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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 will like this!
However, it is not perfect by far. A lot of people following the FIRE philosophy are pretty depressed. And even some early retirees are depressed even though they reached their goal of becoming Financial Independent.
Financial independence will not solve all your problems! It is not a cure for all your problems. A lot of your issues will carry over to your retirement. So it is essential to fix your issues during the FIRE journey and not wait for FI to fix everything for you!
If you 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 run out of money before you think!
Without further ado, here is 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.
Many people sacrifice too much on their journey to Financial Independence. They are trying to cut everything single expense. But it is not necessary to cut every spending. Instead, you need to find a lifestyle that you want to keep!
If you are unhappy 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, which is perfectly fine!
- If you want a coffee per day at Starbucks, buy it!
- If 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. But, of course, the more you spend, the longer it will take you to become 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 must 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
Many 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 retirement plan. They do not know what they will do!
A lot of people can be bored already when they have a job. However, they do not realize that they may not be able to fill all the time they will have once they quit their job.
Many people complain about work but spend most of their day watching TV. Spending your time in front of the TV is not a retirement plan.
People who do not plan and retire early will get bored and even more depressed once they retire! 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 will 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 always think I do not have enough time outside of work. So I do not think I will get bored. 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, you may think you want to do many more things. But once you have seven days per week, you may 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 quickly after 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 plans 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 FIRE community is judgemental comments. Unfortunately, several people have become highly judgemental of other people’s spending.
For instance, if you tell some FIRE enthusiasts 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.
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 also be different. 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 bull markets
Before COVID-19, the bull market was going for more than ten years. 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 many people who retired recently never invested through a recession!
It does not mean it is impossible to reproduce their results. It is 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 it is possible to retire in a few years regardless of the stock market.
People should be aware that many 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 ensure 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
Sequences of Returns Risks are 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, 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 worse with large numbers. For example, if you lose 10% in one year and the following year brings you 10% returns, you are only at 99% of your initial value.
The returns in 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 fact is fundamental 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 be depleting your portfolio much faster than you thought. And it may not recover!
Example 1: Starting withdrawing in a downturn
We can take a strong example. For three years, your portfolio loses 10% of its value. After this, it is recovering by 10% per year. You are withdrawing 4% of it for your expenses. This amount is 40’000 dollars per year in expenditures. We ignore inflation for this example. We also assume 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, we make the reverse example. You gain 10% per year in the first three years and then lose 10% per year. This scenario would look like this:
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 will withdraw less yearly relative to your portfolio value! On the contrary, in the first scenario, 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 as we know them.
And as your portfolio go down, you will have an effective withdrawal rate higher than your safe withdrawal rate!
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 withdraw when your portfolio is down!
Another way to mitigate this is to plan for ways to cut down your expenses if you need it. 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 know it, your plan will be stronger than most!
7. People blindly trust in the Trinity Study
I find it quite alarming that tons of people are citing the Trinity Study as the Holy Grail, but they do not know much about it.
If you do not know what it is, the Trinity Study is the nickname of a 1998 paper by three students from 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 that a 4% withdrawal per year would allow you to keep your portfolio for 30 years with at least a 98% chance of success!
Many people would say that withdrawing 4% of your portfolio will never deplete your net worth, regardless of how long you need. This is simply not true. And this is not what the Trinity study is about. The study was made for standard retirement, not for early retirement.
The numbers in the Trinity Study are just probabilities of not depleting your net worth after 30 years. If you retire early at 30, you should plan for over 30 years of withdrawal. 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. So, it is only applicable if your portfolio is investing in the same assets as the study. Thus, if you use another portfolio, you must calculate the success rates again.
Therefore, you need to be careful blindly trusting this study. It is an excellent paper with exciting conclusions. But it does not apply to everything!
And by the way, you should also be careful of FI examples on the internet! A lot of influential 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 have to withdraw money from their net worth!
8. People avoid the bad instead of focusing on the good
This title 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 they think their job sucks. They want to avoid the bad thing (their job) by retiring.
The problem is that they do not focus on the good. These people do not retire to improve their lives or focus on new things. Instead, they retire because they want to avoid something bad.
If you retire early for these reasons, you may 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. For example, if you dream to travel six months per year, make that your goal. You can try to accumulate enough money to retire and travel half of the year. Focusing on the good 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 job sucks. 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 career. Often, they will have tons of excuses 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 focus 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 on achieving this goal. 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 depriving themselves of many things.
Some people are also focusing a lot on the income side. They have a full-time job and are pushing it far. But then, they also have side hustles 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 goal a lot more if you can enjoy the trip and the goal itself.
Do not push too much for your goals. You can optimize for it, of course. But there is such a thing as over-optimization!
This article should not discourage you from pursuing Financial Independence. And it is not a rant about the FIRE movement at all. On the contrary, I believe Financial Independence is an excellent pursuit! 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! You must recognize that merely retiring early will not solve all your problems in a single day. You need to plan what you will do with your life once in retirement.
And there is no point in 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 work out in the long term.
Also, be aware that some FIRE examples on the internet are challenging, and do not blindly trust the 4% rule.
Finally, you should not let people judge you by how you spend. If you enjoy some things that cost money, use your money! You need to spend consciously, of course. But you can spend money! 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?
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