A leading blogger discusses some common misconceptions about the FIRE movement, as well as lifestyle and financial considerations for young retirees.
Our guest on the podcast today is Chris Mamula. Chris blogs on the website, "Can I Retire Yet?" and he has also cowritten a book called Choose FI: Your Blueprint to Financial Independence, which was published in 2019. Chris is loosely part of the FIRE, or Financial Independence Retire Early, movement, but he brings a fresh perspective to the concept. He retired from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, do-it-yourself investing, financial planning, early retirement, and lifestyle design.
Background
Can I Retire Yet?
Choose FI: Your Blueprint to Financial Independence, by Chris Mamula, Brad Barrett, and Jonathan Mendonsa.
FIRE Movement
FIRE Movement
"Your Questions about FIRE, Answered," by Steven Kurutz, The New York Times, Sept. 11, 2018.
Lifestyle and Personal Considerations
"Nearly 2 Years into Early Retirement, Here’s All That I’ve Gotten Wrong," by Chris Mamula, marketwatch.com, Aug. 19, 2019.
“A Strong Marriage in Retirement,” by Darrow Kirkpatrick, Can I Retire Yet?, March 19, 2017.
"Does Fire Make Life Harder?," by Chris Mamula, Can I Retire Yet?, Dec. 10, 2018.
“A Week in the Life of a Fire Household,” by Chris Mamula, Can I Retire Yet?, Sept. 17, 2018.
Healthcare Coverage for Early Retirees
“Navigating ACA Tax Credits to Purchase Affordable Health Insurance,” by Chris Mamula, Can I Retire Yet?, Nov. 12, 2018.
“How to Qualify for Affordable Care Act (‘Obamacare’) Premium Subsidies,” by Mike Piper, Oblivious Investor.
“Are Health Care Sharing Ministries a Viable Alternative to Health Insurance for Early Retirement?” by Chris Mamula, Can I Retire Yet?, Nov. 19, 2018.
Health care sharing ministry, Wikipedia.
“Do You Plan to Retire by 50? Great, But Can You Cover Your Health Care?” by Janna Herron, USA Today, June 4, 2019.
Investing and Withdrawal Rates
Bogleheads website
Jim Collins blog
"The Safe Withdrawal Rate Series: A Guide for First-Time Readers," Early Retirement Now.
Stock Series, jlcollinsnh.com
The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life, by J.L. Collins.
“Retirement Saving and the Empty Nest Transition,” by Michael Kitces, kitces.com, May 25, 2016.
"The Stages of Financial Independence," by Chris Mamula, Can I Retire Yet?, Sept. 23, 2019,
“The Problem with FIREing at 4% and the Need for Flexible Spending Rules,” by Michael Kitces, Kitces.com, July 23, 2019.
“The 25X Rule to Early Retirement,” by Rob Berger, Forbes.com, Feb. 23, 2017.
Human capital definition, Investopedia
“Going Back to Work,” by Chris Mamula, Can I Retire Yet?, July 22, 2019.
Mr. Money Mustache
Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance for Morningstar, Inc.
Jeff Ptak: And I'm Jeff Ptak, global director of manager research for Morningstar Research Services.
Benz: Our guest on the podcast today is Chris Mamula. Chris blogs on the website, "Can I Retire Yet?" He has also cowritten a book along with Brad Barrett and Michael Mendonsa called Choose FI: Your Blueprint to Financial Independence, which was published in 2019. Chris is loosely part of the FIRE, or Financial Independence Retire Early movement, but he brings a fresh perspective to the concept.
Chris, thanks so much for joining us on The Long View.
Chris Mamula: Thanks for having me. It's good to be here.
Benz: We want to talk about the FIRE movement generally. But before we get into that, I think we'd like to delve into your personal story and your personal experience with early retirement. So, your career was in physical therapy. Let's talk about some of the factors that influenced you to retire from that career when you were just 41.
Mamula: Yeah. So, I started my career in 2001. And, you know, it's kind of hard when you're growing up, and I made that decision when I was 18. And you kind of think that's what you want to do with the rest of your life. And there were certain aspects of being a physical therapist that were very rewarding. You're helping people on a daily basis, and you're seeing them get well— particularly I worked in outpatient orthopedics, where almost everybody gets better. And so, it's kind of a fun setting. But by the same token, it gets very repetitive and it got boring. Our healthcare system just has so many flaws and so many just, kind of, perverse incentives. And I just started to get turned off and also just bored. I mean, I couldn't imagine myself doing that for the next 30 more years until I reached traditional retirement age. And then, my big impetus to get serious about this is, we didn't think we could have kids and my wife found out she was pregnant. And so, in addition to just kind of being burnt out on my career and wanting more time for activities that I was excited about, like getting outdoors and seeking adventure, now I had this daughter who I wanted to spend time with. And so, I wanted to free up time. And those were really my big motivating factors.
Benz: OK. So, you started reading more about the FIRE movement, thinking more about early retirement. Let's talk about some of the things that you were using to help guide your journey at that point. And it sounds like that you were a little bit disillusioned with some of those resources—some of the sort of traditional ways of approaching early retirement. Let's talk about that.
Mamula: Sure. So, we started—I got out of school in 2001 and my wife a year earlier—so, that's when we started our careers. And there was no FIRE movement then. And we just kind of adopted a lot of these principles that are now kind of just common sense in the FIRE movement. So, we started living off of my wife's salary and saving mine. So, we essentially had a 50% savings rate. And so, as we were doing that, we were building a lot of financial freedom. And we were living a pretty amazing lifestyle. But we didn't think that early retirement was possible for normal people with normal jobs like we had. And so, we really didn't have a plan and also, we never took time to learn the technical aspects of investing and tax planning, because we just thought that was too complicated for people like us.
And so, we were saving a lot and building wealth. And then, I found this FIRE movement. And I can tell you exactly when it was. It was 2012, because that's when we started to get serious. That's when we found out my wife was pregnant. And so, I started getting into these FIRE blogs. And a lot of them were doing the things we were doing, but they had kind of a common theme where they were focused on frugality and optimization of everything with your finances. And I just didn't see myself reflected in that. Like, we were never ultra-frugal people. We traveled a lot. We've been to the Super Bowl. So, we were definitely not like extreme frugality. That didn't reflect us. And I just didn't think you had to do all these things; we really never even had a budget. We just kind of developed this system and just kind of automated things and lived that way. And so, I wanted to tell a different story and kind of expand the narrative.
Benz: So, one thing, just to sort of get out of the way, you aren't fully retired in the traditional sense in that you continue to contribute to the blog, work on other projects. And your wife, is employed pretty much full time at this point?
Mamula: So, yeah. I think that's one of the big pushbacks that we get against the FIRE movement is that people get hung up on the retirement. And so, really, we're trying to move away from that and focus more on the financial-independence part. Like I help my parents with their finances, and they're in their mid-60s, early 70s. They're on Social Security. They have Medicare. They don't go to their old jobs that they used to. So, I think that's what people picture as retirement. So, I understand like, it would be disingenuous to say that I'm retired and doing what they're doing. But also, I mean, I think—my wife works part time. She has a work-from-home job. So, she has no commute. And she works about 25, 28 hours a week. I work on the blog and I wrote this book, but I mean, I went two years without making any income. So, like to say that—like I'll get criticized, saying “You're not really retired because you're just a stay-at-home dad, or you're just switching careers,” or things like that. And I think that's pretty disingenuous too when you look at the overall financial picture of most Americans and compare that to us where we have essentially 25 times our expenses—actually a little bit more than that— and that doesn't include having a paid-off home, it doesn't include having our daughter's college funding fully complete by the time she was 5 years old. So, what we're doing is pretty different.
And so, I think a lot of people get caught up because it's—we like to view things as black and white. And we live in this like 160-character Twitter and 24-hour news cycle, but there's just a lot of room for a lot of gray area. And that's why I like to have these types of conversations.
Ptak: You obviously have a very committed partner in your wife. Would this be workable absent that?
Mamula: I mean, I think a single person could definitely do this on their own. And in some ways, it might be easier because you have to really line up with your spouse. I think that's a problem that a lot of married couples or people with significant others have.
Ptak: Right.
Mamula: But yeah, I do think it would be hard to do if you're in a relationship and your one partner is committed and one partner is not on board with this.
Ptak: And so, it might be kind of a corny question, but for somebody who is single and committed to this lifestyle of frugality and financial independence as you put it, as they're thinking about settling down in the future and they want to remain committed to it, it sounds like they would need to seek a partner that shares their same zeal for those things. Does that sound right based on the experience you've had?
Mamula: Yeah, I mean, I think you need to be on the same page with your partner. I like the word you used zeal, though. I mean, I think like, a lot of people think this requires an extreme lifestyle. And again, kind of getting back to my motivation for writing, I think if you get some of the big things right and you automate things. Again, you don't have to do anything really extreme—but if you get a couple of the big things right and you stack them on top of one another, so these effects start to compound. Yeah, it doesn't really take a very extreme lifestyle. So, I think it definitely takes communication. You definitely have somebody that has reasonably similar goals. But I don't think you have to be very extreme.
Benz: So, speaking of the big things that you have to get right, one of the things that you are an evangelist about is being averse to debt. So, let's talk about that, the genesis of that for you. It sounds like that came from your parents that they inculcated that debt aversion in you. Let's just talk about that and why you think that's such an important component of all of this.
Mamula: Yeah. So, I mean, I think any time you're talking about building wealth and achieving financial independence, I think most people think about working for money. And we have to kind of switch that mindset where your money is working for you. And it's really hard if you have interest working against you, and a lot of your paycheck is spent on past decisions, because you're paying off debt. So, like I said, we didn't have the benefit of the FIRE movement. So, we made a lot of mistakes. But the things we got right, my wife and I, we came from middle- to lower-middle-class families, but we each managed to get six—combined, we have six college degrees, three each with minimal debt. We bought way less house than you can "afford." And we always drove kind of—for lack of a more elegant way of saying—we drove kind of crappy, used cars. And those three things really were the game-changers. And that put us in this position. Again, even though we didn't live what we considered at all an extreme lifestyle, and we didn't have any knowledge of the technical aspects of investing and tax planning, we were still by the time we were in our mid-30s when we found the FIRE movement, we were living a lot of these principles and we had our house paid off, we had a six-figure investment portfolio, and we were far ahead of what most people are.
Benz: So, that can be kind of mentally challenging, right? Like really underspending, you know. You see your neighbors, you hear about people just comparing themselves to your neighbors and you kind of feel it, right, when you're driving a car that is way less than what you could actually afford; you're making these decisions. Talk about that kind of psychological dimension and how people can help themselves over it.
Mamula: Yeah, I think, a perception a lot of people have about wealth-building is that it comes from—you have to come from wealth to have wealth and they think that's how that happens. And if you look at a lot of self-made millionaires and a lot of people in the FIRE movement, I think a big advantage that we had—and I've seen this as a pretty common theme in FIRE bloggers, who I've read their stories is—I think a big advantage was, we didn't grow up with a lot of money. We didn't have fancy vacations, we never had nice cars. Both of us grew up in very working-class neighborhoods. And so, once we started making professional salaries, and we didn't inflate our lifestyle initially out of the gate. So, it actually was quite easy for us. But I think if you already inflated your lifestyle, yeah, I could see that being a big challenge where you have to now dial things back and maybe it means downsizing your house, maybe it means not buying that next new car, but starting to hold on to your car or drive a used car or things like that. It can feel like sacrifice. And I can certainly understand that.
Ptak: For those who aren't familiar with your story, you mentioned some of your accomplishments, and they're very impressive. But you managed to do it without racking up a lot of debt. And so, how did you pull it off? I think that you mentioned six degrees between the two of you, you and your wife, and as we know, for many, student loans are a very common source of debt. And so, how did you avoid that situation where you were basically indebted after obtaining those degrees?
Mamula: Sure. So, we wrote a lot about this in the book and there is no one magic pill, but for us, it looked very different. So, for me, my bachelor's degree—even though I didn't come from having a lot of money, my parents were, they knew that they wanted me to go to college. So, they saved for me. So, they paid for a lot of my undergraduate degree. My graduate degree, I was able to get mostly paid for by scholarship. And I also worked throughout school, so I was able to pay off the rest. So, I actually—this is extremely uncommon in my career as a physical therapist where most people come out about $100,000 in debt—but I was actually able to come out with a slightly positive net worth. My wife had zero parental assistance, but she worked full time while going to school full time. And that was kind of our motivation to get started. So, she had about $20,000 of debt from her bachelor's degree. And that was what got us on this path of we were using her salary to live off of and using mine to start off debt-free. So, that was how she got her bachelor's. And then, too, she has an MBA and a master's in operations research. Both of those were paid for by employer-tuition reimbursement. And I went and got a transitional Doctor of Physical Therapy and the same thing, my employer paid for that. So, that's how we accumulated those six. But there's really no one way.
And I think really just that aversion to debt—and I think, you know, like they say, "If you only have a hammer, everything starts to look like a nail." And I think a lot of people, because debt is so easy to come by and people are so willing to loan you money, that's just what people do. But if you look at the picture differently, and you eliminate that option, there's a lot of other ways you can go about it.
Benz: So, you and your wife started with a financial advisor once you started building assets, but you ultimately decided that that advisor wasn't super helpful to you. You've written about that. But let's just talk about that sort of realization that you wanted to try to do some of these things on your own.
Mamula: Yeah. So, I'll put “financial advisor” in quotes. We really didn't have any idea how to invest, how the whole process worked, what questions to ask. So, we were working with a commissions-based salesman. And so, we owned a lot of front-loaded, actively managed mutual funds. I would we put them in taxable accounts. And I know, Christine, you write about this a lot, about the capital gains that are generated by that. So, we were getting hit hard with taxes because we were very inefficiently investing. And then—probably the kicker, and we didn't realize we even owned this—but we had, when my wife switched jobs, we rolled over a six-figure, I guess it was a 403(b), and he put us inside of a retirement account in a variable annuity. And as we started to kind of go through and unwind these things, we realized how bad the advice was. But even at that, I still think we were overwhelmed, because investing just seems so complicated.
And so, our thought process was, we just need to find a better investment advisor. But as we started to kind of realize what all the conflicts are, and we started to do our own homework, we realized that by the time we knew enough to really ask good questions, we kind of felt comfortable that we could just do this ourselves. And that's really where the FIRE movement benefited us. So, we learned so much from these different FIRE bloggers, and that's really changed our life.
Benz: So, let's talk about some of the resources that you found especially helpful. I know you've said that the Bogleheads community was a good one for you from an investment standpoint in terms of finding your way to very low-cost investment products.
Mamula: Yeah, for sure. I mean, I'm a big fan of the Bogleheads. And that's kind of what we do is, we use low-cost index funds. But when I started, I had no idea what that term meant. And there was a blogger, his name's Jim Collins. His blog is JLCollinsnh.com. And he's now turned his blog into a book called "The Simple Path to Wealth." And I mean, that just revolutionized everything for me. And it made me realize that this was doable, and it doesn't have to be that complicated. And he talked a lot about John Bogle and Vanguard. So, that got me going down that path. So, I read a bunch of Mr. Bogle's books and I got into the Bogleheads. But yeah, JL Collins' book, that was the turning point for me that made me realize that this was doable.
Ptak: And the most important precepts I take it are low cost, simplicity, tax efficiency, keep it as simple as you possibly can.
Mamula: Absolutely, yeah, just controlling what you can control, which is costs, taxes, and your behavior. And really everything else is out of your control. So, kind of, being willing to—if you're going to take this approach—go along for the ride and see where it takes you.
Benz: Would you say that that embrace of index products, very low-cost products, is sort of characteristic across the FIRE movement or do different people employ different approaches?
Mamula: Well, I think, initially, I think that was kind of the one path. As you develop a really high savings rate, you put it into index funds, and you become financially independent. And I think that that is a valid path if you're a professional, like my wife and I were, and we each had not huge, but above-average incomes. But that also makes it pretty exclusive and a lot of people can't do that. You can't develop a high enough savings rate. And so, I think that kind of makes people vulnerable in that they go out looking for higher returns, and they're kind of vulnerable to get into stock-picking, or there's so many charlatans in the financial industry. And so, what we kind of teach is, if you can't get your savings rate high enough to do that, then you have to have a more active investing approach. But it's not what I think most people think of as active. It's investing in your own business or investing in—it's like more of a hybrid approach by using real estate. And I think if you do that, you can definitely outperform traditional investments, but they're not passive and it's not an apples-to-apples comparison, and people need to understand that.
Ptak: Since you mentioned starting your own business, I guess it brings to mind entrepreneurialism. Do you think that there's anything about the FIRE movement that maybe is incompatible with going out and doing that just because it is so common? When you're starting your own business, there are certain financial sacrifices that you have to make, including becoming indebted. You've got to borrow the money to get the business stood up, right? Have you found examples of very successful entrepreneurs who uphold the principles that are core to the FIRE movement?
Mamula: Yeah. So, in our book, we write about a gentleman, he's British, and he kind of teaches how to start a business without any debt. And again, it, kind of, goes back very similar—this resonated with me because it was very similar to the approach we took with getting our education, in that if you accept that you have to take debt to start a business, then that's probably what you're going to do is go looking for loans. But if you start with the approach that “I don't want to take on debt.” I mean, there's a lot of interesting examples from somebody that wanted to start a restaurant, which most people would think is very capital intensive, but they found somebody who had a restaurant and wasn't using it all the time. So, I think they did like dinners and lunches and suppers, and so they started doing like breakfast. So, they started using their kitchen to cater. And there's all kinds of different ways, again, if you can think outside the box. And so, I kind of reject that idea that you need to have debt to start a business.
Benz: So, Chris, you referenced the perception that FIRE is largely geared toward a pretty privileged group of people, because it's hard to make a FIRE plan work if you don't have at least an above-average salary. So, do you think that that's a misconception that you need to sort of have a higher income to make this approach workable?
Mamula: Yeah, I mean, certainly, a higher income is easier, but the way we kind of teach it is there's three legs to the stool, so you can spend less, you can earn more, and you can invest better. So, you have to kind of make do with what you have. And so, again, if you don't currently have a high income, it's going to be harder to get started. But I don't think where you are defines who you are or who you're going to be. And so, you can certainly work on increasing your income or you can take a different approach to investing, whether it'd be getting into entrepreneurship or getting into real estate. And again, that involves different risks and different levels of effort, but it does open the doors to different people.
Benz: So, you've also talked about how the FIRE movement has aimed to grow up to encompass people at other life stages, because I think there's also the perception that this is something that you, you know, maybe do get started in your 20s and 30s. You actually think people at other life stages can at least take some of these principles to heart when thinking about their financial plans. So, let's talk about that. Let's talk about one cohort that you've referenced, which would be people who are getting close to retirement and feel maybe under-saved relative to what they need to be doing for their own retirement plans.
Mamula: Yeah, I think at the end of the day, the whole FIRE concept is really, it breaks down to a math equation. And it's really kind of simple eighth grade math, that it's all about your savings rate. And the higher your savings rate, the faster you can achieve financial independence. And so, it really doesn't matter if you do this from when you're 20 to 30, or when you're 50 to 60. The math is the same. What is different, kind of, as you have already alluded to, it was pretty easy for my wife and I, because we started on the right foot and we never inflated our lifestyle. But the principles are going to apply.
So, it may be harder if you're starting at 50, and you have no savings. But maybe that means you're downsizing your house, maybe that goes to having less car than you've driven traditionally. Those types of big decisions that are going to move the needle and allow you to develop your savings rate. But once you do that, if you're willing to take those changes, and you're willing to take that on— and again, I fully acknowledge it's going to be harder once you've elevated your lifestyle and inflated it. But if you're willing to do that, the same principles really apply, and it really just comes back to being a pretty simple math equation.
Benz: Yeah, Michael Kitces has talked about people who have helped their kids get through college, that that's actually a great phase in life to maybe implement some of these things where you've been funding these other expenses, notably college expenses for your kids. If you've done that, it's a good time to become a supersaver and play a little bit of catch-up on retirement planning.
Mamula: Yeah, I would totally agree. And also, same thing, like people, I think a lot of people get into like Dave Ramsey as the like the gateway drug into the personal finance community. And if you're already used to like just saving at a high rate to pay off your debt, the same thing, like, you know, you're in that perfect position to just transition that and start to pour that money into investments and you can build financial independence really quickly. It's really a factor of the motivation to get started and to develop that savings rate and then to make it sustainable so that you can do it long enough that you can achieve financial independence.
Ptak: Would you say that part of the evolution of the FIRE movement is that financial freedom can give you the flexibility to pursue work that's more meaningful rather than necessarily quit working altogether as some might associate with the FIRE movement?
Mamula: Yeah, I would absolutely agree with that. I think, for me—so, I now write at the blog, "Can I retire yet?" And I got there because I was literally asking that question. I was just burnt out on my career. I wanted more time for my hobbies. I wanted more time for my daughter. And I kind of thought that it was this dichotomy: either you're working, or you're retired. And there is this criticism of people in the FIRE community that we don't really retire. And I think a lot of people, they feel like they need to defend us, like, you know—I kind of take an opposite approach. And I say, I agree. Like a lot of us, we don't retire in what most people consider retirement. So, we can really have a lot more flexibility to just design the life we want to live. And a perfect example, in my case, is kind of, like you talked about with most people view entrepreneurship as being very risky. But because I'm in a position where we could go really decades without needing any income, it kind of just gave me that confidence. So, I'm kind of a sissy entrepreneur in that I can take this on, and if I don't make money in the short term, I can kind of have time to figure things out. And so, I'm looking for ways to give back through my writing and through educating people. And honestly, I don't know that retirement is really even if you are 60 or 70, it's great that you are in the position that you have financial independence and you have the ability to make the decision. But I don't know that that's the best decision for anybody to just retire in the sense of you're withdrawing and you're not making any meaningful contribution to society. I just don't see that necessarily being a good thing for anybody.
Benz: So, one of the key tenets of the FIRE movement, certainly something that you talk about is this idea of making sure that you're spending with what you call intentionality. So, let's talk about what that means, how people can figure out what that means for them.
Mamula: Yeah, so the term we use in the book is being a valueist, meaning not necessarily frugal for the sake of frugality, or you're not necessarily a minimalist, because you just eschew all possessions. But really, what you're doing is, you're just being intentional, and you're figuring out what do I actually value and then, is my spending actually lining up with that? So, I think a lot of people I know—like, again, in my career as a physical therapist, I would go to work every day and we had a doctor's office above us, and you saw pretty much all the doctors drove a BMW or a Lexus. And if that's what they truly wanted, that's fine. I mean, I'm not judging them. But that's just kind of what everybody does. And then, you take a step down to the physical therapist, and we all drove like the same class of car—except for me, because mine stood out in the parking lot. But that's kind of what everybody does is, you just live into this, whatever you can afford, that's the lifestyle. And what we did—so, I talked about like, not really sacrificing. My wife and I, we knew we didn't value having the biggest, fanciest house we could afford. We knew we didn't value having cars that other people were envying. So, we just chose not to do those things. But by the same token, we've traveled internationally. We've been to Africa; we've been to Australia; we've been to the Super Bowl. We've done all these things, because that's what we truly valued were experiences. And so, again, we didn't feel like we were sacrificing at all. And we didn't feel ultra-frugal, although we did have a very high savings rate and by most people's standards, I guess we were pretty frugal.
Benz: So, another thing that you discuss in the Choose FI book is the importance of rethinking what expenses are necessary. It sounds like making sure that you're not just being a lemming and going along with your neighbors in terms of deciding what expenditures are necessary is kind of a key point.
Mamula: Absolutely. And I think—like I mentioned—we never had a budget. And we still, even after we found the FIRE movement, we revamped our personal finances—a budget just never was very appealing to us. But I do think whether you budget, or we just track our spending, and that's something we hadn't done. And now we do it really kind of down to the penny. We just use a spreadsheet. But having that insight into where your money is going, and you can kind of see. So, even though we were saving a lot, we definitely made some changes. And like one that just stands out to me, like I'm not a technology person. So, I was still using a flip phone. And when my daughter was born, we were trying to take a lot of pictures of her and they're terrible pictures on this flip phone. And yet I'm paying, I think it was Verizon, like $40 a month and I had no data, I had nothing. And so, just by being intentional and seeing that, I started to research and now I use an MVNO plan, and I think I pay about like $10 a month. I have a smartphone; it takes great pictures; I listen to podcasts. It's everything I wanted, but I'm saving $30 just by being intentional and seeing where that money is going and being aware and making smarter decisions with your money.
Benz: So, let's talk about the college issue. You talked about you and your wife, your own approach to funding your college education. You said that your daughter's college fund is all ready to go. But let's talk about how parents should approach this, assuming they have children who one day will go to college. How should they counsel their kids about how much debt to take on, whether to take on debt to pay for college? What are some ways that parents can approach that issue, because it's just a huge headwind to some of the savings that you've talked about?
Mamula: Sure. I mean, so I don't claim to be like the expert or the spokesman for the FIRE community or even an expert on this topic at all, other than the fact that we've managed to negotiate it very well. And we certainly have a strong philosophy. So, I can tell you what we're doing with our daughter. What we did is, we already had a very high savings rate for our own retirement. And I took on a part-time job teaching rock climbing, and I didn't really need the money. I was more doing it just to have access to a rock-climbing wall so I can train. And so, we took all that money and we just invested it. So, we had like five years' worth of earnings, and we put every penny. And then I started to make a little bit of money from freelancing. So, we put that in. So, we just front-loaded her entire savings. And we use the taxable account because I just, I don't know what the value of college is going to be in another 15 years when she's ready to go—10 years now, I guess. But I would just say, you have to look at it as an investment and how much money is it worth spending on an education and what is the value you're going to get out on the other side. And so, by using a taxable account—we don't use a 529—there's certainly reasons very specific to our situation where it's pretty tax efficient, because we're not paying any capital gains taxes because our incomes are low now that we're in like "retirement." And so, I think we're in a very good position there and we'll be able to counsel her. And then, if she decides not to go to college, though, that money will be there to kick-start her in whatever path she wants to take in life. But I'm not one of those people that says nobody should go to college and it's a waste, but I'm also not one of those people that says everybody needs to go to college. I think you have to evaluate it on a case-by-case situation. What career do you want? Do you even need a degree? And then, what's the best way to get the best value for it?
Ptak: And one of the more consequential decisions, and you'll face this it sounds like, with your daughter is, choosing the school and what that costs. And so, how are you preparing for that discussion you'll eventually have with your daughter when you basically have to tell her that, you know, here's your choice set and there's, you know, you basically can’t have it all? Like, how do you set those expectations?
Mamula: Well, one of the things my parents did with me, and we talked about how I graduated with a slightly positive net worth when most of my peers were coming out six figures in debt. And something I think they did just phenomenally well is, they also, they didn’t have my money in a 529. It wasn't necessarily earmarked that I had to go to college and they just said, "You know, this is your money. We're going to help walk you through and help you make good decisions with it. But if there's anything left at the end of the day, it's yours to keep and if there's any debt, it's yours to pay. We're not helping you anymore beyond this." And I think that's kind of the approach that we would like to take with her to have her have some skin in the game. And then ultimately by that point, she'll be becoming a young adult, and she's going to have to start making her own decisions. So, I don't know how it’ll work out—she's 7 years old right now—but I'm confident that that's the best approach that's going to give her the best chance. And at some point, as a parent, I think you have to let go and let a kid make decisions. So, we'll see how it turns out.
Benz: So, I want to talk about the logistics of this. So, for people who think that they want to incorporate some aspects of FIRE into their plan, let's just talk about figuring out whether you have enough to retire early or switch careers. And also, I'm really curious because I'm someone who focuses a lot on retirement-portfolio planning; how do you determine how much you could withdraw from a portfolio given that the time horizon is so stretched out? And also, how would you asset allocate a portfolio for such a long time horizon? Let's talk about that. Obviously, it's very individual-specific, it depends on what they have going on in terms of what their income sources are, but just how would you counsel people about how to approach those issues?
Mamula: Yeah. So, when I found the FIRE movement, I had no idea what you need to retire. And so, we really—again, that kind of was a defeating position because we weren't working towards anything because we didn't really think it was possible. And traditionally, what the FIRE bloggers were writing was based on the 4% rule. And so, what they recommended is, you track all of your spending, and when you have 25 times that, then you can use the 4% rule and withdraw 4% and that's going to last essentially forever, assuming good early returns.
I don't agree with that for a long retirement time horizon, and especially with current conditions where we have such high valuations and such low interest rates, I don't feel confident with my own case doing that. But I do think it's a great place to start because it gives you something tangible, it makes you start focusing on your spending, and it gives you a goal to start towards. And then, I think what we kind of think about and kind of the way I have adopted and this isn't where I started, but as I wrote the book, I heard this framework where you become progressively more financially independent as you go. And I think it gives you options to do some of these things, again, like kind of I call it being a sissy entrepreneur, but maybe taking that risk or maybe go into a job that's less paying or maybe cutting down to part-time work versus a full retirement. Because the math, you know, when you're looking at a potentially 50- or 60-year time frame, there's really no way to validly predict when you have enough. But I think you know you're in the ballpark if you have that 25 to 30 times your spending, assuming that your lifestyle is not going to change, and your spending is not going to change dramatically.
Benz: Well, you mentioned relatively high valuations. I'd like to examine that. I worry a little bit that maybe some folks who are looking at their enlarged portfolio balances might be inclined to undertake a really early retirement, might be in trouble if they encounter that weak equity market early in their retirements. Can you talk about that and whether that concerns you?
Mamula: Oh, absolutely. You'll get no argument from me on that. And I think probably the predominant voice in the FIRE community on this topic is, it's a blog called "Early Retirement Now." And he's written an extensive series of articles about safe withdrawal rates. And where he writes is about 3% to 3.25% is kind of what you can start drawing down and he thinks that's relatively safe. And where I would even push back—I'm very conservative—where I would even push back on that a little bit is, I think a lot of retirement planning assumes that your spending is going to stay relatively static over time, and there's just so many things that can change. Just healthcare is one variable alone. That it's just the premiums to buy insurance, and then if you develop a condition, how much that can cost you out of pocket in addition to your premiums, and there's just so many factors like that, that can totally blow up your plan.
So, again, I think this is a really great place to start the conversation. But I don't think there's anybody, at least anybody that's being very serious about it that’s saying, you know, once you have 25 times you retire in a traditional sense, where you're never going to make money and live strictly off your portfolio. I think that would be a pretty terrible advice, but I do think it puts you in that ballpark where you can start making a lot of different decisions to start living a better lifestyle a lot earlier than traditional retirement age.
Benz: So, you mentioned healthcare. And it sounds like you're covered by your wife's healthcare plan. But let's talk about how people should approach the dimension of paying for healthcare in the pre-Medicare years, because I think that's probably the huge impediment for many people who otherwise might be able to consider retiring early. How would you suggest that they approach that issue?
Mamula: Yeah. So, there's a lot of options. There's no one-size-fits-all great option, unfortunately. And I would agree that that's probably the biggest challenge that most people face in making the transition. Probably the best option for most people is using the Affordable Care Act. And as long as you are able to keep your income low, you can qualify for subsidies and make the insurance affordable in that way. Another popular option are the healthcare sharing ministries, and again, I've written pretty in-depth analysis of the different options there. Unfortunately, for a lot of people, those don't fit because they won't cover you if you have certain pre-existing conditions. And also, they introduce different elements of risk, because it's not actual insurance. They seem to work pretty well, anecdotally, but it opens you up to different risks. There are people like military or people who may be retired from certain unions who can get their healthcare that way. But, yeah, it's definitely a challenge and it's kind of a hodgepodge system. And it's also a very unstable system. One thing I worry about, we can certainly be financially independent, and buy our insurance with subsidies as the law stands today, but you're introducing a lot of political risk if that law changes. So, there's just not a great answer for a lot of people unfortunately.
Ptak: And how about life insurance? To have life insurance you need to have income, right, and not having it would seem to be a particularly big risk factor for people with children who no longer have an income and don't have a huge nest egg set aside for their kids, right?
Mamula: Well, yeah, I would encourage people—and this is kind of one of the areas I think that life gets easier as you start to build some wealth. So, I mean, I think most people, if not all people should have disability insurance and life insurance. But the position we're in now, it feels good to have some income and it eliminates a lot of those risks that we've been talking about. But if my wife or I passed away, we would go from a three-person household to a two-person household. So, financially—I mean, this kind of sounds terrible to say, but I think this is the way you have to really plan when you're doing financial planning—is you have to take emotion out of the equation. And we would be in a better position financially with only two people to support and then eventually when my daughter becomes, when she's 18, we would be down to one person with the same size portfolio. So, I think things like life insurance become less necessary, if necessary at all. And disability insurance. I mean, I couldn't even get because I don't have an income to insure. So, a lot of these things where a lot of people's income goes to, it just becomes unnecessary or not even possible as you become more financially independent and you leave your career.
Benz: So, while we're on the topic of risk factors, another one that I think about is human capital. So, if you separate from sort of the thing that had been your main income generator and pursue something else, or maybe retire altogether, and need to get back into that thing that you were doing that was your main income earner, is there sort of a risk that your skills could be rusty, that you may have trouble reentering if you need to? And what's your thought on coaching people about how to kind of insure against that risk?
Mamula: Yeah. So, again, this is something that's going to be very industry and profession-specific. I actually just wrote about this a few months ago, because this is something I'm kind of wrestling with. I left my career in December of 2017. I renewed my license one time as a physical therapist, and it will expire at the end of 2020. And by that point, I'll be like three years out of the workforce. And so, I kind of have to make a decision. Part of the reason I still consider working a little bit part time is just that ability to go back to work for health insurance. And then I think the other part is, there is still that it's just, I think it's a sunk cost. I put seven years of my life and tens of thousands of dollars to get these degrees. And just to kind of let them go so early, it still weighs on my mind a little bit, and I still think about it. But for me otherwise, I think I, as a physical therapist, it's a pretty in-demand career with looking at just demographics of an aging population—I think that healthcare need is going to be there. So, I would feel pretty comfortable that I could go back. I think if you're like in a tech field where things are changing much faster, that's going to be a very different calculation. You also have to think about just things like age discrimination—are you going to have the health to go back when you would potentially need to go back? There's a lot of decisions, and it's not something I think you should take lightly.
But one kind of counterpoint to that, and I think Michael Kitces has written about this a good bit, but I think you probably are not going to have to go back to full-time work. Like if you see that you're starting to run out of money, you're probably not going to wait until you're down to your last year or so of expenses and then have to go back and not only support your living but rebuild. But even if you can go back to part-time work or lesser-paying work just to kind of ride out a few years, that's also an option. So, I don't think it's—it's kind of like with all these things we're talking about: the truth kind of lies somewhere in the middle. It's probably not as risky as most people think when they get caught up in fear. But it's also not a decision that you want to take very lightly.
Ptak: Do you think it's possible, as some would argue that FIRE is largely a bull market phenomenon. How do you coach FIRE adherence to prepare for a period when maybe market returns are really poor?
Mamula: So, I think it definitely adds some risk. And maybe people are taking the leap now when their portfolios are inflated. So, I'm kind of curious to see what happens whenever the market corrects, and whenever we go through our next bear market. But that being said, I think people that are just finding this message now and they're considering it, to get to financial independence, I don't think that investment returns played that huge of a factor, particularly—I mean, the shorter the time frame, the less that investment returns matter. And it really becomes more of a function of your savings rate. If you're saving over 20, 30, 40 years, investment returns are pretty critical. And then, once you get to the point where you're living off your portfolio, investment returns are really critical. But if you're trying to build wealth quickly, it's really a function of your savings rate. And you don't have the time for compounding to really take its effect. And so, it's much less of a factor, I think, in getting to financial independence. So, I don't know how much of a factor—particularly people that are doing it really quickly—I don't know how much of a factor that that is right now.
Benz: One thing that you've referenced throughout our conversation has been the importance of some of these communities in helping you develop your thinking about your financial path. So, let's just talk about that. You have written about how kind of the Mr. Money Mustache community of extreme frugality didn't resonate with you. But let's just talk about how you found your way to people who were in sync with the way that you're thinking about this.
Mamula: Yeah, and I think some of the things that like a Mr. Money Mustache writes seemed kind of extreme to me. But I guess what I did is, I took little bits and pieces from everybody. So, there was a lot that he wrote that does resonate with me. And I think that's what kind of everybody needs to do. And that's the beauty of now, like, the community is so much bigger. There are so many people writing about this. And the other big advantage now that I see that wasn't there when I found this community. So, we talked about, I wrote this Choose FI book, which is based on the Choose FI podcast. And what those guys have done that's been just remarkable is— and it's been great to build their business, but it's also been great for people that want to pursue this lifestyle—they've created these Facebook communities. And then, people in local groups will meet up. So, I live in the Salt Lake City area. And so, typically, once a month, we'll meet and it's just people like-minded. And you talked about how it's so difficult to go against when you see all your neighbors doing the same thing. And even as this FIRE community, like some people will call it a movement, and I kind of chuckle with that, because you're still in such a tiny minority and it's hard to find people that are doing this. But now that they've created these communities, you can find real people and real life in your local community that have similar mindset and goals and strategies and sit down and talk to them and you kind of create your own peer group, and it makes it a lot easier. So, I think that's extremely important.
Benz: Well, Chris, this has been a really illuminating conversation. We really appreciate you spending time with us today.
Mamula: It's been great. And I appreciate talking to you.
Benz: Thank you so much. Take care.
Ptak: Thanks again.
Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts. You can follow us on Twitter @Christine_Benz.
Ptak: And at @Syouth1, which is, S-Y-O-U-T-H and the number 1. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.
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