All this talk about retiring early when living frugally is a bunch of horseshit. It's 'Fuck you money' or bust.
- Completely counterproductive to live frugally in order to retire early so that you can continue living frugally without working for 'the man'
- if you really want independence from your employer, it needs to be complete independence. Not the independence that risks bankrupting you whenever you or your family have a serious health condition
- 'Mr. Money Mustache' is so full of crap sometimes, I wonder if I'm reading /r/frugal_jerk and people often forget that 'Mr. Money Mustache' is a business in itself with different incentives than solely teaching you how to 'game the system' and 'escape the ratrace'
- sometimes the frugal part takes up so much time and energy it's counterproductive to go that way when you're really well paid. Not to mention the decrease in quality of life
After decades in this business, if you want a happy semi-independent life the following advice is what I can think of:
- work on yourself, cultivate your craft, become a specialist so that you call the shots whenever you need to change jobs and afford to pick jobs allowing you to work on what you really want
- work on side-projects and constantly learn new stuff. If you manage to get a passive income stream, good for you but don't necessarily make it a life goal
- screw corporate loyalty. Change jobs every 3-4 years, you'll learn way more and your income will be miles ahead of your former colleagues
- don't buy stupid shit you can't afford (including but not limited to: fancy cars, McMansions, travel for the sake of traveling, etc..) unless they are a central part of your existence
- follow some basic money management rules (max out retirement funds, keep emergency cash while investing your savings, etc..)
- keep good work life balance constantly so that you don't get burned out or daydream about your early retirement
I don’t think MMM is “full of crap” intentionally or that the whole thing is a scam. But I do think it is a bit misleading to claim you only need 25x your annual expenses to retire because of a 4% SWR. He does recommend those Vanguard index funds like most early retirement people but he has a free and clear rental property that covers the whole family’s expenses. And a free and clear primary residence. So a huge chunk of his portfolio is in real estate. Same goes for Financial Samurai or Frugal Woods.
The frugal path works for some personalities though. Myself, for example - I’ve lived on $1000 a month for seven years in a decent paying job. Everything went towards buying rental properties. When I quit I moved out of the US to avoid high medical premiums and high costs of living. (City center in Paris or Tokyo still cheaper than NYC.) I don’t plan on having kids or getting hitched, and I’m practically a hippie. So my opinion is that you need a combination of (1) Good salary (2) sustainably low expenses (3) major flexibility in lifestyle (4) updated skillset and social capital. I’ve lived in my car for fun. I plan to spend this summer sleeping rough on a beach, gratis. If the economy goes to shit I am not opposed to dumpster diving. Or offering my services as a live-in tutor.
I hope many people realize that early “retirement” is not just numbers - you’re still going to want to do something “productive” and you have to constantly be leveling up skills and relationships.
Also - he's a software engineer - one of the best paid careers at the moment (and in the US). I also work in IT (not in the US) and get paid 5x times what my former highschool colleagues make. But I don't rub salt in their wounds that I am able to save 60-70% of my income.
THIS. All the early retirees I know are either extremely rich (from their tech startups), or have a working spouse or immigrated abroad. No one has solved the riddle of healthcare costs while staying in the US post retirement on meagre income. This will especially hit hard when early retirees hit their late 40's / 50's, when health problems start kicking in but your resume starts looking rusty due to 15-20 years in retirement.
This, if you live and work in the USA. I don't know how it works in Europe or Asia, but in America, unless you have F-U Money like OP says, you are just 1 major health issue away[1] from bankruptcy if you go the "frugal" retire early i.e. retire without F-U Money.
Source: My Manager's sister, in her early 50s, who had early stage throat cancer. Despite having insurance, it quickly maxed out, and hospital stays even for 3/4 days are in 1000s of $, and not all medical events are covered at 100% even by the best insurances. She (the sister) is now using my Manager's insurance to pay for some of it, and hasn't been at her job in 8 months, so also afraid of getting laid off.
Sure but US healthcare is a vulture out to rip you apart in pieces. My plan, make fuck your money in US, retire in Australia. I also hope the economy crashes some time in Australia because the prices there are definitely in a huge bubble.
I am 23 and I read a lot from Mr Money Mustache, Early Retirement Extreme, Frugal Hackers, and many others. I fully agree with you but I still save close to 60% of my income (no debt, own my own car/house and have $45k invested in 401k/roth ira/hsa/taxable account) and live extremely comfortable.
I will be able to "retire" by age 33+ but I don't plan on actually quitting work. I am naturally minimalistic and frugal, but I live a very comfortable life on $15-20k or less (past 2 years I've lived on $10k in midwest US).
I am mostly doing this to secure a buffer of time to buy freedom and start-up costs for a small product I am creating.
The concern for health insurance is a huge issue for early retirement, especially when you have a family. I'm an eternal bachelor so that won't be a huge issue for me, so I can't truly comment on it.
I think all your advice is early retirement aligned but with the caveat to buffer for health insurance. I think early retirement has become so popular because the vast majority of Americans don't save for retirement and over-consume (which is not good nor bad but subjective to each person's internal purpose).
I've seen a lot of specialities become worthless or at least marginalized. I'd like some examples that stand the test of time. (For tech that's probably 10± years).
Ive seen plenty of niches were a few folks were able to cling like barnacles in Finance, Telco, etc but TBH their lives didn't seem that appealing. Lots of time on the road, etc.
After college, I paid $800/mo and lived modestly to save up money in SF. Two years later, I bought my first house in Berkeley and moved in. The tax savings from mortgage interest helps save alot of money. We rented out 2 remaining rooms that we are not using and it helped cover the mortgage. (Starting out, I made around 100k and saved around 50-60k/year)
2 years after that, my gf (at the time) and I pooled our money to buy a house in south SF. 2 years after that, my mom and I bought a 3 unit run-down place in Oakland and fixed it up. 6 years after college, I have rental income coming in around 13k / month and I quit my job. No need to move to a new/cheaper location, 13k / month is plenty for bay area.
Now, I run a nonprofit to help people in the bay area community learn how to code (we focus on low income workers and we pay them to quit their jobs so they can learn how to code full time).
Looking back, the best thing I did for myself is to refrain from living extravagantly. Its an easy trap once you start making 200k/year. With that much money, its easy to think that you deserve a nice car, impress girls, and get stuck in the mindset of always getting the best, which not only drains your financial resources quickly, but also creates an internal emptiness. Reuse old cars, cook at home, host modest dinner parties in your own place with friends/coworkers instead of going to bars. You will save alot of money.
Also, (I could write a whole blog about this), time capping your time at every company to 1-2 years helps you cut through political bullshit (huge time sink) and focus on impact. Plus, sign-on bonuses every year boosts your income significantly.
> I bought my first house in Berkeley
> rented out 2 remaining rooms
> buy a house in south SF
> my mom and I bought a 3 unit run-down place in Oakland and fixed it up
> rental income coming in around 13k / month
> Looking back, the best thing I did for myself is to refrain from living extravagantly
Surprising! Sounds like the best thing that happened in this story was partnering with other wealthy people to engage in leveraged speculation on Bay Area real estate.
Maybe financially, but in the long run the best thing that he/she learned was that spending money doesn't lead to increased happiness. Stated differently, the same level of happiness can be reached at far lower financial cost.
Even financially, that may be the more valuable learning.
> Sounds like the best thing that happened in this story was partnering with other wealthy people...
I can see how you made this conclusion, which is semi-correct. You don't have to partner with other wealthy people though, it just makes getting to a point of retirement faster. So if I was to do everything myself, it would probably have taken 12 years to get to where I am vs 6.
Not sure what you are trying to say here, but I'll try to indulge.
1. Your mom doesn't have enough money - You can still involve your parents by having them manage your property. You'd be surprised though, most parents have at least 20-30k saved up.
2. You can't imagine a partnership with your mom (maybe she's too controlling?). Coming from asian parents, I personally felt this way growing up. I suggest finding ways to bond and build trust with your parents first. If you notice friction with your parents, it would improve your long term happiness if you addressed this sooner than later. Usually, parents are the few people in this world who would never scheme behind your back to screw you over. Having them as your ally could do wonders.
> You'd be surprised though, most parents have at least 20-30k saved up.
Most American households couldn't come up with $1k in an emergency, much less "20-30k saved up to go in on an investment". Plus, they'll already have jobs themselves, and you're suggesting adding an additional one on top of that? I hope they're getting paid well off that
I think the point was: your story (while interesting) is one of an outlier person with an outlier income and friends/family with outlier financial means. Congratulations to you for the good fortune, but it’s not a path available to many. Most people don’t even have the means to get past your step 1: “Buy first house in Berkeley”.
dude, you are in the 1%. MAJORITY of the nation doesn't go to college, nor do they earn $100k/yr salary in their lifetime, let alone right out of college.
I think the commenter was poking fun at your 1% lifestyle.
What year did you buy your first house? I'm guessing 2009-2011 since that when house prices were still low enough that early college graduate could buy a house in the Bay Area -- especially Berkeley.
You mentioned you were saving money for the previous two years. Median home prices likely increased ~30% during that time (according to https://www.zillow.com/berkeley-ca/home-values/) which would have been more than the amount you saved up. That's the incumbent-wins nature of the Bay Area housing market-- someone owning a median home would have increased net worth more than someone who saved a large portion of income. This trend has of course continued in recent years and housing has "outrun" people's ability to save for it, to even a larger extent.
Ok, let me make sure I understand. The goal is to live extremely frugally while you work so that you can retire very early and continue to live extremely frugally?
Why?
I don't hate working, and it allows me to fund my hobbies. If I wanted more free time I would just quit and do my own thing for a year. And many of my friends from college have done that.
Maybe saving for retirement is the point. And the fun comes from attempting to accomplish that. I can understand, and thus respect that.
No, the point is freedom. Liberating a tremendous chunk of our one, single life from the obligation to work in order to not starve/be homeless/etc.
You can even keep working after you're reached your retirement number, but at that point it is because you chose to do it rather than having that choice thrust upon you.
I guess that is fair. But as someone who works in software, the obligation to work has never loomed over me, because I always have extra money, and I know that I can quit my job and find a new one if I want. So I don't understand fixating on early retirement as a top priority.
I understand that not everyone is in my situation though, and not everyone has the same motivations as me. I just think that living extremely frugally in your twenties is kind of a waste of your twenties.
>You are trading one job ( the job ) for another ( constantly trying to live frugally )b
No, you are trading a job for any job you want.
You aren't required to sit out on your porch and rock your days away. It just means you have an indefinite runway to figure out next steps.
Mr. Money Mustache apparently makes crazy money now despite still living on $30k / yr, because he had time to find what he loved doing. And if he suddenly decides he doesn't like it, it means he can just... stop doing it.
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Actually. Let me phrase this in "valley speak".
FIRE is about building and funding a personal basic income system.
By "the shackles are in your mind" you mean "if you consciously suppress the fact that if you choose to stop working you'll starve and be homeless, you're already free." That isn't freedom, it's living in a fantasy.
It really depends. You could really just drop out and be free right now. Live in a tent somewhere and dumpster dive for food. There are so many ways. But the “shackles” of retirement income and medical bills and comfort hold us back.
One man’s necessity is another man’s luxury. I envy those people who don’t worry about the future and live the bohemian life - I don’t think they are lying to themselves though. People are diverse.
Nobody is claiming you will be free of all shackles. Everyone has only a slim margin of subjectivity they can use to control the course of their life. An incomplete list of things to which we are subjected, largely outside of our control (which we might call shackles):
* Severe medical problems, some resulting in instant death (like an aneurysm rupturing)
* Accidents resulting in damage to your person, especially car accidents
* Disability, ethnic makeup, sexual preference, parental social class, etc. which restrict opportunities available to you in our current society
We aren't talking about any of that. We are talking about things which fall within our margin of subjectivity, which for some fortunate people (especially highly-paid software engineers) includes work. To deny this reality and the terms of your participation is to live inauthentically.
My student loan debt doesnt go away if I find meaningful but low paid work. Admittedly it was my choice to take on that debt but on the other hand society had decided that I was too young to responsibly drink and had to pay higher rates on car insurance. Somehow though, I, and everyone else at that age is allowed, and encouraged, to sign up for life altering debt for a piece of paper that got me a job at a call center.
Trying to get enough money to retire early now is entirely to make it possible to take on meaningful work instead of the soul crushing jobs that are mosy modern software engineer positions
Note: I said modern software engineer _positions_ and not practices as I've found that most companies are incapable politically of implementing best practices if they deviate at all from how things have been done in the past 20 years on the enterprise side, while the startup side is long hours for a lottery ticket.
> the startup side is long hours for a lottery ticket.
It certainly can be, but doesn't have to be. The "long hours" part varies greatly depending on your role, responsibilities, and expertise. The "lottery ticket" part varies based on whether you're optimizing for salary or equity.
I have always excluded stock options from my decision-making process. Sure, it's possible they could make me rich some day... but it strikes me as highly unlikely, and I'm planning on them being worth $0. Equity I consider a potential negative if the company hasn't had their IPO, due to the tax implications.
There are startups out there that offer great salaries and quality of life out there, but you've got to look for that in particular. It also helps if you live or are living to live somewhere with a low cost of living and are willing to work remotely.
I live in a small town and there are effectively zero jobs here that I'd want because the market is so small that they can pay much less than I want to accept. Working remotely allows me to compete on the global labor market, where the compensation is substantially higher. I'm not making the same salary I would if I lived in LA or SF, but it's a whole lot closer to that than if I worked for a local employer. The difference in housing costs alone more than makes up for that, much less the total cost of living.
Here's a comparison between my employer's location (Santa Monica, CA), and the nearest city to me (Springfield, MO). Note that I live about an hour from Springfield, and the costs here are even lower: https://www.numbeo.com/cost-of-living/compare_cities.jsp?cou...
Frankly I'm not sure I'm good enough to get those deals. Whether it's technical skills, negotiating skills, or plain luck I have not been able to get a job that good for me
For I think a vast, vast majority of people this is delusional.
For probably over 90% of people whose passion is writing music for example, they will in fact become homeless if they try to make it their only source of income. Even a lot of now-famous actors/singers/etc. ended up homeless for a while as a direct result of this before they hit it big.
Having 10% shot at living your dream sounds pretty good to me. Or you could waste your youth at a corporate job, never finding out if you'd make it or not. That's the true tragedy. If you end up broke you could always go back to your white-collar job.
This, times a million. I'm partially FIRE, because I think of it as partial retirement. I still plan to produce income, just not as regularly or as much as I do today so I have time to do the things that I want to in life.
FI - Financial Independence. This is the big one, and basically means you have enough money such that you aren't dependent on a job. It gives you freedom to leave a position you don't like, to take a job with less pay that you enjoy more, to ride out periods of unemployment without worry, etc. It can mean different things to different people.
RE - Retire Early. This is an optional part that only some people aspire to. Many, like yourself it seems, don't mind working so will continue to do so. If you've already achieved a degree of FI, then you'll simply be able to spend more, or donate more , or whatever you'd like to do. For those that don't enjoy traditional employment, they might want to focus on personal pursuits, volunteer work, family, etc.
The point is that you can make these choices on your own terms.
One core idea in all of this is lifestyle creep; as you start to earn more, you find ways to spend it. No matter how much you make, it can seem like it's just enough. Even without being frivolous, it's an easy trap to fall into. And to an extent, it's just fine so long as you anticipate working until a normal retirement age and do save appropriately. But the observation here is that a relatively small delay in gratification, in delaying lifestyle creep, can lead to a large amount of financial independence. A bit of measured frugality can accumulate a large degree of wealth due to investment returns.
Naturally, some will take this to an extreme that seems silly, but the basic idea is a very useful one.
> The goal is to live extremely frugally while you work so that you can retire very early and continue to live extremely frugally?
No, you don't understand, that is not the goal.
The goal is to live a happy life in a way that allows you to save enough money to retire early. Step 1 is to disabuse yourself of the notion that you need to spend all your money to enjoy yourself.
Because some people have skills that don't easily translate to happy job environments and they'd rather do things like tend a small veggie garden and teach their kids how to fish after they come home from school than clock another 65 hours balancing a spreadsheet for a hedge fund.
I think there is something huge in being able to not work. That necessity is very binding.
Can you quit your job for 2 years to study AI and change fields and earn more money and get a more rewarding job? (not you specifically, just an example). The constant nagging of rent, then work + strees and then spending to relieve that stress has something rotten at its core, and its that its aimless.
It's hard for me to get into it. It seems that you basically just work your ass off for 20 years, live like a pauper, then you can retire once your (arguably) best years are gone. I'd rather just work and spend my money and experience things during that time.
What also kind of bugged me with this article was that it sounds so crazy that these two people are doing this so young but then it's revealed they made a bunch of dosh off crypto which cheapens it a bit for me. This isn't just a road map one can follow, it implies some sort of luck ahead of time. I guess fortune favors the bold.
> I'd rather just work and spend my money and experience things during that time.
That makes sense if the things you enjoy cost a lot. But not everyone needs a lot of money to do things they enjoy. For those people, the real cost of having a day to day job is time. For example, I may really enjoy biking and that is a hobby which does not require much money - but it does need daylight and with a full time job you lose the majority of that.
This in essence is what makes me (and presumably many others) incompatible with FIRE. The things I like to do, the places I like to live, and the standard of living I like cost too much for it to be compatible.
Your 40s come much earlier than you realize. I'm not full FIRE and haven't always pursued the highest income but am at a point where previous decisions and frugality are paying off. The future is unknown.
The single best thing I did was focus on my health, that's an investment that will pay off as I age, regardless of my net worth.
You answered your own question right away. Apparently, these people hate working more than they like being less frugal. I've had to be frugal to get by and it does become sort of like a game, where you are always trying to optimize your savings and
tradeoffs. However, the stress involved with making these decisions and worrying about money made me appreciate working and making a good income, and I prefer this balance for now.
There's definitely a big difference between being frugal to get by (stressful) and doing it to hit a 60% savings rate (ie, it's arbitrary). When you have the choice, frugal is much easier - or put differenty, it's expensive to be poor. You're spot on about balance being key.
While I'm sure that some people are trying to retire early because they hate working, others are doing so because they love freedom. Speaking for myself, I spent about a year travelling, and found it very hard to go back to a full-time job. So for me, a job is a way to buy freedom / quality of life, and the FIRE folks are just compiling a list of ways to get the best exchange rate.
It also doesn't hurt that if you save up enough money to retire, then realize you want to continue working, you're not exactly in a bad place.
Some of these people might want to hedge against the possibility that they will be forcibly retired early by some misfortune (economic downturn, disability, ageism, ...).
You don't hate working... right now. What about in a year or ten? What happens when your back is in constant pain from desk work, or your hands are jacked up from years of typing? What about when you're on your fifth language and 25 platform/framework?
You can't go back in n time and save. You can however live a full and fantastic life while still saving a lot of cash.
But there should be a balance surely. I keep hearing this argument - but if you take it to face value you should maximize the present value. Why show up at work at all. Why pay insurance, pension at all then?
There is a balance and the FIRE people are leaning more towards postponing benefits. I am sure not are on the extreme side (as the article seems to point out).
I think these people will find life tremendously boring post work. If your work is drudgery, then sure, retire early. But if you enjoy it, why the hell would you give that up to live a life of poverty?
> I think these people will find life tremendously boring post work.
Why? Some people have hobbies and friends. And if they don't have to spend most of the daylight time at work, they have more time for doing what they enjoy most and spending their time with people whose company they enjoy most.
> If your work is drudgery... But if you enjoy it...
What if it's something in between? My job is nice in many ways. But give me enough money that I can spend the rest of my life doing my hobbies instead, and I will quit without thinking twice. It's not that the work sucks; I just enjoy my hobbies much more.
> ...to live a life of poverty?
Poverty is relative. I don't desire a new expensive car, exotic vacations, and other stuff some people spend a lot of money for. All I need is a roof above my head, food, computer, and internet connection. Plus some extra money for random unplanned situations. Then I can read books, watch videos, play computer games, write a blog, develop my own software, and take a walk in nature with my friends afterwards. That seems like quite happy life.
Everyone has their own preferences. To me, the idea that someone needs a job to bring meaning to their life, sounds utterly horrifying. Maybe I am just misunderstanding something, but do such people have no friends? No things they want to learn? No non-profit causes they want to help? Spending most of your days doing one thing over and over again, means neglecting the rest of your life... or of what your life could have been otherwise.
If they enjoy it, they will probably keep working. The point is having saved enough that they can make that decision based on enjoyment, not based on needing to pay their mortgage and buy food.
Everyone tosses around a 4% safe real withdrawal rate (SWR), but that number is just a starting point. The Trinity study was for a 30-year period where success was defined as ending with a non-negative account balance. If you're retiring at 30, you're probably looking at a 40-60 year time period and want to avoid sliding into the grave just as your account balance hits zero. Here is an in-depth analysis which seems to recommend a 3.25-3.5% SWR instead:
Of course, many software engineers will continue to mess around with tech after retirement; if you follow your interest into extremely niche domains, the option of irregular highly-specialized consulting gigs becomes available. This income stream, while not consistent enough to live off by itself, proves formidable in conjunction with retirement-level investments and enables a much higher SWR.
> if you follow your interest into extremely niche domains, the option of irregular highly-specialized consulting gigs becomes available. This income stream, while not consistent enough to live off by itself, proves formidable in conjunction with retirement-level investments and enables a much higher SWR.
I just had a weird moment this weekend where I calculated what my yearly cost of living would be at the house I'm inheriting. My mom bought her house in cash, in a low property tax state and it's amazing what not having a mortgage will save you -- and it's a _nice_ house. Yearly CoL, counting food, a small home emergency fund and estimated maintenance of the house and car came out to around 7k.
Considering what I make from sporadic consulting, I realized that I could live off that for years just working a few weeks a year. And I only have to do that until Social Security payments kick in (though I'm probably going to try to maintain this level of income until 62).
It drilled home the point that I need to save what I'm earning here so that when the time comes I will have a nice large, easy cushion.
What will you do for health insurance? Rely on Obamacare (which looks shaky given the current politics)? Or take a risk of bankruptcy in case you develop some health condition?
Live out my life as comfortably as I can for as long as I can. I have a certain amount of medical training to care for myself for basics. People go to hospital for the simplest things...
Beyond that I fully support euthanasia. If I found out I had cancer tomorrow though, I probably wouldn't treat it (unless it's of the extremely treatable variety).
> There won't be any Social Security when you are 62.
Unless political opponents use this exact kind of scaremongering to push a repeal, yes, there will.
> The system is a ponzi scheme
It's not, though it's failure mode is a sustainable analog of one.
> that will collapse with the boomer retirements.
No, it won't. The projection is that the Trust Fund would be exhausted, which would reduce SS to paying benefits exclusively out of current payroll tax revenues, this would reduce benefits below full benefits, but would not collapse the system.
I'm going to make a bold statement and say that it's highly likely that I'm among the most pessimistic people _on earth_.
That said, the idea that the government (any government) is going to tell about one hundred million people that they've been paying hundreds of thousands of dollars into something their entire working lives that will give them nothing in return seems beyond ludicrous to me. That's a recipe for disaster. The violent kind.
Human nature's need to maintain the status quo for as long as possible definitely applies here. I'm in my 30s and I won't start worrying until the government starts massively scaling back what we pay _into_ the social security system. If that even happens before I'm retired.
Basically, I sneer and laugh at anyone who says Social Security won't be around in the near-term.
Yep, as long as old people continue to massively out-vote young people, Social Security has zero chance of going away or becoming privatized (which is essentially the same as it going away).
I think it's a pretty bad backup. It cost me 7.5% of my income for my entire working life and when I die I don't have anything to pass onto my children. If I die before retirement age I get negative 100% return on investment. Let's not forget that the poor and minorities tend to have hard labor jobs so they die early, before they get a decent return. This program has really harmed the ability of the poor to create and pass on generational wealth because it redistributes their wealth to wealthier demographics who live longer lifetimes in retirement.
When I say extremely niche, I mean extremely niche. Not the sort of thing you get by cold-calling some corporate entity. Maybe you become involved and well-known in an obscure technical field at the margins of economic feasibility. Eventually you run into someone who holds the purse strings at some organization who is interested in that field. You work together a bit, and eventually ask whether they'd want to pay you for a one-off trial project using the technology. Stuff like that.
Most people target 4% withdrawals if you want to live off the nest egg in perpituity, which in this case, would be $12k/year. Less safe investments would earn you a higher return at the risk of sacrificing principal.
Edit: Something important to note is that you can live very well in other countries for what would be considered the poverty floor in the US. For $2k/month, I can pay for a very nice luxury apartment, day camp, and a nanny for my kids in parts of South America.
Ah... no, you can't. You just think you can, because you've never tried. I've actually lived off that magical 2K number with my family in a (large city in a) 3rd world country. It was edgy, we hardly broke even every month, and any 1-time event (s.a medical) was covered from savings. Maybe if you go super rural you can pull that off. Keep us posted!
The Trinity study's 4% "safe withdrawal rate" is actually a bit technical:
The amount you withdraw from your portfolio, in perpetuity is:
"4% of your portfolio's value on the day you retire, adjusting annually for inflation."
Say, on the day you retire, your portfolio's value is $100,000. For the next thirty years, you withdraw $4,000 annually (adjusted for inflation). You now have $96,000 in your portfolio.
Say the year after you retire, your portfolio has done supremely well, and doubled in value to $192,000, and inflation has been 0%. You get to withdraw: $4,000. You now have $188,000 in your porfoloio.
The next year, your portfolio tanks by 50%, and it is now worth $ $94,000 (and inflation is still 0%). You get to withdraw: $4,000. Your portfolio is now worth $90,000.
(There are additional rules about the composition of the portfolio too.)
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Historically, by following this rule, there has been no thirty-year period (since records of the US Stock market have been kept) where the portfolio would fail--where you wouldn't be able to withdraw your $4,000. And the vast majority of the time, you would end up with a very, very much larger value.
It is a fairly conservative system and keeps purchasing power constant, which is useful.
But it is only a starting point. If you will have a longer retirement, don't follow their composition rules, or don't need constant purchasing power (most retirees don't), then you should adjust it as appropriate.
9.8% is not a safe return, no, which is why the safe return is about 7%. The worst-performing 30-year period averaged around 7%, which is what the 4% withdraw rate is calculated from (accounting for inflation).
Obviously anything can happen, the world could end, whatever; there's no truly 'safe' option. But it's reasonable.
It does assume the continuation of American exceptionalism. I believe that a better benchmark would be a basket of stock markets rather than just the S&P 500.
That basket would be dominated by the S&P 500 so it wouldn't change things too drastically, but it would pull that number down somewhat.
The 4% safe withdrawal rate usually refers to the net return. To your point, in today's interest rate environment that would mean aiming for >7%+ returns.
Also, it seemed that the couple were willing to move to a lower cost of living location/country so their safe withdrawal rate would take them further. I don't think children were factored into the base equation, although it's entirely possible one or both of them could work part-time to augment income during child-rearing years.
>Within two years, they plan to hit this “magic number,” after which they’ll quit their jobs and roam the world.
If you stick to cheap areas like SE Asia and Central Africa then you don't need half of that. Throw in couch surfing or buying a van to live in and you can spend a lot, lot less.
FIRE couples need to ensure that they don't get lonely, and should spend more of their available time cultivating their network as they traipse around the world. For some, it's easy to form and maintain relationships wherever they land, but I find this dimension often missing from the analysis because it's so far into the future.
Am I just grumpy or is it fair that if you're lucky enough to be healthy and skilled you should still be spending your time working to contribute to the world and/or paying taxes, rather than just travelling around and having fun. Now maybe they plan to travel to work elsewhere to help people poorer than themselves but I doubt it.
I'm presuming if they aren't American so if they get cancer or something they can return to Australia or wherever and sponge of the working taxpayers to pay for them.
Why are you putting this "forced charity work" condition on it?
Someone who retires early has saved enough to live on their investments. That's no different from someone with a trust fund, but the difference is that they earned it.
Think of it this way; if you won the lottery tomorrow, would it be a better contribution to your community to keep working in order to pay taxes, or retire so that someone who needs your job to live and support their family can do it instead?
If someone wins the lottery tomorrow they should keep working. There is no shortage of jobs.
If this is in an area where there is unemployment, ideally the lottery winner/trust fund baby/early retiree would start a company and employ people.
If the lottery winner/early retiree doesn't work & pay tax, or do charity work, or contribute to society in any way they're leeches, just as bad as a trust fund baby. They live off investments based on other people working for them, and expect people to grow their food, teach their children, tend to their illness and build their roads for them.
If you've worked 45 years you've done your time, but ideally then you'd continue to teach or manage so that others can learn from your experience. Retiring at 40 is offensive.
Don't worry, you are not grumpy. But you are worrying a little too much since this is just a very small (and hence negligible) problem. If too many young / healthy / smart / educated people were to start doing this, society will adjust and pass new laws and regulations, which will force such folks to work or at least ensure that they don't mooch off the system (esp. free healthcare).
I can't imagine living such a shallow life that the only way I could see people contributing to society is through a fucking desk job. Do you think retirement just means watching reruns of Gilmore Girls all day?
The following is my little story of how I "retired" young.
I am 34 and "retired" 8 years ago. I still do some consultancy now and then to keep my brain active and up to date with how things are done in the "real world". Money isn't a big factor for me as I have enough for everything I want. I don't have any expensive interests, I don't care about owning a high-end car or a huge house, etc. I live in West London (technically Surrey) which is kind of expensive but I am comfortable.
I was lucky more than anything being able to give up work in my mid-twenties though. I got some inheritance, I had a decent job that paid well, I sold my house a few months before the 2008 crash, etc. With some long term investments and a simple lifestyle I realised I didn't need to work not long after I separated from my wife. As I wasn't really enjoying life much after my divorce I ended up quitting my job and living with family for a year while I "found myself". I met my partner and we had a son who turned five a few months ago. My partner still works but doesn't earn a huge salary, we could live with her not working but she enjoys what she does and I suspect we would kill each other if we spent 24 hours a day together so it works out well imho.
I have enjoyed almost every minute of being "retired" so far. I usually just say I am a stay at home dad as saying you retired in your twenties is a bit pompous sounding I feel. Now my son is at school I am toying with the idea of doing more consultancy but I also don't want to make a big commitment to a large project plus we are currently looking into moving to [redacted] to be closer to my partners family. Out initial calculations show living in [redacted] will be about 15% cheaper than where we currently live (mostly due to living in West London). Maybe [redacted] will bring some different consultancy options that will take my interest.
Not entirely sure why I posted this comment if I am honest. I guess to see if there are other early retirees here who might want to chime in with their experiences to add to mine?
Feel free to ask me any questions. I am happy to answer if I can. Also if anyone has any [technical/general] project management questions feel free to drop me a message (username @gmail.com forwards to my personal email).
We were 21 when we bought the house. Two incomes and a few thousand from parents towards the deposit and it wasn't really all that difficult. The mortgage was around £100 less than renting so it made a lot of sense. It was my ex-wifes parents who persuaded us to do it tbh. We didn't think it would be possible but they were convinced it was the better option (which it was). We had to wait until we were 21 though as almost nobody wanted to give us a mortgage at 19 or 20 for some reason. Seems 21 was the magic number for their risk algorithms.
Did you set out with the goal of early retirement? Or were you just relatively frugal, and at some point realized it was possible? It seems like you owned a house at age 24 which is pretty unusual.
Not at all. Never even thought about it, it was just a realisation one day when I sat down and went over all my finances.
My full story is quite, interesting, I guess is the right word :)
Two weeks before I turned eighteen I became a dad (the mother who became my now-ex-wife). That made me grow up fast. I got a job and worked my ass off to impress and get promotions. We got married at 21 and bought a house as we had a decent-ish joint income and had some savings behind us (plus some family help on the deposit). We bought a little 2 bed house in Hertfordshire for £116k. We separated at 24 and sold the house literally 2 months before the 08 crash.
I am not what most would consider frugal though. I still buy things, I just bought a new laptop, phone, I have a nice TV, PS4, etc. I just don't have any expensive hobbies. I don't spend crazy amounts of designer clothes. I run rather than pay for the gym, etc. I also buy things out-right (such as my phone) rather than get an expensive monthly contract. Doing so saves way more than most people realise. So I wouldn't say frugal but I am very aware of what I buy and try to be as sensible as possible with money.
Getting into the housing market a few years before the 08 crash and joining the workforce during the crash produce extremely different results. The envy i have for people 5 years older then me are difficult to explain away sometimes.
There are always tradeoffs though. I know many people who got in around the same time as me, did well and had great high paying jobs, a lovely house, car, etc. Then the crash hit, they lost their jobs and couldn't find a new one that paid the same, had cars reposed, etc. Many quickly realised they had committed themselves to way more than they should have. Had the sell the house, etc. Not fun times for everyone.
I respect the fire movement - principally the frugality and minimalist component.
But I am genuinely interested to see what happens the next time the market crashes - very easy to be pragmatic about pulling your 4.5% while skies are blue.
> One software engineer wanted to hit $1 million so she could home-school her future children; another man, who hadn’t bought new sneakers in eight years thanks to Nike’s generous exchange policy, wanted to found a philanthropic enterprise. “I’m not sure,” another person said. Google, his employer, offered sweet perks. “It’s a great 9-to-5, but I want to see what I could do if I got those 45 waking hours per week back.”
Yeah, no fucking way.
Perhaps it makes sense if you don't like working very much. I tend to generally enjoy the work that I do, and love that I can use the money that I make to live in a nice house, to eat at nice restaurants, to travel wherever and save for retirement as well. At a time when most people in this country (US) are facing stagnant or decreasing wages, working in Tech seems to be an unbelievable luxury.
If you hate your job so much that you think about retiring at mid-30, maybe you should consider changing profession. If you love what you do, you don't have to work a single day in your life.
>Like many other aspiring early retirees, Daniel also made lucky investments in cryptocurrency. “The crypto lottery forwarded my timetable by five, ten years.”
I'd never heard of FIRE, or MMM, until a couple of years ago. I'm 58 & unemployed but have discovered (honestly, to my surprise) that my wife & I are almost there already.
> $1M in 401K money
> three pensions lined up. go figure.
> zero debt & a modest, paid-off house. with a view.
> health insurance thanks to my wife's by-choice 2nd career
> a preference for state parks, my dogs, and homemade avocado toast. :-)
I know this is humblebragging. But all this financial uber-engineering seems a little over the top. Just staying out of San Francisco is one helluva head start.
That's not the point. Simply going through life without making dumb financial decisions (and a little bit of luck) will get you to the same end point with the benefit of having a decent quality of life. I'm happy. And more importantly, my wife of 40 years is happy.
This article is too light on details to speculate well, but it's entirely possible he already had good engineering skills and just happened to be doing something else for the article's starting point.
It's also possible he just knew someone and writes zero code and the engineer title is bogus.
he probably doesn't know everything there is to know about engineering big data but, instead, knows everything there is to know about applying it to a business case. Create more than $180k of value each year and companies will fall over themselves to pay you $180k for your contribution.
This isn’t retirement it’s just people deciding to live a minimalist life off minimal income. This could backfire big time when they realize they want “normal” stuff a few years down the line or have expenses (like health issues) that cost a ton if you don’t have employer coverage.
Can you live off the income of $300k in savings from mid 30s onwards? Maybe. Is that a good idea? Probably not.
I made a throwaway account. I wouldn't want to be found out be potential employers.
I would want to do this, but I am in The Netherlands where health care is amazing, but the salaries are more modest in terms of absolute value. How would you go about a country like The Netherlands?
I don't like working for someone else or when someone else says what I should do, in most cases. I want to do whatever I want, when I want it. I do think I'll be working on something, because watching movies and playing video games all the time seems like fun but I tried it -- it is depressing.
Currently, I'm teaching a family member to code, because she really needs a distraction from her tough life. Also, she needs to see how smart she is -- even after being homeless for the past 20ish years (it is rare but does exist in The Netherlands). I enjoy that, but I won't get paid for that while it does add value to society I believe. I also would want to do a lot with music, but that seems risky financially. Or, I would want to learn a lot of new languages (e.g. Mandarin or Japanese) for fun. It would be cool to organize some events with friends or other people. Or I would like to help homeless people and refugees. Or, I try a stab at becoming a YouTube or pro-gamer (for fun, not for money). I'm all over the place and I'd like to be that, eventually honing in on the things I really like to do and own it.
Another idea is to go for entrepreneurship. But without a financial cushion seems too risky. Maybe I should apply for a subsidy.
Or, maybe I should just grow up. I honestly don't know. I feel the whole financial independence thing is something you can strive for if you're really crafty and clever but is at the very least just as hard as starting a startup and bring it to scale YC style.
I feel my life is meh because of all this, because I'm being pushed into something I don't want to do but ought to do (work). Maybe Darwin will eventually select my type of genes out eventually, I hope so because this type of suffering is unnecessary.
I hang out on reddit's financial independence sub, and there are a few Europeans and NL specifically; I believe there's even a specific FI NL sub (or maybe just FIeurope) for specific answers to your questions. Worth checking out if you are interested; more generally, it's the expenses not the income where most people struggle financially, and not having the US healthcare concerns makes a world of difference. You do need some kind of stable, middle class income to achieve FIRE - which is sometimes overlooked - but from there it's achievable if it's important (and it's OK for FIRE not to be important to you).
I have a similar opinion to the early retirement movement as DHH [0]:
> One of the other underlying pillars of this dream was the concept of Never Having To Work Again. Like somehow an eternity of leisure was going to provide the existential bliss I had been longing for all along. I thought about that a lot. I did all the math: Hey, if I stuff all the money in a prudent mix of stock and bonds, I should be able to live a comfortable, if not extravagant, lifestyle until the end of my days without lifting another finger.
> [...] What kept moving the needle, though, was programming Ruby, building Basecamp, writing for Signal v Noise, taking pictures, and enjoying all the same avenues of learning and entertainment my already privileged lifestyle had afforded me for years in advance.
Or PG, even [1]:
> If you work hard at being a bond trader for ten years, thinking that you'll quit and write novels when you have enough money, what happens when you quit and then discover that you don't actually like writing novels?
Why would I live frugally and work at a job I dislike for a considerable chunk of my best years just so that I can then live frugally and have no idea what else to do? (if I didn't dislike it, I wouldn't want to stop doing it).
One of the tenants of FIRE that I hear is "create the life you want to live, then save for it". Nobody is saying to not try writing novels in spare time during career!
Blimey, all very well if you live in the US and earn a six figure salary (and want to live ridiculously frugally). In the UK I don’t think I know a single person earning that much.
Interesting. Just finished running a conference in Australia, and was having a beer at the end of the day with one of the UK guys talking about how many of his team and network were making early to mid six figures GBP.
I only lived in London for a couple of years, but also knew a few. Most were 45+ years old and "financially independent", although they wouldn't have thought about it in FIRE terms because their idea of independence was pursuing interesting careers choices rather than retiring early. (Which is largely my plan as well.)
How many people actually do this vs talk about doing it? I know Mr. Money Mustache is super popular and generally the tenets are a great idea, but I certainly don't know anyone my age (early 20s) who has become a proponent of these ideas. It seems a bit too extreme for my tastes. Why not just get a job you like, save enough that work is optional and enjoy your day to day?
it's that middle bit that seems to cause all the consternation: "Save enough that work is optional". It also could be (and I don't mean to sound like an old grump or condescend so apologies in advance) that people in their early 20s haven't been soured on employment sufficiently yet. I was much more idealistic and had a greater tolerance for work-related BS when I was in my early 20s.
I'm nearly 50 now and after being burned several times I made a vow to myself never to be dependent on anyone else again. Even if you work for an incredibly well-funded company, that doesn't mean some dweeb with an MBA in some office in another city / state / country won't wake up one day and decide to wipe our your entire division just because she needs to make a bigger bonus.
I've seen pensions disappear overnight, industries collapse quicker than anyone ever thought, and vibrant cities crumble when big employers shut their doors. Painful and stressful in the extreme.
I've also blown $10k on something stupid instead of buying another bunch of Apple stock, reasoning that I'd make it up later in life easily enough. That was 1997. The $10k would be well over $1 million now.
The biggest thing to learn is that money doesn't equal happiness. That, for me, is the repeated lesson of MMM and related authors. Freedom to make decisions without reference to finances is a massive, amazing thing.
One point that often comes up is that people shut their mouth about FIRE because if they bring it up, the reaction is often negative. There might be several people you know working towards FIRE but they don't evangelize it.
> "Daniel Imberman, a 26-year-old software engineer, drifts toward this pole, though he rejects the FIRE label (“sounds like classic tech-douche”). His target is $15 million."
How long do you think it'll take him to reach his goal? He talks about starting a start-up, selling or profiting, but all of that take a lot of work. And even then there's no guarantee his plan will work.
Saving 15M will probably take a developer anywhere from 10-20 years? Or am I very wrong?
What savings rate do you assume there? I agree the savings goal is very difficult even with ridiculously favorable assumptions! I’ve never heard of 5% yearly raises outside of the first 5-10 years of someone’s career. You’re lucky to get raises that approach inflation. And that 7% investment gain is average only if you have a very risky all-equities asset allocation the whole time you are saving. 20%? LOL.
I don’t think most people’s “retire early” savings plans/goals can survive initial contact with reality.
>>Like many other aspiring early retirees, Daniel also made lucky investments in cryptocurrency. “The crypto lottery forwarded my timetable by five, ten years.”
He also got very lucky.
Assuming no cryptocurrency optionality, even if it took him up to 25 years to diligently save and invest, ceteris paribus he would still be able to retire around age 50. The only catch is that family formation can be quite expensive unless you get extremely lucky and find a life-long partner who shares the same frugal mentality.
Finding said partner is much, much harder than it sounds.
I get that some developers at big companies make $600k+/yr but saving $15,000,000 over even 25 years requires putting away 15m/25 => $600k/yr. That's net income to be put away too. So, really you're probably making $1m/yr. I get you'll see return on investment over those 25 years but we're talking true 1% income regardless - which most software devs will never get near. (Even most in the bay area)
All this talk about retiring early when living frugally is a bunch of horseshit. It's 'Fuck you money' or bust.
- Completely counterproductive to live frugally in order to retire early so that you can continue living frugally without working for 'the man'
- if you really want independence from your employer, it needs to be complete independence. Not the independence that risks bankrupting you whenever you or your family have a serious health condition
- 'Mr. Money Mustache' is so full of crap sometimes, I wonder if I'm reading /r/frugal_jerk and people often forget that 'Mr. Money Mustache' is a business in itself with different incentives than solely teaching you how to 'game the system' and 'escape the ratrace'
- sometimes the frugal part takes up so much time and energy it's counterproductive to go that way when you're really well paid. Not to mention the decrease in quality of life
After decades in this business, if you want a happy semi-independent life the following advice is what I can think of:
- work on yourself, cultivate your craft, become a specialist so that you call the shots whenever you need to change jobs and afford to pick jobs allowing you to work on what you really want
- work on side-projects and constantly learn new stuff. If you manage to get a passive income stream, good for you but don't necessarily make it a life goal
- screw corporate loyalty. Change jobs every 3-4 years, you'll learn way more and your income will be miles ahead of your former colleagues
- don't buy stupid shit you can't afford (including but not limited to: fancy cars, McMansions, travel for the sake of traveling, etc..) unless they are a central part of your existence
- follow some basic money management rules (max out retirement funds, keep emergency cash while investing your savings, etc..)
- keep good work life balance constantly so that you don't get burned out or daydream about your early retirement