All smoke and no FIRE: Early retirees open up about the struggles of ditching their paychecks in exchange for freedom and the new ways they’re generating extra income

  • The Financial Independence, Retire Early movement has grown in popularity since it surfaced in 1992.
  • Five early retirees described challenges with managing their money and finding a sense of purpose.
  • Several of them started businesses or returned to working regular jobs for steady income.

As a vice president at fashion designer Isaac Mizrahi Live, Rachel Covert earned $180,000 per year.

Her large salary, however, came with long hours and, eventually, burnout.

“Ultimately, the most important thing was being able to say, ‘I want to go to yoga at 10:00 a.m. on Wednesday,'” Covert explained to Insider.

She quit her job at the age of 36 in exchange for personal freedom. Fortunately, she had enough money saved up in a retirement portfolio and a brokerage account to make it happen. She now has nearly $500,000 in both accounts, according to financial statements obtained by Insider.

But the fear of running out of money was at the other end of her freedom. She suddenly realized that the money she had saved, which had previously appeared to be substantial, was limited. She became very concerned about her finances. And, while she was spending less money than she was when she was working, every penny felt like a lot.

The realities of joining the Financial Independence, Retire Early movement had dawned on her by this point. The FIRE movement promises a slew of advantages, including the ability to work out during working hours, travel the world, spend more time with family, pursue hobbies, launch business dreams, and permanently leave the 9-to-5 grind.

While many people have checked these boxes, Covert and four other early retirees interviewed by Insider described the difficulties of managing a finite cash pile and surviving on it for the rest of their lives. They also lamented the loss of the sense of purpose that comes with a steady job and the peace of mind that comes with two guaranteed paychecks each month.

Early-retirement aspirations

The FIRE movement can be traced back to the 1992 book “Your Money or Your Life,” which was coauthored by a couple who had achieved financial independence before their forties and is considered a bible for how to do the same.

According to a recent survey of over 2,000 respondents conducted by The Harris Poll on behalf of NerdWallet, approximately 25% of Americans intend to leave the workforce before the age of 50. That’s at least 12 years before they’re eligible for Social Security benefits and nine years before they can withdraw without penalty from their 401(k).

Nonetheless, the appeal of leaving the 9-to-5 grind before the traditional retirement age of 65 has grown. One financial independence subreddit has 2.1 million subscribers. Members ask questions ranging from how to save and invest to how to raise a family while pursuing early retirement.

There are even offshoots of the movement, with some focusing on extreme frugality and others on building a large retirement fund or working part-time. Lean FIRE, for example, represents those on the fringes of the movement who earn less than $40,000 per year. Those who like to spend more money — more than six figures — are members of Fat FIRE. There’s Barista FIRE, which represents semi-retirees who keep working because they haven’t saved enough to live entirely off of a retirement fund.

Early retirement doesn’t mean never working again

However, the FIRE movement has the potential to be more smoke than fire. Covert, who claims to be practicing Barista FIRE, had to make significant lifestyle changes to accommodate her new reality, as did other early retirees. She left New York City to become a digital nomad in countries with lower living costs, such as Mexico and Portugal, eventually shacking up with her partner, who owns a home in the United Kingdom.

The fact that early retirement did not imply never working again was also significant for Covert. She has since supplemented her income by working online as a money coach, allowing her to continue contributing to her retirement account.

Gwendolyn Merz also decided to return to the workforce after believing she had left it to become her own boss.

She graduated from college debt-free in 2013 and began her career in information technology with a Fortune 100 company.

“It wasn’t a pleasant environment to be in,” Merz admitted. “It was toxic, and I didn’t like working there, but I didn’t have any other context, so I thought, ‘Oh, this is just how all work is.'”

She decided to take matters into her own hands and save as much of her income as she could in order to retire early. She spent her twenties laying the groundwork for the FIRE movement after discovering it in college. She increased her savings rate and income after establishing a few additional revenue streams through her blog, podcast, freelance writing, and rental property.

She decided to leave after five years and $200,000 in savings. Her plan was not to stop working entirely. She’d keep working, but for herself, and draw on her savings as needed.

Merz ran into a number of issues.

For starters, she said she couldn’t access a large portion of her savings.”I had confirmed with my employer ahead of time that I would be able to cash out my pension and use the money, but then they informed me that whoever had told me that twice was incorrect and that I couldn’t cash it out.” That was $7,000 I was hoping for.”

She was also hit with a $10,000 home-repair bill soon after leaving.

“I didn’t have as big a runway as I thought I did,” she admitted.

Furthermore, she wasn’t making the money she expected. Her rental property began to cost her money rather than generate positive cash flow.

“After about six months, I realized, ‘OK, this isn’t working.'” I need to go back to square one.’ And that’s when I started looking for a W-2 job again.”

Merz was back in IT nine months later, working for a different company.

The flawed 4% rule

When it comes to early retirement, the big question is, “How much money do I need?”

“You want to be really mindful of your number,” said Marguerita Cheng, a certified financial planner. “Your number represents your ‘burn rate,’ or how much you need to maintain.”

To calculate your number, you must first understand what your expenses will be. Consider what is important to you and how you want to live in early retirement, according to Cheng.”I believe it is critical for people to understand that they have the ability to define their own retirement.” What are their intentions? “How do they envision themselves?”

Once you’ve determined your annual spending, you can work backwards using the 4% rule, which states that you can safely withdraw 4% of your retirement assets each year.

It’s not a perfect rule, Cheng emphasizes, but it’s a good starting point for determining how much you need to save to reach your early retirement goal.

One unexpected factor that early retirees have faced in recent years has been an increase in inflation, which the rule does not account for. Inflation reached 40-year highs last year, peaking at 9%. Even though the market has since cooled, prices remain high.

Meanwhile, wages in many industries have risen significantly over the last decade, which has been beneficial. However, it is a benefit that early retirees do not have. According to the Bureau of Labor Statistics, average hourly earnings have increased by 41% in the ten years since August 2013.

Michael Quan, who retired at 36, says he avoided the 4% rule by not withdrawing from his investment portfolio because he doesn’t know how long he will live.

He left his job as an IT consultant in 2013 with a net worth of $1.28 million and a cash cushion of $110,000 from the sale of his company. He then used that equity to buy stocks and real estate. Today, long-term and short-term real-estate rentals provide the majority of his monthly cash flow. He also shares a home with a spouse who earns a living from her teaching career. This has allowed his portfolio to expand unhindered.

“Inflation is something that always swirls around and pops into my head,” Quan explained. “I’m always thinking about cash flow because the cost of eating out and other things has risen significantly in recent years.” That is a real factor that people want to think about.”

Non-financial FIRE challenges

Even when all of the financial boxes are checked, some early retirees face non-financial challenges, such as a sense of purposelessness.

“The biggest challenge for these individuals is deciding which identities and purposes to pursue, out of so many possibilities,” wrote Winnie Jiang, an assistant professor at INSEAD business school, in an article about her ongoing research on early retirees.

Quan faced this challenge after leaving his job as an IT consultant to spend more time with his newborn daughter.

He has discovered that early retirement does not guarantee happiness. While he enjoys being a full-time father and does not regret retiring early, he misses the impact he had while working. In search of a new sense of purpose, he launched an online coaching business, teaching others how to achieve their financial goals. One message he sends out to his community is that early retirement may not be the best option for everyone.

“I thought it was a destination, that I had to get to a point where I could pull the trigger and the cash flow would cover the expenses,” Quan explained to Insider. “And I did get to that point, and I did pull the trigger, and then I realized, even though I couldn’t, that there was a shift in identity.”

Similarly, Sam Dogen went from a thriving finance career to “feeling like a nobody at the age of 34.”

“Suddenly going from 60 to 70 hours of work, having colleagues, and going on business trips to Asia and around the country to nothing was really challenging,” said Dogen, also known as the Financial Samurai on social media. “That was a big hole, a big void to my ego.”

Dogen retired in 2012, at the age of 34, leaving behind an executive director position at Credit Suisse and a base salary of $250,000. It was a demanding job that demanded long hours. He was bored and exhausted.

He had the realization that if he could negotiate a severance package that included deferred cash and stock compensation, it would accumulate over time and allow him to retire early. He had a portfolio of real-estate index funds, certificates of deposit, and some bonds by the time he walked away, which he estimated would pay out about $80,000 per year.

Still, he said, it was a significant drop in income. Furthermore, all of his friends worked during the day, so he didn’t have many activities or people to spend time with. He also felt as though he was lagging behind his peers. While he was frozen in time, his friends and colleagues continued to save and invest because they had paychecks.

He returned to work a year later as a consultant for a few technology firms. He also began coaching high school tennis and expanded his online blog, which provides advice on how to retire early.

Dogen advises those considering early retirement to try before they buy. If your company offers sabbaticals or extended vacations, he recommends taking them and seeing how you feel.

‘I don’t know how much money I’ll make next month.’

Shan Shan Fu quit her six-figure tech job in 2020, at the height of the pandemic, to pursue a more entrepreneurial path. She’d just started an e-commerce business selling face masks and wanted to see where it could go.

Her business was providing more than enough to support her lifestyle, but as the pandemic was brought under control and face covering regulations were relaxed, her sales began to decline. She eventually shifted her focus to women’s clothing.

That’s when she discovered one of the most difficult aspects of working for yourself: income fluctuation.

“Most of my income, probably 60% to 70%, comes in Q4, so September to December,” she explained. “It’s very stressful when the majority of your money comes in four months and you make very little in the other eight months.” To make that work, you almost have to go into debt.”

According to Fu, there are significant benefits to working for yourself that outweigh the challenges. “I have the ability to live anywhere in the world.” I don’t have anyone to report to. “I don’t have any meetings,” she explained.

She would consider taking a part-time salaried job to alleviate the stress of the erratic cash flow, she said. However, a full-time corporate position is out of the question.

For her, whether you work for yourself or for someone else, stress is unavoidable.

“I’m also stressed, but the stress is different,” Fu explained. “I have no boss, no one to report to, and I have no idea how much money I’ll make next month.”

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