Tuesday, October 08, 2019
Questing for FIRE part 4, or...
We're all getting a little burned out.
In the interest of finally finishing this series, I'll summarize the criticisms and rebuttals to those notions, and a few stray thoughts at the end. However, I am discounting and/or avoiding two topics, at least for now. First, I am not including the possibility of a massive financial reset, since almost no one, regardless of preparation, would avoid that kind of crash. That's a whole series of posts in it's own right. Second, there's an undercurrent of privilege that comes with advocating this movement, and while I understand the accusations of class-ism, FIRE is based primarily on math, and a bit on minimalist philosophy. If anything, FIRE represents the removal of class and privilege from finance, as anyone can open a Vanguard account, and you don't need to pick stocks as an index investor. Moreover, living frugally and saving the difference is a time-honored tradition, up until the Baby Boomers decided that greed was good around 1987. The true criticism is that FIRE is just a Millennial re-branding of the practice, with a dash of environmentalism added to the equation. That's a little dismissive, even as there's some truth to the statement.
America has had many painful recessions in her history, although academics generally concentrate on the Great Depression and forward. The economic structure of the country was permanently changed by the response to the Great Depression, so discussing earlier downturns gives little insight into the economics of today. However, I'm more interested in the psychological effects, specifically on children. Using my own Gen-X history, I remember the effects of the nasty 81-82 recession when the parents of my peers lost their jobs, and all of us who were kids in the 1970's know that the entire decade was an economic disaster. Only after OPEC's stranglehold on oil was broken by the deposits in the North Sea and Alaska did steady economic growth resume. These shocks contributed to the general malaise of Generation X; the widespread misery of the the Great Recession colored the views of the next generation, and the children of the Great Depression were permanently scarred by their experiences, or witnessing the trials of others.
What the young adults of today have that neither Gen-X nor the Silent Generation had when the economy fell is the power of the Internet. This instant source of connection, collaboration, information, group-think, personal attacks, and heaping piles of nonsense gave life to the FIRE movement, and the principles and suggestions are available to everyone around the world who has a smartphone that's 10 years old. FIRE isn't revolutionary; it's a reintroduction of the lessons of the Great Depression aided by technology.
As for what I consider appropriate criticisms, there are many. An excellent place to start is Suze Ormond, Her hatred (no, really, hatred is the words she uses, go watch the video) for the FIRE movement can be distilled to a few bullet points: 1) You need far more money to retire than you realize. She advocates no less than $5,000,000, much higher than the typical FIRE estimates. 2) You will lose significant returns by no longer contributing to your retirement funds when you're young. 3) You will have major, unexpected expenses, which will break your nest egg like you're making an omelette. 4) You cannot count on the average rate of return every year. 4) The economy will have major structural changes. like the expansion of Artificial Intelligence (AI) killing whole industries and causing rampant unemployment, which causes a whole host of problems. I have one of my own, which I'll also include.
I can't really comment on AI, though I do take it seriously. As it is much more holistic notion than the other reasons that FIRE is a poor choice, it deserves a post separate from this topic. The others all have merit to one degree or another, but I did rebut some of them in my last post. As for lost income, most people who achieve FIRE end up working in one way or another, and continue to either augment their returns or even save more money. Similarly, I did discuss the 2% of the time that the 4% withdrawal rate will not work, and people should adjust their numbers accordingly. Major and unexpected expenses are always lurking to the point that using the word unexpected sounds intellectually dishonest. I honestly haven't read much that covers that covers this eventuality. There's always proper estate planning and long-term care insurance, but you can't cover all possibilities, and when you find out you don't have enough, it will be too late. Are FIRE people just burying their heads in the sand? It's a legit criticism.
As for my finding fault with the movement, it's much more philosophical and not about the numbers. In the video above, Suze Ormond mentions how much she spent on her sick mom, running into the millions of dollars, and yay for her. That's a possibility that most people will have to deal with at some point. Other family obligations will also need to be met, but the notion of caring for a sick parent or a child with special needs, having a child at all, or even a pet, doesn't really enter into much of the the community's literature or websites. To the extent these things are mentioned, it's usually as a cautionary tale about how much you'll spend. Playing With FIRE, the book that got me started on this subject, does discuss the main characters' daughter, and how they seemed to be dedicated to giving her the best start in life they can, but even they were still talking about daycare, grousing about the price and imagining how they can reduce it, and whether or not they should open a 529 plan for her. It is in this that my greatest criticism of the movement becomes apparent: is comes across as incredibly selfish and self-centered.
Speaking only for myself, life is meant to be shared and enjoyed, yet so many FIRE practitioners advocate doing just the opposite, unless you're spending time with or helping other FIRE advocates. The FIRE Reddit board, to which I subscribe, had people suggesting never getting a pet because of the expense. There's a chance they were joking, but taken at face value, I found their advice horrible. Owning my cats when I was a teen probably saved my life, keeping me sane when life was falling apart. Mushy, a bedraggled Siamese cat missing most of her teeth, gave me love and affection when I most needed it. The money I had to spend to to take care of her would have been worth it at ten times the price. I still think about her today, over 30 years later. That's much more meaningful then a slightly higher saving rate. Of course, there were many entries on the board expressing opinions similar to mine, just as there were suggestions that did make both financial and personal sense: avoid purebreds because of health problems and initial expense, and get a rescue cat or dog instead, saving both money and an animal's life at the same time.
Whatever my misgivings, there's much good to be found in the FIRE movement, and I'm really glad I stumbled across it. I consider myself a practitioner, and I would recommend it to anyone, regardless of income, with the caveat that you will need to carve your own path on the way to your goal. Personal tweaking is a requirement. At its best, FIRE gives people a set of guideline and tools to adjust your lifestyle into something more reasonable, gaining perspective in the realm of wants versus needs, and simply living more mindfully. As you develop a more conscious approach to your spending and understand how valuable your time is, that attitude should spill over into other areas. At its worst, you become a miserly shrew, cutting yourself (and your family) from people and experiences all in the name of spending less to save a few more dollars, making everyone's life miserable at the same time.
If you're considering adopting FIRE, I'll add the following suggestions: as a guiding principle, concentrate more on the FI portion of the equation versus the RE side. As I have found out myself, you'll probably need to keep working longer and need more money than you realize, so worry about saving first, and when you're ready, reduce your work slowly. This also inoculates you from going nuts trying to save with an arbitrary date in mind and you maintain the beneficial life structure work provides. As far as saving is concerned, flexibility is key. There are times when I can add to my retirement in big chunks or pay down debt rapidly, and times when I'm replacing the washing machine or fixing my car. Sock away money as best you can, knowing that big expenses will happen. Avoid adding more debt as much as possible (naturally), but eliminating debt is less important than saving, unless the interest rate on your debts is higher than expected 5% rate of return. If so, pay off the highest interest debt first, and go from there. Since I never carry a balance on my credit cards, I have no debt that eclipses the above rate. I will continue to pay down my debts ahead of schedule, but not at the pace I was paying before.
Aside from updates at to my net worth, this should be the last post on this topic for quite a while. I'm still annoyed about having to rewrite my prior entry, but studying this subject and creating these posts has been unusually profitable for me, as I found out that my estimates were wildly over-optimistic, which forced me to make serious changes that I hope impact others as little as possible. The process also drove home what a mistake I made with my pension, regardless of my saving rate, something I'll probably never truly get over. Alas. On the other hand, I am in much better shape than the typical 48 year old and can build on my relatively good position.
In the interest of finally finishing this series, I'll summarize the criticisms and rebuttals to those notions, and a few stray thoughts at the end. However, I am discounting and/or avoiding two topics, at least for now. First, I am not including the possibility of a massive financial reset, since almost no one, regardless of preparation, would avoid that kind of crash. That's a whole series of posts in it's own right. Second, there's an undercurrent of privilege that comes with advocating this movement, and while I understand the accusations of class-ism, FIRE is based primarily on math, and a bit on minimalist philosophy. If anything, FIRE represents the removal of class and privilege from finance, as anyone can open a Vanguard account, and you don't need to pick stocks as an index investor. Moreover, living frugally and saving the difference is a time-honored tradition, up until the Baby Boomers decided that greed was good around 1987. The true criticism is that FIRE is just a Millennial re-branding of the practice, with a dash of environmentalism added to the equation. That's a little dismissive, even as there's some truth to the statement.
America has had many painful recessions in her history, although academics generally concentrate on the Great Depression and forward. The economic structure of the country was permanently changed by the response to the Great Depression, so discussing earlier downturns gives little insight into the economics of today. However, I'm more interested in the psychological effects, specifically on children. Using my own Gen-X history, I remember the effects of the nasty 81-82 recession when the parents of my peers lost their jobs, and all of us who were kids in the 1970's know that the entire decade was an economic disaster. Only after OPEC's stranglehold on oil was broken by the deposits in the North Sea and Alaska did steady economic growth resume. These shocks contributed to the general malaise of Generation X; the widespread misery of the the Great Recession colored the views of the next generation, and the children of the Great Depression were permanently scarred by their experiences, or witnessing the trials of others.
What the young adults of today have that neither Gen-X nor the Silent Generation had when the economy fell is the power of the Internet. This instant source of connection, collaboration, information, group-think, personal attacks, and heaping piles of nonsense gave life to the FIRE movement, and the principles and suggestions are available to everyone around the world who has a smartphone that's 10 years old. FIRE isn't revolutionary; it's a reintroduction of the lessons of the Great Depression aided by technology.
As for what I consider appropriate criticisms, there are many. An excellent place to start is Suze Ormond, Her hatred (no, really, hatred is the words she uses, go watch the video) for the FIRE movement can be distilled to a few bullet points: 1) You need far more money to retire than you realize. She advocates no less than $5,000,000, much higher than the typical FIRE estimates. 2) You will lose significant returns by no longer contributing to your retirement funds when you're young. 3) You will have major, unexpected expenses, which will break your nest egg like you're making an omelette. 4) You cannot count on the average rate of return every year. 4) The economy will have major structural changes. like the expansion of Artificial Intelligence (AI) killing whole industries and causing rampant unemployment, which causes a whole host of problems. I have one of my own, which I'll also include.
I can't really comment on AI, though I do take it seriously. As it is much more holistic notion than the other reasons that FIRE is a poor choice, it deserves a post separate from this topic. The others all have merit to one degree or another, but I did rebut some of them in my last post. As for lost income, most people who achieve FIRE end up working in one way or another, and continue to either augment their returns or even save more money. Similarly, I did discuss the 2% of the time that the 4% withdrawal rate will not work, and people should adjust their numbers accordingly. Major and unexpected expenses are always lurking to the point that using the word unexpected sounds intellectually dishonest. I honestly haven't read much that covers that covers this eventuality. There's always proper estate planning and long-term care insurance, but you can't cover all possibilities, and when you find out you don't have enough, it will be too late. Are FIRE people just burying their heads in the sand? It's a legit criticism.
As for my finding fault with the movement, it's much more philosophical and not about the numbers. In the video above, Suze Ormond mentions how much she spent on her sick mom, running into the millions of dollars, and yay for her. That's a possibility that most people will have to deal with at some point. Other family obligations will also need to be met, but the notion of caring for a sick parent or a child with special needs, having a child at all, or even a pet, doesn't really enter into much of the the community's literature or websites. To the extent these things are mentioned, it's usually as a cautionary tale about how much you'll spend. Playing With FIRE, the book that got me started on this subject, does discuss the main characters' daughter, and how they seemed to be dedicated to giving her the best start in life they can, but even they were still talking about daycare, grousing about the price and imagining how they can reduce it, and whether or not they should open a 529 plan for her. It is in this that my greatest criticism of the movement becomes apparent: is comes across as incredibly selfish and self-centered.
Speaking only for myself, life is meant to be shared and enjoyed, yet so many FIRE practitioners advocate doing just the opposite, unless you're spending time with or helping other FIRE advocates. The FIRE Reddit board, to which I subscribe, had people suggesting never getting a pet because of the expense. There's a chance they were joking, but taken at face value, I found their advice horrible. Owning my cats when I was a teen probably saved my life, keeping me sane when life was falling apart. Mushy, a bedraggled Siamese cat missing most of her teeth, gave me love and affection when I most needed it. The money I had to spend to to take care of her would have been worth it at ten times the price. I still think about her today, over 30 years later. That's much more meaningful then a slightly higher saving rate. Of course, there were many entries on the board expressing opinions similar to mine, just as there were suggestions that did make both financial and personal sense: avoid purebreds because of health problems and initial expense, and get a rescue cat or dog instead, saving both money and an animal's life at the same time.
Whatever my misgivings, there's much good to be found in the FIRE movement, and I'm really glad I stumbled across it. I consider myself a practitioner, and I would recommend it to anyone, regardless of income, with the caveat that you will need to carve your own path on the way to your goal. Personal tweaking is a requirement. At its best, FIRE gives people a set of guideline and tools to adjust your lifestyle into something more reasonable, gaining perspective in the realm of wants versus needs, and simply living more mindfully. As you develop a more conscious approach to your spending and understand how valuable your time is, that attitude should spill over into other areas. At its worst, you become a miserly shrew, cutting yourself (and your family) from people and experiences all in the name of spending less to save a few more dollars, making everyone's life miserable at the same time.
If you're considering adopting FIRE, I'll add the following suggestions: as a guiding principle, concentrate more on the FI portion of the equation versus the RE side. As I have found out myself, you'll probably need to keep working longer and need more money than you realize, so worry about saving first, and when you're ready, reduce your work slowly. This also inoculates you from going nuts trying to save with an arbitrary date in mind and you maintain the beneficial life structure work provides. As far as saving is concerned, flexibility is key. There are times when I can add to my retirement in big chunks or pay down debt rapidly, and times when I'm replacing the washing machine or fixing my car. Sock away money as best you can, knowing that big expenses will happen. Avoid adding more debt as much as possible (naturally), but eliminating debt is less important than saving, unless the interest rate on your debts is higher than expected 5% rate of return. If so, pay off the highest interest debt first, and go from there. Since I never carry a balance on my credit cards, I have no debt that eclipses the above rate. I will continue to pay down my debts ahead of schedule, but not at the pace I was paying before.
Aside from updates at to my net worth, this should be the last post on this topic for quite a while. I'm still annoyed about having to rewrite my prior entry, but studying this subject and creating these posts has been unusually profitable for me, as I found out that my estimates were wildly over-optimistic, which forced me to make serious changes that I hope impact others as little as possible. The process also drove home what a mistake I made with my pension, regardless of my saving rate, something I'll probably never truly get over. Alas. On the other hand, I am in much better shape than the typical 48 year old and can build on my relatively good position.
