In my recent article I drew a parallel between the development of the iPhone and FIRE in terms no one really saw, ie the depth and diversity, so I had a little think about the terms LeanFIRE and FatFIRE.
I want to start by looking back at how I arrived at the point I am (essentially retired) as agin it serves to re-enforce to me the notion that so much has been accidental and fortunate.
Maybe, if I had really planned from the start I could have got here sooner … we will never know, but does that not just stress the point that a bit of planning can surely help.
I started full time work in July 1986 after completing my degree. Up to August 2017 I worked full time with 3 period of time off. The first was when Marconi ‘imploded’ around 2000. I took the redundency and had 6 months off. Best decision I ever made was not jumping straight into another job. Gave me a real perspective and it was surprising just how much re-charge I needed.
After that I went contracting and The 2nd time was after a few years of this I took a break of another 6 months. I then went back to a full time job for a company and after 3 years finished there and was taking another 6 months when I got the chance to go play in Australia (I play on a band as a hobby), so I just extended another 6 months or so and had effectively a year off.
Finally I set a small company up and spent 7 years working on some big and complex engineering projects for clients. After the last one I decided (you guessed it…) to take a few months off to re-charge, but just came to conculusion we had enough savings and investments to just ‘go Fire’. My wife asked ‘are you going back to work ?’ to which I said ‘no’. So she said she would retire also and we wound our company up.
Why say this ? Gloating ? no, not at all. A lot was luck but also I took the opportunities, rode my luck a bit, and was just plain lucky with some timing.
It also emphasises that after my first redundency 19 years ago, I changed my work ethic and saw the real value of re-charging with time off. I was forced to plan for this by building up sufficient cash reserves to cover for an extended time off. Without realising it, I was effectively using a bucket strategy !!
The thing I reflected on was looking at life expectancy. So many now feel well into 80’s is normal to be expected. If I sum up the years actually working it was 29. I stopped at age 53 so if I make 82 years old I will have worked less time than I will have been retired…. wow.
But I have not stopped working, just not getting paid for it. I spend a lot of time giving back with voluntary work. I do a lot more in schools now with STEM activities, I do a lot more with my professional institution helping the next generation of young engineers and a few smaller activities along the way mentoring some people new to running a company, and of course still do a few band things.
So this gets us to a point of FIRE, ie I have money and no need to work and am effectively retired. This is where we arrive at in the same way as the iPhone anology – a functional point.
But all the flavours and options are yet to come…..
When we look at Fire, what is it we look at ? What does it mean ? How do we measure things like LeanFire, FatFire or any other flavour of fire ? We look at income streams, expendature and so long as its all in the black, then happy days. But how can we measure it relative to others. And don’t get me wrong, I am not personally bothered about that, just ‘do I have enough’. But we might look at a number of elements:
– amount of passive income
– available capital to draw down
– total funds
– lifestyle needs + some
– length of time in Fire or Retired ?
– amount of travel
Lets take a look at these in more detail:
Amount of passive income – Simply measured as an effective yield on investments: such as dividends from stocks, bonds and funds or more wider items such as property rental income. There are many that consider this to be a primary figure.
Available capital to draw down – This should not be discounted. If you have £1M in funds and want to end up in 20 years with £200K, you can draw £800K over 20 years. It is never a straight line as the passive income stream will diminish but in principle you can draw out £40K pa in a crude sense. We personally have no children and no real immediate family to pass anything on so we plan to spend down and enjoy it seeing the world and helping people when we can. This means we can afford to start with a lower innitial fund and still call ourselves ‘FatFIRE’.
Total funds – Obvious, but also subtle. Obvious in that we can simply add up the net values and arrive at a sum, but subtle as many funds or assets we hold may be illiquid (such as property). Having a total is an indication of likely wealth, but not a realised or available amount.
Property – Where we live has value (assuming we do not rent) and again, it is easy to assume this is part of the big mix .. but we have to live somewhere. That said, if we live in a £500k property and can down-size to £250K we release capital that we can draw against or create an income stream from. Primary property in my view should not be included in a wealth calculation vis-a-vis FIRE. Secondary property (ie multiple homes could be but perhaps with a scaler – if you need to dispose quickly then a discount is needed [as I spoke about some time ago]). Although if you have a substantial property and do plan a downsise, then it seems perfectly reasonable to include a portion of the property value in your summation of net worth and funds.
Lifestyle needs + some – I think we need to realise we are all different abnd no one size fits all. If I need £50K pa to cover all my lifestyle requirements and have an income stream and/or capital draw plan that delivers that, then why have I not achieved FatFIRE ? There is considerable posturing on many a FatFIRE site/post with endless numbers like 100K passive income, 2.5M funds etc etc. Poppycock !. If you plan a good life, have funds that meet or exceed that, why are you not FatFIRE ?
Length of time in Fire or Retired ? – I have lost two close friends in the last 6 months (both younger: one from an undiagnosed cancer and one from an accident). None of us know when our card is marked and although we can use probability tables to say ‘likely life’ the reallity is, aside from not assuming we make 120 none of us know .. its all guesswork and keeping an eye on the numbers. There is much written about Safe WithDrawal Rates (all based on past data when returns were higher). Pick something that is comfortable and go with it. In the end, remember that as we get older we will naturally spend less, need less and travel less.
Amount of travel – We plan a lot more travel that we have done. Currently on our 4th holiday this year and will go away again later in the year. While fit and able we plan to travel, but as we get to say 70, we may decide we need to travel less, so planning is rather more front loaded in costs… of course that may change, but we need a cost/budget plan to decide whether a cheap week in Tenerife is to be had or an expensive trip to New Zealand can be afforded.
So how does this help us get to FatFire/LeanFire ?
Well I see Lean and Fat as essentially the same. We apply the criterial above (or any other personal choice) and decide on our budget. I have a close friend in New Zealand who does travel but lives very cheaply. He has simple needs and a limited budget (his pension) It does not stop him coming back to the UK every year, or going for a cruise or any of the many things he does. He just looks for the bargin (Told me he got a 5* cruise from Auckland to Cape Town taking 5 weeks for around $3,000 NZ – all done at the last moment.
In the end, just as we all have a risk tolerance (in our investments) we also have a financial tolerance to our lifestyles. There is a balance where we must do some work to up the income, or we have enough to do pretty much what we want. It is the ‘pretty much’ that is key.
I personally do not subscribe to the fatfire passive income of $100K and/or having a fund of $2.5M. It seems to me to be relative at a personal level. If my needs are say $50K, and I have a passive income (for example) of $60K, have I not achieved fFatFire – ie having more than I need ?
In the end, I find much of the FatFire posts more about gloating that anything sensible or useful. In the end it is really just FIRE !!!
To achieve FiRe we need to do two things and only two things:
1. Enough investments to create or support an income stream.
2. Have that income stream at least cover our expected spend profile and needs.
….. that is it.
Everything else, is flavour. FiRe is a life-style choice of taking things easier, not worrying too much about trinkets, travelling and seeing places, spending more time with friends and family.
LeanFIRE seems to be more about the minimums and slowing life down. The pursuit of FatFIRE is really the pursuit of wealth…. nothing wrong with that, but please lets not delude anyone its more than that.
Have you got enough income to cover your needs and plans ? … If so, you have achived FIRE.. no additional magic or terminology required !