The nearly decade-long bull market combined with the millennial generation's insatiable wanderlust are fueling the FIRE movement — and advisers' concerns about it.
Financial blogs, podcasts and internet message boards have sprung up to educate wannabes about "financial independence, retire early." There's even a documentary film in the works, "Playing with FIRE," set to be released this year.
Followers of FIRE amass savings voraciously and live on bare-bones budgets. They aim to stockpile enough money to fund a retirement lasting roughly double that of the average American.
But many financial advisers question the logic of the movement in the face of so many unknowns, which pose challenges even for traditional clients retiring in their 60s. One such variable, investment returns, has come into focus amid the stock market's recent volatility, leaving some skeptical of FIRE's long-term viability.
"For most people, it's going to turn out to be a terrible idea," said Jeffrey Levine, CEO and director of financial planning at Blueprint Wealth Alliance.
A millennial who lives to 100, he said, would have a retirement that's as long as the length of time between the Great Depression and the present day.
"It's entirely too long a period of time to leave yourself up to external factors," Mr. Levine said.
Reward for sacrifices
FIRE followers often make large salaries beginning in their early 20s, save upwards of 50% of their income and have little student debt. The reward for their sacrifices, in theory, is a nest egg big enough to support full-out retirement or a transition to more rewarding work.
The austere lifestyle required (one Google engineer gained national attention for living in a box truck rather than paying rent for an apartment) often means foregoing the basics, let alone luxuries, in the name of a strict budget, and automatically deters most people.
According to Bureau of Labor Statistics data, the average 25- to 34-year-old today saves only 9.5% annually. The average holdings in all Americans' retirement accounts was $229,000 in 2016, according to the Federal Reserve's most recent Survey of Consumer Finances. And just over half of American families save at all.
But beyond the Spartan lifestyle, financial advisers see many reasons FIRE is ill-advised.
‘Flies in the ointment'
"The primary flies in the ointment? Health care, muted market returns for the next decade or more, and increased taxes and inflation," said Dennis Nolte, financial planner at Seacoast Bank.
High-flying stock returns in the decade since the financial crisis led investor optimism to reach a level in 2017 not seen since the beginning of the millennium. Swelling portfolios led to substantial wealth accumulation. Fidelity Investments, the largest retirement-plan provider, said there were 10 times more 401(k) millionaires last year than in 2008.
But the market's gravy train came to an end last year, with the S&P 500 losing 6.2%. This likely led some FIRE adherents to question their primarily do-it-yourself financial plans, advisers said. And the sequence-of-returns risk in stocks that's present for all retirees is compounded for those retiring early.
Early retirees will draw from their investments over a much longer period than traditional retirees, and will likely take larger distributions because they won't yet have the luxury of steady Social Security income — meaning big market drops early on could stymie a financial plan.
"You're much more reliant on your portfolio," said Daniel Kenny, founder of FI-nancial Planner, a firm set to launch in February that caters specifically to FIRE clients. "Sequence-of-returns risk may be the thing that really blows it up for you."
Young people aiming for early retirement also often greatly underestimate health costs down the road, advisers said, whether caused by a health emergency or spiking health-care inflation. Leaving the workforce means a lack of employer-subsidized health insurance if the client is single or doesn't have an employer-covered spouse.
Furthermore, when clients in their 20s conceive of extreme early retirement, they naturally have a young person's mindset and worldview: often being single and paying low living expenses. It can be difficult to envision getting married, having kids and buying a home. Changing one's mind about something like having kids can be enough to upend the tight budgets of FIRE proponents, advisers said.
"It's a different ballgame," said Linda Rogers, owner of Planning Within Reach. "Are you going to tell your children they can't go to kids' birthdays, can't do ballet class?"
And banking on going back to work later to make up a shortfall may be trickier than anticipated if employers notice a long gap in unemployment.
Add in other unknowns, like tax rates and the state of entitlements like Medicare and Social Security, and many advisers view FIRE as a fanciful notion.
"It's not for almost anybody, frankly," said Hank Mulvihill, director and senior wealth adviser at Smith Anglin Financial. "It is a fad, overhyped by the experiential culture of high-earning 30- and 40-somethings."
Dirty little secret
However, just because advisers don't think the idea is feasible for the vast majority of clients doesn't mean they hate the general concept of FIRE. If clients are unhappy in their careers and view retirement as a way to live a more meaningful life, it could be a worthy goal. The dirty little secret of the FIRE movement is that most adherents save enough to be financially independent and just change their career focus rather than retiring outright.
Take Sam Dogen, a former investment banker. He retired in 2012 at age 34 to get away from a Wall Street job he no longer found fun and the long hours it entailed.
Starting his first month of work, Mr. Dogen saved 50% of his paycheck and 100% of his annual bonus. That savings rate eventually grew to 75% to 80%. He's now living in San Francisco and able to draw $221,000 annually from a portfolio of primarily passive investments to support his wife and 21-month-old child.
But Mr. Dogen also loves to write, which led him to start a financial blog, called Financial Samurai, in 2009. He makes more money blogging every year via advertising than he's drawing from his portfolio, which he socks into savings.
"I'm doing exactly what I want to do — no schedules, no bosses, absolute freedom — and it's awesome," he said.
FIRE's philosophy dovetails with that of the life-planning movement, which emerged in the 1990s. That movement is dedicated to helping a client achieve what gives his or her life the most vitality and fulfillment in as short an order as possible.
George Kinder, founder of the life-planning movement, said advisers whose clients approach them with a goal of FIRE have a fiduciary responsibility to make that goal come to life and need to put aside their biases.
"We have misunderstood fiduciary a lot in our profession to think it's only about how we charge and our transparency in terms of charges," Mr. Kinder said. "What it really means is to be on the side of the client."
Despite his doubts, Mr. Mulvihill did help one client achieve FIRE — a high-earning technology industry employee who retired at age 40 with $2 million. He started his plan right around the time of the financial crisis and benefited from the prolonged bull market that followed.
"It's my greatest success story for a young person," Mr. Mulvihill said. "He simply made a plan and stuck to it. It's a hell of a story."