I’m below 2% myself. I’ve hardly increased spending as my portfolio has gone up over the years. And that 2% is total cash outflow (not just consumption), of which a decent chunk is pay down on mortgage principal as well as IRA/HSA contributions.
I think Senra’s Founders should have a sister podcast called Mentors. Too many of the people he covers are not people I would necessarily want to model my life after.
Social debt is highly cultural and I mean that at a family level, not just a country level. I think there are people raised to be highly independent of their family financially. Especially in countries with well established welfare states.
One has to be cognizant when interacting with people from different cultures that the social contract may be different. If you are in a cross cultural marriage, for example, think about what it may mean for the people from a culture different than your own if you start sharing resources. You may sign up for something without realizing it.
This is an interesting take. I am hoping to FIRE in the next few years. With that said, I have no intention of ever being without a source of income. The risks of future calamities and unexpected outcomes are simply too great to stop working at 30 or 35.
I also suspect that those who have saved 30-50 percent of their income for years will likely not succumb to social debt in the same way that others might.
I’m not sure that big savers are any less prone to social debt although it’s possible. Regarding multiple sources of income, that’s a very good idea and having “side gigs” after FIRE also provides an answer to the dreaded “what do you do?” question … it can be weird to say you’re retired at 45 or 50.
From my perspective as a very early retiree from the UK with less than half of the $2.5m figure you've quoted, I would say I'm rather more hard-nosed.
For me, the idea of people I know pursuing my wealth directly purely because they correctly perceive that I have it would be totally abhorrent. The only pressure I would feel in that situation is weighing up consequences of just cutting them out of my life and the impact that might have to my relationship with the rest of my family.
In a hypothetical situation where someone I know looks truly in financial need, then I would reach out. But I'd still be pretty demanding, it'd be on my terms. How did they get there? Can I help them plan to avoid it again so that if I lent/gifted cash it wouldn't happen again? So yes there would be (well-meaning) strings, which I know would turn a lot of people off. But tough T's as it's a piece of my hard-fought freedom I'd be giving up for it.
Other than that, I can totally relate to the weird dynamic (even internally, never mind with other people) of thinking of one's capital purely as a modest income and not a stack of cash with which to fund Lamborghinis and pool villas. It's a strange one, but the costs of those luxury fripperies measued in freedom are far far too high for me.
Something I often think about the FIRE movement, is that it's essentially coincided with extremely loose monetary policy left to run since 2008 QE1. So we have seen a decade and a half of impressive performance in simple index fund investment strategies deployed by those lucky enough to be of working age (and savvy) in the early 2010's. I'm not sure how well informed the FIRE people are going into the next few decades, nor am I sure what the correct investment play is that would mirror the mentality of the last wave. I think betting against monetary debasement is an option, but almost nobody wants to join the 'sound money camp'.
The combination of very naive extrapolation of the past into the distant future coupled with a maximalist attitude on withdrawal rates will likely end in tears for many who FIRE.
As a young FIRE'ee, I (I suppose obviously) have to disagree with you both.
Correctly perceived, the 2010-2020 bull market does not show that a 4% withdrawal rate works, it simply shows that there are some periods of outrageous outperformance to mirror periods of languishing. You could probably have had a 7% SWR starting in 2010 and done OK.
So if you're talking about people retiring now on "maximalist" SWR's, then I agree, that would be crazy. However, if you spent time over on reddit subs like r/FIREUK, you'll see that the collective wisdom is not just to aim for 4% but for substantially lower than that: - sub 3% mostly. I personally currently withdraw about 2.5% vs wealth. I can't recall anyone on that sub seriously ever positing a higher SWR than 4% - and I check it out every day. I can guarantee anyone wandering on there pushing higher SWR's as realistic for the long term would be shot down.
So I would dispute the idea of significant levels of 'naive extrapolation' and 'maximalist attitudes'.
To tCunningham's point, in my view there's nothing in the academic research to suggest any problem with sticking with the passive low cost global tracker dogma. Why wouldn't we?
If that approach is not going to work with a modest SWR, then surely there are also an awful lot of workplace pension trusts who are likely to be in a lot of trouble with their retirees?
I was an early FIRE convert, as the philosophy is correct and it quickly teaches young people about money (growing wealth, and planning their future).
My argument is that the current FIRE movement is not considering the possibility of a total paradigm shift in financial markets. Massive paradigm shifts have happened in both 1971 and 2008. To think that there cannot be another, is irresponsible.
I don't agree that there's nothing to suggest a problem with the passive dogma (which is entirely in growth-orientated equities and long-duration bonds).
We have had a disinflationary environment for the last 20 years, which is the same window for FIRE popularity. A 60/40 portfolio steadily climbs higher in this environment.
Now, there is a real possibility of moving into a decade (or longer) inflationary period. This is defined by higher resource costs/labor costs and structurally widening fiscal deficits that drive further broad money creation. You are going to see this soon in increasing oil prices and wage inflation taking hold, both are already underway going into end of the year.
The 60/40 portfolio does not work in this environment.
And on pension trusts, you already saw the UK LDI scare last October (see James Lavish break this down in The Informationist). Currently, UK gilts have already sold off to the exact same level at the time of that intervention. The only thing keeping UK Pensions alive is the BoE, and the cost is further money debasement.
The amount of self-reinforcing effects in financial markets is continue to stack up.
If the conventional wisdom on Reddit these days is 2.5-3%, and if that’s representative of sentiment among early retirees, then things have changed in the fire community recently. I don’t spend any time at all on Reddit so I wouldn’t know what they are talking about there. I do not get the general impression that people have moved far from the 4% rule and I see next to zero attention to contingency planning for general misfortune and none at all for what Morgan Housel calls social debt. There could be a cultural difference between UK and US early retirees as well.
For the rest, It might (might!) be worth your time having a prod into r/FIREUK to gain some other perspectives. We have 159,000 members, so it's a pretty decent pool for a niche topic in a smaller country.
To summarise though, basically 99% people there first just grab the 4% rule of thumb. Most are not genuinely in a position to make serious progress, which is fair given economic conditions in the UK at the moment.
Those that do approach having enough almost always start reducing their SWR and also doing things like not counting state pension and building in various bits of fat throughout.
We tend to point them towards Monevator's excellent post on the subject:
But honestly, if anything people are sometimes too pessimistic about returns in the UK. I think perhaps the UK is generally more pessimistic in outlook than the USA for most things (fair?).
At the risk of boring you, the other trend I find interesting over there is the watering down of FIRE. If you spend a lot of time there, you'll notice that many people "doing FIRE" are talking earnestly about retiring at ages like 55, 60 or even later. Ages at which just a tiny bit of extra cash is required to supplement basic decent planning. I did initially push back on this, as it makes the difference between FIRE and just retiring rather thin, but the fact is that for most people it's the only realistic target and just the task of retiring comfortably in the UK is hard enough at the moment!
I’ve modified the 4% rule to the 2% rule since reading Ed Thorp’s autobiography.
I’m below 2% myself. I’ve hardly increased spending as my portfolio has gone up over the years. And that 2% is total cash outflow (not just consumption), of which a decent chunk is pay down on mortgage principal as well as IRA/HSA contributions.
Like David Senra has said, Ed Thorp really is a model of a life well lived! I wrote a review of his book:
https://rationalwalk.com/book-review-a-man-for-all-markets/
I think Senra’s Founders should have a sister podcast called Mentors. Too many of the people he covers are not people I would necessarily want to model my life after.
Social debt is highly cultural and I mean that at a family level, not just a country level. I think there are people raised to be highly independent of their family financially. Especially in countries with well established welfare states.
One has to be cognizant when interacting with people from different cultures that the social contract may be different. If you are in a cross cultural marriage, for example, think about what it may mean for the people from a culture different than your own if you start sharing resources. You may sign up for something without realizing it.
This is an interesting take. I am hoping to FIRE in the next few years. With that said, I have no intention of ever being without a source of income. The risks of future calamities and unexpected outcomes are simply too great to stop working at 30 or 35.
I also suspect that those who have saved 30-50 percent of their income for years will likely not succumb to social debt in the same way that others might.
I’m not sure that big savers are any less prone to social debt although it’s possible. Regarding multiple sources of income, that’s a very good idea and having “side gigs” after FIRE also provides an answer to the dreaded “what do you do?” question … it can be weird to say you’re retired at 45 or 50.
An interesting piece, thank you.
From my perspective as a very early retiree from the UK with less than half of the $2.5m figure you've quoted, I would say I'm rather more hard-nosed.
For me, the idea of people I know pursuing my wealth directly purely because they correctly perceive that I have it would be totally abhorrent. The only pressure I would feel in that situation is weighing up consequences of just cutting them out of my life and the impact that might have to my relationship with the rest of my family.
In a hypothetical situation where someone I know looks truly in financial need, then I would reach out. But I'd still be pretty demanding, it'd be on my terms. How did they get there? Can I help them plan to avoid it again so that if I lent/gifted cash it wouldn't happen again? So yes there would be (well-meaning) strings, which I know would turn a lot of people off. But tough T's as it's a piece of my hard-fought freedom I'd be giving up for it.
Other than that, I can totally relate to the weird dynamic (even internally, never mind with other people) of thinking of one's capital purely as a modest income and not a stack of cash with which to fund Lamborghinis and pool villas. It's a strange one, but the costs of those luxury fripperies measued in freedom are far far too high for me.
Something I often think about the FIRE movement, is that it's essentially coincided with extremely loose monetary policy left to run since 2008 QE1. So we have seen a decade and a half of impressive performance in simple index fund investment strategies deployed by those lucky enough to be of working age (and savvy) in the early 2010's. I'm not sure how well informed the FIRE people are going into the next few decades, nor am I sure what the correct investment play is that would mirror the mentality of the last wave. I think betting against monetary debasement is an option, but almost nobody wants to join the 'sound money camp'.
Ref: " I think betting against monetary debasement is an option, but almost nobody wants to join the 'sound money camp'."
<bracing myself> is this about Bitcoin?
So you already know what makes sound money, nice!
The combination of very naive extrapolation of the past into the distant future coupled with a maximalist attitude on withdrawal rates will likely end in tears for many who FIRE.
As a young FIRE'ee, I (I suppose obviously) have to disagree with you both.
Correctly perceived, the 2010-2020 bull market does not show that a 4% withdrawal rate works, it simply shows that there are some periods of outrageous outperformance to mirror periods of languishing. You could probably have had a 7% SWR starting in 2010 and done OK.
So if you're talking about people retiring now on "maximalist" SWR's, then I agree, that would be crazy. However, if you spent time over on reddit subs like r/FIREUK, you'll see that the collective wisdom is not just to aim for 4% but for substantially lower than that: - sub 3% mostly. I personally currently withdraw about 2.5% vs wealth. I can't recall anyone on that sub seriously ever positing a higher SWR than 4% - and I check it out every day. I can guarantee anyone wandering on there pushing higher SWR's as realistic for the long term would be shot down.
So I would dispute the idea of significant levels of 'naive extrapolation' and 'maximalist attitudes'.
To tCunningham's point, in my view there's nothing in the academic research to suggest any problem with sticking with the passive low cost global tracker dogma. Why wouldn't we?
If that approach is not going to work with a modest SWR, then surely there are also an awful lot of workplace pension trusts who are likely to be in a lot of trouble with their retirees?
Enjoyed your perspective!
I was an early FIRE convert, as the philosophy is correct and it quickly teaches young people about money (growing wealth, and planning their future).
My argument is that the current FIRE movement is not considering the possibility of a total paradigm shift in financial markets. Massive paradigm shifts have happened in both 1971 and 2008. To think that there cannot be another, is irresponsible.
I don't agree that there's nothing to suggest a problem with the passive dogma (which is entirely in growth-orientated equities and long-duration bonds).
We have had a disinflationary environment for the last 20 years, which is the same window for FIRE popularity. A 60/40 portfolio steadily climbs higher in this environment.
Now, there is a real possibility of moving into a decade (or longer) inflationary period. This is defined by higher resource costs/labor costs and structurally widening fiscal deficits that drive further broad money creation. You are going to see this soon in increasing oil prices and wage inflation taking hold, both are already underway going into end of the year.
The 60/40 portfolio does not work in this environment.
And on pension trusts, you already saw the UK LDI scare last October (see James Lavish break this down in The Informationist). Currently, UK gilts have already sold off to the exact same level at the time of that intervention. The only thing keeping UK Pensions alive is the BoE, and the cost is further money debasement.
The amount of self-reinforcing effects in financial markets is continue to stack up.
If the conventional wisdom on Reddit these days is 2.5-3%, and if that’s representative of sentiment among early retirees, then things have changed in the fire community recently. I don’t spend any time at all on Reddit so I wouldn’t know what they are talking about there. I do not get the general impression that people have moved far from the 4% rule and I see next to zero attention to contingency planning for general misfortune and none at all for what Morgan Housel calls social debt. There could be a cultural difference between UK and US early retirees as well.
Totally agree re social debt.
For the rest, It might (might!) be worth your time having a prod into r/FIREUK to gain some other perspectives. We have 159,000 members, so it's a pretty decent pool for a niche topic in a smaller country.
To summarise though, basically 99% people there first just grab the 4% rule of thumb. Most are not genuinely in a position to make serious progress, which is fair given economic conditions in the UK at the moment.
Those that do approach having enough almost always start reducing their SWR and also doing things like not counting state pension and building in various bits of fat throughout.
We tend to point them towards Monevator's excellent post on the subject:
https://monevator.com/why-the-4-rule-doesnt-work/
But honestly, if anything people are sometimes too pessimistic about returns in the UK. I think perhaps the UK is generally more pessimistic in outlook than the USA for most things (fair?).
At the risk of boring you, the other trend I find interesting over there is the watering down of FIRE. If you spend a lot of time there, you'll notice that many people "doing FIRE" are talking earnestly about retiring at ages like 55, 60 or even later. Ages at which just a tiny bit of extra cash is required to supplement basic decent planning. I did initially push back on this, as it makes the difference between FIRE and just retiring rather thin, but the fact is that for most people it's the only realistic target and just the task of retiring comfortably in the UK is hard enough at the moment!