The Financially Independent, Retire Early (FIRE) movement has gained a decent following recently. Generally, I’m a fan, anything that is encouraging young people to live beneath their means and save as much as possible is right up my alley. Mr Money Mustache is probably the most popular among those promoting this effort, and I encourage you to check out his blog, there is a lot of practical advice to living a life of wealth. But like anything, the approach can be oversold as another magic pill of the easy path to wealth. Back to math for the answers. Love you, math. Love you.
Some within FIRE will shout Retire at 30! Sounds too good to be true, and generally it is if you take it literally. Recall the post on budgeting, the first thing you have to figure out is how much you’ll need to live, and remember if retired you are paying your own medical insurance now. Don’t be shocked but this can be $25-$30K per family (assuming no subsidies from the Government here) and rocketing up every year. And you HAVE to have health insurance. Remember, your time, and indirectly your health is the one thing you absolutely have to protect. You also have food, housing, bills, some minor entertainment. Don’t expect to give up Netflix and be able to live on $10 a day. Assuming all of these things, $60k per year (assuming that health insurance remember) is not an extravagant need. Recall the post on living in retirement, a general rule of thumb is assuming you can withdraw 4% each year for living expenses (conservatively assuming you aren’t drawing down the principal), you need $1.5M, and this is pretty bare bones living. Let’s assume you start working at 22, and you assume a solid return of 11% on your investments which is a pretty aggressive assumption. To retire at 30, you’d need to save roughly $125,000 per year to get to $1.5M. This is savings after tax. You can’t count your 401k or IRAs, those aren’t eligible for withdrawal until you’re 59.5 (question, Congress people. why the 0.5? seems so random). Do you have a job at 22 that allows you to live and save that much? No? Hmm, how about retire at 40? With the same assumptions, it’s still $30k per year. Every year, starting at 22, and assuming you get an 11% return every year. This is at least possible but still really, really tough for most people. Plus, remember that the 4% rule is no guarantee the money will last (see my post on Monte Carlo analysis).
So I’m not anti-FIRE movement, but clearly there is something else to this besides: Step 1, get a job making insane money. Step 2, spend almost none of it. Step 3, invest in a stock market that is consistently going up.
Instead, the movement really should be called “Free to Pursue Work Regardless of Earnings (FTPWROE)” but that doesn’t have quite the same ring to it, and the vowels are in terrible locations. Think about “retirement” at 30 or 40. This is not sitting on a beach with a Mai Tai. Instead, it is saving a decent cushion, so that you can pursue work you find more meaningful and enjoyable, regardless of the income. Recall my post on the 3 elements of a job, here you are ignoring the income element and strictly focusing on the time the job requires and your personal enjoyment, and there is a beauty to this that I respect. Suze Ormann famously criticized the FIRE movement but I’ll bet some of that is she has a certain picture in her head of retirement because she literally retired to a private island in the Bahamas. I understand she and her wife do insane amounts of fishing, and have to admit, sounds fantastic. But FIRE people are still looking to achieve something (besides landing a big snapper). So if you leave your accounting job and decide to be a youth counselor (maybe with an outfit that offers health insurance, score!), maybe you can do it with a big enough supplement nest egg.
So take the good parts of the FIRE philosophy: live frugally, save extensively, invest wisely. Seek joy in the free/inexpensive things instead being sucked into the materialism hole. The power of that pile of cash you build may not be enough to sink your toes permanently in the sand at 30, but may give you the cushion you need to live the life you want.
When you start working you’ll likely have yearly performance reviews. Your boss will sit down with you, explain to you the things you’ve done well, what you’ve done not so well, and what goals you should have for the future. It’s generally a valuable exercise to make sure you are on-track to what the company wants. But you should be doing the same thing in reverse, at least yearly, evaluating how the job is working for you. If you feel happy, great, but if not, I’m sorry Job X, we need to let you go. You just aren’t working out.
I’ve spent a bunch of these posts on smart financial decisions but up to now have ignored the biggest asset you have: your ability to get paid for your time. Life in your first job is a classic example of being tossed into the weeds with only tools, but little guidance on the environment. School hopefully provided the basic skills to do the job, but rarely will you be given guidance on how to