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Don’t Get Burned

Mike Zaccardi

WANT TO RUFFLE some feathers? All you have to do is utter “FIRE movement” on social media or in a crowded room of financial advisors. FIRE—short for financial independence/retire early—has grown ever more controversial as rising stock prices have fattened the portfolios of super-savers and brought their early retirement dreams closer to reality.

I fit the mold of the super-saver. I’ve saved 90% or more of my after-tax income over the past few years. Below, I’ll explain how. That sky-high savings rate is on top of the solid financial foundation I built early in my working life, beginning in high school when I bagged groceries at Publix Super Markets. Still, I’m not a vocal advocate for the FIRE movement.

For background, those who buy into the movement look to accumulate a portfolio equal to 25 times their annual spending or more. Based on a 4% withdrawal rate, that should be enough to cover your retirement living expenses.

To retire in their 40s or even their 30s, FIRE aficionados aim to save much more than they spend. They usually invest those savings in index funds, primarily U.S. total stock market funds. According to the stereotype, once these folks hit their target, they relax on a beach, put out a podcast, write a blog or do whatever else they please. In reality, many continue to work in some capacity to keep busy and healthy.

That’s the idea. Again, I don’t proclaim all this works as promised, nor do I subscribe to every FIRE movement nuance. But yes, at age 33, I am FI—financially independent—which is a nice thing. But I’m not about to spend my remaining days relaxing on a beach.

I need to stay active and social. No two ways about it. I also see being FI as more of a dimmer switch than some magical moment. There are so many risks out there—from a market crash to a health event to (God forbid) me finding that special someone. Certainly my “single dude” lifestyle would be far more expensive if I added a spouse, kids, a house and health issues.

So much can change over a retirement that, for the FIRE folks, might last six decades. Uncertainty is high. Right now, I’m financially independent according to all the metrics, having saved about 100 times my annual expenses. But I also know that could change quickly. I might go from 100 times to 50 times if my lifestyle changed. And then I might go from 50 times to 25 times if the stock market crashed.

Even with all that, maybe you’re a little jealous. “It must be nice,” you might say. How did I get here? Part luck, part intention. I was fortunate to hold a high-paying job in energy trading for six years, while keeping my annual expenses near $10,000. That allowed me to shovel massive amounts of money into the stock market every paycheck, much of it into tax-advantaged accounts. Matching 401(k) contributions from my employer were a handsome addition.

I also regularly maxed out my Roth IRA starting in 2005, when I was age 18 and working minimum wage jobs at a local golf course and at the grocery store. I took advantage of employer tuition reimbursement to help pay for college, and also when I got my MBA and Chartered Financial Analyst designation. My car has always been a beat-up, utilitarian but generally reliable set of wheels that gets good gas mileage. I have lived with roommates, renting a room to keep my housing expenses low. Health is another important factor. I’ve had no big health scares, though I did spend $3,000 on Lasik surgery a few years ago.

So now I’m FI and could RE—the retire early part. Big whoop. The work-from-home trend opened my eyes to the fact that I need to be around people. The past few months since I left fulltime work—and with the pandemic still raging—has left me feeling kind of, “Is this it?” Humans are tribal. We also need purpose. I could find that by serving at my church or once again bagging groceries at Publix. But I’m too greedy for that.

My focus now is finding purpose, while still making a decent chunk of change. It’s way too early for me to start drawing on my savings, considering a lot can—and likely will—change in my life in the years ahead. The FIRE movement doesn’t appreciate all of the risks, in my opinion.

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Stuffing your IRAs and brokerage accounts with total market index funds, and then riding the stock market gravy train, works great in bull markets and when your life is on track. But a bear market can strike at any time, as can costly life events.

It’s one thing to retire early at age 50. At that juncture, you have 12 to 20 years until you start Social Security and 15 years until Medicare kicks in. Over that sort of timespan, there’s less variability in future outcomes. By contrast, retiring in your early 30s is a huge gamble. So much can happen. You’re also forgoing your best earnings years. The opportunity cost is significant. In addition, by exiting the workforce so early, you contribute far less to Social Security and your eventual monthly check will reflect that.

To retire early, you’ll obviously need more money if you’re a couple and even more if you have small mouths to feed. True, there are benefits to being married and pursuing FI. You can take advantage of the working spouse’s health insurance if just one of you retires early, plus the early retiree can later collect Social Security spousal benefits.

But even as a couple, you may feel compelled to skip one of life’s most meaningful experiences. Ask those who retired in their 30s or 40s if they have kids. Probably 90% will answer “no.” I’m not sure I want to be among that 90%.

What’s my point? FIRE devotees should carefully consider the costs and risks. On top of that, you may not enjoy some great ah-ha moment when you’re suddenly free from the nine-to-five rat race. Chasing FIRE? My advice: Be careful you don’t get burned.

Mike Zaccardi is an adjunct finance instructor at the University of North Florida, as well as an investment writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com and check out his earlier articles.

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Chris Sciora
Chris Sciora
5 months ago

FI, yes. RE, no.

Living on $10K annually in the US isn’t my idea of living. I’m happy to keep working longer while enjoying my wife, kids, dogs, house, trips and hobbies along the way. At that rate of spending, a large chunk of the population could claim FIRE tomorrow, but to what end?!?

CJ
CJ
6 months ago

I don’t mean any offense by this, but this entire article feels like a bit of a humble brag to me – and a veiled shot at the end to those of us who are child free. Genuinely glad you’re doing so well. But I didn’t get much value from the post. However, seeing the active comments thread, I guess I’m in the minority!

Last edited 6 months ago by CJ
Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  CJ

Thanks for the feedback! I tried to highlight the risks of FIRE. I don’t consider myself someone in the movement, but I am naturally frugal and a big saver. So far, it’s been my choice to live modestly via having roommates and not having a house or kids. The downside of that (over time) is likely lower happiness. It worked well in my 20s and early 30s, but I’m recognizing if I continue that lifestyle, my happiness and wellbeing will suffer in my late 30s and beyond.

macropundit
macropundit
5 months ago
Reply to  Mike Zaccardi

I didn’t read it as humble bragging or a shot at the childless. I see it as realism. However, I always think it’s unwise to promote having children–or anything actually–as a way to be happy. Not least because this romantic trope includes an optimum number. Now people are more likely to think having too many children (4+ –the horror!) makes one unhappy. I think this is a grave mistake too. It’s always a problem to say what makes people happy. To not fit in with the wider peer groups or society causes not a lack of happiness but the pain of not fitting in with others. But trying to fit in with others is a sure way not to attain happiness. It’s a fallen world and it has many contradictions like this.

I’m FI myself and all for that, but to me many in the RE movement seem quite inwardly focused and to harbor romantic notions of happiness (happiness = time, don’t you know?) that include destructive notions of the supposed effects of work. Both of these ideas lack realism but are self-reinforcing.

Joining these two arguably false notions, one of the commenters in this thread has argued that some insight to the motive of a recent murderer might be gleaned from the fact that he was one of ten children. This is a desperately unhealthy outlook, borne of deeply imbibing these romantic tropes. FI I enjoy myself, and there’s nothing wrong with retiring early per se, but the RE movement is an ideology that has deeply disturbing elements.

Mike Zaccardi
Mike Zaccardi
6 months ago

Great idea!

Thomas
Thomas
6 months ago

Congrats on reaching FI! Even though you argue it’s not all it’s cracked up to be, I admit I’m a little bit jealous. I’m a few years younger than you but nowhere close to being FI. In retrospect, choosing to pursue a PhD instead of jumpstarting my career after college was not the smartest financial decision of my life. And I sure as heck wasn’t financially savvy enough as an 18-year-old to max out a Roth. I didn’t even know what an IRA was until I graduated college! Live and learn I guess.

I think the FIRE movement is gradually morphing into just the FI movement. My favorite FIRE bloggers readily acknowledge all the points you made: that early retirement has a lot of downsides, that the 4% rule is deeply flawed, that FI isn’t binary but exists on a spectrum, and that meaningful work can provide fulfillment and help maintain social connections. And like you, many of them worry that the FIRE movement will lose steam as soon as the bull market ends.

Despite all these caveats, I have to give credit to the FIRE movement for getting me started on the path of improving my financial acumen. It’s by reading FIRE blogs that I became motivated to adopt an ultra-frugal lifestyle, invest a big chunk of my paychecks each month, use tax-advantaged retirement accounts, and to generally try to optimize every financial facet of my life. I probably wouldn’t be reading this website if it weren’t for the FIRE bloggers.

And although I’m probably not going to be able to retire for a long time due to my decision to go to grad school and my desire to have a teaching career, thanks to FIRE, I’m on track to have a very comfortable retirement when I do eventually retire, and to hopefully enjoy a fulfilling life free of excessive financial stress in the meantime. The RE part of FIRE is a bit of a red herring in my opinion. For young, financially ignorant people such as myself, learning about the general tenets of the “movement” can be life-altering.

Jonathan Clements
Jonathan Clements
6 months ago
Reply to  Thomas

Don’t be too tough on yourself. It sounds like you’ve got yourself on a solid financial path far earlier than most folks — and it also sounds like you’re spending your days doing what you’re passionate about. Those are two crucial pillars of a good life, financially and otherwise.

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  Thomas

I concur with Jonathan. Like you (and like all of us), I have committed my share of financial mistakes. Mine have been more on pinching pennies too much through my high-income and low expense years. I should’ve had a little more fun and built more memories. It’s hard to criticize going for more education too.

parkslope
parkslope
6 months ago
Reply to  Thomas

I’m sorry that you view your decision to get a doctorate and pursue a teaching career “idiotic.” Hasn’t it worked out for you?

R Quinn
R Quinn
6 months ago

I’m really glad you wrote this. I think the FIRE movement is a farce mostly because it hasn’t been tested over time and I find many claiming RE have in fact simply changed jobs in some manner and as you point out, frequently no children or family responsibilities.

Having constructed compensation plans for energy traders I know what you say about yourself is quite feasible. One of our traders accumulated a $1 million per year pension (until the CEO changed the bonus formula), especially if you can live like a senior on only SS.

I still think the more average devotees of FIRE are living in a dream world and are kidding themselves.

BEWARE THE WEALTH TAX‼️

R Quinn
R Quinn
6 months ago
Reply to  R Quinn

I’m thinking most average Americans would be quite happy being FI and RE at 65 rather than stressing out over whether the next SS COLA will be offset by the Medicare premium increase.

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  R Quinn

Well, I was definitely not in that league of traders! I’m grateful for the 6 years I spent in the energy industry, but it was not anything crazy in terms of comp – but quite nice for where I live here in Jax, FL. I’m cool with a lower stress job going forward at half the salary. We’ll see. Thanks for your comments!

White Coat Investor
White Coat Investor
6 months ago

Wait, I can’t FIRE in my 50s? Heck, 62 used to be considered early retirement.

wtfwjtd
wtfwjtd
6 months ago

“Wait, I can’t FIRE in my 50s? Heck, 62 used to be considered early retirement.”

“Used to be”? For most of my boomer pals, 65 is early retirement, much less 62. And to them, just mentioning the possibility of retirement in your 50’s is absurd heresy, and even thinking of retirement in your 40’s is unspeakable blasphemy, and quite ridiculous and impossible, thank you very much. Talk about getting your feathers ruffled…

IAD
IAD
6 months ago

My retirement is controlled by the golden handcuffs of my pension and healthcare, so some admitted jealously. 6 years to go!

I think my biggest concern for the FIRE movement is over the past 10+ years the market has truly been wonderful and one has had to go out of their way to lose money. Even 2008/09 is enough in the past where I remember it more historically than something painful I went through. I think Thomas (below) is right that we’ll see less of the RE part going forward. No/slow growth and a lot of uncertainty would drive me (most?) people to the stability of a job with benefits than trying to navigate RE with 40+ years. It’s one thing to RE in your 50s, but some in their 30s leave me scratching my head.

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  IAD

The insurance piece definitely keeps me wanting (but not needing) a full-time job to an extent.

Ormode
Ormode
6 months ago

Most of them don’t really retire. They just leave the rat race and do work that they find enjoyable. Sometimes, they end up making more money in their enjoyable work than they made in the rat race. This is in part due to financial independence, and not having to concentrate on financial success, which paradoxically makes your business more successful.

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  Ormode

That’s where I think I’ll end up. I’m on the hunt for the right job at the moment – I have an idea of what that is. Being up front with potential employers about prioritizing enjoyment of a job and work/life balance is something I am intentional about. I’m willing to give up salary for low stress right now. Perhaps a few years down the line I will be yearning to grind more, but the last couple of years has left me burned out (no pun!) psychologically. Although I still love to write and teach finance.

Joey
Joey
6 months ago

Mike, I may be misreading the post or overestimating your income, but how could you be maxing out a Roth IRA staring in 2005 to present? Wouldn’t you have surpassed the income level that the IRA allows you to contribute to a Roth IRA?

In any event, amazing job keeping annual expenses around $10,000! In some big (and even medium) cities, that won’t even cover rent in a safe, clean apartment, much less all other expenses!

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  Joey

2019 and 2020 were the first years I didn’t qualify. Of course, there’s always the backdoor Roth. I’ll certainly qualify this year barring something weird happening.

Danielle
Danielle
6 months ago

I’m a financial advisor and I definitely applaud much of the FIRE principles–keep your spending down and your saving and investing up. But too often it depends on keeping your expenses unrealistically and unsustainably low. And if you’re not working, you have to do something with yourself besides taking a walk. Having pets can easily cost $3,000 in vet bills. Buying a guitar and taking some lessons, buying a sewing machine, or the pursuit of even moderate hobbies wouldn’t be possible on $10,000 in spending. Feeding myself and my daughter (and pets) runs pretty close to $900/month. My property taxes alone are about $10K. It would have to be a very thin life indeed to exist on $10K. Too often I see very “frugal” people scamming their friends and family–freeloading meals, never picking up a check, no gifts, no charitable donations.

Instead, I’d propose that a frugal life (in or near a major city), is going to cost you at least $60K, and maybe $75K as a couple with no more than 1 kid (and that’s going to be tough). At 100 times spending, that would be $7,500,000–not attainable by saving if you have most salaried jobs.

I notice that an awful lot of FIRE bloggers end up starting their own businesses. With the work world what it is today, with so much uncertainty and so many insane and asinine bosses, and often very insecure marriages, having a significant stash gives you a lot more freedom. You don’t have to stay in a marriage or job that has become horrible. I started my daughter on her Roth with her babysitting money at 17. Ten years later, she has a very significant stash, but she’s also living life–travel (when it was possible), a small but nice car, etc.

For me, through two divorces and no real financial education, it took me until my mid-40s to understand both saving and investing. It also took shedding a spendthrift husband. It was only after that that I was able, as a serious saver, to not have to juggle which bills to pay. Also, thirty years ago information on budgeting and investing (and the plethora of investment possibilities) just wasn’t as available.

Once investable assets exceed 6 figures, I think many people heave a sigh of relief. That might not be enough to be a serious spender, but it’s a helluva back stop.

greglee
greglee
6 months ago

I retired before I even heard of FIRE. Still, I’m interested. It makes complete sense, to me, for people who hate their jobs and are getting a very high salary for doing them. (But I liked my job and got a rather low salary.)

Scrooge_McDuck88
Scrooge_McDuck88
6 months ago

Michael – are you still living on around 10K per year? I have recently came across Jacob Fisker of Early Retirement Extreme who claims to live on around 7K per year. Perhaps your next article you could share your budget breakdown and how you view spending and tradeoffs. Thanks!

Will
Will
6 months ago

I see a new reality show in the making!! But, really, I would like to see the numbers and lifestyle of these guys, and I say that with admiration. Working monks. Really, with admiration.

Mike Zaccardi
Mike Zaccardi
6 months ago

Yes, about $10k/yr. A few life changes will double that though.. which I anticipate happening before long.

Burney
Burney
6 months ago

Mike,
Great article. I think you might be underselling the benefits of marriage, or at least living with a financial partner. Housing is the largest expense for the average American, about 37% of expenses (excluding taxes). Having someone to split your housing costs with, is a huge benefit, and that alone could allow you both to save an extra ~15-20%.

Mike Zaccardi
Mike Zaccardi
6 months ago
Reply to  Burney

And I think that benefit shows itself the older someone gets. I mean, it’s hard to constantly have roommates as you age.

Roboticus Aquarius
Roboticus Aquarius
6 months ago

I’m not sure if any of us really want retirement in the sense of just stopping work. There is the implication of being put out to pasture, of a lifetime of expertise that’s no longer relevant, a lifetime of creativity that nobody values.

I suspect most successful retirements involve either a lot of social contacts, building of new skills, ongoing professional relevance, or some combination thereof.

Financial Samurai
Financial Samurai
6 months ago

Hi Mike,

Can you share what your annual expenses and net worth are? It would help to get a better idea of the FIRE level.

The funny thing I found about life is that it changes a lot. I thought having $80,000 in passive income, and a $3 million net worth in 2012 was enough. Then my wife retired earlier by 35 as well. Then we had two kids.

So unless you plan to stay single for the rest of your life, I would try to double or triple your number, before feeling good about FIREx With the 10-year still at only 1.6%, shoot for 50X your annual expenses as a net worth goal to be more aligned with where rates are today versus back in the 90s when the 4% rule was popularized.

But that’s just my opinion, having been jobless since 2012.

Sam

Mike Zaccardi
Mike Zaccardi
6 months ago

$1.3 million (mainly invested in global stocks with a value & small cap tilt.. so it really fluctuates. Expenses are $10k/yr. I agree – getting married would change things (way higher expenses), but then the benefit is I’d add a ‘second net worth’ and would have the safety net of a spouse who I could bum health insurance from (and vice-versa). I assume my expenses will basically quadruple (in real terms) now to when I’m 50 or 60. I mean, there’s no way they could go lower.

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