Financial planners shouldn’t be worried about FIRE

Financial planners shouldn’t be worried about FIRE

A recent post in the Financial Post caught my eye, why some financial planners seem worried about the FIRE movement.

My reaction is, they need not worry too much about any FIRE movement. I believe some financial planners might have bigger issues to contend with. More on that in a bit.

Why is FIRE so hot?

As a refresher, FIRE stands for “Financial Independence Retire Early.”

Some FIRE investors strive to save as much of their income as possible during their working years, hoping to attain financial independence at a young age and maintain it through the rest of their life—aka retirement.

A common goal of many FIRE-seekers is to build enough capital and wealth whereby they can largely live off their portfolio value in perputuity or thereabouts. Some of them even leverage an outdated financial study to help them realize their goal: the 4% rule.

The 4% rule (a general guide for a sustained safe withdrawal rate (SWR)) used by many early retirees, was the result of using historical market performance data from 1926 to 1992 by U.S. financial planner Bill Bengen. In general terms, the “4% rule” says that you can withdraw “safely” 4% of your savings each year (and increase it every year by the rate of inflation) from the time you retire and have a very high probability you’ll never run out of money.

4% rule

However, the first challenge of many related to this rule is that this study was published almost 30-years ago. A lot has changed since then including real returns from bonds. There are also products on the market now that allow investors to diversify far beyond the mix of large-cap U.S. stocks and treasuries that the Bengen study was based on. In fact, the abundance of low-cost investing products should be what many financial planners should fear the most, a point I’ll come back to soon.

Certainly, in my personal finance and investing circles, I don’t know of many FIRE-seekers that live by any strict 4% rule. Thank goodness they don’t.

Even though the 4% rule remains a decent rule of thumb to start any early retirement discussion with, it’s a flawed concept for many of today’s early retirees aged 40 or less.

  1. The 4% rule was based on a 30-year retirement horizon. However, a FIRE investor’s retirement could last 50 years or even more. So, while spending in line with the 4% rule could give an early retiree a very good chance at not outliving their money, a 50-year “retirement” timeline could be disasterous if said early retiree was striving to live through a prolonged period of low stock market returns.
  2. This rule was used to demonstrate a safe withdrawal rate associated with only U.S. assets: a mix of U.S. stocks and treasuries to be more exact. There is little doubt that if an investor uses a broader, more globally diversified portfolio with U.S. and international assets leading the way, I suspect their chances of financial success would increase. In fact, Vanguard said they would.
  3. Finally, the 4% rule assumes a constant dollar-plus-inflation spending strategy – straight-line thinking that assumes your spending will follow a very linear path over many retirement decades. My hunch is – of course that won’t happen. Sure, maybe in the first retirement year you spend your desired 4% and at best, maybe next year you spend a bit more accounting for inflation. However, just like asset accumulation is dynamic so will your spending patterns be in retirement. This means you should strongly consider a Variable Percentage Withdrawal (VPW) approach that largely takes into account the flexibility to raise your spending “in good years” and decrease your spending in “bad years”.

Further Reading: Why you should follow a VPW drawdown strategy.

With any retirement drawdown plan, the ability to operate in a spending range will be very key to the longevity of your portfolio. I hope to follow some form of this approach myself in semi-retirement. 

Which brings me back to our case study in the Financial Post.

Why financial planners shouldn’t be worried about FIRE

For Kristy Shen and Bryce Leung, a couple from Toronto who retired at 31, they gave up the dream of owning a million-dollar home in Toronto and decided to travel the world instead.

Ditching home ownership and becoming a millionaire instead

For Kristy and Bryce, their goal was always financial independence and not so much the retire early part. As Kristy explained on my site:

“The idea of retiring from our job and living off passive income seemed so weird and foreign to us, so at first we dismissed it as an idea that only tech entrepreneurs or trust fund babies could pull off.  Then we woke up and realized our savings had hit half a million bucks, and we were like “Hey, why not us?””

Why not indeed.

And so, by living off about $40,000 per year (you can see one of their income reports here), travelling and writing (likely earning some money from their blog and book), they’ve realized their goal of financial independence and then some. Six years past their “retirement date” their portfolio is now worth a cool $1.8 million thanks to a major market bull run in recent years. 

However, there are some financial planners in that post that argue there is no magic in personal finance. 

“People make money off putting out something that seems magical … like the latte factor. I’ll just skip a cup of coffee every day, and you get rich. But the math doesn’t work — unless you’re having 17 lattes a day.”

While true, citing longevity risk from these planners as yet another major risk for Kristy and Bryce to contend with is definitely reaching here. To argue that our millennial millionaire couple has to worry about spending $40,000 or so per year from a $1.8 million portfolio is a “problem” many Canadians would love to have. 

The FIRE movement has been great for many reasons, and people have been doing it for decades before it became an internet thing.

FIRE-seekers do these things better than most:

  1. Have clear, appropriate goals – investment goals should be measureable and attainable. Success should not depend on outsize investment returns or impractical saving or spending requirements. I believe Kristy and Bryce mastered that by saving an incredible 60-70% of their income in some years to achieve financial independence.
  2. Stay balanced – a sound investment strategy starts with an asset allocation befitting the portfolio’s objective, with the investor’s long-term goals in mind. Kristy and Bryce built their portfolio using reasonable expectations for risk and returns; a portfolio that generates 3-3.5% in dividend income and fixed income, such that if markets were to tank (and they will from time to time), “we could completely live off the dividend/fixed income without touching the capital. That way we never have to sell at a loss.”

  3. Minimize costs – given costs are forever, the lower your costs, the greater your share of an investment’s return can be. This couple has realized what many others are starting to figure out as well: lower-cost investments have tended to outperform higher-cost alternatives. Those include fees paid to any financial advisor. You can’t control the markets, but you can control the bite of costs can take.
  4. Keep their investing discipline – investing can provoke strong emotions as evidenced by from some readers on this site from time to time! So, the ability to implement that clear, long-term investment strategy is critical to realizing any aforementioned investment goals.

I get where the planners in this Post article are trying to come from, but really, I don’t think financial planners should be overly concerned about any young investor on a FIRE journey because these four principles above are some great foundational investment building blocks worthy of any financial planning seminar offered today.

You can read about what does into a great financial plan here. 

While some planners may slam this couple for glorifying some early retirement dreams, I think we need to applaud this couple where some credit is due. They’ve lived well below their means, they’ve saved a bundle, and they are now enjoying some of the success and flexibility they’ve built. Sure, some folks in the early retirement community may “oversimplify complex financial considerations” let alone sell a financial independence dream. While I wouldn’t personally copy what this couple has done, I do believe some of their disciplined habits are worth reflection.

This 30-something couple may no longer work full-time but they do continue to work for a living via the blog and book.

Let’s face it: what 30-something retires and never works again?

Financial planners shouldn't be worried about FIRE - Haters gonna hate

This couple has become rather successful at Financial Independence and Retire to Entreprenuership – a better definition of FIRE anyhow.

With the ubiquity of financial information now available via blogs, books, podcasts and more from a younger generation of entrepreneurs, some financial planners should probably worry about other things – like younger DIY investors who wouldn’t use financial planners to invest at all – rather than dwell on the success of two young investors turned entrepreneurs.

Additional Reading:

This investor retired at 32! Find out how here.

There are more early retirement and other case studies on this page here.

Should you become a DIY investor? I think you should strongly consider it!

Should you become a DIY investor?

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

20 Responses to "Financial planners shouldn’t be worried about FIRE"

  1. In my view, you can retire from one thing and start another. For example, you may retire from accounting, but take up a new gig as a ski instructor. I’d still consider you to be a retired accountant, even though you’re now working in a new role. The confusion comes from people saying they’re simply “retired” when asked what they do, since that implies you’re not working for income at all. For example, if I asked Kristy and Bryce what they did, the truest answer would be “we’re retired engineers turned part-time authors and bloggers”.

    1. I have no issue with that Loonie – re: retired from one thing and moved to another. That works. For anyone to say they are “fully retired” yet working to make money still doesn’t make much sense to me. It’s like saying you’re on a full diet and eating lots of potato chips 🙂

  2. Life is for living, and not for the faint of heart. Life also isn’t fair.

    My wife and I have three children, one that is no longer with us. The pain is still there 15 years later. Some choose not to have children, some choose to remain single. Some choose to work, some choose to shout as loud as they can how retired they are, when it is very clear to see they are not. All good. Do what works for you and be happy, as life is no picnic. It is what it is, and what you make of it.

    Balance is good, if average folks like us can reach the cross over of dividend earnings covering all expenses, anyone can. Especially when time is on your side. Start early, and save often.


    ps. if I could turn back the clock would still have kids even knowing what we would go through. Benefits out weigh everything else.

    1. I’m very sorry for your loss David – but it certainly sounds like you have a balanced perspective on things – as very tough as that journey losing a child continues to be for you and family.

      Best wishes and onwards we all go as best we can.

  3. Great post, Mark! It’s too bad so many people are hung up on one strict definition of the word “retirement”. I’m all for a good debate, but unnecessary arguments happen when the same word means different things to different people. As you say in your post, “RE” can mean retire to entrepreneurship – something I can relate to – or as other commenters have said, retirement can simply mean that you finally get to choose what you want to work at, whether it’s being a stay-at-home parent, volunteering, etc, etc.

    Retirement aside, it’s also a little ridiculous to assume that financial independence precludes active income or the willingness to adjust spending based on investment balance. I’m happy to see you brought up the concept of variable percentage withdrawal, rather than the strict 4% “rule”. There are good studies showing that a willingness to adjust spending actually increases the safe withdrawal rate overall and decreases longevity risk significantly.

    Lastly, even a little bit of active income has a massive effect on our financial security. If I can make $20k/year selling my woodworking, that’s roughly the equivalent of having saved an extra $500k (using the 4% rule). All for doing something that I love and connects us with our community.

    1. Nice to hear from you Matt.

      I’m no retirement police, but if you work for any compensation/money you’re a worker and not a retiree. 🙂

      That said, if anyone wants to “work” on their own terms because they are financial independent – that’s great. Something I strive for as well!

      I’m not sure about your drawdown approach, would love to have you on the site eventually (!), but I will likely utilize some form of variable percentage withdrawal approach. It just seems to make sense since spending is not a straight line.

      I also believe a bit of active income in semi-retirement is HUGE for financial security. Good on you to make some side $$ on woodworking. That is the equivalent of having another $500,000 saved yielding 4%. Incredible really when you do that type of math.

      All my best,

  4. Interesting. I say I would be worried if I had 1,8M$ while the shiller PE ratio is about 40 in the US and probably between 25 and 30 for Canadian stocks as a whole and I have to live by my net worth at 50, needless to say at 35. I would make sure stocks I own are not too much on the overvalued side. Also when people say they don’t work and have “only” passive income but earn money with writing books and blogs or giving conferences and so on, it’s a discourse I find misleading is some ways. I also think we have been in a major upward market for about 20 years and I think overconfidence may be an issue.
    Besides that Mark thanks for your newsletter and blog, I love it.

    1. I hear ya JF. I think stocks are poised for a major decline at some point which makes a cash wedge or keeping cash on hand smart for the next upcoming correction.

      I can’t speak to how much their blog or book makes, but I suspect it’s a bit of income. If they are using some of that income for living expenses, great, which is a hedge for portfolio decline in value for sure even if they are drawing on $1.8 M very slowly. Very impressive market value for millennials in their 30s. The vast majority of Canadians will never be able to save that much for retirement for many reasons.

      All the best and thanks for following along!

  5. Great commentary Mark. I have similar reflections on the article as you do. One other thing that bothers me, and we’ve heard it before, is ‘what if you have to go back to work’. This sentiment seems to be stuck in the bygone days of you can only do the job you’ve trained for. I think it comes from the narrow view most have of employment. You just stay and do your job like a good minion. People with that mindset sure would have trouble going back to the ‘same’ job 10 years later. However, I’d like to think that anyone who has pursued FIRE will have developed new skills in all their free time, connected with new networks and communities, and would never return to the job they left. Sure they might re-join the work force in some capacity, or maybe they start their own business, but fear mongering that you couldn’t get your old job back is just plain shortsighted.

    1. I’ve found, which is totally fine, most folks on a FIRE path = Retire to Entrepreneurship = RE part are really just entrepreneurs at heart. They find a way to learn new skills or future develop the ones they have. I could say as much for me and writing, and running this blog. It’s hard to think I’ve had this toy for fun approaching 12 years.


  6. Great post Mark. And good for Kristy and Bryce. They certainly got lucky on the stock market massive bull run, but that happens at times.

    It is truly surprising how desperate are some advisors and planners (attacking us on Twitter and more, ha). There must be more to this self-directed thing, and the power of ETFs and Robo’s than we think. That is, as a threat to them.

    The advisor at 2% total (advisory fee or 1% trailing commission) plus investment fee is a dead dinosaur in my opinion. They will be replaced mostly by technology and the simple and inexpensive investment products.

    I think there is room for the advice-only planner route to grow.

    Many will benefit from a financial plan, they can then move on to self-directing.

    Keep spreading the good word.

    Dale (Cut The Crap Investing / MoneySense)

    1. To fail to even acknowledge how well these millennials have done is a big flag for me but alas, maybe I’m just wired differently and I’d rather commend people for their work and progress rather than shoot them down first.

      Advisors chasing assets under management and fearmongering in the process is a dead industry IMO. DIY investing, one-ticket solutions, Robos, etc. will eat that mentality alive. Good luck to some dinosaurs 🙂

      All my best back.

  7. Kristy and Bryce did a great job and I’m sure they will be just fine. FIRE doesn’t mean you stop working completely, you’re just doing things that you enjoy doing, regardless of whether you earn money or not.

    Some financial planners just like to throw around FUD to attract clients. Not the way to do things IMO.

    1. Kristy and Bryce did an outstanding job and kudos to them. The “RE” part of FIRE is more like “Retire to Entrepreneurship” to me but it doesn’t change the fact they worked hard, saved a bundle, and can now enjoy more of the valuable commodity of time!

      Yes, a few industries work off fear and more don’t they?

      Cheers Bob.

      1. Deane Hennigar (RBull) · Edit

        I agree. Its not RE, its RTE. They work but its more on their own terms, and almost certainly enjoy that more.

        They had a plan for a different lifestyle, they got to it quickly and seem to be enjoying it. The things they did and learned along the way, and now in their life will likely serve them well to adapt as needed in the future.

        1. 100% Deane. Hard to imagine a young couple, who have been frugal and conservative with spending all their lives to date, with $1.8 M in the bank, blowing up their dreams but I suppose it could happen!

          I hope all is well and you’re enjoying all your recent dividend raises! 🙂

          1. Deane Hennigar (RBull) · Edit

            Well you’re right anything can happen especially since they have so many years ahead. But they got where they are because of smarts- good jobs, incredible savings, smart investing, wise frugal travel etc. etc so they’ll figure it out.

  8. Becoming a DIY investors and saving money on fees can have huge benefits especially during the later stages of someone’s life. Even a 1% fee on a $1 million portfolio is equal to $10,000 a year of unnecessary expenses. 🙂 I think Kristy and Bryce have done a great job living the way they want with the resources they have. Maybe some financial planners are just jealous because they’re suppose to be the money experts. People go to them for financial advice. Yet somehow they could not accomplish what ordinary folks in the FIRE community have done, lol.

    1. 1% charged to any client approaching $1 M is bunch of money per year. If the client is getting value for that service, great, I’m all for that. I’m just not convinced some folks can’t go to a fee-only planner to get a check-up now and then given all the financial tools and information available to most investors.

      Some advisors and planners are like a coach. That can be very good for some but not needed for others. I think the rise of DIY, one-ticket investment solutions should have some advisors very worried = a simple way to grow your portfolio and avoid paying other fees in the asset accumulation process.


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