We’re not even officially in recession yet, and already the prognostications have begun that we’re shortly going to see the end of the FIRE movement.
Not only is this prediction premature, and in many cases mean-spirited, it also shows a deep misunderstanding of what the FIRE (financial independence, retire early) movement is and isn’t. There will surely be some overly optimistic early retirees who are harmed by markets tanking, but a few individuals using questionable math does not equal the end of a movement based on sound principles.
Fundamentally, those pursuing FIRE seek one thing: to end their reliance on a job. While plenty of people get hung up on whether people who are early retired still earn any kind of income, that’s missing the point. The goal is to not need money from work, not to never do a single thing again that happens to earn a person money. I titled my book “Work Optional” because it elucidates this point more clearly: it’s about making work something you can choose to do, not something you must do. The idea that a recession with massive layoffs and furloughs, many of which we’re already seeing, will make people want to be more reliant on their job is simply foolish.
If anything, we should expect to see more people interested in securing their financial security permanently, most especially workers who are too young to have been scarred by the Great Recession in 2008-2009, an event that certainly pushed a great many of us who’ve already retired or who are pursuing FIRE to take their financial future into their own hands.
This recession won’t end the FIRE movement, but it will force it to change. And that change will almost certainly be for the better.
Just as this recession is in-part a long-overdue correction for an overvalued stock market, it’s also a moment of correction for the overheated FIRE movement.
The FIRE movement at the start of the recession
Like any large community, the FIRE movement encompasses a diverse range of opinions. And like any group of investors, some are more bullish and comfortable with risk while others are more cautious and risk-averse. Some of the loudest voices have also been the most comfortable with risk, which makes it easy for casual observers to assume that we’re all winging it, and are now in serious trouble as the market declines near 40%. Fortunately, those voices don’t represent the mainstream of the movement, most of whom are well-equipped to ride out a recession.
The vast majority of the FIRE movement’s members are cautious and calculating when it comes to risk. You will not find a group of people better versed in sequence of returns risk. We are atypical among investors in that we focus far more on downside risk than upside potential. The majority of us who are already retired have multiple years’ worth of expenses in cash savings, we know how to cut our spending when we need to, and our bond allocations give us some additional cushion against having to sell stock shares anytime soon.
This recession will absolutely change the trajectory for members of the movement, pushing back the retirement date for many, slowing down the progress for others and, unfortunately, harming some early retirees, most especially those who retired recently and those who undersaved and now find themselves in trouble. These will be tough lessons to learn, but they will ultimately strengthen our message, not destroy it.
The future of the FIRE movement
Everyone is a brilliant investor in a bull market, and so the last decade has allowed quite a few authors, bloggers, and podcasters to gain footholds as respected voices in the FIRE movement, whether or not their ideas were actually sound. The one positive effect of the recession will be to illuminate who has been giving out good advice, and who was just in it to cash in on a trend.
The fundamental principle of FIRE is still true: If you spend less than you earn and invest the difference, eventually you will have saved enough that you can live off your investments forever. What was never true, and what is much more obviously untrue now, is that you can rush that process and cut corners, and still end up with an entirely secure plan.
This is the moment for the community to vocally disavow the great many bad ideas we’ve allowed to flourish that are ultimately about cutting corners or simply turning a blind eye to risks both known and unknown. Ideas like:
• Treating the 4% “rule” of safe withdrawals as gospel, rather than recognizing that a withdrawal rate of 3-3.5% or even lower is far safer over the long-term
• Encouraging people to leave employment before they’ve reached their goal amount, because “things will work out”
• Promoting using traditional retirement funds for early retirement, with little regard for one’s future self and the decline of Social Security and Medicare
• Encouraging stock allocations of 90-100% for anyone except those more than 10 years from early retirement
• Repeating the foolish idea that you can always “just go back to work,” as though jobs will be in ample supply when markets are tanking
• Downplaying the importance of substantial cash savings, both while working and in early retirement
• Promoting corner-cutting approaches like the so-called “LeanFIRE” and “BaristaFIRE” that encourage undersaving and potentially even taking hourly jobs away from workers who need them far more (or that may not exist at all at times, as we’re currently seeing with the COVID-19 pandemic, eliminating BaristaFIRErs’ intended source of health insurance).
• Understating the risks of taking on more debt to buy rental properties, a popular semi-passive income source for early retirees
• Allowing people who have not actually achieved financial independence to become spokespeople for the movement, promoting bad ideas they have no personal stake in
• Talking about FIRE selfishly, as something that allows us to separate ourselves from the rest of society, rather than recognizing that we’re all interconnected and interdependent
Just as this recession is in-part a long-overdue correction for an overvalued stock market, it’s also a moment of correction for the overheated FIRE movement. But if we can hit reset, focus on the fundamentals, and ditch the corner-cutting ideas, the FIRE movement will continue to grow long into the future.
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