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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Financial Independence Retire Early
Georgios Kaklamanos
Nov 4th, 2020
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 1 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Outline
1 Introduction
2 F.I.R.E. Concepts
3 Practical steps to F.I.R.E.
4 Resources on the Topic
5 Conclusions
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 2 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Disclaimer
Please note the following◦ I haven’t reached F.I.R.E. (yet ;-) )◦ I am not a financial advisor◦ This is more “life-philosophy” than “finance” talk
However◦ The basic practices have been life-saving for me◦ I honestly believe in this approach
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 3 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Disclaimer
Please note the following◦ I haven’t reached F.I.R.E. (yet ;-) )◦ I am not a financial advisor◦ This is more “life-philosophy” than “finance” talk
However◦ The basic practices have been life-saving for me◦ I honestly believe in this approach
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 3 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Inspiration
Why are you doing what you’re doing?◦ Working 9-5, 5 days a week?◦ Expect retirement at ~65?◦ Have a job that requires commute?◦ Live where you live?◦ . . .
Do you know what are your terminal values?◦ and are you adapting your instrumental values to
reflect that?
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 4 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Motivation
Retirement plan◦ never integrated enough to a country’s system◦ need to save money myself
Antifragility◦ a way to handle shocks◦ a backup plan / way out
Autonomy and Freedom◦ work on whatever I want◦ work whenever I want
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 5 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Enter F.I.R.E.
Financial Independence◦ have enough passive income to cover living
expenses
Retire◦ not the “mainstream” retirement idea◦ free from necessary employment
Early◦ before the age of 65◦ “usual” goal is before 40◦ “extreme” before 30
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 6 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Your Savings Rate (SR)
Savings Rate Workyears for Working Years(Percent) 1 year off till retirement
10 9 5120 4 3730 2.33 2840 1.5 2250 1 17
years beforeneeding work
60 1.5 12.575 3 780 4 5.590 9 < 3
Table 1: Working years, related tosavings rate [Ref]
SR =SavingsIncome
=Income - Expenses
Income
The only metric that matters◦ aim is to maximize it
Column 3 assumptions:◦ 5% investment returns after inflation◦ you use the 4% rule◦ you want your stash to last forever
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 7 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Your F.I.R.E. Number — The 4% Rule
Your F.I.R.E. number:◦ Amount of money need to be FIRED◦ 25 x “Annual Expenses”◦ Assumes a 4% annual withdrawal
Trinity Study◦ original in 1998◦ calculate the safe annual withdrawal rate for a
portfolio to last 30 years◦ modeled different portfolio allocations◦ 75% / 25%, with 4% was the safest bet
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 8 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Usual Criticisms and Responses
Criticisms:◦ F.I.R.E. is only for privileged◦ F.I.R.E. is only for single people◦ You can’t live with that few things◦ Trinity study is based on prosperity anomaly◦ Even at 4% there are chances of portfolio failures◦ What if a big bad thing happens?
Also faulty assumptions from the study◦ Never get any more income◦ Never adjust spending to economic reality◦ Expenses would remain the same over time
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 9 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Usual Criticisms and Responses
Criticisms:◦ F.I.R.E. is only for privileged◦ F.I.R.E. is only for single people◦ You can’t live with that few things◦ Trinity study is based on prosperity anomaly◦ Even at 4% there are chances of portfolio failures◦ What if a big bad thing happens?
Also faulty assumptions from the study◦ Never get any more income◦ Never adjust spending to economic reality◦ Expenses would remain the same over time
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 9 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Increasing your savings rate
Increasing Income◦ Not much you can control◦ Investments / Side Hustles / etc◦ “Simple Path to Wealth” approach
Reducing Expenses◦ Completely in your power◦ Frugal lifestyle / Minimalism / etc◦ “Early Retirement Extreme” approach
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 10 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
The Simple Path to Wealth
One of the core-reading of the community◦ its core assumption is that the market always goes
up
Promotes “Buy and Hold” Total Market IndexFunds
◦ he’s big on Vanguard and VTSAX◦ you can also throw in VBTLX (Vanguard Total
Bond Market Index Fund), for a smoother ride.
Difficulty lies in staying the course◦ not panic-selling when market goes down◦ not think you’re smarter and able to pick stocks◦ not waste money in fund managers / transfer fees /
etc
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 11 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
The Simple Path to Wealth
One of the core-reading of the community◦ its core assumption is that the market always goes
up
Promotes “Buy and Hold” Total Market IndexFunds
◦ he’s big on Vanguard and VTSAX◦ you can also throw in VBTLX (Vanguard Total
Bond Market Index Fund), for a smoother ride.
Difficulty lies in staying the course◦ not panic-selling when market goes down◦ not think you’re smarter and able to pick stocks◦ not waste money in fund managers / transfer fees /
etc
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 11 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Early Retirement Extreme
Another core-reading (and personal favorite)
Contains very little financial advice. It really isabout the philosophy of things, that lead tocustomized financial choices.
Promotes Renaissance-man lifestyle◦ build competency in a wide range of fields, instead
of specialization
Provides methods and suggestions on how toreduce daily expenses and how to think about costsand finance in general
◦ e.g. cost of commute
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 12 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
ERE Example
Issues with specialization◦ high risk if future demands change a lot◦ locked-in a single position
An appropriate response to a problem is a solutionthat uses just enough resources to solve theproblem no more, no less
◦ responses can be divided in labor, time, and capital◦ many are short on skill (management) and time
(labor), therefore money (capital) is spent tocompensate
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 13 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
The Hedonic Treadmill
Hedonic AdaptationThe observed tendency of humans to quickly return to arelatively stable level of happiness despite major positiveor negative events or life changes
Most people think they can’t live without X.They’re wrong.
No matter the event, your life-satisfaction wouldadjust to a base level
◦ the aim is to increase the base-level◦ doesn’t depend on stuff, but on your philosophy of
life
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 14 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Track every expense
You can’t optimize something until you measure it.◦ Calculate annual expenses and define your FI
number.
Identify major expenses and takes steps to reducethem to get a SR of ~60%
◦ do you really need to live next to the train station?◦ how much money you spend on dessert at R2?
Useful tools / Concepts◦ You need a budget [YNAB]◦ Double Entry, plain text accounting [hledger]
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 15 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Accumulating wealth
Save enough (cash) to be able to survive withoutjob for a year
Start investing in Total Market Index Funds and /or ETFs.
◦ Investigate your options for a broker and anyhidden costs on that.
◦ A lot of interesting material on Emanuel’s Talkabout passive investments using ETFs [Ref].
◦ Info on Brokers for people living in France, on aprevious talk by Marton Ady [Ref].
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 16 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Books
Early Retirement Extreme: Also there is a website / blog.The Simple Path to Wealth: Similarly the website / blog.The Bogglehead’s guide to investing: Guide for people looking to invest in index funds.Your Money or Your Life: Haven’t read it but it’s also highly promoted in the community.Nomad Capitalist: For digital nomads, offers ways to take full advantage of the system.Also has a [YouTube Channel] and [a website]Choose FI: A book from the people who made the [synonymous website] and podcast.Playing with F.I.R.E: Book from the folks who made the [synonymous movie].Scarcity: Why Having Too Little Means So Much It’s really interesting to see the effectthat scarcity of money and time have on people’s mindset and behavior.
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 17 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Other Resources
Mr. Money MoustacheMustachian Post: A blog focusing on FIRE in Switzerland. It also has a [communityforum].Financial Independance Europe Podcast: Focusing on people looking for FIRE in EuropeBogglehead wiki: Also a lot of resources for people following these kind of investmentstrategies.The Minimalists: Along with the documentary, a lifestyle promoting living with less.Waking up: App for mindfulness mediation. You can get the full version for free by[sending them an email]. Helps to increase the base-level of life-satisfaction.Center for Applied Rationality Handbook: Contains a lot of techniques to help on how tothink about things (Goal Factoring, Units of Exchange, Negative visualization, etc).
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 18 / 19
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Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions
Final Thoughts
F.I.R.E. is not for everyone◦ there is risk involved◦ requires a lot of lifestyle changes◦ requires effort◦ there is the risk of becoming the “weirdo” at your
social circle.
Still, it’s possible, especially for people at CERN◦ on Doct Student salary it was easy to have a SR of
~56%.
And I think it’s a worthy pursuit◦ just think about all the possibilities it opens
Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 19 / 19
