In 2017, Lisa at Mad Money Monster coined the term FIOR in her blog post, F.I.O.R. – Financial Independence Optional Retirement. And you know what… she nailed it.
The premise of her post was that a lot of folks become excited about what the FIRE (Financial Independence, Retire Early) community stands for and they head down a similar path.
However, not everyone needs to jump ship and retire early.
Lisa and her husband, for example, are on the road to financial independence. But he has no intentions to ever quit his job and she’s realized she’s really after options. She wants the option to keep working if she wants… or quit if she decides to at some point down the line.
In other words, Lisa is after an optional retirement. Hence, FIOR – Financial Independence Optional Retirement.
Even though that post came out in November 2017, I’ve been thinking more about it recently.
First off, how cool is it that she was able to coin a new phrase? That’s pretty rockstar-ish!
More importantly, though, her post gave me an important revelation in a slightly different direction…
The FIRE dilemma
A lot of us in the FIRE community understand the fundamentals. Earn more, spend less, and invest the rest. That’s really it in a nutshell.
Sure, there are ways to expand out and optimize the process, but focusing on those three items can get you to FIRE. Curse you ESI for getting the domain ESI Money (Earn, Save, Invest) – pure genius!
You might already be familiar with the 4% rule. It basically states that, for the most part, you can safely withdraw 4% of a portfolio every year (adjusted for inflation) and almost always succeed in never depleting your portfolio over a 30-year period.
In other words, if you flip it on its head, 100 divided by 4% gives you 25. So if you can get your portfolio to 25 times your expenses, you’re officially financially independent and can quit your job.
This is fantastic for traditional retirees and the FIRE community has latched onto this as a starting point for figuring out when they can quit their jobs. I say starting point because there are some caveats to this.
First off, the 4% rule was a study that determined the safe withdrawal rate over a 30-year period. That’s great if you’re only planning on living for 30 more years or less. However, early retirees could have 40, 50, 60, or even 70 years that they need to be supported by their portfolio!
And second, interest rates are extremely low and guys like Jack Bogle are predicting only 4% returns on stock market investments over the next decade. That can be problematic if you’re planning to quit your job anytime soon.
The sequence of returns risk brings up the point that retiring during a bear market can hurt your chances of survival. The reason is that you might end up pulling too much principal from your portfolio, which leaves you less to grow. Put another way, the magic of compound interest has less to blossom from.
Because of these issues, those chasing FIRE have had to make some adjustments. The biggest change that a lot of folks do is tighten up the 4% rule and make their safe withdrawal rate something like 3%. That means they would need a portfolio of about 33 times their expenses for things to work (100 / 3%).
What’s interesting is that as folks in the FIRE world continue to aim to quit their jobs earlier and earlier, the numbers become even more important. The math says that the younger you are, the tighter your numbers need to be because you have a lot longer that your portfolio needs to carry you.
The key is flexibility you’re told. If you quit your job and there’s a bear market, take out less out than your safe withdrawal number as needed so you don’t crush your nest egg.
And it’s true! Flexibility can make all the difference in the world in being able to sustain your portfolio.
What if I don’t have enough money?
Some folks like Tanja and Mark at Our Next Life dotted every “i” and crossed every “t” when it came to building their nest egg. They both had jobs that paid a very good income and they were ultra-conservative in their planning.
They recently quit their jobs and will almost undoubtedly have very little to no problems with money throughout the rest of their lives (she’s 38 and he’s 41). I’m truly excited for them – I met them at FinCon last year and they’re fantastic people and truly deserve it.
Tanja’s impressive because she’s well thought out and is great at focusing on more than just the numbers for early retirement. She’s very good at bringing to light the other aspects of FIRE that can be more philosophical in nature.
Regardless, not everyone is in (or can be in) a position like they are. Not everyone has a high-paying job and can build a “stash” as quickly or effectively as they did. Moreover, if you have kids, that can also slow things down quite a bit.
This isn’t a knock on Tanja and Mark – they’ve never tried to convince people that FIRE is some kind of cookie-cutter deal. In fact, Tanja takes it the other direction to point out What FIRE Bloggers Owe Readers in terms of telling the whole story.
I’m just using them as an example of a couple who are in stellar financial shape and played out the numbers game perfectly. This isn’t to say that others can’t make it happen, but in many cases, it’ll take longer to accomplish the goal.
In our case, I do make a nice income, but Mrs. R2R brings in a smaller salary. And, as you probably know, we have one awesome daughter who’s probably worth a good $1 million in personality alone, although it still costs some money to raise her.
My personal struggle is that I need to be done with my job. I’m burnt out in the technology field. I loved it for a number of years, but after 18 years, it’s time. And it’s a little late in the game to change direction when I’m so close to being done.
I would really have a hard time changing the date I quit my job. Call me stubborn, but I just don’t think I could do it any longer. Ideally, I’d actually like to move it up, but I don’t think that’s realistic.
Some folks might inquire about a sabbatical, but I’m in a unique managerial position at work where I couldn’t take one even if my company offered it. I’m in a smaller company and my boss can step in and cover me for vacations, but any longer than that can hinder his running the company.
So I’ve gotten us to the point where our numbers are very good and should be even better when I quit my job at the end of 2019… but I still feel like it’s going to be close.
I’m also in a little bit of a different spin because we’re moving to Panama the summer after I quit. It’s hard to estimate all of your expenses when you’re going to live in a foreign country where you’ve never actually lived before.
I’m sure the expenses are going to be much, MUCH lower than they are here, but we’ll still have a spike in costs the first couple of years. We’re leaving a good amount of our things in storage here for the first year in case we decide to come back, but that means we’ll likely need to buy a lot of things in Panama (furniture, appliances, maybe a car, etc.). And the cost to get Visas will run us probably close to $10k.
I’ve padded our expenses so we’re saving as if we’re going to be living here in the U.S. The amount we’ll have in our market portfolio should cover us using the 4% rule and we also have a couple rental properties bringing in some additional income.
Regardless, with the cost of health care and other good uncertainties, if we end up moving back to the U.S., it’s likely going to be tight.
And that’s what has made me a little nervous for a while. What if we haven’t saved enough? What if there’s a long market downturn right when I quit my job and Bucket 1 can’t carry us far enough?
Your numbers don’t have to be perfect!
So what the $%^ does this have to do with FIOR?
Ah, excellent question, my friend, and I have a great answer!
We’ve talked about the fact that the younger you are, the more conservative the math will tell you to be with your numbers. However, here’s the epiphany I had recently…
The irony is that the younger you are when you quit your job, the more likely you are to do something in life that creates an income for you.
Sure you’re probably going to take some time to just goof off for a little bit. Maybe you even do a year with no commitments like my buddy, Fritz, from The Retirement Manifesto is doing once he retires from his job in June (I’m still trying to push him to head back to FinCon this year though!).
But at some point, most of us will feel the need to try new things and find our passion. And guess what – it’s tremendously likely that when you find it, some kind of income will come along with it.
For the longest time, I’ve been telling people that I’m planning to work more on the Route to Retire site when I leave my job, but I’m not counting on the income I’ll get from it.
The more I’ve been thinking about it, though, it’s passions like those I have for this blog that are bound to be supplementing our retirement.
My friend Steve over at Think Save Retire retired at 35 and said in his recent The ultimate early retirement FAQ post that the income from his blog covers about a third of their expenses. That’s fantastic and I don’t think it’s unfathomable for anyone to do in the least.
My site brought in a little over $2,000.00 for 2017 and I should be able to hit the $5,000 mark and maybe then some for 2018. Not too shabby for doing something I love. And that’s with me not having enough time to nurture it as much as I want. I think I can reasonably get it to $20,000-$25,000 a year once I can put more time into it and as my audience continues to grow.
FIOR to the rescue!
What I got out of Lisa’s post may not have been her intent. Nevertheless, the idea of FIOR inspired me to realize that my own numbers don’t have to be perfect (though they do need to be in the ballpark!).
Just because I’m quitting my job doesn’t mean I’m never going to work again. Sure, the money won’t be the main driver anymore, but I can almost guarantee an income of sorts will surface.
Because FIOR actually represents to me a sort of inevitable income that I’m bound to be making, it’s loosened my thinking up a bit. I’m not so on edge about my numbers being too close for comfort any longer.
This strategy of thinking of FIOR as a way of possibly leveraging some additional income along the way may or may not work for everyone. However, it’s definitely a way of loosening up the reins on the picture perfect math that’s out there.
I don’t plan to get a job per se when I quit work at the end of 2019. Regardless, I do anticipate that there will be some additional income that will help make our next chapter in life successful.
How about you? Does the idea of bringing in some additional income after leaving the 9-5 help to squash some of the concerns you might have?
Thanks for reading!!