I hope you’re reading this from a safely holed-up location, well away from humans outside your household, and that you’re healthy and well-stocked to stay home. The coronavirus pandemic is a scary thing, one that is pushing a lot of people to the brink of financial crisis in what feels like the blink of an eye, as jobs and income evaporate overnight. We’ve had to cancel several trips and quit skiing, but we’re healthy and well-insulated against the financial side of this crisis, so feel about as lucky as we could possibly be right now. We wish more people had access to this level of financial security so we could all focus on one crisis at a time, not two simultaneously.
For years while writing this blog, I’ve often felt like a wet blanket, advising readers to save more than they think they need to, or to build in more contingencies and back-up plans before leaving employment. In virtually every instance when someone has asked me to look at their financial plan for early retirement, I’ve given the same four bits of advice:
- Assume a higher rate of inflation
- Assume lower real (inflation-adjusted) market returns
- Assume higher costs for health care
- Assume you’ll get less in your Social Security check
My advice has virtually always implied that people should keep working longer, which is not fun advice to give. When times are good, it’s hard to preach a more financially conservative approach.
Of course, now things are changing, and quickly. Markets tanking have that effect on people. Media outlets are calling every day to ask if it’s the end of the FIRE movement. People are talking more about how important it is to have a multi-year cash cushion. Suddenly the “leaner” approaches to FIRE don’t feel so practical.
For anyone who’s been paying attention, the biggest lesson that 2008 taught us is that relying on your job for financial security is dangerous. Many of us who’ve pursued or achieved early retirement were spurred directly by the Great Recession, and the realization that there truly is no safety net anymore. The idea that this recession, with the massive job losses we’re already seeing and the many more to come, will make anyone want to be more reliant on work is simply foolish. Yes, a work-optional life will be harder to achieve for a while. Your journey may have just lengthened considerably. But this financial crisis will not be the end of the FIRE movement.
What I do hope is that this crisis spurs the movement to be better: to get rid of the bad ideas we’ve allowed to propagate and the voices who’ve been in it for the wrong reasons. I wrote about my hopes for the future of the movement yesterday for MarketWatch, and you can read the whole thing here.
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.
Because of the pandemic and the global travel restrictions resulting from it, the 2020 Ecuador Chautauquas are canceled. We’re hopeful to bring them back in 2021, and I’ll share more info here when I have it. I’m sad to miss hanging out with a bunch of you, and to miss going back to the beautiful and welcoming country, but it’s obviously the right thing to do. It’s so critical that we all stay home right now and avoid traveling for several months at a minimum in order to protect the public health. #StayTheFHome
The Future of FIRE and the True Meaning of Financial Independence
Mark has been saying for days that I should write a post called “I told you so.” And while I haven’t titled this post that because I’m not interested in gloating, I do hope that this moment is an inflection point for the community to recognize that not all ideas are equally good, even if the fundamental principles of achieving a work-optional life remain sound. There’s been a lot of advice floating around for years that ultimately encourages people to cut corners and undersave, and this is our moment to reject those ideas once and for all. Because as hard as it might be to imagine right now, times will be good again one day. And when they are, too many people will forget all the hard lessons we learned during the pandemic and recession.
A few especially relevant posts you might find helpful:
- Our Biggest Lesson from the Financial Crisis // Don’t Bank on Going Back to Work
- Protect Your Early Retirement From Sequence of Returns Risk
- The Case for Conservative Early Retirement Investment Projections
- The 4% Rule Is Not Your Friend
- You Might Be Underbudgeting for Early Retirement
- Consider a Side Hustle Year to Begin Early Retirement
- The Fundamental Problem with the 4% Rule for Early Retirement Isn’t the 4% Rule
- Rethinking Work in Early Retirement // Contingencies, Sequence Risk and Fail Safes
- Building Climate Change Into Your Early Retirement Plans
- When the Crash Comes // Recession-Proofing Our Retirement Plans
- Minimizing Early Withdrawals in Early Retirement // Hang On to As Much As You Can for Later
I’ve long worried about people retiring with any number of high-risk elements to their plan: less than a million dollars saved, no contingencies or backup plans, a rock-bottom budget that has no wiggle room to cut spending when conditions get tough (like right now), retiring before they actually hit their goal number, using a “safe” withdrawal rate of 4% or more, assuming historical average or better returns in projections, not maintaining two to three years of expenses in cash savings, no budget for real health insurance (as opposed to health care sharing ministry “coverage,” which is not real health insurance), and on and on.
I feel for everyone who’s now in a tough spot after being led down the primrose path by someone spouting overly risky or just straight-up bad advice. I truly hope that most of the people reading this still have time to course correct your plan before making any irreversible decisions.
The reporters who’ve called recently have all been surprised to find me feeling pretty calm about the markets’ wild ride (though far less calm about the pandemic, given my immunocompromised status). Most of my friends in the early retirement community are similarly calm. But that calm is borne of having built extra cautious financial plans that anticipate events such as this one, including holding a large cash cushion (3+ years of expenses, in our case). Of spending years overthinking every aspect of our plan. Of learning every aspect of sequence of returns risk (no sequence risk if you don’t sell shares, so all the more reason to keep padding in your budget). The people I know with the riskier plans have been mostly silent online. I hope they’re okay. But I also hope this crisis really drives home the most important lesson, and one we undervalue far too often:
Peace of mind is worth a lot. If saving a bit more gives you that peace of mind, it’s absolutely worth it, even if it takes longer to get there.
Millions of people in the U.S. and perhaps billions of people around the world are currently panicked, worrying about how secure their paycheck is and how they’ll keep a roof over their head. Not worrying about that, and being able to focus entirely on our health and the health of our friends and family, is maybe the biggest privilege I’ve ever experienced, and that’s what FIRE should truly be all about. We often talk a big game about how financial independence frees you from worrying about money, but that means we need to listen closely right now. If you’re panicked about money, first, I am sending you a big virtual (non-contact, socially distanced) hug. (Check out this post to help.) But second, listen to that feeling, because it is there with tough love but a crucial lesson: if you’re panicked, it means you’re not really financially independent yet, because you haven’t yet secured your peace of mind.
Financial independence is not just a number, because numbers are always in flux. It’s a state of mind you can’t achieve by cutting corners.
There’s Good News Here, Too
The good news, especially for those still working, is that you absolutely can achieve it. Use this opportunity, especially if you have more free time at home, to look at your plans more closely. Find and root out any overly optimistic assumptions. Make sure you have realistic backup plans that don’t rely on going back to work when stocks tank or selling your home when prices are in freefall. Make a backup backup plan. If you own my book, go back through all the checklists and make sure your plan is totally solid. Know what you’d do if stocks dropped more than 30 percent right after you retired (which is not far-fetched – it’s happening to people in the community right now).
This recession won’t kill the FIRE movement — and your specific plan — unless we refuse to adapt and learn its lessons. But if we face it directly and listen to what it has to teach us, it will make us stronger and better for it.
Call to Action for All of Us
Already, the recession is showing us how interconnected and interdependent we all are. When one part of the economy – which is people, of course – suffers, that suffering spreads to the rest of us. The idea that we can let people die without harming the economy is foolish, and of course people are far more important than how much shares are worth right now.
The need out there is already massive, and there’s tons you can do to help, whether you’re financially independent or not. If you already have a donor advised fund (DAF), this is a good time to consider using more of it than you might otherwise use all at once. We’re drawing ours down big time this year because there are so many people who need help.
Here are some things you can do to help, regardless of what resources you have available:
- Donate as much as you can to charity, especially to causes focused on hunger, poverty and homelessness
- Look around your home to see if you have any N95 masks, and donate them to your local health care workers
- Buy gift cards online from local small businesses to help them stay afloat while closed
- Offer to place Instacart orders for less tech savvy neighbors who can’t shop themselves
- Offer to shop for friends and neighbors who can’t go out because they are especially vulnerable
- If you don’t have small children, offer virtual babysitting or teaching via Skype to friends trying to work with young kids at home
- Create an email list or Facebook group of neighbors so people can speak up if they need something or have extras to share
- Counter misinformation on Facebook especially (a known hotbed for misinformation, and especially a problem in the info Boomers see, according to research) by sharing factual info from reputable sources
- Share resumes and work samples with your network for friends and family who are already out of work
Life Is the Most Important Thing
As tough as times like these are, they’re a reminder of what’s truly most important. We saved more so that we could enjoy an early retirement full of travel and time with far-flung family and friends, so that we wouldn’t have to shelter in place. And yet here we are, sheltering in place. We could feel bummed about that, or we can choose to focus on how fortunate we are to be healthy so far and to be together. We’re using this moment, scary and frustrating as it is, to be grateful, and to reach out to those far-flung family and friends virtually, a few every day. Just sending out little well wishes and checking in. Keeping those human connections alive. Because life, love and friendships are so much more important than money. Even if you’re feeling powerless financially right now, you still have power to reach out to others and to be a spark of joy for them in a dark time. Let’s create as many of those sparks as we can, igniting an entirely different kind of fire.
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Excellent post. I have felt so fortunate to have simply stuck with a 60/25/15 asset allocation, low “life expenses”, and being debt-free. Is this painful? sure…but I also remember many other crises in the past that we survived.
Grandma’s advice “save for a rainy day” is as pertinent now as it was 50 plus years ago….
It’s certainly strange days isn’t it?
I was thinking just this morning about how this crises has made my family much more mindful of what we have, of what we need and of what is important to us.
Even simple things like shopping has become a much more conscious choice, reducing the number of trips, planning meals. Buying less pointless rubbish and being generally more thoughtful about it.
I wonder if we’ll keep these habits when we move through this? I hope so.
Thank you so much for continuing to be the voice of reason, especially now.
I have had a good emergency fund (4 months) for a while. But, now realize it needs to be more. Luckily, I still have a good job. I work in health care, but am.”nonessential” . So, I am worried about being layed off eventually.
My biggest issue now is that I own a home I need to sell.
Take care 💕
For me, FIRE continues to be a journey where practices implemented over the last few years have shored us up for this time. So grateful. Having started a new business recently, I am impacted but have the mindset that this is a time for growth, adaptation and innovation. I always go to, in 10 years from now, how will I look back on this time?
I retired at the end of February, right when the market started to tank. I’ve been an avid reader of your blog, mainly because I’m also a belt-and-suspenders overly prepared type. Your blog helped me be better prepared. This is truly a time to reflect with gratitude on what we have, and help others. I’ve been making donations to a local food bank, bought some art from a local artist, and also want to find a local animal shelter to support a bit… there will be an influx of furry pets into local shelters.
Thank you for so deeply exploring all the nooks and crannies of financial preparedness over the years, I’ve missed your in depth writing on your blog recently. The blog format really suits your style. Stay healthy.
Great post. I have struggled with what to say during these times because nobody wants to hear what they did wrong with their FIRE plan. I think you pulled it off. I’ve been FIRE’d for 10 years now and still calm during this pandemic market meltdown because of keeping 3+years cash as part of my recession hardened retirement plan. The market plunge still hurts but it’s no end to my FIRE. Stay safe!!
The coronavirus pandemic will shake out a lot of folks in the FIRE movement whose plans were based more on simple, bare minimum rules of thumb rather than sound fundamentals and robust planning. Even though we’ve maintained a moderately aggressive 80/20 allocation (plus healthy emergency cash reserves), our plan was designed to withstand market calamities and, in a worst-case, we can survive for several years (on our cash and bonds) without having to sell stocks at inopportune times. We are relieved we were conservative with our FIRE plan. Also, touching on another of your frequent themes, we are fortunate that my wife has kept her relatively low-stress job (even though our plan did not call for it) since she has not yet defined what she wants to retire to (whereas I have creative passions I want to focus on).
As someone who has been laughed, at or gently ridiculed, for being super cautious in all of the financial planning areas that you mentioned (and more), I appreciate the sober-minded caution and depth of preparation you put into your own financial plan and into your blog. I’ve often felt that a portion of thinking in the FI world is overly casual, and way too optimistic in its key assumptions. If you have to err, be over, rather than under prepared. As I heard on Choose FI recently, “Preparation, not Fear.” Thank you again for being a voice of caution and substance when it comes to the key assumptions of one’s financial plan! Be well!
Actually, after this…FIRE now more than ever.
Another great post, thanks; helpful reiteration of some of your good advice and nice humility throughout. Also a couple of tips (e.g. buying gift cards from local businesses) I hadn’t though of. I wish you good luck through this hiatus
Thank you for your voice. Your reminder that the Vicki Robin style OG FIRE (before the trendy acronym) was always about being less reliant on a job (choosing life over trading more of it away for money, if you will). This will become more appealing after our sobering crisis. I’m not anywhere near FI, but the investment I have made in understanding my “enough,” developing my ease and engagement in life outside of the consumer culture, and developing a clear and balanced financial plan are making this easier to endure.
Thanks for the post. It’s your blog, plus a few others, which convinced my wife and me to work until at least 55. It just removes so many risks and we find our mindset change has made our work more fun in the meantime.
Liked the marketwatch post as well. I found the comment section there annoying but you’re probably thick skinned to easily handle that stuff.
Thank you for your perspective regarding conservative planning! My gameplan was to retire this June. Your thoughts, combined with Early Retirement Now’s conservative numbers, convinced me to shoot for a 3% withdrawal ate, along with conservative asset mix heading into early retirement. As a result, I am in a very strong position right now, compared to if I had been 100%. I will not be retiring in June as I had hoped, but I am feeling very grateful, and the extra time I need to work will be greatly reduced, due to your advice. Keep up the great work!
Great post Tanja! The advice in your book and blog helped to convince me that I was ready to retire. I retired a year ago with 0 debt and have kept 5 years of expenses in cash. I thought maybe that was too conservative when everything was zooming up, but now I’m happy I made that call. Is everyone just staying the course with their allocations? I had about a 50/50 allocation not counting the cash reserves and of course now it’s a little heavier on bonds. I haven’t moved my 2019 money into my IRA yet and am thinking of just putting it in cash for now.
Great post, Tanya, and love all the comments here. I did just want to note, in response to the comment from Kathryn, just in case it’s helpful: You can’t contribute to an IRA if you don’t have earned income, or what the IRS calls “taxable compensation.”
Great post. Your financial concepts (save more than you think you need) are very wise. I “retired” in my early 50’s with three safety nets: 1. Regular monthly income (well-funded pension). 2. High balances in diversified investments (can provide full support at 3% withdrawal rate). 3. 1099 side hustle that can be ramped up in times of emergency (considered essential service for govt, especially in times of crisis). Any one of these items can support my family’s budget, so it would take all 3 to collapse to cause a financial crisis. I also maintain 3 years of expenses in liquid cash equivalents. I once shared this plan (anonymously) on a FIRE blog and took quite the lambasting for *over saving* and not retiring earlier. At this point, our only financial stress is trying to decide who else to help – there is so much need out there. I am hopeful that people will learn from this crisis, though this didn’t seem to be the case after the 2007 – 08 financial crisis (memories are too short, especially in an extended bull market).
Can you consider editing your list of things you can do to include donating blood? There is a huge need right now, and it basically guarantees you are saving another human being.
Your comment reminded me to make appointments for blood donation for my family. Thank you!
The FIRE movement has not lost its substance but I caution certain aspects of the FIRE movement. I follow this movement very heavily and would suggest as I am currently doing investing only portions of your wealth in the market while also leaning more on building assets that are cash flow income producing. FIRE movement leaders are have accomplished much and I’m sure they would support anything that is proven to protect against uncertainty in financial markets.
Great piece. “Buy gift cards online from local small businesses to help them stay afloat while closed.” Love this!
It’s a testing time for early retirees…especially the ones like us who retired just a few months ago! :-/
But the again, it’s all a matter of perspective, and you said that correctly.
A few weeks of isolation will feel like a blip in a few months. Although I’ll be way happier when it’s over, I feel the lockdown has actually thought us lots of few interesting things!
A shout-out from Canada!
For me, the biggest take-away is: there is no substitute for sound financial planning that fits your own, particular situation (including planning for health care -even in Canada! – and other contingencies). For me, this was the toughest part of the FI journey, and the step that I spent the most time on. I don’t think there’s anything wrong with paying for a certified, fee-for-service financial advisor to help run the numbers and create back-up plans/contingencies, review insurance needs, determine a safe withdrawal rate, etc. I didn’t go the advisor route because I found the research and planning work really interesting but not everybody does. (It also ‘helped’ that my parents appointed me as their financial executor. I still don’t know whether to thank them for that, or not.) ;)
There are no short-cuts to ‘knowing thyself’ financially, or otherwise.
Also, there is nothing that says we have to stop saving and investing after FI (if we can).
So I think your blog tends to attract people like yourself, as blogs commonly do. I think you have a risk-averse personality who worries a fair amount. Not judging, just observing. When bad things happen, like the coronavirus this is your chance to say I told you so. I have a slightly more risk taking personality. I also tend to be more disagreeable than the average person, I kind of disagree that you need a million dollars before you could start your own business or become a freelancer. Which is basically the sound advice everyone should get. Early retirement should never be seen as an opportunity to stop working because for most people having nothing to do feels meaningless after awhile. I think risk taking should obviously be done from a position of strength and being overly optimistic can certainly lead to disaster. I think you’re projecting your own personality to how everyone should behave, But as it’s your own blog, you’re obviously free to do whatever you want. There just seems like there’s a limited scope of content here. I find it uninspiring and it feels like you commonly talk about things out of people’s control. While these are important and people should hedge against risks,
Upon second reading you do definitely mention things that people can do to make their lives better, and I don’t want to criticize too harshly. I just feel that when you say that anyone without a million dollars saved in early retirement is being too risky. I take issue with your use of risky. It’s a subjective word, people have different levels of comfort of risk. I feel like your post is the too common standard financial news website post where you scare people into thinking they won’t have enough to retire.
The ending of the post is much more uplifting and positive.
Exactly my though this morning as well, the is pandemic has really open my eyes to a lot of things, i hope and pray we get over this soon.
I found the crisis to be an opportunity to accelerate FIRE rather than a threat. Wrote about it here. https://www.jasonheitmann.com/post/fire-through-crisis-5-steps-to-financial-freedom-through-a-recession
Anyone is welcome to read and challenge anything in the article. Always looking to learn from the FIRE community.
I always like to read through a person’s position and understand what they’re talking about. Now I’ll share my thoughts.
Number one: FIRE is not new. It’s just lipstick on a pig. The concept has been around forever. Somebody came up with the acronym some years back but that’s all it is. Marketing.
Number two: You have no credibility. You posted one blog post on your website. I get you’re trying to get your name out there and that’s fine. However, you allude to a foolproof “system” that will make you rich quick. There are a lot of snake oil salesmen out there and your slant smells of that. If you showed that you’ve already successfully achieved it and documented it, it would be a completely different story. But, you haven’t.
Number three: Leverage. You advocate pulling any credit facilities to the maximum. Personally, I don’t advocate leverage even in a positively trending market as there is always risk you can’t mitigate and you can lose your shirt utterly but it remains lower, in general. In a down market, leverage will eviscerate you. The likelihood of a margin call or inability to make your debt payments on time is extremely high. If you don’t believe me, just wait. Within 6-12 months or less, watch how the real estate market, both residential and commercial, reacts. I predict values will drop heavily something like in 2008-9. Why? Real estate is a leverage play for the most part.
No, you haven’t made a compelling case. Better luck next time.
For myself, After working 20 years and saving/investing on a humble salary, I built and grew an index ETF investment portfolio in the 7 figures through balance and diversification. Even in this down market, as of today, my portfolio is only down 4.37% YTD. I know of what I speak because I’ve done it. Don’t believe me? It doesn’t matter. Go ahead and do what you want to do instead. I wish you luck because you’re gonna need it.
Hey Dave – thanks for your comments. It’s great to hear other viewpoints, which is what I asked for. That said, I am also reaching my 20th year working, have always maintained maximum contributions to my 401k, with target date funds, and in fact was able to get by so far with no loss, rather slight gains as of this point (early May). Couldn’t be happier there, but it is not my highest yield investment. I have been doing peer-to-peer lending for over 10 years yielding a solid 9% or better every year. Have had real estate investments since 2007, yielding roughly 15% annually (cash-on-cash)… I have not done the BRRRR method yet. So you’re right, I have no credibility regarding BRRRR, but thousands of others out there do so I figured it was worth mentioning. Options trading is my best yielding investment by far, and as you may guess it is the one I have the fewest years experience with. The bot, which is the most interesting part has been an incredible tool to keep the plays within the risk tolerance I’m willing to accept. Everyone loses a lot when the market crashes. Options are an opportunity for strong yields regardless of the down market and low-priced shares, especially knowing the market will recover eventually. But as I said in the beginning of the post, of course it may not work for you. And that’s OK! Stay safe and well!
As long as we believe, nothing is impossible.. I’m very sure we gonna smile at the end
I’m very sure we gonna smile at the end..
Let just keep and stay safe