Early-Retirement Devotees Are Steadfast Amid Uncertainty

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Early-Retirement Devotees Are Steadfast Amid Uncertainty

The Wall Street Journal
Veronica Dagher
6 April 2020
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For many adherents of the Financial Independence, Retire Early movement, known by the acronym FIRE, the economic and stock-market downturns caused by the coronavirus pandemic are the first test of their strategy.

Currently many seem unfazed by the challenge. They are doubling down on their commitment to frugality, large cash reserves and slashing expenses. Some are coming out of retirement to help victims of the coronavirus, and others are ramping up their charitable giving. They are also hoping they can inspire other people to use some of their strategies to push through difficult times in the future.

"By cutting our expenses and squirreling money away for a rainy day, the events that are unfolding are a lot less scary for those of us who've decided to choose financial independence," says Brad Barrett, who co-hosts the ChooseFI podcast from his home in Richmond, Va.

Retiring early or leaving the traditional workforce can be risky, especially in a downturn. Doing so is likely not feasible for Americans living paycheck to paycheck with low incomes and already-lean budgets. And in the current turmoil, even those who were in seemingly good financial shape could be at risk.

The subset of Americans in the FIRE movement say their way of life has positioned them to be among the most financially prepared to weather economic downturns because they have long stressed thick emergency funds, low costs of living and affordable hobbies so they could leave work decades ahead of schedule.

FIRE adherents are often millennials and younger members of Generation X who have college degrees, above-average incomes and the discipline to adopt a strict do-it-yourself approach to retirement.

The group emphasizes the importance of diversified income streams and not being beholden to an employer for one's livelihood or sense of self-worth. Some say they are saving as much as three-quarters of their income, or five times the 15% savings rate that financial advisers often recommend. During an economic downturn, this approach can be a headache for policy makers looking to maintain aggregate demand.

The strategy takes on a lot of risk given the long time horizons because adherents are typically young. Since many early retirees rely solely on income from stocks, bonds or real estate for living expenses, sudden market downturns can pose a threat to their plans. Prolonged periods of high inflation or low returns might wreck their forecasts and budgets.

Grant Sabatier, a FIRE adherent and author of "Financial Freedom," said he knew the bull market couldn't go on forever. He prepared for leaner times by having enough cash to cover two years of his living expenses.

After seeing his net worth drop nearly 30% in a matter of weeks, he is stressed but is opting to focus on a key principle of FIRE instead: long-term investing. To him, FIRE isn't about being preoccupied with the highs and lows of the stock market.

"I'm freaking out like everyone else, but I'm not going in and selling my stocks," says Mr. Sabatier, who is 35 years old, who lives in New York City and derives his six-figure income from running the blog Millennial Money.

Right now he isn't putting new money to work but is instead choosing to maintain cash reserves.

Some FIRE adherents are starting to get used to the idea of retiring not as early as they hoped.

Jamila Souffrant, 37, says her income as a financial blogger and podcaster has already suffered. The Brooklyn, N.Y., resident says she is now open to using her experience in commercial real estate to earn more money in the interim.

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