Myths and misconceptions about financial independence and early retirement

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Myths and misconceptions about financial independence and early retirement


As the financial independence and early retirement movement (or FIRE movement, for short) has gained popularity, some myths and misconceptions have sprung up about what it entails. Too many people make assumptions about what the FIRE movement is and what it’s made of.

A lot of folks think the FIRE movement is cult-ish. Some think that financial independence and early retirement are only for rich white people. (Or, more specifically, for white men in the tech industry.) Others say that early retirement is only possible with a high income. Or you can only do this if you’re so frugal it hurts. And, of course, there are folks like Suze Orman who “hate hate hate” the FIRE movement because they believe you need millions in order to retire — early or otherwise.

I’ll be honest. Each objection and complaint about financial independence contains a grain of truth. But each objection and complaint misses the point in some important ways.

Today, let’s look at some of these myths and misconceptions about financial independence and early retirement, and explore why these myths and misconceptions are myths and misconceptions.

What IS financial independence?
Before we dive in, here are the basics of FIRE for those who are unfamiliar.

Financial independence and early retirement are two terms for the same concept: You’ve saved enough money that — in theory – you shouldn’t ever have to work for income again…unless you want to. We talk about “financial independence” because too many people want to argue over the definition of retirement.

Roughly speaking, you can consider yourself financially independent (and able to retire early) when your investments equal 25x your annual spending. There’s some nuance to this, but that’s a fine rule of thumb. So, if you spend $50,000 per year, you’ve achieved F.I. when you have $1.25 million in your investment accounts. If you spend $20,000 per year, you need $500,000 invested. If you spend $200,000 per year, you need $5,000,000.

Financial independence is achieved by creating a gap between your earning and spending. This gap — your saving rate — is the key to achieving all financial goals, especially early retirement. The larger your saving rate, the sooner you’ll build the life of your dreams.

That’s it. That’s all there is to it. It’s just math — plus hard work and patience.

While researching this article, I found a October 2018 survey of the FIRE movement produced by TD Ameritrade. The Harris Poll talked to 1503 Americans about their money and about early retirement, then TD Ameritrade interpreted the results. This is the only systematic survey about FIRE that I know of, and I’m going to refer to it throughout this article.

Financial Independence Isn’t Possible with Kids

The most common misconception about FIRE is that it’s not possible if you have children. When I explain the idea to people I meet, this is often the first thing they say: “Well, that works great if you’re single, but it just won’t work if you have a family.”

Parenthood is an expensive proposition. The USDA estimates that it costs roughly $250,000 to raise a child — and that does not include college. Obviously, this means that if you have children and want to retire early (or achieve other financial goals), you’ll need to earn more money. But children don’t make financial independence impossible.

In fact, from my experience, most folks in the world of FIRE have kids. It’s the norm rather than the exception. (This 2019 article from Marketwatch profiles several families pursuing financial independence, including Angela from Tread Lightly, Retire Early.)

Kids are only a barrier to your financial goals if you allow them to be. And the reality is that many people in the FIRE community take great pleasure in their children, especially in educating them about how money works. (Doug Nordman recently published a book called Raising Your Money-Savvy Family for Next Generation Financial Independence. That’s a mouthful, but the gist is FIRE can be a family pursuit.)

Financial Independence Requires Extreme Frugality

Probably the second-most common misconception is that financial independence requires extreme frugality. “I don’t want to live like a miser,” people tell me, and they dismiss the FIRE movement without fully understanding it.

While thrift is certainly a virtue, it is not a requirement for achieving financial independence. If you have a high income, it’s perfectly possible to retire early even while enjoying a luxurious lifestyle during your working years. (But a good salary is required for this to work.)

If your income is average — or less — then some degree of frugality is needed, no doubt. Again, financial independence is all about math. There are only two variables here: what you earn and what you spend. If you can’t adjust one variable to boost your saving rate, then you have to adjust the other. (Ideally, you’d adjust both.)

For the sake of completeness, I should point out that there’s actually a third variable involved. What you do with your savings is also important, so your return on investments is another factor. But these are the three fundamental variables of financial independence: what you earn, what you spend, and the rate of return you earn on the difference.

Believe it or not, the afore-mentioned FIRE survey found just one key difference between those are and those who aren’t on the path to financial independence: F.I. folks spend about 7% less of their income on housing — and put about 7% more of their income into saving and investments. (These numbers are more striking if you frame them differently. FIRE folks allocate 30% less of their budget to housing but set aside 78% more of their budget for investing.)

FIRE budget vs. regular budget

So, what’s the source of the misconception that financial independence requires hard-core thrift? I think it probably stems from the fact that two of the earliest proponents of the modern FIRE movement were Jacob from Early Retirement Extreme and Pete from Mr. Money Mustache, both of whom advocate extreme frugality as a path to wealth. They’re not wrong. But they’re not the only ones who are right.

Financial Independence Requires a High Income

The flip side of the “extreme frugality” myth is the belief that financial independence requires a six-figure salary.

Now, this myth is grounded in reality. Most folks in the FIRE movement do have high incomes. They’re doctors or software engineers or entrepreneurs. Or they work multiple jobs so that they can earn more. The TD Ameritrade survey makes this clear. While it is possible to pursue F.I. with a low income, it’s much easier to do so with more money.

FIRE survey income graph

There’s a reason for this. You reach FIRE by increasing the gap between your earning and spending. Thus, a high income absolutely accelerates the process.

That said, there are plenty of people who reach financial independence without making millions of dollars. This is only possible, though, if you keep your expenses low. Remember, this is all about math. You want to increase the difference between your income and expenses. If your income is low and you can’t (or won’t) increase it, then your only option is to cut expenses.

Also, I hope it’s obvious to you that if both of these beliefs exist — FIRE is only possible through extreme frugality and FIRE is only possible with a high income — then neither is likely accurate. Because that’s the truth.

In reality, financial independence is best achieved by finding balance, by doing whatever possible to both increase earnings while decreasing expenses. Ultimately, your aim is to increase the gap between the two, to increase your saving rate. How you choose to do this depends on your own strengths, goals, and circumstances

Let’s look at some actual data! According to the TD Ameritrade survey about financial independence, FIRE folks take both approaches: increasing income and reducing expenses. But one is a clear favorite.

income vs. expenses in the FIRE community

Of those surveyed, nearly twice as many people prefer to increase their saving rate by cutting expenses rather than increasing income. From my experience, this is largely due to the fact that it’s easier to cut costs than to boost earning power. If you were motivated, you could slash your non-housing expenses drastically in only a couple of weeks. But it takes time and planning to increase your income.

Financial Independence Is a Get-Rich-Quick Cult

My brain has grown numb from the people who call the FIRE movement a cult. It’s not a cult. There’s no leader. There’s no rulebook. There isn’t even collective agreement on many of the core concepts. (Seriously, you should see the arguments in the financial independence subreddit.)

The FIRE movement is a loose collection of like-minded folks who are all pursuing similar aims: They want to save enough that they can quit their day jobs and pursue more meaningful lives.

Now, it’s true that FIRE folks can exhibit cult-like qualities.

  • They’re enthusiastic about the subject, so they can be evangelical and want to share with the people they meet.
  • They use a lot of jargon, which is unfortunate.
  • They tend to lead unconventional lives, eschewing a lot of what most people consider “normal”. (I downsized from a fancy 1800-square-foot penthouse condo, for instance, to a quirky 1100-square foot “country cottage”.)
  • They tend to hang out with each other, both online and in the Real World.

It’s also true that the FIRE movement is indeed about getting rich quickly. (Or quick-ish, anyhow.) But this isn’t a bad thing.

Typically when we talk about get-rich-quick schemes, we mean shady enterprises that are somehow meant to trick people and/or build wealth by cutting corners. These schemes are scams. They offer promises that cannot possibly be fulfilled.

Financial independence isn’t a scam. It’s math. There’s nothing shady about it. It’s simply the process of putting existing tools to use in a highly-efficient manner so that you can make the numbers work in your favor.

Most folks save 5% to 10% of their income. Aggressive financial advisors urge their clients to save 20%. People in the FIRE movement have saving rates of 50% — or higher. There’s nothing scammy about saving more of your own money.

Financial Independence Is Only Possible Through Privilege and Luck

During the past year, a new myth has reared its ugly head. And it’s a myth that gets me riled up.

Some have begun to argue that financial independence and early retirement are only options for folks blessed by privilege or luck. (Better yet, both.) The point of these pieces — whether explicit or implied — is that preaching the power of personal responsibility is misguided, that we should instead focus on the Big Picture in order to improve economic opportunity for people.

I agree that privilege and luck do make it easier for some folks to achieve their financial goals than others. I, as a white man, have enjoyed benefits that other demographics have not. And systemic poverty is a real problem. Fundamentally, there are barriers that make it extremely difficult for certain people to succeed. I think it’s great that there are people out there who want to prioritize a fight for public policy that leads to increased wealth for more people.

Having said that, I also value personal responsibility. I’m not going to mince words here: Those who deny the power of self-determination are full of bullshit. No, agency isn’t going to be equally effective for every person. Some who take action will enjoy better results. Some people are starting from much better positions than others. And bad things will happen. They happen to everyone.

But I believe — strongly — that individual action is always the most effective way for any given individual to better her circumstances. In fact, “action beats inaction” is one of the fundamental tenets of my financial philosophy.

It’s so frustrating to to hear people argue that personal action doesn’t work. They’re wrong. And what they’re doing (without realizing it, I think) is giving people permission to do nothing about their circumstances instead of resolving to take responsibility.

Here’s the thing that really bugs me though. This is a false dichotomy. It’s not either-or. These aims aren’t mutually exclusive. You can pursue both systemic change and personal responsibility at the same time. That’s how I’ve tried to live my life, and that’s how many others in the FIRE movement live theirs. I believe that those who argue solely for policy change are just as misguided as those who argue solely for personal responsibility.

Privilege and luck play a hand in the FIRE movement, yes. But from my experience chatting with hundreds of early retirees over the past decade, more folks find financial independence through deliberate efforts to save more and spend less than through the whims of fate.

Some will dismiss my response here simply because I’m a white guy. Fortunately, the message of self-determination is prominent in all demographic groups. Because it’s important. For instance, check out The Wealth Choice: Success Secrets of Black Millionaires from Dennis Kimbro or A Latina’s Guide to Money by Eva Macias. Same message, different delivery vehicles.

Financial Independence Means Never Working Again

It’s a persistent myth that when somebody retires early, she’ll never work again. People think that once you achieve financial independence, you transition to an indolent life of luxury: beaches, martinis, pedicures, personal assistants. This simply isn’t so.

In nearly every case I know, folks who achieve FIRE maintain their existing lifestyle. In fact, that’s usually the goal. People on the path to financial independence generally make a deliberate decision to save enough to fund their current way of life. That’s the explicit aim. Only a handful of people want to live large after early retirement.

Plus, many of people do choose to work in early retirement, just as many choose to work after traditional retirement. The so-called Internet Retirement Police want to argue that “if you work, you aren’t retired”, but this is bullshit. This has never been the definition of retirement.

Work gives people purpose. It offers meaning. It lets them do good work that improves their community — and the world. And sure, work provides additional income. There’s nothing wrong with that. If anything, earning more in retirement is a smart risk-mitigation measure. But mostly, the jobs we take after reaching financial independence help us to fend off ennui.

I always use myself as an example when tackling this subject. I have enough saved that I don’t have to work again if I don’t want to. And, in fact, I took some time off for a couple of years to do nothing. But you know what? A life of leisure isn’t all it’s cracked up to be. It turns out that writing about money makes me happy. It brings me fulfillment and gives me a reason to get up every morning!

I’m reminded of the end of one of my favorite TV shows, The Good Place. (Spoiler alert!) Our main characters reach the quasi-heaven of the afterlife, where every wish is fulfilled and life is perfect. But they’re surprised to find that the existing population of The Good Place is anything but happy. The residents are numb. They’re bored. Why? Because having it all doesn’t mean anything without context.

FIRE folks are not Scrooge McDucks!

Financial Independence Is All About Greed

Another myth that bugs me is the belief that the FIRE movement is all about greed, that we’re a bunch of Scrooge McDucks looking to hoard our wealth for selfish purposes.

Sure, there are people who are in this only for themselves. They’re like Han Solo in Star Wars, who has no interest in defeating the Galactic Empire. “Look, I ain’t in this for your revolution,” he says. “I’m not in it for you, Princess. I expect to be well paid. I’m in it for the money.”

If that’s your aim, fine. I’m okay with that. Who am I to judge other people’s motivations? But I think it’s a mistake to ascribe this motive to everyone in the FIRE movement. (Or even to most people in the FIRE movement!) Those who learn about financial independence and stick with it often have higher aims.

Famously, Mr. Money Mustache, one of FIRE’s most prominent voices, makes no secret that his website is only secondarily about money. His goal is to get people to live lighter on the world. He wants to help the environment by reducing consumption. He wants people to be rich, happy, and to save the world.

Or there’s Vicki Robin, one of the modern FIRE movement’s earliest voices. When I wrote to ask about her initial inspiration, Vicki responded:

“I wanted the world to be a better place. More beautiful. More aligned with my highest sense of interrelatedness of life. I was also influenced by Thoreau and Emerson. I studied utopian communities as early as high school…Money itself was never of interest.”

Vicki’s vision is clearly evident in Your Money or Your Life, her 1992 book that inspired many folks in the FIRE movement to pursue this path.

And what about about Tanja Hester from Our Next Life? Tanja is all about using her position in early retirement as a force for good.

As you can probably tell, I’ve thought a lot about this, and I’ve had many discussions about the topic. In fact, I’ve begun developing a talk on this subject, which I presented for the first time in October 2019. And it’s a big reason that I recently ordered a copy of What We Owe to Each Other by T.M. Scanlon. (The other reason? “ELEANOR — FIND CHIDI”.)

For more on this subject, check out my article on what happens after you achieve financial independence.

Financial Independence is a Fad

Finally, there are a lot of people who believe the FIRE movement is a fad, and that its popularity will fade with time.

Some would put me in this camp. I’ve been very vocal that I do believe FIRE’s current popularity is a product of the past decade’s roaring economy. Times are good, so personal wealth has grown. People feel rich. They’re interested in topics like early retirement. But when I started Get Rich Slowly, things were bleaker. Frugality and thrift and getting out of debt were the popular topics.

The past 11-12 years have produced an extraordinary set of circumstances that have allowed many people to build wealth quickly — if they had the ability (and knowledge) to invest in either real estate or the stock market. As a result, there’s a bunch of people who find they’re able to retire early if they want, and that’s led to greater interest in the FIRE ideals.

In one talk recently, I claimed that we’ve reached “peak FIRE”. And I stand by that. But while I think we’re at (or near) peak popularity for this subject, I do not think financial independence is a fad. In fact, I know it’s not.

If you research the history of financial independence, you can see that this idea has been around for a long, long time. In 1758, Benjamin Franklin was espousing many of the core concepts we know and love today. But it wasn’t just Franklin. Throughout the 19th century (and into the 20th), many books promoted “pecuniary independence” as a path to financial fulfillment.

What we’ve seen lately — over the past eight years or so — is a rapid refinement of these concepts, a codification of the steps required to build wealth rapidly. It’s sort of how the the various elements that make up the theory of evolution had been around for centuries, but it wasn’t until Darwin published On the Origin of Species that the entire process was neatly packaged in one place.

The Bottom Line

Most of these myths about financial independence and early retirement stem from the same problem: assuming that the FIRE movement is homogenous, that there’s some unifying motive or method. There’s not. Financial independence isn’t simply one thing. Early retirement is different for everyone.

From my experience, the only thing that unites FIRE folks is math. This pursuit is only possible by creating a personal profit, a gap between what you earn and spend. That’s it. That’s the only commonality.

Before I close, I’d like to address one final myth. There are those who discover the idea of financial independence later in life. They don’t decide they want to retire early until their forties — or fifties. Too many times, people abandon the idea because they think they just can’t make it happen.

But according to the survey I’ve been citing this entire article, the average FIRE adherent starts his journey to financial independence at age 37 and plans to retire in twenty years. Only one-third of FIRE folks start before age 30. (In July, I met Becky Heptig who writes the blog Started at 50, which is all about this subject.)

There’s no question that starting early helps. It makes a huge difference. But you know what’s better than starting yesterday? Starting today. Don’t fret having waited so long. Start where you are.

If you’re intrigued by financial independence and early retirement but don’t know where to start, check out The Money Boss Manifesto, my free guide to achieving financial freedom. There are no sales pitches in this thing. It’s not an attempt to upsell you. (I don’t think I even ask you to sign up for my mailing list!) The Money Boss Manifesto is a legit free introduction to the framework of financial independence and early retirement.

If this subject interests you and you want to learn more, you should read it.

To wrap things up, I’d like to point out that my buddy Diania Merriam recently hosted a webinar about FIRE misconceptions, assumptions, and criticisms. Diania is the founder of the EconoMe conference, and I’ve been helping her in a volunteer capacity lately. She’s awesome. I haven’t watched the video from the webinar, but I suspect it’s solid. If this topic is up your alley, you should absolutely watch the video below.



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