The fire movement’s champions hidden realities..

[rayinpenn]

There is a Youtube video out there “How these penny-pinchers retired in there 30s” it exposes a reality about FIRE: In this instance a Champion of the fire movement peter Adeney a.k.a. Mr. Money Mustache (MMM). When asked how much he spends each year, he said it usually ends up being around $25,000 -the interviewer adds plus “health insurance in the low thirties.” Which adds up to roughly $57,000. The fact that he pays roughly $32,000 in insurance confirms what we already know about MMM, the successful blogger has a MAGI (Modified Ajusted Gross Income) of more than 65,000 a year. If we use that $57,000 and apply rule 4% he touts, that means he needed a nest egg of $1.425 Million. A tidy sum indeed, But wait a minute, William Bergen’s 1994, 4% rule is dated, ignores current Health Care realties. It concluded no one would run out of money before 33 years if the withdrew 4%. MMM is 44 years old if we take 44 + 33 = 77. The average life expectancy in America today is 80 for males 84 for females. MMM suggestion might leave you broke.

The fact of the matter is anyone 44 years old with 1.425 Million in his 401K has to continue to work. If we reduced the 4% to a 3% withdrawal rate (57,000/.03)=1.9 Million. Our young FIRE candidate would need to save another $500K. - which of course is no small accomplishment. $57,000/12 gives him $4,750 a month to live on before income tax We can estimate average tax on that $57,000 income is $5,840 federal and 2,393 Colorado or $8,233 a year or 686 a month. So if we start with $4,750 subtract Income tax of $686, Health Insurance of $2,667 and you are left with $1,397 to pay real estate taxes, buy food, clothes, insure the car and house and well you know. As a guy with 2 metal knees I can tell you insurance doesn’t cover it all. I think the average deductible is like 5-10 grand.

Ah but one more thing MMM has a son and we all know what children can cost when they reach 18. Lets assume MMM son is a average kid with good but not brilliant grades. What will 4 college cost? I paid $100,000 per kid.

Now don’t get me wrong I am a fan of MMM; I only wish I had figured out what he did when I was 25 but, the vision he is selling is a disingenuous one. It takes more money at 44 ten the 4% rule would suggest. Suzie Orman may have overstated it but she may have been on to something.

Saying to someone 44 you need 2.5 million or more doesn’t sell books or bring you to podcasts or websites does it? Especially when 4 out of ten Americans are living paycheck to paycheck.

 

[workmyfingerstothebone]

Have you visited his site and reviewed MMM's expenses and income? I do understand that his blog has recently been a big money maker for him.

 

[Another Reader]

I think he was at one point on an ACA plan. So mid-30's might be with the subsidized ACA plan. The numbers are broken out in the older years.

A lot has changed since those numbers were published on the blog. Supposedly the blog generates an estimated $400k a year, although that's an external estimate. And as he wrote yesterday, he and his wife are now divorced and living in separate houses. He stated that neither house has a mortgage and they both have enough money to be retired.

He also owns a commercial building in downtown Longmont. Not sure how much income that generates, as it is occupied by him and a lot of like-minded people as a "workspace."

Finally, he does not include his business expenses in his published spending numbers. There appears to be a lot of overlap between business and personal expenses from the outside, but who knows.

I think there are some much better examples of people that FIREd at a young age. Our very own FUEGO, who authors the blog Root of Good, is one. Go Curry Cracker is another. Take a look at what some of those folks are doing before you finalize your analysis. The key is not income, it's having very low expenses.

 

[treeofpain]

I am not FIRED, but my family expenses have been in the $40-50K range for many years, though family income has gotten much higher. We are in a low COL area, and the last kid will finish college this May with no debt. It's all doable. You just need to manage spending.


I think MMM would say he is not retired, just FI. He certainly works, not only with his blog, but also with construction and other stuff.



I agree that healthcare costs are a big variable in the ER equation. I am nervous depending on ACA for reasonable HC costs, and I am not confident in our politicians will come up with a plan to prevent cost escalation.

 

[hausfrau]

The only FIRE blog I read is Root of Good. I think there is a lot of transparency and I really appreciate the detailed expenses. I like to think we are doing pretty well (and we are) but the way he and his wife keep spending in check while raising children (and traveling!) is really inspiring to me.

 

[daylatedollarshort]

I have always thought if you add back the items MMM claims as business expenses or conveniently leaves out of his budget - realistic health and dental costs for a family; income taxes; umbrella liability insurance; savings for future expenses like college, car replacement and LTC; and travel and entertainment, he spends as much and likely even more than the average U.S. household. Those are many of our big ticket expense categories so sure if I left those out we'd have a pretty low budget as well.

 

[Maenad]

There's always a caveat emptor with blogs. I guess if a FIRE aspirant only reads a blog or two and doesn't really think about their actual expenses or test the assumptions, that's kind of on them. Regardless, most of the uncritical thinking and just taking things at face value seems to come from outside the club - from what I've read here and on the MMM forums the people who are actually working towards FIRE have a much more solid grip on the risks, benefits, and realities.

 

[walkinwood]

I don't understand the animosity towards MMM. He has inspired so many to step off the consumerism carousel and start on this FIRE journey. Like Maenad above, I believe that the bulk of FIRE enthusiasts research this stuff and are quite grounded in reality.

 

[mountainsoft]

I am not FIRED, but my family expenses have been in the $40-50K range for many years, though family income has gotten much higher.

Same here, still about 5 years from retiring, but our current expenses are around 40K per year. My wife and I earn about 50-60K per year (varies), so the extra has gone into savings. Once we retire our living expenses should drop below 40K per year (no retirement savings, no parking fees, less gas, union dues, etc.), even with the addition of health care.

 

[rayinpenn]

<b>walkinwood: I don't understand the animosity towards MMM. He has inspired so many to step off the consumerism carousel and start on this FIRE journey. Like Maenad above, I believe that the bulk of FIRE enthusiasts research this stuff and are quite grounded in reality.</b>


I applaud and recognise all good he’s done but his numbers simply dont work. They didn’t work when he retired at 35.

My concern is If one of his deciples hits that spend/.04 amount and retires -They may run out of money just when it is most difficult to do anything about it.

That’s the thing about bad Financial advise - it can have devastating consequences.

RIP

 

[daylatedollarshort]

I applaud and recognise all good he’s done but his numbers simply dont work. They didn’t work when he retired at 35.

My concern is If one of his deciples hits that spend/.04 amount and retires -They may run out of money just when it is most difficult to do anything about it.

That’s the thing about bad Financial advise - it can have devastating consequences.

Those numbers didn't work even before the divorce, at least not without the ongoing business / blog income. Add in a divorce and they just aren't realistic at all, not for the kind of lifestyle he describes in the blog with international travel and home upgrades.

 

[RobbieB]

People love to read fiction.

Maybe all his readers will follow him retire to write blogs about early retirement. A million ER blogs and less clicks for the mustache.

 

[Jerry1]

In my movement to retirement, I stumbled across MMM and this site. Of course from a practical point of view, this site has been far more helpful. However, MMM was and is an interesting read because it’s another way of enforcing Your Money or Your Life, a book I read many years ago. The concept of getting tough and doing things yourself along with spending less because you need to focus on your needs and limit your consumerism is a good message for someone that wants to get off the treadmill. I think his message is that you can live a better life, not necessarily that you can stop working early. As was pointed out, he works a lot.

 

[Aerides]

My concern is If one of his deciples hits that spend/.04 amount and retires -They may run out

Yes they might, out of sheer stupidity, by making major life choices purely off taking one blog at face value, and ignoring the other plethora of choices on FIRE.

 

[Another Reader]

For all you folks that don't think this is possible, go look at FUEGO's Root of Good blog. It's feasible if you are very frugal, and have low overhead such as low income and property taxes, one older vehicle bought with cash, and a paid for house. In FUEGO's case, he pays almost nothing for health insurance. He goes on cruises, buys some toys, and eats relatively well. Look at his lifestyle. It might not work for you, but it does for him and his family.

And he has given thought to college expenses. The kids will go to local state schools. They seem to get good grades, so they may get scholarships and financial aid, but he has factored in the family share of the cost.

To be fair, most of this generation of FIRE-ees benefited from the last ten years of the bull market. Buying a house in a close in, not so great but gentrifying neighborhood at the bottom of the market helped a lot of people, including FUEGO. The next ten years may not be as favorable.

 

[LOL!]

We can estimate average tax on that $57,000 income is $5,840 federal and 2,393 Colorado or $8,233 a year or 686 a month.

You are really bad at taxes. His taxes with $57,000 in income would be pretty close to zero. More than 40% of US families don't pay any income taxes. I see no reason why a family making $57,000 especially not working would pay any income taxes.

 

[brewer12345]

MMM has been more full of it than a manure spreader pretty much from the start as even a casual examination of his claims should make clear. This is news?

 

[rayinpenn]

You are really bad at taxes. His taxes with $57,000 in income would be pretty close to zero. More than 40% of US families don't pay any income taxes. I see no reason why a family making $57,000 especially not working would pay any income taxes.

I didn’t guess.
https://neuvoo.com/tax-calculator/?iam=&salary=57000&from=year&region=Colorado

 

[LOL!]

I didn’t guess.

Garbage In; Garbage Out

1. He is not single.

2. Big difference between earning $57,000 from a job and getting $57,000 in dividends and other investment income.

3. Child tax credit.

4. What else? Oh, deduction for paying for health insurance.

 

[Mr. Tightwad]

I am not FIRED, but my family expenses have been in the $40-50K range for many years, though family income has gotten much higher. We are in a low COL area, and the last kid will finish college this May with no debt. It's all doable. You just need to manage spending.


I think MMM would say he is not retired, just FI. He certainly works, not only with his blog, but also with construction and other stuff.



I agree that healthcare costs are a big variable in the ER equation. I am nervous depending on ACA for reasonable HC costs, and I am not confident in our politicians will come up with a plan to prevent cost escalation.

If anything can be said about MMM, its that he considers himself retired.

 

[Another Reader]

Garbage In; Garbage Out

1. He is not single.

2. Big difference between earning $57,000 from a job and getting $57,000 in dividends and other investment income.

3. Child tax credit.

4. What else? Oh, deduction for paying for health insurance.

No FICA either.

 

[rayinpenn]

<b>LOL

1. He is not single.
2. Big difference between earning $57,000 from a job and getting $57,000 in dividends and other investment income.
3. Child tax credit.
4. What else? Oh, deduction for paying for health insurance. </b>

1. Point of order for most people the nest egg is mostly pre tax 401k etc., withdrawals from which are treated as ordinary income.
2. The ex may get the deduction.

Let’s not argue its just an rough estimate. IMHO The point is the 4% doesn’t work for a 44 year old. Why? more than 33 year life expectancy. Crazy healthcare expenses didn’t exist when the rule was formulated.

 

[LOL!]

Folks under age 59.5 as these FIRE folks are not withdrawing from a 401(k) usually at age 44. They are using money saved/invested outside of tax-advantaged accounts and will get to the 401(k)/IRA when they are older. Also because of contribution limits to 401(k)s, it would be very difficult for a 44 year-old to have $1.4 million in just the 401(k) and IRAs. Just ask the FIRE'd folks on this forum.

Yes, 4% doesn't work, but 3.3% to 3.5% does work. These folks are generally not living in Manhattan and spending the big bucks.

Clearly, people in the USA can live on very little income if they choose to do so. There are likely many 44 year-old ex-military who put in 20 years and get a pension for instance.

I suppose if anyone can diss MMM, then it would be his acolytes who failed and started their own blogs dissing him.

 

[clifp]

I don't understand the animosity towards MMM. He has inspired so many to step off the consumerism carousel and start on this FIRE journey. Like Maenad above, I believe that the bulk of FIRE enthusiasts research this stuff and are quite grounded in reality.

I think my biggest issue with MMM is claiming (or at least not correcting people) as being the father of the FIRE movement. Couple with his lack of participation in the forums on his blog site.

If anybody should get the title of father of the FIRE movement it would be John Greany (Intercst) who popularized the Trinty study, and even came up with the acronym on Motley Fool Retire Early forum and published a ton of data on the The Retire Early Home Page.

I'd say this forum is another potential father. MMM blog posts alone aren't nearly enough information to actually make a successful early retirement.
But between FireCalc and the forum, there is more than enough info here.

 

[Another Reader]

I think Your Money or Your Life should be credited as well.

Again, you need to look at how these people manage their expenses. Because their taxable income is low, they qualify for the ACA sweet spot - full subsidies and CSR. Fuego's kids qualify for Medicaid in North Carolina. Medicaid there appears to be a reasonable choice with good doctors and hospitals accepting the Medicaid payments. Healthcare costs are very low for most younger FIRE-ees.

These folks tend to drive older cars and use them sparingly. They often have paid for houses in LCOL or MCOL locations. They consume less overall. They spend time with their kids instead of putting them in daycare when young and in expensive activities when they are older. Kind of like when we were kids and mom stayed home, but with both parents.

Some have money invested in taxable accounts. Some I think are pulling from Roth contributions as needed. Some have rental properties - no depletion there and very favorable tax treatment. And some write blogs or do some part time work to supplement their other income. Almost all of the current generation of FIRE-ees benefited from the run up in asset values over the last ten years. It might be a lot tougher to do this over the next ten years.

Managing expenses is the key. Fuego publishes his in some detail. Take a look before you conclude FIRE is not possible in your 30's.