F.I.R.E. up those savings

Retire at 35 and sail away to Bali! What a plan! While this is admirable in my book it’s not very realistic for most people or even F.I.R.E. true believers. FIRE means financial independence retire early.

One guy I read about saved $930K in ten years on income of $75K. Real nice return if you can get it. How did he do it? He saved up to 80% of his after tax income. Woah!

  • The guy lived with mom and pops to save on rent. I don’t know about you but I was given a suitcase for Christmas before my eighteenth birthday. The message was “When Fall comes thou shalt be gone!” Living at home post graduation wasn’t an option or even during most summers in school. Sure it’s easy to save money if one isn’t paying $1200 to $3000 per month or more in rent or mortgage. I too could save 65% of my income without paying a mortgage and property taxes. If you have lots of student loans having roommates or living at home is a great idea to cut costs while you get back on your feet. However if you have no loans well..you can’t mooch off mom and pops forever. The guy likely also ate at home on their meal plan. That’s more savings to the bottom line.
  • The guy doesn’t have kids. As you all know kids are expensive. Just look at the cost of daycare. We are talking $1200 and up per month per kid where I live. Then there’s food, diapers, clothes, strollers, trips to grandmas etc. So two kids is easily $2400 per month after tax.
  • He didn’t seem to be married, in a relationship or be dating. Sure if you stay home, never hit the pubs and don’t meet dates it will be cheap. But what kind of life is that?
    • Guy: Hey let’s meet at McDonald’s for the date as I have some extra value meal coupons!
    • Woman: I was thinking Corner French Bistro and wine. No thanks Mr. Cheapo!
  • He had no student loans. How realistic is that in today’s environment? I graduated with $40K in debt from a flagship state university and that was years ago. If I attended the private schools I was admitted to it would have been closer to $120K.  I bet many kids now graduate with $65-$80K in non-dishargeable debt.
  • The guy invested in the markets which rose tremendously from 2009 to now. From the low of the recession to now the market increased by a factor of 2X or 2.5X depending on what you got into. Future returns won’t be like this unless we have another major recession. This is all timing baby.
  • He bought property after the financial crisis when NINJA loans (no income, no job, no assets) were prevalent and foreclosures abound. Prices were low and houses a plenty. In my area prices have risen over 45% since the low. The luck of timing again.

So I don’t mean to put the gentleman down but he was very lucky. As they say it was a sunny day and he had the wind at his back! He was in the right place at the right time and was able to save 70-80% of his paycheck after tax. That’s admirable but not realistic for most of us.

What the F.I.R.E. guy did well that you can learn from

He minimized his expenses to maximize his cash available for investment. In reality 25%-35% post tax savings is good if you have a mortgage, kids, family and a spouse. If you are single 30% to 50% will be a very good. Keep in mind this is separate from retirement, which is pre-tax for 401K and IRAs.

He didn’t spend on frivolous things, but unless you want to me miserable miser you have to enjoy life a bit too. It’s too short to not enjoy when you are young. Go on dates, get married, have a family and go see new places. You can’t really go to the club when you are 50 anyways and dating at that age might be infested with bitter divorcees and people with kids tow. Nope!

He saved a lot for retirement. Great. I recommend everyone try to max out their 401Ks every year for the tax benefits. If you have the money to spare put more in a Roth or traditional IRA do it. If you have kids and pay for daycare the savings beyond 401K may not be feasible.

He invested in stocks and low cost index funds! Yes, way to go. I recommend this too. Buy when there is blood in the streets even if it is yours.

The guy bought a house and lived in it. Yes! I also recommend this. Don’t waste your cash on rent if you don’t have to. Build equity as soon as you can.

So while what these FIRE guys are doing is admirable it won’t work for many people fully. You want to have a life right? You could be dead next year from some weird disease or die in a car accident. Don’t think it won’t happen to you!

So the key to keeping your sanity is living within moderation.

  • Do be frugal
  • Do buy a house
  • Do have save 15% or 20% for retirement
  • Do try to save 25% -40% of your after tax income or more to invest outside of retirement
  • Do buy a rental property down the line

But also enjoy life as it is short and fleeting. I know people who I went to high school with who are now dead before their 40s. They didn’t die from hard living of drugs and booze like guys in an 80s heavy metal band.  They didn’t die of opiod addiction either. Some died from diseases like cancer at a young age.

Why retiring too early is bad news financially ie at 35 even if you can

  1. You might run out of money! You have to plan very carefully and hope nothing goes wrong medically or financially. If you retire at 35 and you need to be in retirement for 50+ years.
  2. You might get bored. All your friends and relatives will be at work. What do you plan to do all day? Remember you are on a very limited budget so you won’t be living the high life riding jet skis with celebrities in Mallorca or St Tropez.
  3. You might lose your sense of identity. Many people’s identity is tied to their job.
  4. Get ready to explain to what you do for a living. What will you talk to people about? Will you become socially isolated?
  5. You will have to buy your own healthcare that is very expensive, especially as you get older in America. There will be no employer subsidy.
  6. You will have to live frugally for a long, long time. That will be stressful.
  7. If you run out of money you will need to go back to work! Who is going to hire you after you haven’t worked for 10 to 20 years? Uber?McD? Wal-Mart? Forget about going to the career you had before.
  8. You won’t be contributing to social security so you won’t be able to withdraw much either. I don’t think SS is going to pay a ton but hey $1200 to $2000 per month may be real nice when those checks arrive in your old age.
  9. If you have kids you will need to pay for college. Given costs are increasing at 5% that won’t be good. Also on the FAFSA they ask how much money you have. You will have to have saved for in a college savings plan before you retire.
  10. You may have to move to a cheaper place to make funds stretch out. Hello Nebraska! Hello Costa Rica, Mexico or Panama. Many of these cheap countries will be developing countries. If you’ve ever been to a developing country or two you will understand why some people leave those places to move to a developed country.
  11. What if investment returns come in lower than you planned, much lower?
    • Everyone plans on 10% gains compounded year over year. Many non-finance types don’t really understand variability of returns. One needs to run multiple scenarios as various rates of return.
    • When all those baby boomers start retiring in droves they will need to sell stocks to get money. That will put tremendous pressure on prices and thus returns.  There are a lot of those old guys and girls. There aren’t that many buyers with lots of cash given everyone else is paying off student loans, $50K SUVs and expensive houses. Supply and demand baby. Prices will drop and returns will suffer for some time.
    • Asset bubbles may pop too in housing and real estate once the boomers sell to move into to all those memory care centers they seem to be building on every other corner.
    • Long time horizons are a danger investment planning as any finance person worth their tuition dollars will tell you.
    • One needs a diversified set of revenue streams not just one nest egg.

So in summary I admire the F.I.R.E. crowd. The have gumption and we can learn from them. I find their ability to save money great but I don’t have a lot of admiration for lonely misers or extreme frugality as it is not sustainable over many years.

If they are so unhappy with their careers why not change to one they enjoy more and keep working? I don’t mean being a blogger either (this pays zero). Change from finance to marketing or operations,  or work for a lower pressure employer than a Fortune 500 company where you can make a difference. If you dread going to work you are either in the wrong line of work or at the wrong company. Switch! It’s a marathon not a sprint! Find that balance that keeps you going. Yes, do save tons for retirement but don’t retire too early as it is very risky not having multiple revenue streams.

In my view a FIRE life is not a life over the long run. Living like a hermit with no family, kids, dates or pub nights isn’t life. As the UK movie Trainspotting said at the end….

Choose life.
Choose a job.
Choose a career.
Choose a family,

Choose a fucking big television
Choose washing machines, cars,
Compact disc players, and electrical tin openers.
Choose good health, low cholesterol

And dental insurance.
Choose fixed-interest mortgage repayments.
Choose a starter home.
Choose your friends.

Choose leisure wear and matching luggage.
Choose a three piece suite on hire purchase
In a range of fucking fabrics.
Choose DIY and wondering who you

Are on a Sunday morning.
Choose sitting on that couch watching mind-numbing
Sprit-crushing ga me shows
Stuffing fucking junk food into your mouth.

Choose rotting away at the end of it all,
Pishing you last in a miserable home
Nothing more than an embarrassment to the selfish,
Fucked-up brats you have spawned to replace yourself.
Choose your future. Choose life.

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