FIRE principles don’t work in 2020 - Let’s change them to what does

There are a bunch of reasons why FIRE isn’t going to work in 2020, whether you are looking to start the journey, or if you are on or through it. This article gives you the details of why it won't work, and what you can do to pivot and make regaining control of your future something that is within your grasp today.

The concept of “Retire Early” sounds attractive at first.  Typically it is something that is romanticized by the 20 through 40 year old demographic.  Some are aggressive at wanting to escape work - often the recent college graduate who has lived a life under the umbrella of their parents, or using student debt to fund their existence for years.  When they leave the protection of institutionalized life in universities and they come face to face with the daunting reality of the “real world”, it isn’t a nice experience.  The buck stops on their desk, the cost of those student loans now is due and they now embrace the concept of struggle.

For those that have been in that world for a decade or more, they know the ever leeching sound of debt payments exiting their pay check.  The feeling of being chained to a desk all the time, working with people you hate, the daily commute and the feeling of hopelessness that comes with a sense that this is as good as it gets.  Meanwhile they see the Instragram moments or YouTube videos of their friends traveling the world, hiking Mt. Kilimanjaro, having dinner in Singapore, etc. and wish that this was their lives.  But no, off to work they go, again and again and again.

So whether you have just entered this world of struggle, or you have been living with it for some time, the idea of any chance of exiting it becomes your focus.  You think about how you could do it - maybe study how others did it.  They tell you of life after work, how wonderful early retirement is, how they live on a beach in Panama, or hang in some Greek Island somewhere.  And then they start to tell you how you could do it.  Yes, you.  The person living in struggle with no obvious way out.

This is like Moses coming down from the mountain with the plan.  The answer.  They way out.  

Some of the folk in this camp work in the technology space.  They have found themselves in a world of $150K per year salaries, and more money than they can spend.  Yet the requirement to turn up for work everyday to get it still is there.  They hear about their friends getting Lambos on Bitcoin or being some early startup in the Silicon Valley and they want in.  They want to have their adventures, but they sure cannot have them chained to a desk.  You'd think that making that sort of money would afford you the chance to escape the rat race, but most suffer from "lifestyle inflation" and spend all that they earn (and often more on top of that).  They realize that if they could just live like they did in college, save away their money, that there maybe hope to escape the future of enslavement.  The answer (they are told) is to invest in the stock market.

The simplicity of investing in the stock market over the past 10 years has shown that many have made millions in net worth.  They have done it with relatively low risk investments into Index Funds or Vanguard funds, etc.  They share the tricks and techniques with their friends, often becoming religious followers to this world of FI.  They subscribe to every financial independence podcast out there, they watch all those well produced YouTube videos and they subscribe to blog after blog after blog of those that have retired early and share their daily tales.  After all, they want to be like them.

Now I don’t fault anyone for this.  It is human nature.  Given the choice of a lack of hope, we would find it hard to survive in that.  Eventually we would crack.  The world of 2020 that has been given to us is not full of hope and wonder.  It shows all the signs of total societal collapse as more riots on the streets, mindless shootings, tribal wars due to political beliefs, and generally everyone’s wealth has taken a tumble.  Jobs lost and people are rethinking whether early retirement is even possible.

But I’m here to tell you that if you change your mental position, you can have it all.  The problem is that you have to change your basic concepts of society and your role in it, and that isn’t going to be easy for 99% of you.  Because your parents, your schools, your government and your banks sold you a bill of goods that isn’t working.  And you have to have the courage to accept that, if only to begin a process of dissecting it and working out what reality really looks like.  This is your Red Pill moment to learn to detach from The Matrix and understand how the world really works.

Rule #1 - There is no free lunch

That money that Wall Street gave you for free over the past 10 years, that turned your savings into a wealth machine, was an illusion.  Here’s the reality - yes, you could make millions investing in equities back then.  That’s called a “Bull Market” and as history teaches us, anyone can make money in a Bull Market.  It is only the most talented and disciplined traders that make money in a Bear market.  And that is what we now have.

Relying solely on equities to fund your journey to retirement would work fine if it was 2016, but not today.  Just like any investment planner will tell you, you need a diversified portfolio and most people haven’t done that.

So the free ride of wealth from Wall Street has come to an end, and is more likely going to be only with tech stocks.  Hence we see days where the DJIA is going down, but the NASDAQ is going up.  We see this routinely.  Does that mean if you invest in tech stocks you will be ok?  Well no, unfortunately.  One will eventually face the same reality as the other.

Rule #2 - The concept of “work” has to be revisited

What most retirees don’t tell you (particularly those in their 60s and 70s) is that if given the choice of participation in work & the social nature of what comes with that, they would return to that world in a heartbeat.  Retirement is a lonely affair.  If you retire early and you detach from the world of the normal social contract, you are an outlier - an outcast.  Your friends can’t afford to do the same, so they work and you sit around trying to find something to do.  I mean you still have an active brain, you still have a need to be validated in some way.  Maybe you take a year or so off to travel the world, but after that, then what?

See most people forget why they work.  And that’s the main problem.  I see a huge number of early retirees going back into the workforce in some way - maybe they start their own business or their own ventures, only to find out that they can’t learn how to do that in a book.  Business people are born with those skills - as my friend Andrew Henderson told me recently, learning business can’t be done from a book or a college course.  It is like trying to learn comedy from a book.  You either have it, or you don’t.

Even if you can financially pay for your existence, you will get bored.  And boredom leads to experimentation with things that inspire and motivate you.  That requires capital to invest in.  Whether it is buying a sewing machine because you decide you want to make children’s clothes, or buying a new computer to learn how to program or something like that, it all requires capital.  Capital = money.  Money that you saved for years to sock away for your retirement.  Money that was earmarked for survival - not speculation.

You start asking yourself why we work.   This is the most important question to embrace and it takes you back to your 18 year old self, searching for your identify and meaning in your world.  If you can find the reason that you work (which is here, by the way), you can eliminate the word “retirement” entirely from your goals, and that changes everything.

Rule #3 - Factors outside of your control will destroy your plans

I have spent a large number of episodes, articles, etc. trying to explain to anyone that is young, and on the FIRE path that the world never goes to a plan.  The thing is that when you invest in something, you are placing a bet that the outcome of the investment will be positive and grow your original capital.  That’s why people put money into real estate, the stock market, precious metals, etc.  They want to have more wealth later than when you started.  An investment into equities, unless you are a day trader, is likely to take decades to come back.  Sure, many stocks pay dividends during that time, but that fluctuates.  

The thing is that living frugal in order to save money is never a bad thing and something we should all embrace.  Our consumption society has led to waste, pollution and the earth isn’t happy with us.  So anything we can do to reel that in is a good idea.  And more importantly, if you have capital and don’t need to go into debt, you can regain control of your world.  So save, save, save...  It’s all good.

But if you decide to stop earning money, and you are relying on your liquid assets to cover you, remember that they are liquid.  They can come & go quicker than any non-liquid asset.  Sure, you could argue that if you invested in rental real estate that it could go up or down in value.  But you are not investing in real estate for appreciation if you are using it to support not working.  You are investing in it for cashflow - money that will help fund your day to day needs.  And since rents can go up with inflation, it provides you with the most likely chance of funding your increasing costs of living over time.  

Remember that those who retire at 65 or so are only interested in low risk investments.  They will shy away from investing in the Nasdaq because they could lose it all and they have no time left to regrow it.  They are looking to have enough money to survive on before they go to meet their maker.  That is not the same strategy that someone in their 40s should have for retirement.  If you are in your 40s and you’ve done some mathematic calculation of how much money you need to have to retire, you are doomed right there.

The decades that will come before you will bring with it wars, famine, depression, lawsuits, divorce, health related incidents, family (either new kids, or the demise of members), etc.   These are inevitable things.  We choose to pretend them away, but we do that at our peril.  If you are detaching from the workforce early, you better have strategies for ALL of these things.  And the ups and downs of your world will need you to react to them - not stick your head into the sand like an ostrich.

The longer you have planned ahead of you for retirement, the more likely you will fail at it.  Not only will it not deliver the promise you were hoping for, but your exposure to external events will derail you.

Rule #4 - It isn’t all about you

When you choose to avoid going into the office you hate everyday, that’s fine for you.  But what about your spouse, kids, and others that rely on you making income?  If you believe that you can convince yourself that you don’t need to work and can retire on your savings, then that’s fine - but you have to convince the other members of your family.  And continue to convince them every day.  If your spouse loses faith in the whole thing, will he or she lose faith in the marriage?  What is the #1 cause of divorce in the USA?  Money problems.

If you think that you can shift the responsibility of work to the spouse who may have been raising kids for the past 5 or 10 years, then that’s a bit of a shock to the system.  Does it meet the social contract you have with them?  What about health insurance?  How can you afford to provide that to your family if you are not leaning on an employer to provide it?

And what if you decide to retire early as a single person, but then you meet someone and you want to build a life with them.  What would they think of your future income earning ability?  How can you sustain that relationship if it turns from a relationship of love and choice to a relationship of dependence?  What if there is a massive economic collapse?  Can you get through this?  Are you still able to go out and earn money in some form if you are detached from that?

Your decision to retire early has to include your current and future partners as well, and that may be something you haven’t considered enough of in your plans.

Rule #5 - Never rely on counterparties to be there when you need them

Let’s define “counterparties”.  They are banks, governments, charities and employers.  Anyone that you rely on to provide you with income.  There are so many examples in history when this happens, and it particularly gets worse when economies are NOT in a bull market.

Banks love to “bail in” if they run the risk of collapse.  Check the contract rules on your savings account.  When you deposit funds, you are giving it 100% to the bank to do with what they want.  Sure, they promise to give it back to you, but have you looked at the contractual outs they have to break that promise?  They don’t give it back to you if they are collapsing because they made risky bets of their own and lost your money.  

Governments also stop paying pensions, social security or providing essential services like healthcare, police, education, etc. in times of crisis.  Right now is a perfect example of that.  Schools are shut down, police won’t attend crime scenes for fear of virus exposure, healthcare is overloaded with COVID19 cases, etc.    And I’m sure you are sick of hearing about how social security funds will run out of money by 2030.  Well I hate to tell you, but 2030 is right in the path of your retirement.  If you are relying on social security then, you might not have it.  As for Medicare, the eligibility age keeps going out of reach, as does the social security eligibility age, making it harder and harder to “retire” at all.

Given the lack of control that you have, if you are choosing to put money into an IRA or 401K because of some immediate tax benefit, think again.  By putting your money out of your reach for decades, that means you won’t get to use it.  You also won’t be in a position to protect it either.  The exception might be if you have a self-directed IRA but again, you only have certain options with rules there.  And the risk is still there that governments that fall on hard times may simply abscond with a portion or all of your retirement savings.  Yes, they can do that in times of need.

What’s the solution?

Simple.  Remove the word “retirement” from your language entirely.  Remove it as a goal for early or late retirement.  Never ever think about it again.

Change your thinking to understand why you work and what you need to do to fulfill that need without selling out your future to a counterparty.  Pay off all your debts now.  Have no obligation to any counter party and start to diversify and regain control of your assets.

Remember one thing - in a time of crisis, those with money will be targeted to give it up.  You will be living in the world of “Robin Hood” where the government, by way of the threat of a gun, will take from the rich and redistribute to the poor (after they pay their corrupt officials off, and try and pay down their poor financial decisions of the past first).  That means your millions saved, will be stolen from you.  Now how can you retire if that happens?  Well that poor person, earning less than the poverty level has exactly the same voting power that you have, and yet there are 99x more of them than you.  So who do you think your elected or wannabe elected politician is going to cower to?

Wealth distribution is real and if you have wealth you are a target.  You need to learn how to hide it.  Maybe you can’t do that for taxes - you are stuck with that unless you renounce your citizenship, but what about the desperation of out of work lawyers looking to abscond with wealth by way of frivolous lawsuits and litigation you can’t defend against?

You need to understand the art of international diversification.  Laws work only within the local region that they are crafted.  That means you move your assets outside of the reach of those regions.  You study and understand what is required and you invest in having a team of experts available that will help you protect your assets.  Yes, the very same out of work lawyers would prefer to not be out of work, by selling their services to you to protect your assets rather than find ways to steal them.

And here’s the most important thing to learn.  Your costs are going up.  And up and up.  You can’t (over time) predict the cost of a tank of gas in the next 10 years or so.  Yet you will be living in the world in which you need that tank of gas then.  So what’s your plan for hyper-inflation.  Or even basic inflation?  How do you fund your burn rate - the costs of living over time for the future?

One way is to move to a place that costs 1/4 the cost of living than your western lifestyle.  That means learning about those places and begin to build relationships with those countries.  Not only will that help you diversify your assets and protect them, but it will let you diversify your exposure to taxes, etc. if you do it right.  There are 200 or so countries on this planet, and you live in one of them.  Understand the power of internationalization, particularly in a future that involves economic collapse and when your own nation runs at a deficit and shoulders the burden of decades of mismanagement and the debt load that will eventually be due. 

Now given all of this, is retirement for you?  Are you in a position where you can still afford to live in the bull market illusion of the past 10 years, or are you going to get real with this and adjust to it?

Do you understand the art of financial sustainability, where you can earn at least your burn rate in an inflation proof way, so that you can cover your living costs while you pursue what you really want to be in life?  Do you understand the concept of Maslow’s Hierarchy of Needs and how investing in physiological or low level needs will have the higher chance of supporting a long term existence than buying Telsa or Apple stock?  

Do you understand that money can be made worthless quickly and that there are lots of different forms of ”money” from gold to different national currencies to Bitcoin or digital assets?  Are you evenly diversified between all forms of liquid assets?

Do you understand the concept of business and how it is not what you earn but what you keep?  Therefore do you have a strategy around expense reduction, particularly the larger line items on your personal profit & loss statement, such as health insurance or housing?   What about food & energy production?  How about communications?

Do you realize that if you can make less money, you are less of a target of your local tax authorities?  If you can keep your income below $50K per year, for example, you might find yourself eligible for some subsidies that you are ineligible for while you brag to your friends at the bar on Friday of the massive salary that you make, while you sell your one and only life out to the boss.

And maybe you can make that money on the Internet, from anywhere in the world, so to avoid or take advantage of Foreign earned tax exemptions, or other forms of internationalization giving you the advantage again rather than just being a victim to it?

It is time to rethink FIRE

I’ve given you all the reasons that it is naive to think that what might have looked rosy in 2018 will look as rosy in 2020.  We clearly live in interesting times right now.  But the truly wealthy know that adjustment and being nimble is the best answer to an unpredictable world.

Remember, if your plans to retire were based on some romantic notion of what retirement is and you don’t yet know why you work, then you are doomed from the beginning.  Once you understand the human psychology behind all of this, then you can remove “retirement” from your vocabulary and start to think more about how you can be financially sustainable, nimble and back in control of the future, whatever future that may be.  I see FIRE participants as willing victims given the way that they chose to exit society and I don’t see it ending well as it has been taught.  

Financial sustainability works.  You need to embrace that, but add to it a healthy dose of internationalization and rethink the concept of retirement entirely in order to thrive in the future.

  • Stuart Horrocks 3 months ago
    Hi Myles, as always great content, it's nice to see different perspectives within the financial space. Keep up the good work.
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    • Myles Wakeham 3 months ago
      Thanks Stuart. It can be difficult to challenge a community that are following a path with religious zeal such as FIRE, but blind faith typically ends up with a fall and a pivot here and there is pretty much what is needed. Thanks for the feedback.
      Reply | Quote and reply
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