Live life and retire – “Fat” FIRE – Financial Independence Retire Early

Updated 10/21/18. The NY times recently had an article on the FIRE concept (otherwise known as Financial Independence Retire Early), and that article gave this post additional traffic/publicity. There has also been tons of controversy on this, with financial guru Suze Orman saying that 5 million is needed to retire, which we agree about. To those questions, etc. we received from FIRE “followers” who picked up this post as well as the NY Times story, we have made a few updates.

For “fat” FIRE, which is retiring while maintaining a typical standard of living while still having extra for future saving and investing, it is $6 million minimum needed (and I am very confident in that number). Suzie say 5 million, but I say (as well as other experts) that more is needed. In addition to that, fat FIRE also needs to have a still active income stream to live a lifestyle that allows you to retire by 40 and still enjoy life, as I expand upon below. That six million amount gives you freedom as well as flexibility like I have been indicating and ability to still have life experiences…ability to travel to see the world, stay in nice hotels, invest such as buy vacation home(s), live in a nice city like Mt Pleasant, cover future health care obligations as you age (which may be a major expense), give to charity, etc. FIRE is much more than just “FU” money, as I indicate below and expand upon the dollar amount.

Reading the latest issue of Money Magazine and it featured this term of FIRE, which stands for Financial Independence, Retire Early. Of course the New York Times recently featured this concept too here I guess I was an early adopter of FIRE and I did not even know it, as I was and am living fat FIRE before the term even came into place. Apparently the concept is one of those “buzzwords” or fads that come and go over the years, and apparently millennials among others are grabbing on to the term. But quite frankly the math does not add up when reading more about it.

After reading Money magazine I read some other articles on the topic. I also read any new ones that pop up, such as the NY Times one. It seems like FIRE means achieve financial independence so you can retire early…or pursue another job that you are more fulfilled by and not needing to worry as much about the paycheck for said job. It seems like 40 years old is a common target of FIRE followers.

While I applaud those people who try to achieve FIRE, from the examples I see not really sure how it adds up. But first, I think the Financial Independence Retire Early (FIRE) concept seems to be a good one in that it seems to be stressing many of the things we write about, such as not being materialistic, paying yourself first, living below means and not keeping up with Joneses, etc.

Those type of approaches to money, living below means, investing and saving can be valuable for low income families who are struggling to pay the bills each month or to higher income households as well. Whether you are low income, living check to check you do not need the latest model car or cell phone, or cable TV. Or food stamps should not be used for unhealthy food.

And most upper middle class and high income earners blow all their money too on needless things and have lifestyle creep, so they put themselves on the edge. Then as soon as a crisis comes up they can’t afford any extra expenses.

It is amazing how many emails we get from struggling, lower income families seeking help in which people say they need money for say a cable bill or to make a $600 car payment or other expenses a low income family should not have. So there are definitely some (a good number?) of families who are low income who have unnecessary bills. FIRE concepts, of not being materialistic and more could also help those low income families.

Anyhow, it seems like the FIRE concepts we agree with. Live below means, save, invest and experience the magic of compounding and more. But some of what I read on this FIRE topic doesn’t seem to add up. And that is as follows.

FIRE seems incorrect for the following

Maybe the biggest one that doesn’t make sense to me is the concept of how much money people say they need saved. There appears to be a thought in the FIRE community in that you need to have 25 times the annual income you want. Not only is 25 times low, but also the income people are targeting also seems kind of silly. For example.

I am reading quite a bit of people who follow FIRE wanting one million dollars in total investments, and this was also talked about in the New York Times. Nothing wrong with that goal. Heck most Americans have zero saved for retirement! But if you then dig into the FIRE principal, and say the 1 million dollars is 25 times the annual income they want, then that leaves them an annual income of 40K, which the NY Times called Lean Fire. Now I do not want to minimize that 40K as many low income families or those living in poverty would love to reach that level, but the fact is 40K is way below the median national income of 59K per the Census bureau.

So right or wrong, 40K does not provide much of a lifestyle. Especially on either West or East coast and any mid to larger cities. Try living a “decent” lifestyle on 40K in any desirable city or area, whether it is Mt Pleasant SC or a major metropolitan area. Never going to happen. Now of course you can live in small town (maybe rural) for that and have a decent lifestyle, but be aware of 40K not supporting you in a desirable city. The Times talked about FIRE faithful living very sparsely, which is what someone would need to commit to if they “retire” at the one million level.

I say the 6 million is needed (at very minimum!) to retire by 40, and live a fat FIRE lifestyle, based on personal knowledge and plain old math. That principal can throw off 200K or so in annual income. While that may seem like a very high income for many people (and it is much higher than the current national average), you need to think about 10, 20, 30, and 40 years down the road. As 200K will be worth a fraction of what it is today 10+ years down the road, and in fact it loses value every year. That lack of thinking about inflation and the time value of money is the biggest concern I have with FIRE. So more than five is of course better! 🙂

Now if you can throw off 200K per year in income from your principal, and supplement that with other work, you are in great shape. Most people chasing FIRE may make fairly minimal supplemental income…pick up a project here or there. I have been fortunate in that I also came up with the idea of, founded, and through hard work, dedication and more created a leading internet company.

Another concern is that if FIRE is saying live on the dividends (or equivalent investments) of the 1 million dollars, 40K would be a stretch. Making 40K in dividends off 1 million dollars is quite frankly impossible, unless you mix in some riskier investments which would then put the one million principal at risk. And you even need to pay taxes on that 40K…unless you are in municipal bonds.

Not only is 40K not much of a lifestyle, but with rate of inflation and the fact money loses value over time, that 40K will become worth less and less every single year. It can costs hundreds of thousands of dollars as people age for just their health care bills. 40K today is one thing, but 40K in 20 years will probably be what the average household just pays for their cable bill! Ha!

Another huge concern is with the entire 4% concept that seems to be common among Financial Independence, Retire Early followers. If you have a million dollars, expecting 4% in dividends indefinitely is risky. And if you say you may draw down (or live off some of the principal each year) then that is even more risky. Four percent is not a realistic number to plan one….to be conservative you should plan on maybe 2.5% at best, which is slightly higher than the S&P 500 yield. Good luck expecting 4% each year!

Another big flaw is what people may be cutting back on as well. I have read about FIRE followers basically living in their bare home, eating noodles every night, not going out, living with roommates, etc. for year after year. Now once again, we at needhelppayingbills applaud the concept of living beneath your means, but you do need to live life though. There needs to be a balance to life, otherwise what is the point in even living it?

We suspect it would be very hard for a FIRE person to in effect give up their life for 10-15 years (and not live life, travel, etc) as they save or invest. Now if someone is disciplined enough to do it, or really can sacrifice the “younger years” of their 20s, 30s, 40s to do that and not live in their pursuit of FIRE, then more power to them. But we think it would be much easier said than done. For those who think it may be easy to sacrifice living life for many years, we caution them.

Heck, Money magazine talked about someone in Chicago, who was 39 years old, living on 20K per year in her pursuit of FIRE as she was saving her money. 39 years old, living on 20K? Come on…that is even below poverty levels, especially in a city like Chicago. While great for her she can make sacrifices (and sacrifice what amounts to her entire youth), but is that living? And we wonder how many people can really do that, and make that tremendous sacrifice? Heck, what if you give everything up in pursuit of FIRE, and then get sick in early 40s….so wasted youth. But if you can and want to try to sacrifice years/decades in pursuit of it, then great for you! But I would caution it is easier said then done.

Now I see that people may still bring in income after they hit Financial Independence, Retire Early, as that is part of FIRE concept as well. Maybe they work side gigs or find some other way to bring in an income. But many side gigs are not very lucrative and require a lot of hustle. Now of course there are exceptions to that rule, the fact is side gigs more often than not require a lot of work. So is it really FIRE then if stressing out on a side gig?

I guess people think they can make money following their passion, but sadly many of the “passion jobs” do not pay well. For example, how many people love to paint as a passion but how much do 99% of artists make? Or care for pets, solve environmental issues, etc. can be passions, but the money is often hard to come by.

To be frank, I can tell you firsthand that Financial Independence, Retire Early requires a lot more than $1 million. For fat FIRE, you need multiple millions….and I say the six level minimum. The numbers talked about, both savings and dividends/returns, by many of the FIRE people are just not realistic. Not only around the 4% income level but also around how much is needed…and it is nothing close to a million if you want to still enjoy life. Now of course any goal and amount is awesome, but when FIRE people talk about a million…not realistic.

Anyhow, I do applaud the effort. The more people who save, invest, live within their means, etc. we think the better for this country and that person as well. As investing is a positive for the overall economy and it is beneficial to a person’s budget. So while the goal of FIRE is great to have as well as many of the concepts around it, I just want to point out that some of the information out there on the topic (most of the information out there?) seems greatly flawed and unrealistic.

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