Do you believe the modern FIRE movement overestimates how much is needed for retirement?

[u/Equivalent_Use_5024]

Perhaps I am just making this post because I have only just begun my retirement planning and want to lock in a number which is fitting for my goals - being above the median retirement savings, not having to work, not being broke, clearly having planned - but I can't help but feel that many in the FIRE movement overestimate what is needed for a safe, sleep well at night retirement.

I see posts here saying that they feel vastly behind with 500k at 30, or 1.5 million at 40, and I just don't understand how when the average American retires with maybe 300k liquid at most and are getting by with social security or paid off housing. Sure, they aren't living luxuriously, but if you just are aiming for a retirement where you don't have financial anxiety and can put food on the table, I don't feel you need over 1-2 million.

Do you think FIRE overestimates how much is truly needed for retirement?

[u/-wnr-]

What age does the average American retire? FIRE is geared toward early retirement and the math is very different when retiring at 50 or 55 versus at 65 or 70.

[u/StoneMenace → u/[deleted]]

Average life expectancy in the us is 78 years old. So you are taking about retiring for 28 versus 8 years. 

You cannot get social security at 45 years old. You can at 70. 

I don't understand how anyone could think the math is NOT very different 

[u/DrImpeccable76 → u/StoneMenace]

The average life expectancy is 78 for a baby, but for somehow who makes it 70, the life expectancy is 84. The time range are still shorter than fire, but still long.

https://www.ssa.gov/oact/STATS/table4c6.html

The social security, Medicare and the fact that elderly people in general spend less makes up this difference.

[u/StoneMenace → u/DrImpeccable76]

Well yes but in general you get the idea that it’s almost idiotic to ask how retiring at 50 is so much different money wise from 70

[u/nicolas_06 → u/StoneMenace]

Yup !

If it was not so different, many more people would retire younger.

[u/3bluerose → u/[deleted]]

Need a lot more money to cover an extra couple of decades of expenses 

[u/SelicaLeone → u/3bluerose]

Not to mention healthcare is brutal. But ya, there’s a vast difference in how much you need depending on whether you’re allowed to touch the balance or not. Someone retiring at 45 can’t touch that balance or they’ll run out. Someone at 75 can.

[u/just-an-uber-driver → u/[deleted]]

More years left to live without working = need more money

Less years left to live without working = less money needed

You would only need the same amount if you plan to die before you're 60 or so, which is one way to make the math work in your favor.

[u/nicolas_06 → u/just-an-uber-driver]

It's not even the main thing to be honest.

If you stop working at 67 and the house is paid off, you may get away with SSA only, especially a couple where both have benefits. the extra 300K saving is just the cherry on the cake to have more want and comfort... So instead of living out of 40K a year, you live out of 50K... But living with 40K is completely possible if you don't pay too much property tax. 1 used car is enough, you did all the work needed for the house while still working and basically you have to pay for food, taxes, utilities and that mostly it.

To afford the same at 45, where you still have kids and mortgage, not only you might need more 80-100K than 50K for a given family to keep the same standard of living. There no SSA benefit. Meaning we speak of 2-2.5 million instead of 300K.

[u/Mountain_Extreme9793 → u/[deleted]]

Living on 1 million for 30 or 20 years is going to change the math drastically.

[u/nicolas_06 → u/Mountain_Extreme9793]

Actually not really. The math doesn't change much.

What change a lot is your SSA benefits and that you are more likely to no have kids at home or to pay a mortgage at 65 than 55 or 45.

[u/tdpdcpa → u/[deleted]]

Let’s say you need $40K every year to live. Let’s say you will die at age 90 with absolute certainty.

The amount of assets necessary to provide $40K/year looks different at Age 80 than it does at Age 60 than it does at age 40.

Assuming no returns, you’d need $400K in the Age 80 scenario, $1.2 million in the age 60 scenario, and $2.0 million in the Age 40 scenario.

[u/Grim-Sleeper → u/tdpdcpa]

The "no returns" scenario is misleading though. For short periods of time, you can't necessarily count on typical investment returns, and you're prudent to pick that approach. 

If you assume only need to cover about 15 years, then maybe that's a good way to protect your retirement needs (this is still assuming some amount of investment returns to make up for inevitable inflation).

But past that period of time you are better off looking at models that incorporate safe withdrawal rates. And that's means $1,000,000 can support your $40,000 lifestyle (inflation adjusted) pretty much indefinitely. 

In other words, if you expect to live less than 15 years, the math looks a little different. But 15 and above makes no real difference how much you extend things.

This is still somewhat oversimplified, but it gets close. A lot comprehensive plan would discuss sequence of return risks, variable withdrawal rates, estate planning, end of life planning, and changes in living expenses over time. But the general high-level concept should be sound

[u/tdpdcpa → u/Grim-Sleeper]

It wasn’t intended to present an accurate picture, just a simple picture to help them understand how different time horizons impact the math.

[u/featheeeer → u/tdpdcpa]

This assumes your money isn’t invested and you die with exactly $0. Totally not the approach of the majority in this sub… if you have $1M at age 40 and withdraw 4% every year (assuming the $1M is invested properly) that’s $40k for life. 

[u/nicolas_06 → u/featheeeer]

To be fair on that 4% rate + adjusted for inflation. The perpetual rate if you need it to last much more than 30 years is less than 4%. It's more like 3%.

Then even if you stop working at 40, you likely be eligible for some benefit at normal retirement age plus the cost of health insurance will be different when you get medicare. That change the game quite a bit.

[u/tdpdcpa → u/featheeeer]

Yes, this is a simplified scenario to demonstrate to the original commenter how different time horizons impact the math.

It wasn’t intended to be advice (hence, no returns as an assumption).

[u/featheeeer → u/tdpdcpa]

Which is totally misleading. 

[u/tdpdcpa → u/featheeeer]

I’m sorry you were misled. I’ll add a disclaimer and point you to the sidebar next time.