The Problem With Articles That Point Out The Problem With FIRE
There’s a concept that exists in some form in most cultures, which in my culture is called Tall Poppy Syndrome, whereby someone or something of genuine merit inevitably gets attacked, resented or otherwise disliked.
I can’t help feeling that many of the attacks on the “FIRE movement” are driven by the need to slash a knife in the direction of the tall poppy. It’s there, it’s therefore worthy of comment. In the search for a newsworthy headline, journalists aim for the sensational – it’s sometimes a success story, but all too often it’s “the hidden dangers of…”. Neither story really covers the core message of the community, because they’re focused on the most extreme interpretations, or examples, than can be found and reported upon.
To be sure, there are a lot of individual messages and opinions within the FIRE community you can take exception to, debate or otherwise clarify, but to make blanket statements like “The FIRE Movement is Dangerous” feels just as clickbait-y as the worst parts of the FIRE Movement itself.
I bring this up now because I’ve recently seen yet another article bashing the FIRE concept. Once again, upon reading the article, it seems to me that the author has created a straw man to bash, and labelled their straw man “The FIRE Movement”. In fact, what they’re bashing is not what I recognize as the core message of the FIRE movement, or even suggestions that I or any respectable blogger would offer to people seeking to save money for their future or take control of their finances.
The article, which you can find here, is merely the latest in a long line of frankly cheap shots at a concept the writers never seem to grasp in its entirety. That’s perhaps not surprising given how little time a journalist has to turn an article around, but it’s always vexing to see so much information summarized so poorly, misunderstood and then criticized.
The Attacks on the Financial Independence Movement
There are a number of different criticisms levelled at the FIRE movement, and I’ll take them on here. After this section (lest you mistake me for an unthinking cheerleader), I’ll point out what I think are some weaknesses. I’ll go into those more in additional articles over time, if it looks like there’s an audience for this.
This Ambition To Stop Working Is Unhealthy
Otherwise known as “y’all are just lazy”, disguised in moral colours. This argument comes up quite often and can be found phrased like this:
What is wrong with working? Why do the FIRE people dislike working so much that they want to quit at age 35? Working gives people purpose. This is my primary difficulty with universal basic income schemes: most people do not function well with a bunch of unstructured free time. I have had unpleasant jobs, and even working an unpleasant job is preferable to not working at all. I am one of these people who thinks there is dignity in working, that every job is important no matter how small.“The ‘Radical Saving’ Trend Is Based on Fantasy“, Bloomberg.com
There are two answers to this.
First, if you read the FIRE blogs, most people who are adherents, and even those who have successfully achieved their goal of saving enough to “retire”, do not take the word “retirement” to mean “stop working”.
They take it to mean, “no longer work to pay the bills”. Which means work on stuff you care about without the salary being the main consideration.
FIRE’s core ambition is not to sit on one’s ass and contemplate the horizon while enjoying the inner peace that comes from utter boredom and a life devoid of meaning. We are not morons.FIRE's core ambition is not to sit on one's ass and contemplate the horizon while enjoying the inner peace that comes from utter boredom and a life devoid of meaning. We are not morons. Click To Tweet
Also: Comparing early retirement to universal basic income isn’t appropriate. Providing a state-sponsored income to people without jobs is not the same as an individual taking control of their finances, saving enough to no longer need help from the state or income from an employer, and then doing something meaningful with their lives outside the dominant social and economic paradigm.
The end goal is to have the freedom to choose how we spend our time independent of the absolute imperative of that comes from having to pay the bills. Once you can do anything you want, you can do things that don’t necessarily make a lot of money without having to compromise your lifestyle or the security of your loved ones. That’s a luxury worth having.
The second answer, perhaps less important in my mind, is that given the growth in automation, artifical intelligence, outsourcing and the ever-increasing precarity of employment, it’s possible large portions of the population will be out of a job in the next few decades. These working-age, competent and educated individuals will have to be taken care of by our society one way or another. (By the way, that’s where universal basic income comes in, not because they’re unable to work, but because there is no work for them).
Being able to take financial care of yourself by the time you’re in your 40s or 50s means you get to keep control of how you live if this collapse-in-employment scenario ever comes to pass.
It’s Unrealistic and Causes Insecurity and Bad Decision-Making in People
The argument here is that, since the FIRE movement puts forward radical goals such as “be financially independent by the time you’re 40 with 25 times your annual expenses in the bank”, people who aren’t there yet may start behaving in extremely risky ways in order to build that wealth and achieve an unattainable goal.
From the article referenced above:
Only a very small minority of individuals have sufficient assets to retire early at more than a subsistence level. And when they realize how much smaller their 401(k)s are from what would be needed, they may very well decide to incur far riskier strategies than they would have otherwise—and end up worse off than they would have been had the movement never existed.“The Problem with the FIRE Movement“, marketwatch.com
Yes, people could choose to take on extremely risky investments to get to an arbitrary savings number in record time, but if they do so, they are doing exactly the opposite of what the FIRE movement recommends.
Once you are comfortably covering your costs every month, the suggested strategy for your savings is:
- Create an emergency fund to deal with the unexpected
- Put your money in a combination of government debt and fully-diversified index funds
That’s about the least risky strategy out there, and much better advice than you get from financial publications extolling the virtues of this or that managed fund because the fund manager is such a rock star.
This criticism annoys me because it shoots down a straw man that doesn’t represent what the community really recommends.
So sure, let’s assume someone glanced at the community’s messaging, interpreted it to mean that they should have a couple million in savings by the time they’re 40, but they’re 38 and only have about eighty thousand in savings.
Let’s also assume they don’t read. Anything else. At. All.
Then yes, they could do something really stupid, like going to Vegas and betting their eighty thousand on lucky number seven. The FIRE community doesn’t get the blame for that.
The Math Doesn’t Work
Actually, the article that made this point had a misleading title. The title was “Millennials Dreaming of Retiring at 30 Have A Math Problem”, but it should have said, “It’s harder to retire at 30 if you don’t earn much,” which was the real point.
This of course is true. The more you earn, the less difficult it becomes, but it’s possible even at an average income.
The article gave the example of a UK worker earning the median national salary of £20,800, spending 50% on needs and 30% on wants and saving the remaining £4,160 per year. It goes on to say that this is only £230k at zero interest and £430k at 2% interest.
So what? Don’t bother trying? Just expect to be a wage slave for the rest of your life because of a journalist’s dodgy financial assumtions?
Let’s make a couple of changes, using some other assumptions.
- Let’s assume we invest monthly in an S&P 500 index fund.
- Let’s assume there’s a 1% investment cost because you’ve got a really skeezy broker and you don’t mind getting ripped off.
- Let’s assume therefore that you’ve invested £4118.40 per year, or £343.20 per month, with no increases because you’ve had no promotions.
In this scenario you’d only need 28.5 years to get to the same £430k using the S&P Return over that period instead of 2%. This is despite the two major and several minor crashes in the last 28.5 years!
The savings rate of 20% is very low for a FIRE devotee, especially a single person as the author seems to assume. They would be increasing that dramatically to accelerate the growth in their savings.
Even if the investor is not a single person living alone, then they’d benefit from the economies of scale and dual income that come from shared living (or admittedly the cost of the children that typically follow).
If we increase the savings rate to 30%, we’ve effectively increased the savings by 50%, and you can reduce the investment period for the same £430k to 26 years. Increase it to 40% or 50% and £430k becomes possible in 21 years or 18 years respectively. That doesn’t seem that big a stretch. Include potential promotions, FIRE community advice on building secondary income sources and the financial benefits of shared living and the FIRE targets begin to look pretty reasonable.
You can check my workings with the S&P Returns calculator.
The Problems With The Financial Independence Movement
What annoys me with these criticisms is not that they attack something I think is financially healthy and generally good advice for many people. The FIRE movement can handle the criticisms and the advice and evidence stands on its own and doesn’t need me to defend it. I get annoyed because these criticisms seem to miss the mark so completely.
They miss because they seek to come to quasi-absolute judgements about the financial independence movement. It either creates instant millionaires or it’s fundamentally misleading or wrong. Things aren’t (ever) that black or white.
For sure there are issues with some messages, some assumptions and some approaches to achieving financial independence. None of these invalidate the main concept, but they illustrate areas for improvement and places where the marketing has gotten ahead of the message. Unfortunately, in their zeal to address the value of the movement as a whole, observers often fail to provide more helpful feedback.
Here are a few examples of areas I think can be improved.
If You Calculate Your Retirement With A Low Spending Benchmark, You’re Stuck With It
If your “retirement benchmark” is 25 times your annual costs, one way you can get there quicker is to cut your spending to the bone.
That means you not only save more, but you get to 25 times your annual costs much quicker because they’re so low.
Unfortunately, that also means your spending in the future is constrained in the same way. If you stop earning, you have to continue living on this artificially tight budget, which is perhaps not sustainable over the long run as family, children, healthcare and the occasional desire for a restaurant meal make themselves felt.
To many individuals targeting financial independence, this doesn’t matter. “Retirement” doesn’t mean they stop earning money. They don’t really intend to put their feet up. This assumption still sets the benchmark artificially low though. Personally I do not use my current annual spending as the retirement benchmark because when I really do retire, I intend to travel, and I don’t intend to be backpacking in my 60s.
Bear in mind that the benchmark you set also sets spending allowance you give yourself for the rest of your life, assuming you don’t earn more money after your “retirement”. This is often not made as clear as I think it should be.
The 4% Withdrawal Rate is Real, But Not Risk-Free
As I explained in my previous article, How Much Money Do You Need To Be Financially Independent, the 4% safe withdrawal rate was arrived at after some pretty comprehensive analysis. The authors of the Trinity Study didn’t calculate the average withdrawal rate, they calculated what was most likely to be safe given a specific portfolio strategy.
That said, if you dump all your money into the stock market at precisely the wrong moment (i.e. immediately before a crash), then even at the safe withdrawal rate you’re going to see your savings drop over time as they’ll take a nasty hit in the first year.
This is why most FIRE savings strategies involve saving over time, preferably on a monthly basis. That way you spread the risk.
The past is the best guide we have to the future, but it isn’t a crystal ball. While we could have more periods of sustained growth like we’ve had in the past, we could also have episodes of massive value destruction. All it takes is one lunatic dictator kicking off a war, one global pandemic, one international trade war to knock our markets into either a cataclysmic crash or a very long term recession.
But you can’t plan by assuming the worst, so this possibility, which will always exist, shouldn’t affect your decision-making. Nevertheless, we shouhldn’t be relentlessly positive on the stock market – it comes with inherent risks and the past is at best an imprecise guide to the future.
There’s A Lot Wrong With FIRE Messaging
While the underlying analysis is correct, and the advice, if you bother to hunt it down, is really good, there’s a lot of noise around the core message which is really unhelpful.
To illustrate this, look at a Pinterest feed. I won’t show you mine because I don’t want to point fingers at any specific authors, but there’s stuff there I have a hard time with.
- How I earn $4,723 per week and you can too with this one simple trick!
- The secret to being financially independent in 4 years!
- Start a blog. I earn $127,000 a year with mine!
- The ten secrets you need to know to be rich in 3 years (number 4 shocked me!)
I made those up, but you see my point.
There’s a balance to be drawn between the desire to attract an audience to your writing, the legitimate goal of making some money from the time you invest in a blog or website, and honesty in your messaging. You can examine my own pins on Pinterest and let me know if you think I’m going too far – I’ll never take that kind of feedback poorly!
A lot of the messaging around financial independence exists purely to draw people to blogs that make money from referrals. That’s fine to the extent that those blogs set reasonable expectations and achievable goals, provide good information and improve people’s lives. It’s not Ok when you overpromise results and mislead about your own situation to draw readers to a seventeen-point listicle with no original content and fourteen affiliate links.
Given the community’s self-image as generous with advice and helpful with people who want to improve their finances, this sort of thing is a shame.
If sites like MrMoneyMustache are so successful, it’s because not only have they been there for so long, they’ve also struck the right balance between their own economic interests and the value of the content they bring to the community. In the case of MrMoneyMustache, you can’t fault the quality of the articles and the time and effort that requires.
I’m an ardent supporter of the FIRE Concept, even if I came to it way too late for any of the “early retirement” numbers to make much difference to my life.
Like all loosely organized collective enterprises, it has all sorts of things within it, with content ranging from the incredibly insightful to the outright misleading. It no doubt contains its fair share of frauds and exaggerators, and I don’t think they do too much damage at present, but there is admittedly a signal-to-noise problem on some of the platforms.
That said, the underlying message is one of financial education, financial emancipation and self-reliance through discipline and knowledge. I find that hard to fault.