FIRE Part I – Taxonomy of Early Retirement

Up until now I’ve mostly ignored the Millennial FIRE movement, which stands for Financial Independence, Retire Early.

My buddy Justin S. introduced me to some retirement planning strategies I’d never heard of recently, strategies that he is considering using in the next few years as part of his FIRE plan. FIRE is the aspiration of many 20 and 30-somethings, who hope to quit their jobs by age 40 or so. It would be easy – as with all trends involving Millennials – to exaggerate and strawman-ify the FIRE movement.


Justin, a software engineer at a large financial services company in San Antonio, is 39 years young. He hopes to be able to retire within the next five years.

Justin’s FIRE journey began 1.5 years ago when he and his wife began to really examine what role paid work should, and should not, play in their lives. It was at that point that they got serious about trying to accumulate savings enough to let them walk away from work within ten years. 

He says his wife had always been a natural saver, whereas he had enjoyed buying nice cars and a motorcycle. In an earlier phase of life he’d bought a condo at the worst time and place (Central Florida, 2007), an experience that left him with wrecked credit and a searing fear of being stuck financially, living paycheck-to-paycheck. 

Says Justin, “My primary driver is to not be in a position like that again. Anything can happen at work, anything can happen with houses.”

He’s gotten deep into FIRE-oriented blogs, retirement strategies, and tracks his progress on a free website.

 with numerous retirement calculators. His ultimate goal is to have enough saved that he could choose more hands-on work. He seeks something more tangible than software, something that would give him a more tangible sense of accomplishment. 

Justin explained to me the many variations on FIRE. To save you some time navigating Reddit threads, finance blogs and YouTube channels, here’s your guide to different FIRE flavors.

Lean FIRE – This is Justin’s plan. This means figuring out the bare minimum income you need to survive on annually, usually by making choices to downsize a home and car, location, and lifestyle. If Justin and his wife can figure out a way to live on $35,000 per year total, for example, and assume a 5% annual withdrawal rate, then theoretically they would only need $700,000 in a nest egg to call it quits in five years. (These are my numbers, not theirs, and just reflects a starting point for planning) 

Obviously they (or we) can tweak some assumption about tax rates, rates of return, inflation, and their ability to eat only rice and beans forever, but you can sort of see the initial plan start to come together. 

Inherent in Justin’s Lean FIRE planning, he says, is a commitment to live cheaply enough that work isn’t necessary. If that means living in a lower-cost state, or even a lower-cost country, he’s ok with that. Their reward will be freedom from having to work in an office or depend on a paycheck in the future.

Fat FIRE – This is for folks who make a high enough income that they can build a hefty nest egg for later. Generally this also means sacrificing current wants to ensure future luxury. Or as Justin says, Fat FIRE adherents want to live middle class today in order to live upper class in the future.  Of course, part of the goal is to build that nest egg as quickly as possible in order to still retire early. A Fat FIRE pile of savings is by definition far higher than a lean FIRE pile of savings.

Barista FIRE – This is for current corporate drones who dream of giving up a career advancement and responsibility and who have seek to have enough money in the bank to just work a minimum wage job with good benefits. Since healthcare costs naturally represent a major barrier to early retirement, the “Barista FIRE” enthusiast may sign up to work for a company like Starbucks, post-retirement, for the generous benefits rather than for the paycheck. FIRE in this case doesn’t mean a full retirement but rather the independence from work that requires long-term responsibility, career, and those jerks from headquarters requesting you come in to finish those TPS reports on Saturdays.

Coast FIRE – This is for folks who have made their “number” for financial independence but don’t actually have an incentive to quit yet. Maybe their spouse isn’t ready to retire early, so it’s worth hanging on to a job. But they can ‘coast’ for a while without the pressure to actually work to pay one’s bills.

All in all, of course, you can criticize and exaggerate these different versions of financial independence and retiring early. Assumptions may strike us as unrealistic. The goal may seem overly materialistic, or not materialistic enough. Personally, my main objection to seeking to retire early is that work is what gives us meaning. If we don’t like work and seek an early retirement, maybe the solution is to seek different work that better suits our skills and interests?

Older barista may be totally financially secure, just doing it for the healthcare.

And yet, every responsible financial planner would ask her client to set forth a future plan, make realistic assumptions about savings and investment to get there, and then ask what the client is willing to give up to make the future a reality. That’s what the FIRE adherents are doing. Financial independence always requires some version of these steps, even if some FIRE enthusiasts take it to the extreme.

At the extreme, of course, even the financial independence aspect of FIRE can be overdone. Just as body dysmorphia pushes even the thinnest people to cut calories, so can the FIRE movement lead to penny-pinching absurdity. Justin is not in that problematic category, but you don’t have to look hard online to see people maximizing their savings to an extreme that doesn’t make a ton of sense. 

What about those specific FIRE retirement account strategies Justin mentioned that I hadn’t heard of before? I looked into them. They aren’t exactly universally recommended – nor is FIRE for that matter – but I’ll describe them in more detail in an upcoming column.

Please see related posts:

FIRE Part II – Some Complex Techniques

FIRE Part III – On the Benefits of Frugality

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Running for Benevolent Dictator

Following the Democratic presidential debates, I feel like I could have qualified for a spot among the 20 or even 10-person debate stages, if I’d only rolled out my platform sooner.

I know we can do better on the personal financial policy side. Here are my three big ideas on retirement.

Oh and by the way I’m not running as a Democratic Presidential candidate per se. Rather, I’m declaring my candidacy for National Personal Financial Benevolent Dictator – or NPFBD, which just rolls off the tongue nicely – a position that happens to also include extraordinary legislative power needed to pass my most important ideas.

My first three policy ideas deal with the crisis of retirement.

This is the crisis: About half of American households have zero net worth, and 29% of older Americans have virtually no retirement savings. The returns on Social Security savings are low, the enrollment in workplace retirement accounts is weak, and the costs of investing are too high. As NPFBD, I will solve all this.

I’m not a member of a party. Rather, as NPFBD I’m embracing “Paternalistic Capitalism” as my ideological mantle. For you fervent capitalists, very little will change under my dictatorship – you can continue to save and invest as you always have, and the program is revenue neutral. Read my lips: No new taxes. For you budding socialists, I think you will find my benevolent dictatorship addresses the problem of poverty and financial insecurity at retirement through important government interventions.

Policy #1 – Automatic enrollment in workplace retirement accounts. 

About once a day I remember that not every single person with a job is enrolled in a their workplace tax-advantaged retirement account – like a 401(k) or 403(b) – and then I get heart palpitations and red in the face. Gah! Why is this still allowed? 

As benevolent dictator, my fellow Americans won’t be able to make that mistake. The day you start your job is the day the HR department at work directs a portion of your paycheck to a retirement account. No ifs, ands, or buts. You’re also automatically invested in an age-appropriate investment fund. You can improve upon that fund choice later by taking charge of your investments, but the default fund will be thoughtfully chosen (by me, your NPFBD, according to your age, and adjusted annually).

Policy #2 – Private market investing of federal payroll deductions 

In addition to automatic enrollment in a workplace tax-advantaged defined contribution plan, I’m going to reform the nation’s primary defined-benefit plan for retirees.

So part of every paycheck you receive will be withheld by the federal government, and you get the money back at retirement, but more. Through the decades of your working life this money will be invested by the federal government in private high-return assets, like diversified stock mutual funds.

Now, you’re probably thinking, “So, let me see here…the feds take part of every paycheck throughout my working life, and then I get my money back in retirement…Well um, that’s…that’s Social Security!…This blogger thinks he’s just invented Social Security.” 

And fine, yes, there’s a resemblance. But the improvement I’m highlighting as NPFBD is that the money taken throughout our working life is actually invested, under my plan. Like, invested in stocks and mutual funds and stuff that grows in value over time.

Currently, our Social Security taxes are not invested over decades. Rather, our money is either transferred to retirees or loaned to the federal government and earns a very low rate of return. Actually investing our money over decades would, under many scenarios, grow tremendously over forty years of compounding returns. My own calculation recently was that I would have a monthly income about 2.7 times larger if my specific Social Security taxes in my lifetime had been invested, rather than simply earned a low government loan interest rate.

Ok so yeah, it’s a partial privatization of Social Security. Deal with it. You elected me to be NPFBD for a reason. 

Also, In order to make this partial privatization the best deal possible, we have to roll out policy #3 at the same time.

Policy #3 – Universal access to the Thrift Savings Plan (TSP), currently only open to federal employees

Even as you read my third policy, the investment management industry (aka Wall Street) is already typing up its response to me. Something along the lines of “Shhh…Shut Up!” 

Now, I sense your instinctual suspicion about expanding government-managed retirement funds like TSP. Something like “Gub’mint git yer gosh-darned hands off my mutual funds,” or whatever. 

But firstly, private sector managers actually run most of the money, subcontracted by the TSP. Currently, BlackRock is the manager for the TSP stock funds. The federal government just did the important work of simplifying and driving down costs, a major part of successful investing. 

Anyone who is a federal worker with access to TSP retirement accounts already knows that these funds are amazing. Amazing – not because they employ brilliant managers of money, as brilliance in money management is over-rated – but because they offer some of the lowest cost funds in the world. All I can tell you – if you haven’t experienced it – is that the TSP is a delightful program, and we should all be so lucky as to have access to it. 

As my campaign for NPFBD continues to gather momentum, I will release further plans in the future. In the meantime you are welcome to send me your own crazy-but-good ideas for me to roll out, as your benevolent dictator.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Please see related posts:

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A Confusing Puzzle Made Simple – Retirement Plans

A version of this post ran earlier in the San Antonio Express News


I recently received in the mail retirement plan documents for a local employer’s 403B plan.

I’m going to spend the first part of this column complaining about this 403B plan provider. Later, I am going to offer a better, simpler, version of the plan. And that better, simpler, version of the plan will make 99.5% of all investment advisors throw up in their mouth. But they are wrong and I am right.

But before I complain

Let me start with an important public service announcement first:

403B plans and 401K plans – employee-sponsored, tax-advantaged retirement accounts for non-profit and for-profit employers respectively – are Totally. Freaking. Awesome.

If you have access to one of these through your job, and you are not taking full advantage of these accounts, then drop your newspaper or iPad right now – seriously, right now – and call your HR department and sign up for automatic payroll-deduction investing.

Do it. I’ll still be here when you get back.

What are you waiting for? I said I’ll be right here.


Ok. Are we good?

Now then, my complaining

I received in the mail this packet entitled “important information about your retirement plan,” consisting of 42 pages, printed on double-sided paper and in small letters. You might be able to guess where this is going.

The problem

I’m bothered not by any deficiencies in the plan, but rather, the opposite. The document provides a gold-plated menu of options.

The problem is that anybody except a sophisticated financial professional would find the choices totally overwhelming.

I did some simple addition and this is what I found:

141 mutual funds of 100% stocks;

38 mutual funds of 100% bonds;

41 mutual funds with a blend of stocks and bonds, in varying proportions;

6 money market mutual funds; (By the way, this is perhaps the most ridiculous part of the whole list.  A money market fund is a money market fund is a money market fund. You don’t need 6 to choose from.)

6 fixed return investments;

1 lifetime annuity investment;

And a partridge in a pear tree.

Hello? Is anybody there? This makes me so mad.

Paradox of Choice

These choices make no sense. You would think the designers of this 403B plan had never heard of the behavioral finance theory known as the ‘paradox of choice’ idea in retirement planning.


Behavioral economists have shown that the more mutual funds you offer, the less likely people are to actually invest in anything. We tend to choose instead to delay decision-making to some later date. And that delay, in the case retirement planning, is a horrible outcome.

An economist’s study using data from fund company Vanguard showed that for every additional 10 mutual funds offered in a retirement plan, the rate of employee participation in the 401K and 403B programs declined 2%.

If you offer 50 additional funds for example, we would expect 10% fewer employees on average to participate in their retirement account.

The decision – due to confusion – to defer contributing to some far-off future date may cost you millions of dollars in your retirement. I’m sure the friendly folks in charge of designing this 403B plan felt good about offering so many choices because, hey, more choices are better, right?

Unfortunately, not when it comes to encouraging people to invest in their retirement accounts.

My solution, as DRAGO

Sometime in 2035, when I am elevated by President Miley Cyrus to the post of Dictator of Retirement Account Great Options (You can just call me DRAGO, for short) there will be two – and only two! – funds to choose from.

Miley Cyrus is a Patriot

In this way I will maximize your participation.

Risky and Not Risky

I will call these two funds Not Risky, and Risky.

Not Risky will never lose you money. Not Risky will provide you between 0 and 2% positive annual returns year in and year out. It will also never make you any money on your money, especially after taxes and inflation.

If you have 10 years or more until your retirement (a key ‘if!’) Not Risky is totally forbidden for your retirement account.

Risky, by contrast, is quite volatile. You can lose as much as 30% of your investment in one year. You can also gain as much as 30% in one year. Viewed over long periods of time, Risky has returned about 9% per year in the last century. Risky is also the only way to actually grow long-term wealth with your retirement account.

In the future with Risky, you should reasonably expect no more than 6% annual returns, over the long run, with tremendous volatility in the short and medium run.

But after taxes and inflation, Risky offers you a far better return on your money than Not Risky, many, many times over.

Finally, as your DRAGO, if you have more than 10 years to go until your retirement account (a key ‘if!’), I will force you to only have Risky in your portfolio.

Retirement money for most of us, remember, is long-term money. For most workers in their 20s, 30s, 40s, and 50s, retirement is more than 10 years away.

Only if you plan to retire within the next ten years (a key ‘if!’), will DRAGO allow you to invest in a blend of Risky and Not Risky.

In this way, I will maximize your wealth in retirement.

You can thank your DRAGO, as well as President Cyrus, for this important service and improvement in your quality of life in your retirement years.



please read related posts:

Stocks v Bonds, the Probabilistic Answer

Book Review of Simple Wealth, Inevitable Wealth by Nick Murray




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