1% more) your money only has a 70% chance of surviving 35 years assuming you stay invested in 75% stock (which is really high for an 80 year old)
So why is the FIRE movement going to turn into the FYRE Festival?
Only the elite get access to it. You have to make well into the six figures to even dream of “retiring early”. The FIRE movers talk about frugality more because that is something everyone should be able to control but if you can’t make enough money to be able to live frugally, you won’t make it. Sometimes, those less fortunate don't have access to six-figure salaries. Oh, and not to mention, it will be much more difficult if you have any debt from student loans because then you can’t keep your expenses down. (Ironically if FIRE alums have children they likely won’t be able to pay for their college and their children will be in debt…)
It’s not the glamorous life that name and image depict. I think I made my points.
No one is going to help you get your money back. Or your life back. You may just have to find a job much later in life, which for some is more painful than just working while the rest of your friends/family are also working. Remember, this study is very sensitive to slight deviations. i.e. if you have medical issues, car issues, home issues, or get divorced that can make your expenses go up and you'll blow past your 4%…you’ll be out of money before you die.
So in conclusion, what this movement is actually saying is “make as much as you can, spend as little as you can, and don’t really ever stop working because you might need it and need healthcare”… huh, sounds kind of like what I preach every day. Turns out, I do support this movement. At least once you peal back the onion and understand what it should be saying. Let’s change the name to FLAS (Financially Literate Aggressive Savers). #trending If you’re on board with this new movement, tune in next week where I’ll gather more thoughts and steps to make this happen.