As poor an acronym as it is(*), F.I.R.E. (Financial Independence Retire Early) has become widely known, inspiring many to spend less and save more.
Not everybody thinks it is a good thing, however, and we are probably guilty of setting a bad example – indolent, hubristic, aggressive, patronizing, flippantly roaming the globe in luxurious fashion…
… so when the economy struggles and the stock market implodes, I am unsurprised that some headlines and individuals are excited for the opportunity to say, “I told you so” or to predict “the death of FIRE.”
Are early retirees at risk of serious F.I.R.E. Damage?
I’ve seen a lot of tweets and comments to this effect over the past few weeks, which I’ve lumped into 3 general categories:
- The Douchebag – “haha you FIRE F#@kers are screwed now. Enjoy poverty.”
- The Passive Aggressive – “I’ve always wondered what these FIRE people would do in a real downturn. I hope they will be OK but I kind of doubt it.”
- The Faux Concern – “Oh this is terrible. I’m so worried about people who’ve taken on all of this risk by retiring early, what will they do now? How can they even find jobs with the economy shut down?”
How… weird.
Is it warranted? I had coffee today for the first time in a couple months so allow me to channel that agitation…
Economic Forecasts
Economically speaking, things are bad out there. The stock market is down 25% or so, the economy is on lock down, and Initial unemployment claims reached unprecedented heights (and climbing.)
For perspective, compare to the economic downturns of 2000 and 2008… (literally off the charts.)
data source
By one estimate, we could see unemployment rates of greater than 30% in the coming months, exceeding levels last seen during the Great Depression (24.9% in 1933.)
Goldman Sachs is forecasting a 24% drop in GDP in Q2 2020 as the US economy just… stops.
Given the depth of the disaster and comparisons to The Great Depression, has F.I.R.E. flamed out?
Perspective
We are about 1 month into this current downturn. Did somebody retiring at the peak in 1929 die of starvation after 1 month?
No, they were able to spend an inflation-adjusted 4% of the initial portfolio value year after year for 35+ years. Maybe some problems will pop up in month 419.
At the time of writing US stock markets are down about 25%.
Do people retire early just assuming the stock market never goes down? That’s the impression I get from the headlines…
… which, given the extensive analysis on portfolio longevity in poor economic environments, is just… dumb?
An Epic Stock Market Decline
This is our 3rd real stock market decline, and as part of planning for a life without jobs I wanted to understand the worst of times.
Leading into the Great Depression, the stock market crash of 1929 was one of epic proportions… between September 1929 and June 1932 the market would decline nearly 90%.
So we are down about 25% now… for a 90% total decline, the market would need to fall…
… another 25%…
… and then another 25%…
… and then another 25%…
… and then another 25%…
… and then 25% more…
… and then another 25%…
… still not done…
… fall 25% more…
… and now, finally, we are down 90% total.
Perhaps “I told you so” is a bit… premature.
We’ll Be Fine, Thanks for Asking
At present we are sitting on about 7 years of cash and bonds, even without changing our lifestyle or earning additional income (although we are open to both.)
If this was a repeat of 1929, we have another 35 years or so before we run out of money.
Social Security extends that maybe another 35 years. Now I am 115 years old.
But pandemics have happened before (and will happen again) – eventually they run their course or humans find a cure. That takes 12-18 months.
Here is a chart of the S&P500… can you find the flu pandemic of 1968? (killed 1 million) How about the flu pandemic of 1918? (killed 20-50 million) (data)
Maybe 7 years of cash and bonds is too much.
data source
In short, we’ll be fine. People who have saved 25+ years worth of expenses are not the ones we need to worry about.
Will the concept of saving that much money lose favor in the coming months and years?
After job loss, food insecurity, perhaps having to raid the retirement accounts to get by, I would think people are MORE interested in targeting a similar level of financial security rather than LESS.
Summary
Stock market declines happen. Recessions happen. Pandemics happen. Bad headlines happen.
This is known. (But stressful nonetheless.)
People who have saved 25+ years worth of expenses will be fine. Sorry.
People who haven’t saved will be more interested in financial security going forward.
For now, I think it is better to focus on:
- staying safe and healthy,
- helping our friends, families, and neighbors,
- spending time and our stimulus checks to help our communities
But that’s just me, I could be wrong. Feel free to let me know about it in 70 years or when the stock market is down 90%.
Stay safe!
ps: 2 cups of coffee was a bad idea lol
(*) A better acronym would be YARDWTFYW
FIRE is a terrible acronym
But YARDWTFYW doesn’t quite roll off the tongue #YouAreRichDoWhateverTheF#@kYouWant
— Go Curry Cracker! (@GoCurryCracker) November 8, 2019
Those headlines sell clicks and the responses don’t surprise me by now. Haters always gonna hate.
For the people that do want to protect themselves from pandemics and economic downturns, gocurrycracker.com’s the place to be for the “shortest” path to riches.
Thank you for everything you do.
Hi Allen
I’m happy to share what we do, and why, but just a point of clarity here… we definitely aren’t the shortest or best path to riches, nor are there any guarantees of protection from pandemics, economic downturns, or whatever is next. You can back test until yesterday but what you get is tomorrow.
Understood. I believe the shortest path often is the longer path if that make sense. That’s why I have it in quotes.
Ah, makes sense now, thanks!
Always excellent insight and posts
Jeremy ! If anything , you will be buying low on allot of equities and be even better in a few years.
Although I think we are in for a very rough 12-18 -24 months
Yeah things aren’t going to get back towards normal until there is a vaccine, according to Bill Gates.
The S&P chart tells the whole story. I would much rather be in the position of a somewhat depleted portfolio that will eventually recover than dependent on an employer for my cash flow.
The Twitter trollverse is mind-boggling. Maybe all of it comes from 3 or 4 pasty guys in their mom’s basements with Dorito breath, wearing stained Whitesnake t shirts, wallowing in the disappointment that has become their lives.
This is me Sunday mornings, but with a Ramones T-shirt
Thanks for boosting my confidence!
Maybe an early retirement just before the COVID-19 outbreak is really not a good time.
But I do hope we could all survive from the virus physically, mentally and financially. And keep pursuing our dreams without worries.
Retiring right before a downturn is never the best time, but looking at what happened before can at least offer some perspective.
NYTimes: ‘“lean FIRE” — generally defined as a net worth of between $500,000 and $1 million’.
That amount allows longer holidays in cheap locations – not FI and not RE – unless living in poverty until death.
In Aus, cheapish age hostel accommodation for a couple would require > $A1M plus $A40k / year (Age Pension). In the mean time an income of $A40k / year is required.
With no earnings, $A3M required. With 4% earnings, $A1M required. That before volatility considered.
Without debating the assumptions, the answer seems pretty clear… don’t do things that are outside your risk tolerance/comfort zone.
“don’t do things that are outside your risk tolerance/comfort zone”:
That and when on the edge of said zone, greater perspicacity and clarity of thought is required.
If you are being interviewed by the NYT, you’ve either done that job or the journalist hasn’t done theirs
Thank you so much for posting this I’m so tired of the hater headlines for the FIRE followers. Unfortunately logic and reason aren’t vetted before submitting your opinion online, need more facts and less opinion. And positivity helps too! I’m WFH right now and just feel Blessed.
I’m sitting on about 8.3 years of cash and bonds at my current spending rate. I’m not worried in the least. I’m worried for the health of my family and friends, the important things to worry about.
My bro has tested positive for COVID-19 so that is occupying most of my attention now.
The cash buffer is nice for ignoring everything else.
Thought I saw you mention this on Twitter a few days ago.
How is he doing so far?
Just got the test results that confirmed he has it. Says he feels fine… now at home for a couple weeks with 2/day virtual checkin with a Dr.
Glad to hear
Glad he’s feeling well, hopefully he just turns out asymptomatic.
The world stats on this do seem to be accurate when comparing to those I have been working with thus far. If you’re on the younger side of things, and in generally good health, there is a good chance for recovery even if hospitalized briefly.
There’s always exceptions, but here’s to hope.
I’m sorry your bro tested positive. Best wishes to him
Totally agree! We wrote a very similar post this week on this same topic. We are hoping COVID-19 is the financial wake up call so many people need. Here’s the link if you’re interested in reading our thoughts https://modernfimily.com/covid-19-the-wake-up-call-we-all-need/
Thanks for posting this. I’m FIREd and *not* sitting on years worth of cash/bonds (lesson learned), but I am turning 38 and being cut down to 20 years living expenses isn’t the end of the world. There will be earnings/dividends again, there will be social security, and there is a little pension. FIRE put me in a better spot than 98% of the people out there and that false narrative of “how will they get a job” is absurd.
The most disappointing part of all the naysayers are at least two of the personal finance writers are proving to be media whores and playing into this narrative to take shots at other people in the name of publicity.
Afternoon coffee is dangerous….stick to Whiskey
I should rephrase – we should be able to go 7 years without selling any stock. That includes dividends (assume 50% cut) and bond/savings interest. So 7 years of cash and cash flow.
That number was much smaller 1 year ago when we pulled some stock off the table.
Do you plan to make any changes?
Agree on the whiskey. Cheers.
I seriously don’t get all of these passive aggressive comments all over the place. It’s beyond me why people wish for others to fail.
Anyhow, even in the unlikely event that you have FIREd and “failed”, you are still in a very good financial situation. There is enough time to think of a solution and thankfully the FIRE community is a resourceful bunch.
Cheers and stay safe!
Some people didn’t get enough Mr. Rogers Neighborhood as children.
I think your last chart (S&P 500 historical prices) sum it all. The stock market is always going up, up, up so playing the long game should be fine for most people (assuming people don’t panic and sell everything as we go to the end of this crisis). If the market collapse by 90% (or more) then there will probably be other things more important than our finances that we should be worried about (like our safety maybe).
If this time is worse than the worst we have ever seen (in the US) then we will be totally screwed. But then again, so will everybody else.
I highly doubt that is the case.
Our local stock market (South Africa) is down 46% in USD ytd, and 64% over 5 years. That’s the problem more for us, that USD has gotten so strong it causes paper losses outside of the stock market. I remember earning $250k one year, just so my net worth could remain the same in USD for the year due to currency depreciation.
Luckily, we’ve been saving aggressively over the years into USD-based index funds, as our own local economy gets reduced to rubble. Still the drops have hurt, and you aren’t immune when your local currency drops another 35% ytd.
Ouch. Do you plan on remaining in South Africa?
I just looked it up, SA market cap is about 0.5% of global market cap. Do you primarily invest outside SA?
About 50/50. Although many of the top 40 counters have global exposure. The largest counter, Naspers, owns around 30% of Tencent. Richemont is a luxury global brand (Cartier etc), and then lots of global mining houses like Anglo American, BHP, etc. So the market has been non-South African focused for a while.
That being said, the Rand/currency is a problem. Our consolation is our expenses are mostly in Rands, but lots is imported (Oil, Electronics), those things hurt.
As long as we avoid Zimbabwe/German hyperinflation we’ll manage.
We experienced a similar spike in 2000 and 2008, where the currency blew out. If you raced to invest into USD at those high points (similar to now) you’ll end up crying as the currency quickly recovers. For now, I’ll bide my time, but at the right point we’ll start acquiring USD and then invest further into US equities. It’s volatile, but part of living in emerging markets.
As to your comment about remaining here. Until our lockdowns end, we aren’t able to leave the country, but eventually we might.
I never really liked the Retire Early part, why not:
Financially Independent Retirement Eligible
Although YARDWTFYW has a nice ring to it.
For years I was all about the early retirement part – but now that we have kid(s) and spend more time in one place, I do like being able to think about fun stuff for 4-8 hours per week while also making a small bit of change.
I could never go back to a normal work situation with commute though. So I guess I’m into the WTFYW part.
I’m a fan of FIRFFTW: Financially Independent, Retired From Full-Time Work
Yes! This is me for the past 10+ years. It’s freedom and flexibility:)
Yeah this has been my reaction as well. Who doesn’t wish they’d set aside more money right now? The fundamentals of a high savings rate, passive income, and diversified investments matter more than ever in a crisis.
“Now I am 115 years old.” LOL!
it is indeed a matter of perspective. In a few years this period will hopefully just feel like a blip.
However I must admit that watching the market plunge is not nice, even if we have a bit of cash ready (in our case, 2 years)…
I hope I can make it that far along…
Not looking is a good coping strategy – watching the net worth drop is never fun.
“People who have saved 25+ years worth of expenses will be fine. ”
This is my favorite line!!
I’m not FI yet, but much further along than most. It always amazes me that people who don’t even invest in their 401k suddenly know more than me about the potential for success in my future plans.
I know some of the passive aggressive comments are from people with way more than 25 years worth of expenses saved/invested – it’s a completely different level of conservatism.
A charity many years from now will benefit from that and in the mean time we can get a good laugh from the comments.
Will you be buying any stocks with the cash on hand?
That is my intention, yes… I was hoping for dividend yield to get up to 4% before doing that but the market has been trending upward.
I’m curious if you will start buying now or wait? I’m just kinda doing nothing but so hard to know. I am also sitting on about 5-7 years cash. Would hate to miss an opportunity but also don’t like buying when things going up so fast. I prefer to buy on down days
I had a plan if stocks dropped 25% I would buy with half of my bonds, and if they fell 50% I would buy with the other half.
So I’ve been buying – I sold some bonds to buy VTI and VXUS and also invested IRA contributions plus the cash I had in IRAs/HSA. If it goes down 50% I’ll buy more, but otherwise I’ll just be holding some cash.
Things are going to be crazy volatile for awhile – up/down/sideways… until there is a vaccine or (at minimum) a test and trace system to allow immune / uninfected people to return to work I’ll hold enough cash to fund the next couple of years.
Thanks Jeremy!
Can you recommend a good accountant based in NYC/Brooklyn?
Ive had a nightmare over the years trying to find a good, competent, and TRUSTWORTHY accountant who also understands these kind of FIRE strategies etc. Most accountants i’ve encountered don’t know how to do an i401K
Sorry Scott, I don’t know any accountants (I’ve never had one.) For just setting up a solo-401k, that is a simple process.
Or you could try posting on one of the bigger FIRE forums?
For expat specific taxes I’ve had some good Q&A with the team at Taxes for Expats dot com.
i keep cash around .. in place of bonds … been good in HI account for a while now . keep moving it around …. i have been waiting for this event . and bought and bought … in March … it was scary but i knew it was the right thing to do .. and now huge rises on my buys .. still have more cash if another bottom comes … if not .. so what .. thank goodness i have had years of investing .. . it would have been hard to do if i was new ..
Very nice. It is hard to overcome the fear and make those buys when it is falling.
I put some $ to work on VTI and VXUS but of course didn’t get the bottom (first bottom?) Alas I was only able to buy at 2018 prices
In the U.S. at least, many people should be waking up to the fact that they can’t rely on their government to keep them safe or their employer to show the same loyalty to them that they ask of them. They can only count on *themselves*.
And which groups of people already knew that? Those that have achieved Financial Independence or are working their way there. Those articles have it backwards.
For the truth, someone should write a click-baity “They’ve depended on that next paycheck to fund their lives of excess for years. And then this happened.”
Totally agree with your post. Our society is shifting to one where people expect the government to keep us financially sound. Not a good thing when the government is in trillions of dollars of debt already.
Love the part about what the real headlines should be.
“They’ve depended on that next paycheck to fund their lives of excess for years. And then this happened.”:
I suggest:
“They’ve depended on that next loan to fund their ‘lifestyles’ …”
“Never was so much owed by so many”.
This is a good one!
USA: ‘In 2019, 69% of respondents said they have less than $1,000 in a savings account compared with 58% in 2018.’
Aus: ‘A quarter of Australians have less than $1,000 in savings, and half have less than $10,000’
https://www.abc.net.au/news/2020-04-09/coronavirus-cash-crisis-savings-dry-up-support-weeks-away/12133294
In many instances, the young have not acquired immunity to the siren songs of marketeers and waste money on fluff.
I was shocked at the number of payday and pawn shops and at the portion of population without bank accounts in USA.
Explained by this map:
https://data.worldbank.org/indicator/FX.OWN.TOTL.ZS?view=map
and:
https://en.wikipedia.org/wiki/Unbanked
9 or 10 years ago I read the book The Poor and Their Money: Microfinance From a Twenty-First Century Consumer’s Perspective … it’s an interesting look at how the unbanked manage their finances
Nice post! The reason we are in this situation is because people, who you mentioned in this post, are in debt up to their eyeballs and don’t know how to save. If everyone had a 6 mos. emergency fund saved and no debt, we wouldn’t need a $2 Trillion stimulus package to save us … and it won’t save us. I think the debt situation is more of a threat than the virus situation. We will need to pay for it down the road. As such, I think this is just the start of something worse. Cash is king – I think we will see a buying opportunity of a lifetime in the not-so-distant future!
Totally agree with your emergency fund idea. Put an article up on my site a few days ago about having an emergency fund. It is really hard seeing how screwed everyone has made themselves.
I am wondering what your long time scenario is for your buy situation?
We are not going to look at the value of our investments. Since we’re not going to cash them in (we have 10 yr to “retirement) why stress out about seeing those numbers go down? My optimum goal right now would be for both of us to work part time, just have to get the healthcare thing down. I don’t trust the current US administration to continue the affordable healthcare act
With 10 years to retirement stock prices going down is actually helpful. Not looking is a good strategy.
You gotta look at your portfolio. Set a day and do it. Otherwise you will keep thinking about it. Just rip the band-aid off
Well said. I am concerned for others, but 4 years into my FIRE (at 46 years old), I am and will continue to be fine.
Insightful and interesting post. I think some of the more aggressive FIRE plans are being exposed – folks with much less in index funds who maybe have some highly leveraged real estate or who have been Heavily relying on AirBnB income? But I think those are such a small percentage of the folks out there! Most FIRE ppl have plans that are so well insulated and redundant that it’s almost comical but, it’s not exciting to write about those ppl. I don’t really follow the click-Baity FIRE bloggers and writers but as I understand it – this is very on brand for said folks anyway. This is their MO and how they make money off their blog? I ask in the form of a ? since I don’t quite understand all the nuances of blog income – not do I care much about it. Cheers!
We have only been traveling full time for a little over two years, so this market crash hit us pretty early. Since we live in hotel rooms and on cruise ships 365 days/year, the travel industry problems have affected us more than most people. We barely missed being stuck on affected ships and were in Spain when they shuttered Spain. Then we returned to the US rather than going to London as planned. The one advantage we have had at least is that hotel rooms are cheaper – as long as they don’t close all of the hotels. Our current hotel in South Florida received an order to close, but they were able to get permission to stay open because some guests were government workers. Yet another bullet dodged.
Personally I feel the times we are living in will be judged by history as one of the worst media-fueled panics in economic history.
That being said, the chart of the S&P is very telling to give the proper perspective to those in the FIRE camp, or steering towards it. The markets have come back before and they will again. Those that have enough resources to weather the downturn will reap the rewards on the other side of the equation. In our case we also have years of expenses sitting in cash and bonds, and the added backstop of two SS checks and the wife’s small pension coming in to buttress our investments. In a worst case scenario those three can cover our necessary expenses per year, allowing our investments to wait for the rebound.
I wish you and the family, and your yet to be born, a safe a happy Easter. The same to all your readers. God Bless.
What the haters refuse to acknowledge is that the FIRE movement makes us more prepared for moments like this. Now they are even more angry and jealous. If they have a platform from which to shoot arrows, they are still better off than they know.
I am more concerned about the people who were living on survival wages. I am more concerned about nurses and doctors reusing PPE. I am more concerned about the lack of testing. I am trying to direct my contributions to the places that can do the most good.
Be well, everyone.
Things are starting to get a bit better at the facility I am currently at. The latest projections show our PPE stocks lasting through the surge at our present rate of conservation. It would be nice to be able to go back to single use, but I think that will take some time.
looks like the social distancing / lock downs are working! So of course people will start complaining they weren’t necessary.
It’s like the tale of the Ant and the Grasshopper.
We’re in a lot better position to weather this downturn than the average family. We cook at home, don’t spend a ton on entertainment, and make money from several streams of income. Many families aren’t prepared at all.
Nice job with your 7-year stash. Can you explain this a bit more?
If this was a repeat of 1929, we have another 35 years or so before we run out of money.
If the stock market declines 90% from the top, that’s a huge amount. 35 years seems like a stretch.
It only seems like a stretch if you don’t look at the data (image in the post.)
The 7-year stash is a bunch of cash and bonds from a stock sale last March (2019.)
Love it when you talk that talk!
Great blog post, love the presentation of the data. I agree that a path towards FIRE only helps someone financially deal with these types of challenges.
Can you provide an update about your brother? How’s he now? If he’s feeling fine as you say, how did he suspect he needs to test for it?
I just read this survival story of Covid-19. It’s really scary not only from the health perspective (obviously), but how ‘prepared’ we are in the USA:
https://www.bloomberg.com/news/articles/2020-04-06/gasping-for-air-delusional-and-all-alone-one-survivor-s-story
My brother is a nurse and was treating COVID-19 patients until he got a fever.
Spot on, my friend.
So much jealousy among the naysayers in the past. Now they’re even more upset that there’s no gloating to be done now that the bear market they’ve been waiting for has arrived… the tide has gone out… and… we’re all appropriately dressed.
Cheers!
-PoF
Well… I’m still not wearing pants
Exactly, “Emergency funds are overrated”
No pants both literally and figuratively.
Enjoy your articles. Always thought provoking. For someone so proud of his ability to live off of investments, could you consider monetizing your blog in a different way? I’m almost to the point of not following anymore because of how obnoxious the ads are. Hard to tell if a graph in your article is an advertisement or part of your blog. Thanks
What do you recommend?
I won’t be attending FinCon
Me neither. Not sure if it will happen this year but one time was enough anyway.
FIRE will hold up, and as a career coach, I see pursuing FIRE as a critical hedge to the job market. That said, I think the FIRE plans that only rely on paper assets may need to be redone. Sure the market has recovered some of those gains, but it’s not just the current market valuations — there’s also inflation to worry about and future taxation given how much governments are spending to stimulate the economy. Still, if one has a diverse FIRE plan among paper, real estate, and business income, then the stock market fluctuations will always only be a portion of your revenues, and you have a lot of levers to play with.
We do have some real estate but in paper form (REITs.)
Blog income (business) is nice for the cash flow (during the good times only though.)
I dont understand those headlines.
Who’s better prepared to weather the storm than those who have already had financial success? What makes people think F.I.R.E. folks wont adapt and persevere if they need to?
I chalk it up to sour grapes.
Really love the new acronym, YARJDWTFYW. It’s very fitting in the face of these articles.
My wife and I aren’t there yet, but hope to be there soon.
Thank you for the great post!
I respect the FIRE movement and to think other people will attack this movement is alarming. I found out about the FIRE movement years ago and started to adopt my life to the principals found In the movement. I also started to study wealth. There is a solution for these FIRE movement challenges. I was listening to a world renowned millionaire who mentions focusing on assets in several areas so that when markets crash you still have income coming in. The market is great for compounding and wouldn’t you also like to see more cash coming in regardless of the market swings. FIRE movement is a good idea but to the addition of this also concentrating on business and real estate is also good so that cash flow comes in every month regardless of market activity.
Somewhat related to this is the updated “4% SWR Rule” from Wade Pfau. His newesst calculations claim that the new SWR is around 2.4%. So 2.4% is the new 4% after the pandemic:
https://www.thinkadvisor.com/2020/04/14/wade-pfau-virus-crisis-has-slashed-4-rule-nearly-in-half/
His article:
https://retirementresearcher.com/how-much-can-retirees-spend-on-march-11-2020-it-may-not-be-what-you-think/
Mr. Pfau has a penchant for peddling in disaster porn and promoting his high commission annuities and whole life insurance policies. Zero credibility at this point.