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They all retired before they hit 40. Then the coronavirus happened

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Old 04-04-2020, 07:02 AM   #1
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They all retired before they hit 40. Then the coronavirus happened

https://www.straitstimes.com/busines...box=1585816543

NEW YORK (NYTIMES) - Last month, Mr Eric Richard was in Bali, Indonesia, enjoying the tropical weather and carefree life of a retiree. Last summer, at age 29, Mr Richard had quit his job as a corporate operations manager to become a "digital nomad".

Now he is hunkered down at his parents' house in Michigan, having returned to the United States as concerns over the coronavirus outbreak grew and travel bans were put in place around the world. He is in self-isolation as a precaution. And in recent weeks, he said, he has seen his net worth drop by more than US$100,000 (S$144,000).

"It's definitely not a great feeling, to say the least," Richard said.

He is an adherent of the Fire movement, the personal finance strategy popular among millennials. It stands for "financial independence, retire early".

The Fire movement was born during the US stock market's historic 11-year-long, wealth-creating run. Professionals in their 30s and 40s were saving up million-dollar nest eggs and quitting their jobs in the prime of life to live off investments. It was unheard-of in modern times, at least for anyone without a trust fund.

Now the coronavirus has thrashed several nation's economies, from Japan to Germany. The US stock market had its steepest drop ever in March. Naturally, some are predicting the decline or end of the Fire lifestyle.

Mr Pete Adeney, aka Mr Money Moustache, a guru of the movement, said he had been hearing from disciples who were asking if they should "sell everything now". Reddit's Fire message board is filled with nervous chatter, as those "firing" and those who have already "fired" seek advice and comfort.

"Anybody here own property they use as Airbnb's?" one user asked, referring to a popular Fire strategy for generating income. "What's your situation looking like?"

The answer came back: "Airbnb is a mess right now."

In 2018, many people in the Fire movement believed they had the financial resources to enjoy retirements as long as six decades. If they whittled their living expenses to nothing and withdrew no more than 4 per cent each year from their portfolio (known as the 4 per cent rule), all would be fine.

Ms Kristy Shen and Mr Bryce Leung, a married couple from Toronto who in 2015 quit their tech jobs in their early 30s to travel the world, were also in Bali when the global outbreak struck. They watched their investment portfolio drop by six figures in one day, a stomach-churning moment for anyone.

But the couple, who wrote a Fire how-to guide, Quit Like A Millionaire, consider themselves "some of the most pessimistic people in this space", Ms Shen said. That caution, along with their engineer training to create multiple backup plans, has served them well.

"Based on interest and dividends that got paid out last year, we can cover this year's expenses," Ms Shen said.

Mr Leung, who invested through the Great Recession, added: "There was a lot more reason to be scared in 2008. They were saying money is going to be toilet paper."

Mr Jason Long, a former pharmacist in rural Tennessee who retired in 2017 at age 38, with about US$1 million, said he was better off now than then - even after the stock market plunge and discounting his living expenses. For three years, he has sat back and watched his investments grow.

"We're in a society that values capital more than labour," Mr Long said. "I don't like that, but I take advantage of it, I guess."

Mr Long said he felt for the Fire folks who retired in 2019 and had less of a cushion. "I probably wouldn't have been able to sleep if I had been in that situation," he said.

That unfortunate circumstance is where Mr Richard finds himself. Not only did he retire less than a year ago, but he also practises "lean Fire" - generally defined as a net worth of between US$500,000 and US$1 million (as opposed to the US$1 million and more many accumulate before "firing").

And with the current travel restrictions, Mr Richard and others can't live in a cheap foreign country, a common Fire tactic known as "geographic arbitrage". In Bali, for instance, he and his girlfriend were staying in "a lovely guesthouse with a pool", minutes from the beach, he said, for less than US$800 a month. Who knows when he can get back?

Still, he had his own lucky timing: He sold a portion of his investments in February, at the peak, earnings he will live on until the market comes back. And if the market continues to go down, Mr Richard said: "I wouldn't be opposed to picking up part-time or freelance work. Financial independence, to me, gave me the freedom to leave my corporate job to pursue things I'm passionate about. It's not about never doing anything to earn money again."

Ms Shen and Mr Leung are similarly sanguine about their continued future as millennial retirees, though they are making lifestyle adjustments. "Going forward, we are going to live on US$40,000 a year, and maybe less," Ms Shen said. "Because I'm finding all kinds of deals."

Indeed, the couple, back in Toronto and self-isolating for two weeks, will soon be moving into a two-bedroom condo downtown they found on Airbnb that normally rents for US$111 a night.

The rate now? It's US$39.
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Old 04-04-2020, 07:07 AM   #2
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Ponzinomics has to end
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Old 04-04-2020, 07:31 AM   #3
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Reality hits hard, but they earned a lot from air BnB for the past few years, think they can tank the loss.
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Old 04-04-2020, 08:18 AM   #4
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No kids of couse can FIRE
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Old 04-04-2020, 12:03 PM   #5
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in the context of SG, retirement is when you can almost *solely* survive on your CPF interst payouts .

Anything other than that, as many are finding out now is actually illusory security, frankly......
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Old 04-04-2020, 12:56 PM   #6
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They are fools to think they can retire with a portfolio full of risky stuff like stocks and real estate. The only things you can count on to fund your retirement are cash, state pensions, annuities and the like. Also nobody can retire at 40 with only 1m USD networth, its suicide.
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Old 04-04-2020, 01:41 PM   #7
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Also nobody can retire at 40 with only 1m USD networth, its suicide.
Nobody?
Many retirees have less than USD 1M and they're just fine.
Read more about Geoarbitrage.

But yeah, retiring with USD 1M is too risky for me.
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Old 04-04-2020, 01:50 PM   #8
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Geoarbitrage.
Fanciful name for retiring in JB/Batam
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Old 04-04-2020, 01:58 PM   #9
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Well, it depends on costs of living of your place of residence and your life style.
If you are in some rural part of India, Indonesia, Thailand, Malaysia etc you could retire at 40 with only US$1M.

Definitely not in US though.
In Singapore you could if you only need to spend like $2400 p.m. for whole family? But this is just very basic survival life style, not comfortable retirement.

They are fools to think they can retire with a portfolio full of risky stuff like stocks and real estate. The only things you can count on to fund your retirement are cash, state pensions, annuities and the like. Also nobody can retire at 40 with only 1m USD networth, its suicide.

Last edited by chrisloh65; 04-04-2020 at 02:00 PM..
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Old 04-04-2020, 04:16 PM   #10
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Nobody?
Many retirees have less than USD 1M and they're just fine.
Read more about Geoarbitrage.

But yeah, retiring with USD 1M is too risky for me.
Sure is possible if you dont mind living in some 3rd world country where there isnt even clean water, you can do it with much less if you are willing to take a huge downgrade in standard of living.
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Old 04-04-2020, 04:20 PM   #11
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Well, it depends on costs of living of your place of residence and your life style.
If you are in some rural part of India, Indonesia, Thailand, Malaysia etc you could retire at 40 with only US$1M.

Definitely not in US though.
In Singapore you could if you only need to spend like $2400 p.m. for whole family? But this is just very basic survival life style, not comfortable retirement.
Defeats the whole purpose of FIRE, which is really about being financially free, surviving on a tight budget each month is not FIRE.
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Old 04-04-2020, 04:52 PM   #12
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Nobody?
Many retirees have less than USD 1M and they're just fine.
Read more about Geoarbitrage.

But yeah, retiring with USD 1M is too risky for me.
For retirees are in their 60s and above, USD1m is enough. For those who want to do it in their 30s or 40s with only USD1m, tell them be realistic. Continue working.

USD1m refers to networth which includes property, CPF besides stocks and cash.
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Old 04-04-2020, 07:00 PM   #13
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I think you should not count your primary residence, unless you plan to retire outside Singapore and geoarbitrage.

If staying here in retirement, at a minimum you should work until your primary residence is paid off, your CPF is maxed out, and ideally, SRS balance of S$400k (10 years of tax free withdrawals at current tax rates). The earlier you retire, the more you’ll need beyond this.

For retirees are in their 60s and above, USD1m is enough. For those who want to do it in their 30s or 40s with only USD1m, tell them be realistic. Continue working.

USD1m refers to networth which includes property, CPF besides stocks and cash.
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Old 04-04-2020, 08:08 PM   #14
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The situation is known as sequence of returns risk. The first guy mentioned got a huge drawdown soon after he retired and may be in trouble because he has to sell stock at lower valuation to raise cash, while the others saw their portfolios grow after they retired and are better able to tank this drop.

And, 4% is just 4%, mothing about cutting expenses to the minimum. In SG context, assuming a paid off home, if you spend $60k a year in retirement, then you need 25x that amount = 1.5mil, if you spend $200k a year in retirement (called FatFIRE) then you need 5mil. To have safety margin, the kiasu Sinkie will plan for 30x annual expenses.

Also, 4% is predicated on the historial 7% average growth rate in the US stock markets. If relying on CPF and other fixed income assets only, the picture is different of course.
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Old 04-04-2020, 09:20 PM   #15
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Agree. Risk is to high if your FIRE is based on suriving on tight budget each month. Unforeseen circumstances like now will throw them way off and back to work again?!

Defeats the whole purpose of FIRE, which is really about being financially free, surviving on a tight budget each month is not FIRE.
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