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The Financial Independence and Retire Early (FIRE) movement is an excellent thing. It is all about getting financially free from the job. That means you can start a new career or even retire without having money issues. Most people are going to like this!
However, it is not perfect, and by far. A lot of people following the FIRE philosophy are quite depressed. And even some early retirees are feeling depressed even though they reached their goal of becoming Financial Independent.
You should not believe that becoming Financially Independent will solve all your problems! Because it will not! It is not a cure for all your problems. A lot of your issues will carry over to your retirement. It is essential to fix your issues during the FIRE journey and not wait for FI to fix everything for you!
If you already do not know what to do with your weekends, you will be even more bored once you retire! And if you are not careful, you may well run out of money before you think!
Without further ado, let us see what is wrong with the FIRE movement and community!
1. Some people are underspending!
Most people believe there is no such thing as spending too little. But there is.
A lot of people are sacrificing too much on their journey to Financial Independence. They are trying to cut everything single expense. But I do not think it is necessary to cut every spending. You need to find a lifestyle that you want to keep!
If you are not happy with your lifestyle, you will not enjoy the journey to Financial Independence. And you will most likely not enjoy Financial Independence. Some people need to spend more than others, and it is perfectly fine!
- If you want a coffee per day at Starbucks, do it!
- You hate cleaning, then hire a cleaning aid, twice a month!
- If you love meat, buy a ton of meat!
You must find the lifestyle you want. And then, you can spend responsibly while maintaining this lifestyle. Of course, the more you spend, the longer it will you to being financially free. But if you do not enjoy the journey, it will seem even longer!
It is essential to realize that if you aim for a very frugal lifestyle, you will have to keep it up during retirement. Once you are retired with some net worth, it will be challenging to increase your lifestyle!
2. Most people do not have a plan for retirement
A lot of people complain about their job and want it to be over as soon as possible. But a lot of these people do not have a plan for retirement. They do not know what they are going to do!
A lot of people can be bored already when they have a job. They do not realize that they may not be able to fill all the time that they are going to have once they quit their job.
A lot of people complain about work but spend most of their day in front of the TV. Spending your time in front of the TV is not a plan for retirement.
People that do not have a plan and retire early will get bored and even more depressed once they are in retirement! You need to have an idea about what you want to be doing.
You do not need to plan everything, of course. But you need to know things you are going to do more in retirement. You need to have new goals, for instance. Some people will not have any issues with that. But some people may need more planning.
For instance, I have made a list of what I would if I were retired. It is not a definite plan, but I know there are some things I would like to do more. I strongly encourage you to think of doing the same!
Financial Independence is not an end to all of your problems! Some problems may carry to your retirement!
3. People do not experience retirement before
Even though some people have a plan, it may not work as well as they thought.
Once you have only two days per week for you, you may think that you want to do much more things. But once you have seven days per week, you may well discover that you do not enjoy some things as much as you think!
One typical example is traveling. A lot of people say they want to travel more once they retire. But as soon as they start to travel a lot during early retirement, they realize that they do not want to travel that much. And they have to change their plan. And sometimes they do not know what else to do and end up in the same situation as people without a plan.
People should try to experience their plan before retirement. There are several ways to do that:
- Take a sabbatical.
- Take a long vacation if you can, at least one month.
- Work part-time for some time.
Depending on your situation, it may be difficult. But I would strongly encourage you to try.
4. Many FIRE people are too judgemental
A big problem in the community is judgemental comments. Several people have become highly judgemental of other people’s spending.
For instance, if you tell some FIRE enthusiast that you enjoy your Starbucks coffee every morning, the first thing they will say to you is that it is wrong! And they will go on doing the math on how much you can save by quitting this horrible habit.
I think this is pretty bad! If you enjoy your Starbucks coffee in the morning, drink it! By all means, this will not prevent you from becoming financially independent.
Every person is different, and every journey to Financial Independence will be different as well. There is no single road to freedom. There are many of them! People should respect these differences. And people should not be afraid to spend some money!
5. People are blinded by the current bull market
The current bull market has been going for ten years now. And during these years a lot of people retired early. And a lot of people claim very high returns!
These returns make a lot of people motivated to pursue FIRE because they see it as very simple! But they ignore the fact that a lot of people who retired recently never invested through a recession!
It does not mean it is impossible to reproduce their results. It just that we need to be realistic. If you are lucky enough to start at the bottom of a bull market, you will have a better time than people beginning one year before a bear market.
But most people ignore that and believe that it is possible to retire in a few years regardless of the stock market.
I think people should be aware that a lot of recent early retirees have also been fortunate! And people should plan to be ready for the next stock market crash.
When you are ready to retire, you should try to make sure you are ready. If you are in a 10-year bull market, you may want to work one more year to save an extra buffer that could help you. It is essential to try to limit risks with things we do not have control over.
6. People ignore sequences of returns risks
Sequence-of-return risks are something I have not yet talked on this blog. But I plan to talk about this in-depth in the future.
Indeed, this is something that many do not realize is important. And actually, many people do not even understand it.
Many people would believe that if you lose 5% of your net worth one year and make 5% returns the next one, you are back where you started. But this is not correct. Your net worth would be worth 99.75% of its original value.
And it gets even worth for large numbers. If you lose 10% in one year and the next year brings you 10% returns, you are only at 99% of your initial value.
It is because the returns on the second year are not on 100% of the sum, but on the reduced amount on which you lost money. After the first year, if you have 95%, you will earn 5% of 95%, not 5% or 100%. This is very important to realize.
When you couple that with the withdrawals from your net worth, you can end up in a bad situation. If you have to withdraw in bad years, you may well be depleting your portfolio much faster than you thought. And it may not recover!
Example 1: Starting withdrawing in a downturn
Let’s take a strong example. For three years in a row, your portfolio loses 10% of its value. After this, it is recovering for 10% per year. You are withdrawing 4% of it for your expenses. This is 40’000 dollars per year in expenditures. Let’s ignore inflation for this example. Let’s say you have one million. Here is how it would evolve:
I am sure you are surprised by this result! After six years, you have lost about 30% of your portfolio.
Example 2: Starting withdrawing in a bull market
Now, let’s make the reverse example. The first three years, you gain 10% per year, and then you lose 10% per year. This is how it would look like:
There is a 70’000 dollar difference just for starting in a better time!
One thing is vital: if the markets are going up, you are going to withdraw less every year in percentage! On the contrary, in the first, every year you withdrew more than 4% of your portfolio!
How to fight it?
There is another thing that many people do not understand! The withdrawal rate is based on the initial portfolio, not the current one. If your portfolio is going up, you do not want to spend more. It is possible, of course. But then this is not a Safe Withdrawal Rate (SWR) as we know them.
And as your portfolio go down, you will have an effective withdrawal rate higher than your SWR!
There are several ways to be prepared for that. First, you could have some buffer of cash. When the markets are up, you withdraw from your portfolio. And when the markets are down, you withdraw from the cash buffer. Some people do not like that because cash loses value quickly. But a one year buffer could go a long way to help you not withdrawing when your portfolio is down!
Another way to mitigate this is to plan for ways to cut down your expenses if you need. If you can cut your costs by 25%, for instance, for the bad years, this could prevent you from withdrawing at the worst time.
But the most crucial part is to be aware of these risks. If you are aware of it, your plan will be stronger than most!
7. People blindly trust in the Trinity Study
One thing that I find quite alarming is that tons of people are citing the Trinity Study as almost the Holy Grail, but they do not know it.
If you do not know what it is, the Trinity Study is the nickname of a 1998 paper by three students from the Trinity University, “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable”. This paper computes the probability of not depleting your net worth when withdrawing each year a fixed percentage of it, adjusted for inflation. They have tested several portfolios and several withdrawal rates.
The conclusion is basically that a 4% withdrawal per year would allow you to keep your portfolio for 30 years at least 98% of success!
A lot of people would say that withdrawing 4% of your portfolio will never deplete your net worth regardless of how long you need. This is not true. And this not what the trinity study is about. It was made for standard retirement, not for early retirement.
The numbers in the Trinity Study are just probabilities of not being depleting your net worth after 30 years. If you retire early at 30 years old, you should plan for more than 30 years of withdrawals. You should probably plan for 60 years. And this is not covered by the Trinity Study!
Of course, there are ways to offset that. You could get some passive income in retirement. Another good way is to reduce your withdrawal rate.
A thing that is also important is that the study is entirely focusing on the United States stock market. This means that it is only applicable if your portfolio is investing in the same assets as the study. So, the success rates with another portfolio need to be calculated.
Therefore, you need to be careful blindly trusting this study. It is a great paper with exciting conclusions. But it is not applicable to everything!
And by the way, you should also be careful of FI examples on the internet! A lot of influent FIRE people are not using the 4% Rule! They are getting so much income from their blog or their books or their side business that they never had to withdraw money from their net worth!
8. People avoid the bad instead of focusing on the good
This is something I recently heard Ramit Sethi (author of I Will Teach You To Be Rich) said. The main reason why people want to retire is that think their job sucks. They want to avoid the bad thing that is their work by retiring.
The problem with that is that they do not focus on the good. They do not retire to improve their life or to focus on a new thing. They retire because they want to avoid something bad.
If you retire early for these reasons, you may well end up in retirement without anything to do. You just do not want to work. But you do not have a clear view of what you want to do instead!
Instead of that, you should focus on the good. If your dream is to travel six months per year, make that your goal. You can try to accumulate enough money to be able to retire and travel half of the year. This is much more motivating than merely wanting to get out of your work!
Another thing you could do is to fix the bad! Many people say their work suck. And it may be so! But many people do not try to do anything about that. They do not try to change to a new position or a new career. Often, they will have tons of excuse for not changing anything.
A journey is much more motivating when you focus on the good it will bring you instead of focusing on the bad you can avoid!
9. People do not enjoy the FIRE journey
Many people are focusing so much on the end goal (FI), that they have a terrible journey!
If you are dedicated to reaching Financial Independence, it is essential to be focused about it. However, you should not make it a terrible journey. A lot of people are depressed during the whole journey to FIRE. They are not spending anything and are repriving themselves from a lot of things.
Some people are also focusing a lot on the income side. They are having a full-time job and are pushing it far. But then, they are also doing side hustle to increase even more their income. If you have fun with your side hustles, that is great, go for it! But people should not do side hustles just for the sake of reaching FIRE faster!
You should be careful with making the journey a nice one as well. Maybe the goal is better than the journey. But you will enjoy the all path a lot more if you can enjoy the trip as well as the goal itself.
Do not push too much for your goals. You can optimize for it, of course. But there is a such as over-optimization!
This post is not made to discourage you from pursuing Financial Independence. And it is not a rant about the FIRE movement at all. I believe that Financial Independence is an awesome thing to pursue! And retiring early could also be a great thing for most people.
The goal of this post is to make you realize that FIRE is not all perfect! Nothing is all perfect. You need to recognize that merely retiring early will not solve all your problems in a single day. You need to plan what you are going to do with your life once in retirement.
And there is no point making your life miserable for a few years to reach FI. I do not think it is healthy, and I do not believe it will pay out in the long-term.
Also, be aware that some FIRE examples on the internet are challenging and do not trust blindly on the 4% rule.
Finally, you should not let people judge you by the way you spend. If you enjoy some things that cost money, use your money! You need to spend consciously, of course. But you do not need not to spend at all! Everybody is different, and everybody will need a different level of expenses for a comfortable lifestyle!
As I said, I still plan to pursue Financial Independence. I have many reasons to try to become Financially Free.
Do you agree with these points? Can you think of anything else that is wrong with FIRE?