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thoughts on FIRE?

April 30th, 2016 at 09:36 pm

I've always been ambivalent about financial independence and early retirement or FIRE. I am so impressed by those who do it Mr Money Mustache and quit a few other blogs like the frugalwood, Dr Doom, root of good, etc. Now the only one who really retired was Dr. Doom. Frugalwoods, root of good, and even Mr M stayed at home with small children and a spouse that worked. By that logic I'm RE. But I don't see it that way. Mr M now has the the benefit of a multi million dollar blog, but the others aren't there yet.

I guess that's the million dollar question. I've also read a blog about a young 30 year old couple who did choose to FIRE on $1M literally and that's it. I guess I'm unsure since retirement will last say 50 years you can't draw 4%/year. And honestly I worry about the cost of healthcare as we age.

For those couples who still have one spouse working it's fine. You get employer provided health insurance. But for those who really pull the trigger, after our "sabbatical" year I have to say that health insurance makes both people in a couple with kids especially dicey to retire early and not worry about it.

Who knows if Obamacare will ever be repealed. If so will those on it with pre-existing conditions be relegated to "ghetto" pools? Paul Ryan mentioned how much cheaper it would be to repeal Obamacare and toss everyone who is expensive into one pool. But what happens to those people? We know many people don't want to subsidize them but that's how forcing insurers to not exclude them makes Obamacare work. I'm not sure what the answer is. I guarantee and so has every economist said that an open market health policy that allows insurers to not provide insurance to those most at risk mean more people would go without.

So how can one FIRE as a couple in the US without substantial assets? I fully support the idea of living frugally. I also support the idea of financial independence. But I am not sure how to fully determine financial independence? Also how will we know if the retire early part of the equation is successful? That FIRE on $20k/year or $12k/year for a family of four will work in 20 years?

Is the only answer to wait and see? What happens if in your 50s after 20 years of retirement big expenses and medical bills crop up? Do you go back to work then? What happens if you don't have a cushion for your living expenses?

I like SA because people here seem to have a balance of saving and spending. I've realized I can't FIRE like others who are mustachian. I don't want to live on $12k or $20k/year. I guess there is a lot of truth that while we try to live frugally we still have a lot of excessive spending. And without inherently changing our "wants" LAL and Mr LAL won't be retiring without a lot more in the bank.

Do you picture yourself retiring on $12k or $20k/year? Could you? Would you? Have you?

9 Responses to “thoughts on FIRE?”

  1. creditcardfree Says:

    Thanks for bringing this up. I really need to start focusing on the reality of retirement for us in 7 or 8 years. I'm pretty sure we won't have $1 Million in the bank at that time. However, that is when my husband can retire from the army (if he wants) and we will get a retirement check equal to about a third of his current paycheck. He is really looking forward to retirement, however, we know that at some point he will get bored without something to do, so I can see him getting into another line of work. And if we are not moving all the time, I can see me going back to work.

    I could only live on $20K if I had a house that was paid for...

  2. Dido Says:

    Your Money or Your Life (Dominguez & Robins) defines FI (financial independence) as the point when your regular investment income can pay for your expenses. They also recommend having a buffer fund. A 4% withdrawal rate is the roughest rule of thumb and the professional literature has pretty much dismissed it as viable. Arguments in the pro literature focus not on absolute % amounts but on whether or not supplementing your regular investments with an annuity or life insurance product is worth the cost, on dynamic withdrawal (I.e. Adjust your spending to the returns....spend less in bad years and more in good) sequencing of draws from different buckets (taxable, tax-deferred, tax free), and on Social Security maximization strategies (reduced by Congress for those born 1951-1954 and even more for those born 1955 and after. But the ability to collect an 8%/year benefit increase for each year you delay collecting from your full SS retirement age (somewhere between 66 and 67) still exists and is a sweet deal. Hopefully it still exists when you retire!

  3. tripods68 Says:

    Very good topic. It is possible for to live on 20K to 30K a year expenses depends where you retire and HCOLA.

    To live on 30K a year your lifestyle has to conform to that lifestyle Frugal living. We consider ourself frugal but where we live Northern Cali with private school tuition & taxes not a frugal state...expenses monthly are huge. Sure we defer on many aspect of our lives to buy cheaper car, prefer home cook meal. We are not a couple that treat friends to restaurant, or go out a lot touring Wine country like Napa. We save instead as much as we can so we can save more on retirements, EF, pay for tuitions and vacation cash. We budget monthly and not spend more than we make.

    We live on $81K a year expenses for a family budget of 5 in-law included.

    In retirement without a mortgage payment, our expenses will be mostly on transportation, home maintenance, food, & utilities, taxes. So our expenses will drop dramatically. I suspect our expenses in retirement will in $40-50K range a year or $3333 to $4166 a month in expense. Our heath care cost will be 100% state covered when I retire in public sector job with a nice pension + SS + wife.

  4. LivingAlmostLarge Says:

    CCF some families of 4 are living on $12k/year which I find incredible. I find it astounding considering $650/month a now for a family of four with a HDHP. So that's about 60% of the budget without food, utilities, gas, or auto insurance, life insurance, etc. Granted I don't think that $12k/year includes buying your own health insurance and the 30 year old couple traveling the world on $1m do not have health insurance but are self-insuring. But with two young kids I couldn't live like that. Honestly I'm not even sure I could do it even single. Would you? You have one child still at home but if you and your DH didn't have tricare would you buy insurance or self-insure?

    Dido the 4% rule also is only applied to a maximum 30 year retirement length. When you are more than 30 years of retirement, ie early retirement then it doesn't preserve your capital and the chances of failure is very high. Of course also retiring early makes your SS much lower than someone who works until SS because usually in your 40s and 50s are your peak earning years and the highest working quarters so the average later in life makes your SS payout much higher.

    Tripod I agree it's much higher depending on where you live. Also there are just higher costs like health insurance premiums if you aren't medicare age to pay for a family if you FIRE early. Of course a number of early retirees don't buy health insurance but self-insure. But I worry doing that and even if we didn't have our small kids I think we'd still buy it.

  5. ceejay74 Says:

    I don't see it in the cards for my family ... we aren't naturally frugal and even though we can control our spending when we need to, I think we'd chafe at long-term hard-core frugality. Plus we're pretty far behind on where our savings would need to be in order to even contemplate it. Right now we're all pretty happy with our jobs so it's not an urgent matter.

    I do think the healthcare part in this country makes early retirement risky. It's the one place where you can't always be frugal, no matter how hard you try to stay healthy and avoid accidents. Something might come up that's beyond your control.

  6. LivingAlmostLarge Says:

    It is. Without a mortgage and not budgeting hardcore we run $36k/year. Not a terrible number by a long short. Semi-mustachian. Could it be lower? Absolutely. But that's also including traveling, cleaners, pets, etc. But I will say that is with health stuff mostly covered by work. Right now we're on about that but the health insurance premium is killing us easily! OMG. So if something were to come up our maximum deductible is $13k and that would blow the $36k/year out of the water. Not to mention I don't think we have prescription coverage so if say knock on wood cancer struck we'd be in horrible shape.

    So I don't know what we would do except the person not sick would probably have to go back to work at a company for the health insurance coverage alone. I have meet more than a few people who work for the health insurance because buying your own is so expensive and it's usually just health insurance. Not including vision, dental, or prescription.

  7. VS_ozgirl Says:

    My BIL loves Mr M and is currently 6 years off (something like that) from FIRE. This comes at a huge personal cost though. My sister is working nightshift with a 14 month old so is tired and her argument is "do we have to kill ourselves to retire early, to live super frugally for our whole lives"??? I think there needs to be a bit of balance. I am happy to keep working as long as some of each pay gets saved away and would still like to live comfortably.

  8. Dido Says:

    LAL, yes, agreed--but also, remember that "retiring" and "taking Social Security" are actually two SEPARATE decisions, even though most people conflate one with the other. You aren't required to take SS upon retirement; it is merely an option once you turn 62 (with a significant reduction to your full retirement age benefit); it isn't really "required" until age 70, at which point the 8%/year DRCs (delayed retirement credits) that one gets from full retirement age until age 70) stop accruing and I think the SSA may even reach out to you if you haven't applied once you reach this birthday. Just because Social Security is there for you take, doesn't mean that you need to take it before age 70--you may prefer to live on your 401k/403b and taxable money so that you reduce the amount of RMDs (required minimum distributions) that hit when you turn age 70.5 and give many middle-class retirees a rude push from the 15% tax rate that they got during early retirement into a 25% rate that cannot be reduced. Part of the retirement planning game is to figure out what works for each individual or couple...there are some people who are better off taking a larger tax hit early by doing Roth conversions during their early retirement years and then having lower taxes after age 70.5. It depends on the individual/couple and their situation--YMMV!

  9. LivingAlmostLarge Says:

    VS I think that's where we are at. We will have enough to retire "early" by conventional standards and i'd like to be fully independent at age 45 (very likely). But my DH refuses to kill himself or take a job he hates so he can retire now. He really wants to like going to and wants to hang it up when he's tired of it. If that's at 50 okay. 55? 60? Whenever he feels like he's done he'll be okay with. He just doesn't want to get forced into retirement and frugality.

    Yes my mom took it at 62 though it made more sense to wait until FRA of 65. But she was desperate because I think she retired at 55 and was nervous. Truthfully it would have been worth it to wait until 70 because she has a pension but she's too crazy to wait.

    Also dido you forgot you can take SS at 62 then freeze then take spouse, then go back to your SS at FRA. Also you after your spouses death you get a different benefits. I've found a lot of people in thei 60s now still have pensions so it affects how they retire. People in their 30s I doubt as many have pensions.

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