Financial Independence, Retire Early

If you’re into building up wealth and a handsome nest egg for retirement, then you’ have likely heard of FIRE by now. FIRE stands for Financial Independence: Retire Early.

While I like the idea of FIRE, you have to be careful what this really means. The people who achieved FIRE and are writing about it in the blogosphere claim you can retire early if you’d just save and invest as much of your income as possible. There are multiple bloggers on the web who claimed they have achieved FIRE status by the age of 30, 35, or 40.

FIRE Is Misleading

There’s just one problem: They don’t give you their numbers to back up their claims. What they do give are vague and generic claims about how they are able to save up to 65% of their income every year, all while living in New York City.

When you do the simple math, it doesn’t work out. Let’s say some blogger claims she saved a million dollars by age 30. She started working at age 22. For the next eight years, her salary is a constant $150,000. At a savings rate of 65%, that’s $780,000 saved up for eight years. Now, let’s invest that amount into the stock market, assuming a 7% ROI. That yields $1.033 million in eight years, but before taxes. After you factor in taxes, the $150,000 really isn’t $150,000. The $1 million amount actually falls short.

There are other problems with this example. For starters, $150,000 is a lot of money. This is especially true for someone joining the workforce, unless you work in tech where the starting salary for a software development engineer is quite high (around $130,000), with a generous sign-on bonus, and equity. Most people simply don’t have this or it takes them a number of years to reach the same level of salary as in the example just given.

The Hidden Truth Behind FIRE

These people likely received money from some other source, such as grandfather who gave them a headstart in life through gifting a stock portofolio. Oftentimes, a big source of that income is through their blog.

Think about that for a second. If FIRE works so well, then why would they need to have you pay them money for their products and advertisements? In other words, these people aren’t retired and enjoying the rest of their lives on a beach somewhere in the warm tropics of the south Pacific. They’re running a business called a blog (much like this one!) and then basically lying to you that FIRE works.

The fact is they are selling you a half-lie. Sure, you can retire with a million dollars in your 401(k). How comfortable of a life will you really have? Honestly, a million dollars these days doesn’t get you as far as it used to. A million dollars 30 or 40 years from now equates to about $50,000 a year in income. After you factor in the cost of living and inflation, you might as well live in poverty.

Now, imagine you’re already tapping into this income at age 35 for the next 40 or 50 years. You’re just surviving somehow.

On a philosophical level, let’s say that you achieved FIRE at 35. What would you do for the rest of your life? This is something that FIRE people do not address. Sure, they may say something like, “I can do whatever I please now.” The fact of the matter is in actuality they are still working, blogging about their FIRE experience, and having you pay to support their lifestyle.

That’s just the thing. If FIRE worked for them, then why are they still working?

Now, I’m not saying that running a business is bad. In fact, I advocate that everyone run a business and cater to their strengths. Having a business also increases your likelihood of reaching the million-dollar mark in terms of net worth.

Setting Up Systems That Work

Instead, I propose reframing what FIRE means. Throw out the fantasy these FIRE advocates sell you. Look at financial independence as setting up systems to help you create the money you need to support the lifestyle you want.

Oftentimes, this means setting up systems which provide you with a continuous stream of revenue. We call this stream a passive revenue stream. The word passive, however, is misleading. Passive revenue really means a stream of income that you get for doing a minimal amount of work. Yet, that minimal amount of work comes only after you’ve done a lot of the initial legwork.

For example, stock market investments are passive revenue streams; however, you have to initially put in a great deal of work. Unlike real estate investments where you can use other people’s money to pay a mortgage for the next 30 years, with stocks you have to already have every dollar you invest. It also takes a long time to reach a point where your monthly returns exceeds the volatility of the market. As an example, for the month of May 2019, you can lose $3000. Then in the month of Jun 2019, you can make another $5000, with a net gain of $2000. This actually happened to me.

To reach a point where you’re more or less immune to market volatility means having a large sum invested. What that point is depends on your financial picture. In this example, the amount invested (about a $100,000) is more than enough if you want just an extra $100 every month. But if you’re looking to create an equivalent of a $100,000 a year in income, then you’ll need several million dollars in the market!

Creating a business which provides you with a continued source of income is another source of passive revenue, especially when you reach the point of being able to walk away from the business for several months, then come back to it with an increase in your net worth.

I don’t know about you, but I think living with a minimum income stream that never grows is a poor way to live. It leads to an unsatisfying and unfulfilling life.

But Why Even “Retire?”

You are always either growing or contracting. When you live with just the million dollars you have invested into the stock market investment at age 35, siphoning off the interest and hoping the economy doesn’t collapse, that’s not much of a life. Rather than growing, you’re contracting.

Life is more fulfilling when you’re doing things you love. Most people who say they want FIRE are looking to save and invest as much of every paycheck as possible so that they can get out from under the system and live life on their own terms. While on the surface this sounds honorable and a worthwhile goal, there’s a fatal flaw with this argument: That person is running away from something to minimize the pain rather than towards something better.

This site doesn’t pretend to support FIRE, just financial freedom. This site and the business model behind it were created with the purpose of making money. I also have put into place the systems I write about, which I know work. More than that, it’s about changing your relationship and context with money.

What Is Retirement?

For most people, retirement means working for the next 30 or 40 years, until you’ve reached a certain age as dictated by the government. Then, stop working and start collecting on social security, pension, or retirement accounts for however long you live.

For the lack of a better description, most people spend the day sitting in a barcalounger getting hypnotized by daytime TV, waiting for their time on this earth to run out. During the decades they spent working, they never pursued what matters to them, instead following what everyone else does.

People in the FIRE camp want to beat these numbers by entering retirement as early as possible. To me, that’s the same as going to an early grave. It’s just that they are able to run away from something much quicker than most people.

Rather, focus on running towards something. Focus on running towards what you want.

Some people never truly stop working. Life is too interesting to them. They refuse to believe in what society deems as an age when you should stop working and start being careful, no longer physically exerting or partaking in the grandeur that is life.

Yet, this is a quick way to die a spiritual death. The less risks we take, the less alive we feel. The less we serve other people, the less fulfilled we are. The lower the purpose we have, the less happy we feel.

For example, there’s a reason why older people who are ham radio operators participate emergency services, like reestablishing communications through the radio network in a disaster or search-and-rescue. They also volunteer at a holiday parade, too. They volunteer their time and energy for the sense of purpose it gives them.

Life Is Too Interesting to Retire

I don’t support retiring at all, simply because life is too interesting. Sure, it’s good to be able to take time off whenever you desire so that you can take that vacation you’ve always dreamed of. Or work on that book you’ve been talking about for the past decade. Personally, I will get bored in retirement and have already chosen to keep working. Whether it is in the tech industry, writing books, playing music or even volunteering, I choose to continue doing things which give me pleasure and joy.

In the end, financial freedom means set up systems of revenue generation so that money is no longer the primary concern when you make decisions. That way, you create a greater possibility of doing those things which bring you joy and happiness, enabling you to live life on your own terms.