The Truth About FIRE Retirement
Early retirement, or FIRE Retirement (Financially-Independent-Retiring-Early), is a popular idea spreading across the internet.
Its popularity has made it somewhat of a gatekeeper to anybody hoping to escape the rat race.
When you explore the forums and blogs, it’s clear that a great number of people are working towards their own early retirement.
The idea is oft touted, by those who can comfortably afford it, as an option for everyone.
However, its popularity doesn’t make it a golden ticket to freedom for the average person.
I’m not here to throw water on the idea (pun not intended – but I’m keeping it), but FIRE doesn’t work for the average earner trying to escape the rat race. -and here’s why.
Disclosure: Based on personal opinion, not to be taken as advice. Seek a professional if required.
How Does A FIRE Retirement Work? It’s a progressive saving and investment concept, designed to enable early retirement. Just how early, is dependent on how much you can save, and how much you need in retirement. You can read about it at Mr Money Mustache (a great resource and forum).
I believe if you’re an average earner or below, or you have some urgency about escaping the rat race, you should quickly progress from the idea of FIRE.
Too many people get caught in the web that is FIRE, and can become disheartened when they realise, it’s a long term strategy.
It’s why a good number people blog about it. Because a successful blog would get them to freedom, long before FIRE would.
I’m going to get into this, but before I do, please note:
1. This is my opinion, based on my own experience.
2. I’m talking about the idea of FIRE, not a person, blogger or book.
3. There are a number of people that FIRE would work for, and that’s where I’ll start.
The FI/RE Retirement Principles
In a general sense, anyone could benefit from applying the FIRE retirement principles.
FIRE promotes saving a large portion of your wages and investing it. The idea, in simple terms, is to build up a pension pot -long before the standard retirement age.
Saving a large pot of money is a great idea for most people.
But, there’s a world between saving extra money, and significantly reducing the number of years you’ll need to work.
†Who is it for then? Who could bring their retirement forward, to such an early stage, that one would consider it an escape from the rat race? A person who:
• Earns a wage substantially above the average.
• Expects to earn a wage substantially above the average.
• Has received a substantial inheritance/gift (be it money or assets), or expects to.
• Does not need to service a mortgage or rent, for whatever reason.
• Lives in a country where the cost of living is substantially lower than the norm, while they receive a progressive wage.
• Has a definitive plan to win the lottery.
Why? Because these people can live relatively comfortable lives and still save/have immense amounts of money.
Some of the people advocating FIRE, are spending more than the complete wage of their average reader.
So, they advocate that you should follow their path to FIRE, while they live like you could, if you’d only spend your entire wage.
Then, they save the other half of their wage, and tell you how fantastic they are.
Basically, if they were earning the average wage, they wouldn’t have an early retirement.
There are many different concepts out there, beyond FIRE, and that is my point. FIRE is the gateway, not the destination.
This isn’t the case for every Early Retirement blogger, but I’ve seen it enough to make mention.
The average person could retire early using FIRE. But, they could have done that anyway…
Just contribute more to your savings, and use it to bridge the gap to your pension. No need to call it ‘FIRE’.
Who Should Treat FIRE As A Gateway?
• The average earner who doesn’t fit into one of the points above†.
• A person who wants to escape the rat race as soon as possible.
• A person who doesn’t mind agency, but doesn’t want a ‘job’, a ‘boss’ or colleagues.
It’s that simple.
If I earned £60k a year, I’m sure I could comfortably live off £20k. I could even do £10k. In fact, I know I could do £6k.
But, it’s one thing to save 50% of your wage when you’re earning £60k a year. It’s quite another, doing it with £25k. Especially over 10 years, because it requires a decade of sacrifice.
One of these two people will discover a very early retirement. The other will retire 5 or 10 years earlier than his/her pension age (all being well).
It’s a disappointing path to follow. Especially if you’re not expecting your wages to jump up over time, due to limited career options.
You can achieve great returns from £2k-£6k each year. But most people won’t be retiring on it.
Some Basic FIRE Numbers
First, let’s be clear about what the ‘average wage’ is.
• UK: £27, 600 – In 2015 according to Recruitmentbuzz.co.uk. The Office For National Statistics (ONS) states that as of FEB 2018, the average wage across all workers (full and part time) is, £513 a week. (513 x 52 = 26676) An annual salary of £26, 676.
• US: $51, 939 – In 2014 according to the Fox News Network (The median wage). The Social Security Administration states that the national average wage for 2016 was $48, 642.
I found that the average cost of living was in line with wages. I suspect this is because a large portion of society live to their means. If they have it, they spend it.
These statistics are not 100% credible. The figures are skewed by a number of factors, as one would expect from such complex data sources.
Some of the factors which were not individually accounted for were, the number of workers per household, the number of children or dependants, household bills, and work opportunities.
But, this isn’t a blog about statistics and the point I make is supported by those numbers. The average wage, once hit by tax, mortgage/rent, household bills, car/travel expenses and food costs, is decimated.
Each individual reader of this post will know what those figures represent to them; whether they are doing better or worse. The question is, How much can you save a month?
I’m not going to cite the official saving figures, because if you’re reading this, you know most people could be saving more.
I will state that, if one followed the standard, happy-go-lucky FIRE retirement route, then it wouldn’t be enough to escape the rat race. Not for the average worker.
Saving 30% of the average wage (after tax) in the UK would be a stretch for most people. And even if they could, it wouldn’t amount to much.
Average UK Pay:
£27, 600 (Our average pay packet). According to this calculator at Money Saving Expert, after tax, the take home pay is: £22,151.
That is: £1,846 per month (after tax).
Let’s assume you could save that 30%, even after your pension contributions and other bills. That’s £553.80 per month.
Over 10 years, with about an 8% (optimistic, but hey) interest rate, that’s: £100,390. Fantastic.
But, it took 10 years to save that amount, and a 4% SWR (Safe Withdrawal Rate) of just over £4k a year isn’t going to cover the cost of living. That is to say, you could not live off the interest from those savings. If the worker needed £1,292 for monthly expenses, they would need to save near 4 times that amount.
10+ years of saving, may not be what you were looking for when you started reading about escaping the rat race. Maybe you want to quit your job sooner. If so, #FIRE is a gateway, not the destination.
Now, let’s look at a high earner.
A person earning £60k, takes home £42,819 or £3,568 a month (after tax). Based on the same living expenses, they would be able to save over 63% or £2,276 a month. 10 years of saving for them would result in £412,600. Conveniently, just enough.
I don’t need to draw out the high earner. You get the point. The high earner is ideal for FIRE. He/She basically creates a secondary pension pot and retires early.
Why Do So Many People Promote FI/RE Early Retirement?
Because it’s possible, for them. And, it can be enchanting for the masses, especially with nice charts and stories of freedom.
The language can get jumbled, and that ‘freedom’ can be sold as a near term concept. It is all to often touted to the masses as a way to ‘escape the rat race’.
The modern world wasn’t designed so you could live without a job. The financial system needs people to work. That is to say, your escape from the rat race, was never meant to be easy.
It’s evident to me that some of the people blogging about FIRE, know it isn’t effective enough. They know that it’s worth hedging a bet and trying their luck on a blog. Because if successful, it would mean freedom, faster.
I advocate running the numbers, just like the FIRE bloggers, the entrepreneurs, the Etsy crafts sellers, the Ebay re-sellers, the eBook writers and the Amazon shop keepers. I believe in frugal living to maximise savings and small business creation.
I believe in small business creation because it can create the lifestyle most people would prefer, over that of the workplace.
I don’t completely disregard FIRE, because in part, it opens the door to frugal living and saving money.
It just isn’t extreme enough to change anything in the near term.
Working After Early Retirement (FI/RE)
After I quit my job, I took about 8-10 months off.
It was a period of learning. Of discovering what I wanted to do with my time (and here I am, writing to you).
For the first time, since childhood, I was free from an occupation. I was free from a requirement on my time.
I discovered that I wanted to have a goal, a challenge of some kind. A focus. I wanted some agency.
I also wanted to help people. People that were as desperate as me to escape the rat race.
Finally, I wanted to do something that had the potential to grow into another business. I wanted to mix money with something I enjoyed, and something that could help others = Freedom2Try.com.
My point is, if you manage to retire young, you’ll have a lot of time on your hands.
There’s a reason why so many new companies are created by people who have already achieved. Why so many who retire early, go on to find another passion, that happens to pay.
Some people enjoy having a cause in their life. Some agency that gives them purpose and meaning.
They just hated the workplace and all that it entailed.
You don’t know how you’re going feel, when you finally FIRE.
I suspect, you’ll do more than just sit on a beach.
And that thing, that dream waiting in the wings, will likely bring in some money. Currently unaccounted for.
If you’re planning to work on something after FIRE, why FIRE in the first place? Why wait X years before trying to create that business?
Which leads me onto …
On A Promise
Simply put, life is short.
I didn’t want to save all my money, on a dream for a future which was never promised.
I didn’t want to work for 20 years to save as much as I could, in the hope of a wonderful life thereafter.
FIRE represents a long time to stay in a hostile environment, all on the promise of a better tomorrow.
I hated the workplace. It came to be that I only went into work on Monday morning, because I needed to pay the bills.
Many people live outside the mainstream. Their work is not simply something to retire early from, but a torment which they must endure.
These people, who desperately need to quit their jobs, will find it difficult to wait until 50, for a slightly early retirement.
My opinion is that FIRE is a gateway, not the destination. It leads to new ways of thinking, like creating a plan to financially sustain business creation, and ERE (Early Retirement Extreme), among others.
Escaping the rat race isn’t about ensuring you can eat caviar ’til eternity. The goal is to get free.
And once you’re free… everything changes.
This really isn’t a post for someone who enjoys their job, but is FIRE’ing anyway.
It’s not for those who plan to live on a beach somewhere, or to fly around the world for the Motor Racing.
This is about people who want to escape the rat race as soon as possible.
If the thought of Monday morning keeps you up on Sunday night, then this is for you.
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