Hey everyone, it’s Finance Fridays again. After the roadmap update I wanted to talk about being “Fascinated by FIRE”.
Fascinated by FIRE?
It seems like pretty much every other day I get an article that shows up about Financial Independence Retire Early (FIRE). Of course, my wife and my friends get them too. Since they know I’m into this “finance stuff” they usually send them to me. As such, I do my best to read through them.
Over the last few years this movement has really caught on, and I’ve talked about it more than once. For example, in my prior post “Playing with FIRE”. I also commented on Suze Orman and how she feels about FIRE as well.
Here’s the thing. The idea behind FIRE isn’t necessarily new or innovative. It’s just kind of a cool spin on frugality and retiring early. However, because of how fast information travels now, the movement has really caught on. Unfortunately, like the “telephone game”, some of the details tend to get lost in the shuffle.
So what is the fascination with FIRE?
Well, it sounds pretty great doesn’t it?
You are freed from the hedonic treadmill and Keeping Up with the Joneses. Instead you downsize your house and your expenses and essentially your life. Then you save up a certain amount of money, whatever you think your number is, and ride off into the sunset in retirement.
That’s kind of the idea that is sold, and usually the clickbait title is something like:
Young couple retire on $1 million
However, if you really get into the nitty-gritty details, I think it would be very difficult for most people to do that.
Let’s say you decide that you only need $30k a year to live on for the next 60 years. So you decide that $1 million is enough and only plan to withdrawal 4% because you read about the 4% rule. I didn’t run the numbers, I’m just making up a story as I go along.
This may be fine for the first 10 years, or maybe even the first 20 years. However, what is the plan for medical insurance? For two 50 year olds, your insurance premiums will probably be at least $1000 a month. This will significantly cut into your $30k/yr which you have allotted. $18k/yr after paying for insurance makes things difficult. Or let’s say you decide to not carry any insurance. I guess that’s ok, but then even a non life-threatening injury could devastate your finances.
Usually, somewhere hidden in these clickbait articles is a line or two that this “young couple” will still be doing some work, whether it’s running a blog or writing a book or doing freelance work. This is not the dream that the clickbait title sold you. Continuing to work on something is not “riding off into the sunset”.
Or sometimes, when asked about concerns about making it through retirement, the other answer is “move to Thailand” or “move to Bali”. It is true that it would significantly cheaper to retire to some other countries. However, you still will be subject to United States taxes, unless you Renounce your United States Citizenship. I don’t know about other people, but my father and mother struggled mightily to get to the United States, so I will never give up my United States Citizenship.
Obviously, this is a personal choice, but I don’t think retiring to another country and potentially giving up your United States Citizenship is something you just kind of “throw out there”. Being a tourist in a country for a few weeks, months, or even a year is completely different than living there all the time. I live on Hawaii, it’s nothing like being a tourist for a few days or a week. I still like it, but it’s not for everyone.
So how do you look at FIRE?
It’s unfortunate, but I think retirement (and FIRE) should have a strong plan in place to pay for medical insurance. I think it’s virtually impossible to tell how much it will cost to be medically insured in the future. You can only guess, and it’s probably just safer to assume it will be more expensive.
When you’re 30 or so, it’s easy to say you’re going to be healthy forever because of your healthy lifestyle or whatever. However, what if you break your leg and become nonambulatory for a few weeks? People can gain a lot of weight and become very unhealthy when forced to be sedentary. Just because you are currently healthy doesn’t mean you’ll always be that way.
What will you do if you expatriate to a foreign country? You will need to carry their version of insurance or simply have enough money on hand to pay the costs. Here is an article about people who are detained in hospitals because they can’t pay their medical bills. Having something like that happen would be horrible, and you would have no way to get back into the United States if you renounced your citizenship.
What’s the upside?
At its core, FIRE is a really great concept. If you remove all the sensationalized stuff, you’ll find that the simple idea of saving a lot of money early on provides a ton of flexibility in one’s life.
I think a better concept would be financial independence go part time (FIGPT). Unfortunately, the acronym isn’t nearly as nice as FIRE but I think the concept is better. Or maybe financial independence do something else (FIDSE). Basically, what I’m trying to say choosing to become financially independent in order to devote less of your life to current job is probably better then retiring early. If someone comes up with a better acronym with the same concept, let me know. I like acronyms.
What’s the bottom line?
Whenever these articles come to me, my wife usually asks me:
“What are we doing wrong?”
These other people are retiring early — we’re doctors and we work so hard and save as much as we can, but still feel like we’re not getting anywhere.
Of course, I have to explain that we still have student loan debt, a mortgage, and live in a high cost of living area. It was never the plan to retire this early (in our 30s). If that was the plan, then we wouldn’t be living here and we probably wouldn’t have bought a house.
The plan for us hasn’t changed, it’s still the 20 Year Career and I hope the future I predict comes true. Personally, the older I get the more I see the merit in working part time, like 0.6 FTE or so, rather than completely retiring early.
Here’s the thing, anyone can retire early.
All you do is quit your job and just live off whatever money you have.
The real question is:
What kind of retirement do you want? And will your retirement last?
I try to explain the fascination with FIRE.
Don’t believe all the hype.
However, the underlying concept is still good.
Maybe consider FIGPT or FIDSE instead. (give me a better acronym please)
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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