I've been more or less on the FIRE train for three years now. It's very easy when you have a software engineer's salary in Seattle. In my best year I only spent $21,000, but was fairly unhappy - saving money is a lot of work! All chores take longer and require more mental effort to figure out the least-expensive way of accomplishing your goal.
At this point I've actually found areas of technical interest I can expect to get paid for in the future, so I'm not as laser-focused on the goal. If you manage to bring in even a bit of cash in retirement, the safe withdrawal rate calculus tilts considerably in your favor.
To head off people saying "but you won't really be retired!" you should know the in-group has a term for you: the retirement police. The real goal is freedom, and not the type where you're lying to yourself that this is what you want to be doing.
Special stock (I'm at a loss of english financial terms here) that give off a certain percentage of value back to you each year or month.
So the goal is the same, once you own enough of these stock you're supposed to live off the accumulated winnings from them. And of course these stock can be sold off too if you want to free some money. Or if the company announces that they're going to lower their percentage of value that they give out.
I've been doing this for a couple of years now, started late compared to my peers. I'm a slacker and so far haven't calculated much of anything. Simply jumped on a bandwagon, read some blog posts and got started.
But a co-worker who tipped me off to this "movement" claims he's calculated that he will be able to live off his return in 10 years.
This all depends on how much you're putting into your stock each month of course. Personally I buffer money and only buy stock every 3-4 months.
The trick is to find old well established businesses whose stock has been stable for many years, many of them fluctuate up and down over decades.
New companies do not tend to give off this return. I don't know the details but only certain companies give a return on their stock just by owning them. My stock trading app shows this info when you click on a stock.
Once you've bought into some company you might get a letter home saying that they're going to lower or raise the return depending on how well they're doing.
With dividend investing, it's not really the same thing and the math likely won't work out the same.
Once you're retired, you can switch from a capital growth portfolio to an income providing portfolio.
It was amazing... I envy that financial situation I had so much (being able to have such cheap base expenses). Now I pay over $2k for a little 400sqft shack in the peninsula of the bay. Haha.. ha... ha... :'( Wish I at least had more than a fridge and stove for that price.
I view any interest as housing costs and all principal paid as investment. But that's coming from someone who can't afford a home talkin'...
I have also experienced an involuted perspective to money itself when on the saving mindset. Instead of seeking expansive [sic] opportunities, with an always-on savings mindset I often stop taking risks altogether. The FIRE movement, it seems, is only for those who have a reliable and predictable monthly income, or for those who can assume somewhat 100% employment till 40. If you're an entrepreneur, this arbitrary 50% saving of income won't work. You're more likely already forced to save for the next 3 months's just for wages and electric bills.
What isn't addressed in this 20-year plan is the risk of the many things outside of your control: health, local economy, unexpected family members, etc.
This isn't a risk-free option, it's an attempt to minimize risk in exchange for minimal financial independence. The margin for error is very low.
If you want to achieve financial independence in a more robust manner:
1. Save up 1-3 years of living expenses. This quickly gives you the financial independence of a practically unlimited runway. It's much more useful to have financial independence early in your career.
2. Use that independence to find the best possible way to make money for you -- retrain, start a business, etc.
3. Invest. Take as much (calculated) risk as possible while you're young and become more conservative over time.
People who front-load this in their careers often (in my experience) not only retire early but do so with significant wealth.
Of course, it's your choice to make (and I definitely don't know your situation or your son's situation), but it seems to me that a big part of FI is the mindset, not the money, and I'm not sure you can acquire the mindset without going through the frugal living.
I don't think you're viewing this quite right. There's no reason you have to hit a magical 50%. Having a regular income just makes it easier to predict when you can retire / when you become financially independent.
He also claims he got bored of eating the same chicken sandwich for lunch each day. Then prepare your own lunch before you go to work! It's not hard. Max 5 minutes
1. You realize that actually having a work is quite nice and being retired for extended time periods is boring
2. If you one day find something you really want to do instead of your day job, the treshold to quit your job and give a try is much lower because you already have faced the anxiety and uncertainty that means.
Obviously, this is easier to do if you do not have massive mortgage, student loan, car loan and four kids. Also it helps if your retirement plans do not include flying around with a private jet.
Have you actually done this? I have and that was not my experience. I took a year off and it was great, I was never bored and the only reason I returned to work is because I need more saved before I could afford to make it permanent.
I do think a significant hazard of a real job is not nearly enough time off (precluding extended travel and so on), but again, if that's the sticking point, negotiate that.
That said, sabbaticals are really useful to realign your priorities. You can pick things up that you wouldn’t normally with a regular work schedule, something that might feel a lot more personally fulfilling. It’s usually less about the avoidance of work and more about doing something without having the grind of having to go for more money.
1. Dave-Ramsey-style "list your debts smallest to largest, knock them out till you reach the last level!"
2. Mr-Money-Mustache-style "dial down your spending, try to beat my high score!"
Beneficial advice, yet follow all the steps and you achieve a vacuum. You've arrived, there's no more debts to pay, spending is under control: now what? It's up to you, but perhaps your identity has been consumed by the journey. What were you living for all along?
What indeed? You can answer that today!
That is true, but sometimes in the grind of the every day it can be hard to look up and take the time to really think about what you want. And it can be scary to think about upending everything to get what you think you might want.
That's why gamification is easier--concrete goals that don't take a lot of deep thinking about your purpose on earth are easier to achieve when you're in the daily grind.
Not saying it's better--as a sibling comment says, you should aim to build the life you want as soon as you can, rather than save save save and then arrive someplace you weren't aiming for. But the gamification is easier to grasp and less scary to aim for, in my opinion.
Though retiring by 40 is pure bullshit unless you have exceptionally high earnings/income.
The good ol' advice was:
1. You save more.
2. You can live on less should your income drop (for example, you retire).
This is born out mathematically: a permanent $1k drop in spending is way more powerful than a $1k increase in income over your earning years. Cultivating a lean lifestyle seems like a good general skill.
The economy would have to be completely screwy for there not to be a way of making money from capital. Even if the currency goes into hyper inflation you are much more likely to be able to get it out into a safer currency when you have enough of it lying around.
The Boris Johnsons and Jacob Reece-Moggs of the world aren't worried about the financial aspects of Brexit, because they have a 'nest egg'.
But let's think through the case that stuff in the UK drops by 50% and you're entirely invested within the UK. Instead of having "a few hundred thousand" you'd have somewhere north of £100000 (depending on what you mean by 'a few').
That sounds to me like it'd give you some security, or help a move to another country.
If this happens, that worldwide there's no growth for the next 15 years, think about the two paths
* FIRE path, I have significant savings, but can't retire young.
* Non-FIRE, my plan to retire at 70 is behind now and I'm worried about being able to retire then.
FIRE path: I deferred enjoyment but now my significant savings are wiped out in the economic collapse.
Non-FIRE path: I enjoyed my life, and my insignificant savings are wiped out in the economic collapse.
(Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.)
You're making a big divide between the two paths though which really should not exist. If you are not enjoying your life, the fire plans won't work for you because they'll leave you with the same money to live on in retirement.
There's a reason the common advice is to build the life you want then save for it.
> Aside from economic collapses, there's is a similar potential that comes in the form of unexpected early death.)
Which is unlikely but:
1. Retiring early gives me a greater chance of not working until I die.
2. If I die and am living with no spare savings and at the upper end of what I earn, my wife and son will struggle more without me. With significant savings they'll be financially secure.
To be a bit shorter, my favourite response to "but what if I die young" is "but what if you don't?".
Really, sacrificing income where your utility curve plateaus means you're giving up not much now for more later. And the realistic worst cases are mitigated significantly by having savings or investments.
I'd rather risk not having some stuff I don't really care about now and dying at 40, than risk dying at 70 still working but with a few more trinkets around me.
Having savings wiped out is a thing that actually happens in sufficiently significant economic collapses and FIRE is not proof against it.
> Really, sacrificing income where your utility curve plateaus
Empirically, the point at which utility derived from additional income becomes insignificant is vastly beyond the income level most people will ever reach. It's even beyond the point most tech workers will be able to reach, and even moreso what they will reach before any point where retirement would be “early”.
Can you point me to where this happened for a well diversified portfolio? Even the great depression on one index (dow jones) didn't see things drop to 0.
There's nothing stopping you running out of money by spending it when things crash, no, but having more makes it less likely. And we can look at historical crashes and see if your savings would have lasted if withdrawn at certain rates.
Having more savings makes it more likely you can weather significant economic collapses. That's surely not in dispute.
> Empirically, the point at which utility derived from additional income becomes insignificant is vastly beyond the income level most people will ever reach
Perhaps it's my fault for being overly precise though I thought the followup clarified the point. It's not about your utility curve going completely flat, but it will drop off significantly at some point. As your utility curve drops off, you're sacrificing less and less now for future gains.
> and even moreso what they will reach before any point where retirement would be “early”.
I really don't like the idea of having some cutoff for "early" retirement when it comes to planning. Most people need to plan for retirement at some age.
It's all a trade, and there's risk obviously, but personally (and the reason to talk of utility curves is that it is personal) what I'm giving up now pales in comparison to what I'm likely to get in the future. In the worst cases I'm in a better position or provided for my family, and the cost to me now in terms of utility is low (though not 0).
This is a person who is only able to entertain themselves by spending money. That doesn't sound educated to me.
"Entertainment", in the sense that it's commonly used, should really be called "paid entertainment". There's plenty of free entertainment. Read a book, good for a walk, or my favourite: learn something new that is complementary to your current skills and that might make you more econmically valuable. But he doesn't like these things, he just likes being with friends in the pub and playing FIFA. I promise you that I know a lot of educated people and their lives look nothing like that.
This for me is a wonderful little example of how costs build up.
If you're not familiar with a "meal deal" in the UK, they're a sandwich/snack/drink combo. They are almost universally pretty poor.
The author talks of the effort to prepare lunch, when compared to a basic sandwich and thinks this would still cost about £2 per day.
If they could cut the lunch cost in half it'd be equivalent to them getting a £500/year payrise.
Edit - oh, the meal deal was them trying to save money. Then making at home you can have something a lot better and cheaper and if they were spending 5-6 per day before (easy to do) it may be worth £2k/year in salary, up to 2500 of they have a student loan too.
> As I spend my lunch break stolidly working my way through a seventh straight chicken sandwich,
But you weren't limited to that sandwich, and the sandwich wasn't part of your savings!
As usual, it's a fairly lazy look at the concept. Take a moderate salary in a high cost of living place and try vaguely to cut it drastically, then sum up by saying you might die anyway so why bother.
Here's a quick simpler rundown:
Keep track of what you're spending, it's a simple habit that can pay off well.
Spend less on things that don't improve your life.
Spend more on the things that do.
If one of the things that would improve your life is more financial safety or being able to not have to work, spend some of your money on that.
Other than "earn more money if it's worth the change in job satisfaction" that's a recipe for making your life better whether you want to retire early or not.
To make that much without a job, you need roughly $10M in the bank (yielding ~7% growth). That's a lot. A $500k/yr job w/o taxes or spending anything would take 20 years. The only way to get there is to have family money or hit the startup lotto (or actual lotto).
These articles are not about true economic freedom at 40, they're about limiting your consumption and being happy about it.
- After taxes that $700k turns into $450k.
- NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr
- If you have 3 kids, childcare and/or private school costs $30-50k/kid, say $120k/yr, this will be much higher when they go to college
- Good healthcare for a family of 5 (you're not working, so you need to buy it), costs roughly $40k/yr
- Basic living expenses of food, clothing, utilities, is another $40k.
That leaves about $50k leftover that you can use for vacations, further savings, luxury items, etc. At this rate, you're living very well with a very nice life, but definitely not a like a king.
> After taxes that $700k turns into $450k.
You're talking about capital income - taxation varies around the world.
> NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr
If you have $10m in the bank, buy the apartment and these $200k/yr will be 0 (just maintenance/running costs) and cost you $210k of your capital income, but pre-tax. You just won $65k/year plus the yearly increase in the apartment's value.
> Basic living expenses of food, clothing, utilities, is another $40k.
You can't be serious. This is far from "basic".
Yeah, living on an income of less than $500k (which is what the vast majority of people - including families - do, even in NYC) requires making a compromise here or there and not having the absolute best of absolutely everything. Shocker.
Yes, taxation varies, but if are resident in NY, you pay taxes on worldwide income, so that's not off the mark.
As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield? It's not obviously better to purchase it (though the tax shield might make it so).
$40k is maybe more than basic, but it's not exactly luxurious for 5. Deduct a phone and computer, and you're left with less than $500 per person per month for food and clothes - that doesn't buy you LV and Hermes.
You misunderstood me, I said you would buy the $3M apartment, but I did not say you would buy it all 100% in cash. On the contrary, the standard approach is to put 20% down (~$600k) and pay the rest off with a 30 year mortgage at ~4% interest. The interest alone comes to ~$100k/yr and with principal and building common charges, the cost can easily near $200k.
Your yield calculations fail to appreciate the leverage that exists in real-estate. Even in NYC, with a fast-growing real-estate market, market value rarely grows beyond 3%/year. So purchasing an apartment in 100% cash is almost certainly worse than renting and investing. However, few people buy in all cash (except for Russian oligarchs, and they have other issues). Most put down 20% and take loans on the rest. If you put down 20% on the apartment, pay 4% interest on the loan, and the apartment's value grows 3%/year, you net 11% increase on your initial down payment investment, making it attractive when compared to renting/investing.
Because NYC isn't exactly the typical "major metro area".
> As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield?
That wasn't the point - they claimed it's $3m or $200k/year (which is approx. 7% yield). By buying it, you don't have to pay $200k/year and lower your pre-tax capital income by that much (7% of the $3m capital income lost), which is much less than $200k.
If a metro area don’t have a couple major orchestras, operas, a few major sports teams, and a world class hospital, it’s hard to take “major” seriously.
> Vancouver, Moscow, Berlin, Madrid, Rome, Melbourne, Sydney, Amsterdam
These are all great cities, but once you start arguing about amenities of specific cities, you're already making value judgments about what you would consider a good life. Further, while these cities are significantly less expensive, they are just 30% or 50% less expensive, not multiple order of magnitude.
My point was to show the absurdity of the underlying article's premise: that temporarily forgoing fancy coffees, monthly luxurious dinners, and other personal indulgences can lead to long term riches. It's a fantasy. Attaining either wealth requires much more than that, or changing your definition of wealth.
That's not the premise of the article, you've just weaseled this into the topic. First "economic freedom", now wealth and riches. The premise of the FI movement and the subject of the article is retiring comfortably at 40 without a luxurious lifestyle. No NYC penthouse, no jet-setting. Of course you will always find an even more expensive place and lifestyle for anything someone proposes, but that's just moving the goal post and missing the point of the article and movement.
For starters, most don't aim to retire at 40 in "economic freedom".
The trick is finding ways to keep that compensation number moving up 10%/year. The first decade is easy. The second... can be done. Past that, I dunno.
Do the math, it doesn't work. Starting with $100k at 20, with 5% raises every year gets you to $430k/yr at 50. You're still nowhere near $10M.
But you’re right that it’s not pretending you only got 5% raises.
But 7% yield is a bit optimistic, because you pay tax on nominal growth. Say, if you achieve 8% nominal growth, have a 37.5% tax rate, you're left with 5%. Now deduct 2% inflation, and you can only take out 3% per year.
Thus, your $10m only give you $300k a year (after tax, real), which is enough for 5, I'd say (maybe not in NY, but in many other nice places). However, that assumes 8% nominal return, which is not something I'd bet my retirement on, given current elevated asset values.
I've never heard of FIRE. I'm always skeptical of things with names like that - and some of the rules may or may not be ideal - but the conc3ept behind it is fantastic. I'm old and tried living this way way back in my 20's - then i got a family. Without a wife with the same ideals - forget it.
But* - if it could be gamified ... I always want to design something :-)
If you're able to live with a lower consumption you should not increase it just to "not harm the economy". On the contrary I would find it unethical to increase your consumption beyond your need.
To your second point, I don't find it compelling either. First off, the FIRE way requires some amount of restraint and discipline - in many ways it's like dieting. It's good for you, but that doesn't mean people will do it - it will continue to be only a subset of people. Secondly, how would the system would adjust? What would be the driver for lower wages? The method is basically to save and invest half your income - that doesn't depend on your income. The people are still equally skilled, working equally hard during their working years. The output at their work while they work remains unchanged.
If anything it might drive wages _up_, as people would require increasingly higher compensation to stay at work, if the alternative is to live happily and safely without working.
Plus large percentages of the population living in debt, and paycheque to paycheque isn't particularly sustainable. So everyone having lots of savings would add stability.