Who doesn’t want to retire early? Or at least have the option to do so? There are claims that if you save most of your salary, live a bare bones lifestyle, then in a dozen years you will be able to live off your investment income for life. You can begin travelling, volunteering, and enjoying newfound time and freedom. There are many online communities for early-retirement seekers sharing tips, strategies, and stories on how they reduce their cost of living. One such group uses the acronym FIRE for Financial Independence Retire Early. Unfortunately, there are also bloggers trying to cash in, hype their story, and provide false hopes and bad advice to get clicks to boost their blog ad revenue.
I looked into several of these bloggers a while ago and found that the “success” stories include gaping financial holes:
- Having no insurance for health, dental, vision, apartment, etc.
- No home reserves for new roof, maintenance, repairs, flooring, next vehicle, etc.
- Live cheaply abroad for now and not paying into social security that will shrink any retirement income
- Live off the grid with no utilities – not doable around most cities or for most families for long
- Omit that their “retirement” success depends upon the $5,000 per month they earn from their blog while pretending they live on investments alone and not an active business
- Their version of “retirement” is not relaxing or traveling. To make their retirement feasible, they are swapping a paying job for working on DIY projects. Some appear to be nearly full-time when you include: making your own soap and detergent; doing your own home and car repairs; grow and can your own food; walk and bike to eliminate your vehicle; make your own furnishings; making your own clothing; harvest and chop firewood for your home stove; etc.
When there are some egregious finance errors on these blogs, sometimes I would post a comment. Nearly all of my comments were suspiciously deleted by the administrator. For example, if I mention that the blogger:
- Is relying upon investment returns that are extremely unlikely to occur, not recognizing stock market peak-to-peak can take 20 years
- Brags about their recent early retirement, and I use arithmetic and their own budget to point out that they will have to go back to work within 4 years
- Many misuses of William Bengen’s retirement account spending rate of 4.5%, and unknowingly increase their risk-of-ruin when they are least able to earn money. (Bengen’s calculations are only statistically valid for less than 30 years)
- Ignoring the retirement tax-torpedo for withdrawing large amounts from a 401(k) or IRA, triggering the maximum tax on social security income
- Their Medicare budget isn’t nearly large enough and they did not purchase a supplemental plan
- Taking giant financial risks with stock options that cannot end well
Financial literacy is always important, but it is critical when making major life decisions – like ending your career and truncating your earnings. The soundest plans are based upon increasing your financial literacy. In my opinion, beware that some of the most popular posts and Youtube channels about retiring early are frequently riddled with errors, omissions, unlikely assumptions, serious risks, and fatal errors that may doom your financial goals.