pension

It may sound strange to some, but I often come across arguments that financial independence and early retirement are not worth pursuing at all. The reasons I come across are many and in this article I will look at some of the most common ones and how I deal with them. I want to emphasize right at the beginning that I do not take any such objections lightly. Striving for financial independence is a lifelong thing, and if one neglects some important aspect, one is destined for trouble.

Everyone is different. We have a different life situation, story and journey. Therefore, it is clear that such a goal does not make sense for everyone. But I think a lot of the objections I encounter stem from a simple misunderstanding of the FIRE concept. And they can be easily refuted, or beware of them. It is a shame that one does not start with it at all just because one has some inaccurate idea.

Just to remind. FIRE is a concept according to which you invest as much property as possible as soon as possible, the returns of which will then cover your household expenses. This way you become financially independent and also, and this is the main thing, independent of the state apparatus. So we are not talking here about the classic early retirement, when a person starts receiving a benefit from the first pillar of the pension system, just a few years earlier.

1. It’s only for the rich

I understand this objection, but it is no longer true today. Of course, people with high incomes have the opportunity to achieve financial independence easier and faster. But that doesn’t mean that even an ordinary person can’t strive for it. I think so for several reasons:

• Valuing money has never been easier. Today, the way to the capital market is literally a few clicks away for everyone. You register with a broker and invest.
• We live in an information age, and that also applies to investing and money. With a few clicks, you can access a wealth of information in the form of videos, podcasts, articles… And that’s not even counting the stacks of high-quality books that are available. I have about 20 of them in my library on the topic of investing and money. Just please don’t click on ads promising “guaranteed” income, etc.
• A good lesson is that it is not so important the amount of income as such, but how we deal with it. It all revolves around the savings rate. The higher it is, the faster we will achieve independence.
• Even the common man today has an unreal standard of income secured from his income compared to the recent past. When he sets realistic expectations regarding his income and abilities, he too can start to get rich.

One could certainly find more of those reasons, but I think this is enough. It really isn’t just for the rich. It is enough to “just” turn your mindset a little.

2. I don’t want to live like a monk. The money should be used now

This concern is probably the most common one I encounter. Whether in person, or in various discussions on the Internet, or even when financial experts comment on FIRE in the media. When you start talking about high savings rates, postponing consumption, opportunity costs, etc., a lot of people immediately start talking about wanting to enjoy their hard-earned money now, and not wait X years and maybe never even get to see it .

This is a completely understandable concern. I also don’t want to live under a bridge for 30 years and wait for death just to leave a fortune here. The journey of a handyman and a philanthropist makes sense to few Ronald Read. Or Warren Buffett, who has been reading earnings reports every day from morning to night for decades. But that’s not exactly what FIRE is about.

For me, the main reason not to spend everything I earn is future time flexibility. This runs across my articles and really the whole idea of ​​financial independence. I mean, I don’t save to save so I can buy a better car or a bigger TV one day. I accumulate in order to one day gain at least partial, but ideally complete time freedom. At first I will be happy with a TV for 50,000, but that will quickly disappear and over time the need to buy another, even better one will eat away at me.

But if one day I will be able to change jobs without risk, start a risky business, travel the world for a year, enjoy my grandchildren in good health, without putting me at any financial risk, that, in my opinion, is true financial independence.

It’s about finding a balance between enjoying now and putting off spending, and setting long-term, realistic expectations. The main problem is that a lot of people go to the limit with their finances, even if they shouldn’t, and they take quick pleasure in expensive and unnecessary things. Now let’s leave out the really poor, who have nowhere to save and can’t make ends meet anyway. But there are a lot of people (e.g. me in the past and a lot of my acquaintances and relatives even now) who earn objectively a lot, but still have nothing left. And often they still help themselves with loans.

For this occasion, I will borrow a quote from probably the most famous financial blogger, Mr. Money Mustache, which sums it up nicely: “Even a life at the bottom of the US spending scale is still way more than enough to be happy. As long as you spend it on the right stuff.”

3. I will be bored in early retirement

People often think about retirement (early and regular) in two extremes. Some people can’t wait until they don’t have to work and can curl up in front of the telly or on the beach. Others fear the same thing. They don’t want to do nothing, so they prefer to work as long as their health allows. Both extremes are wrong in my opinion.

In the case of financial independence and early retirement, it seems to me that those who do not want to be bored prevail. They are afraid that they will have nothing to do and will die of boredom. This is also a completely understandable concern. Voluntary early retirement somehow assumes that a person is in at least a good state of health and is able to live an active life. So why not do anything and be bored.

But that’s another thing that the FIRE concept isn’t about. Its goal is not to make a person stop doing anything at some point. The goal, on the contrary, is for a person to gain the maximum possible freedom in what he does and wants to do. The benefits are endless. I have already described some of them above.

I’ll borrow another perfect quote from one person from the USA, who publishes videos on Youtube about his early retirement, which addresses this concern. “You shouldn’t retire from something. You should retire to something.” Not that we shouldn’t retire from something, but to something. Those who pursue financial independence only because they are bored with work will probably not be satisfied in retirement. On the contrary, those who will do what they cannot do now due to time, financial or other reasons, but would like to, will have a much more satisfying retirement.

4. But I enjoy my work and I don’t want to leave it

First, ask yourself if you really enjoy your job. And if so, who says you have to leave her? We are back to the flexibility. If you really enjoy your work, keep doing it even after achieving financial independence. But you now have the option to fuck her at any time, or not to collapse when you get fired. Alternatively, you may need to reduce your working hours without negative financial impacts on your life.

Maybe suddenly at the age of 50 you find that you don’t enjoy it so much anymore, it doesn’t fulfill you. Or the management in the company has changed and it is no longer worth anything there. But you only have some savings in the bank, the rest is locked in a pension until the age of 65. And so you have to keep going, even if you don’t feel like it anymore. Wouldn’t it be better to have liquid assets in the amount of 10 million providing a passive cash flow and be able to take a break? So it certainly was for me.

It may also happen that you are no longer physically able to perform your job. Whether it is an injury, illness or “just” burnout. Do you want to be dependent on your family and country? Of course, at 20 years old, everyone feels like superman. But your kryptonite in this regard is precisely time and statistics. These unpleasant things happen to many people, and where do we get the assurance that we will be on the right side of the statistics for a long enough time?

5. What if everyone did it?

This is a fairly common, but also only theoretical argument. Yes, if everyone was retired and only doing what they enjoy, the world probably wouldn’t work very well. It has only one beauty flaw. That will probably never happen. And this point could be ended here, because there is no need to argue much further about it.

But let’s think for a moment that the world would really start moving towards people becoming more and more financially independent and retiring en masse. What would happen?

Most likely, the labor market would begin to deform and the surplus of labor demand over its supply would grow. Companies would lack a lot of employees and would have to make work more attractive with higher earnings. And that alone would be enough to make at least some people cancel, or at least limit their efforts and return to work. And I would end it here, because these are really pointless considerations.

What will happen in reality is that if you start seriously pursuing financial independence, you will gain an upper hand over the vast majority of the population. And it will probably stay that way for the foreseeable future.

6. But the others will still work

Yes, that can definitely happen. If you manage to achieve financial independence before regular retirement, your peers will probably still be working and you may paradoxically become a “social outcast”.

I look at this from two perspectives. First from the point of view of family and secondly from the point of view of friends. If you have children, grandchildren, close family, they will certainly welcome your situation and you will be able to enjoy your time with them much more. Assuming you don’t have any already troubled relationships in your family.

A problem can arise between friends and acquaintances. Of course, there may be some envy, etc. But my point of view is that at least the wheat will be separated from the chaff. Nothing changes for true friends, and if you have envious people around you, you should get rid of them as soon as possible anyway.

In fact, people generally fear that they will lose social contact with early retirement. Well, if he’s just lounging in front of the TV, then probably yes. But if he catches it by the right end, it can have exactly the opposite effect.

7. I’m running out of money

The fear of spending years trying to invest and reach early retirement and then mess up and lose everything seems the most relevant of all. I understand that and sometimes think about it myself, even though I still have a long way to go before retirement (even the early one).

But you can prepare for it quite well. There are many approaches to drawing funds in retirement. I will not go into details here, that will be a separate article. But clearly the most important thing is long-term and honest preparation. Don’t neglect anything. Be careful about taxes, volatility, have a plan B. Have a diversified portfolio. Have income composed of multiple channels (dividends, divestment, rent…). This is the only way to ensure with a higher probability that you will not run out of money in your pension.

Well, we are still moving in the capital market and there will always be some risk that it just won’t work out. This is life and you need to prepare for it in advance. And also, no one is saying you have to quit your job completely. You can find a more comfortable part-time job, or try to start something of your own in a field that you enjoy and then you will not interfere so much with your investment portfolio and it will then be less susceptible to negative changes in the markets.

In our Czech system, this risk can be further reduced by continuing to pay social insurance even during early retirement. So that in your old age, if the worst happens, you will at least have the state pension.

In conclusion

In this article, I’ve broken down some of the most common concerns I encounter when it comes to financial independence and especially early retirement in the form of the FIRE concept.

If you had such concerns, I hope that after reading the article they have been successfully dispelled and you can now cheerfully start investing for your early retirement. And if you have any other concerns or objections, feel free to write them in the comments.

2024-02-10 21:08:20
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