Your Questions About FIRE, Answered


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How to Retire in Your 30s with $1 Million in the Bank,” a Times article about the FIRE movement (it stands for “financial independence, retire early”), generated a lot of reader responses.

Some were dubious about the whole idea. Some expressed their own desires to exit the rat race. And many readers had practical questions about navigating the thornier issues of personal finance. Here, the story’s subjects answer those questions.

Followers of FIRE pride themselves on hacking their finances, so they can lower their living expenses and live off their savings. But what about health care? How can they afford to pay for skyrocketing medical costs, especially when they grow older?

Vicki Robin, an author of “Your Money or Your Life,” has been financially independent since the 1970s, when she was in her 20s. For the first 10 years, she said, “I was stupid and I didn’t have insurance.” Later, she bought a high-deductible, low-premium policy, which saved her from financial ruin when she was diagnosed with cancer.

“I had several thousand dollars in expenses, then my health insurance kicked in,” she said. Now 73, she is on Medicare.

As full-time travelers, Kristy Shen and Bryce Leung, a 30-something married couple from Toronto, are covered through what’s known as expat insurance. They recently purchased a policy from IM Global with a $2,500 deductible for around $30 each per month, Mr. Leung said. For dental work, they practice medical tourism. “We got our teeth cleaned in Poland for about $50,” Ms. Shen said, adding that she found their dentist on the site Dental Departures.

Carl Jensen, a software engineer near Denver who “fired” last year, at first bought coverage from the Affordable Care Act exchange, paying around $700 per month for his family of four.

The family now has coverage through his wife’s employer (she took a job after he retired). Should they need to self-insure in the future, Mr. Jensen would likely use a health care cooperative like Liberty HealthShare, as other FIRE adherents have, where members share medical expenses. A policy for his family would cost about $500 per month, he said.

While health care is expensive in the United States, some of it nevertheless operates on a sliding scale, said Pete Adeney, a.k.a., Mr. Money Mustache. For instance, A.C.A. plans are subsidized.

“So, if you are truly retired with, say, a $1 million portfolio and choosing to live off $25,000 of annual dividends, that is your only taxable income, and you would qualify for very low health insurance premiums,” Mr. Adeney said.

What about education costs? How can you send your children to college on a modest fixed income?

For Mr. Jensen, Mr. Adeney and other FIRE parents, the answer involves rethinking modern ideas about higher education and parenting. “I told my children that we’ll find a way to get them to college, but we’re not going to pay for the whole thing,” said Mr. Jensen, who has two young daughters. “I don’t think I’m obligated to do that.”

Mr. Adeney’s strategies for educating his young son include attending a lower-tuition in-state school, encouraging his son to work through high school to save money for education costs, living off-campus with roommates, “and all the traditional college behaviors that allowed earlier generations to get through their education with a smaller loan balance.”

Scott Rieckens, who moved his family from high-cost Southern California to Bend, Ore., after adopting the FIRE principles, said he and his wife prefer not to start a tax-advantaged 529 college savings plan for their 3-year-old daughter because it isn’t sufficiently flexible.

In 15 years, Mr. Rieckens said, “I can’t tell you what the state of the job force or higher education is going to look like, with automation, robotics and A.I. coming into play, online free courses.”

One thing he does know: He wants his daughter to work during high school and college, as he and his wife did, to supplement whatever assistance they provide. “Financial literacy is the best gift we can give her toward her future,” Mr. Rieckens said.

How can $1 million last 30 years or more in retirement?

Many FIRE folks follow what they call the 4 percent rule. Jason Long, a pharmacist in rural Tennessee who retired last year at 38, and who chronicles his financial life in lucid prose on his blog, explained how it works:

“The safe withdrawal rate of 4 percent means that you should calculate 4 percent of your current portfolio amount. You can withdraw that amount every year. For instance, 4 percent of $1 million is $40,000. You are allowed to increase that $40,000 by inflation only. Suppose inflation was 3 percent for the year. Next year you can spend $40,000 + 3 percent of $40,000, or $41,200. Doesn’t matter whether your portfolio went up to $1.2 million or down to $0.8 million.”

Mr. Long adds: “There is some disagreement over how safe this is and how long the portfolio will last. We are on a 3 percent withdrawal rate. There is no historical precedent for that ever failing over any time, period.”

But perhaps the best way to preserve a nest egg in retirement is to not spend a lot of money. Being frugal is the key to FIRE, then as now, Ms. Robin said: “No matter what my means — and when I was young I lived on just over $100 a month — even then I would come out ahead at the end of the year.”

What if there’s an economic downturn or financial crisis?

Ed Ditto, who blogs as Early Retirement Dude, faced that nightmare scenario. He retired in 2005 with close to $1 million, and watched his portfolio rise over the next two years. But when the financial crisis hit, he and his wife lost 48 percent of their savings.

“It was terrifying,” Mr. Ditto said. “The emotional side is something nobody can prepare you for.”

Thankfully, he had a paid-for house with low yearly property taxes ($1,500), and enough cash to cover 15 months of expenses if he tightened his belt (he did). The experience taught him two important lessons: Keep cash on hand and don’t panic sell.

“I am religious about maintaining six months’ expenses in a money market account — and I frequently have more. Often a year,” he said.

Mr. Ditto also defends full-service brokers more than your average low-fee-index-fund-investing FIRE follower. In 2008, his own broker talked him out of liquidating his entire portfolio.

It was wise advice, it turned out. As he detailed in a blog post, his net worth has recovered and far surpassed its precrash value, now approaching $2.6 million, even after drawing out living expenses for the past 13 years.

If or when the next economic crisis hits, Mr. Ditto said, one thing he won’t do is stay glued to the TV, as he did back in 2008. “Being an early retiree gives you too much time to pay attention to the financial press when you shouldn’t do that.”

Instead of leaving the work force, why not find a more rewarding job?

We posed this question to several FIRE adherents, and the short answer was, they didn’t consider that option. Indeed, many were so burned out from their jobs by the time they quit, they still look back on the experience with something akin to post-traumatic stress.

“I would work if I could do it completely on my own terms,” said Mr. Jensen, adding that he knows he is unlikely to find such a scenario. Now that he is free of one, a job is the least of his interests: “I heard a quote the other day that only boring people are bored. There’s so many things I want to do.”

For Ms. Shen, who works in information technology, changing jobs or cities wouldn’t have solved the underlying instability she felt in her tech profession. “I’m always subjected to that risk of being outsourced,” she said.

Now, she and Mr. Leung travel, blog and are writing a book about their experience for Penguin Random House, to be published next year. “We’re outsourcing ourselves, instead of my job being outsourced,” she said.

Mr. Long said going back to work at some point is “certainly a possibility,” though right now he has plans to volunteer as a running coach and as a teacher for an English as a second language program in his area. Besides, he currently doesn’t need the money.

“One of my favorite books is ‘Walden’ by Henry David Thoreau,” Mr. Long said. “Nothing in ‘Walden’ involves the acquisition of material possessions.”


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