Why Hitting Your FIRE “number” Isn’t As Important As You Think

Many in the FIRE community talk about “hitting their number”, as in, when they have a net worth over X, they are officially financially independent and can leave their job if they want.  While this is true in the most literal sense, in practice most people put too much importance on hitting the exact number.

If you are only invested in index funds and have a 1 million dollar FIRE goal in order to spend $40,000 per year (via the 4% rule), you might feel that you are trapped in your job until the day you hit that number.  But let’s look at what would happen if you decided to leave your job $100K earlier (at least 1-2 YEARS earlier for most).  Now you have $900K instead of $1,000,000.

If I plug in the 4% rule numbers above into FireCalc (using $1,000,000 portfolio and $40,000 spending, and leaving everything else as the default), I get a 94.9% success rate.  If I still want to spend $40K a year but only have $900K, my success rate goes down by about 11% to 83.8%.  This is still an incredibly high success rate.  In order to get back over 94% I would have to lower my spending by only $4000 per year to $36000.  Let’s look at why that shouldn’t matter:

  • Most of us have at least $4000 of discretionary spending in our annual budgets.  Personally, if we just eat out a bit less and plan most of our vacations domestically instead of internationally, that would make up the difference.  Fine, you might say, but the whole point is to NOT sacrifice any discretionary spending.  I agree, but wanted to show that as an option.  If the going gets tough, you have the option to make some minor cutbacks without really affecting your lifestyle.  For me, this is an easy choice to make over another 2 years of working a job I hate.
  • Most of us will earn some cash from your retirement hobbies.  Even if it doesn’t happen in the first few years of early retirement, chances are one or more of your hobbies can be monetized without taking the fun out of it.  This could be an Etsy store selling furniture or crafts, a blog, helping people with their taxes, working with your local parks department maintaining the great outdoors, or anything else.
  • Worst case scenario, if I can’t cut down my budget enough or make enough cash doing my fun hobbies, I can get ANY part time job to more than make up the difference.  Not ideal, but I’m trying to illustrate you won’t end up homeless if you retire slightly before your big comfortable FIRE number.  You are smart enough to get to the point of retiring early, so you will be able to get some extra cash together if need be.
  • Alternative, less passive, investments like Note Investing (kind of the main topic of this blog!) or real estate can increase your return so you can throw the whole 4% rule out the window.
  • Again, all these options are available to you to make up the difference in the ~10% more likely chance that your slightly smaller nest egg won’t survive the 30-60 years you’ll need it.  The more likely scenario is that your wealth will grow much higher than you need.  While it’s important to acknowledge the less favorable scenarios and have a plan for them, I don’t believe in living my life by expecting those scenarios.  I’ll be fine making my money last, and if economic conditions change that make it harder, I am smart enough to make adjustments and still live an amazing life.

The point is to give yourself credit that you are an intelligent, adaptable human finance guy or gay.  Nothing is completely certain in life so our plans are bound to change at least a bit over time.  If you accept this you can relax some of the more rigid goals just a bit and perhaps enjoy yourself for a few extra years.