Experian misunderstanding Fire

[gayl]

In the recent article, What is FIRE Movement, Experian and I disagree. One of us is wrong.
The premise is:
"They do this by saving at least 50% and as much as 75% of each paycheck—an aggressive and challenging goal that typically requires making major lifestyle changes".
I reached it by saving always but primarily just the max. I did a conversion my last 2 yrs and paid a lump sum to get out but I'm a pensioner who stayed in the job until I could retire (50) then shifted to private industry where I just did the Roth. IMHO the key is to save every single month and never borrow for discretionary wants. But I still had a vacation every year, kids played sports, used to love expensive clothes etc

https://www.experian.com/blogs/ask-experian/what-is-fire-movement/

 

[TheWizard]

I think that article is reasonably accurate about the most extreme proponents of FIRE.
I'm certainly not one of those; I didn't retire especially early but I did save about 1/3 of my gross income my last few working years...

 

[Aerides]

...but I'm a pensioner who stayed in the job until I could retire (50) then shifted to private industry where I just did the Roth

Today's FIRE planner is far less likely to have a pension than in years past, so savings are going to be more like they describe, especially for very early fire's.

DH and I were about 50% particularly for the last 5 years. He has one pension from the 90's that will pay $112 a month starting in 13 years from now. Everything else was our savings.

 

[RobbieB]

I have no problem with this. Obviously the earlier you want to retire, the more you have to save. I certainly didn't didn't save 50%, but then I didn't retire before age 50 either.

 

[NW-Bound]

I think that article is reasonably accurate about the most extreme proponents of FIRE.
I'm certainly not one of those; I didn't retire especially early but I did save about 1/3 of my gross income my last few working years...

+1

I have no problem with this. Obviously the earlier you want to retire, the more you have to save. I certainly didn't didn't save 50%, but then I didn't retire before age 50 either.

+1

Nowaways, people talk about FIRE as quitting work in the 40s, or even mid to late 30s. The young'uns will have to save hard and spend little in order to accomplish this. I am not such an ascetic, and did not retire till 55.

 

[NgineER]

We've saved about 50% (+-5%) of our income over the last decade, but we are starting to loosen our purse strings as our kids are getting older. I recently decided to stay until 55 (rather than 50) to enable me to take all stock options with me when I retire in 8 years. This will help me to stress less about retirement since going in three years would leave little buffer.

 

[Closet_Gamer]

Sans a pension one has to live very far below their means (and plan on sustaining that in retirement) to pull the trigger in their early 50s, nevermind 40s.

 

[audreyh1]

Sans a pension one has to live very far below their means (and plan on sustaining that in retirement) to pull the trigger in their early 50s, nevermind 40s.

I think that’s a tautology. If their means are large, then living below their means can still support a FATfire lifestyle.

I’m not sure about the “very far below” their means part as “below their means” would already take into account life expectancy for an early Firee. Maybe 3% instead of 4%.

Stock options that did well helped a lot of early retirees. As long as they kept investing and didn’t spend most of the windfall.

 

[NW-Bound]

Stock options that did well helped a lot of early retirees. As long as they kept investing and didn’t spend most of the windfall.

I am not sure about "a lot". I suspect it's a minority. You would need something like that to retire really early, meaning not in the 50s.

There might have been a poll in the past asking posters the age when they retired. If there was, I missed it.

 

[audreyh1]

Well I did mean that with the very early retirees, like before 50, you’ll often find some business related windfall.

I thought I said that but clearly I didn’t.

 

[Physics Guy]

While a lot of the people here reached financial independence by steady savings and then retired early in our 50s that isn't the story that really propelled FIRE to the public eye. I don't follow FIRE podcasts now but MMM, ERE, and most of the other early high profile advocates of FIRE did push a message of aggressive savings including some significant lifestyle changes to afford to put away 50% or more.

 

[scrabbler1]

I don't like that "requires making major lifestyle changes" phrase. It makes it seem like we who FIRE have to go from living well to living to a lesser standard (of living).

One major condition for my FIRE at age 45 was that there would be NO change to my everyday lifestyle. I did not want to have to change my everyday lifestyle once I retired. I built into my FIRE budget a surplus, or cushion, which could cover me if I went on a small spending spree once in a while. Furthermore, I have a slush fund available to pay for any larger, unforeseen expenses.

I also split my FIRE plan into two parts. The first part gets from age 45 to age ~60, when the first of my "reinforcements" arrive - unfettered access to my tIRA. The other reinforcements are SS and my frozen company pension. With these large additional income and asset sources, as long as I make it to age ~60 intact, I am fine. And now that I am 59, I have basically made it to that key break point. I would advise anyone who FIREs well before age 60 to split their FIRE plan into two similar parts if they have reinforcements like I have.

 

[RobbieB]

They still have pensions?

 

[Physics Guy]

I understand.


On the other hand I can see the point. I've always live well under my means. To me it isn't a major lifestyle change or a reduced standard of living because I seem to naturally resonate with the idea of enough from Your Money or Your Life. Other people don't seem to be wired that way and thus they might well feel that even saving the 25% that I maintained is a major change.

 

[The Cosmic Avenger]

I don't like that "requires making major lifestyle changes" phrase. It makes it seem like we who FIRE have to go from living well to living to a lesser standard (of living).

One major condition for my FIRE at age 45 was that there would be NO change to my everyday lifestyle. I did not want to have to change my everyday lifestyle once I retired. I built into my FIRE budget a surplus, or cushion, which could cover me if I went on a small spending spree once in a while. Furthermore, I have a slush fund available to pay for any larger, unforeseen expenses.

I also split my FIRE plan into two parts. The first part gets from age 45 to age ~60, when the first of my "reinforcements" arrive - unfettered access to my tIRA. The other reinforcements are SS and my frozen company pension. With these large additional income and asset sources, as long as I make it to age ~60 intact, I am fine. And now that I am 59, I have basically made it to that key break point. I would advise anyone who FIREs well before age 60 to split their FIRE plan into two similar parts if they have reinforcements like I have.

I think the "major lifestyle changes" thinking is driven mostly by two factors: 1) the way the Mr. Money Moustache blog caught the attention of the media and the public, and 2) the middle class "keeping up with the Joneses" philosophy of you are what you spend.

Now, we may think MMM is extreme, but I've referred friends to the blog for examples and tips of ways to save and to LBYM. I've always specified that I think doing ALL of it, or even a good portion, is extreme, but that they should consider trying out one or two changes based on his blog. But as we know, that extremism caught the attention of the public and the media, and so it's the only definition of FIRE a lot of people know.

I think if you're used to living on credit and think that spending as much or even a little more than you earn is the norm, LBYM and saving substantially can be seen as a major lifestyle change. It is annoying when they throw those numbers out there, I don't think we've ever saved more than 40% of our gross pay, but then that was early, we are at about 25% now but our total annual savings is higher than when it was 40%.

 

[Markola]

I thought it was a reasonably fair, respectful article by a, likely, broke journalist. (One always has to “consider the source” with financial articles.)

Saving 50% or more is not difficult:

1) 33% or so comes instantly from state and federal and other hidden paycheck savings by lowered pre tax income.

2) Employer match of whatever, say 5%.

3). Every year when you get a 3% COL bump, direct at least half to beef up savings. When you change jobs, direct at least half of your new-found largess into your savings, spiking the ball quickly.

4). Keep going and you can get into the 60-70% range in just a few years, feeling zero pain. In fact, the financial security blanket you’re growing causes joy.


My quibble with the article is, there are different definitions of “Savings Rate.” The article uses gross pay, which is a little unfair since taxes have to be paid from that. I’ve seen MMM use % of would-be take home pay without any savings, which seems more logical to me and is an easier goal to hit.

 

[daylatedollarshort]

In many cases I think the idea of extreme sacrifice, saving the majority of your income and not enjoying the present to ER in the future, is a mythology some people who aren't on the ER path tell themselves it would take. It helps them feel better about their own spending habits. We have one neighbor in particular who was really shocked we retired early and was always asking nosy questions, like it really bothered her. I got the feeling she was hoping we had won the lottery or received an inheritance - something out of her control to explain how we we ERed and her family had not been able to. In reality, the big difference with my neighbor was we had two white collar incomes compared to their one, so we could save most of one of the salaries without any undue hardship. And I worked from home but usually only while the kids were in school, so our day to day family lives weren't very different.

 

[TheWizard]

...My quibble with the article is, there are different definitions of “Savings Rate.” The article uses gross pay, which is a little unfair since taxes have to be paid from that. I’ve seen MMM use % of would-be take home pay without any savings, which seems more logical to me and is an easier goal to hit.

Gross pay is the denominator, correct.
Including all employer contributions to your retirement plan.
Them's the rules...

 

[deserat]

In many cases I think the idea of extreme sacrifice, saving the majority of your income and not enjoying the present to ER in the future, is a mythology some people who aren't on the ER path tell themselves it would take. It helps them feel better about their own spending habits. We have one neighbor in particular who was really shocked we retired early and was always asking nosy questions, like it really bothered her. I got the feeling she was hoping we had won the lottery or received an inheritance - something out of her control to explain how we we ERed and her family had not been able to. In reality, the big difference with my neighbor was we had two white collar incomes compared to their one, so we could save most of one of the salaries without any undue hardship. And I worked from home but usually only while the kids were in school, so our day to day family lives weren't very different.

This is an excellent point with regard to two incomes. I noticed when I was married we were able to essentially save one income. That accelerated savings quite a bit. I am now divorced and working again. It would be difficult to save 50% of my income being single, however, I calculated and do save about 26%. Interestingly, this year I have loosened up quite a bit with my spending...travel, sports, entertainment, stuff for the house...and I am still saving that much. I have for some reason been able to set up several streams of income that are compensating my spending but keeping my saving status firm. I have become convinced in my case that money is like water-it flows and in individual cases can either be perpetual or stagnant. It starts early with an attitude that then is manifested physically with action which over time become habits.

I think an example of the above is I know I am spending more, but at the same time I mentally track the side gigs and income as well as my future fund availability projections. For some reason the expansion of spending gets covered.

Or maybe more simply, I know I will be in the decumulation phose very soon and am starting to practice using the retirement funding models. I don't spend what they project for me even now when working .. it will be difficult for me to expand to that even when retired....

 

[ImThinkin2019]

One thing I like about the article and the general spread of FIRE info is the idea of personal responsibility and LBYM in retirement planning.

I see younger people that I've worked with, and our kids, making saving a priority because they understand there may be no other source of retirement income when they come of age. I suspect the FIRE news and forums have influenced them in this.

The author does mention than some ideas from the FIRE movement have merit, like pay yourself first, live in a lower cost house, etc. Even though when I read it, the tone is a bit negative about extreme FIRE.

Like others, DW and I were also fortunate to have two high paying jobs. And having read and liked "The Millionaire Next Door" many years prior, we lived a lifestyle that could be supported by only one of those jobs. So the extra pay went right into savings.

Now with workplace 401K plans, if kids beleive they need to "stuff them", that will be a positive influence in society.

 

[Andre1969]

If I recall correctly, "FI/RE" simply means "Financially Independent / Early Retire." Overall, I'd say the article is decent enough, but where they screw up is throwing out the sentence "They do this by saving at least 50% and as much as 75% of each paycheck", as if it's some sort of absolute, that must not be deviated from.

I think I only put away that much of my paycheck for a few years, back in the early/mid 2000s. My success has come from a variety of sources...saving/investing (even if not a consistent 50-75%), compounding/reinvesting dividends and capital gains (this was a big part), rent from having house mates, and inheritance. Although, maybe I don't count, since I'm not "FI/RE'ed" yet. I'd say, at 52, I'm definitely at the "FI" part. And if I back test my data, I have a feeling I pretty much hit "FI" around the age of 48. But, I just can't make the jump to "RE"...at this point the job is easy money, and I keep having "One More Year" syndrome issues. Guess I'd better do something soon, or I'm just gonna be "FI/R"

 

[Bigdawg]

I'm definitely at the "FI" part. And if I back test my data, I have a feeling I pretty much hit "FI" around the age of 48. But, I just can't make the jump to "RE"...at this point the job is easy money, and I keep having "One More Year" syndrome issues. Guess I'd better do something soon, or I'm just gonna be "FI/R"

^I feel the same way Andre. DW and I have 2 military pensions so basically FI as soon as we hit our 20. 39 years for her and 45 years old for me. We are trying to get our heads around the RE or R part of the equation. She loves her post military gig and has been doing it for 10 years now. She will get a second pension from that government job eventually. I go from contract to contract since my military time was up. All jobs I like in a field I generally like. Working on/with stuff that flies and/or blows up is always fascinating. We still do all the stuff we would do if fully retired. In the past 12 months we have been to Roatan, St Croix (x2), San Diego (x2), Vermont, PA, Outer Banks(NC) and VA Beach. After her case is decided today (jury duty) we are heading to the lawn mower races. Yes, it's a thing here in Southern MD. If fully retired I can't seeing doing much more than that. My recruiter (USMC) lived off the 50% rule. Everytime he got a raise in the military he saved 50%. In 1991 as an E-6 he was still living off of E-4 pay. Lost track of him so don't know how it all turned out for him but he was one of the first to interduce me to money management. Thanks SSgt Barnes.

 

[panhead]

If I recall correctly, "FI/RE" simply means "Financially Independent / Early Retire." Overall, I'd say the article is decent enough, but where they screw up is throwing out the sentence "They do this by saving at least 50% and as much as 75% of each paycheck", as if it's some sort of absolute, that must not be deviated from.

I think I only put away that much of my paycheck for a few years, back in the early/mid 2000s. My success has come from a variety of sources...saving/investing (even if not a consistent 50-75%), compounding/reinvesting dividends and capital gains (this was a big part), rent from having house mates, and inheritance. Although, maybe I don't count, since I'm not "FI/RE'ed" yet. I'd say, at 52, I'm definitely at the "FI" part. And if I back test my data, I have a feeling I pretty much hit "FI" around the age of 48. But, I just can't make the jump to "RE"...at this point the job is easy money, and I keep having "One More Year" syndrome issues. Guess I'd better do something soon, or I'm just gonna be "FI/R"

Yup, this mirrors my situation almost perfectly. As of late I'm at about (1/3 taxes, 1/3 savings, 1/3 spending) My investments at this point could likely replace more than my current spending. I'm in OMY phase as well. I'm targeting 55 at this point, then I will re-assess.

Obviously I'm not in the extreme RE camp, tho I thought about it at that time and there are threads of mine on here discussing it, but even if I'm not an extreme RE, the fundamentals give one options earlier in life than normal, and I think this is the real value of the FIRE movement.

 

[Markola]

Gross pay is the denominator, correct.

Including all employer contributions to your retirement plan.

Them's the rules...

Well, no, there are no rules. One can decide for oneself.

The article says “half one’s paycheck”, which implies take-home pay, which is different than gross income. If you’re trying to save half of gross pay, how do you count taxes: Spending or savings? What about SS and Medicare taxes? Those things benefit you later, so are forms of savings.

And what about mortgage payments? Part of those go to expenses, while principal payments go to savings and building equity, in my book.

There are debatable nuances involved.

 

[Magus]

+1



+1

Nowaways, people talk about FIRE as quitting work in the 40s, or even mid to late 30s. The young'uns will have to save hard and spend little in order to accomplish this. I am not such an ascetic, and did not retire till 55.

Folks without kids can do it by 40-45 at any income level IMO, especially with hard work - start saving 25% in your mid to early 20s should be enough to do so, especially if you start banking 50% of any promotions you get with higher income (someone right out of college at average pay at 22, then get a 12% pay raise every 3-4 years with 3% other years would save $2-$2.5m by 45 with this approach - double that for DINKs together). 30s is harder but 2+ decade of compounding does a lot in most 20+ year periods.