The unforeseen downfalls of the FIRE movement
August 26th, 2021 by D.C. Poc
The Financial Independence, Retire Early movement, also known as ‘FIRE’, is exactly what it sounds like. Earn as much money as quickly as possible so you can pull the plug and stop working for “the man” as soon as possible. For many, their goal is to retire as early as their thirties. Personally, I think this is utterly ridiculous and continue reading to learn why!
The biggest thing the FIRE crowd seems to forget is that if they retire at 35, there is a very high probability that their peers are all working 9-5 jobs. So while they’re working, what exactly are you doing? I’ll fully admit that I don’t enjoy my job 100% of the time, and I think that can be said for virtually anyone. But what I do enjoy is the opportunity to get out of the house, work toward something good on a daily basis, and have strong personal interactions with my co-workers. Without this, I’m not sure how I would feel.
Try to step back and think of how many stories you have because of your career. Whether they be funny, sad, or absolutely terrifying, you have those stories and they were vital moments in your life. Can you live without those? I can’t.
So before pulling the plug and handing your employer a resignation letter you can’t take back, think about how this would actually look for you from a social standpoint.
Time is not on your side
For most people, time is on their side when it comes to retirement planning. Right now, I’m 34 years old. I am planning on retiring at 57. I have 23 more years of work to continue saving at a very high rate. Because of this, I am aiming to have $6MM liquid by the time of my retirement. This is in addition to pension checks, social security, rental income, etc. Once I’m 57, I’ll presumably have 25-30 years of life remaining. At a safe withdrawal rate (SWR) of 4%, which will last the remainder of my life, I’ll be able to have about $240k a year in income.
If I decide to retire at 40, this math no longer works the same. Let’s say I have $1.5 million at 40, and decide to retire immediately.
My first issue is that a good portion of that money is in retirement accounts which have early withdrawal penalties prior to age 59.5. So I can still access the money, but would be required to pay a 10% penalty on top of income taxes (not applicable for Roth accounts).
My second issue would be time. Yes, that’s right, time. If I retire at 57 time is on my side, but not so much at 35. I would have $1.5MM to last approximately 50 years. If I take the 10% penalty off of the $1.5MM that’s a present value of $1.35MM, and at a 4% SWR, this would leave $54k a year in income. The issue is that 4% may not be a SWR for 50 years’ time. So let’s use 2% instead. This is $27k in income. Do you think you can live off of $27k for the rest of your life? If the market took a 3 year slump, it would virtually destroy your plan. If your plan is that easily destroyed, it’s not a good plan.
You don’t know what you don’t know
This is the hardest part of the entire FIRE equation. How can you possibly predict the future? I’m confident that my retirement plan will work because I’m saving a ton of money, will work into my late 50’s, will have health insurance, two pension checks, rental income, and social security as a fallback. All of this added together gives me a high level of confidence for success.
- If you retire at 35 and get diagnosed with cancer at 40 how does this impact your plan? Actually, how are you affording health insurance in the first place?
- What if the market loses 20% in a year. Can your savings withstand this?
- Your spouse decides to leave you. Now instead of having a partner in crime for emotional support, you’re alone and not working. Does your plan survive this? Oh yeah, you also have to split the funds 50/50 with your ex-spouse. Does this impact your SWR?
- Major unexpected expenses come up - your hot water heater and HVAC break in the same year, or your property taxes dramatically increase, or your roof leaks due to a hurricane and you need to pay the “named storm deductible” that some policies have (you may want to look into this). Can your plan weather this storm?
- Your friends are constantly hustling, making more money and getting further and further ahead in their careers. They buy new houses, boats, sports cars, etc. They take Disney cruises and luxurious vacations. Can you watch this occur and be okay with it?
My point is simple - can your plan weather the myriad of unknown setbacks that are likely going to happen at some point? You should know the answer to this before FIREing prematurely.
I often hear catch phrases from the FIRE movement that don’t make a ton of sense to me.
- If I need to, I can go back to work. Well, yes, you can. But what if you’ve been out for 5 years and have lost the necessary skills to succeed? And why would you want to go back? Wasn’t the point of FIRE to stop working!!! Additionally, what if your FIRE plan works for 20 years, but not 50. Now you’ve aged out of the workforce and may have ZERO relevant skills. Not a situation you want to be in.
- As long as my house is paid off, I can withstand anything else that comes up. Well, not entirely. In fact, my retirement plan doesn’t even have a paid off house as a stipulation. Rather, it’s completely irrelevant to my plan. Don’t think this is foolproof.
- The FIRE crowd are living their best life at the yacht club while I’m working for the man for the rest of my life. FALSE. There are a few examples of people who have absolutely killed the FIRE concept. There are also stories of complete failures that any aspiring FIRE candidate should know about.
Don’t let some crafty salespeople with blogs push you into an early retirement. Heck, don’t let me push you out of it. Rather, do your own research and make sure your plan adequately accounts for all of the different variables.
Financial Independence (FI)
It would be unfair if I threw the baby out with the bathwater. I’m a clear proponent of the FI movement. FI means you technically don’t need to work, but won’t necessarily be retiring early.
I cannot wait for this day. I can imagine the feeling of FI is completely liberating and will be great for one's psyche. Regardless of this, I’m not going to let it change my plan. I have a clear goal of retirement at 57 while my wife will hang it up around 52-54, and there is no reason to change that right now. I’m going to keep my head down and continue the grind, hopefully forging some future Wealthy Idiots along the way!
Financial Independence (FI), Retirement, Financial Planning, Personal Finance, Financial Independence, Retire Early (FIRE)
D.C. joined the Marine Corps right out of high school. When he left active duty, after 5 years of service, he quickly earned a bachelors degree and an MBA. He got his first private sector job at a modest salary and quickly worked his way up through promotions. Once he started making decent money ($38k at the time) he quickly realized he needed to learn how to save to secure his future. After nearly ten years of research, he wants to share his knowledge and financial best practices so more people can become Wealthy Idiots!