[FIRE week continues here at WCI, where we celebrate all things Financial Independence, Retire Early-related, including the Physician on FIRE blog. Every post this week is going to be about topics relevant to the FIRE community.]
By Dr. Leif Dahleen of Physician on Fire, WCI Network Partner
This is wonderful.
Realizing that I could afford to live the rest of my life in a different manner was life-changing, and I want more people to benefit from that message. I started a site of my own to help other people like me realize that they don’t actually need $10 million to retire comfortably, and I’m grateful for the help from websites, magazines, and newspapers that get more views in a single day than my site will in a year.
It’s great that more people are learning about what it means to be financially independent. Daily commuters are discovering that it might be possible to stop commuting decades earlier than imagined.
However, too often, readers are turned off after only a few paragraphs—or even a few sentences. Take the opening lines of this 2018 Wall Street Journal article, entitled “The New Retirement Plan: Save Almost Everything, Spend Virtually Nothing.” That is if you haven’t already rejected the concept based on the title alone.
“Sylvia Hall wants to retire at age 40. Her dream has a price: brown bananas. The 38-year-old Seattle lawyer is on a strict budget as she tries to hit her goal of amassing $2 million in assets by 2020. That means saving about 70% of her after-tax income and setting firm spending limits in every part of her life.”
Firm spending limits.
If this is my first exposure to the concept of financial independence, I’d say it’s for the birds. The birds that are cool with mushy, brown bananas.
No, thank you.
Mainstream Media Misses the Mark on the FIRE Movement
The articles I read in the New York Times, Wall Street Journal, Bloomberg, and other highly regarded sources tend to repeat the same themes. They highlight drastic measures made to decrease spending as if extreme frugality is the only way to find financial freedom. Potential risks are emphasized as though early retirees have never considered them. The benefits of a life less ordinary are paired with a gigantic asterisk. Important details are left out. When the public realizes that the person profiled still earns an income or is married to a high-earning spouse, they rightfully feel deceived.
The wrong people are being profiled. Some effort needs to be made to find retired individuals or couples whose lifestyles are not at least partially funded by active or spousal income.
Straw man arguments are set up and quickly knocked down. Numbers are fudged. Facts are glossed over.
I see a bevy of problems throughout these articles. I’ll attempt to address them one by one, and I will suggest how mainstream media articles could be improved.
We Are Very Different People
The articles tend to highlight how we behave differently than the average person, but they don’t do as good of a job demonstrating how different FIRE bloggers and aspiring early retirees are from one another.
We are men and women in our 20s, 30s, 40s, and 50s. Some are married; some are single. Some have no kids; others have five. Many earn generous incomes, but some choose to earn less. Some can’t wait to retire ASAP, and others hope to attain financial independence and never stop working.
Different things make us tick, and we plan different budgets to keep ourselves happy. There’s the extreme of Early Retirement Extreme, the fatFIRE budgets that many of my readers plan to have, and everything in between.
We come in different colors, shapes, and sizes from all around the world. The WSJ article laudably led with a female minority but focused on her extremely frugal nature, when her goal of $2 million should support spending of up to about $80,000 a year—which is not exactly a barebones lifestyle, especially for one individual. It’s significantly more than most households earn or spend, with or without the brown bananas.
For the record, I don’t have a problem with brown bananas. There are uses for them; I love banana bread! I just don’t seek out brown bananas or buy them that way.
We Are Not All Frugal
To retire decades earlier than our counterparts, we do need to save a much higher percentage of our incomes. Live on half of what you bring home, and you can go from broke to financially independent in about 15 years, depending on market conditions.
A high savings rate can be achieved in one of two ways: spending less or earning more (or a combination of both). A blue-collar job may require some serious sacrifices in the spending department. Conversely, a high-income job may allow for a generous six-figure budget while still saving most of one income. If there is a second income in the mix, economies of scale can make high savings rates even more feasible without budgeting or perceived sacrifice.
I reached financial independence with a stay-at-home spouse, two kids, and no specific goal or knowledge of the concept. Compared to the average American, I lived pretty well. But compared to the average anesthesiologist, I spent quite a bit less. We have been relatively frugal but only in relation to other physician families.
We Recognize the Risks
Risk is inherent in everything we do. In one normal day, I risked slipping in the shower, crashing my car, being sued for medical malpractice, and slicing or burning my hands. In other words, I got up, showered, went to work, did my job, came home, and made dinner for my family.
These calculated risks are a part of our everyday lives. I’m not paralyzed by the fear that something could go terribly wrong at any moment, but I realize that not everything will always go according to plan.
The same is true of those taking a chance on an early retirement.
If blindly abiding by the 4% rule of thumb, there’s a chance they’ll run out of money in about 30 years. If the day they retire matches the worst 3% of times to retire in modern history and they make no adjustments (like spending less or earning something), the odds are good that the money won’t last.
There’s also the risk that the future will look worse than at any time in the last century. There is the risk of catastrophic unforeseen events.
How do we protect ourselves? We ensure against the things we can’t easily pay for or afford to replace. We consider working one more year or several more years to build a larger safety cushion. Some of us plan for a budget well above our current level of spending or look for “fluff” in the current budget that we know we could cut out. We know how we could take advantage of geographic arbitrage in lower cost of living areas.
We recognize other risks. The risks associated with a sedentary lifestyle sitting in a cubicle. The damage that a stressful job can do to our hearts and minds. The risk of not being available when our kids need us most. The risk of running out of time to pursue the passions we hold outside of the workplace.
There is risk in retiring early. There is risk in working too long in a job we don’t feel called to do. The key is to balance those risks and minimize the likelihood of regret.
We Are More Rigorous and Realistic with the Numbers
In a Bloomberg Opinion piece in 2018, author Jared Dillian describes his version of FIRE math:
“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.”
Which is it?
The pile of money will grow as you age? Or that it will shrink until you die penniless? These are two mutually exclusive and very different outcomes. You can’t have it both ways, Jared.
I plan to watch my portfolio grow most years, and I am planning accordingly. But I know people who subscribe to the “can’t take it with you” philosophy and plan to spend to zero.
And about those generous actuarial assumptions: In the footnote, he says that a 25-year-old with $10,000 in savings putting aside $1,000 a month would need to earn 18% a year before taxes and inflation. If we’ve figured out how to save half our income, most of us are saving a hell of a lot more than $1,000 a month. And no one in their right mind is using 18% as a realistic return. It would be optimistic to expect half that.
Some assumptions from the articles are much more pessimistic. Another Bloomberg Opinion piece from London-based columnist Lionel Laurent, also published in 2018, demonstrates that saving £4,160 per year at 0% interest would result in £230,000 after 55 years. At 2% interest, you’d have £430,000. Most of us, however, expect investment returns to give positive real returns, particularly over the course of five decades, rather than assuming returns that won’t even keep up with inflation.
He recognizes that returns have been better recently, stating “even the S&P 500’s annualized total return of 14% over the past five years would only turn into a million dollars if there was $600,000 there in the first place.”
The rule of 72 (which is actually closer to 70) tells me that five years at 14% would result in a doubling of that money to $1.2 million, and that’s without additions during those five years—which, of course, someone striving for financial independence would be making.
There’s more “fuzzy math” in the first Bloomberg article.
“FIRE seems to work because the stock market has gone straight up. A bear market will change that. Even if stocks do return 8%-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%-50%. That will be the point in time in which most FIRE adherents get online and start looking at job ads.”
This assumes one is already living on a spartan budget, a fact that applies to a subset of early retirees but certainly not all. And if an early retiree experiences 8%-12% gains in the first 5-10 years of retirement, it’s going to be smooth sailing even with a 50% decline after that.
Having read every word my Ph.D. economist friend has written in his massive safe withdrawal rate series, I know the biggest danger is very poor inflation-adjusted returns in the first decade after retiring.
We’re planning a budget that could be cut dramatically in the case of a black swan event. Many of us who have managed to squirrel away tens of thousands or hundreds of thousands of dollars per year have skills that could be employed to earn money in some capacity again if necessary or desired.
I wouldn’t go back to anesthesia after five or 10 years outside of the field, but I’ve already found another way to make money (writing), and I’ll bet I could come up with a dozen more if push came to shove.
We Don’t All Quit Working
The gregarious Carl, aka Mr. 1500 of 1500 Days, was the headliner of the New York Times article, “How to retire in your 30s with $1 million in the bank.” Never mind that he retired in his 40s with $2 million in the bank and it didn't take long for him and his wife to have more than twice that.
I know Carl well, and he’s always been very transparent about his income, luck, good job, and a continued interest in meaningful work. He doesn’t hide the fact that his wife Mindy, after staying home for years to raise their daughters, has found work she loves as a writer and podcast host for Bigger Pockets.
In a New York Times article profiling a half-dozen families, every detail of his financial life is not going to be disclosed, but people take major issue when they learn of these details from his site or from hearsay.
Many FIRE bloggers earn an income online before and after they retire from their day jobs. Some are married to wage earners, too. I have no issue with them choosing to do so; I’m making the same choice.
The authors of these articles are choosing known experts in the early retirement space. They find them because they’ve written books on the subject, have earned six figures from blogs and/or podcasts, and have their articles appear at the top of the search engine results.
These are not the people that should be featured. Showcasing those who retired from one thing to earn significant income in some other manner only serves to make it appear as though true early retirement is a pipe dream and can’t be achieved without additional passive or active income no matter what the experts try to tell you.
If you want to learn about do-it-yourself investing, passive real estate, the Backdoor Roth, tax-loss harvesting, or generous tax-efficient giving, I’m a great resource. If you want to learn what true early retirement is like, don’t ask me. I’m retired not retired.
Find the True FIRE Walkers
While I’m happy to lend a quote and earn a link for any mainstream media FIRE article, the public would be better served to hear from those who have nothing to gain from such a feature.
For every FIRE blogger earning five or six figures from their online endeavors (there might be 10-20 of us), there are dozens earning little or nothing.
And for every non-monetized or low-traffic FIRE blog or podcast, there are thousands of ordinary people who are well on their way to financial independence or already reaping its benefits in an early retirement of their own.
These people don’t appear on the first page of Google, but they’re hiding in plain sight online. You can find them on forums like Early-Retirement.org and Bogleheads. They’re Redditors trading stories on r/financialindependence, r/fatfire, and r/leanfire.
I encourage the journalists writing for popular media outlets to become familiar with these groups and to look for individuals and families whom their readers will find more easily relatable. Those without blogs and podcasts. Those with more fascinating lives that don’t include writing roundup posts, reviewing robo-advisors, or mounting defenses against the pompous attacks of self-proclaimed personal finance gurus.
Use realistic math and demonstrate how the numbers can work for you if you understand and mitigate known risks. Recognize that frugality is just one of many tools in the toolbox and that FIRE aficionados are cut from many different cloths.
I enjoy reading about this movement from some of my favorite news sources, but I cringe when the first two lines are enough to turn almost everyone away from it before even getting a chance to understand it.
I’ve had your attention long enough. Now, please excuse me. I’ve got some banana bread to bake.
Did you learn about the FIRE movement through the mainstream media? Do you even bother reading those types of articles? How else could the financial media better represent those in the FIRE community? Comment below!