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Great Citizen / Super Citoyen

FIRE (Financial Independence, Retire Early)

Anyone else out there on the FIRE train? If so, let's trade tips, stories, and challenges!

 

What brought me to Public Mobile is the ability to pay $0 for mobile service (I just joined this month, and I'm well on my way). I'm posting about FIRE here because I figured other frugal people may be drawn to Public Mobile as well, so there might be a  decent chance of finding fellow FIRE adherents here. (Any fellow Mustachians?)

 

For those who haven't heard of FIRE, you can post questions here too.

 

I'll attempt to describe FIRE in a paragraph. Basically, it's about working toward financial independence (FI)—the point when you have saved enough money to stop working for the rest of your life (approx 25 times your annual expenses, if invested, should last forever). It's also about retiring early (RE) as an option, rather than waiting until you're 65, the age you're supposed to retire. Most in the FIRE movement consider the definition of "retirment" as quitting the 9–5 job that you're working at for the money. Instead of working the 9–5, people who have reached FI often shift focus to their passions, and they don't have to worry if they don't end up making money off of it. But if they do—great!

 

Personally, I'm 34 years old and I'll be retiring in one year. I'm looking forward to spending lots of time with family, learning languages, travelling, and dedicating plenty of time to creative pursuits.

Great Neighbour / Super Voisin

Re: FIRE (Financial Independence, Retire Early)

I love this idea! Do you have any tips when it comes to saving for your retirement ?

Great Citizen / Super Citoyen

Re: FIRE (Financial Independence, Retire Early)

Thanks for your response! Yeah! I've been living it for the past couple years, so I have lots of tips haha. What in particular are you interested in? Maybe I'll give a few broad, overarching tips, and you can let me know if you'd like me to get into the details of anything.

 

  1. Focus on happiness. FIRE is more about mindset than anything else. If you adopt a mindset that focuses on happiness itself—long-term, lasting happiness—FIRE just happens natually. Unnecessary things, luxury, and convenience will lose their appeal, while spending time nurturing relationships, working on hobbies you're passionate about, and fighting for causes you believe in will take the front seat.
  2. Reduce spending. The average middle class Canadian probably spends 10x more than they need to, and they're probably sacrificing a lot of freedom and happiness to keep up that unnecessary spending. If you're not saving at least half of your take-home pay, consider yourself living beyond your means and make some adjustments. If you can challenge yourself to save 75% of your take-home pay, your working career will only be 7 years long.
  3. Invest your savings. Your dollars are like workers, and each dollar sitting in a savings account is like a worker lying around doing nothing. Get your money to work for you by investing. When you have a dollar invested in shares of a company, you have thousands of people working to grow that dollar. You can expect a simple portfolio of low-cost stocks/bonds to double every 15 years or so, while every dollar sitting in a savings account will forever be losing value as it can't even keep up with inflation.
  4. Be confident. You don't need millions of dollars to retire happy. If you have 25x your annual expenses, you can safely stop working. Who knows what the future holds. You might get rich by accident while working on your passions, or stumble across a part-time job that you love and would've done for free. You might lose half of your money somehow, but that's okay because you're a skilled person who will be able to find work if needed. So retire when you can—there's no need to keep working one more year in perpetuity.

Anyways, those are the 4 overarching tips that came to mind. Feel free to let me know if you have any questions about any of them, and I can get into some details Smiley Very Happy

Good Citizen / Bon Citoyen

Re: FIRE (Financial Independence, Retire Early)

It is very wise of you to have planned so well, that you can retire so young - greta for you!!

 

I think the "approx 25 times your annual expenses" is way too conservative.  Because if it is based on the current 'working life's annual expenses' - although it is always best to have more $$ saved - it can lower the confidence of some who may want to try FIRE.

Here is the reason: The current 'working life's annual expenses', are much higher than when one is no longer working - such as driving back & forth to & from work, work related outfits, luch/meals, etc, etc.

Note: I am NOT knocking the FIRE idea at all - I am simply trying to note that it may be easier than one feared...

Great Citizen / Super Citoyen

Re: FIRE (Financial Independence, Retire Early)

Thanks for your comment, @JuniorJunior!

 

I completely agree that the '25 times annual expenses" rule of thumb is conservative—it's just a rough guideline. It's overly safe because it's based on how much you would need for the money to last the rest of your life without ever contributing to it again, and it'll work even in most worst case scenarios. FIRE will look different for everyone, and most people will continue to make money or work in some form post-FI, so they definitely don't need 25 times their expenses. And like you said, many people will have lower expenses once they've left the 9-to-5, so 25x is an overestimate.

 

That being said, saving 25 times your annual expenses in 10 years is a goal that's definitely within reach of middle class Canadians. If you start in your 20s, you can retire in your 30s with 25 times your annual expenses. It doesn't hurt to be conservative for peace of mind and so you have a safety margin in case of a black swan event.

 

What matters is your savings rate: the percentage of your take-home pay that you're saving/investing. To amass 25 times your living expense in 10 years, the math works out to a required savings rate of 66%. So as long as you  save/invest 66% of your income and live off of the remaining 34%, your working career is only 10 years long.

 

Once you shift your mindset and understand that every dollar spent on something that doesn't permanently increase your happiness is a wasted dollar, saving 66% becomes too easy, and you can go for even more. For example, my current savings rate is 76%, in which case it only takes 7.6 years to save 25 times my annual expenses, which is more than I need to last the rest of my life.

 

In short, I agree that FIRE may be easier than many people think Smiley Happy

Model Citizen / Citoyen Modèle

Re: FIRE (Financial Independence, Retire Early)

Ooakosiryan how long have you had the FIRE mentality? Retiring next year sounds pretty good.

ckl
Town Hero / Héro de la Ville

Re: FIRE (Financial Independence, Retire Early)

I think most people would love to retire early. However, the biggest problem with FIRE is unforeseen expenses and/or catastrophic events.  One of these, for example, are health problems. Luckily, in Canada, we have a very good medical and social safety net. But even then, you could face a serious financial burden because our medical system only operates under prescribed procedures. For example, if one got cancer, the treatment under Medicare is chemotherapy. If that does not work, you will have to pay out of pocket for any other "experimental but promising" alternatives that may save your life.

 

Even things like a car accident or food poisoning while on vacation can be life changing.

 

If you are able to work, then why not keep working? Maybe not full time but at least part-time at your own pace to keep yourself busy. A person who has retired for several years and faces one of these catastrophic events, overcomes it, but at a financial cost, will no doubt need to re-enter the workforce. Depending on the occupation, not having worked for several years can negatively impact your chances of getting a job.

 

Anyway, congrats to you for being able, at such a young age, to retire early. When I was 34, the last thing on my mind was retirement.

 

BTW, you haven't given any specific details on how you were able to achieve such an undertaking (except for the saving 66% of your annual income part). Saving 66% of a minimum wage income, for example, you will not be able to retire in 10 years. You also didn't specify whether you own a house, debts, whether you have dependants (ie. kids), a spouse, where you live, etc. This basic information can make huge difference on when you will be able to retire. For example, living in downtown Vancouver/Toronto with 3 young kids vs living single in your parents basement in Nova Scotia is like night and day. I'm not asking for specifics, but at least share more information other than "I'm 34 and I'm going to retire in one year." Did you win the lottery? Did you get a huge inheritance? Did you geta degree, get a nice high paying job? Did you play the stock market and made your money there? Did you ride the wave called Bitcoin? Cannabis stocks perhaps?

 

 

Great Citizen / Super Citoyen

Re: FIRE (Financial Independence, Retire Early)


@Tiprix wrote:

Ooakosiryan how long have you had the FIRE mentality? Retiring next year sounds pretty good.


Hi, @Tiprix! I meant to reply to you earlier, but it got away from me. Sorry for the late reply! I've had the FIRE mentality for 3 years now (I discovered Mr. Money Mustache in March 2016). Before that I was already a saver, so luckily I had quite a head start Smiley Happy 

Great Citizen / Super Citoyen

Re: FIRE (Financial Independence, Retire Early)

Hi, @ckl! Thanks for your thoughts and questions Smiley Happy

 


@ckl wrote:

I think most people would love to retire early. However, the biggest problem with FIRE is unforeseen expenses and/or catastrophic events.  One of these, for example, are health problems. Luckily, in Canada, we have a very good medical and social safety net. But even then, you could face a serious financial burden because our medical system only operates under prescribed procedures. For example, if one got cancer, the treatment under Medicare is chemotherapy. If that does not work, you will have to pay out of pocket for any other "experimental but promising" alternatives that may save your life.

 

Even things like a car accident or food poisoning while on vacation can be life changing.

The whole point of FIRE is saving up a LOT more than the average consumer out there. If these unforseen expenses or catastrphic events happen to the average person, they will likely have to go in debt to deal with it, and, if able, they'd have to keep working. I think a person who retired early, who has saved up a big stash of money, is in a better place to deal with these types of events. If they have to go back to work, so be it, but that doesn't make them any worse off than the average person who has to work anyways.

 

And, as @JuniorJunior pointed out, the "25 times annual expenses" rule is pretty conservative. For example, I just met with my bank's financial advisor, and he ran some simulations to come up with a Retirement Income Planning Report for if I retire February 2020 at age 35. I didn't realize how much I was oversaving until he ran the numbers. I overshot my target to the point that if I double my current cost of living (to account for possible lifestyle changes), I still won't be able to spend all my passive income. I'll be a millionaire at age 55, and I'll hit a net worth of $5 million at age 80. His calculations take inflation into account, so I'll be increasing my expenses by the inflation rate every year as my net worth continues to grow. I'd say I'm in a pretty good position if I run into a catastrophic event. I have no debt, and I've saved way more than I needed to. And if I have to go back to work because this event cost me millions of dollars, I'm fine with that too haha

 


@ckl wrote:

If you are able to work, then why not keep working? Maybe not full time but at least part-time at your own pace to keep yourself busy. A person who has retired for several years and faces one of these catastrophic events, overcomes it, but at a financial cost, will no doubt need to re-enter the workforce. Depending on the occupation, not having worked for several years can negatively impact your chances of getting a job.

People who reach FI have the option to quit their 9–5 job, but of course not all of them do. If their job is the best way for them to find happiness and fulfilment, then it would make no sense to quit. For me, I might do some contracting work just for fun. But I'll most likely work on some creative pursuits (e.g., music, writing), learn a language, and visit relatives that live in different cities/countries. My primary concern will be living life to its fullest, and that will definitely include a bit of work and moneymaking, but probably not that much. I'll be doing it for the love, not the money.

 


@ckl wrote:

BTW, you haven't given any specific details on how you were able to achieve such an undertaking (except for the saving 66% of your annual income part).


No one asked haha. If you're interested, I'll answer your questions below. (Note: I'm actually saving over 76% of my income—the 66% in 10 years was just an example) 

 


@ckl wrote:

Saving 66% of a minimum wage income, for example, you will not be able to retire in 10 years.

The math actually checks out that if a person is able to live off of 34% of their income (and sustain that level of spending for the rest of their life taking inflation into account), they can retire in 10 years, no matter what their income is. Savings rate is literally the only metric that matters. If a person on minimum wage happens to live off of 34% of their income, their working career is 10 years long. If they can't make 34% work, they could live off of 50% of their income and retire in 16.6 years instead, which is still pretty good. However, I think someone making minimum wage would probably do better focusing on increasing their earnings, and then they can think about FIRE. For people making the median salary in Canada, living off of 34% is definitely doable.

 


@ckl wrote:

You also didn't specify whether you own a house, debts, whether you have dependants (ie. kids), a spouse, where you live, etc.


I don't own a house. We rent a condo. We might buy a house later in life when we figure out where we want to settle down. We would just buy the house in cash, and it would be part of our net worth. Or we might just keep renting if we want to keep moving around. Either option will work well for us.

 

No debts. I paid off my student loans in 2012.

 

No kids yet, but plan on having some. That's why I planned to save enough for double my current living expenses.

 

I'm married. My spouse is also a saver on track to FIRE a few years after me.

 

I live in one of Alberta's bigger cities.

 


@ckl wrote:

Did you win the lottery? Did you get a huge inheritance? Did you geta degree, get a nice high paying job? Did you play the stock market and made your money there? Did you ride the wave called Bitcoin? Cannabis stocks perhaps?


No lottery.

 

No inheritance. Started at 0 (actually, in debt after I graduated).

 

Two degrees (BSc and MSc).

 

I got a pretty good job. Started at high 50s in 2009, worked up to just barely making six figures now.

 

I didn't "play" the stock market. I made my money by working and saving part of my income. As specified in my 2nd post, I invest my savings. No stock picking, just plain, vanilla broad-based index funds (ETFs) that only depend on "the world economy in general continuing to exist." But people who FIRE invest in whatever they're most comfortable with, whether it be index funds, rental properties, or something else.

 

No bitcoins.

 

No cannabis stocks.

 

Sorry, I feel like you expected it to be more exciting than that. I literally just worked and save money by not overconsuming.

 

Thanks again for all your questions!! Smiley Happy

ckl
Town Hero / Héro de la Ville

Re: FIRE (Financial Independence, Retire Early)

Hi @ooakosiryan 

 

Thanks for your response!

 

I applaud your financial strategy and your ability to stick with your savings plan. Most people would not be able to do this because when they start to make more money, their lifestyle also changes. More disposable income = more spending.

 

Based on your scenario, if I were in your shoes, I'd be careful. The two most financially expensive activities, in an average person's life, are the two activities you have not gone through yet. That is, owning a house and having kids!

 

I think most people, including myself, have been held back from the FIRE movement simply because of these two things. A mortgage takes up a significant amount of your income and the kid's financial needs (ie. diapers, formula, daycare, "keep busy" activities (like gymnastics, skating, swimming, martial arts), RESPs, etc. etc. etc. etc. etc. etc. (yes, that's alot of etc's because it just keeps going and going), as well as insuring yourself (because you now have dependants) leaves very little disposable income left to contribute to the FIRE plan.

 

This is why I asked where you live and what your situation is. If you said you lived in Vancouver and/or Toronto (or would like to buy a house and settle there), even with a six figure income it would be difficult given the significantly large mortgage that is required. That is, even if you manage to qualify for a mortgage for that house! I don't know what the housing situation is in the large cities in Alberta, but if you don't have to live in the city, I suggest you don't... suburbs are okay too.

 

Since I've gone through one of these activities (owning a house and paying off the mortgage) and still going through the other (raising kids, they're still dependants), I'd be happy to answer any questions you have regarding this.

 

My advice is that if you intend to retire next year and purchase a house and have kids, make sure you have a backup plan just in case you realize your income from your savings is not going to cut it going forward.

 

PS> Just for kicks, here's a website I found that outlines what you need to earn to live in a chosen area in Vancouver:

https://doodles.mountainmath.ca/blog/2017/09/18/zoned-for-who/