Cross Over – Into the FIRE

Now that I’m retired, I’ve been sharing time, and stories, with my fellow retirees.  I can tell you one thing in common between us.  We are all much happier than we were during the days of our productive employment, even if we were working on one of those lofty, feel-good, society-serving, professional pathways.  Things are much better now.

Simply put, we have a lot less crap to deal with.

And the people we used to work with often stymied our ability to live up to our maximum potential, or to serve our target population to that full potential.

We fought the good-fight, but we didn’t often win.

And now that I’m retired, I keep seeing a billion articles about retirement and what resources you need to retire plastered all over the Internet.  I’m seeing these as a result of targeted ads, I’m sure, but if you stop and read any of these posts the common wisdom you can derive is that neither I, nor any of my retired friends, could possibly afford being out of the workforce.

We all must be starving to death.

I can remember the days when I read that you should have three months wages put away as a safety net before investing.  It was increased to six months.  Then came the notice that we must save and invest at least a quarter of our income.  Then half of our income.  Then we were given specific numbers — you would need a minimum of $300K to retire, which was bumped up to $500K, then $1 million, and then $3 million.

Do any of you know any retired millionaires?  I don’t.

I guess I don’t rub shoulders with the right crowd, eh?

So today, I was targeted with the article about “FIRE.”  And I don’t mean the pleasing and aesthetic type of fire that I have in my wood stove this time of year.  This FIRE stands for “Financial Independence, Retire Early.”

The claim is that no one on earth ever thought about such a thing until 25 years ago, and that this “movement” didn’t catch on until the publication of the 1992 book “Your Money or Your Life” by Joe Dominguez.

Another specious assertion.

Funny, I remember talking about early retirement with my friends back when I was fifteen.  And that was long before 1992.

At any rate, the system to make FIRE possible is by living Spartanly and saving and investing 40% to 70% of your annual income.  Of course, the investments must be stellar to provide the return you will need.  And somehow they must all be low risk/high yield investments so you don’t crap-shoot your nest egg away.  Right?  But if you do this correctly, or get incredibly lucky, you’ll reach the “Crossover Point.”

The Crossover Point is achieved when your nest egg has reached 30 times your yearly expenses.  Then, supposedly, you can retire and live off the interest that your wise and lucky investments will pay out.

Although the brilliant authors never say it, I guess that means living at the same standard of living you are at when you leave the workforce, because I doubt there will be any room for upward mobility at that point in time given the rate of inflation.   In fact, there was no indication that inflation was even factored into the equation, but I will assume that since they are wizards, they must have figured out every contingency.

So now I get to have a little fun.

The federal poverty level for 2019, for a household of one (like me) is $12,490.  Assuming that’s my income, that fixes my expenses at the same number unless I have credit to exceed it, which is doubtful at this earning capacity.  So according to FIRE, I could retire, and continue to live happily in poverty, once I have $374,700 in my nest egg.

That’s the magic number $$$$$

To achieve that nest egg, I would need to save somewhere between 40% ($4,996) to 70% ($8,743) of my income annually, which means I would have to live on the remainder of $7,494 ($12,490 – $4,996), or as little as $3,747 ($12,490 – $8,743) per year.

Wow !  And at a 40% annual savings/investment rate of $4,996, it would only take 74.86 years for me to sock that $374,700 nest egg away.   I could speed that up to 42.77 years at the savings rate of 70%.  But remember, at the 70% savings rate, I would only have 30%, or $3,747, of my annual income to live off of for each of those 42 plus years.

Of course, those numbers don’t’ factor in interest or a rate of return earned on the savings or investments.

This picture is not so bleak!  We will reach the light at the end of the tunnel much quicker with a good rate of return!

So, I went to Bankrate’s ROI (Return on Investment) calculator.  If you use a rate of return of 7%, an inflation rate of 2.9%, and a tax rate of 15%, the 40% annual savings rate would get you to your FIRE goal in about 20 years.  Using the same figures with the 70% savings rate, you could hit your FIRE target in about 11 years.

Reaching your FIRE goal with these wonderful, fool proof, investments, get you to the ultimate goal of retiring in poverty, quicker, but you still have to contend with surviving on $3,747 to $7,494 dollars annually during those savings years.

Assuming, I began my savings strategy at age 20, I could retire between the ages of 31 to 40.  Now that’s close to the age range of 23 to 31 the article suggests, but it is doubtful that I could afford the median price of a home, which is currently at $305K.  And buying a home was part of the investment strategy.

Just saying, I don’t know how these economic wizards come up with these wonderful, and oh so easy to perform strategies, but there you have it.  And as all of the rabid capitalists on LinkedIn would suggest, if you fail to achieve this financial independence it’s simply because you’re lazy.   No social-economic, geographic, health, corporate closures, or any other factors like having children or getting divorced, could possibly come into play here.

Good luck with the FIRE plan.

Or you could do like most everybody else in society.  You work hard maximizing your skills in the economic market where you reside, save when you can, and retire with whatever you have left over, which might not be much.  But you’re still happy and you can still “cross over,” and afford some chocolate chip cookies and ice cream once and a while. 😉

In Metta


Photo: I used this photo once before in a prior post.  Clearly, I have “crossed over” into the fire. 😉

* If you are wondering why I used the Federal Poverty Level to calculate the FIRE amount, consider this:

Median Retirement Savings by Age

According to this survey by the Transamerica Center for Retirement Studies, the median retirement savings by age in the U.S. is:

  • Americans in their 20s: $16,000
  • Americans in their 30s: $45,000
  • Americans in their 40s: $63,000
  • Americans in their 50s: $117,000
  • Americans in their 60s: $172,000

So you see, the average American has a nest egg much smaller than the poverty level nest egg I calculated, which was $374,700.

And here is the 2019 Federal Poverty Guidelines Chart

For example, the poverty level for a household of four is an annual income of $25,750. To get the poverty level for larger families, add $4,420 for each additional person in the household. For smaller families, subtract $4,420 per person.

Number of People in Household 48 States & DC Alaska Hawaii
One $12,490 $15,600 $14,380
Two $16,910 $21,130 $19,460
Three $21,330 $26,660 $24,540
Four $25,750 $32,190 $29,620
Five $30,170 $37,720 $34,700
Six $34,590 $43,250 $39,780
Seven $39,010 $48,780 $44,860
Eight $43,430 $54,310 $49,940
For nine or more, add this amount for each additional person $4,420 $5,530 $5,080

** U.N. Report: With 40M in Poverty, U.S. Most Unequal Developed Nation

*** If you’re interested in more economic statistics for the past couple of years, check out my post “Balance.”

10 thoughts on “Cross Over – Into the FIRE”

  1. When I retired I was worried how I would make ends meet with so little pension. I looked at my spreadsheet and calculated how short I would be every month.
    The strange thing is, I probably overspend every month on the things I’d calculated but, strangely, I’m managing to save a bit. (Not a lot, but…)
    It’s rather like when I used to get a new job and think this new salary would solve all my money problems. Somehow it never did. The purchases seemed to expand to use up more than I had available.
    Maybe now I’m getting the reverse effect.
    Or maybe I don’t need as many things as I thought I did then

    Liked by 2 people

  2. No wonder so many retirees are living in RVs. Not sure if that is good or bad, but I can’t imagine living with my spouse in a space that small, unless I took LOTS of walks. 😉 Don’t get me wrong, he’s a nice guy, but a bit of solitude boosts creativity. 😀

    Liked by 2 people

    1. I definitely think we all need a little space from time to time. My ex and I, back in the day, had built a large home to accommodate for that. I’ve considered the RV life. They can be really nice. But once you start pricing those out it might make you think twice. Although you can declare a domicile in a tax-friendly state that way. I’m living pretty minimalistically now, traveling in my 12 year old car 🙂

      Liked by 2 people

  3. Great article. Of course we need money to survive on Earth. So few have hoards of money and basically live month to month. I am only spending on things I need and enjoy. No silver spoon in this mouth. I’ve lived fully and now find myself enjoying relaxation and researching what it REALLY going on down here. Thanks for sharing such engaging articles, HS. Enjoy the journey!

    Liked by 2 people

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