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The End of FIRE

One of my more popular blog posts here still getting regular Google search traffic is building a financial spreadsheet. I put it together to answer the question “how much can I safely spend any given month, and what should be my monthly savings target?”, cobbling together a bunch of formulas that crudely approximates what financial planners offer in financial planning services. I don’t have the fancy graphs, but at least the model is completely open to be tweaked and modified1.

At the time, I was interested in this movement popularly known as FIRE. The idea is that with sufficient savings and leveraging the right compounding returns in investments, practitioners can work their way to an early retirement before government-defined age limits when retirement benefits start kicking in2. By settling on a lifestyle that is within the bounds of investment returns, the theory is that someone—and presumably their families as well—can sustain themselves in perpetuity, living off of interest and dividends and rental income. Like the Nobel Prize endowment, a large enough base of wealth can cover for a lot of expenses, year after year.

The base formula is pretty simple: assuming you need $l per year to live, and your investments return r% per year, you’d need to have $l / r% = $i invested, providing sufficient returns to bootstrap this financial perpetual motion machine. In the US, these numbers turn out to be roughly:

  • $l = Tens of thousands per year of living expenses, excluding mortgages and rent.
  • r% = Using the stock market, anywhere from 4% to 8% in expected annual returns.
  • $i = Therefore, invested wealth somewhere in the millions of dollars.

It shouldn’t be a surprise, then, that those most attracted to FIRE were folks with the means to save this much money and a knack for personal finances. Many were for the most part wary of prolonged career arcs in their chosen fields of work, looking the leverage the primes of their career for saving as much money as possible and avoiding the twilight years of work altogether. These ended up being largely white-collar professionals, excited by the prospect of escaping the corporate rat race, looking to compress 40+ years of work in half—or less!—to reap the rewards of freedom via financial independence.

And then COVID-19 happened, and the movement was shaken up a bit.

To be fair, a lot of people started their careers and began investing during the greatest bull market run of all time, so had little experience or expectation of a bear market. And even though the US stock market has actually mostly recovered from COVID-driven lows back in March & April3, the volatility and uncertainty is unsettling. Some brave souls even shared their stories of failure and illusions of grandeur, recognizing that theoretical calculations and hypothetical lifestyle changes might indeed be further removed from reality than anticipated.

The real issue, though, is that FIRE advocates made projections on the rest of their lives assuming relative lifestyle stasis. Bill Gates’s famous quote captures this well:

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.

In this case, it’s underestimating the change that happens to the financial systems4, the state of the economy, and ourselves that cause predictions to veer into unexpected territory. Financial Samurai, one of the more prominent bloggers on financial advice for this specific cohort of FIRE enthusiasts, eventually realized that life in his 40s is actually different than what he thought when he was in his 30s, and had to give up his retirement altogether5 for the time being. It turns out that healthcare and kids and household expenses don’t stay constant in the long run.

That is not to say that the core tenets of the FIRE movement are completely invalidated. Compound interest is still a powerful mechanism for growing wealth, explicitly encouraged by the American tax code on long-term capital gains. Frugality still makes sense, and tabulating expenses towards a budget still helps create accountability on where your money goes. A financial model built from these assumptions still has predictive ability; perhaps it’s just that the model itself could use a refresh every couple of years or so.


  1. I also get regular emails asking for sharing permissions, so presumably people are looking to make their own copy of the spreadsheet and are running with it.

  2. In the United States, that is currently 66, inching up to 67 for most people working today.

  3. Decoupling itself from the real economy along the way.

  4. In particular, how the tax code evolves is hard to predict and a constant X-factor in any financial projection.

  5. In fact, he ended up going to a pretty dark place where he claimed most people who are in the FIRE movement won’t actually get there and are fooling themselves.

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