The New Retirement Plan: Save Almost Everything, Spend Virtually Nothing (#GotBitcoin?)
A group of younger workers, devotees of the FIRE movement, are seeking ways to duck mistakes made by prior generations.
Sylvia Hall wants to retire at age 40. Her dream has a price: brown bananas.
The 38-year-old Seattle lawyer is on a strict budget as she tries to hit her goal of amassing $2 million in assets by 2020. That means saving about 70% of her after-tax income and setting firm spending limits in every part of her life.
She looks for brown bananas and other soon-to-be discarded items from fruit and vegetable stands to help keep her grocery bills around $75 a month. She walks to work so she doesn’t have to spend money on gas. She borrows Netflix passwords from friends so she doesn’t have to spend much on entertainment.
“The idea of not having to wait to 65 to start living on my own terms appealed to me,” she said.
For a new generation of Americans, the traditional retirement age of 65 is getting old. Some of the youngest members of the U.S. workforce are saving aggressively and spending little so they can leave work decades ahead of schedule, defying the career arc that typically defines adult life.
Their reasons for flouting conventional career norms and saving at high rates range from dissatisfaction with unfulfilling work to the decline of traditional social safety nets to a desire for more economic security in an era defined by events such as the 2008 financial crisis.
Even though they are better educated than their parents and grandparents, people between 25 and 35 have less wealth than prior recent generations, and “are behind in almost every economic dimension,” said Alicia Munnell, director of the Boston College Center for Retirement Research, including earnings and debt.
They’re also watching the generation entering retirement struggle with many of the same problems. About 10,000 people turn 65 every day and many are unprepared for the years ahead. Older Americans have high average debt. Their 401(k)-type retirement funds will bring in a median income of under $8,000 a year for a 65-year-old couple.
The younger generation’s radical solution—dubbed Financial Independence, Retire Early—has spawned an ecosystem of podcasts, blogs, books, conferences and informal discussion groups. One online forum dedicated to the concept, known to its followers by the acronym “FIRE,” has more than 450,000 subscribers.
FIRE adherents are often millennials and younger members of Generation X who have college degrees, above-average incomes and the discipline to adopt a strict do-it-yourself approach to retirement. Some say they are saving as much as three-quarters of their income, or five times the 15% savings rate conventional financial advisers often recommend, and growing their own food. Others are taking more modest measures such as living in smaller houses and driving older cars.
“It gives people more control over their lives and time,” said Grant Sabatier, 33, who writes a blog about the topic called Millennial Money. “We live in uncertain times and financial empowerment provides a path out.”
The downside of FIRE is its inherent paradox: For those seeking financial security, early retirement can be risky.
Since many early retirees rely solely on income from stocks, bonds or real estate for living expenses, sudden market downturns can pose a threat to their plans. At the same time, these people have to forecast their cost of living for decades. This means prolonged periods of high inflation can wreck their forecasts and budgets.
The self-reliance and thrift embodied by FIRE have roots in American history. Elements of the philosophy can be found in Ben Franklin’s 1758 classic “The Way to Wealth,” Ralph Waldo Emerson’s 1841 essay “Self-Reliance” and Henry David Thoreau’s “Walden,” an 1854 book about living simply in a cabin he built near Concord, Mass.
Many FIRE boosters cite a more recent work: the 1992 book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. This paean to financial independence and anti-consumerism, a business best seller in the ‘90s, found a new audience after the 2008 financial crisis.
“Millennials understand the rules have changed,” said Ms. Robin, now 73. “They understand that the system their parents built is coming apart.”
FIRE enthusiasts gather around the country to discuss ways to save more, spend less, and manage investments. A recent meet-up in Manhattan attracted close to 30 people to an office conference room. The attendees—mostly men in their 20s and 30s, several with backgrounds in engineering—discussed taxes, index funds and real-estate investing over beer and potato chips.
“We are surrounded by consumerism, advertisements and marketing, and there are a lot of easy ways to spend,” said David Rodriguez, 33, a mechanical engineer who helped organize the meeting. “It is important to have a place to find like-minded people.”
The interest in thrift is flourishing most visibly online where frugality evangelists amass large followings via podcasts, blogs and conferences. One of the most popular FIRE blogs, Mr. Money Mustache, started in 2011, has attracted about 2.5 million page views in the past 30 days, according to Google Analytics data. A podcast devoted to the topic, ChooseFI, has been downloaded 5.2 million times and been played in 190 countries since its inception in early 2017, according to podcast hosting service Liberated Syndication. This puts it in the top 2% of the more than 50,000 podcasts the service hosts.
Attendees at “FI Chautauqua,” a week-long financial independence conference, spent up to $3,000 this year (not including airfare) to go to Greece and hear leaders in the FIRE community share tips.
Some who have tried the path of early retirement say it isn’t always as idyllic as it sounds. Socializing with people who still have conventional jobs can be awkward, said Ed Ditto, 49, who retired at 36 as an energy trader and now writes the Early Retirement Dude blog. His solution is to invite friends and neighbors to backyard potlucks.
“I don’t bring up the fact that I don’t have a job,” he said. “If someone is interested, I’ll talk about it, but I don’t want to run the risk of stirring up resentment.”
Brandon Ganch, 36, who retired from his job as a software engineer in 2016, said his frugality became an obsession and he stressed over small purchases by his wife. He often got upset when visitors took long hot showers at his former Vermont home or his wife ordered a “$15 main course instead of a $10 sandwich” at a restaurant.
“It wasn’t healthy,” said Mr. Ganch, who now lives in Scotland.
“Frugalwoods” author Elizabeth Thames quit her nonprofit job so she could concentrate on a blog about life as a rural Vermont homesteader, a dream made possible by “extreme frugality” her website says. It says she has found “everything from coats to fondue pots to wine glasses” in the trash and that her husband learned to fix the plumbing.
One complaint from readers was that the 33-year-old author and her husband still earn sizable incomes. Nate Thames works for a nonprofit and was paid about $270,000 in 2016, according to his employer’s most recent tax forms. Ms. Thames makes an undisclosed amount from her blog and a recently published book.
“Now I understand why even with cutting everything to the bone, that we haven’t been able to save like they do,” a reader posted in an online review of the book.
Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through Frugalwoods.com.”
Tanja Hester, author of a blog called Our Next Life, called for FIRE bloggers to be more transparent about their financial lives in a post this year. She said she makes less than $1,000 a year on the blog, but declines to disclose her income from a book advance, saying “there’s no need to share your actual numbers if you are honest with readers about your general financial situation.”
Emma Pattee, 28, discovered she missed the social benefits of office life. She left a job in marketing two years ago with the goal of writing a novel. She had $150,000 in savings and more than $900,000 in real-estate equity, stemming from a $144,000 home she purchased in Portland, Ore., in 2012 that she says tripled in value, enabling her to purchase four other rental properties. Ms. Pattee, who married in 2015, says she and her husband, Andrew Hanna, 33, live off the rental income and save his salary in medical administration.
“It was hard to go from working every day in an office full of people to sitting in a tiny apartment by myself,” she said. “It is very isolating.”
Recently she began taking on more freelance work as a copywriter. “I got a lot more meaning from my work than I had realized,” she said. “It is a lot harder to find meaning than to save 70% of your income.”
Ms. Hall, the lawyer from Seattle, is hoping to retire with $2 million in assets at age 40. She currently has $1.5 million in assets and expects to hit her goal by 2020. Her plan then is to “Airbnb-it around the world” for 10 months on a retirement income of about $25,000 and visit friends and family the other two months.
She said she is aware of the problems that could trip her up, from unexpected health expenses to a prolonged bear market. But she said she has a detailed plan to secure health insurance abroad and if a market downturn dents her nest egg, she is confident she can adjust her lifestyle.
“The goal is to try to live in such a way that I won’t be forced to go back to work.”
FIRE proponents say they account for the danger of fluctuating markets by adhering to a rule-of-thumb pioneered by financial planner William Bengen, who concluded retirees should spend no more than 4.5% of their initial nest egg, adjusted annually for inflation, to ensure a high probability of supporting themselves over decades.
It isn’t quite that simple, Mr. Bengen, 71, said in an interview. Younger retirees are more vulnerable to unexpected expenses, and his rule applies only to tax-advantaged 401(k)s and individual retirement accounts for as long as 30 years.
It took a Category 5 catastrophe for Sylvia Hall to start thinking of changing her approach to her finances. When Hurricane Katrina struck the Gulf Coast in 2005, Ms. Hall, then a New Orleans resident, temporarily lost a home and a paycheck as the first payments were due on $101,600 in law-school debt.
The uncertainty was so unsettling Ms. Hall instituted a strict budget. She started buying discounted meat on its expiration date, took a second job delivering pizzas and began saving half of her $50,000 salary after her law firm reopened in 2006.
After setting aside about $250 a month for discretionary expenses, Ms. Hall devoted the rest—over $2,000 a month—to student loans. By 2009, she had paid off all but $35,000, which she consolidated at 1.6%.
“Not having anything freed me up to not be beholden to stuff and status and to be comfortable and happy with less,” Ms. Hall said. “There’s something liberating about that.”
She stumbled on the Mr. Money Mustache blog in 2012, after moving to Seattle. The idea of retiring early resonated. She increased her savings to about 70% of her after-tax proceeds, which are now about $100,000, and limited her spending to no more than $30,000 annually. That includes $2,400 a year on car and homeowners’ insurance, $10,200 on mortgage payments and $75 a month on groceries.
Her grocery budget is so detailed she knows how much she will pay each month for oatmeal (a five-pound bag costs her $3), blueberries (a five-pound bag costs $10), popcorn (1 pound for $2) and rice (60 cents per pound). Now a vegan, she buys fruit at a stand that sells “a table of things that didn’t sell” at steep discounts, including brown bananas she freezes and uses for smoothies.
An occasional splurge is a $5 bottle of wine, or a box for $15.
Ms. Hall, who is single, frequently has friends over for potluck dinners, travels using rewards points on her credit cards, and buys season tickets to the theater for a price that works out to about $15 a month.
“I have always lived on very little but never felt I was being deprived,” she said. “If I made twice the money, I don’t think anything would change. There is nothing I want that I don’t have.”
These People Cope With “FIRE” Plans Gone Wrong (#GotBitcoin?)
This is what happens when your plans for early retirement are derailed
Gwen Merz, 28, is doing something she thought she’d never have to do again: hunt for a job.
Earlier in her 20s, she set a goal to “retire” from full-time work at age 35, but she later decided to move that date up to 27.
She wasn’t going to “retire” completely, but work flexibly after quitting her job. At that time, she planned to move to Minneapolis to be with her boyfriend. She saved more than $130,000 in a 401(k), about $25,000 in a Roth IRA and kept $20,000 in cash. She also had about $5,000 in a taxable investment account and $10,000 in a health savings account. She also hoped to access a pension she had been entitled to.
To supplement her savings, she planned to rent out a property she purchased. She also co-hosts a podcast, freelances doing content management and sells craft items on an Etsy store.
She took the leap into “financial independence” in March 2017, “ecstatic” to experience her new freedom.
But Life Had Other Plans
The rental property was too complicated to manage from far away. She found that she hated freelancing. Because of some technicalities, she wasn’t able to access her pension yet. There were fewer bites than expected on her Etsy projects. And she and her boyfriend broke up.
Now, she’s living with her parents until she finds a new, full-time job, back in the IT world where she started.
But she doesn’t regret her choices, she said.
“At the beginning, I had to evaluate the risks,” she said. “I knew the worst-case scenario is that we would break up, I move out and move in with my parents … I was able to do that because I don’t have anybody depending on me. I can take these risks knowing I’m only affecting myself.”
What’s more, she learned that she doesn’t actually want to “retire” — at least not yet.
“I’ve learned a lot about myself and the world and what I need in a relationship and what makes me happy and fulfilled in a job,” she said. “For all of those things, I’m grateful, even if my plans didn’t go the way I wanted them to.”
Merz isn’t alone. The idea of “FIRE”, which stands for “financial independence, retire early” — has gained traction in the past several years. Many members of the movement live frugally to meet their goals, including biking instead of driving a car, limiting the amount they spend on food and travel and even producing their own food and clothing themselves. They connect online, through forums and Facebook groups, to encourage one another in their progress.
But it’s risky. Before “retirement,” many members of the FIRE movement are working full time jobs — often lucrative ones — but they leave all that behind in order to live off their savings for decades.
And it doesn’t always work out that way.
Mr. Money Mustache is largely credited with popularizing the idea of “early retirement” and encouraging others to spend less in order to work less, too. He was able to retire in his 30s, thanks to a cheap lifestyle, index-fund investing and investing in rental real estate.
He lays out the amount one needs to retire early on his website: There’s no magic amount because it varies by person.
Aspiring retirees must calculate how much money they take home each year and how much they can live on. They should assume 5% investment returns after inflation during their saving years, he says. And they can plan on a 4% “safe withdrawal rate” in retirement, with some flexibility at times. They should also create a “safety margin,” he said, in case anything unexpected happens.
Financial commentator Suze Orman has said she “hates” the early retirement movement because most people don’t save enough.
Early retirees should actually save upward of $5 million to be on the safe side, Orman said. (And of course, members of the “FIRE” community disagreed.)
But unexpected events do happen, and that’s why planning how much you’ll need in retirement is so difficult — at any age, said Rachel Podnos, an attorney and financial adviser based in Washington, D.C.
“Even people who are relatively sophisticated financially underestimate how much they’re going to need,” she said. Between health care, family responsibilities and housing costs, retirement can be expensive — and not always in the ways you’re anticipating, she said.
And going back to work like Merz did may not always be easy, Podnos said.
“Explaining to your employer you have this gap in your resume because you decided to retire … I feel like you would have to come up with a really good spin on that.”
That said, “early retirement” doesn’t always mean leaving the workforce — some “FIRE” movement members plan to still work, but won’t need to rely on their full-time incomes any more, said Alison Norris, a certified financial planner and advice strategist at the personal-finance company SoFi.
Some members of the “FIRE” community opened up about ways their retirement isn’t going as expected. Here are just a few of their stories.
That Feeling When Your Cryptocurrency Gets Stolen
Alli and Matt Owen, a married couple who are 28 and 29, discovered the “FIRE” movement about four years ago. At the time, they were living in Bakersfield, Calif., working in the oil-and-gas industry and making a combined $250,000 a year. They decided to “retire” in 10 years, from when they found out what “FIRE” was.
“We didn’t like where we were living and thought of the FI movement as a way to have more freedom,” Alli said.
Their Goal: Save $1.2 million by then, so they could live off $40,000 a year for the rest of their lives.
But they both began to struggle with mental health issues including anxiety and depression, and decided to leave their jobs earlier than planned, never reaching that $1.2 million goal. Instead, they left work in April 2018 with a combined net worth of $600,000, to travel around the U.S. for about six months.
The day before they left, they got some bad news. Their computer had been hacked. And along with it, $17,000 worth of cryptocurrency they bought was gone, too.
“It was really hard,” Matt said. “It was my responsibility to make sure it was safe, and I didn’t do that.”
“There was a lot of self-doubt, like, ‘Did we make the right decision leaving our jobs?’” Alli said. “Is this a sign we’re going the wrong direction?”
Ultimately, they still took their trip. The $17,000 wasn’t enough to completely derail their plans. But it did put stress on their relationship, they said.
The Owens don’t know what their futures will hold and whether $600,000 will be enough to support it. For one thing, they want to have children, and they’re not completely sure how much that will cost.
So to make a little more income, they’ve started two businesses: one to coach others on their finances and another selling a food product for the ketogenic diet.
They’re not too worried, Matt said.
“There are other people in the movement who have families,” he said. “They’re not very materialistic, they’re not buying a lot of toys and gadgets … we think kids need a lot of time with us, and that’s the most important.”
When An Unexpected Illness Takes Hold
Liz, a 38-year-old mother of three boys in Connecticut, has always been interested in personal finance, she says. She wasn’t sure exactly when she could retire, but hoped to meet some level of financial independence by the time she was in her mid-50s.
To meet that goal, she has not only been a diligent saver, but she also pursued an M.B.A. while working full time, she said. Her habits came in handy six years ago, when her husband almost died of septic shock: an infection that has made it difficult for him to work since.
Now, the family’s retirement plan is almost entirely dependent on Liz, a scenario she never expected when she was in her 20s, she says. She worries about others pursuing “FIRE” while relying on remaining in perfect health, or needing the income of a partner, she says.
She especially cautions those who may have a plan for health and disability insurance, but don’t factor in additional costs like adapting the home for a disabled family member, or needing to purchase special clothing or foods for them.
“The folks whose plans are based on nothing going wrong, they’ve had nothing serious happen to them or people close to them,” she said. “Unfortunately, life isn’t like that. Some of us learn it the hard way.”
Losing Your Partner
William McVey, a 45-year-old living in Mason, Ohio, and his wife Amber wanted to retire early even before it was trendy.
The Plan: Once their twin boys were grown up, they would be able to travel as empty nesters. William is a software engineer, and Amber worked in biotech until she became pregnant with their sons. They devoted her entire salary to savings and lived off William’s income alone.
But in 2009 years ago, she was diagnosed with breast cancer. Initially, she recovered and lived cancer free. But the cancer returned in 2012, and she died five years ago. Now, William is solely responsible for caring for their twin boys, who are now 16 years old and both struggle with autism.
The couple made some smart choices before Amber’s diagnosis and eventual passing, William says. They both had life insurance. Now that Amber’s policy has been cashed, he has earmarked those savings for his sons, but is still able to work flexibly.
“I reached my ‘FIRE’ numbers in the worst possible way,” he said.
He continued to work after Amber’s death, but felt he was not spending enough time with their boys. That’s why he works more flexibly now, doing freelance work instead of a full-time role.
His advice for those planning to retire along with a partner: Share everything, including passwords to your financial accounts and an overall savings strategy.
Talk about what you’ll do in case of divorce or death, way in advance, he says. During Amber’s illness, they never wanted to talk about death, what William calls “going to the dark place.”
“I don’t necessarily regret that, but we should have had these conversations,” he says.
Welcoming New Family Members
A blogger who goes by “Mrs. Simply FI”, 27, and her husband, 31, have a single income of just $26,000 for their family of five.
They work at a camp in the southwest United States: the husband maintains the camp’s computer system, and the wife takes care of their children, while occasionally picking up cleaning shifts and doing freelance photography. But with the job comes free housing, free internet, medical care and free food during the summer months.
In the next several years, they plan to buy a school bus and renovate it into a “tiny home,” where they will live with their three children. During that time, the husband may be able to work remotely in IT, but the family will be completely mobile.
They are evangelical Christians, and they hope to pursue various ministries in their “retirement.” Being financially independent will help them with that, they said.
“Our faith really teaches us that we should be able to leave a legacy for our kids, and for other people too,” Mrs. Simply FI says.
But of course, it isn’t so easy.
One of their children is 3 years old and has some special needs, for which he needs occupational and speech therapy. And they’re hoping to add more children to their family through adoption.
In fact, they recently welcomed a foster child into their home, so they are taking care of four children on the same salary that supported three. That will delay “FIRE” for the family. But that’s OK, Mrs. Simply FI says.
“The whole point for us is not to achieve a certain number. It’s to build a life for ourselves and our children that is satisfying and reaches the goals that we have,” she said. “Part of that for us is that we love our children and children in general. If we have an opportunity to adopt a child it’s worth it to us to move our date by a year or two to build a life that we’re wanting.”
Time will tell whether they’re able to “retire,” she says. Right now, they’re taking the steps to make it happen, including putting more than half of their income toward remaining student loan debt.
And having a nest egg will benefit the family, even if complete retirement isn’t possible, she says.
Unexpected expenses “would pop up anyway,” she says. “At least we’d be in a better position when they do happen.”
Advice For Those Considering ‘FIRE’
No matter what age you’re planning to retire, spend time beforehand imagining what you want your life to look like, Norris of SoFi said. “That will help you “assign a price tag to your retirement goal,” she said.
And if you save too little, it doesn’t have to be a disaster.
You may be able to re-enter the workforce. You may have to reduce your spending as much as you can. Homeowners might have to consider a reverse mortgage, which means converting part of your home equity to cash.
Just consider the unknowns that could come up, including market volatility, long-term care needs and any changes in the tax code that could come up, Norris said.
And if you’re like Merz, you can take it in stride.
“I didn’t need anyone to tell me, ‘I told you so,’” Merz said. “This was something I needed to come to myself. All in all, people have been really supportive.”
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