Jump to content
tony

Suzie O Throws water on FIRE movement

Recommended Posts

Here is another article that shows the other side of the  FIRE argument.  I posted a different one previously. I think Suzie may have made some points in her comments but I'm no big fan of her advice. Read below.   As you can probably guess I'm not totally buying into this FIRE movement for many of the reasons others like Suzie Orman have expressed and especially not by trying to achieve it by your late 20's. Maybe by early to mid 50's sounds more likely to me.  It's idealistic but may not be realistic IMHO.  You can retire on less than 5 million because folks will have to. But things do happen and life has a way of surprising you and slapping you in the face. Medical care is going to continue to be expensive in our dysfunctional health care system and pensions are disappearing completely.  Who pays for your college education?  How will you avoid that expense?  You will need a skill to earn a good salary to make early retirement possible. What about children? Who will care or pay for your later years needs?Betting on stock market returns may not be realistic either. Who says this current expansion can't turn into a downturn that lasts just as long if not longer? That would be ten years of negative or low stock market returns. I could go on.  Just my two cents but this may be an idealistic fad achievable by some but not most. Most Americans today can't even come up with the cash to pay off a $500.00 immediate emergency.  We've also reached the point where there’s even the possibility that Social Security may not be able to pay full benefits 16 years from now without raising contributions. That too will affect your savings rate. Maybe I just don't understand the movement but many of these folks have yet to live through a recession. Just being frugal and ditching consumerism is wise but it may not be enough in our economic system  This sounds more like a possibility in a Socialist country were many major expenses like medical care and university and often daycare and senior care is paid for but then taxes are higher. Incidentally, my 23-year-old son just asked me for $20,000 (What?) so he can make a down payment on a house. Maybe that's how they get to the promised land borrowing money from those of us who worked much longer to achieve our goals.

 

https://www.marketwatch.com/story/the-biggest-financial-mistake-you-could-ever-make-according-to-suze-orman-2018-10-02?siteid=yhoof2&yptr=yahoo  

Here is an additional viewpoint along similar lines:  https://seekingalpha.com/article/4204095-view-fire-movement

Share this post


Link to post
Share on other sites

I didn't listen to the podcast, but I can't seriously engage in her argument because:

  1. She didn't provide any math.
  2. She merely said FIRE is an awful idea because you're giving up years of income, which is a lot like saying "Thing A isn't going to work because it is Thing A".
  3. The folks pushing for $15/hour call it a living wage because roughly $30,000 buys you the necessities of a dignified life. It may not be the life you want, but it is a life. The idea that you might need to save 166-333 times the annual living wage is patently absurd.

There may be an argument against FIRE, but this isn't it.

Tony, it sounds like you're not making a general argument against FIRE, it sounds like you're making a realistic observation that most people don't make enough to FIRE. In that case I agree, but I will add a couple thoughts:

19 hours ago, tony said:

Medical care is going to continue to be expensive...Who will care or pay for your later years needs?

I'm not in the prognostication game, but I"m not sure continued runaway medical costs are more likely than legislation to bring per capita costs down by half---roughly to the level of the rest of the industrialized world. If such legislation were to be written, it is quite possible that the tax revenue required wouldn't fall too heavily on FIRE folks who are no longer earning large incomes but are instead living off relatively modest investment income.

Now we don't have total control, life is unpredictable, but I believe a very large portion of health spending is due to self inflicted wounds (poor diet, vices, insufficient exercise, lack of access to care, etc.) and it wouldn't surprise me if FIRE folks make active efforts to mitigate those risk factors because they have the time, lack of stress, and resources to do so.

19 hours ago, tony said:

Who pays for your college education?

If you're FIRE then you've already paid for your college education.

I graduated in 2007. I went to an in-state school to get a 4 year degree. I worked. I lived with many roommates. I got need and merit based scholarships/grants. I graduated with a few grand of debt plus maybe 10 grand of debt associated with my car, which is still running today!!! I'm not sure how much education costs have increased, but it is certainly possible to get a valuable degree at a low price, especially in relation to the increased earning power it provides.

Again I'm not in the prognostication game, but lots of places already have tuition-free community college...that may expand further to cover 4 year institutions at some point.

19 hours ago, tony said:

Betting on stock market returns may not be realistic either.

I think we're all betting on stock market returns and we're all accounting for the inevitable ups and downs.

If we start to explore economic collapse type of scenarios then we're all in trouble regardless. If we're exploring downturns like the 2000s, they're survivable.

19 hours ago, tony said:

We've also reached the point where there’s even the possibility that Social Security may not be able to pay full benefits 16 years from now without raising contributions

Fixing social security is incredibly simple: make it a progressive tax, tax the entirety of somebody's income, and maybe even reduce the payout received by the rich.

However, I think quite a few FIRE folks are probably already counting on $0 from SS because they want independence and because they haven't worked the number of years to get a "full" payout.

19 hours ago, tony said:

This sounds more like a possibility in a Socialist country were many major expenses like medical care and university and often daycare and senior care is paid for but then taxes are higher

It would be interesting to perform the analysis. Presumably the higher taxes would be disproportionally shouldered by the wealthy...but if you're FIRE then that might be you during your earning years.

I suppose that would make it easier for the "average" person to FIRE because although their taxes went up to pay healthcare, they may have gone up less than the free market would have charged for healthcare.

Share this post


Link to post
Share on other sites
54 minutes ago, EdLaFave said:

Tony, it sounds like you're not making a general argument against FIRE, it sounds like you're making a realistic observation that most people don't make enough to FIRE. In that case I agree, but I will add a couple thoughts:

19 hours ago, tony said:

That is about right.

Ed, I'm not as good as you as analyzing every little detail.   My math skills are also very suspect too.  You are smarter than me in many ways. I go more with my intuition based on my experiences dealing with human nature. My intuition has served me well. Over the years dealing with young minds in both high school and college I've learned much about human nature and the personality traits that carry on in adulthood. I think FIre is a great concept for a small target group of high-income earners but most folks won't/ can't pursue that lifestyle for various reasons.  I also worry if everyone took on the Fire lifestyle and everyone gave up on materialism my portfolio wouldn't show much growth for LOL!! Let's face it for our portfolios to grow and make money we want other people to spend their money and spur on the economy not hoard it. I also think trying to retire at age 28 and live on a million dollars for the rest of your life is a stretch unless you wish to deprive yourself of the things that make life worth living. My gut tells me the fire mentality will fall under the weight of the next great recession.

Share this post


Link to post
Share on other sites

Intelligence, intuition, whatever it is...I agree, almost entirely with what you’ve said, and the rest of it I just mostly agree with.

FIRE folks will be tested in a recession. I think about the stress I might feel if I had 33x annual spending and suddenly I only had 16x. Would I just go back to work until things eventually recovered? Could I find a job? Would the recovery take 10 years? Apparently even being rich enough to consider FIRE comes with its own stresses. 

Share this post


Link to post
Share on other sites

I'm not a big fan of Suze, but I think she is pretty much right about this. The idea that anyone would only work for maybe 1/4th of their adult life and live off that for the remaining 3/4 seems pretty unreasonable.  Even for the ultra-highly compensated I don't think it works well.  In the case of athletes and celebrities they usually tend to blow through it pretty quickly if they have nothing to do every day.  Most people are not good at flipping the switch from a high pay check to living off savings and no income.  On the other hand, I totally get quitting a highly compensated position after a couple decades to do something more fulfilling for less money.  I just wouldn't look forward to retirement if I had to do extreme budgeting for 40-50 years.

 

Share this post


Link to post
Share on other sites

I don’t intend for this to be harsh (text sometimes is), but the viability of FIRE is based on math and the approximation of values that are nearly guaranteed to fall within a specific range.

It absolutely is reasonable to live off of capital for the majority of your adult life if you’ve acquired a sufficient amount of capital. Again, it is an equation, yes there are degrees of uncertainty, but somebody’s age doesn’t inherently make FIRE unreasonable. A silly example: if you gave me 10M at birth then I’d never need to work a day in my life.

If the argument is that most people are financially irresponsible, and athletes and celebrities are the poster children for irresponsibility, then you can reasonably conclude FIRE isn’t reasonable for them. Of course those folks will almost certainly never have a portfolio big enough to even dream of FIRE.

If somebody earns poverty wages then you can reasonably say FIRE isn’t viable for them. I don’t think most people earn enough to FIRE. However, big time savers can make FIRE a reality because the math says so.

I don’t think FIRE requires extreme budgeting. I think people save for the lifestyle that brings them happiness and then they do it. I comfortably live on 25k-30k worth of spending, some need less, and some need more. I don’t think FIRE is about sacrifice, quite the opposite actually, I think FIRE is about indulging in whatever brings you happiness. I do think a lot of FIRE folks are repulsed by consumerism and find no joy or happiness there. For instance, just walking through a mall makes me feel incredibly gross and uncomfortable.

Share this post


Link to post
Share on other sites

I don't doubt that it can be done mathematically by some people.  I question more the human behavioral issue of making bad financial decisions.  Plus, a lot can change nationally and globally over a 40-50 year period that we can't predict right now.

I guess it's a personal balance for everyone between the balances of various risks, financial security, longevity, quality of life, how much you enjoy or dislike your job, etc.   Personally, I'm shooting for age 57.  By then I should have more to live on than I currently spend annually, while hopefully have enough time and health left to enjoy some non-working years. 

As a middle school teacher, I can't imagine retiring for 10 or 20 years and suddenly realizing things have changed and needing to go back to work for much less pay in my 60's 😫 .I guess subbing is an option, but in my school a sub's daily pay is only 1/5th of a teacher at the top of the pay scale (and no benefits).

 

Share this post


Link to post
Share on other sites

It's a fad and totally unrealistic for most. Those that can claim to be on FIRE either work in very high paying jobs, have inherited money from parents, and or relatives or have married into wealth.  Perhaps some who work in the financial insurance industry might be able to accomplish FIRE based on the number they are doing on teachers. Or maybe if you are single with no plans to marry, have children, and live a monastery type of life I am sure its possible. Or I guess its possible to win the lottery and claim you are on FIRE.

The media loves writing up stories about financial independence because it is a high-interest topic. It makes a good story. Everybody wants to be financially independent. But they have gotten conned in the past by folks who embellish their lifestyle to suit the story. They've had to write retractions after the subject of the article's real life is exposed. So some are fake news. I also remember all the folks on TV pushing financial independence based on flipping real estate years ago. Well, we saw what happened after the real estate bubble and collapse years ago. The only folks who made money were few and far between except for the folks hawking those real estate   on TV at ridiculous prices. Plenty of folks are hawking financial independence right now. Stay tuned.

I do like the attitude towards being frugal and not falling for the entices of a consumer-based society and for rejecting blatant materialism.  I also like the fact they are trying to educate themselves about financial issues and are becoming financially literate. They are savers. I like the movement for these reasons but life can get complicated. I know a friend right now who has a very serious cancer and has accumulated a half a million dollars in medical bills even with health insurance. I just can't imagine. I guess if all the pieces of your life fall in perfect order I guess its possible.

Share this post


Link to post
Share on other sites

I thought that health plans have maximum out of pocket caps for the year. How did your friend get to half a million in medical liabilities?

Share this post


Link to post
Share on other sites

Ed

I never asked John that question. He is not a close friend or relative so I never ask deeply personal questions. I do know he has cancer and its serious. He has been in and out of the hospital over several months and has gotten very thin. He is probably is in his mid-fifties. I do know my current policy has an out of pocket limit thank goodness of $ 5,000.00. John is not a teacher but is a handyman who has helped me out with repairs and work around the house over the years that I could not do myself like roofing, plumbing, and siding.  So maybe he had Obamacare?  Or maybe he is exaggerating?  I do know he said he had insurance but who knows what kind of policy he exactly has. John is not what I would call a well-off or educated individual as he makes his living mostly mowing lawns.

Share this post


Link to post
Share on other sites
3 hours ago, tony said:

The only folks who made money were few and far between except for the folks hawking those real estate   on TV at ridiculous prices

This sentence is missing a word.

The only folks who made money were few and far between except for the folks hawking that real estate V I D E O S  on TV at ridiculous prices. It would not let me type in the word V I D E O.

Share this post


Link to post
Share on other sites
8 hours ago, MNGopher said:

As a middle school teacher, I can't imagine retiring for 10 or 20 years and suddenly realizing things have changed and needing to go back to work for much less pay in my 60's 😫 .I guess subbin

Where I live Subs don't last long in the classroom and there is a huge shortage. I hear the student terrorize them to the point some just walk out. 

Share this post


Link to post
Share on other sites
3 hours ago, tony said:

I never asked John that question.

Hopefully things turn out well for him, that’s tough. 

Share this post


Link to post
Share on other sites

Yea It's tough. John doesn't fit the Fire profile obviously but its an example of how things can go wrong in one's life suddenly. It can adjust or change your perspective completely.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×