Retirement: Oh No! My FIRE Went Out

Retirement: Oh No! My FIRE Went Out

Co-produced with Treading Softly

Here at High Dividend Opportunities, we are seeing people being prepared for their future. The FIRE movement has been extremely popular while the market was in a long-running bull market.

What is the FIRE movement?

FIRE simply stands for Financial Independence Retire Early.

Source: “From Penny to Many” blog

The FIRE movement takes aim at the expectation that retirement is relegated to the later years of one’s life.

Most respondents to a survey – 78.5% of them – regarding the FIRE movement are aiming to or did retire by age 40. This puts them retiring almost 25 years earlier than the expected or normal timeframe.

Furthermore, 79.4% of them do not have children, nor plan to have them, and the median income of FIRE respondents was $120,000.

Also to note:

The top 10 careers within the movement see a heavy weighting toward mathematically-inclined skills like engineering, computers, and finance. People who most likely stare at numbers all day long and know the importance of saving early.

The FIRE movement found its feet about nine years ago when a popular blogger took the basic tenets of living frugally and investing heavily to the public’s attention.

ChartData by YCharts

During that timeframe, the market has been an extremely generous place to invest. Especially if passively investing via ETFs or if your primary focus has been through growth investing.

ChartData by YCharts

For most FIRE advocates, their goal is simple. Save a ton, until your cash pile is large enough to retire early off of. You must live frugally and overestimate the money you need. They were partying like it was 1999 with strong market returns all the way, until 2020 started.

COVID-19 decided to put a stop to the party. The bull market came to a hard and halting stop.

COVID-19 Impact on FIRE

When COVID-19 hit worldwide, FIRE followers have seen their assumptions hit to the core. They also struggled with potential losses and questions about their financial independence – something they pride themselves on. Articles like this started to crop up on the Internet and news sources like this article which appeared on CNBC:

They were hit with many of the same stresses. Standard retirees were:

  1. Sharp portfolio value decline.
  2. Loss of rental income due to states allowing renters to not pay.
  3. Increase in expenses.
  4. Change in life circumstances that previously were not factored in.

Now not all retirees own rental properties. COVID-19 is heavily pressuring retirees and income flows for everyone. Landlords face unique challenges with additional state laws that we will not address here.

The risk with the FIRE movement is timeframes. The normal timeframe for retirement – from 65 to 90 – leaves less room for life events to throw it off course.

Furthermore, you are provided additional government-provided income via Social Security and health insurance. FIRE followers stop working and thus reduce their total potential Social Security income as it’s calculated off of a period of working years. Stopping their work life at age 40 cuts years of top earnings off of their Social Security calculations.

What Gets You There Doesn’t Keep You There

The biggest shift in a FIRE follower’s life is the shift from working every day, storing away money for retirement, and the shift to no longer working. With more free time comes the temptation to spend more money on entertainment. Logically, keeping yourself busy with work generates income. You’ll be used to being busy.

Some Things Must Stay the Same

Remember that most FIRE adherents do not have children or plan to have them. This greatly reduces overall expenses but also is a major life decision. To remain within early retirement, you cannot massively increase your expenses unless you find a way, without working, to massively increase your income. At age 40, if you find your true love in the world, you may want to have children. Locking yourself into the FIRE lifestyle may prohibit both realities co-existing.

Likewise, frugal living cannot go out the window. You have lived spartanly the entire time you’ve saved. To stretch those savings over an additional 25 years, you’ll need to keep living that way.

Some Things Must Change Immediately

More FIRE followers have suffered through the accumulation stage – building their retirement savings diligently – and now have reached the distribution stage – where they live off of them. I’m not going to pretend that these FIRE followers have been avid readers of dividend and income investing all this time. I suspect many bought into securities and companies that best represent their skill sets.

ChartData by YCharts

If they did so they would’ve been rewarded handsomely in recent years. Facebook (FB), Netflix (NFLX), Amazon (AMZN), Alphabet (GOOG)(GOOGL), Apple (OTC:APPL), and Microsoft (MSFT) for example have all rewarded their investors well in capital gains.

But they need their savings to now not just accrue in size, but pay out income to live off of. It’s one thing to be a skilled investor for capital gains. It’s another thing to generate smart income from your capital reliably.

Most FIRE followers have built a strong portfolio that depends on selling shares to fund a lifestyle of retirement. It’s a slow and steady race to $0 and the longer you’re in the distribution phase, the more your exposure to “Sequence of Return” risk grows. In a nutshell, Sequence of Return risk is the issue surrounding the losses you lock in when you sell your shares at an inopportune time. If AMZN drops 10% and you have to sell shares to live, you now locked in those losses, and if AMZN jumps 20% you won’t see the same return as if you waited to sell after that jump.

What these experts on savings need to do is switch gears in their portfolio. Stop relying on selling shares at a premium and set up a strong income portfolio. FIRE got you to retirement. The Income Method can keep you in Retirement. The Income Method by design keeps a strong and steady income stream coming in to allow your daily life to be subjected less to the waves of sentiment in the market.


The FIRE movement was born in the midst of the longest-running bull market in history. We’ve seen that it’s largely made of up mathematically skilled, no-children individuals who seek above all to be freed from the daily grind of work to live life as they please.

COVID-19 has come like a splash of cold water on many FIRE followers and it’s forcing them to make tough choices. Some will be forced to re-enter the workforce.

They need to adjust to the new reality in which they find themselves. Like normal retirees, they are not in the accumulation stage anymore and need to adjust their portfolios accordingly.

Next up we’ll take a look at smart income and what that means in our Income Method. FIRE followers will want to keep an avid eye out for that article as it will be an important read. For the rest of us, we know we can live like the 1% by earning 10%. How will smart income help our portfolios outperform our needs? We’ll take a look.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Originally published on Seeking Alpha

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