Thursday, May 14, 2020

Playing with FIRE

By now, most people have heard of the FIRE (Financial Independence Retire Early) movement. Those who embrace FIRE can be evangelical about it, and critics can be very harsh. To give people a better idea of what FIRE is, Scott Rieckens wrote the book Playing with FIRE: Financial Independence Retire Early, the story of his family’s journey to better align their spending with what they believe is important in life.

It’s easy to criticize FIRE if you see it as a bunch of young white males who have (or had) high-paying jobs and prefer to laze around all day. But FIRE looks very different to different people. Some seek complete financial independence and true retirement, while others just want enough cushion to quit the job they hate and do something they love that might pay less.

The common element in FIRE is striving for financial independence to make it possible to spend your time in a way that makes you happy. However, this requires deep examination of the way you spend your money. Most people don’t want to do this. It’s much more comforting to read an article about why FIRE is bad so we don’t have to examine our lazy and impulsive spending.

Instead of spending much time defending FIRE, Rieckens tries to inspire us by describing his journey with his wife, and giving snapshots of other people’s FIRE journeys. I have little doubt that just about anyone could benefit from better aligning their spending with their goals, even if their ultimate path doesn’t look like mainstream FIRE.

As the author explains, “FIRE isn’t about drinking cocktails on a beach for the rest of your life. It’s about spending your precious years on earth doing something other than sitting behind a desk, counting the minutes to 5 PM, wishing you were somewhere else.”

“The general path to FIRE is to save 50 to 70 percent of your income, invest those savings in low-fee stock index funds, and retire in roughly ten years.” This narrower vision of FIRE gets many people angry. It sounds impossible for any but a privileged few who have massive incomes.

The truth is that almost anyone could be wiser about their spending. Maybe 70% is a stretch, but 20% is certainly possible for most. But it’s far easier to declare such savings impossible than it is to make the changes necessary to spend on things that truly make you happy. It’s ironic that the FIRE approach to spending is most important for those with lower incomes, while FIRE critics use low income earners as the reason why FIRE is flawed.

“FIRE is significantly easier to accomplish if you’re making a higher-that-average salary.” This is certainly true if you try to stick to a fixed schedule, like reaching financial independence at age 40. “But FIRE principles can be applied at any income level. Whether you reach FIRE in five, ten, or thirty years, prioritizing happiness over material objects, and buying back your time are available to everyone.”

Rieckens points to the 4% rule as a guide to when you’ve achieved financial independence. Despite the criticism the 4% rule gets, it’s not too bad as a rule of thumb. The original 4% rule assumed you don’t pay any investment fees and you’d never cut spending if portfolio returns disappoint. If you have low portfolio costs and you’re somehat flexible on your spending, then spending 4% of a portfolio starting at age 50 isn’t too risky. A partial bailout will come around age 65 or so in the form of CPP and OAS for Canadians and Social Security for Americans.

However, very young retirees face other risks. One obvious risk is that the money has to last longer. Another is that it’s hard to have a good picture of your spending for the rest of your life if you’re well under 50. Riding a bicycle to a hardware store to cart things back is great for young people, but eventually becomes difficult at some age. Those who seek extremely early retirement might be better served with a 3% rule.

Rieckens recommends investing in Vanguard index mutual funds, an excellent choice for Americans. Unfortunately, these U.S. mutual funds aren't available to Canadians. But Vanguard (U.S.) and Vanguard Canada have exchange-traded funds (ETFs) Canadians can buy.  Vanguard Canada has a few mutual funds available to Canadians, but with MERs from 0.5% to 0.6%, they're more expensive than Vanguard U.S. mutual funds.

Paula Pant, who is well known in the FIRE community, had some interesting advice. “‘What helps me when I get anxious or scared,’ Paula said, ‘is knowing that I’m not in control of anything. When I truly accept that I have no control, I feel better.’” It’s better to anticipate a range of possible outcomes than to try to guess what will happen or control events to get a particular outcome.

To achieve FIRE, “You don’t have to do anything you don’t want to do! You merely have to align what you want with how you spend.” This alignment takes more work than it might appear. Many people would rather mock FIRE than help themselves.


  1. I finally got around to watching the documentary after listening to Scott on the Rational Reminder podcast. I thought the movie was very good, and my wife enjoyed it as well.

    My beef with FIRE is more about the bloggers who sell the dream that anyone can do this, meanwhile extraordinary circumstances put them in position to retire early and they have the cushion of their blog income to fall back on.

    I'm more interested in hearing about 'real' people striving for FIRE. I asked Rob Carrick, who attended the Camp Mustache event in Ontario last year, about the attendees and he said:

    "A super-interesting group at Camp Mustache -- really smart, capable people. The critics need to get over the idea that these people want to retire, full stop. They really just want to take back financial control of their lives."

    1. Hi Robb,

      FIRE bloggers (and other bloggers as well) are sometimes guilty of selling a dream when their real goal is to increase blog income.

      If we define FIRE broadly, then anyone can do it -- in the sense that anyone can examine their spending carefully and cut back to some degree. Defined narrowly, not everyone can retire in 10 years, no matter what some blogger says.

      But for every blogger over-selling the dream, there seem to be several columnists eager to write off the whole movement. I suspect it's a case of telling readers what they want to hear. People don't want to hear that they spend their money foolishly, so they're happy to read that FIRE is only for privileged high-income weirdos.

      As you say, it's good to hear about some real people trying FIRE. What we need are honest accounts about the journey. I've certainly read blogs where the blogger isn't giving an honest account of their FIRE experience.

  2. Just want to point out Vanguard does offer mutual funds in Canada at 50 bp. I'm a big fan of VIC400 - International developed and EM mixed.

    1. Anonymous: That's true. I updated the post to make it clear that it's only the Vanguard U.S. mutual funds that aren't available to Canadians.