Conservative FIRE
Conservative FIRE
I was reading through a thread on Facebook today about a couple who decided to retire in their early fifties on less than a million dollars. While this may sound fine to most, I couldn’t help but thinking, for myself, that this would never fly. LeanFIRE sounds way to risky to me. But as I think deeper, I wonder if our acronym love is often misplaced. I consider myself a fatFIRE devotee, but does that really make sense? Though you can define this concept in various ways, I certainly am not living the life of excess that this term implies. In fact, I am still relatively cost sensitive and frugal. I still work and get a W2 salary. There is no “fat” in my lifestyle. Nor do I think there is in most others. What we really are is conservative FIRE.
We are conservative when it comes to finances. We save much more than we spend, and accrue large nest eggs. It’s not about luxury. We do it as a means to risk mitigation.
So what are the hallmarks of conservative FIRE and why is this term more fitting than fatFIRE?
SWR Nonsense
There is endless debate about the safe withdrawal rate. I think even the experts would tell you that 4% is reasonable, especially if you plan to be agile during retirement. 3.5% is hedging your bets. Yet most conservative FIRE advocates are pushing down towards the 3% level. Some even call for lower.
This is ridiculous. Barring catastrophe (world economic decimation in which we all fail), there is no way such low withdrawal rates are going to be necessary.
We are saving, not to live some mythic fatFIRE existence, but rather to ease our own anxieties about the uncontrollable. We are highly risk averse.
In my book, this is just fine.
Budgets Are Pervasive (And Sexy)
I hear about people touting the fatFIRE lifestyle all the time. Yet I rarely see people in our community living it. We don’t spend like there is no tomorrow. We rarely splurge. And most importantly, we aggressively budget even when we have more than enough.
Sure the spreadsheets may no longer come out every month, but the frugality hacks and money saving techniques are inbred. How many people have millions of dollars in the bank, a safe withdrawal rate far below 4%, and yet still spend time and energy chasing travel rewards to save a few thousand dollars? How many still drive around in old beat up cars that their neighbors are embarrassed of?
Why do they do it?
They do it because they are conservative FIRE. They want their money to last.
Opportunity Cost
I think the concept of opportunity cost is overplayed. Certainly this should be the last thing on the mind of a true fatFIRE advocate. When you have enough money, passing up on a chance to spend can often be a lost opportunity.
Listen, it serves no one to be the richest person buried in the cemetery. We know this. Yet it doesn’t stop us from pausing before making a big purchase, and wondering what that money could do in an index fund compounding over the next decade.
As long as that thought crosses your mind, your are conservative FIRE, not fatFIRE.
And that’s Okay!
Final Thoughts
The term fatFIRE sounds cool and hip. It’s fun. But it certainly does a poor job describing the reality of many of those in our community. A better descriptor is conservative FIRE. We have set our safe withdrawal rate way too low, we continue to budget without the need, and we fret over opportunity cost.
There is nothing wrong with us. It is who we are.
I’m not sure if spending less than half of what you could afford is conservative when you still spend twice the median income. By you I mean me, although I suspect the same applies to you. My withdrawal rate is zero but I still live a six figure lifestyle in a low cost of living location. I’m conservative in that my wife and I don’t drive Tesla’s or Audi’s but we do have three cars for two people and four bedrooms and bathrooms in a bigger house than we need for just two people. Yet I spent weeks debating whether to spend $60 for a used keyboard case for my used iPad Pro. I know my 8 and 9 figure net worth friends think I’m uber conservative but my broke friends think I live lavishly and work very little. Very discerning take on a lifestyle that doesn’t quite fit the existing labels.
Funny. You really contemplate spending $60?
Sure, I guess that’s weird, I buy $150 tennis racquets and $60 running shoes all the time but the keyboard seemed like a frill, at least I saved $100 off the new price by buying used. I had already bought a $15 one that proved to me the concept was practical but it was flakey and repeated characters at random. I typically delay all nonessential purchases for a few weeks to be sure I really want them. And anything over $40 I discuss with my wife as well.
Isn’t that funny. You buy used. You think twice about spending $40. Yet you probably needn’t worry at all.
Doc aren’t you rolling in a Tesla??? Forget fat, this is Obese FI *sound of LeanFIRE sirens blaring in the background* – just kidding!
I always thought that FI / lean FI / fat FI simply referred to the absolute level of living expenses of the individual concerned (rather than the amount that individual had saved). So one might say that a person living on, say $8k a year is living a lean FI life (even in circumstances where they had $6m saved and available to them).
The concept of ‘conservative FI looks a little bit different as it appears to compare the size of the FI fund relative to the amount being spent on living expenses. In that respect conservative FI appears to be a different way of describing the SWR concept if I’m not mistaken.
As for SWRs in general and what a ‘safe’ withdrawal rate actually is nowadays, 4%, 3% or something in between, I’ll leave this point open / unanswered for now as that’s a much bigger topic in and of itself.
In any event, one person’s ‘fat’ is another person’s ‘flavour’ and what’s life without a little flavour?
HH
I think the idea is many are going to die with way more money then they need. They could be living more luxurious lives and not worrying about small purchases.
Understood and agree. For example, need to get up early tomorrow. Usually I’d take 35 / 40 minutes to travel home by public transport. Instead I decided to ‘buy time’ and took a taxi. I was back home in 10 minutes. I don’t need to use the most frugal option and the time is more valuable than the money.
Do you believe in trying to factor in gifts / bequests / inheritance for the next generation in one’s financial planning? Or do you instead believe that the aim should be to calibrate things so that when you die you’re close to zero? I certainly think of what I’m collecting now as ‘family wealth’ to be given to the next generation to give them a good start in life. Although I’m not sure if this is a legitimate viewpoint or just another mind trick to force my spending down.
HH
I think we are going to pay for our kids college and graduate school if need be. Then we will probably leave some to the grandchildren.
I like it. Conservative FIRE sounds better than fatFIRE. FatFIRE has a fixed number which doesn’t work for everyone. Anyway, I’m conservative too. I plan to put off withdrawal until we’re 55. We spend less than 3% of our net worth right now.
Yep. And you are still very cost sensitive even if you don’t need to be. This, to me, is what conservative FIRE is.
I see myself in this post. We saved a ton in IRA money and now in early retirement rarely use any of it so far, just living off of our 2 paid-off rentals and a small pension. The main reason for us is to keep our incomes under the Obamacare “line” of 65K on our taxes. If it weren’t for that, we would have probably not created more frugal habits. Somehow, I can’t bring myself to go over that line and in the mean time, the clock ticks and we inch toward age 70.5 when we’ll be forced to be FatFIRE or become huge charitable givers or both!
I remember listening to Bob Brinker years ago on the radio and he said that a lot of successful savers he had as clients were so good at accumulating and when he tried to advise them to switch to spending, most could not do it. It’s not in their nature.
Yes. We are definitely stuck in the accumulation phase.
You have 1M in the bank and extract 40K/yr. Your portfolio is a bogglehead 3 and you experience normal inflation and normal SOR. You retire as a couple at age 50. The FIRE people say it’s OK, no worries you got it made in the shade.
1 What is your probability of running out of money sometime in a 30 year withdrawal period prior to 30 years?
2 When does the first failure occur?
3 What are you going to do if you fail?
4 What’s the probability of living more than 30 years as a 50 yo?
5 What’s the probability of your wife living beyond 30 years?
6 Is you’re battle plan tested for 40 or 50 years?
15 years into retirement you get a cancer diagnosis. You retired at 50 so you’re only 65. Whew! you have Medicare and can take SS early. Medicare will pay for an aspirin a day level of treatment. Your treatment is $92K/yr and it lasts 4 years AND it works AND by age 69 you’re cured with a normal life expectancy to 87. (37 years post retirement)
1 What is the probability of running out of money?
2 When does the first failure post age 69 occur?
3 What are you going to do when you run out? You took SS at 65 at a reduced rate when you got the CA.
You die at 85 and leave a 78 yo fit wife who has a family history of relatives living till mid 90’s but some hx of dementia in the family. The incidence of Alzheimer’s at 85 is 1:3. Your fit wife pulls the brass ring and is diagnosed with early Alzheimer’s at 85. The natural history of the disease in 12 years of slow relentless death that ramps up to 24/7 necessary custodial care.
1 What is the probability of her running out of money?
2 At what age is the first failure?
3 What is she going to do once the money is gone? She took SS early to help with the expense of your cancer treatment. You’re dead and she’s left with a reduced SS payment. She may qualify for survivor SS benefits.
Everybody is going to die. 1/3 get cancer and of the 1, 20% die which means 80% survive. Surviving cancer can be a VERY expensive proposition. At age 65 the incidence of Alzheimer’s is 1:10 rising to 1:3 by 85. Both spouses in a couple are liable to something leading to death, doubling the risk of a catastrophe. Even a bad outcome on a broken hip coupled with MRSA does the trick on draining the bank account. 4 x25 FatFIRE me that reality, because it is reality. As a nursing home doc and hospice doc you know it’s a reality. I bet you had no shortage of patients when you did nursing home work and likely no shortage enrolled in the hospice. Everybody lives in this happy FIREland of denial, so smug and self assured about their “plan”, yet every damn one of them still has a job. Not because of risk aversion but because the narrative is narrative and inherently in-congruent and dissonant with reality. They know the reality. Their relatives have lived the reality. The society is geared to accommodate the reality and reality is not retire by 50. The only way to accept the narrative is to live in a state of denial. You get a good SOR and low inflation looked at from the other perspective you have a 90% chance of 30 year survival. So you betting on RED or BLACK, because make no mistake you are placing a bet.
To answer the first questions
1 the probability of running out of money with a BH3 in 30 years is 10%
2 the first failure is about 10 years in (roughly 1/1000) accelerating it’s failure rate to 1/10 after that
3 live in a trailer in rural FL where taxes and heating costs won’t eat you alive and hope the hurricane doesn’t get you.
4 the 50 year probability of portfolio survival of a BH3 is 78%. With 2 early years of bad SOR the probability of lasting 50 years with a 1M 4% portfolio and normal inflation is 37%
So if I understand you correct you think most are conservative FIRE and keep working though they trumpet a false narrative of BH3 and 4 x 25?
People want to live a nice life and not run out of money. The fire narrative inadequately describes how you do that. The FIRE narrative tells you how to save money, not how to not run out of money. Not running out of money (portfolio failure) is a different metric. Not all SOR recovers. Sometimes there is a permanent loss (like the dot com bust) or an extraordinary expense, like cancer. Sometimes a portfolio pays too much risk for its return as in the BH3. A 60/40 2 fund has a survival of 97.4 compared to a BH3 so just a mere little change in AA improves your rate of survival by 8% with no change in WR because you lower your risk. How bout risk-optimized FIRE. There are plans you can implement that will way reduce your post FIRE risk but they need to be planned for well before FIRE commences. I think people trumpet what they’ve been led to believe in, but I think what they’ve been led to believe is sketchy at best.
What about FIROT? Financial Independence Retire On Time. The individual decides the right time based on their needs, wants, and accumulated reserves.
Sounds good to me. The trick is figuring the right time.
Another great post. I like that they are short…perfect formy attention span ;).
Keep up the great work….I very much appreciate and look forward to your posts!
Thanks Justin. Your and my attention spans match.
I agree. The amount of dollars spending at retirement is kind of misleading. It changes with time, so in some ways you could argue fat Fire one year and lean the next… oh the dichotomy. I prefer more conservative versus more risk and I lean towards the former.
Yes. Most of us take the conservative path.