Everything Wrong with FIRE
Who wouldn’t dream of retiring at 40?
FIRE stands for Financial Independence, Retire Early. It is a movement that aims at promoting a very unusual life plan: save at least 50% of your income and invest it in low cost index funds (usually a 60/40 mix of stocks and bonds) until your nest egg reaches around 25 times your early expenses. Then quit your job and keep the same lifestyle (understand: keep your spending constant) while withdrawing the money you need for your expenses from the portfolio. How much you withdraw is set during the first year of “retirement” and only gets adjusted for inflation (in other words: the performance of your portfolio doesn’t impact how much you withdraw). Simple enough, right?
Now, I should probably say that I don’t think pursuing FIRE is wrong. If people happen to be in a situation where retiring early is possible for them, and that’s what they want, that’s great. But too often, people restrict their life plan to either: “work for 40 years while not worrying about finances and spending, then retire for 20 years” – the so-called classical life plan. Or FIRE, which could be summarised as “work for 20 years while saving and investing everything that’s not absolutely essential and then do nothing productive for 40 years”. But there are “in-betweens” which are not often discussed.
We all know why the classical life plan sucks: no freedom, no family time, no time for hobbies. This doesn’t need a demonstration. But what in the world is wrong with FIRE?
Well, let’s start with some math. How early is Early Retirement? That depends on your saving rate as well as the performances of the stock market. With a saving rate of 50% and assuming conservative investment returns, you may reach Financial Independence in 17 years. But if you manage to save and invest 80% of your income, you might get there after 5 and a half years.
That sounds enticing doesn’t it? Who wouldn’t want to retire at 40? Or even better: at 30?
The critics of FIRE usually revolve around two things:
- 25 times your yearly expenses isn’t enough. You need at least 30/35/50 times. Proof: if you had retired in 1929 or 1968 or some other terrible year, 25 times wouldn’t have been enough.
- You will get bored if you stop working. Or you will get scared and go back to work anyway. Or life will happen to you (sickness, divorce, etc.) and you will go back to work.
I find both critics ludicrous but I’m not a FIRE advocate so I’ll leave that to someone else to address them.
I have another critic: I think that the whole life plan is wrong. Or let’s put it this way: it’s wrong for most people.
The four sins of FIRE
First: Having a saving rate of 50% is out of reach for most people in Switzerland. It’s not impossible though: it is very achievable for single high performers maintaining a very frugal lifestyle or for couples with decent salaries and either no kids or access to cheap childcare (think grandparents). But that’s not most people.
Second: It encourages people to keep jobs they don’t like for a non-negligible amount of time. Why do I say assume that they don’t like their job? Because they wouldn’t want to quit otherwise. They wouldn’t make it a life goal to quit as early as possible. Assuming that a family is able to get the 50% saving rate, it’s still 17 years. That’s better than 40 years but it’s still quite a long time.
Third: It encourages people to make money a goal. Don’t get me wrong: money is important; you should definitely care about money. But money is a tool, not a goal. Sometimes, FIRE followers are so focused on their money target that they forget to live.
Fourth: it encourages people to be greedy. If the aim is to save as much money as possible as fast as possible, then it makes sense to spend as little as possible. It makes people deny themselves objects or experiences that would improve their well-being. It also makes donating any money a very contra productive enterprise (all the money you donate is that much money that won’t be invested). I’m not saying that everyone who is a FIRE follower is greedy. I’m sure that there are very generous people in the community. But the philosophy doesn’t support generosity, to say the least.
If I had to put it all together, here it is: FIRE encourages people to live a life they don’t like for too long.
“Yes, but after those years, I’ll finally be free to do whatever I want!”
But why are you waiting 17 years to start doing what you want to do?
Wanna know something funny? Most “early retired” folks keep working after retirement. Granted: it’s usually a different activity on their own terms. But they are still earning an income. Famous FIRE guru Mister Money Moustache earns mid 6-figures through his blog and manages a coworking space with another early retired: Mister 1500 days. Both manage real estate as well. Not because they have to but because they want to.
The internet retirement police will say: “See, they are not really retired! They are not doing what they are preaching!”. But not me. I say: why have they waited so long to actually do that? Why did they grind for 10 years or longer at a job they didn’t like?
If you’re a high earner (and therefore a prime candidate for FIRE) chances are that you’re high in the personality trait conscientiousness because conscientiousness is a good predictor of career success. Conscientious people enjoy working. Or put differently: they don’t enjoy not working. So, whether or not they need an income, they will work. Retired or not retired, they will work. And work usually brings income. So why go through the trouble of working a job you don’t like for 17 years just to start a new “job” once “retired”? Why not going for that new “job” sooner?
I don’t get why people have this “all or nothing” mentality. It seems to be either: I get to paint full time or I can’t paint at all (if your dream is painting). But there is an in-between. And that’s working part-time. 80 or 60% for instance. That’s one or two days a week during which you can paint. And see if you actually like it! Because that’s not obvious either. Sometimes we think we will like something until we actually get to do it without bounds. I’m convinced that most people with artistic skills wouldn’t enjoy exercising those talents full time. Or maybe they would for 6 months. One or two days a week is usually more than enough for any hobby.
The advantages are:
- You’re not stuck 42 hours per week, 48 weeks per year, for 20 years at a job you hate.
- You can start to live the life you want right now, while you’re still young, full of ideas and energy.
- You don’t have to stress about having enough money for actual retirement (that is when you will be physically or mentally incapable to work)
- You can be generous with your money (because money isn’t your main goal in life) and with your time (because you’re only working part-time).
- You don’t have to feel guilty about spending money, because spending more doesn’t mean living a life you hate for longer than you need to.
“But Yann, my job doesn’t allow me to work part-time!”
Are you married to your job? Did you swear to keep it for better and worse, through sickness and health? GET ANOTHER ONE. One that does allow you to work part-time. There is a public sector equivalent to most jobs and they usually offer the possibility to go part-time.
“But Yann, I hate my job so much that I couldn’t stand to work there for 40 years, even part-time!”
Well, there is still the option to get another job. But what makes you so sure that you would still hate your job if you worked part-time? Maybe the reason you hate it so much is that it takes all your time and energy. Maybe less of it would make it bearable.
“But Yann, I really need to do painting/running/crossword-puzzling full time!”
Well, if that’s the case, maybe you should pursue FIRE. Or maybe you could try to get paid for what you do.
I deeply understand the motivation behind FIRE. I’ve read all the blogs and the forums; I’m even semi-active in the swiss FIRE community. And for some people, it’s the way to go. They might be high earners, not particularly conscientious, and they just wish they could do whatever: reading, playing video games, hiking, etc. without having to worry about a boss or an income. They want freedom above all. And if that’s you, then more power to you.
But my bet is that, if you managed to be smart and hard-working enough to save 25 times your early expenses by the time you’re 30 or 40, you will also bring an income when you’re retired. Maybe not right away. Maybe you will chill for a few years. But at some point, you will be bubbling with ideas and at least one of those ideas will be profitable. That’s part of who you are. My guess is that you’re overly conservative by assuming that you will have to derive 100% of your income from your portfolio in early retirement. And you pay for that conservatism by working long years at a job you dislike.
You can still be OK for actual retirement by saving way less than the FIRE standards if you invest money wisely during the first few years of your career during which you don’t have a choice but to work full-time. Sometimes, 10% for 10 or 15 years is enough.
It doesn’t have to be all or nothing. You don’t have to wait to get 2 million in the bank before you experience freedom. Start now. Stop working that job you hate so much. And do what you actually want to do with your life.