There are many positive concepts promoted by the FIRE movement including notions of minimizing debt, not buying new cars, investing in 401Ks and being frugal. Some of these are generic ideas which make common sense for every generation. Many of these concepts are covered in my "So You Want To Be a Millionaire" article from 2008 -- well before the FIRE movement appeared.
The primary short-coming of FIRE is that it does not consider all the possible events and complex (and likely) future scenarios. In other words it is a simple "answer" for a "complex" problem.
Most FIRE promotional material do not account for the following:
- Medical Insurance costs when no longer covered by your employer.
- Medical Costs for serious illness (even when you have insurance it can be expensive)
- Losing a partner (divorce or death)
- Having Children (cost over $300,000 to raise each)
- Marriage (many FIRE proposals assume you will forever be single)
- Location issues (not being happy about where you moved for a low-cost lifestyle)
- Social Security - not getting significant payments due to not working 35 years
- These people left their jobs behind to retire early — then life got in the way. Here’s how they coped with FIRE plans gone wrong
- I followed the path to FIRE — and learned that early retirement is the wrong goal
- 5 Myths About FIRE And Early Retirement That Just Won't Die
- 5 Things To Take From The FIRE Movement (Even If You Don’t Want To Retire Early)
The real problem with FIRE is that it does not take into account all the possible future scenarios. What happens if inflation greatly increases? (Most millennials have never experienced this). What is the consumer index on many core consumer items goes up greatly? What happens if the stock market greatly under-performs?
Most FIRE articles assume that the stock market will continue to perform well over a decade period before you start withdrawing money. What happens if the market sinks for a decade? The primary failure of FIRE is that it does not plan for low, medium, and high scenarios in regards to market returns and inflation. Most FIRE planning scenarios are too simplistic; at minimum you should create a spreadsheet with assumptions about market returns, savings rate, inflation, and your expenses. This spreadsheet should be easily alterable so that you can plan a low, medium, and high scenario for review. Plan across all possible scenarios.
Most FIRE scenarios assume a fixed 4% withdrawal rate. Withdrawal rates are a complex problem without a single fixed answer. Individuals must take a look at withdrawals in more detail. One good source of information is - The Ultimate Guide to Safe Withdrawal Rates – Part 19: Equity Glidepaths in Retirement
One other item to note is that many FIRE plans promote saving with 401Ks and IRAs. Using 401Ks is important to get an employer match (effectively free money). The one detail that FIRE articles fail to usually mention is that while 401Ks / IRAs are tax-protected -- there are significant penalties for early withdrawal. Usually you will not be able to withdraw this money (without penalties) until long after you retired early.
While I agree with many of the investing and savings concepts driving the FIRE movement, there is a need to pour some ICE on FIRE due to the lack of effective scenario planning and the failure to account for common life events.
