FIRE is DEAD

Hi RIP readers,

I’m here with you today to celebrate the death of FIRE, that weird idea that one can reach Financial Independence and then Retire Early.

FIRE, may you rest in peace…

RIP, WTF? Are you nuts? FIRE is very well alive! So many people are seeking FI and many – really, many – are retiring every day in their 30s or 40s! Early retirement is not dead! Financial Independence is not dead! Even YOU are (kind of) early retired! What are you talking about?

Let’s unveil the truth my dear, young, passionate self.

Wait! Am I your…self?

Maybe. I don’t know. Maybe you’re my real voice. I don’t know. But let’s stay focused, we’ve a lot to uncover.

Let me guess. You’re complaining because you’re not able to FIRE. Yeah, got you! You can’t stop thinking about income, worrying about money, finding structure and meaning without a job. You thought you were a warrior, but you discovered you’re just a worrier!

Ouch, ok, it hurts and it’s a bit exaggerated, but no, it’s not what I wanted to talk about.

But also yes, f*ck you my friend!

Am I still yourself?

Are you nuts? Get out, NOW! No wait. Just listen. Let’s get back on topic.

Let me tell you a secret: it’s all wishful thinking!

What?

The things, everything, FIRE.

What do you mean? FIRE? Nope, there are definitions, formulas… what about the 4% rule?

Exactly! That’s what I want to talk about today 🙂

Let’s talk about Financial Independence.

Do you know how it is defined?

Ok, this is getting serious. Let’s ask Wikipedia:

Financial independence is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. Income earned without having to work a job is commonly referred to as passive income

Well done. And do you know where this “income” comes from?

Yeah… there are several strategies. Like owning rental properties, buy and hold assets like stocks and bonds, living off dividends or other ‘fixed income’ profits, owning businesses and more

Correct.

And it’s all a lie 🙂

It’s all wishful thinking!

Look at the world right now: renters are not paying rent, stocks plummeted, dividends will get cut.

Everything works on “historical data”. Everything works “up to a certain point”.

Yeah, RIP, we all know that! Nothing is guaranteed. It’s a probabilistic game. You can raise your odds thanks to safety margins but you FIRE bloggers have already figured it out… but wait, isn’t this entire blog about FI? What happened to you??

Nothing in particular but, as you should know by now, I’m always mining the foundations of what I think I know. Yes, it’s not always a healthy thing to do, but it’s how I’m wired. Live with that.

This blog WAS about my journey to FI, and my dream of early retirement. But as Alan Watts says, Life is not a Journey. Life is a dance, and I’m dancing. The music has changed now!

Yeah, it’s changed for you, but not for us. You’re ‘100% FI’ according to your progress bar, and already ‘retired’. Do you want to get us depressed?

That’s the point! I’m not 100% FI and I’m not retired.

And I’m thinking deeply about these two concepts: do they exist at all?

But I want to focus on something more practical today. Let’s only focus on Financial Independence. Actually, let’s restrict it even further: FI via withdrawing money from a portfolio of long term investments, usually stocks and bonds. Similar analysis could be done about other strategies.

RIP, it’s literally one of the building blocks of this blog. It’s your philosophy since… since when? 2014? Are you questioning that?

I think since 2012 (when I purchased ERE book), maybe even earlier 🙂

I’m not here to fall into the Fallacy of Gray though, I am here to embrace the complexity of the situation. FI, on the other hand, is a simplification. It’s the map, not the territory. Thinking it’s a real thing is a naive and dangerous belief. You realize that if you raise your head just a bit.

I’ve been planning to write few posts about the dark aspects of FIRE, and this is (maybe) my first post on the Dark FIRE category. They’re meant to raise awareness of what are the dangers and the lies behind such a powerful tool that promises freedom, intentionality, and self actualization.

Let’s start by criticizing my own approach: obtain FI status (passive income that cover expenses) via investing in a low cost, diversified portfolio of index funds during accumulation phase, and withdrawing from it during the “retirement” phase in a sustainable way fort he rest of my life.

There are many unknowns here: how long will I live? What’s my desired spending level? What to invest on? Which percentage of my portfolio is “sustainable”?

We all agree that “how long will you live?” is a question we want to answer as optimistically as we can (as humans, not as retirement planners!), so we try to set up a system that works “forever”. Problem solved! Yay! Except that history doesn’t progress in a linear way, and we’re all survivors of a sequence of many Black Swan events.

Our brain wants to extrapolate from the past. We fail to admit that we live in a unique time that’s not guaranteed to last for long. Literally, the concept of “retirement” (along with every pension system) didn’t exist before ~100 years ago, and we’ve been thru an unprecedented time of worldwide peace since the end of WWII, a technology disruption era, a demographic explosion, a decimation of absolute poverty, and the birth of a global internetwork where to share knowledge and opportunities.

That lead to an unprecedented exponential growth in productivity and individual wealth.

Do you think it’s honest to extrapolate next 70 years from previous ones?

Today, the world is experiencing a Gray Swan “so light as to be very nearly white” (cit.) and the stock market lost 35% in 5 weeks. So many things we gave for granted are now under discussion. Wasn’t it obvious? It always is in hindsight. I don’t complain about our collective incapacity of anticipating such events, I complain about our blindness in thinking that those kind of events won’t keep coming all the time!

Back to FIRE.

We all fell in love with the shockingly simple math. I think it’s the most popular Mr Money Mustache post of all time, and it dates back to 2012. It taught us that the only thing that matters is our Saving Rate. I was intuitively convinced at first sight. I designed my spreadsheets to track my saving rate, and I joined bloggers competitions on “who has it bigger”!

We all calculated our F*ck You (FU) Money using the 4% Rule, and dodged all complains thanks to the special power granted to us by Safety Margins. Problem solved! Forevah!

What about desired spending level? How much are you going to need for the rest of your life? Young and inexperienced, without a family to care for, and in very good health, we all fell in love with Minimalism and Frugality. Jacob Lund Fisker showed us the way. We all said he’s a bit extreme, so let’s add a 10-20% to that and check this item out! Problem solved! Forevah!

Let’s put everything on autopilot. Of course I’m perfectly aware, today, of what my 70 years old self would need in the future! It’s just linear interpolation, the future is smooth. And of course nothing will change once I start a family and have kids! And yeah, just adjusting my expenses with inflation is all I will ever need: I will want to buy the exact same basket of things for the next 50 years!

It’s all a lie.

It’s a too complex phenomenon, involving too many moving parts, to be planned for.

RIP… I’ve been following you since the beginning. You seemed so certain about your plan. Now you tell me it’s all useless. What’s the point of even saving some money then? 🙁

This is exactly how not to respond to a problem whose solution you thought it was Black/White and now you discovered it’s made of millions of shades of gray.

Yours is the indifferent uncertainty response, the Nihilist approach. Let’s instead embrace complexity and uncertainty, and see how we can live with that.

When people thought the earth was flat, they were wrong. When people thought the earth was spherical, they were wrong. But if you think that thinking the earth is spherical is just as wrong as thinking the earth is flat, then your view is wronger than both of them put together.

– Isaac Asimov, “The Relativity of Wrong”:

Let’s focus on the 4% Rule today.

For those who don’t know (is there anyone following my blog who doesn’t know the 4% rule?), the 4% rule is the colloquial name given to a 1994 study by William Bengen. It simply states that – according to historical data (not much data, to be honest) – a 50% US stocks / 50% US (government) bonds portfolio would have not been depleted for at least 30 years if you withdrew 4% of its initial value on year 1, and the same amount adjusted for inflation (CPI) for the following 29 years.

A variation of this study was confirmed by three economists from Trinity University in 1998 (the so called Trinity Study).

Aaaah, the roaring 90s!

The world is a bit different now:

  • During this 21st century we already had 2(3?) major recessions, and 3 major market crashes (dotcom bubble 2000-2002, great financial crisis 2008-2009, coronavirus 2020-202?).
  • Yields for fixed income investments (bonds) are at all time low.
  • Shiller CAPE ratio for US stocks is at historically very high values, second only to dotcom bubble era.

The FIRE community adopted a variety of different strategies in response to the above conditions. Strategies that span from denial to avoidance, from acceptance to rebuttal:

  • 4%? Why that low? The stock market WILL return 12% on average each year! I plan to withdraw 8%! Hail to you, prophet Dave Ramsey!” (any update on this, my friends?)
  • Haha told you! FI thru investing is silly! That’s why I own 185 rental units on Airbnb, all leveraged with 99% mortgage on them! Cashflow is king! Hail to you, prophet Robert Kiyosaki!” (any update on this, my friends?)
  • Why care about stocks growth? I only buy high dividend stocks with guaranteed 4% or higher dividends, that are also growing their dividends each year! High dividends! Dividend Aristocrats! Hail to you, prophet DividendMantra!” (any update on this, my friends?)
  • Yeah, well, ok, let’s tell the truth: nobody lives off the 4% rule. Let’s call it “4% rule of thumb“. It’s important to not take it too literally. That’s why I quit my job according to the 4% rule but I’m running 4 business and I have these 75 side hustles… because you never know… I don’t trust the 4% rule. Btw, do you want to click on my affiliate links?” (get out, you and your Herbalife-like lifestyle!)
  • Yeah, 4% rule is dead. And I don’t plan to stay retired for just 30 years, let’s double down: 60 years! My friend Big ERN told me that if I’m willing to go 75+% stocks I can assume a 3.25% SWR. I know, it sucks a bit, but that’s what we have now.

Last response is the most rational, even though Big ERN series also suffer from extrapolation fallacy, and it’s not hidden by the author: it’s just a retrospective analysis of the last 150 years. An amazing one though.

Is the future of the stock and bond markets (or any other investable asset) going to be comparable to the last 150 years? Or are we going to experience a change in kind?

Time will tell… but I don’t want to be told I was wrong 20 years from now!

Up until early 2017 I’ve read quite a lot about the SWR, its implications for people outside US, impact of taxes and other fees, and much more. After few installments of Big ERN SWR series (end of 2016) I decided to accept a 3.5% SWR instead of a 4%, on top of all the other safety margins.

That was “long time ago”, more than three years ago, half a year after I launched this blog. Never really reviewed my strategy since then. I kept reading each new post Big ERN pushed, but only assimilated the concepts intuitively, never got my hands dirty again with spreadsheets. The thought of “being it all a lie” started forming over time and it’s lingering on my mind since maybe a couple of years.

Let’s talk about FI Money (a.k.a. FI Money, FU Money, whatever) now.

According to a “fixed spending regime”, the amount of money (invested) you need to call yourself FI is:

FI Money = Spending / SWR

(e.g. if you spend 50k per year, and you plan for a 3% SWR, you need to invest 50k / 0.03 = 1.666M)

I personally have no idea how to draw a comprehensive FIRE plan for our situation given that we don’t know where we’re going to live (IT? CH? Other?), how many mouths to feed (will we have another child?), what will be our spending level in 5, 10, or 20 years from now… I have no clue!

This heavy fog prevented me to focus on the “easier” part of the equation (the SWR) for a while. I postponed my SWR revision indefinitely, waiting for other moving parts to slow down.

Part of my brain didn’t want to “recalculate ideal SWR” at all, change FI Money target, setting a cold number as a goal.

People who are getting close – or already sitting on the other side of FI – keep saying that you should not sacrifice your happiness in the pursuit of a numeric goal, that money and confidence are interchangeable, that you decide where to place yourself in the Money Spectrum.

Maybe the money game should be played seriously, but not that seriously. Of course the basics of personal finance must be learned anyway if you want to achieve some sort of financial success and stability: earn more, spend less, and invest wisely. Tools like budgeting, expense tracking, salary negotiation, getting so good they can’t ignore you, avoiding crappy and expensive investments, and avoiding lifestyle inflation will always be the building blocks of financial intelligence, with or without financial independence.

But…

Don’t earn more if it’s coming at the expense of your physical or mental health.

Don’t save more if you’re perceiving deprivation.

Don’t invest more (or more aggressively) if it’s coming at the expense of your mental health.

And maybe splurge a bit in that direction that you know will improve your life in a sensible way without destroying your finances! (Maybe I should replace my old 2012 desktop computer…)

Of course first try to push yourself a little bit into discomfort in each of the above fields. Once you’ve found your thresholds, try to go that extra mile more to test them. But don’t try harder if the sole goal is to reach FI.

The truth? You decide when you’re FI.

You decide when to change the music of your dance (hail to you, prophet Alan Watts), you decide when it’s time to make a change and live your ideal life now, instead of “one day”. More important than the amount of money you saved are the skills you demonstrated to save that amount, the virtuous habits you developed. And more importantly: why and what you plan to do with the second phase of your life! Better to quit your job with 100k and a lot of ideas and energies than with 2M but without a drive and burnt out! There’s no finish line. Or if there’s one, that line is blurred!

That’s my current mindset, which is not moving far away from my FIRE goals, but it’s always keeping an eye on the big picture.

Until last week.

Well, to be honest nothing changed radically since last week 🙂 but I took time to think deeply about the entire FI thing after having received a cold-shower wake-up call that found fertile terrain.

I’m talking about yet another amazing video by Ben Felix.

I watched the video twice, trying to not emotionally react soon, allowing my thoughts sit with me for a couple of days.

Ok, Ben is not a fan of Early Retirement and the 4% rule at all. I think his pessimistic view on the 4% rule is a bit exaggerated (his simulation produced a forward looking SWR between 2 and 2.5%, ouch) but he got many valid points.

Let’s unroll the video and add my (humble) analysis on top of his.

Fun fact: I found a r/fi thread started on the same day (or the day after) Ben published his video, and didn’t get what people were telling about in the comments. After a good 20 minutes reading (interesting) comments and replying to some of them, I realized the video linked in the thread was not the one Ben just published but an old one from Sept 2018, against the 4% rule anyway. It’s worth watching in my opinion, even if it’s almost a duplicate of the new one from May 2020. I was surprised to see a thread about his old video on the day he published a new video on the same topic.

Funnier fact: I realized it was not the same video after reading a comment who said “He posted a video yesterday about…” and I was going to reply “bro, this is exactly the video we’re discussing here, didn’t you realize that?” but before submitting the comment I wanted to verify I wasn’t dumb, so I clicked on the YT link to find that… the thread was about the old video 😀

Anyway, if you care about the 4% rule, which is essentially the “scientific” foundation of the entire FIRE thing, please take a look at the thread on r/fi I linked above (ok, here is it again)

Back to Ben

Here I am, RIP, how’s going?

No, not you Ben! See you next time, ciao!

First of all, congrats Ben for your 4th child! Wow, I have no idea how you can get anything done with 4 kids!

Actual content starts at 1:09.

Ben starts quoting Nobel prize winner William Sharpe (the guy behind the Sharpe ratio) who said that “Retirement Income is the nastiest, hardest problem in finance”, i.e. we’re facing a tough problem.

Ben introduces the 4% rule for Retirement Spending. He adds that reducing one of the most complex problem (retirement income) problem down to a simple rule of thumb is somewhat useful, i.e. we’re (over)simplifying a complex problem with a simple solution.

So far, I liked the differentiation between Retirement Income, which is the problem we’re trying to solve, and Retirement Spending, which is the problem the 4% rule addresses. This makes explicit that we’re not “generating any income” via the 4% rule, but only caring about covering our expenses.

That doesn’t mean Ben advocates other income-y tricks like high/growing dividend stocks! He’s been vocal so many other times that “total return” is what matters, not “income” if it comes at the expense of expected future returns.

2:13: Ben introduces the two main (and unique to this problem) financial risks of retirement:

  • Sequence Risk: it’s not only the average returns during your retirement that matters, it also matters the order in which your portfolio returns are coming. Starting your retirement with bad returns (right before a market crash) can’t be covered by later better returns. Best articles on this subject: Big ERN SWR series part 14, Michael Kitces post on SRR, ONL post on how to address SRR, and again a recent article by Big ERN. Bonus: an amazing article (more math) by Fat Tailed and Happy (maybe the best on the topic).
  • Longevity Risk: well, you don’t know how long you’re going to live. There’s the risk of you living for too long and needing more money than anticipated. Be safe, die early! Longevity risk is the nastiest problem, and can only be anticipated by planning for a loooong life (which means trying to never deplete your portfolio). Best article on the topic: again, Big ERN’s “you are a pension fund of One“. Bonus: this amazing calculator, with a visual representation of odds of ending up rich, broke or dead over time.

According to Ben, the 4% rule was designed to address sequence risk, with (minor) focus to longevity risk as well.

3:19: Ben explains the genesis of the 4% Rule, from Bengen to Trinity study. I learnt few details I didn’t know (type of bonds considered, minor differences in success of the rule over historical data)

So far, so good.

4:33: here comes the (many) problems:

  • The 4% Rule only uses historical data. No guarantees on future performance.
  • The 4% Rule only uses US data. Good luck if you want to apply it everywhere else in the world!
  • Historical data contains few samples. Yes, 50-80 (or even 120) years are statistically insignificant.
  • Data before WWII is of doubt usefulness.
  • The 4% Rule doesn’t care about current high stock valuations and low bond yields. Shiller CAPE second only to dotcom bubble.
  • The 4% Rule only considers a time horizon of 30 years. Good luck dear early retiree friends!
  • The 4% Rule assumes constant inflation-adjusted spending. No space for flexibility, both up and down.
  • The 4% Rule ignores Fees and Taxes. Good luck almost everywhere in Europe!
  • The 4% Rule assumes your spending level won’t grow more than inflation. Again, take a look at this amazing post by Big ERN on how you should plan not just for COLA (cost of living adjustment), but you might want to plan for COLA+1% or COLA+2%. Boom! Screwed!

Ok, some of the above problems were added by me 🙂

4:51: Ben addresses the time frame.

This is a video about early retirement. A 40 yo early retiree (hey, hi Ben, you talking to me?) should plan to live a bit longer than 30 years. Over 40 years, the 4% rule has 87% success rate (50% stocks / 50% bonds portfolio), and longer time periods are of course even worse. No evidence has been provided to support the (quantitative) claim. I do accept the qualitative argument though.

Let’s increase the weight in stocks to improve the outcome!

5:32: Ben mentions the SWR guide by Big ERN (well done Karsten!)

The Safe Withdrawal Rate Series – A Guide for First-Time Readers

According to ERN, and reported by Ben, if you want to extend time frame up to 50 or 60 years and retain a reasonable chance of success (based on historical data), you need higher stock exposure – at least 75% – and accept a SWR closer to 3.25% than to 3.50%.

Over longer horizons, bonds are bad!

– Big ERN, SWR Guide Part 2

Emphasis mine. Same below.

You have to live with very high volatility for 60 years in order to increase your chances of success! An aggressive portfolio can be stressful even if it does make sense.

– Ben Felix

Big ERN realistic (but also pessimistic, compared to the 4% enthusiasts) conclusions represent more or less my view on the subject. My “plans”, if I appeared to have any, was to go for a 3.5% SWR, account for expected taxes, and don’t actually “retire” to a life of leisure, but keep being productive and care (hopefully less) about income. That was my fuzzy plan, I think it still is.

Ok, Big ERN also deployed a couple of bombs on the “flexibility myth”, but my rapid eyes dismissed them as manageable. Cmon bro, stop killing my dreams!

So far, nothing new to the horizon. Nice to see Ben confirming what I knew, and see the picture forming in a more formal frame.

7:02: Ben addresses the fact that historical US stocks and bonds data might not be representative for expected future returns in this point in time – and for other countries.

A CFA charterholder and retirement expert named Wade Pfau wrote a book in 2017 titled How Much Can I Spend in Retirement.

Wade re-run the historical data analysis (1900-2015) at the basis of the 4% Rule on 20 developed countries, to discover that the chances of success were below 95% (Trinity Study threshold, Ben’s assumed definition of failure) in all of them except Canada. And US of course!

Using bonds and stocks data from the other 18 countries would have had success rate between 38% and 92%.

This is a bit depressing in my opinion.

But RIP, who cares if Italian stocks wouldn’t sustain a 4% rule? Even if I live in Italy I can buy US stocks for cheap!

I have two objections to this apparently innocuous concern:

  • First: don’t you care about currency risk? Or any other risks of investing in another country? I can name a few: estate tax, unrecoverable dividends withholding, extra taxes on investments abroad (Italy taxes 0.2% per year investments abroad), and more.
  • Second: 2 countries made it while the other 18 didn’t. Doesn’t this fact make you think that maybe those two outperformed “the global index” and won’t repeat themselves forever? Wouldn’t it be much safer if the 4% Rule worked everywhere? Would you bet that re-rolling the 5 dice that show a 6 out of the 30 you just rolled would grant you another round of awesome scores?

Pfau analysis made me sad, a bit.

But there’s a comeback for the global stock market!

7:47: The Global Stock Market (yay, VT!) would have sustained a 3.5% SWR!

But if you think about it, that’s not that reassuring for a couple of reasons:

  • We’re talking about a 100% stocks portfolio. Welcome volatility!
  • We’re just talking about the 20 countries that made into the Pfau dataset. Welcome survivorship bias! For example, Argentina, Russia and China didn’t make it into the data (and they would have pulled down the 3.5% SWR for world – ACWI – stocks). Could this concern be solved by only referring to Developed World? Maybe, but again who guarantees you that the breadwinners for next 30-50 years aren’t in today’s developing countries?

Anyway, we’re still talking about historical data. What about Today and Tomorrow?

8:20: Today stocks evaluation are high and bond yields are low – even negative almost everywhere in the developed world. Stocks evaluation matters a lot in terms of expected future returns.

In a 2019 paper, professor Aswath Damodaran demonstrated that the Earning Yields (inverse of Shiller CAPE) is the best predictor of Equity Risk Premium (which is the expected excess return that investing in the stock market provides over a risk-free rate).

[Note: Professor Damodaran is one of the most prolific Youtuber ever! His channel published all his recorded lessons at NYU, and they’re now available to all of us. For free. What a time to be alive! Here are few videos about Equity Risk Premium]

Now, CAPE is dancing at around 30, which means Earning Yields is more or less 3.33% (1/30).

Add to that that risk-free rate is close to zero and voilà: welcome to the low returns future!

During the previous 120 years (while a 4% SWR was more or less sustainable over a 30 years period), geometric average US stocks real return has been 6.8%, which was the same as the average Earning Yields. Very high correlation. That’s also confirmed by this very good Mad Fientist podcast episode with Michael Kitces.

Today the Earning Yields i half of that!

Now this is very depressing 🙁

Applying any historical analysis to today starting point does not make sense.

– Ben Felix, while killing hordes of millennials aiming to retire in their late 20s.

Ok, Ben, what’s a Really Safe Withdrawal Rate for you?

10:04: Ben introduces – without adding more evidences or a link to his analysis – the methodology he used to estimate a SWR, i.e. using current starting point and running a Monte Carlo simulation (to compensate for the lack of available historical data).

Ben claims (not evidence provided though) that for a 60 years period, 100% stocks (world) portfolio, and aiming to no more than 5% failure rate the Really Safe Withdrawal Rate is 2.5%.

Ouch! Let’s update our spreadsheet!

RIP… so I don’t need to accumulate 25 times my annual spending (including taxes), but… 40?

YES.

And then you can be 95% sure to make it 🙂

F*** you and your blog, I’m done with this shit! FIRE is DEAD

No, wait, don’t fall into the fallacy of gray! There’s some light at the end of the tunnel, don’t drown into indifferent uncertainty!

10:38: What happens if you’re an early retiree that follows the new 2.5% Rule?

After 60 years of inflation adjusted 2.5% withdrawals, according to Ben simulation:

  • 5% of retiree died broke.
  • 10% of those who managed to not die broke, died with more or less same inflation adjusted amount they started with.
  • 10% of them died with 30x the initial amount or more!
  • The remainder 80% died with between 1x and 30x the initial amount.

Wow.. on average… wow!

Yeah, on average it’s awesome, but still 5% of people didn’t make it. That’s the problem of being a pension fund of one.

Problem: to cover for as many unfortunate cases as possible, the average retiree adopting a 2.5% Rule (or even a 4% Rule) ends up being needlessly rich on their deathbed.

It’s like building a car to just maximize safety. You might add 10 layers of extra armor and end up with a 10 tons of metal that can’t go faster than 20 km/h.

If a few words: wanting to guarantee a fixed spending pattern with such exposure to risky and volatile assets might be inefficient in the first place.

10:55: it is inefficient indeed! In a 2018 paper by William Sharpe (the Nobel guy, not a millennial YOLO blogger) titled The 4% Rule, at what Price we find that:

And goodbye Uncle Bengen!

But RIP, in a recent Reddit AMA Bengen said that the 4% rule is very solid! He’d actually raised the bar and told that ‘the “4% rule” is actually the “4.5% rule”

Sorry bro, when Bengen meets Sharpe (and ERN, and Ben Felix, and year 2020 essentially) I know on which side I should stand. Even though I really really wished for a different reality.

And btw, Bengen said 4.5% for standard retirement, withdrawing from a tax advantage account. He also said 4% “should do it” if you plan to live forever. And he’s only looking at the past. But he’s our old dear uncle Bill and we all love him and give him gold on reddit anyway <3

11:23: Ben doubles down on Sharpe’s conclusion:

Retirees who use a fixed spending rule from a portfolio of risky assets to fund their inflation adjusted lifestyle needs are probably overpaying for the potential of investment gains they don’t need to meet their retirement goals.

– Ben Felix

Ben mentioned that a more efficient solution to that fixed spending problem would include options, leverage and annuities (really?) but didn’t provide any evidence on this topic.

Maybe it’s time to review the spending pattern.

11:51: Ben introduced an awesome Vanguard paper from 2017, titled A Rule for all Seasons, which is about dynamic withdrawing rules. Goodbye constant spending!

I knew a bit about the world of Variable Percentage Withdraw (VPW), but that opened a totally different can of worms that I still have to make my head around. Take a look at this ~1000 posts long thread on bogleheads forum, and a good summary in this bogleheads wiki entry!

As I said, I don’t have a strong opinions about VPW because I “grew up” with the 4% Rule, even though I knew it was a “rule of thumb”. I’m part of the optimistic crowd who say “if you have the skills to reach FI according to the 4% Rule, you’ll be safe forever. Not because of the math behind the 4% Rule, but because you’re a top performer and you’ll experience a life of abundance. Get rid of this scarcity mindset!

I’m now fully on board with what Chris Hutchins said in his appearance on Mad Fientist podcast: “You Should “Retire” Before You Hit Your Number“. MMM in “Money and Confidence are interchangeable” and More To That in “Money is the Megaphone of Identity”. OLY (one less year) instead of OMY (one more year) Syndrome!

That’s exactly what I’ve done a couple of months ago!

In the final couple minutes of his perfect video Ben walks exactly this way.

Before that, few words on the Vanguard paper on dynamic withdrawing/spending rules: the optimal strategy shown in the paper says that you should adjust your spending over the year based on investing performance, with a ceiling of +5% and a floor of -2.5%. That’s on top of inflation adjustment. Ben doesn’t mention it but I found it in the original paper.

This is an outcome-based spending adjustment, i.e. adjust next year spending based on current portfolio value. On the other hand, adjusting next year spending based on CAPE (or EY) is an expectation-based spending adjustment.

I like both solutions, and I think we should put those two in FIRE literature and say goodbye to the 4% Rule like Relativity Theory did with Classical Physics!

And now, finally, some words on earning flexibility. We’re not retiring “for real”, aren’t we?

12:53: if you’re able to do something that you love, and generate any supplement on top of your 99% fail-safe withdrawals… you’re done!

That’s where the gray fallacy shows its power: we’ll never be 100% sure that our FIRE plans will work. Given this undeniable truth one can conclude that “FI doesn’t exist, because in case of a Zombie apocalypse your investments are not going to help you!”.

My embracing-uncertainty answer would be like: “Fine, but I’m happy I’ve took steps toward FI even if FI doesn’t exist! I may discover that it’s unsafe to assume my investments would cover 100% of my expenses, fine. But they might cover 90%, 80% or even 50%… which is much better than having quit the project because ‘everything is gray’. Thanks to the steps I’ve taken I can now switch down to a part time position, change job or field, take a lower paying job, face seasonal unemployment, take open ended sabbaticals, semi retire, work on passion plus passive income, fully fund my lifestyle change, become a Financially Independent Entrepreneur, and much more. Time will tell how FI I was, but what really matters is the system I put in place, not the final goal 🙂 ”

13:20: plus, work is important for humans!

We’re moving out of financials and more into a meaning/purpose territory, but I’m glad Ben made me discover Martin Seligman’s PERMA model of well being

Ben claims that “working at something that you love to do, even if it doesn’t make a ton of money, is a great way to get Engagement, Meaning, and Accomplishment“.

Checking 3 boxes out of 5 🙂

I have some complaints on this point, but it’s getting too long and don’t want to start non-financial arguments now (and btw, why not also positive emotion and relationship? I’m scoring 5 out of 5 via blogging for example). Anyway, here‘s a 25 minutes Martin Seligman video explaining his model in detail for those who are interested.

Thanks Ben, it’s a pleasure to have had you as a special involuntary guest on my blog 🙂

Conclusions

The 4% rule is dangerous, and should not be considered even as a “rule of thumb” if you plan to retire early, i.e. with 45, 50 or more years of “retirement” ahead of you.

Given current high market valuations (even considering the pandemic) and low interest rates, you should rely on a 2.5% – 3.5% SWR depending on your time horizon, willingness to take high stock exposure, and optimism/confidence.

It’s not all doomed though, you’re not retiring like your grandpa did. You should review your retirement planning and allow for flexibility in both spending and earning.

Adjusting portfolio withdrawals according to market performance or in anticipation of expected performances, and being able (and willing) to earn some money thru paid work or via monetizing a side gig will easily cover the gap.

Nobody wants to retire to a beach sipping mojitos.

And that’s more or less what I plan to do / what I’m doing.

And that’s really all for today!

Have fun!

 

P.S. I wrote a short appendix to this post few days later, with a nice surprise at the end 🙂

Enjoy!

 

Here some other amazing resources on SWR and 4% Rule:

  • TOP – Early Retirement Now: “The Safe Withdrawal Rate Series” (link)
  • Vanguard research: A rule for all seasons (link)
  • Bogleheads wiki: Variable percentage withdrawal (link)
  • Bogleheads wiki: Withdrawal Methods (link)
  • Michael Kitces: “20 Years of Safe Withdrawal Rate Research” (link)
  • Michael Kitces: “What the FIRE movement gets wrong” (link)
  • Michael Kitces: “Is the Safe Withdrawal Rate Sometimes Too Safe?” (link)
  • Michael Kitces: “What Returns Are Safe Withdrawal Rates REALLY Based Upon?” (link)
  • Mad Fientist: podcast with Michael Kitces (link)
  • Mad Fientist: “Safe Withdrawal Rate for Early Retirees” (link)
  • Our Next Life: “The 4% Rule Is Not Your Friend” (link)
  • Ten Factorial Rocks: A CAPE-based SWR (link) – I love this approach!
  • Investment Moats: Variable Withdrawal Strategies for Financial Independence (link)
  • u/msrj4 post on r/fi: “Why you should consider a 5-6% withdrawal rate” (link)
  • u/msrj4 post on r/fi: “Choosing your personal withdrawal rate” (link)
  • r/fi post about the Ben Felix video analyzed in this post, and the old one (link)
  • Bogleheads wiki: Trinity Study 2009 update (link)
  • Early Retirement Dude: “The 4% rule can ruin your retirement” (link)
  • Early Retirement Now: “Ten Lessons From Ten Safe Withdrawal Rate Case Studies” (link)
  • Philosophical Economics: “Fixing the Shiller CAPE” (link)
  • The Poor Swiss: “Updated Trinity Study for 2020” (link)

35 comments

    1. I think it’s a good post. I skimmed thru it quickly, and we reached similar conclusions.
      That post is focusing on the financial side, I love to mix financial aspects with psychological ones though 🙂

  1. Great post RIP!
    I really like your approach and research on the matter!
    I am convinced that people in the FIRE movement are above average smart people, maybe sometimes too optimistic, maybe sometimes too idealistic, but indeed smart people that contest the established rules of the rat race and look for a better future… some kind of (Lazy /crazy;-)) Illuminati, maybe alchemists trying to find the perfect formula to turn stone into gold.

    Yes, bigERN series is highly recommended in the “FIRE university”. Economy is a science and we must keep a scientific approach to FIRE. But no theory is perfect, no theory can explain the whole world. The map is not the territory, so maybe we need more than one map, more than one tool. I think it’s wise to avoid betting everything on the 4% rule. Let’s keep more option open, even part time work.

    As “above-average-smart-people”(too optimistic) I think we all deeply know and feel that the magical 4% rule must be taken with some “grain of salt” wisdom.
    We never know what the future will bring, how our mind will change over time or how the economy goes, but the 4% rule of thumb is a great starting point.

    We must be flexible, develop a growth mindset, keep open to new possibilities and paradim shifts in economy, develop new skills, study, live the freedom we dream and dance!

    We will never have anything for sure in life, we must accept risk and probabilities, but also be prepared for the worse. We should always have more than one “end-of-the world plan”. And to be prepared to stoically accept failure and restarting from zero.

    And no problem if we end up being needlessly rich on our deathbed… we can leave everything to our children, to charity… whatever.

    If FIRE is going to die, I’m sure it will resurrect in a new form, with a new name, with new rules.
    We discovered fire as cavemen, and now we must rediscover F.I.R.E. and your article can definitely help to keep a balanced perspective!
    Thanks
    Dom

    1. Thanks Dominic 🙂
      Haha yeah, FIRE people are essentially people who challenge the rules and want to show that a different life is possible. But in a G.R.R. Martin world!

      I think the best approach is to aim for a SWR (be it in the 3-5% range) with the understanding that the skills you build while reaching FI with your chosen SWR will make you free, not the numerical amount of money you accumulated at the end.

  2. That’s a great post! I am a fan of the conclusion.

    Someone could add a couple of other bold claims:

    Claim 1: Most people who are attracted to FIRE don’t really want to FIRE. They want an (extra) meaning for what they are doing.

    How to disprove: A significant percentage of them stops working and dedicated their time to family, seeing friends, playing videogames.

    How not to disprove: A significant number of them does work that others would pay for it (usually seeking broader social approval).

    I don’t put any moral characterisation on either the first option or the second. Just an observation that IMHO most FIRE enthusiasts fall into the second category.

    In other words, the main motivation is not to retire, but to find meaning. Unfortunately, achieving the goal of fire is meaningless. Perhaps the journey (or dance) are more interesting.

    Claim 2: Many capitalistic notions are going to become obsolete as technology reduces the need of capital for many professions while displacing work that is not in nature about human interaction.

    How to disprove: A long term low unemployment without the addition of either “meaningless” (work to the point of trivial warming up a seat) jobs or institution of basic income in the next 30 years.

    How not to disprove: Waving your hands that historically jobs replaced by technology have been replaced by other meaningful work. My claim is that there is a saturation point on what is meaningful work and the FIRE movement (which was not really possible a generation ago for the masses) is a testament of that where society is finding it’s first members questioning the need to work in order to be fed.

    1. Hi Dimitris, a lot to unpack here 🙂
      I want to better understand your claims.
      Is “claim 1” a delusion or not? Do you mean people are aware that they don’t want to fire (but follow the “rules” because better to be FI and have more options, i.e. FI is not the final goal but a starting point) or they really think they want to fire but if they happen to be able to quit and retire they’d discover that they lack something?

      I’m asking because I think I’ve been in both positions. Few years ago I thought FI was the goal (even though I knew that I didn’t want to retire to leisure), while now I’m more explicit that FIRE is not the goal, and it’s not even a clear intermediate black/white goal: freedom is a spectrum

      According to “how to disprove it”, it seems to me that you refer to both intentional and subconscious rebuttal of the fire desire.
      According to “How not to disprove”, it seems you refer to the intentional rebuttal of FIRE, i.e. I know that FIRE won’t be the goal, I know I want to have freedom to do something more meaningful.

      I agree that most (almost all) fall into the second category, but if you make a split between intentional and subconscious fire rebuttal you’d cut the pack in half I guess.

      You can take a look at r/fi. Many write about their journey to FIRE, quitting their job, feeling amazing for that, feeling “they’re arrived”, and then in the 2 years update they got another job because they discovered that retire is not for them.

      Claim 2 is much more interesting, but it’s even more speculative. I’ve been thinking a lot about “what if UBI will essentially FI everyone?”
      I must admit I don’t have a clue about what would happen, but my personal prepping is curiosity and creativity. That’s my ingredient for a successful “retirement”. You can have finances and confidence covered, but what to “retire to”? For those who never trained their creativity and curiosity muscles, retirement (and even UBI) would not necessary be a good thing.

      Amazing comment, thanks 🙂

      1. My first observation is that many people who pursue FIRE do it for reasons that may not be related (consciously or not) with the RE part and potentially the FI part is fulfilled much earlier than the framework defines (money/confidence).

        There could be many reasons why this happens. It could be because the people who pursue FIRE (if we are gracious) like optimisation under constraints, or they are highly driven and goal oriented, or (less graciously) overconditioned on working hard and seek a justification or insecure about financials or a mixture of all these, or nothing from these reasons. I don’t really know the inner world of other people in aggregation. I am hardly honest to myself which makes me doubtful of my own motivations sometimes. That’s why that claim is more of an observation of external effects.

        That is: People who reach FIRE, don’t really retire. Therefore at some point they realize they didn’t want to RE. They also often do paid work (or could be paid). Therefore the financial part is also not that relevant either.

        As for the second claim, yeah, it is much more speculative. Already, though, a significant part of people in working age are not working. I expect that to be increased over time.

        1. I lean toward the “less graciously” set of reasons to pursue FIRE, which in my opinion lead to an unconscious pursue of FIRE as false goal 🙂

  3. I share Dimitri’s and Dom’s views.
    I believe that currently, FIRE is more a way of life and a way of thinking than a rule to follow as a mathematician. As Dom says, we need to take all the assumptions with some grain of salt.
    In my opinion no one can’t tell for sure if a market is overpriced or not. I know someone will try to scientifically demostrate the opposit. As all CFA and portfolio managers say, you cannot use the past as a point of reference. There are too many aspects to be considered:
    – Most of the biggest central banks are printing money relentlessy and buying corporate and public debt; (most of this debt won’t be paid or it will be renewed forever)
    – Some central banks have printed and credited money directly the country to subsidize the public spending. (even if they say it’s temporary, but who knows)
    – Inflation can be a game changer in the near future. There is a chance that prices will not be as before once we reopen our economies, since we need to recover losses (Restaurants, coffee shops, airline tickets) plus all the printed money in our economic system.
    – If we share Graham’s View, usually stocks and bonds move in opposite directions. So, are we sure that stocks are overpriced here?
    I have a 90% equity portfolio, for few reasons. 1. It SHOULD gain more in the long run (I hope to last at least 30 years more) 2. If I made it once, I can do it again. So if something really bad happens, it’s just bad luck (I will never pay a debtor like Germany to keep my money “safe”, so I will never buy negative rates bonds right now). 3. It should be more defensive against inflation. The 10% is in alternative investments (probably riskier than stocks) but I know that and I signed a disclaimer to myself.
    I took a bump this march and there is a chance there is another one worse coming. It will not last, at the end of the game (if you keep buying periodically) there is a reasonable probability to win and, in my opinion, the only chance to try to get out of the casino as winner.

    1. I like to think at it as a FIRE paradox: on a larger scale we can never be sure how FI we are, but on a smaller scale is 100% guaranteed that deciding to not buy a pack of cigarettes today puts you a step ahead. Or negotiating a salary raise. Or deciding to invest your money wisely instead of letting money sit in your checking account.

      Ultra clear in the short term, fuzzy in the long term.

      Anyway, congrats for 90% equity strategy (and 10% riskier than that!), I’m back to 50-55% and daily swings make my head ache every other day 🙂

    1. There’s room for opinion because we’re dealing with uncertainty and future.
      Btw, TPS study is based on historical, US data.
      It means it’s betting on
      – US being the top performer in terms of exponential growth for the next 50 years (if that happens US stock market will be 80-90% of world market capitalization, good luck with that)
      – Today being an average starting point. Good luck with that as well

      And apart from “conclusions”, I don’t really see much optimism from his graphs if you want 40 or 50 years of retirement and not invest in 100% US stocks.

  4. Hi RIP,

    I think to really reach FI – at least in Europe – one needs to add (mortgage free) real estate to the equation. The great thing about this asset class is, that Cashflows can be planned extremely well. One needs to put up a renovation plan, this takes out a lot of risk. And if something out of the ordinary happens, one can still partially mortgage or sell of single units (tax free in Germany after 10years).
    My plan for retirement includes to cover all my expenses with RE income and have upside through stocks and dividend income. I will build my net-worth with stocks and later partially convert to Cashflow.
    It is important to have a portion of the wealth in liquid assets, in case war, natural disaster or something else hits…
    Nothing will be 100% safe and everything in life comes at a cost…

    1. I don’t think owning real estate is necessary to be really FI.
      It’s just another asset, whose volatility and returns are a bit more predictable.
      I agree that in this low yield time for low volatility asset maybe owning a property is not bad, since you’ll earn your own rent (that you don’t have to pay) minus taxes, costs, renovations, luck.
      But the fact is that everybody is thinking this, and house prices are skyrocketing. Low mortgage rate, and lack of alternative in low volatility assets is increasing demand.
      And we’ve already experience a couple of times what happens when housing bubbles explode!

      1. Agreed, at the moment it is not easy to find objects that are cashflowing at these prices. I’m talking about rental properties by the way.

        My strategy is to build wealth by buying out of favour assets (at the moment natural resources). When/if the housing bubble bursts, I will be ready to shift asset classes and buy with both fists. Patience is key and wait for the opportunity to come to you.

  5. Hello!
    I am new to the place (congrats for the blog!) and I haven’t spent a great deal of time pondering on the mathematics of early retirement, but there’s a couple of things, in my opinion, you’re not factoring in. Taking them into account might help some of those wishing to retire early to make their decision.
    First : no matter how late, you ARE going to die. Unless you wish to leave something to your heirs (if you have any) you can dispense with the idea of preserving your capital intact until your last breath.
    So, suppose you are 45, you’ve got a million (not my case) and you think you can live on a maximum of 20.000 a year (dollars or euros, whatever : an awful lot of people, especially old people, can – and you have developed a frugal mindset!): you could decide you put that million in some sort of no risk investment that just only protected you from inflation (if it paid you 1% a year on top of that, great).
    You could decide to take every year 20.000 from the invested million (invested in bonds? Maybe not in stocks, if I follow you) and you’d have a time horizon of 50 years. You could decide to die totally broke at 95, not bad. A 1% payback after tax and inflation will bring you past your 100th year with some pocket change left 🙂
    Second: you are retiring early but you have been working, haven’t you? Let’s say you have contributed to the social welfare for 20 years (you’re retiring at 45, it seems an acceptable surmise). Somewhere around your 65th anniversary, give or take a couple of years according to the country you have worked in, you should start perceiving a pension. Not a big one for sure, since you retired early. Let’s say you’ll only get 600 per month (7200 a year). You won’t be able to live on that BUT that small income means that from 65 (62 or 67) on, you’ll only have to eat away 13000 bucks from the 600.000 or so you should still be sitting on. That should allow you to beat all records for old age without having to worry about your bread and butter.
    Too bad I still lack the bloody million.

    1. Hi Alex, welcome to my blog 🙂

      The capital preservation I guess is good because it allows you to not care about becoming broke.
      Plus I believe in leaving money (actually I’d love to leave a shitload of money to my heirs, and to a greater good cause still yet TBD) after me. Even if it was ok for me to just die on the day I spend my last 100 Dollars bill, how would I feel the day before? Unless you know exactly when you’re going to die, you never want to be in the situation of “ok, I have 10k left but maybe I’m going to die in 2 months so everything is fine!” – even if the person really dies in 2 months!

      I’ve once read an interesting article about re-retiring every year: every year you should re-asses your position and decide if you’re able to retire again. Aiming to (inflation adjusted) principal preservation means being able to re-retire each year. Ok, it’s more complicated than this: I have a more complex model in mind, that takes into account current asset pricing, but that’s maybe food for another post.

      Your example of the inflation-preserving long term investing simply doesn’t exist. And your spending life is not necessary as predictable as you wrote. And btw needing 20k per year out of 1M is a 2% SWR that even the most skeptical financial advisor would approve. Think about it: the last 20k you spent on your 50th year post retirement have been sitting for 49 years in a 0-1% real return investment. Why the hell?

      The “pension” point is a good one, but the younger you are, the better you do if you if you forget about it. Social security is at stake everywhere int he world. It’s been an anomaly in the world. Started after WWII and soon became unsustainable and had to be corrected for the worse everywhere int he world. And it’s usually not inflation adjusted. I like to consider it as an “extra margin of safety”, even though I wrote an article about it (https://retireinprogress.com/lump-sum/), and I run a reader case study for which I developed a “retirement calculator” where I considered pensions and how to actualize their value (https://retireinprogress.com/reader-case-study-mr-atm/)

  6. Spending can be flexible during economic downturns and if you didn’t save enough, it’s not like your FIRE plan fails tomorrow (if it does then you were not prepared to FIRE in the first place and you were just a dumbass), you will see it years in advance maybe even decades, which allows you time to sharpen your skills maybe even in another sector, refresh your resume, work for a few years and you will back on track.
    I don’t think anyone who manages to FIRE in their 30’s won’t earn another EUR in their whole life.

    1. Besides the 3% SWR, there is also the 2 years worth of expenses cash cushion and the forbidden unethical word in the FIRE community, some “inheritance”, that’s not calculated in the FIRE number in the first place. I don’t have data to support this, but I suspect that most people that pursue FIRE in Europe, have some education and that means they were brought up in good families so they have at least their own house/apartment. Yes, if you went to Secondary school or University that means you had a good upbringing and should be grateful.

      1. 2 years cash cushion and 3% SWR is already 2.83% SWR 🙂
        So at least we agree it’s not 4% anymore, by a lot.

        Inheritances are very subjective and not worth incorporating into a generic model imho.

        maybe pensions / social security, but definitely not inheritance.

    2. It’s not necessary true.
      This is what we like to tell ourselves, because that’s what happened in the past.
      What about a 5 years stagflation (not unlikely today), where it’s not clear that your portfolio is doomed, followed by a sharp decline, where it becomes clear you should un-retire?
      Maybe 5 years out of the market will not grant you the same level of salary, and maybe your partner, who you had tough life selling the FIRE dream, will not be happy with the development… and more problems will come.

      I’m not saying this WILL happen, but the likelihood of it happening in the future are way bigger than our linear-extrapolation historical-data-driven mind could come up with

  7. Hi Mr. RIP,

    I think that the main point, in general, is to be aware that all the formulas and ideas that are built based on statistics can’t be taken as an universal law.
    It is for sure reassuring to have some fixed numbers to rely on but it is also a fool semplification of a very complex problem at which all of us are looking.
    Market is like a living being, it keeps changing so we better do the same.
    Better to be focused on making the choices we consider most correct and suitable for our life style instead of paying too much attention to some constants that have not much constant. 🙂

    1. Take a trip on reddit, and you’ll find a bunch of 20something that are calculating their exact 4%-Rule-based number to retire asap.
      I think someone with more authority should tell them it’s a lie.

  8. Well I have walked the walk…. 2007 at age 49. I started with a portfolio based on 4% swr, events overtook me with respect to Sequence of Returns Risk !

    Diversified portfolio, which included a directly held industrial property helped keep the income flowing in and some fortuitous trading allowed for recovery and real gains over the next few years. The allocation to equities was then 90%+,( now 78%).

    What one spends can be flexible, ie living costs is level one, level two allows nice holidays etc and level three extensive overseas travel for months. Just because you can afford level three… most often expenditure is level two, at present its level one as not much opportunity to spend !!!

    Level two represents around 2% of the portfolio, whilst level 3 is around 3% and level 1 is around 1.25%

    So luck plays a part, anyone who absolutely needs every bit of a 4% drawdown probably does not have enough money, be flexible with spending, maybe things work out well and you have too much..

    McClungs “Living off your money” is an excellent book on the subject, you don’t have to adopt his method but its great guidance.

    1. Ouch, you retired in 2007 (with 90% stocks) and worshiped the 4% Rule?
      Good for you that you had “some fortuitous trading”, but that can’t be considered the standard.

      I agree that expenditure can be flexible, but if your 4% rule covers all “level 3” expenses you’re not retiring to a 4% rule but, as you said, at 1-2% which is pretty safe.

      Thanks for you comment 🙂

  9. WoW! Really long post about the demise of FIRE. I think that some variation of FIRE can work. Most people can probably retire at a reasonable age and then do something else.

  10. Best post ever! Made me think a lot just 7 months away from quitting my job (it’s already decided) “forever”.
    I do think flexibility in spending is the best way to go through Fire journey’s speed bumps.
    Post is saved forever in my bookmarks.
    Best regards from Brazil 🇧🇷

  11. I nust got round to reading this from top to bittom.
    Fantastic post and I agree with almost all of it.
    My own view at the age of 38 is that i have a final salary pension fron 60, sipp access from 58 and state pension from 68. They are at the position now that they make my normal retirement fully funded with around £40k payable from 68 onwards.
    The problem is that my bridge is short of money and i still have the mortgage- so all the chatter about swr is interesting but irrelevant imo. And if you are at the position that you have 10/20/30+ your annual spending saved and invested at an early age you’ll not go far wrong.
    Finally. I think that it’s nearly impossible to avoid earning and money – so there is no such thing as total retirement.

  12. The reddit uk fire group js crazy – teenagers talking about “how can i reach fire” while still living at home.
    Or 20 doing the same without realising life getd in the way and renting a room in a flat might not last forever.

    1. This is biggest problem with the FIRE movement. While the bloggers and authors are addressing late 30s and early 40s aged (mostly knowledge) workers, telling them that there’s an alternative to grinding… 20s should not read this stuff at all. I always tell 20s to forget about FI, just do something you enjoy – and save and invest in the meantime, for no specific reason.

  13. What a great post. It had everything. by the middle it felt like the world was falling apart and then by the end it came back to a set of pretty sensible sounding nuggets of life advice.

    I think you’re totally right. The logic that the market always does more or less the same thing over the long term and that the world is in some sort of stable equilibrium doesn’t seem to account for all the crazy events, existential threats and historically unprecedented changes that are, or might happen. Accepting that no one knows what’s going to happen is either terrifying or liberating.

    I’m firmly what I like to think of as the “save a bunch of money and invest in fairly sensible things” stage. I hadn’t really thought too much about what comes next but sitting at home and selling off a small chunk of my winnings to buy groceries each month, wondering if it makes me one of life’s winners, doesn’t sound very inspiring so I’m not too sad about letting go of that idea.

    I always preferred the idea of getting to the point where I could decide that I didn’t have to worry about money particularly and I could do whatever work I liked, without having to worry that I could be getting paid more if I moved somewhere else or got a promotion I didn’t really want.

    My personal and very unscientific idea has been save somewhere in the region of an FI number and then choose between having any work that brings in enough to roughly cover daily expenses without having to worry about money at all, or quit work altogether and then have to get way more serious about money stuff to the point where I could convince myself I was managing the risks associated with spending the portfolio. Given your investigations the latter sounds even harder than I feared.

    I still think the FIRE idea is a useful concept to get motivated to save. But the RE bit is more as an insurance policy than the goal. Post FI you are probably so secure that even if you never earned anything ever again you could still live comfortably to retirement, which is a nice idea, but might not actually be that much fun to live through.

    Thanks for all the thoughtful posts. Now get back to work.

    1. Thanks Rinch for the nice words 🙂

      “I always preferred the idea of getting to the point where I could decide that I didn’t have to worry about money particularly and I could do whatever work I liked, without having to worry that I could be getting paid more if I moved somewhere else or got a promotion I didn’t really want.”
      The good news is that YOU DECIDE when you’re at that stage (See Mr Money Mustache “Money and confidence are interchangeable”, or More To That “Money is the Megaphone of Identity).
      The bad news is that if you want that decision to be “mathematically backed” there’s no way you can have that 🙂
      There’s an inevitable “leap of faith” that needs to be done.

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