XPost: alt.politics.economics

from https://www.washingtonpost.com/business/2018/10/25/do-you-need-million-retire-early-suze-orman-says-so-fire-devotees-say-no/?utm_term=.30c9312d0da3

Do you need $5 million to retire early? Suze Orman says so. But ‘FIRE’ devotees say no.

By Michelle Singletary
Columnist
October 24 (2018)

There’s a debate raging about how much it really takes to retire early.

On one side there’s personal finance guru Suze Orman, who cautions that retiring early without a significant nest egg could crack early
retirement plans.

And then there are members of the FIRE movement who aspire to retire early.

In case you don’t know, FIRE stands for “Financial Independence, Retire Early.” It’s a community of folks who say you can retire in your 30s by living on far less than you earn and investing what you don’t spend.

If you’re willing to commit to extreme frugality, you don’t have to wait until 65 to retire, members of the movement say.

FIRE got a jolt of attention after comments made by Orman, the New York
Times best-selling personal finance author who made her millions
coaching others how to save and spend less. She was the host of her own
show on CNBC.

Orman poked her nose out of retirement, where she’s living on a private island, to comment on the FIRE.

“I hate it. I hate it. I hate it,” Orman said during the Afford Anything podcast.

Tell us what you really think, Suze.

She was concerned early retirees wouldn’t be adequately prepared for the
long haul should the economy tank or they get sick. Here’s part of the transcript of the podcast with blogger Paula Pant.

Orman: “Listen everybody, I know you want to retire at 25, at 30 and 35,
but here’s the problem as I speak to you at 67 years of age, approaching
70. As you get older, things happen. Not only do things happen as you
get older, things happen when you are younger. You’re hit by a car. You
fall down on the ice. You get sick. You get cancer. Things happen. . .
If you have $20, $30, $50 or $100 million, be like me, okay? If you have
that kind of money, and you want to retire, fine.”

She goes on to say having a “few hundred thousand dollars, or a million,
or $2 million” won’t be enough. "If a catastrophe happens, if something goes wrong, what are you going to do?”

Orman says early retirees should be worried about the financial
stability of Social Security and Medicare, the possibility of higher
taxes and the ever-growing federal deficit.

Here’s a legitimate point from Orman: “If you’ve achieved financial independence, and you’re no longer now putting money into your
retirement accounts, you are losing the compounding years of your life.
. . So now you’re living off of the money that you have. How do you take advantage of your compounding years?”

Pant: "What would be a safe amount at which a person can say, 'Alright,
at this point, given the size of my portfolio, I’m comfortable enough
that if I did get hit by a bus, I would be fine.”

Orman: “It would have to be in the millions . . . You need at least $5 million, $6 million.” (She later says $10 million to account for taxes.)

FIRE proponents fired back at Orman that she has it all wrong.

Their goal isn’t to stop working, but to live a better life doing what
makes them happy.

And Orman may have lost some perspective with her megamillions, living a
lavish life that is far above the standard of the average American. She
talked, for instance, about spending $30,000 a month to care for her mother.

My father-in-law was in a really nice assisted-living facility and the
cost was about $3,500 a month.

There is a middle ground here folks in which you don’t need $5 million
to retire early.

An early retirement is doable. Here’s how.

What I like about the FIRE movement is there are people who have come to understand they don’t need as much as the advertisers say they need.
They are deciding to live their best life on less. And if they are
successful they let their money work for them so they can work or live
as they please.

“We have low and easily controlled expenses,” wrote Mr. Money Mustache,
who retired at 30 and is a leading advocate of the FIRE movement.
“Remember, we got here precisely by being good at controlling our
spending. Instead of focusing your energy on leasing BMWs or dressing
yourself up fancy, you have learned to live happily and work on your
skills, health and friendships. It’s a package that will make you
wealthier in good times and bad.”

Retire early or keep on working? How to prepare for either choice.

Orman backed off a bit from her criticism of the FIRE, writing for
Money, “If you want to retire from a long commute, a corporate hierarchy
you loathe and work that you don’t look forward to, I am 100 percent
cheering you on. But that assumes your next goal is to segue into a new ‘career’ that speaks to you, and that yes, brings in some money.”

But let’s also put this debate in perspective.

Many people aren’t saving enough to retire at all – early or late.

Read more:

Retire early or keep working? How to prepare for either choice.

Is $1 million enough to retire? Why this benchmark is both real and unrealistic.

Should we retire the concept of retirement?

----------------------------------------

Color of Money question of the week
What do you think of the FIRE movement? Are you a devotee? Send your
comments to colorofmoney@washpost.com. Please include your name, city
and state. In the subject line put “FIRE.”

Live chat today

Let’s talk about your money. I’m live at noon (ET) today to take your personal finance questions.

My guest this week is Mark Kantrowitz, publisher and vice president of
research for Savingforcollege.com. We’ll be talking about 529 college
savings plans.

Read more: The average 529 college savings account hits a record high.
But it’s still not enough.


It’s also “Testimony Thursday” so share with me your success stories. Have you paid off debt? Did you finally reach your emergency fund goal?

To join the live discussion click this link.

Stock market losses

The stock market is still turbulent and keeping some folks up at night.

Last week I asked: How are you coping with the recent stock market seesaw?

“I keep reading different gloom and doom stories, and then there are the
ones saying this economy is so strong,” wrote Dave. “Didn't we have
banks too big to fail, but failed anyway? It's easy to ignore this
volatility if you have many years to go, but when you're thinking about retirement, dropping $20,000 is not ideal for your plans.”

Read more: Dow plunges more than 600 points in another day of losses, officially wiping out its 2018 gains

G. Lukos of Beaverton, Ore., has some advice on handling a day of big
stock market losses: “Turn off the news. Since you have already set up
your portfolio with an asset allocation appropriate for your personal
situation (in my case, in retirement) you have done what you can to
handle inevitable market gyrations. Don’t react after the fact. Prepare
ahead of time.”

Don Barrett of Arlington, Va,. wrote, “The big problem is that the
average investor has no idea how to manage risk. For example, using risk management strategies such as trailing stops to get out before the
losses become devastating, position sizing to ensure that the risk is
evenly spread among asset classes, and planned asset allocation among uncorrelated assets to ensure diversification, can help ensure that one
has the funds to continue through the rough times to achieve success.”

The investment strategies Barrett suggest are probably way over the
heads of a lot of investors. But if you’re interested in finding out
what he means, read the following.

-- How to Use Trailing Stops

-- What is ‘Position Sizing’

-- Correlated and Non-Correlated Assets: Learn About Why Asset
Correlation Matters

Color of Money Columns This Week


Knowledge isn’t power. The right knowledge is power.

Stay informed about your money.

In addition to this newsletter, please read and share my weekly personal finance columns.

-- You didn’t win the Mega Millions? Good.

-- Here’s one way to cut the cost of college

Newsletter Comments Policy

Please note it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages thoughtful and
civil conversation. I want my newsletters to be a safe place to express
your opinion. On sensitive matters or upon request, I’m happy to include
just your first name and/or last initial. But I prefer not to post
anonymous comments (I do make exceptions when I’m asking questions that
might reveal sensitive information or cause conflict.)

Have a question about your finances? Michelle Singletary has a weekly
live chat every Thursday at noon where she discusses financial dilemmas
with readers. You can also write to Michelle directly by sending an
email to michelle.singletary@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with
the writer’s name, unless otherwise requested.

To read more Color of Money columns, go here.

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Michelle Singletary’s newsletters right into your email box: "Your Retirement" on Mondays and "Personal Finance" on Thursdays

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-------------------------------
188 Comments
Y: Make, Manage, and Multiply It...on Amazon. Practical advice that
you can use.
Likethumb_up

1 week ago
Even if I live into my 80s, I will not have spent even close to half of
$5 million! That is completely unrealistic. Families live on $25K/year.
It's like Judge Judy making fun of people who earn low wages when she
would ask how they can live on less than what she spends on dog food!
Elite arrogance and ignorance!
Likethumb_up3

1 week ago
(Edited)
I'm not a Suze Orman fan. She's arrogant and condescending.

But she makes a valid point. There are lots of risks in life, and the
timing of a risk event makes all the difference. Here are a few of them:

1. Morbidity - an increasing risk as one ages. Compounding the risk are advancements in medicine, which extend life but at increasing costs that
exceed core inflation. These occurrences are real, and will not trend
downward with age, nor will the aging populace mitigate it. Instead
these factors will increase this risk, even for the insured.

2. Tax risk - savers usually take advantage of tax-qualified accounts,
(401ks, IRAs and the like). Tax rates are the lowest in history, as the population ages and government burdens increase. Taxes are likely to
increase in the future, and this is a very real risk, especially for
those as-yet untaxed funds.

3. Investment risk - markets fluctuate. Always have, always will. The
most significant risk in the early years of any retirement is to turn
off income from work, have to sell into a declining market, and then
paying taxes on it. It devastates long-term projections. That fancy
calculation you made about how much money you were going to need just
became worthless if the market turns downward as you begin distributions.

4. Inflation - a psychological phenomenon not seen in this nation since
the 70's and 80's. The risk hasn't disappeared. It is the same risk as
always, and inflation erodes purchasing power dramatically. Try managing
that, in a declining market, with a health problem, with increases in
taxes, and see how long your projections run. Hint: dramatically shorter.

5. Mortality - If dead it doesn't matter anymore, right? Life expectancy
is increasing, so money must last longer to make it until you do die.
See 1-4 above for how this risk, in combination with those, can lead to
a $5MM figure.

Suze got this one right. The figure is much higher than most calculate,
when taking risk and a margin of safety into account.
Likethumb_up

1 week ago
Get real Suze Orman. About 7 million American households have a net
worth of $1 million or more. That figure falls dramatically when you
move up to $5 million. Far less than 5% of Americans will retire with at
least $5 million, so it's rather silly to insist that you need something
that 95% of people will never have. Plainly you do not need $5 million
in order to have a comfortable retirement. I know several comfortably
retired couples who have nothing close to $5 million, even if you
include the present value of their pensions.
Likethumb_up3

1 week ago
Materialism has run amuck, the news is saturated with continuous
detailed stories of shallow social icons with no merit or substance and products you can easily live without. Retirement is wonderful; don’t
croak in the saddle.
Orman’s just another “expert” financial planner that has her hand out, much like the phony charities, megachurches, unethical politicians,
lotto program developers, and others who live off the gullibility of
folks stymied by a very complex and confusing world we live in.
Researching her history will be a worthwhile activity if you’re at all interested. There’s an army of opportunists out there.
Too many of my fellow geezers hang around, trying to not be forgotten, bolstering their vanity, wreaking damage long after their contributions
to the economy or political direction or societal or technology changes
have left them in the dust. But they won’t relinquish the keys.
Age does not always guarantee wisdom anymore than youth guarantees
enthusiasm. For their own sake, most of them should just fade away; it’s embarrassing.
Likethumb_up2

1 week ago
Suze is probably more right than wrong. A lot of factors. Age of
retirement, health outlook, luck.
Likethumb_up1

1 week ago
Pushing 50, I don't know any FIRE folks, most of us have kids to help
through college or enjoying our careers. What I do see are people, once kids/college is behind them, downsizing their lives and careers where
living on 50% of current income, but still working, is feasible. These
are folks who have contributed quite a bit to retirement and are okay
easing off the contributions but not touching the money for 10 or more
years.

Several peers of mine, once the last kid is out of college, sell the
home, take the equity, move to a cheaper American city where they can
buy a smaller home free and clear, and get a job making 1/2 of what they
do now and with almost 100% less stress and head home at 4pm every day.

This, is the more practical alternative to FIRE. Having a decent
retirement account before that time, perhaps not $5mm, is mandatory, IMO. Likethumb_up6

1 week ago
Perhaps they should it from FIRE to something like Financial
Independence, Get a Less Stressful and Competitive Job and Instead do
Something You Enjoy Even if it Doesn't Bring in a Six Figure Salary.

There's no way in heck that anyone could live on the median american
salary and save hundreds of thousands. So even if you start at 21 with
your first job and bank half your salary there is no way you could
retire unless you get help from your parents. How do you afford
healthcare if you're not getting it through your work? Do you use
public assistance? Do you not pay bills? Do you just find a place
where you never have to use heat, ac, water, sewer? If your idea of
retire means subsistence farming on a small tract of land in the middle
of nowhere and praying nothing bad happens then more power to you. But
for the rest of us, I kind of like having the internet and books and
buying scallops and nice wine and going on vacation and giving to
charity and being able to engage in hobbies. We still save a lot and
we'd like down shift when we're in our late 50s but to say that you're
retiring at 30 is bull dinky. Of course, unless what you really mean to
say is that you're retiring at 30 but will rake in 6 figures from doing
weird stuff on the internet and then write a book that will get you 7
figures.
Likethumb_up2

5 days ago
I read this after hearing about it in the Post years ago. You would
benefit: https://www.mrmoneymustache.com/2011/09/17/the-race-to-retirement-revisited/ Likethumb_up

1 week ago
It's possible to live a frugal lifestyle and retire early. I've seen it
done. Some do it for health reasons, others to enjoy life to it's
fullest. But, it can be done...
Likethumb_up1


1 week ago
Fascinating that there are more negative comments about FIRE than the
Orman plan of saving $5 million. A rare few could retire if we all tried
to accumulate that much money.

Mr. Mustache has often addressed the fact that not everyone has the
same high salary to fund early retirement. Anyone who really wants to
find a way to reduce their spending can find ways.

(then a negative series)

1 week ago
Not being middle class, but of the "creative" class...ie artist type...I
find Orman rather disgusting with her bs about retirement. If you are
rich or well off, I doubt you have much to worry about...as for the REST
of us...living by the seat of your pants and creating a meaningful life
is as important as anything...grateful there still are govt programs to
help old creative types live decently...thanks to the DEMOCRATS
Likethumb_up5

1 week ago
So, in effect you are saying that you spend your life playing your
guitar or painting while we, the taxpayers who contribute to society,
have to support you with our hard work via "government programs". Quite parasitical.
Likethumb_up

1 week ago
Another Republican to ignore
Likethumb_up4

1 week ago
Do you listen to music - or look at any art? If so you are a parasite
on the artists.
Look, artists - as well as people who clean houses etc - have a place in society. If we did not have artists - life would be very boring. I am
happy to have them live decently.
Likethumb_up7

1 week ago
These ridiculous expectations...five million dollars...are no help to
normal people trying to figure out how to finance their retirement. As
usual, we are on our own.
Likethumb_up7

1 week ago
You have always been on your own....
Likethumb_up3

1 week ago
She says you need $5M to retire early because of the long period of
time, you'll need enough asset base to generate income so you don't
touch the principal.
If you're planning to retire in your 60s, you can get by with a lower
number.

I'm normal people. Using 401ks and not making six figure salaries, I
still have over $350k with 15 years to go - not because I'm the world's greatest saver but because I started early and I stuck with it so I
benefit from the power of compound interest. It should be much, much
higher, but I've been at jobs without 401ks for over 5 years and that
screwed it up a bit. (I don't count the non 401k as retirement money but
as an emergency fund).
If you had told me that in my 20s when I had to raid the change jar for
lunch money the day before pay day, I wouldn't have believed you. But
Jane Bryant Quinn convinced me to try it and by God it worked for me. Likethumb_up

1 week ago
Much of the financial industry is bunk. Geared around selling services
you don't need. I have a decent sized 401k at the moment, and at not
quite 40 yet, get letters telling me I am at risk for only retiring on a
200k annual income! Which is well more than my current income. My "risk"
is them not making enough money off index funds.
Likethumb_up6

1 week ago
I’m 70 and still run the company I founded in 1981. My work is
stimulating , lucrative and benefits my community and country. I work
with smart, ambitious younger colleagues who are always opening my eyes
to new opportunities and oversee the business when I want to take a
vacation. Retire early? Ha!
Likethumb_up7

1 week ago
Congrats....I enjoy puttering around on my "farm". It's only 12 acres
but I stay busy.
Likethumb_up2

1 week ago
There is a difference.... you have a reason to get up in the morning -
but you likely don't need the money. The FIRE people are doing the
same... not slaving over a job they don't need or want.
Likethumb_up1


1 week ago
I retired at 55. I am now 63 and live comfortably in a paid for home
with 3 paid for vehicles. I live very well in rural NC.
My after tax income is $3500/mo

PS: My wife adds about $2500/mo to the mix
Likethumb_up1

1 week ago
(Edited)
Suze Orman's popularity stems from having the money to plaster oneself
on TV. As for her knowledge and credentials as a financial planner they
are no more substantial or accurate than myself and thousands of others
in the profession . Somebody needs to point that out. Viewing her as the
best , or the wisest is a fraudulent idea .How much money someone needs
in retirement is dependent on their lifestyle and expenditures as much
as it is on asset size and returns and inflation . So , the amount is as
varied as families and people are different .

1 week ago
To answer a question below, FIRE people generally disregard home equity.
They have a target (i.e. $1M) in a diversified portfolio of investments
(i.e. 60/40 stocks/bonds), and assume a paid off mortgage. They then
plan on withdrawing about 3.5-4% per year in dividends and interest,
which based on studies should allow the portfolio to actually keep
growing in their retirement.

They make sure to have appropriate insurance to cover floods,
hurricanes, fire, medical bills, etc. There is no need to have Long Term Disability insurance as this is designed to replace lost wages, but your
4% investment withdrawals are your income.
To cover the risk of market crashes they often also set aside three
years worth of living expenses (i.e. 40k x 3 = 120k) in cash based on
the assumption that the market has come back from every correction/crash
within three years throughout the last century.
Modify the above numbers for whatever your lifestyle is. And if you have
Social Security and/or a small pension all the better.
Likethumb_up4

1 week ago
(Edited)
A frugal middle class person and maybe even a couple could live on
$80,000/yr before taxes if they have paid off their house and gotten
their children through school. That would mean Social Security plus IRA savings of $800,000 to live for 10 more years, paying medical expenses
etc or 1.6 million to live 20 years. So not smart to retire before age
62 and expect to live 23 to 30 years.
Likethumb_up2

1 week ago
Universal coverage would negate the need to have large sums on hand for
medical issues.




1 week ago
Medicare Part B leaves 20 percent of the bill to the patient for doctors
and many tests. You have to buy supplementary insurance to cover your
risk and set an annual limit on payments of $6,000 or so.
Likethumb_up1

1 week ago
And don't you need $1,350 out of pocket for every hospitalization
covered under Part A? Retirement is a number of years down the road, but
we are beginning to research Medicare coverage and were surprised how
many out of pocket expenses there are. Hopefully by retirement time,
we'll all be on some sort of universal coverage like other nations. Likethumb_up1

1 week ago
You want that? It won't happen by magic.
VOTE!!!!
Likethumb_up7

1 week ago
Plan F Supplements cover the Medicare A deductible.
Likethumb_up2

1 week ago
I've noticed that a lot of these FIRE devotees have very young children
- some are still pumping out new kids even though they're "retired".
They're insane, IMO.


1 week ago
I hate to break this news to you but children are expensive.....
Likethumb_up1

***************************************
1 week ago
At age 61 my present net worth is about 1.4 million (cash, 401k, CDs,
pensions) if I cashed out on everything. If CDs were at the historical
60 year average of 4% I would make 56k per year. Add in SS and that puts
me at 90k+. Although my income is 165k per year I presently live off
much less than 90k and I want for nothing.

In short, this is article is poorly written and lacking in a mooring to reality.
Likethumb_up3
***************************************

1 week ago
It's relevant for an incredibly small number of people, as most
financial planning articles tend to be.
Likethumb_up2

1 week ago
That's great for you now, but what if SS tanks, the economy wipes out
most of your 401(k), etc? It happens. And you will have expensive
medical costs, easily >$100k per illness, no getting around that. No
reasonable person thinks SS can continue to support your generation the
way it did your parents without massive overhauls. I'm glad you have
some comfort now, but it's hardly bullet proof and certainly doesn't
apply to someone in their 30s who are looking to finance the next 60 or
so very expensive years of their lives. I lived incredibly cheaply when
I was younger, but life gets expensive as you get older for reasons that
have nothing to do with luxuries.


1 week ago
I am a little younger and have a little bit more. Right now, I am in
the midst of financial analysis to see if I can responsibly retire soon.

I live by myself, no dependents, and no need to leave behind more than
burial costs.

I figure my annual expenses to be in the $60-$70,000 range (renter not homeowner), and that includes market rate health insurance until I can
get Medicare. I could tighten my belt somewhat if I had to. If I stay
in an urban area, I could ditch my car and save a couple thousand per
year, or I could move someplace cheaper. I could also pay more
attention to squeezing a little more yield out of my savings, something
I haven't had to do while employed.

Fortunately I am in no need to make an immediate decision -- unless the decision is made for me and I get fired -- something I thought might
happen years ago, but so far I've avoided.
Likethumb_up

1 week ago
Median net worth of Americans age 65-69 is 194k.
Orman, you are a moron.
Likethumb_up5

1 week ago
Yeah, so alot of older Americans are barely getting by, what's your point? Likethumb_up2

1 week ago
Yeah, a lot of older people are dependent on family to pay their bills, especially since their net worth is mostly house equity. Maybe that's
what the FIRE people are hoping will be their safety net as well.
Likethumb_up1


1 week ago
FIRE is confusing to the point of incoherence.
If you’re willing to commit to extreme frugality,...
Isn't that called "living in poverty"? How do you enjoy life? And I
don't mean buying a sailboat or a cruise around the world, either.
Their goal isn’t to stop working, but to live a better life doing what
makes them happy.

But, then, what does the "RE" in "FIRE" stand for? Doesn't "retire
early" mean stop working?

I think this fake movement is taking a page out of the Trump playbook
and shape shifting to meet the criticism.
Likethumb_up1

**********************************
1 week ago - lobaluna
What is extreme frugality? Is it living a life that is within your
financial means, does it mean not spending money you don't have on
things you don't actually need? I have a happy life, retired early, live
within my means, and have no complains. We have been sold an idea that happiness is a bunch of stuff and then we discover that the stuff
doesn't make us happy.
Likethumb_up8

1 week ago
But if your financial means are one of borderline subsistence, you may
not have the money for required necessities.
Likethumb_up2

1 week ago lobaluna
Lets see, I have plenty of food, have a home, pay my bills, enjoy my
life. I am happy each and every day with my husband and my dogs, if that
is a borderline subsistence, then so be it.
Likethumb_up6

1 week ago
I think Lobaluna has the right attitude.
Likethumb_up3

1 week ago
And did you retire at 35 and live/plan to live the next 45 years of your
life this way? You may want to do it, but can you do it?
Likethumb_up1

1 week ago - lobaluna
(Edited)
I sure did and my husband continued working until he was 62. We managed
to raise 5 kids, buy a home and are very happy. My children are adults
now but they never lacked for anything in their lives and are happy
productive human beings who are doing well in life. I taught them what
was important and it sure isn't millions of dollars and a private island. Likethumb_up1

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