FIRE

Since before the dawn of time (or at least it seems that way) financial advisors have been telling us how to save for our retirement. For a long time, they claimed there was some kind of magic formula and if you were lucky enough to reach that equation, you’d be ‘set for life’. They, of course, knew the secret route on that successful journey toward retirement bliss and happiness.

Back when I cared, their magic number usually hovered around three-quarters of a million dollars. At last count, it has now reached a zenith of one million, two hundred and fifty thousand dollars. Once there, you are assured (according to them) of a comfortable retirement…without ever really defining what that is supposed to look like.

A while back, I was jaw-boning about this new approach to financial literacy with a retired school administrator and investor friend of mine. He’s written a book about safe, sane investing aimed at the educational community. As a past educator, he knows that many of his fellow teachers are not as financially savvy as they should be. We talked about our own divergent pathways to retirement and he mentioned a new movement that he’s become intrigued with now.

It’s called FIRE and it purports to have found a new route to financial freedom for the younger generations. For the two of us, that would be anyone under the grand age of sixty. My friend tells me that millennials in particular seem to have gravitated toward this new ‘routine in financial living. FIRE is an acronym for ‘Financial Independence, Retire Early.’ To better understand the concept, I’ve borrowed some of the high points of this philosophy from the Investopedia web site.

The web site explains that: ‘Financial Independence, Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.

Born out of the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, FIRE came to embody a core premise of the book: People should evaluate every expense in terms of the number of working hours that it took to pay for it.

Key Takeaways of FIRE

• Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and extreme savings and investment.
• By saving up to 70% of their annual income, FIRE proponents aim to retire early and live off small withdrawals from their accumulated funds.
• Typically, FIRE followers withdraw 3% to 4% of their savings annually to cover living expenses in retirement.
• Detailed planning, economic discipline, and wise investment are key components in achieving a FIRE retirement.
• The FIRE movement was inspired by the 1992 book Your Money or Your Life, written by two financial gurus.

The FIRE movement takes direct aim at the conventional retirement age of 65 and the industry that has grown up to encourage people to plan for it. By dedicating a majority of their income to savings, followers of the FIRE movement hope to be able to quit their jobs and live solely off small withdrawals from their portfolios decades before they reach age 65.

As reported by Vox, in recent years, millennials in particular have embraced pursuing a FIRE retirement. Proponents of the extreme-saving lifestyle remain in the workforce for several years, saving up to 70% of their yearly income. When their savings reach approximately 30 times their yearly expenses, or roughly $1 million, they may quit their day jobs or retire from work altogether.

To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% of the balance yearly. Depending on the size of their savings and their desired lifestyle, this requires extreme diligence to monitor expenses as well as dedication to the maintenance and reallocation of their investments.

Several FIRE retirement variations that dictate the lifestyle that the FIRE movement’s devotees are willing and able to maintain have evolved within it, as reported by Forbes Advisor.

• Fat FIRE—This is for the individual with a traditional lifestyle who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. It generally takes a high salary and aggressive savings and investment strategies for it to work.
• Lean FIRE—This requires stringent adherence to minimalist living and extreme savings, necessitating a far more restricted lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
• Barista FIRE—This is for people who want to exist between the two choices above. They quit their traditional 9-to-5 jobs but use a combination of part-time work and savings to live a less-than-minimalist lifestyle. The former lets them obtain health coverage, while the latter prevents them from dipping into their retirement funds.

Most people think that FIRE is meant for people who can pull in a substantial income, generally in the six figures. And indeed, if your goal is to retire in your 30s or 40s, that probably is the case. However, there is plenty for everyone to learn from the principles of the movement that can help people save for their own retirement and even achieve an early one, if not quite as early as 40.’

Sprinkled throughout the web site are some interesting points about good old simple planning ahead for retirement. For many folks, that’s easier said than done. One pundit commented to me that the best time to save is when you’re first starting out in a new job or getting married and settling into a new lifestyle. Of course, he never mentioned that that period in our lives is when we generally incur a lot more expenses than earlier in life.

If you are married, have kids, a house payment and other household expenses then saving for retirement isn’t usually high on your radar scope.

The Investopedia web site does have some disturbing, but not surprising, facts to consider. It explain that:  ‘It is important for everyone to plan for their retirement, and yet, according to a May 2021 report from the Federal Reserve System Board of Governors, in 2020, one in four Americans had no retirement savings whatsoever, while 36% who did have savings felt that their retirement plans were not on track. The FIRE movement stresses the importance of having a de-tailed plan and sticking to it, principles that will aid anyone in saving for retirement and maintaining a decent emergency fund.’

Another article from Financial Advisor Magazine claims that: ‘33% of millennials and 32% of Generation Z identified student loans as their largest debt burden. It went on to say that ‘a lot of people who do have that kind of debt are lacking a surplus of cash that they can invest in. This debt might be holding people back from purchasing a home or even getting money to invest.’

The article went on to say ‘there are other costs and it’s so easy to be influenced by social media and spend money on traveling or a night in the city. A lot of those surpluses are going toward these variable expenses.’

The FIRE movement has many solid, common sense arguments in its favor. While I have no desire to poke holes in their concept, I do find one equation that is either seldom mentioned or just passed over briefly; that is, living the life you want to live. Postponing life events, small pleasures, and everyday occurrences just to save a buck doesn’t seem to me a good way to spend one’s life.

The web site argues, quite convincingly, that: ‘no one can achieve a secure retirement without investing in their retirement savings. FIRE adherents invest larger portions of their income than the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings to a point where they can assure you financial stability in your later years.’

In the end, I think those FIRE proponents and I are probably talking about the same ‘means to an end.’ I’ve always felt that living within ones means, spending money wisely but still ‘having a life’ is the best way to go. Another way of putting it is being ‘thrifty smart’ and not ‘stupid cheap.’

It doesn’t hurt to be able to recognize the difference between ‘having to have’ verses ‘wanting to have.’ Our good old capitalistic society thrives on the economic engine of consumption and always wanting more. A recent advertisement for Lincoln automobiles proclaims that: ‘Owning a Lincoln means you have arrived.’

No it doesn’t!

It just means you’ve bought into the American Dream of having more and feeling good about yourself. Real success lies in ‘living a satisfying, fulfilling life’ and not having a new car in the driveway just to impress your neighbors. It means spending as much time as you can with your kids and/or grandchildren when they’re young. It means spending quality time with your spouse or partner in life. It means taking the time to ‘smell the roses’ and treasure each day as a gift to be shared, used, enjoyed and relished as if it were your last.

Because at some point, it will be… and all the money in the bank can’t make up for lost time or opportunities to ‘live your life.’

Just sayin.

Fighting Complexity

Between the wash and the spin cycle there’s a story to be told. It’s a tale of progress, lack of imagination and sadly, an overt attention to the bottom line.  Two examples probably tell it best.

The first example is our washing machine in Palm Springs. We bought it about ten years ago, a top of the line Maytag we were told. Last year the mother board went out and we had to get it fixed. OK, you say, things like that happen. True, but I would add that we only use it for six months out of the year and then about once a week when we’re in town. Now compare that to our older (as in 40 years older) Maytag washer and dryer in Apple Valley that are still going strong. Sometimes newer isn’t always better.

Welcome to our ever-changing world where nothing ever remains the same. The only constant is change and in our capitalistic society the illusion that newer is better. Alvin Toffler wrote about these phenomena years ago with his best-selling ‘Future Shock’ and ‘Third Wave’ books. Riding on the coattails of those social and cultural benchmarks were several books examining the slow demise of the American Dream?

Not to be undone, there was recently an article written in Financial Advisor Magazine that warned about ‘The Coming Shock That Will Transform the U.S. economy’. The basic gist of the article was that there is a new wave of transformative change sweeping over the U.S. economy. Think of it as ‘Future Shock,’ ‘Third Wave,’ and ‘Death of the American Dream’ all on steroids. This teleshock, or the rise in telecommunications, is the major impetus for these changes.

There seems to be a pattern here. Another social, economic and cultural change is happening in the country. In this case, the author states that ‘among the big losers will be the American upper middle class, especially those with jobs connected to information technology and those who can work from home.’ The article then adds on a less than hopeful note that ‘The teleshock is likely to continue for a considerable period of time, perhaps longer than the China Shock.’ To add a little icing on that cake of despair, the article ends with: ‘It is conventional wisdom that “software is eating the world.”’

Now, don’t get me wrong, because I think much of what the author says is true. My only complaint is his implied conclusion that this means the end of the world as we know it. Telecommuting is happening, hiring practices are changing and jobs may become even more competitive. Welcome to the new world of commerce. The same goes for manufactured goods.

While it’s true that many appliances go out long before they should, it doesn’t mean we shouldn’t use them. The cliché that ‘they don’t make them like they used to’ is probably true. If you asked any good auto mechanic or appliance repair person they could probably tell you which products are good and which items are just plain crap. All it really means is ‘carpe diem’ or buyer beware.

If ever there was a need for due diligence on the part of consumers, now is the time. Cars, machines, computer technology, foods and personal health all become one’s personal responsibility to accept, reject or chose selectively. Granted, it gets really scary when you think about the Boeing 737 that needs a Harvard PhD in computer technology to fly.

While you can’t return to days of old, you can learn to live smarter and better if you tone down the hype that many media sites are spouting forth each day. Lifestyles are personal choices and the consequences follow in remarkably familiar patterns.

• ·       Several lines were taken from an article in Financial Advisor Magazine entitled: ‘The Coming Shock That Will Transform the U.S. Economy’ by Tyler Cowen. November 4th, 2021.

Happiness In Retirement

Some would argue that I am, in fact, retired. I would vigorously debate that stance and explain that I’ve found a new career in writing. So from my perspective, I am still working. Working status verses retirement status aside, I did find a fascinating article recently on one of the websites I visit every day.

Financial Advisor web site

FA, Financial Advisor Magazine, always has a myriad of articles of interest to investors and financial advisors alike. It usually leans heavily conservative and Republican. Its audience (I’m guessing) consists mainly of veteran as well as new generation investors. Articles range from the latest bitcoin offerings to government regulations to newfound strategies for investing. The magazine and its website prides itself on its forward-looking stance to the world of finance.

I read the bulk of its articles with a healthy dose of curiosity more than anything else. I am not, by any stretch of the imagination, an experienced or knowledgeable investor. Despite that, I can smell hype, controversy, and right-leaning attitudes when I sense them. I take everything I read on the site with a healthy grain of salt and pepper.

Knowledge is power and I trust my financial planner to have my back. Years ago, I was lucky enough to hook up with a solid financial advisor who steered me into conservative-yet somewhat aggressive stocks, bonds and mutual funds. All I can say is that it’s worked well for Sharon and me for more than twenty years thus far.

So I was surprised when I came across an article in ‘Financial Advisor’ that I thought hit the nail on its head with a ballpeen hammer. It appeared in the October lst issue of FA and was written by a Ms. Jennifer Lea Reed. She is either a genius or dedicated researcher because I think she hit a homerun with her article for its insight and honesty.

The article begins by stating: “If you’re looking for happiness in retirement for yourself or your clients, you can forget relationships with adult children, buying a slick car to cruise the cul-de-sac or lounging at a beach cabin in Mazatlán, Mexico.”

Then she goes on to say: “Instead, there are only three categories that lead to satisfaction—when you have enough money, when you have relationships with your peers and community, and when you have your health. These three things might seem different, but they have one critical thing in common: They all require investment before retirement.”

Then she goes on to explain that this was the upshot of a panel dedicated to finding happiness in retirement which was held at Morningstar’s Investment Conference held recently in Chicago. She added: “In order to assess trends in what’s important in retired life, Michael Finke, professor of wealth management at the American College of Financial Services and a researcher in the areas of retirement spending, life satisfaction and cognitive aging, looked to a data  known as the ‘Health and Retirement Study.’

Michael Finke then continues: “This was a study of 20,000 retirees that began in 1994, and we followed them up to 2018. When we ran analyses on life satisfaction, what we saw was that there are three core elements to life satisfaction. I like to call them the Three Pillars of Life Satisfaction in Retirement,” Finke said. “The first pillar is money. Having more money does make you happier, and it seems to have a relatively linear effect up to about $4 million.”

Now this is where I have to pause for a moment. After Sharon and I had set aside enough money for our two kids college tuition, we only then began to focus on saving for retirement. Back then, the figures need for retirement ranged from seven hundred and fifty thousand dollars to more than a million dollars set aside for our golden years.

Our financial advisor had the correct answer. ‘What will your lifestyle be like in retirement and what will that cost you on a yearly basis? he asked. For example, if you need fifty thousand each year, then what lump sum do you need in investments in order to take that amount out each year? We had our answer.

I think today the lump sum need for a comfortable retirement varies with each couple or individual and I’m not sure four million dollars is the correct answer. On the other hand, the other two pillars of success (according to this study) were spot-on!

Professor Finke goes on to say: “All of these three things are investments. And what I mean by an investment is it’s anything you sacrifice during your working years in order to live better in the future. So our health is an investment when we exercise and eat better,” he continued. “Relationships are an investment, and this is something that as an economist it was a new way for me to think about relationships. That what you’re doing during your working years is not just accumulating money to live better.”

I realized years ago that ‘health was wealth.’ As I get older, I find more and more friends and associates who are experiencing health issues. The bottom line is that their bank account or cabin up north or new car in the driveway means absolutely nothing to them when they’re sitting on their sofa in pain. And if they are sitting that alone, the pain only increases exponentially. Friends can make all the difference in the world.

I think that’s one reason why I’ve found myself blessed with such wonderful chat buddies each summer with my ‘coffee and chat’ sessions. Writing and associating with other writers, theater people, artists, musicians and actors only enhances those experiences.

I think it was the gist of the article that gave me such satisfaction. Its main emphasis was that these three pillars are not hard to attain goals, aspirations or summits to climb. It simply means saving for retirement, collecting a cadre of friends and associates and living a healthy lifestyle. If you can do those three things, then retirement should loam in the distant future as another new avenue of adventure, exploration and personal satisfaction in your golden years.

·       Some paragraphs were taken from an article entitled: ‘ForHappiness in Retirement, Forget about your kids and the fancy car, advisorssay.” By Jennifer Lea Reed. October lst, 2021