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The ‘radical saving’ trend is based on fantasy

How plausible is retiring at 35?

For as much as people have complained about the astonishingly low savings rate in the US, nobody has done much about it. But now there is a new movement called “Fire,” which stands for “Financial Independence, Retire Early” that encourages people to do just that. It has turned out to be surprisingly controversial.

The Fire folks say you should engage in “radical saving” during the early part of your career — about 50% of your paycheque — until about age 35 or 40, at which point that is pretty much the end of your career because you can then retire. The Fire folks have done the math and figured out that if you save that 50% and invest it in the stock market, using generous actuarial assumptions, that pile of money will grow even as you sell assets over time to finance consumption. The goal is for you to bounce the last check you write.

This brings up a whole bunch of interesting philosophical questions:

What is the point of saving? Most people save now because they want to consume later. But the Fire folks don’t want people to consume. For the Fire folks, the point of saving is simply not to have to work. To give you the freedom to do whatever you desire over the last 50 years of your life.

Trouble is, the freedom to do anything you want isn’t much fun when you’re hemmed in by a microscopic budget. What is wrong with consumption? Not consuming is an end in itself. Personally, I like to consume. I like nice clothes, nice jewelry and going out to nice dinners. I, too, am a radical saver, but the point of my saving isn’t so I don’t have to work, it’s so I can consume more later. Savings is just a big pile of opportunities, and someday I might come across a house or a car or something I really want and the money will be there.

What is wrong with working? Why do the Fire people dislike working so much that they want to quit at age 35? Working gives people purpose. This is my primary difficulty with universal basic income schemes: most people do not function well with a bunch of unstructured free time. I have had unpleasant jobs, and even working an unpleasant job is preferable to not working at all. I am one of these people who thinks there is dignity in working, that every job is important no matter how small.

If you poke at the Fire people with these criticisms, such as your standard of living will drop during retirement, they will typically respond that it is possible to have a high standard of living under these constraints, but it just isn’t true. I know how to operate Microsoft Excel just as well as they do and the numbers don’t add up. Life is full of trade-offs. If you don’t want to work a full career, you will generally have to consume less. If consumption is somehow tied to happiness, then you will not have much happiness. Of course, the core of the Fire movement (and the tiny house movement) is that consumption is not tied to happiness, but that doesn’t exactly jibe with the historical record.

The biggest issue with the Fire movement is that it’s the ultimate bull market phenomenon. Fire seems to work because the stock market has gone straight up. A bear market will change that. Even if stocks do return 8% to 12% over time, it’s not going to be any fun living on a shoestring budget and watching your nest egg decline in value by 30% to 50%. That will be the point in time in which most Fire adherents get online and start looking at job ads. Of course, after a decade or more of being on the sidelines, they aren’t going to be very employable.

Personal finance guru Suze Orman was criticised as being elitist and out-of-touch for suggesting that you might need $5 million to $10 million to retire at 35. But she’s not wrong under her framework, which is that in retirement, you want to live well, not poorly. If you don’t have the ability to fly first class once in a while, you have probably done something wrong.

There are positive aspects to the Fire movement. It has got people thinking about saving and long-term investing in a productive, positive way. That definitely is not a bad thing, but saving and investing should be for the purpose of future consumption or for charitable contributions, not so you don’t have to set your alarm clock.

© 2018 Bloomberg L.P

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Wow there’s a bunch of rubbish in this article:
Firstly the goal of someone who FIRE’s isn’t to bounce the last check you write, the generally accepted 4% withdrawal rate rule will more likely leave you dying many times wealthier than when you retired.

Fire folks also aren’t anti-consumption, but rather anti-consumerism, that mindless form of wasteful consumption that does nothing more than fill your house with items to catch dust, fill the oceans with plastic and do absolutely nothing for long term happiness.

We’re most definitely not going to live hamstrung by a microscopic budget. Most aim to live as comfortably as they live now at least, some to live more comfortably. If you can reach financial independence at 40 where you can live on just investments, even just working to 45 will leave you with a massive increase in spending ability. Very often far more than your working peers of the same age could spend.

Many people have horrible jobs, others, myself included, have jobs we love. But in both cases, you’ll be amazed at how much more enjoyable work becomes when you have FU money (https://investorchallenge.co.za/f-you-money/). You get to choose exactly what you want to do with your time, who you want to benefit from it, and when you’re feeling a little burnt out you can take a temporary or even permanent sabbatical to recharge.

The end of the bull market would be a blessing to most aiming for FIRE. Many people greatly improved their financial situation by working and investing through the +- 50% 2008 crash. Even if you FIRE just before the next crash, you’ll be happy to know that the 4% rule even worked for those retiring just before the 90% great depression crash.

“if you save that 50% and invest it in the stock market, using generous actuarial assumptions” … well I stopped reading after that.

Visions of crystal balls, Rich Dad Poor Dad and other prophets of financial independence came to mind and I moved on ….

Thought-provoking, but then at same time one come across many well-known super-wealthy people (across the globe) that’s still actively “working” or involved in their business empires, despite having a few billion-dollar balance sheet.

They don’t want to retire (for various reasons, sense of usefulness,etc.) but can easily retire. Why should you or me be told to retire?

Perhaps the concept of ‘retirement’ was invented for the middle class. The poor and lower-middle class simply cannot afford to retire…they’ll have to work until death. The middle and upper-middle class retire. The super wealthy still attend to their businesses & don’t want to retire…too afraid of being labeled “of no use anymore”(?)

Interesting opinion piece. There are a couple of clear errors in trying to understand the FIRE philosophy, but I suppose the point is to provoke discussion. To that end, I will happily oblige.

The FIRE philosophy isn’t to stop working. It is to stop HAVING to work. Subtle, but crucial difference. I wish I thought of this a lot earlier in my life. Between the bond, car and personal loan for “stuff”, I’m going to be stuck for at least another 10 years, but the decision has been made to escape the debt and work (like a sheep) trap.
The knowledge however that you don’t HAVE to work will truly make your work life sooo much better as well as provide you with so many more opportunities going forward.

Furthermore, a bear market won’t only impact FIRE “retirees”. It will impact ALL people in retirement or people invested in the market. I understand what was trying to be said, but the argument of a bear market negatively impacting the situation just isn’t that much of an issue (especially if you follow the 4% rule).

Finally, the FIRE movement is about a shoestring budget while you are young. Also, “shoestring” is subjective. Just because the opinion giver likes expensive stuff doesn’t mean that I can’t have the same stuff, just cheaper.

Just my opinion on this.

Gee whizz!! If one really want to provoke discussion, surely the author can come up with a better constructed argument! In the end it comes down to individual choices which consequences one has to live with and be happy with. If flying 1st class once in your lifetime makes you happy, so be it, but do not hammer people who are not in the least interested in flying first class as they can use the saving on their ticket to experience memories more valuable to them. FIRE teaches you to manage money and not be managed by money…. as simple as that!

I think living on a shoestring budget is a small trade-off for having all the time in the world.

The big takeaway from the FIRE is Get out of debt and leave on less than you make. Wether you fly business class or live like a church mouse after that is relative. That’s a question of ratios (Panamera or Fiesta). When I finally became debt free, I took a 4 months break. It was the best “leave” time ever. “Freely” going back to work is wonderful, because now I can maximize my career, without fear.

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