FIRE reaching Critical Mass

[slsdly]

My concerns with MMM are not his frugal purity. My concern is his advocation of 4% rule, while as far as I know, he has never actually lived off 4% of his portfolio. To be clear, I think that his side businesses are great things to be doing, but if you are pulling in enough from your blog, or your renovation business, to live off anyways, it seems disingenuous to suggest to others all you need is 25x expenses and then you are set for life. The risk profiles of 4% from passive investments, and 4% from passive investments + diversified side hustles capable of providing for all your needs, are very different.

[jacob]

Here's a proposition for you, though it's not exactly what he preaches, MMM is ERE.

He's told me as much---although I still can't figure out what he's spending so much money on

In terms of tribalism/hating, that's nothing new. I used to (and probably still am---I pay far less attention now) be known in certain circles as an arrogant and condescending person who was sometimes insightful, sometimes hateful. Different people have different preferences and if personality types are incompatible, the message doesn't go over well.

I'll own the condescending---but only because it's well-known that random people tend towards ignorance so that's just me being considerate --- but I always saw my role as giving the academic treatment to personal finance/lifestyle design. I'm also arrogant enough to say that I was the first to do it this comprehensively. At least we've not been able to find any other academics, but maybe they didn't find it worthwhile. The FIRE community---and I'm really getting the impression that most of the pf-blogging community are now FIRE people---is largely using what is in my humble opinion my paradigm for FIRE: focus on savings rate (not a $1M), reducing spending (not increasing income), focusing on the biggest expenses like house, car, and food (not 1000s of little frugal tip), doing it before age 40 (w/o winning the lottery). All that stuff in the parenthesis was the previous paradigm and mine was heavily contested---fought and laughed at---even 7 years ago.

The famous "surprisingly simple math of early retirement" actually used to include figure 7.3 (IIRC --- it's the last figure) of the ERE book before it was replaced with some simpler-to-understand app output.

The previous paradigm still exists of course. You'll find it on bogleheads and e-r. There's always been doctors and lawyers retiring early at $5M... which is not really that much money when you make $250-500k/year if you think about it. While they were very focused on investment advice I always thought they couldn't budget worth shite

FWIW, the few sections about investments in the ERE book are actually fairly deep as well, but you need to have significant market experience to realize that. Most people are looking for something specific context-free technical advice: "Go to Vanguard and open an account in VTSMX. As demonstrated in this graph showing my personal results from 1982 to 2018 it always goes up." The ERE book's investment advice specifically warns against that type of thinking. But yeah, it's not a beginner's book. OTOH, it was never intended as such.

Now, as mentioned above, tribalism is important and in order to have a tribe, you have to have a dear leader. I remember saying (probably in an email) back then that if ERE needed a JD Roth of FIRE it was ever to go mainstream. As I've related before, I was getting supertired of being dragged through the wringer back in 2010-2011 and looking to quit but was holding out (for the sake of the FIRE/ERE community) because there was nobody else there. That is, occasionally someone would start a blog ... it would last 60 days and then fade. MMM was the first with enough drive that I was willing to call it quits with blogging. He also possessed the JD'ness necessary to mainstream it. First within the PF-community and then within MSM in general.

When you get an influx of readers at different Wheaton levels, I think it does change your message somewhat. If I'm talking to complete noobs (like a journalist or something), I will also quote the 4% rule and talk index funds.

My public strategy has changed over the years.

Right now I'm accepting more media exposure because I've realized that if I don't claw in some credit, nobody is going to give it to me (where's my @#$@# wiki page? ). As @jp mentioned above or in another thread, people/bloggers will happily acknowledge ERE if you ask them directly, but they will generally not actively credit ERE or seek me out. I often find myself talking to journalist only to end up serving as "background" (I can tell because I use 'unusual terms' that nobody else do) while they decide to feature some young/hot Millennials instead.

However, previously my strategy was to respect the Wheaton levels and let people find me via other sites (MMM is a big vector ... comparable to organic google traffic for me, which I why google can go @#$@# themselves with their helpful "...or else"-suggestions). This has allowed me to be more of a "guru on the mountain" which again means that this forum is mostly attended by people of some climbing skills.

GandK once posted https://meaningness.com/geeks-mops-sociopaths which I think is of some general relevance to this thread. As a result of the mountain strategy ERE has largely avoided "mops" (members of the public)... allowing in only the "fanatics" but these days I'm not sure whether that was a good idea. Rationally speaking, it probably was.

[RealPerson]

My concerns with MMM are not his frugal purity. My concern is his advocation of 4% rule, while as far as I know, he has never actually lived off 4% of his portfolio. To be clear, I think that his side businesses are great things to be doing, but if you are pulling in enough from your blog, or your renovation business, to live off anyways, it seems disingenuous to suggest to others all you need is 25x expenses and then you are set for life. The risk profiles of 4% from passive investments, and 4% from passive investments + diversified side hustles capable of providing for all your needs, are very different.

This is an underappreciated fact. MMM has an incredible ability to discover and implement fun business ideas. There is nothing wrong with that but it may make him somewhat blind to the risks of advocating a rigid 4% passive income "rule". As Seppia noted, many are not "FIRE'd" but have simply switched jobs to become professional bloggers.

People have to develop a robust strategy for their own unique situation. That takes independent thinking and goes against human nature. There will never be a critical mass for that.

[jacob]

One thing to consider with the 4%/25x rule is that it still takes on the order of 5-15 years to save that much. I say 5-15 year since the majority of FIRE wannabes seem to favor 40-70% savings rates. Can we presume that newbies will never ever again question and learn more about investing once they open their total market vanguard fund?

To me that's a strange combination of diehard persistence and deliberate ignorance?!??

[Seppia]

Right now I'm accepting more media exposure because I've realized that if I don't claw in some credit, nobody is going to give it to me (where's my @#$@# wiki page? ).
*cut*
I often find myself talking to journalist only to end up serving as "background" (I can tell because I use 'unusual terms' that nobody else do) while they decide to feature some young/hot Millennials instead.

I always assumed you didn't care, I can tell you that in your writing you definitely don't sound like someone who does.
The above is the first time I read you and think "well maybe he does at least a bit?"

This has allowed me to be more of a "guru on the mountain" which again means that this forum is mostly attended by people of some climbing skills.
*cut*
As a result of the mountain strategy ERE has largely avoided "mops" (members of the public)... allowing in only the "fanatics" but these days I'm not sure whether that was a good idea. Rationally speaking, it probably was.

Personally, the above is the reason why I find this place interesting. I'm usually put off by most forums: too many people, too much noise, too much "look at me" attitudes, no depth.
Here is different. But the very things that make it interesting to me are probably the same things that keep ERE from being mainstream/marketable.

Just as an example, I'll point out that you do have a "NO MEME" rule in your very short list of rules.
I love it, but I'm fairly positive you have noticed that 99% of the internet is made of MEMEs, Cats and Porn (or any combination of the three).
Hard to go mainstream with a hard ban on them.

One thing to consider with the 4%/25x rule is that it still takes on the order of 5-15 years to save that much. I say 5-15 year since the majority of FIRE wannabes seem to favor 40-70% savings rates. Can we presume that newbies will never ever again question and learn more about investing once they open their total market vanguard fund?

To me that's a strange combination of diehard persistence and deliberate ignorance?!??

I would bet that the vast majority of those who start along the standard FIRE path you describe above either:

- will bail at the first stock crash, never invest again and go back to typical consumer lifestyle.
- will change lifestyle when the next semi-mainstram fad emerges. Day trader, crypto trader, gold digger, prepper, whatever.
- will evolve and start researching more as their assets grow bigger.
If they're smart and persistent enough to save 50%+ for multiple years and progress in tough careers, they will eventually figure out that "not thinking"* is not exactly a great strategy when it comes to investing money.

*while certainly better than "overthinking"

[prognastat]

I always assumed you didn't care, I can tell you that in your writing you definitely don't sound like someone who does.
The above is the first time I read you and think "well maybe he does at least a bit?"

I think it's more of a the mainstream requires Jacob to be something he isn't for them to accept him(and his teachings) and he wishes they were less superficial. I think it's more like disappointment, but I may be wrong.

[Stahlmann]

Wow, rich people hording money instead of stuff... You must be really struggling, guys!

Meantime, outside your bubble:

In the United States, many members of Generation Y and late Generation X also belong to the Boomerang Generation, which live with their parents after they would normally be considered old enough to live on their own. This social phenomenon is mainly caused by high unemployment rates coupled with various economic downturns

In Europe, there are several terms and groups comparable to the 'Sampo generation'. In Greece, they are called the 700 euro generation. These youngsters often work at temporary jobs and receive the minimum allowable salary of 700 euros a month. The term began to appear in 2008.

[SavingWithBabies]

@jacob I think it depends on the community to some extent. On Reddit, the /r/financialindependence subreddit feels like it's in permanent September mode where the majority, true believers of 4%/25, will downvote or deride anyone who brings up investment approaches that go against "all in mutual funds, no market timing". So if the community actively polices against questioning, one could end up with a bunch of blind adherents. I don't see this changing there as the communities are likely to stay majority beginners. Hopefully, people think for themselves and begin to question it as they progress along their path to FI but I would not be surprised if a large chunk did not do so.

I wouldn't be questioning 4%/25 now if it wasn't for this forum. Of course, I was only 1/4 to 1/3 of the way along the path of my haphazardly chosen goal amount expecting it to take a long time to make progress which would mean I'd have more time to educate myself. Then, somehow, I got lucky and zoomed to 50% of my lowered goal. But the problem is all along I was reading about the potential issues with blind faith in mutual funds here. So I didn't stick that cash directly into mutual funds. Instead, I've sat on it but then reading about WB and others here doing the same, sitting on cash for now doesn't seem like a bad idea. But I'm still just stumbling along as I've been focused on maximizing income thinking I'd have plenty of time to focus later on minimizing expenses and learning how to invest.

[Jin+Guice]

@jacob:

I'm too lazy to look at the numbers but doesn't he spend ~27k/ year on 3 people and isn't the current JAFI north of $8k/ person? There are a bunch of caveats here, mostly possibly lower taxes in Colorado and the child factor. He also claims to lead a life of luxury, while you merely claim to lead a life of comfort.

P.S. JAFI is my new favorite jargon acronym.



The 4% rule is MMMs and FIREs shittiest quality, IMO. The 4% rule is especially tragic because it's so dogmatic. Do this, nothing else could possibly be right. However, I also agree with Jacob. At some point people who claim to be going against mainstream and conventional thinking should realize that Indexing is mainstream and that if you're going to live off of investments, perhaps you should research them.

OTOH, I would never have gotten into FIRE if there wasn't a simple investment strategy. You're asking the average person to go against what everyone around them is doing. If you tell them they have to learn how to invest on top of that, you're asking them to go against the mainstream culture and spend hundreds of hours figuring out how to do something most people fail at.

I do wish MMM was less dogmatic about the 4% rule and indexing. I don't think he's intentionally misleading people. I wish there was a FIRE blog about investing because this is my weakest point.

[jacob]

This [progression] can be seen in both Lagrangian coordinates, where we follow each person as they progress through various Wheaton levels like a boat drifting down the stream, or in Eulerian coordinates, where we are standing next to the river looking at a specific Wheaton level as people float by.

We certainly have both kinds of observers on the interwebs.

I think most observers (readers/followers/mops) are Langrangian. They tend to learn where they are as the float... but once they've learned what they can, they float on ... going to the next Wheaton level. Even back in the days (in 2009 or whatever), people would and read the ERE blog saying they had learned what they could elsewhere.

Creators (bloggers/fanatics?) seem to be Eulerian in nature. They stay in position teaching the same thing while people float by or give up. Perhaps this is an instance of "teaching what you are" ... or "teaching who you are" ... or "teaching why you are". Maybe that's what teaching really is (#insight? I digress)

In any case, the river is definitely getting wider! Both stock and flow are increasing.

This probably reflects how it's much easier to learn/do than it is to teach(+) in a way that changes people.

(+) Of course anyone can do a powerpoint presentation ... but that's not really teaching as much as it's just performing.

It's worthwhile to note that the Wheaton levels can easily be different between earning, spending, and investing. One might be advanced on investing while still being noobish on spending ... and so on or vice versa. All combinatins. This means that there's no one-stop-shopping for the complete solution. For example, I doubt that my current writing project will be appealing to more than 1/3 of the ERE population.... so I'll likely "shop" it elsewhere if it actually turns viable/gets published. Consider it/me semi-Lagrangian.

[BRUTE]

..they decide to feature some young/hot Millennials instead.

fuck millenials. Dear Leader jacob will always be brute's hero.

[daylen]

However, previously my strategy was to respect the Wheaton levels and let people find me via other sites (MMM is a big vector ... comparable to organic google traffic for me, which I why google can go @#$@# themselves with their helpful "...or else"-suggestions). This has allowed me to be more of a "guru on the mountain" which again means that this forum is mostly attended by people of some climbing skills.

It is like in the Batman Begins movie where he climbs to the top of the mountain to meet a community. Also, sometimes it kinda feels like I am climbing a re-contextualization mountain when catching up on the forum after a week or month away.

[RealPerson]

The 4% rule is especially tragic because it's so dogmatic.

But it is also extremely simple. That is its appeal. There are many examples of such oversimplifications becoming proven facts. A detailed and realistic description of the required cash flow without depletion the capital and in many different investment environments would be much more helpful, But much more complex.

I have never understood the certainty of the 4% rule. If we have a 50% bear market tomorrow, someone's portfolio, if 100% invested in the market index, is reduced in value by half. Overnight, if the retiree was living on 4% of the portfolio, he would live on 8% withdrawal. Definitely not sustainable. Reducing expenses by 50% to compensate would prove very difficult for someone already living efficiently. You can only barter so much. Given a bear market like that, the resulting unemployment would make it challenging to get job or pick up odd and ends jobs. So the task is to structure your investment portfolio to protect against that. Not so easy but a critical dilemma, especially for anyone who is young and retires on a minimal budget with a 4% dogmatic withdrawal strategy.

[BRUTE]

there is something to be said for a linear progression within a given field of knowledge. the 4% rule is like a guiding light. it gives comfort, safety, it indicates that there is such a thing as "enough capital". the hope is that humans that flock towards the light will gain more knowledge along the way, but if there isn't a light at all, they won't ever find that deeper knowledge.

fields in which the progression requires humans to make significant steps are notoriously hard to get entry into and often don't attract many followers. that may or may not be ok, depending on network effects.

[oldbeyond]

To me, jacob and MMM represent different archetypes of FIRE, jacob being the Philosopher and MMM being the Entrepreneur, meaning that there is no comparison. It's like debating the respective merits of Richard Stallman and Steve Jobs and trying to decide who is more worthy(or Jesus vs St Paul) - completely missing the point that their skillsets are completely different. They each play their respective parts in this.

I think people are a bit harsh on MMM, he spends ~25k on two adults and one child, putting his per capita spending between 12.5k and 8k depending on how you treat children in the per capita part. There's not a legion of people even on these forums who beat that easily. Median household income in the US is ~60k, and the savings rate 7% or so, so it's hardly that he simply made great money and spent like the median. Also his developing new income streams(perhaps not so much the wild success of the blog, but certainly is construction ventures/landlording).

With regards to the 4% rule, he is a bit on the optimistic side on some issues, betting on spending trending lower in retirement, occasional windfalls, social security being there. To me these assumptions are debatable and not something I would rely on. But the other leg of his argument, that you're likely to pick up some money making activities in retirement, seems like a natural extension if his philosophy, and is something that he emphasizes a lot. Say you spend 20k a year and retire on 500k. A mere 5k a year in misc income would lower your WR to 3%. That approach seems more robust than solely relying on financial capital. So perhaps there's a discrepancy between his version of SWR=4 and some of his followers take(4% is holy, turn off mind, plant ass on beach, never think about money again).

[jacob]

I think it's more of a the mainstream requires Jacob to be something he isn't for them to accept him(and his teachings) and he wishes they were less superficial. I think it's more like disappointment, but I may be wrong.

Nah, you're right. Originally (2011) I even considered moving out of the RV into a house and wondered about ways to increase my spending (and ) so as to make my housing and numbers look less scary to the hoi polloi. Actually, I would still spend $6k/year but I would just say I was spending $12k so people wouldn't get triggered by ideas of living in poverty. ERE was just a bridge too far in terms of Wheaton levels. Of course, now van living is cool. Back then tiny houses et al better be situated on a mountaintop with a $500,000 view.

Being right but early (or too good at it) is the same as being wrong.

[NPV]

I think people are a bit harsh on MMM, he spends ~25k on two adults and one child, putting his per capita spending between 12.5k and 8k depending on how you treat children in the per capita part. There's not a legion of people even on these forums who beat that easily.

This is a very good point. Kids are often more expensive than adults in my experience (stepping over needles in the cheapest neighborhood you can find in your torn BIFL cargo pants on the way from lentil wholesale clearance sale back to your clandestinely parked van might be a perfectly satisfying saving maximization strategy for a single healthy male or an adventurous enough female such as 7WB5; few are extreme enough not to rethink this strategy when making choices for their kids, especially once school catchments come into the equation). Hence I would count this as $8k per capita, very close to 1 inflation-adjusted Jacob.

[Kriegsspiel]

Stepping on needles gives you crunch and purchase in the snow and ice. Gotta look on the bright side.

[Stahlmann]

This is a very good point. Kids are often more expensive than adults in my experience (stepping over needles in the cheapest neighborhood you can find in your torn BIFL cargo pants on the way from lentil wholesale clearance sale back to your clandestinely parked van might be a perfectly satisfying saving maximization strategy for a single healthy male or an adventurous enough female such as 7WB5; few are extreme enough not to rethink this strategy when making choices for their kids, especially once school catchments come into the equation). Hence I would count this as $8k per capita, very close to 1 inflation-adjusted Jacob.

But high earnings give you possibilty to avoid big expenses on big 3 items, which are core to middle class image.

If we had a $400,000 loan at 4%, we would have paid $16,000 in interest (!)

Average "2.5" family unit in USA earns 40k usd, let's assume they are able to cover housing in 30k budget, so they are able to save 10k for future house... Let's assume they have lower standards and want to buy 200k house without debt (we assume 2-1,5x deviation for average consumer in house preference).

Exercise no 1:
Tell me how long it will take to do it....
(assume raises will "cover" lifestyle inflation or big problems or whatever, because there are reasons why only 20% people go over 60k/yr/person earnings in their whole career even in the greatest country of the world... please don't bring up small business argument)

PS. If mmm played well the game of life, fine. But he shouldn't be poster boy of badassity. Yep, I opened counter badasssity institute and this is why I'm expert on the topic.

Yes, there is this other topic where it's discussed as "being different", but I tend to disagree.

[Bankai]

...can't be done...

That's easy.

On $40k and with ERE level of expenses (2.5 JAFI or $21k), annual savings are $19k or 47%.

Of the $21k spent, rent is most likely the single biggest obstacle to FI, therefore buying a house ASAP sounds like a good idea. A reasonable multiplier of income to spend on a house is no more than 2.5 x annual income or $100k in this case. So after year 1 our example household has enough saved for 20% deposit and takes on $80k mortgage debt. 30y 5% fixed mortgage would be $4k interest & $2.7k capital in year 1 - likely substantially lower than the current rent payment.

In year 2 SR (inc. capital repayment) is now north of 60% allowing for rapid accumulation & eventual FI.

Also, staying in $40k income is a choice. Current median US household income is $61k so getting at least there should not be too difficult.