FIRE
FIRE
Hello friends, my name is Jack Raines. I will be writing on Alpha’s platform once a week. I also write a newsletter, Young Money, where I cover all things investing, finance, and careers. Hope you guys enjoy today’s piece!
What Is FIRE?
FIRE 🔥🔥: Financial Independence/Retire Early. It’s a movement that has gained a lot of traction over the last decade, and its popularity exploded after the COVID-19 pandemic began. This shouldn’t come as a surprise. A lot of people are unhappy with their jobs, so they look to retire and get on with their post-work lives as quickly as possible.
FIRE consists of the following game plan:
You work ____ years to make _____ money. These values vary depending on individual retirement goals and salaries.
Invest every extra penny in SPY or a similar broad index fund, so the value of your investment appreciates over time (on average, 9% annually).
Set an annual withdrawal amount that you will need to live off of for the rest of your life.
When your total capital reaches a threshold where the annual withdrawal amount is 4% of the total balance, quit your job and live off of your investment returns.
If you invest aggressively and have a fairly lucrative job, you can easily reach FIRE in your early to mid-30s and never “work” again. Sounds pretty FIRE, right?
I’m not too sure. Let’s dive in.
Not-so-FIRE Misconceptions
First, I believe the FIRE movement can be a great strategy for helping people achieve their life goals. At the very least, it helps people invest. However, no one talks about what comes after you make the money, as well as the opportunity cost of investing every extra dollar.
I’ve spent some time browsing the financial independence subreddit page, and there is a lot of great content there to help people reach their financial goals. However, many users also perpetuate two toxic ideas:
Work is a horrible thing that must be endured until it can be escaped for good.
FIRE is the end goal. The conversation stops there.
I’m going to break these ideas down a bit.
Work Sucks, Right?
It’s true, a lot of people hate working. That doesn’t mean work itself is horrible. It might mean your job sucks though. A lot of people like their jobs. My roommate Chase works 80 hours a week in commercial real estate, and he lives for that stuff. Realistically he’ll be able to retire at 30 if he wants, but there’s no way that happens because he enjoys it too much.
Another one of my friends, Nick, works for Dick’s Sporting Goods in Pittsburgh. He gets to travel all over the country expanding product lines and opening super stores in new cities. He loves his job and team.
Another one of my friends, Conrad, started his own sports-media company. He probably works 80-100 hours a week on this company, and he wouldn’t have it any other way.
Plenty of jobs suck. Work itself doesn’t suck. A ton of people find their jobs satisfying and fulfilling. If you find yourself in a state of existential dread every Sunday because of work in the morning, consider taking another job before taking a personal vendetta against the labor force itself.
Financial Independence Is a Step, Not the Goal
Here’s the real kicker that people miss. If the final goal is financial independence, you’re probably going to be disappointed when you get there. Sure, it’ll be sweet, sweet victory at first. But we are goal-oriented people. Say you spend your 20s and early 30s dedicating all of your efforts to “escaping the corporate grind.” After a decade, you make it. You won! No longer a slave to corporate America. Or at least that’s how it’s presented.
And then what?
You’re a 33 year old millionaire who never has to work again. Now what?
Sip mojitos on the beach for the rest of your life?
Chase waterfalls?
Play golf every day?
The problem with setting FIRE as your end goal is that you may lack purpose once you hit that target. Ernie Zelinkski wrote in his book How to Retire Happy, Wild, and Free:
“Regardless of how talented you are and how successful you are in the workplace, there is some danger that you will not be as happy and satisfied as you hope to be in retirement…What may be missing is a sense of purpose and some meaning to your life. Put another way, you will want to keep growing as an individual instead of remaining stagnant.”
We humans need something to work towards. Something to build or create. Some struggle to overcome. If your end goal is to escape work, you’ll find the latter half of your life pretty dull.
Take this blog from writer “livingafi” as an example of this phenomenon. He retired early in 2015. After two years of “living the dream”, early retirement started losing its luster. His friends were making more money as their careers progressed, and he had less and less in common with his peers. They were spending more and more on houses, cars, and lavish vacations, while he was strapped to continue living off of his retirement withdrawals. His relationships deteriorated, and he found himself facing massive voids in his life.
If you don’t take the time to think about the post-FIRE life, you might find yourself bored and lost. What’s going to be your drive once the money has been made?
Opportunity Cost
A dollar today is worth more than a dollar tomorrow. An additional $1,000 invested at age 24 is the equivalent of $31,400 at age 64 (assuming a 9% average rate of return for 40 years). Spending that $1,000 at 24 would be incredibly short-sighted, right? That depends.
It’s true, every $1,000 invested now is over $30,000 in forty years. But don’t let that stop you from making memories now. If that $1,000 could be spent on a ski trip with friends, do you really want to miss out on that? A road trip out west? Countless concerts, sporting events, and nights out with people you care about?
Don’t be like this guy who was so focused on building his net worth that he forgot to live a little. Here’s the deal: it’s okay to spend money. The amount that you want to invest is up to you. The ideal retirement date is up to you. You do need to save for retirement. That being said, the idea that every single extra dollar should go towards retirement is toxic. Don’t miss out on the present because you’re stuck staring at the future.
So What Do We Do?
Save your money, and allocate what you are comfortable with for retirement. If you start early, a little money can go a long way.
Instead of looking at work as some activity that you need to escape permanently, take a more holistic approach. Maybe your job isn’t engaging or your hours suck. Inquire about new projects, or take something new altogether. If you’re unhappy and lack purpose now, these struggles won’t magically disappear once you quit your job.
If you are determined to retire early, figure out your why and what. Why do you want to leave the workforce? What are you going to do afterwards? If you don’t plan that out, you will likely face the boredom and identity crisis that strikes other early retirees. If you can find new venues to channel your creative and productive abilities, you’ll be alright.
That’s all for today. Enjoy the short week, amigos 🤝
Jack
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.
By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.
For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.
alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis