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FIRE Fraud

FIRE Fraud

Originally aired 9/15/2021

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The days may be getting shorter and (slightly) cooler, but on the Get Ready For The Future Show, we’re bringing the heat! 🔥 In this episode, we’re talking all about the FIRE movement! 

You’ll learn:

Why the FIRE movement may be more smoke than flame
– Insight into what it’s *actually* like to retire (really) early
– Important steps to take toward financial independence
 

Downloadable Content:

What’s the Plan? A Manifesto for Your Life, Your Worth, and What Happens Next

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SHOW NOTES

Goodness, Gracious, Great Balls of Fire

  • It may be starting to cool off outside, but in today’s episode, we’re bringing the heat!
    • We’ve got straight talk lined up for the next hour all about the FIRE movement!
  • The acronym “FIRE” means Financial Independence, Retire Early and is a term from the book Your Money or Your Life by Vicki Robin and Joe Dominguez was first published in 1992.
    • The real aim of the book, according to comments by Vicki Robin, is not to convey a master plan for early retirement. It is to show people how to live well while consuming less in order to have a more rewarding life while wasting less of the world’s resources. Or, as Robin put it, “If you live for having it all, what you have is never enough.”
    • We’re all for financial independence, but retiring a couple of years early is a major task, much less retiring in your 30s or 40s.
  • Even though the author herself has said her book wasn’t meant to convey a master plan for early retirement, young people today have taken it to the extreme.
    • Followers of FIRE (Financial Independence, Retire Early) plan to retire much earlier than the traditional retirement age of 65 by dedicating up to 70% of income to savings while they are still in the workforce full-time.
    • Once their savings reach approximately 30 times their yearly expenses, or roughly $1 million, they may quit their day jobs or completely retire from any form of employment.
    • To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% 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.
      • The 4% rule is dead!
    • When you consider the task that participants of the FIRE movement are taking on, it doesn’t make sense.
      • In Arkansas (since that’s where our Flagship office is located), the median salary is $47,597 (SOURCE: Census.gov).
        • Saving 70% would mean saving $33,317 and living off of $14,280.
        • Considering that the average rent in Arkansas is $1,050/month (SOURCE: Zillow), that’s $12,600/year or over 88% of the income you’re living off of.

Like Paper in Fire

  • There are elements of truth in the FIRE movement. Just as reality TV reflects some elements of reality.
    • Any time someone tells a story, they share details to help convey the message they want. Simultaneously, they leave out parts that don’t fit the narrative.
  • There are 5 major challenges that come with following the FIRE movement.
  • #1 – What Got You Here Won’t Get You There
    • So you’ve been diligent in saving 70% of your income and are retiring incredibly early.
      • You’ve been scrimping and saving in hopes for a better future, but now you’ve got to shift from accumulating assets to distributing them. That can be terrifying.
    • How do you deal with the three big risks to retirement?
      • All of these are heightened exponentially by retiring extremely early.
    • Inflation
      • The longer you’re in retirement, the more chance inflation has to rise.
      • Can you handle a decrease in purchasing power over your long retirement?
      • As an example, take a cup of coffee that costs 2 dollars today. The effect of a 3 percent inflation rate would have that same cup of coffee cost $3.81 in 20 years (nearly double the cost.)
        • But you’re not talking about spending 20 years in retirement; more like 40-60.
      • Longevity
        • Longevity may not seem like a risk, but the longer you live the more money you need.
        • We’re not saying that you are going to necessarily live longer if you retire extremely early, but you will live longer in retirement if you retire extremely early.
        • Do you have enough money to last?
      • Timing
        • What happens if the market tanks in the first 5 years of retirement?
          • If all you have is an investment portfolio, you’ll have to take a pay cut. Or worse, possibly have to go back to work.
        • This is a risk whether you retire at 45 or 85.
          • The market fluctuates – it’s natural and expected. But it’s not something you can really predict well.
        • #2 – Change is Hard
          • Particularly if you’ve had an enjoyable working career, walking away from the connections, routine, and safety of a job can be difficult.
            • Odds are you’ve spent most, if not all, of your adult life collecting a paycheck.
            • The mental shift to no longer collecting a paycheck and only living on your own dime is daunting to say the least.
              • Not only do you not have a regular paycheck, but you also are no longer covered under important work benefits such as health insurance, dental and vision insurance, etc.
            • You have to set a new routine (and have the discipline to avoid falling into frequent bad habits).

I Fell Into the Buring Ring of Fire

  • #3 – Transitions are Even Harder
    • Especially with early retirement, often people have the desire to move somewhere they’ve always wanted to live.
    • Moving away from family and friends, or even simply moving out of a home you’ve lived in for a while, can be hard.
    • It’s important to realize that when you choose something, by default you are rejecting everything else.
      • That doesn’t mean you should avoid hard decisions. Nor does it mean that the difficult option is bad.
    • But no matter how well you plan or how much you prepare yourself, change is hard.
  • #4 – You Still Won’t Have Enough Time
    • You can’t retire from something, you have to retire to But you can’t retire to everything.
    • Whether you’re transitioning to retirement from part-time or full-time work, there are a lot of hours you’ll be freeing up.
      • The world is waiting with endless tasks to fill your time.
    • There will never be enough hours in the day for you to do everything. You have to prioritize what’s important.
  • #5 – Priorities Won’t Magically Change
    • This isn’t to say you can’t change and improve. But to think priorities will magically change because you have more time once you retire is a fallacy.
      • You’re not suddenly a new person.
      • Money is a tool that allows you to be more of who you are (for better or worse). Time is the same – you won’t simply have better priorities because you have more time.
        • If you spend your down time watching Netflix and eating junk food, you’ll probably be doing even more of that in retirement.

We Didn’t Start the Fire

  • You need a plan.
    • If you’re wanting to retire early, you need to answer this question: Are you sure you can?
    • If you think you can’t retire early, you need to answer this question: Are you sure you can’t?
      • If you don’t have proof for either, all you have is hope that it all works out.
    • Define early.
      • 40-60+ years is a long time to live on no income.
      • You don’t have to retire at 40 to have a meaningful life or do something you enjoy.
        • Finding a fulfilling career that you’re passionate about, enjoying hobbies, and staying active can all help you feel more at peace with working longer.
      • You deserve more than scrimping and saving for all your life.
        • Reminder – the 4% rule leaves you vulnerable.
        • Are you prepared to take a pay cut in retirement?
          • Market fluctuations happen – that’s a given. Your retirement plan shouldn’t fall apart at the sign of a down market.
        • Whatever stage of life you’re in, we definitely think working toward financial independence is always a good thing.
          • We’ve got a program for wherever you are on your financial journey!
          • Visit getreadyforthefuture.com to find out which is best for you.

FINAL THOUGHTS

5 Big Challenges to Retiring Extremely Early:

  1. What got you here won’t get you there
  2. Change is hard
  3. Transitions are even harder
  4. You still won’t have enough time
  5. Your priorities won’t magically change

Just because you can doesn’t mean you should.

Financial independence is great. Work toward it and accomplish it as early as you can. But don’t assume that means you should stop working.

We’ve got 10 ways to shift your perspective of financial planning with our free download What’s the Plan? A Manifesto for Your Life, Your Worth, and What Happens Next.

Get your copy for free! Visit getreadyforthefuture.com/plan or text PLAN to 501.381.5228