Saving all your life and then dying before you get to enjoy retirement sucks. But so does scrimping all your 20s, 30s and 40s to get FIRE (Financially Independent Retire Early). For some clients, there’s a great third way
Sometimes you read a headline that you both admire for being formally perfect in grabbing your attention and summarising the story below, but also just punches you in the heart.
This happened to me the other day skimming The New York Times over my breakfast coffee: ‘A Money Guru Bet Big on a Very Long Life. Then He Got Cancer.’
The sub-head also did its job very well, telling you the main thrust of the article: ‘Jonathan Clements, a longtime personal finance columnist for The Wall Street Journal, has a lot of savings. He’s not mad that a fatal illness will keep him from spending it.’
Oof.
That one got me in the feels.
The reality is that none of us know what’s going to happen in our personal stories. We can for sure—and really, really should—plan based on reasonable extrapolations: if I pursue this lifestyle, medical science says I’m taking risks and won’t see my 90s; if I save x% of my income smartly and with full awareness of what I’m doing, I can bet that becoming y% extra in n years, and so on.
But only The Big Actuarial in the Sky knows when any of us are going to get our tickets punched. Jonathan did all the right things, including saving out of a journalist’s salary (if you know any, you’ll know how much of a curve killer that is) and taking full advantage of the truly magical thing that is compound growth… and yet at 61, he knows his time is up.
Was he foolish to do all that hard work? No: his financial CV is text-book pragmatic. The reality is that you can never forget about the other part of Ben Franklin’s famous saying, it’s not just tax that is certain in this world, there’s that death thing too.
Why am I saying all this? It isn’t to scare or depress you, and I certainly hope I haven’t done either. The point I am making is that it’s just as foolish to spend all your money the second you get it and never have a thought for your old age as it is to rawdog your way through your 20s and 30s (like these crazy long-haul flyers) to achieve FIRE.
When the trend started, I had a lot of respect for the idea of Financial Independence, Retire Early. For some people—especially the ones with levels of self-control and the ability to defer gratification well beyond my capability—spending very little and saving aggressively (up to 70% of your income) to hit your Financial Independence Day as early as possible makes sense.
But it soon became clear this is just too extreme. They say Gen Z is all about experiences, not money; this is just that, flipped on its head. People in modern societies need to go to college/Uni, go a bit crazy, fool about for a while after, then start building a life. Yes, ideally, that phase should include some sensible long-term investment thinking—but if you’re going to pass on backpacking around Thailand with your best friend because you’d rather code for 80 hours a week or do multiple online jobs and live on ramen to get FIRE, well, to me there’s something wrong with you.
But the clients I work with aren’t at this stage of their lives; they’re more in their 40s and 50s. And that presents some interesting things to think about re mapping out a financially optimal life until what we might just call EOL.
Attaining ‘never having to work again’ status is actually very rare
In essence, I think what’s a lot better than going for full FIRE—and so, potentially deliberately miss out on a lot of what Life has to offer (and, er, by the way, I think reading a book or two might be a way better use of 8 hours in a plane than staring grimly at the flight tracker on the seat display)—is the Coast version.
With Coast FIRE you hit a principal savings goal and then flex. You may hit that first goal by decades of sensible saving or shrewd investment, which is the traditional model, or you may have had some good fortune, e.g., you built a business then sold it while still hale and hearty, or came into a big inheritance, or had good luck with a start-up or had nice stock compensation from an employer.
The problem is, what if that heap of money isn’t really “never have to work again” level? You may be financially independent in the sense of you don’t “need” to be a wage-slave again, but you can’t really justify never working again either.
But if you think about it, you’re actually now in a fantastic position. You, and a minority of others, are now financially independent enough: a rather enviable state of finance where you don’t need to add to your retirement savings pot anymore, if you don’t withdraw from it.
If this happens when you’re in your mid-50s, that means you lucked out and got to FIRE status without the three decades of never having a restaurant meal… but there’s also no need to draw the blinds down and try and start living on that capital now, which if you are fortunate could be 30 years of relative scrimping.
So: you adjust. You withdraw from that crazy 24×7 corporate life and instead look for more fun employment options that will keep you topped up and able to, as famous British speculative fiction writer Brian Aldiss once said, ‘Keep beer in the fridge and your girlfriends in nice dresses’… or see the world, or the kids, or go back to do that Master’s degree you always wanted to for fun, or buy that season ticket for Lord’s Cricket Ground or go take your chums to see the Aurora Borealis: whatever will bring you and your loved ones joy.
In your case, maybe that means a job that pays £50,000 instead of £500,000, or two days consulting a week for people you actually like and want to help. But the point is, you’re in charge. You have the basis for a sound retirement, on your terms, but don’t need to keep driving yourself to earn loads of money.
Effectively, you are letting the compounding of investment returns do all the work for you, not your contributions. And most importantly, you can do this safe in the knowledge that you are still on track to retire completely by your chosen date, but the immediate pressure is off, you can purposefully slow down your career much earlier and use your newfound FIRE time and freedom to change your day-to-day so that it is more aligned with your values.
Wake up and smell the coffee
Clearly, if you have had a windfall that gives you the basis for some Coast FIRE, you need to have researched your work options and have something realistic to put in your current occupation’s place.
But if you reckon you can go for it, this version of FIRE is definitely worth exploring. So, if you want to run the numbers on a scenario like this, please get in touch.
But even if you’re not in such a position yet, don’t forget that poor chap who did all the right things but can’t do anything with his money beyond giving it away. As that great Philosopher Hank Williams, Jr, told us all those years ago, you’ll never get out this world alive.
Make the most of it. Every day, every second.
Think about it.
• This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
• The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
