Financial Independence Failures

I think the biggest problem facing the financial independence/retire early community is lack of proof of concept. There are many people out there talking about early retirement, but very few who have the longevity to prove that their calculations are correct. Sure there are the Johnny come latelys that are celebrating their financial freedom online. But how many of them have been through decades of market turmoil and come out the other side ok? It’s one thing to intellectually know that the math works, and yet another to see success over and over again. The only stories more rare than long-term FI success are financial independence failures.

Almost everyone one knows at least one person who has retired early and made a good show of it. How many of you can point to the opposite? A case in which the 4% rule went horribly wrong.

There are probably some good reasons for this.

Four Percent Dreams

I have long felt that we are kidding ourselves with the 4% safe withdrawal rate. Why? Because almost none of the examples we have in our community have stopped making money. Although they might have started planning on withdrawing 4%, some blog income, consulting gig, or appearance fee almost always comes along. In fact many FIRE proponents are making better money than when they worked a W2.

I see nothing wrong with this. Freed from the humdrum life of W2 indentured servitude, creativity eventually turns to money. This unexpected windfall is well deserved and should be celebrated, not shamed.

But financial independence failures are few and far between when income brings your actual withdrawal rate below 2%. Even in my half retirement, I am expecting not to need to touch any of my investment equities. My income should suffice.

Rising Markets

OK. Just about everyone looks like a genius in this market. As long as you left your money invested over the last decade, you would be doing fine. With returns like we have had over the last few years, even overspending would probably not touch overall net worth.

It is easy to believe that financial independence failures no longer exist in a steady bull market.

The expected turbulence in the near future may shake things up. It will certainly be a stress test for many FIRE enthusiasts

Conservative Risk Tolerance

Although from the outside, early retirement appears a risky proposition. I would actually argue that those who are really into the FIRE movement tend to be fairly conservative. Although the 4% safe withdrawal rate is well argued and proven, most shoot for 3.5% or lower.

As mentioned before, many early retirees also have alternate revenue streams they build in retirement including blogging, real estate income, book writing, etc.

Furthermore, many spend a lot less than budgeted. Between geoarbitrage, frugal living, and travel hacking, monthly expenses keep going down.

Final Thoughts

The biggest financial independence failures seem to be related to not spending enough and saving too much. This might be because we are caught in the midst of a wonderful bull market. Or it may be that most early retirees actually continue to earn money and thus drive their actual withdrawal rate down to minuscule percentages.

It might also be that we as a community have a fairly low risk tolerance. The minute we sniff the winds of change, we tighten our belts, move out of country, or pick up a side gig or two.

The fact that there is not a huge list of financial independence failures is both unique and strikingly positive.

Sorta makes you wonder if we’re over thinking this whole thing just a little.

No?