The Financial Revolution: Why are People Retiring Early

Type “Financial Independence, Retire Early” into your favorite search bar and an innumerable number of pages on the FIRE phenomenon (including this one) will give you a glimpse into the window of the new financial movement. You’ll find stories about people’s journeys, extreme cases of people living on $10,000/year, marketing strategies towards FIRE, and plenty of get-rich-quick schemes. What you will not find is a story on why are people retiring early.

What has changed? What landmark event in our society kicked off this movement? Why are predominantly millennials (as they are the only ones young enough to truly ‘retire early’ at this point) trying so hard for this?

That’s where we pick up the story. I attribute it to 3 things. 

Millennials: Stressed Out By Money

Millennials, overwhelmingly, are stressed out. According to Harvard Business Review, millennials are in a ‘relatively negative state of mind’ and note that ‘the average age for the onset of depression has dropped from late forties or early fifties, where it was 30 years ago, to mid twenties.’

A separate Harvard Business Review indicates that the general reason for this stress is work. Through survey analysis, the Harvard researchers found the most important long-term goal cited by millennials is finding a new job with better benefits, more pay, better hours, and more work-life balance, as well as work that was more intrinsically rewarding. This … was much more typical of the Millennial age group than older or younger groups.” Common responses for short-term goals, on the other hand, were to ‘stop worrying.’

Short term goals: stop worrying. Long term goals: more money. Put together, millennials want to stop worrying about money.

As further proof of this, in their research note on millennial attitudes towards money, Wells Fargo cites some extremely disheartening statistics for millennials:

  • 98% cite feeling financially secure as important to their lives
  • 69% want to get over their anxiety about money
  • 32% are satisfied with their financial lives

This generation came of age during an economic crisis the severity of which most living had no memory and watched the global recovery teeter on the edge of ruin for the past decade.

On the way to that metaphorical economic prostate check, they get stuck paying for gaudy university improvements (like LSU’s lazy river) and are now saddled by a crushing debt load which numbers into the trillions. Small wonder they’re anxious and pissed off. Hockey stick graphs are always bad, and it’s never good when your generation is largely defined by one:

In summary, millennials are a debt-saddled, stressed out generation that are constantly focused on finding better paying, more fulfilling work, and are not happy with their current finances. Their financial anxiety is omnipresent in their minds.

Perhaps the path to fulfillment lays through work?

The Death of Worker Satisfaction

For fifty years, the path to a secure, fulfilling career was four years of higher education. The social contract declared “pay your college tuition, signal to us you are competent and can learn, show up, and we will take care of you as you get old and make sure you get a piece of the pie.” So students went, expending their formative years and dollars for monotonous classes that had little reason to exist in the curriculum other than to subsidize departments of dubious merit. All under the guise that they were soon to participate in the great expansion of the American economy and earn a fair piece of the proceeds.

Well, about 20 years ago the corporation unilaterally changed the terms of the deal. The corporate real profit margin went up 2.5x from 2000, but the median real income increased by a big heaping load of jack squat:

At the same time, corporations took a look at the future liabilities in the retirement side of their ledger, freaked out and acted. Pensions were out, and someone decided ‘defined contribution’ could be sold as one hell of a deal. 401k was in rather than the for-life annuities that once used to be commonplace. According to the Bureau of Labor Statistics, employees eligible for a corporate pension plummeted. Just 8 percent of corporate employers now offer a pension. But in an unforeseen side effect, this began to undermine employee tenure and increase employee turnover. Workers were becoming less loyal. 

Shortly thereafter, the Great Recession unleashed its full fury and layoffs transpired in droves. The double whammy sent the message loud and clear to a generation: you are expendable, you are not important, and you can easily be replaced by a robot. As a result, job satisfaction among survey respondents to The Conference Board’s annual survey of the topic are well below levels experienced in the workplace 20 to 30 years ago.

It’s hardly a shock that the combination of depression, debt loads, financial angst, and job dissatisfaction renders a stew of introspection whose answer seems only all too clear to millennials: break the cycle, live for yourself, and GET THE HELL OUT.

The Bull Market

The last factor driving the FIRE movement is double edged: the bull market in asset valuations.

On the positive side, FIRE is itself only plausible since the US market is at present +422% from the low on March 9, 2009. It’s difficult not to get excited and envision bailing on the system altogether when your portfolio is constantly pumping out 20% annual growth. Even the most meager of savings compounds into a material amount of wealth in the face of such powerful, unrelenting (and unusual) stock returns:

I fear, however, that recency bias pervades the mentality of the FIRE community. While declaring financial freedom and engaging in the pursuit of fulfilling relationships and enjoyable activities is itself laudable and noble, it cannot be underpinned solely by the assumption of a permanent bull market. A recession at some point is inevitable, and the legions of FIRE members may not be adequately capitalized to endure such a downturn. In 2000-03, choosing poorly would have resulted in over 2.3 million of lifetime portfolio value.

I shudder to think about all of the new investors who have seen their accounts grow at ridiculous 20% compounded annual growth rates (CAGR for your neophytes) and who have not experienced the absolute sheer terror that a recession unleashes, like a tsunami of panic against some unsuspecting small Indonesian resort town.

It’s so much more than just some sterile negative numbers on a spreadsheet. Anyone can calmly throw in a series of -20%, -15%, -15% into their lifetime plan and see the result as we sit at 3.9% unemployment and a healthy hiring market. That’s not what triggers the panic in recessions. And it’s not what causes people with otherwise stout constitutions to bail on the ‘stay the course’ philosophy.

The panic in recessions comes when the Dow Jones is down 8% in a day (this would be nearly 2,200 points today) and building security shows up at your team’s desk with HR and a bunch of boxes and ¾ of your team is escorted from the building. Panic comes when you have a mortgage due, your neighbors and friends lost their jobs 4 months ago and haven’t had as much as an interview, and the unemployment rate is nearing 10%. Panic happens when everyone you know is shutting down businesses, selling homes, unemployed, or desperately clinging to the menial job that they hate but now cling to like a piece of driftwood in the eye of a hurricane.

Panic comes when you realize that despite whatever you may or may not feel about your employer… you still need a safe port in the storm. And until you can provide your own safe port via savings, you are vulnerable.

If you’ve only recently begun accumulating material levels of assets, I virtually guarantee your tolerance for risk is nowhere near as high as you believe it to be. Try to do something with this while times are good.

Concluding Remarks

Stressed out, indebted, fed up, but not stupid. It should hardly come as a shock that so many have discovered Einstein’s most powerful force in the universe (that of compound interest) to take charge of their own financial destinies. Disenfranchised by the unilaterally revised terms of the worker/employer social contract, the FIRE movement is to be commended for its implicit rejection of the ‘normal’ 40 year career.

My own journey towards financial independence was the result of a personal loss forcing me to re-evaluate what I wanted out of life. It gladdens me to see so many prioritize their own mental health, personal relationships, and meaningful experiences over the rather banal trivialities of career accomplishment.

Just try to exercise a little caution along the way.

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16 Responses

  1. Carlos says:

    I discovered your blog today through a sports message board. Very good stuff.

  2. I think the fact that you don’t get and average of 7% interest rate for your savings on the bank these days as compared to the previous generation is also adding to the drive for financial independence. Overall though I believe the fact that the internet gives Millennials all the knowledge in the world at once is adding to a revolutionary trend. FIRE is the beginning, I believe we will see a ‘French Revolution’ type within our generation – you me mentioned in your amazing blog post that companies (and their shareholders) increased their profits hundreds of times while employees of the same companies got jack all out of this. This is not sustainable. I have observed this hundreds of times while working a pre-FIRE corporate career working with hundreds of companies. Income distribution between workers and owners is simply wrong and this will trigger a significant wealth re-distribution sooner or later.

  3. Wealthy Doc says:

    In retrospect, I have been way too conservatively invested over the last decade. I had no way of knowing the unusual bull that was coming. I’m not about to invest more aggressively now though since the end of the bull is coming soon. Maybe I’m wrong about that too. Only the future will tell us.
    I do worry about some of the FIRE community members in their 20’s and 30’s who think they have more than enough money to live forever without paid work. They are heavily invested in equities and have known only a bull market. They think they are prepared for a decline, but emotionally they may not be ready for the loss.

  4. Melanie says:

    This was an amazing post. I am pursuing fire because I want to follow my passions. But I also know that another recession is looming. In fact, my last 3 posts have been about the pending market crash. I think if folks start preparing now they will be in much better shape when it finally comes.

  5. Moving post. I really identify with your words and admit the thought of retiring early tantalizes my mind. I don’t pay much serious attention to it though because I know my financial needs are nowhere near secure at present.

    You cite a lot of reasons for why we’re (Millennials) grumps. All valid. All true, though you forgot we can’t afford our own homes. That sucks, too.

    But we’ve got a lot of opportunity to do better than previous generations if an individual is savvy enough to navigate the system in their favor. We have open and ready access to ubiquitous information that can reward our diligence and determination to be successful. We also should expect to live longer than previous generations. This can help us to compound our defined contribution plans for longer and at higher expected returns than one might expect to receive from a defined benefit plan.

    It all comes down to how smart the individual is navigating the available information and utilizing their resources effectively and efficiently. Great post!

  6. It will be interesting to see what comes of the FIRE movement in 20 or so years. I think the documentary coming out is going to get a lot more people on board. I really enjoyed this post! Keep up the good work!

  7. One of the better articles I’ve read in a long time backed by solid data. My fear as stated in the article is that investors are getting used to this bull market with massive returns yet another recession is imminent. It will be a huge shock to their system and if not properly capitalized and will wreak havoc on their financial lives. As we know, when recessions happen those who are capitalized not only survive the storm but prosper on the back end. As investors, we must be ready to play defense (cash).

  8. What an amazing write up with some real good reasons. As someone in their late twenties pursuing FIRE, I can relate. I am happy you address the mental aspect of downturns and panic. I allotted a small percentage of my investments into Marijuana and over the last week seeing -30 or -40% drops has been trying.

    Looking forward to browsing your site more!

    Colby @ That Charles Life

  9. Liz says:

    I read somewhere that 70% of jobs now are menial and low paying, very little vacation time, no sick time, very poor health insurance, etc. Who wants to spend their life at a job like that and be treated like crap?? The corporate life suckers counting every penny, watching your every move, fire you when you are sick at home with a horrible flu case. But if a C-suite employee gets the flu they get a week off and cards and flowers from everybody! People are not going to stand for this much longer, eating crumbs while the top 15% eat cake and hoard all the good opportunities, then pat themselves on the back for not being stuck in the bottom classes. Things were more equitable years ago and now greed has run rampant.