Maria & I recently attended a Dawes concert in Atlanta. Dawes is one of our favorite bands — they also seem to be a favorite with the millennial crowd, as the audience is usually dominated by that age group. What does that have to do with FinCon and FIRE? Stay with me here.
It was general admission on the floor and we were standing really close to the stage. People were packed in pretty tight. Right before the concert started, I apparently (inadvertently) bumped into the backpack of a young, passionate Dawes fan that was standing directly in front of me. She turned around and basically told me I was a jerk for not respecting her private space. I tried to explain that if I did happen to bump into her backpack (I honestly didn’t feel it), it wasn’t intentional - we were at a packed concert! She then proceeded to tell me (and in not a nice way) that there was plenty of room to stand without bumping into people and pointed to a location in the back of the theater. This drew the ire of Maria, but also amusement from some of the others around us who had already imbibed a few adult beverages.
This young guy we met from Greenville, SC found it especially amusing. He told us during intermission that after he heard what she said to me, he made it a point to bump into her on purpose. He concluded that he had bumped into her at least thirteen times during the first set alone and it did not even elicit a response! He said he mentioned this to his girlfriend and asked her why she thought the young, passionate Dawes fan didn’t respond to him the same way she responded to me. Her answer? “You’re hot (him) and he’s old (me).” Maria & I are 44 and 45 years old, respectively. Old? Not hot? Ugh!
However, we did attend the Choose FI Tampa Bay get together and FinCon in Orlando the following weekend and I can certainly say that it seems the grey hairs were definitely outnumbered by these incredibly intelligent, tech savvy millennials that make up a large segment of the FI movement. It was great to meet so many people and engage in FI conversation. We especially enjoyed having lunch with Susan from FI Ideas! A lot of millennial FIREs asked me specifically how much longer I plan on working or where we are on our path to FI. When I respond that we are currently around 25X and that I plan on working another ten years and retiring at age 56, I get confused looks. I then try to explain that I am a Federal employee and if I retire at my minimum retirement age, I will immediately start to receive a pension which will more than cover our yearly household expenses in addition to being afforded the same health insurance at the same cost as when I was working. Affordable health care is one of our biggest concerns for the future; Maria has a pre-existing condition and medical emergencies are the leading cause of bankruptcy. Still, I get confused looks. My perception is that they can’t understand why someone in the FIRE community would work a W-2 until their mid-50’s. I’m not sure that the look is one of pity or that they think I don’t understand the concept of FIRE (Financial Independence Retire Early). Personally, I think the “retire early” part of the acronym needs to go. We also are planning to use our W-2 income over the next ten years to buy 4 to 5 rental properties with cash that can supplement our retirement income and hopefully we won’t even have to start drawing down our retirement savings. We have planned, very conservatively, to be at 70X when we actually stop working. Given the story of our lives, we are financially conservative. This is our FI path. Still, I came away with a feeling that many millennials in the FIRE community think they’re going to work ten years, bank a bunch of money, quit their W-2 and pursue their passion. Also, that perhaps they think I’m old!
Paula Pant recently had an incredible interview with Suze Orman on the Afford Anything podcast, in which Suze stated that she hates the FIRE movement. I think Paula did a brilliant job interviewing Suze, but it was a difficult listen. Suze really seemed out of touch with the FIRE community and it sounded like it was an opportunity for Suze to self-aggrandize. I do not agree with Suze when she states, “Two million dollars is nothing. It’s pennies.” I also disagree with her that we will need five to ten million to retire early and $80,000 per year in retirement income is just not enough. If anything can be said about those in the FIRE community, it’s that they’ve learned how to live frugally and keep household expenditures low. However, Suze did raise some valid concerns in relation to things not going according to plan and how they can affect your retirement. As Neil Young sings, “The devil fools with the best laid plan.”
I have heard from a number of millennials that they do not believe in having an emergency fund comprised of at least three to six months of household expenses. Some have expressed that they keep their emergency fund invested in an index fund, as having a large sum of money sitting in a checking account ignores the concept of the time value of money. Have those in the FIRE community left themselves exposed to too much risk by leaving their W-2 too early? To Suzi’s point on the podcast, medical crises, caring for elderly parents or natural disasters can destroy a financial nest egg -- this advice shouldn’t be ignored. We may not agree with everything that Suze stated in her interview with Paula, but just because we don’t like what she said or how she said it doesn’t mean we can’t glean some actionable, life-optimizing tips.
My main concern is that some members of the FIRE community have only recently started on their FI journey and thus have only been investing during a bull market. Not just a bull market, the longest bull market in history. From 1966 to 1982 the S&P 500 averaged 6.8% per year. You may look at that number and think that’s pretty good. However, inflation also averaged 6.8% per year, effectively neutralizing the stock market gains while bonds lost 40% during this time. For an early retiree, the exposure to sequence of returns risk has to be one of the biggest fears. Tanja Hester of Our Next Life wrote an excellent piece on the sequence of returns risk. You can also check out Big Ern’s amazing analysis on the ultimate guide to safe withdrawal rates over at Early Retirement Now. Check out this example of a Tale of Three Brothers provided by Nerd Wallet in regards to the sequence of returns risk:
How much can sequence risk really hurt?
To illustrate the effects of sequence risk, consider this example of three brothers who retired within a six-year period, each with an initial investment of $1 million placed entirely in Standard & Poors 500 index. Assuming that each brother withdrew $60,000 a year, starting as soon as he retired, each would have had the following ending balances as of June 30, 2015:
Several years of a bear market coupled with a major health crisis could wipe out retirement savings. The FIRE movement is definitely spreading and it’s trendy right now to retire early. The main takeaway from Paula’s podcast with Suze Orman is that you have to have a contingency plan – not for IF things go awry, but WHEN. Don’t sacrifice your finances or your relationships because retiring early is en vogue. Learn as much as you can from this community and use it to optimize your life. But remember, everyone walks a different path, given their risk tolerance, to financial independence.
One final note - I also want to mention the documentary about the FIRE community that is currently in production called Playing with FIRE. The movie trailer debuted at FinCon and a Kickstarter campaign was created to help fund the documentary and possibly get it to debut at the Sundance Film Festival. A $100 donation will not only assist with funding but it will also get your name to appear in the film credits. Hopefully the message provided from this documentary gets to the mainstream media and spreads far and wide. Now that we have our financial houses in order, it's up to us to help as many people as we can.