One of the questions a financial planner gets asked most often is “Can I afford to retire at age [fill in your personal blank]?”
I am often bemused by this, because the answer is almost always “Yes, you can.” It is also almost always “No, you can’t.” Nowadays, however, I may need to make room for a third possibility, namely: “Maybe, but why would you want to do such a thing?”
In the past, the retirement age question was usually posed by someone at least in his or her 30s or 40s, usually asking about a potential retirement at some point in their 50s, 60s or even older. In this traditional situation, retirement planning is a little like dieting. Dollars coming in via wages or investment earnings create a reserve of fat – that is, savings – for the financial winter ahead; dollars going out, in the form of pre- and post-retirement spending, consume those reserves. The question is whether the reserves can last as long as you do. And the answer can be whatever you choose, depending on what assumptions you make about income and spending, and how realistic those assumptions eventually prove to be.
The new twist arises because some young workers question the wisdom of spending their most productive years producing income for a later retirement. They want financial independence right away, or at least as soon as possible, and they want to retire early, too – sometimes at age 40 or sooner. The movement that has grown up around this desire is called “Financial Independence, Retire Early,” often abbreviated FIRE.
Can it work? Sure it can, but also no, it can’t. And would you really want to do this even if you could?
The first stage of the FIRE approach is to spend as little as possible, so as to save (and invest) as much as possible. FIRE adherents usually cite the figure of a net worth 25 times greater than the individual’s annual expenses as fulfilling the “financially independent” part of the equation. Some people go further, pursing what they call “fatFIRE,” the ability to maintain at least an upper-middle-class lifestyle.
I’m not sure there has ever been a financial planner who would accuse a client who is otherwise happy with life of saving too much. Perhaps more to the point, living an ultra-frugal lifestyle during one’s working career might indicate a capacity for similar frugality in retirement. The less money going out, the longer the available pool of savings can last. So, sure – if you can save enough and survive contentedly on small enough spending, you can theoretically retire at almost any age.
This isn’t the FIRE model, but think of a trust fund baby who is born with a hefty pile of money accumulated by someone else. In theory, and sometimes in practice, this person need never earn anything at all, as long as his or her spending is commensurate with the available wealth and the individual avoids destructive investments or excessive charity.
For the 99.9 percent of the population (my estimate) not covered by the trust fund baby scenario, the situation is a little different. During the working phase of life, must that person do something she really doesn’t enjoy, just to accumulate enough money to stop doing this work as soon as possible? Can spending be kept so low as to accumulate the necessary funds without making life so bleak in the meantime as to make the exercise pointless and depressing? Can a person who buys into the FIRE philosophy find happiness with another soul whose priorities are different – or should FIRE have its own dating app? For all I know, it already might.
But the biggest question of all, in my mind, is what is meant by the concept of “retirement” at all. When Social Security was established eight decades ago, it was just a means of financial survival for someone whose body was typically worn out by the rigors of farm or factory work. Later it became a period of “golden years” leisure, often followed by a decline into a prolonged period of physical or mental frailty in advanced old age. But in all these cases, a person spent his or her most productive years being productive, in his or her own way. This, I think, is how nature built us.
What does someone do when required to do nothing?
The answer, I suppose, is whatever that person wants. Early retirement from income-driven labor can be liberating. The young retiree is free to pursue community service, activism, art, politics or anything else the heart desires. In many cases, such pursuits may not generate a lot of income, but they generate enough for a frugal person (as a typical FIRE practitioner would be) to get by. This helps extend the previously accumulated nest egg.
But if a person truly had nothing to do except sit around all day and consume media, is this a good use of time? Is it even emotionally healthy? I have seen people who were forced out of the workforce early (sometimes due to corporate acquisitions or layoffs) obsess over investments or politics, merely to keep themselves mentally engaged. But too much cable news is bad for your emotional health. It is better to focus on loving the Yankees and hating the Red Sox, or vice versa – but even that leaves a long off-season to fill.
When I started doing retirement counseling about 30 years ago, a psychologist taught me that it’s useful to encourage clients to retire to something, rather than merely retire from something. I believed that advice then, and I still do.
Is the FIRE philosophy constructive or destructive? As with every question about retirement planning, I believe the answer is yes, it is. And also no, it’s not.