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Burning

Martin and his squeeze are 38. Rent in Vancouver. No kids. No dog. But big ambitions.

We have a combined income of $165,000 and my wife works for a provincial agency. She will have a modest DB pension.  Currently we have $1,250,000 in savings, no mortgage/debt, and we rent.  If you don’t believe me I have the statements to prove it.  We plan to retire in our mid 40’s and we were discussing how much money we need for retirement.  We aren’t quite sure.  How much is enough?

Retire in six or seven years? Let’s crunch the numbers in a moment and see what’s feasible.

First, is FIRE a valid thing? That’s what the ‘financial independence, retire early’ movement brands itself. Not new – been around for years. The moustache guy in the US helped fuel the flames. In Canada the two posterpeople are Kristy and Bryce who hang out at Millennial Revolution (they may have to change the handle soon as the Mills slide into middle-age. Ouch.)

K&B admit to becoming my clients back when they toiled for the banks. They swallowed my doctrine, eschewed buying a house, doubled their portfolio and brought me champagne the day they passed seven figures while still in their 30s. FIRE achieved. So they went travelling, wrote a book and launched into the self-help biz for others who sharing their goal. (They don’t like me much anymore for calling them whiny and self-centred. Apparently I still need help with social interactions.)

So while other generations declared defeat and worked diligently until they dried up, the FIRE people refuse. Or at least try to escape. For serial entrepreneurs and those who think work-life balance is a plot (like me), it’s hard to understand how or why anyone would stop working at 45, then spend the next 45 years doing… what?

This is paleo, Boomer thinking, they say. It’s not about retirement, but about ceasing to do things you don’t want to do. Just for money. Instead the goal should be to be fulfilled. To measure things by experience, rather than material reward.

Well, being a dog guy, I get it. Canines survive in the moment, have no clear concept of future and live for the next liver treat or belly rub. No, I’m not likening Martin, the FIRE folk or my former clients to golden retrievers. But there are lessons. The goal of life is not the mindless accumulation of stuff, just as it’s not indebting yourself for all adulthood to own a house.

The goal, rather, is to maximize what we cannot buy, borrow, steal or create. Time. It’s why this blog has consistently warned against debt, reckless risk or sacrificing freedom, mobility and flexibility for a pile of sticks and bricks. If retirement means maximizing time, not just escaping labour, that’s good. If it involves efforts put into helping others, society, animals or the environment, even better. FIRE should never mean running away from the boss so you can stay in your underwear until 2 pm daily. Everyone needs a purpose.

For example, K&B retired from the jobs. But they’re working harder than ever on their big side hustle. Without a net.

Now, let’s do Martin. Is his a realistic path?

Sure. In simple terms a portfolio of $1.25 million invested correctly for another five years earning 6-7% should grow to about to about $1.8 without further contributions. So let’s assume that chunking some additional funds in gets them to $2 million. Staying invested and harvesting a 6% return thereafter (consistent with a B&DS portfolio over the last seven decades, minus a 0.85% management fee, tax-deducible) should yield ten grand a month.

Is that enough to live on, even in Van?

Should be. But while that strategy would preserve the principal amount over time, the nest egg wouldn’t be expanding. No growth money sloshing around to start a business with. Or acquire property down the road. Nor to fight inflation. Retiring at 45 with two mill might not look like such a brilliant strategy in, say, 2051 when Martin is 75. When private health care costs a fortune.

In other words, going FIRE and punting a career means embracing big risk. Hard to imagine that we’re not on the cusp of some ginormous global and economy issues, like a changing climate, record public and government debt, political tribalism and the revolution AI will bring. Old dudes like me can watch with bemused detachment and a shorter time frame. For those retiring in their 40s it’s pure roulette.

Solution: keep growing the pile. It’s the only insurance you’ve got after the job is gone. That means a serious income haircut. Or, you can go to work. Wal-Mart maybe. Or learn to dance and try TikTok.

Retire at forty? Go ahead. But know. You are playing with fire.

About the picture: “I’m thinking of you and the ridiculous theft of a symbol of a country, Canada,  that I love,” writes Mirek. “We came to Canada as refugees in December of 1968 after we drove past long  columns of Russian tanks on our way home from a shortened summer vacation. We had nothing, left everything behind. Didn’t speak the language, but we found a new life in Calgary.  I’m forever grateful that Canada took us on in 1968, after the USA refused my father. While I’m not a flag waver, I’m thinking I need one now.  This is Zed, six month old Brittany, a happy soul, taking a break from me.”

Chutzpah

SKATER modified modified

Four years ago a couple of braggy, insufferable, know-it-all engineer kids in their late twenties wrote me. They boasted about having accumulated almost $500,000 through hard work, frugality and being smarter than everyone else. Drenched in ego and attitude they derided the plebes around them who aspired to a condo and a mortgage. No humility. No empathy. They were easy to hate.

So, I quoted their letter here.

Following your advice, we’ve resisted pressure from friends & family to buy a house and have instead been renting and quietly socking away money into our down payment fund. Now, six years later, we find ourselves in the surreal situation of sitting on a down payment fund that’s grown to $500,000.

A typical house-horny virgin reaction would be to go blow it all on a house. Here’s what we’re thinking instead: continuing to follow your advice (it’s worked out so far!), we invest the 500K in a dividend-producing portfolio. Then, when we find a good deal, we buy a 500K house on a mortgage. The portfolio’s yielding 6%, and I can find 25Y mortgages @ 3.5% fixed for a 5-year term, so the portfolio pays the interest and then some. We’ve proven we can save 500K in 6 years, so by the time that 5 year term is up, the mortgage will be gone (or mostly gone). And then we’ll be in our 30’s, we’ll have a house, no debt, and the portfolio will still be there generating 30K of (mostly) tax-free income, regardless of market flucuations. That’s enough to cover our living expenses if housing is out of the way. So…I dunno, we retire?

Retire at 31? Seriously?

We met, and they asked me to manage their portfolio (that was a surprise). For four years they saved like crazed beavers, lived on air and threw everything at the portfolio which, fortunately, grew like a demented little weed. So, they got the million. At 31. We did champagne in the office, then they took off on a debauched tour of half the world (the lascivious half), living on portfolio income. I think I wrote about that here.

Time for an update because these two, who now call themselves The Wanderer and FIREcracker (like Prince and Cher) have turned into zealots of a different kind. They never did buy that house, or any hard assets, and have morphed into quintessential anti-Boomers spreading a gospel of up-yours capitalism. They clearly despite the old fart cohort I’m part of, but are equally disparaging of their own generation of whiny, texting twits who just want to grow up to be like Mom.

Their thesis is simple: it ain’t working. Millennials have been talked into a life of over-education plus debilitating debt, then launched into a world where under-employment’s the norm, life-long financial servitude is the outcome, and the parental push into real estate at any cost can turn into a soul-sucking death spiral. Instead, why not rent, invest, worship liquidity and strive not for a $1.4 million cookie-cutter house in a boring hood, but true seven-figure financial independence? Just like them? Cuz they know everything.

This has led to a thing called Millennial Revolution, and here’s FIRECracker to explain:

The two of them have also blogged about you, the pathetic, yapping hounds who nipped at their oversized self-centredness and drove them to become the new Che Gueveras (Google it, kids) of the gen that expects a gold star for showing up. “If we don’t tell people what we did, and teach people how to do it themselves, then our generation will continue to wander aimlessly, while the Boomers will continue to call us greedy, self-absorbed and wasteful little shits,” they say.

Because we are NOT greedy, self-absorbed, or wasteful. We Millennials are educated, socially-,conscious, and environmentally-friendly little shits and don’t you god-damned forget it.

But I would like to say one thing. To any Blog Dogs that are reading this: we are sorry. Three years ago, when you hammered us with questions on how we did what we did, we withdrew and hid. We’re not proud of it, and if we could do it again, we would have done it differently.

So here’s our chance to make amends. Blog Dogs. If you’re reading this, let us have it in the comments. Don’t hold back. It’ll be like old times. Only this time, we won’t shy away. We won’t hide. Quite the opposite, actually. We want to start a movement. Because this is bigger than us.

Ask us anything. This time, on this blog, we will answer every question you throw at us. So let us have it.”

Good idea. The little self-absorbed sh…