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July 2, 2021 | Burning

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

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.

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July 2nd, 2021

Posted In: The Greater Fool

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