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Financially Independent, Retiring Early?

I have come across a FIRE (Financial Independence Retire Early) article and it got me intrigued. In this article a couple had managed to stop working, as by the age of 30, they had managed to save up to a million (expressed in USD). Now they are living their best lives in early retirement, travelling the world, writing blogs and books and just in general having a great ol’ time.

Seeing that I myself have plans to retire soon (immediately after the PhD, for sure), I thought it’d be a good idea to familiarize myself with this lifestyle and its possibilities.

Financial Independence What makes for financial independence? After reading several articles, I have now found a range of answers. One source claims there is no one set point for FI, but you may claim your independence once you’ve got saved up enough to have 15 times your annual salary. Given that I’m on a PhD wage, the bar is set low…

How would you save up that much money? Invest half your income. No joke. You keep investing for years and then afterwards live of the dividends. The Dutch Binck is kind enough to give us an example of this (which I had to translate to English, bare with):

“Imagine you have an annual salary of € 35.000 (after tax). Of this, you put 50% (€ 17.500) in savings. After 20 years, you’d have your salary 15 times over (€ 525,000).” I had to check that calculation, as 20 times 17,500 is 350,000 in my humble opinion, but they are assuming a 7% return on the market, based on the past century. They do warn against past results not holding in the future blah blah blah. “Imagine another 1% goes to tax and another 2% for inflation and you’re left with 4% of € 525,000, which happens to be € 21.000.” So suddenly, now that you are retired and living of dividends, your annual spending allowance has even gone up.

Think that’s insane? Go read Investopedia. Saving 50% (and investing it) will seem like peanuts, as they suggest you need to save 70% and need to have saved 30 times your annual salary, hitting close to 1 million (again USD, I assume). But after a lot of (soul-)searching I have found the ultimate rule: the '4% safe withdrawal' rule. Which suggests you save at a rate of 75%, as it would take less than 10 years of work to accumulate 25 times the average annual living expenses. The 4% refers to how much of your savings you are allowed to use during retirement. Sigh.

Investopedia continues on a similar note: “FIRE devotees make small withdrawals from their savings, typically around 3% to 4% yearly. Depending on the size of the savings and desired lifestyle, this requires extreme diligence to monitor expenses and continued maintenance and reallocation of their investments. Of course, when stock markets fall and/or interest rate environments are low, the FIRE plan may fall short.” Grand.

Don’t think of me as a Scrooge, or someone who just wants to ruin the fun, but I’m currently only able to save half my income as I don’t pay rent. What is the average person supposed to be doing here? I mean, I understood that you wouldn’t be living large. To do this and to have savings building up, you can’t really live large AT ALL. And that’s not just during the saving part. It’s during the whole of your retirement part. In the article, they explain that at least one of them comes from an impoverished background, and as such knows how to do with less. But not everyone does. And not everyone wants to.

Retire Early If you’re retiring at 30, with an average expected age of above 80, you’ve got a loooong way to go. But if you read the article again, you’ll realize that the couple in question never really stopped working to begin with. Sure, they said goodbye to hectic jobs they didn’t like and traded them in for writing gigs (which is cool). But that is still work right?

Retirement to me is no work at all. Especially not work I might need to do to tie me over (not that I’ll retire for long, my generation won’t retire until 75 I’m afraid to say). But I don’t think that is really the main concern here. What I’m worried about is this early retirement backfiring like no other. Your safety net is money. Not work experience, just money. One of them is a lot more stable than the other…

And this is what bugs me. What if this backfires? Let’s just look at the investment part. In the initial article, their investments are described as risk-free. What investment is that?! Money that is tied up is money that is tied up. At that stage, it isn’t your money anymore, and that money can start to do funny things. Things that you don’t want it to do, like disappear. We used to think investing in bonds was safe (or risk-free), need I say more? Every source I checked on this topic mentions it: investing can still pose a risk and gaining from it isn’t a certainty (although it has to be mentioned that putting money in a savings account is a certainty of losing money in terms of real value, as inflation is bigger than the interest on the account). It is very possible that the money saved and invested will not tie you over, what then? Before making a drastic life changing decision like this, you need a plan B. Or, as the couple did, a less stressful source of income, such as writing gigs, freelance consulting etc. Something you’d enjoy doing. This is also known as “Barista FIRE”.

I think this form of FIRE is the most likely to occur in my generation. Why? Because my generation seems to be having none of this 9-to-5 (or rather 8-to-8), and people working for themselves and freelancing are becoming increasingly popular. Where income covers current expenses, but not much beyond that. Without real savings or “left-overs” for investing, participation in FIRE seems like a far-fetched concept.

Conclusion and more questions As I continue reading articles regarding FIRE, I just get the idea that no one likes their job. Which is (somewhat) understandable if you are younger. The good fruit doesn’t hang low. So, I find it weird that people tend to quit before they peak. Retiring before you can be on the top of the food chain (and also max out your earnings). FIRE participants seem to quit before they reach that stage. But isn’t that a large part of why you start and hold onto a job in the first place?

I get that FIRE is one hell of a horsekick against the insane work culture where no one’s job is safe if you don’t work at least 60 hours a week and where to set off your lack of identity and life beyond the job, you endlessly and mindlessly participate in the most toxic consumer culture we have ever had. I’m with you there. Fuck you current working climate. But I doubt FIRE is the be-all-end-all of approaches.

There are some massive catches in the FIRE approach, that become incredibly apparent throughout the article and additional sources. You need to start of with a stable income, that is high enough to save on. If it isn’t high enough, either amp it up, or move your expenses down. If you are unable to do so, you can’t participate in FIRE. And I haven’t even mentioned the mental strain of constantly living off a 3-4% budget. It’d drive me insane…

As such, I have a feeling FIRE might not be for me. At least not now. Not given the fact that I’m likely to work in the UK, where they think paying you 24,000 in salary and charging you just as much in rent is normal (fuck you, current housing climate).

Overall, FIRE just seems like another fad to me. Nothing wrong with saving, nothing wrong with investing (do it wisely though), and nothing wrong with consuming less. But FIRE is no exception to the rule: it helps if you're rich.


Behavioural Science

Personal Finance



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