FIRE’s prospects in a non-booming economy

September 14, 2022

Part of this was written before the VRT documentary about FIRE influencers aired, and I was hardly surprised by the backlash it received before it got taken offline.

FIRE is sound and misleading at the same time

I won’t and can’t criticize the FIRE (Financial Independence Retire Early) documentary on the Flemish public broadcaster VRT, because I didn’t watch it. The criticism, however, including from the Belgian financial markets authority (FSMA), spoke volumes. The FIRE principles are solid, and I recommend everyone to apply them to varying degrees, but there are a few warning lights to place next to the whole idea of aiming for a fast retirement.

Most of all, the notion of retirement is misleading. Being retired means, in my opinion, not working anymore, at all. Confusion exists between retiring and becoming financially independent, and the many gradations. Not working for a boss but still relying on a source of income doesn’t indicate you are retired. Take the example of passive income, which is a big part of the income-increasing aspect advised by FIRE to achieve financial independence. Passive income tends to vanish to zero if you do not put work into it. Are you then really financially independent and/or retired?

The success of FIRE is biased by the rallying economy over the last decade

Stock markets have seen very good returns in the past decade, in great part thanks to the enduring low-interest rate tailwind since the global financial crisis in 2007-2008. Everyone who has been investing money in index funds saw their capital rise considerably. If you bought and sold a real estate property, you are even double well-off, because of cheap (re)financing and because housing prices increased. FIRE fans ignore the situation-specificity of these artifacts. Put the same person, say Sébastien Aguilar (founder of FIRE Belgium), in a less accommodating economic time period, and he would not have fared off so well, surely not reaching “retirement” in only seven years. He seems a reasonable person, nothing against him, but his “retired at 33” tagline is a marketing trick.

The infamous 4% rule goes around frequently, but has its shortcomings. For instance, its longevity is limited to 30-ish years meaning if you don’t die soon enough… you run out of money. You also need to adjust the yearly withdrawal for inflation, typically upwards, so it’s not exactly 4%. The generalizations lectured by the FIRE movement are helpful, but lack the nuances that dismantle any generalization for what they really are: a simplification. Yes, passive index funds beat active funds on average, but not all of them. Yes, the value of your money erodes if it stays on your savings account when there is high inflation, but not if the stock markets are down. Yes, the 4% rule is a good benchmark, but it will unlikely stand the test of time (read: over the next 50 to 80 years you’ll be alive).

It is incorrect to carry over principles learned during a booming economic cycle to non-booming economic environments (incoming inflation or even stagflation, anyone?). How long it takes to achieve FIRE heavily depends on when you start investing.

Away with the hype and the h(y/i)psters

Overly putting people who profited from good investments in the spotlight is dangerous. I am all about a success culture, but believe it or not, they could not have anticipated the fat years, even if they argue otherwise. A common case of survivorship bias, as worse-off investors remain silent. Investing the way promoted by the FIRE adepts is easy. It really is. You neither need to be an expert nor need experts to guide you in the execution. I dislike the rise of “wannabe” financial experts/analysts/advisors, selling courses on personal finance while being “retired”, exactly what some of the fuss concerning the VRT documentary was about.

I would suggest emphasizing the sound and generic principles, but to leave it at that. This fortunately seems to more and more the focus lately. If FIRE is nothing more than elementary starting point principles, can’t we get off the bandwagon, drop the FIRE acronym altogether and just call it good personal finance hygiene? 😇

Not so long ago, I improvised a monthly budgeting tree, which you can find here as a PDF (in Dutch). Partly based in my reality, but such simple decision framework should be more than sufficient, together with a healthy dose of commitment to it.

Set your sight on what you like doing

Much like after the COVID-19 pandemic, people acquired (for good?) better hygiene habits. Similarly, the past decade hopefully learned us all that saving and investing smartly, with low efforts, is beneficial to everyone’s financial situation. It is without a doubt a clever thing to do. Let’s stay flexible though, taking into accounting the ever-evolving economic environment, and not take widespread (simplistic) trends for granted.

To end on a positive note, just focus on what you like and how it can generate money, indefinitely. Don’t aim for financial independence as such. If you still need to generate (minor) income streams, why bother facing above average personal austerity for 10-15 years to “retire” if you plan to continue working anyways? The future is now, retirement is now, life does not start when you reach the artificial status of financial independence.