Dousing The FIRE?

So it turns out that retiring at 33 with merely a good head start is a bad idea?

Marketwatch's latest FIRE article profiled a few people whose FIRE dream appears to have failed. FIRE stands for Financial Independence/Retire Early, very early, like 35 years old early. I find the concept intriguing and it is fun to write about but I think actually stopping work at 35 or 40 with $500k-$700k, even $1 million is destined to fail for all sorts of reasons, some of which Marketwatch gets into.

A few months ago I wrote a post tweaking FIRE into FINR; Financial Independence/Never Retire. Above I talked about stopping work as having a high chance of failure but changing the way you work is a different story and isn't really like retirement. Arguably, after building a financial base for 10, 15, 20 years, even at a job you're not crazy about, and then going on to some sort of entrepreneurial endeavor or series of side gigs might mean working more not less. The independence comes from the freedom of complete ownership of your schedule/routine and the empowerment that I believe goes with having accumulated a decent nest egg by virtue of living below your means.

The Marketwatch article did not get in the potential failure points I've mentioned previously. The simplest way to articulate the potential drawbacks of actually stopping work all related to less optionality. Less optionality with Social Security, less optionality when faced with some sort of unexpected expense or other adverse circumstance, less optionality in the face of an adverse sequence of investment returns, less optionality if it turns out the 55 or 60 year old you wants different things out of life than the 35 year old you. It seems right to throw in the quote attributed to Woody Allen that "there is no situation where more money made it worse." IMO there are simply way too many potential variables to think withdrawing 4% from a portfolio can sustain for 70 years.

Personally, I want as much optionality as possible which to me means working for a long time, I found work I love (managing money) in a circumstance I love (doing it from home). If I can get lucky like this, anyone a function of hard work. Plenty of FIRE proponents are doing this, they are far from retired, they work a lot but simply have the freedom to call their own shots. For some, that might mean taking the morning off to take their kid to the zoo or for me to do some fire-chiefing or otherwise go fight a fire.

In what seems to be a related note, Marketwatch in a different article made the case for people needing $2 million saved for retirement, that $1 million won't cut it. Assuming the 4% rule, $1 million means $40,000/year and obviously $2 million means $80,000/yr. Ok, get the spreadsheet out; lay out your likely monthly expenses (make sure to remove what you won't be paying for, hopefully your mortgage is paid off at retirement), pad it by 20-25%, add $10,000 for one-off expenses, $5000 to travel and what do you have? Let's say what you have is $70,000 needed to cover everything.

What is your expected combined Social Security? If you are today 55 or younger then be conservative and give it a 25% haircut. Do you have other sources of income? Between SS and other income sources how much of that $5833 ($70,000 divided by 12) do you have covered? Even assuming a 25% reduction in Social Security it wouldn't be a stretch for a couple's combined SS to be $3000/mo. Assuming a 4% withdrawal rate, you'd need $849,000 to cover $2833 shortfall from SS. If that seems daunting, the $5000 for travel is obviously very discretionary. And the $10,000 for one off expenses is just something I think is prudent but no one has to budget that way.

While the above numbers may not make you feel so great, they're a whole lot better than $2 million but I would caution that that the above two paragraphs are an extreme over-simplification. While I think that exercise can go a long way to framing things everyone's situation has more moving parts.