Global pandemic fallout leaves newest young retirees shaken and future of movement in doubt
As the effects of the coronavirus spill into every corner of the world, a financial school of thought that promotes the idea of retiring early in one’s adult life is facing an existential crisis.
The movement, known to its millennial adherents through the term FIRE (Financial Independence, Retire Early), holds that by living simply and saving aggressively, a person working for as little as 10 years can amass a nest egg large enough to provide sufficient passive income to sustain their needs for life.
That might have been feasible during the recent historic 11-year bull run in the U.S. stock market. But for the newest members of the early-retirement club, that strategy has been upended by the COVID-19 outbreak.
“In 2018, many people in the FIRE movement believed they had the financial resources to enjoy retirements as long as six decades,” reported the New York Times. That belief was grounded in the assumption that they could squeeze their living expenses to practically nothing and withdraw no more than 4% each year from their portfolio.
The math has changed for the worse, especially for people like 29-year-old Eric Richard, whom the Times said quit his job as a corporate operations manager last summer to become a “digital nomad.” From living as a carefree retiree in Bali, Indonesia, Richard has had to return to his parents’ house in Michigan as many U.S. expats come home amid growing concerns around travel and the coronavirus pandemic.
“It’s definitely not a great feeling, to say the least,” said Richard, whose net worth has reportedly dropped by more than US$100,000 as the coronavirus takes its toll on people’s finances worldwide.
A message board on Reddit dedicated to FIRE has recently been filled with nervous chatter, much of which comes from those who are “firing” or have already “fired.” One user asked those who use Airbnb properties for passive income to describe their situation; “Airbnb is a mess right now,” another user replied.
Another FIRE tactic, known as “geographic arbitrage,” has also been short-circuited. Because of current travel restrictions, living in a cheap foreign country has become exponentially more difficult, if not impossible.
Early followers of the movement have been luckier, as they were able to retire years before the current crisis hit and had built healthier financial cushions. But as newer FIRE retirees and those who have not yet pulled the trigger drastically re-think their plans, even the believers who have already succeeded question the future of FIRE.
“A lot of FIRE folks are putting on a strong face. But I can assure you that behind the scenes, there is a lot of devastation,” Sam Dogen of Financial Samurai, who quit his Wall Street job as a 34-year-old with US$3 million, told Business Insider.
Should the U.S. fall into a year-long recession, Dogen said, the FIRE movement would give way to what he calls the DIRE (Delay, Inherit, Retire, Expire) movement.
With a one-year recession scenario, he explained, many will have to delay their retirement plans, and might instead rely on an inheritance to bolster their retirement strategy. After a life spent working and retiring well past 65, Dogen expected people to look back at their lives with regret.
“Unfortunately, I think a recession is all but a certainty at this point,” he said.
