Lizzy and Lissa break down the hidden costs – financial and otherwise – of the FIRE movement. “Financial Independence, Retire Early” is a strategy as well as a community. Given what it takes to retire early, is it worth the effort? Lizzy and Lissa talk about FIRE and as always, give their 2 cents.
Lizzy and Lissa break down the hidden costs – financial and otherwise – of the FIRE movement. “Financial Independence, Retire Early” is a strategy as well as a community. Given what it takes to retire early, is it worth the effort? Lizzy and Lissa talk about FIRE and as always, give their 2 cents.
Main Topics
00:00 Introduction to the FIRE Movement
01:30 Running The Numbers Segment
06:40 The Evolution of Retirement
15:09 Key Elements of the FIRE Strategy
19:11 Personal Perspectives on FIRE
22:40 Balancing Saving and Living Life
23:43 The Cost of Extreme Saving
25:49 Personal Financial Priorities
28:27 Rethinking Retirement
37:04 20 Cents Segment
References for Statistics
https://www.empower.com/the-currency/money/research-financial-independence
Lizzy: Financial independence, retire early, AKA the FIRE movement, has gained momentum in the last few decades as more people are ditching traditional ideas of what retirement age actually looks like.
Lissa: Over the years, FIRE has developed not only into a structured strategy, with common guidelines, but also a community in which people pursuing financial independence are putting upwards of 70 percent of their income into savings and investments.
Lissa: Is the FIRE movement worth it? Let's talk about it.
Lissa: Welcome to Net Net with Lizzy and Lissa, where we analyze hidden costs and empower you to make your own damn decisions in life. Each episode covers a different facet of life and at the end of each episode we each give our takes on whether we think something is net positive or net negative.
Lizzy: I'm Lizzy, a strategist and consultant with over 17 years of experience in finance and investing.
Lissa: And I'm Lissa, an accredited financial counselor and personal finance content creator. We're best friends who talk about money and everything else
Lissa: oh, that's your line.
Lizzy: That's my line, bro.
Lissa: We talk about money and everything else.
Lizzy: So, is the FIRE movement worth it? Let's talk about it. First up, running the numbers on the FIRE movement.
Lissa: Empower Financial Services reports that 67% of Americans surveyed say achieving financial independence is an important goal for them
Lizzy: In the same survey from the end of 2023, the average American says financial independence is making 94, 000 per year.
Lissa: The popularity of the fire movement is also seemingly growing. The financial independence subreddit has over 2.2 million members, putting it in the top 1 percent of subreddits by size.
Lissa: Wow. For reference, Taylor Swift's subreddit as of today has 2. 4 million members. I love that reference. That's a great reference point. It's a good reference.
Lizzy: Yeah. So clearly people care about financial independence and retiring early, but at what cost? Is the FIRE movement worth it? Let's talk about it.
Lissa: Ooh. So let's talk a little bit more about what it is. Because just saying financial independence, retire early, and like trying to save a lot, doesn't really describe it in full.
Lizzy: Right. So, maybe you know more about the actual kind of technical origins of this, but from my perspective, the FIRE movement is this mindset where you are often going to extreme measures of changing your lifestyle to save as much as possible to reach retirement at a young age.
Lizzy: Which often like 40 years old. Um, so not, we're retiring one or two years early. We're trying to build this lifestyle around having this freedom of our time and this independence and making the sacrifices today in order to yield that in the next, you know, five, 10, 20 years, 15, however many years.
Lissa: Yeah. I think that's pretty spot on, at least for the origins of it.
Lissa: Sure. Because I know now that the fire movement has taken on other forms and I'm, I don't follow it completely, but I do know that there are different means of fire. Like there, you can look this up, but it's called fat fire or lean fire or coast fire. So there are different ways to achieve this financial independence and retire, retiring early without, you know, having to do it completely by the book and like save 50 to 70 percent of your income.
Lissa: Like obviously saving as much as possible is a big part of it. Right. But I do think there are different elements of what it looks like and what it means based on who's doing it.
Lizzy: Sure. So we kind of have a mindset, an objective. A lifestyle, and then in some cases, a very specific methodology.
Lissa: Right, so the FIRE number, as I believe it to be, is where you take either your current, like, salary, or whatever you think your yearly expenses will be.
Lissa: Entry fee will be or are ultimately in retirement, ultimately in retirement. Um, based on the way you live now or the way you want your lifestyle to be and you take that number and you multiply it by 25. Okay. And when you do that, you get this number, maybe somewhere in the millions that if you can save that much money, like save and invest.
Lissa: to that amount of money. The thinking is you can retire because you can withdraw from that money, from your investments without, without running out of money for the rest of your life. Okay. Right? So it's like a 4 percent withdrawal withdrawal rate.
Lizzy: Okay. And so is the mindset to get a little technical here, are you saving the amount of money adjusted for inflation or is the idea that Your investments are going to counteract inflation.
Lissa: So again, I'm, I don't know all the ins and outs, but I think that the reason it's a 4 percent withdrawal rate is to account for inflation because let's say you're investing in, you know, broad index funds, S&P 500, for example, which You know, historically have had a 10 percent average return and adjusted for inflation is a little bit lower than that.
Lissa: Sure. At, you're still accounting for that for long term inflation, you know, 10, 20 years of inflation. So I think that's why the withdrawal rate is a little lower. Um, and you know, as with all things in finance, this is a rule of thumb.
Lizzy: Absolutely.
Lissa: But it does, like you said, it's a, It's one of the methodologies behind figuring out like how much do I actually need to retire.
Lizzy: And so that's kind of to give some background on that if you're not familiar with this concept. What 20 will buy today is not what it bought 20 years ago, 30 years ago, 50 years ago. So that's the, the cost of inflation. And so if you live off, you know, I think it was 96,000, if that's your independence, it's 96,000 today, you will actually need more money to get the same value of 96,000.
Lizzy: In the future. And so that's why you need to think about inflation and the cost of living, you know, when you eventually retire.
Lissa: And so when, when people are doing fire and they're saving for this retirement that they're not waiting until age 65 or whatever to retire, right. They're trying to retire.
Lissa: Sooner and when, at a time that they want to retire, they're trying to figure out, like, how do I save and invest as much money, uh, to get to my FIRE number? And that is, when we say saving, like, that's really investing. You can't just put money aside because your money loses value due to inflation when it's sitting in a traditional bank account.
Lissa: Um, there are ways to earn interest on your money, right? Like high yield savings accounts. certificates of deposit, other financial products, but at the end of the day, like those percentage rates that you will yield in those types of accounts will rarely if ever, um, Yeah, compared to what you will make when investing in other types of financial securities.
Lizzy: I'm really glad you pointed that out because just in general thinking about retirement, it's not something most of us are even educated about, uh, other than learning for ourselves. And I know many people, um, this happened to someone I'm very close to in my life, uh, who, you know, an older person who just had no idea.
Lizzy: And so she was saving cash just in a savings account, um, And had no idea that that was losing money over time, essentially, because what she could buy with that, um, was deteriorating due to inflation, which I think averages around three and a half to 4 percent a year lately due to the pandemic and kind of other, you know, You know, global, uh, challenges has been upwards of 8%, um, so significant.
Lizzy: That is a huge, huge hit on your money. Um, and so talk to me about that challenge or kind of disconnect and even Um, having awareness of what you're going to need for retirement.
Lissa: Right. So, on a conceptual level, retirement, as we define it, is like this time in life when you don't have to work or earn money anymore, you, you have money to live your life, right?
Lissa: You're not going to go homeless. Like, you have money to support your living expenses, you know, your housing, your utilities, your food. all the other things you like to do in life and you'll be fine. And the traditional thinking for retirement is you, you stash up or you earn all this money throughout your life.
Lissa: And then you flip this switch at one point in life, you retire. And based on what you saved and invested, you know, in those previous years of your life, that money should take you to, you know, till you're not here anymore. Um, The reason retirement has evolved and changed so much in the last century is because of many reasons.
Lissa: But one is like, who's the onus on to make sure that you have enough money at retirement, right? If, It used to be pension, uh, it used to be, social security was a big part of it, which is from the government, pensions, which is from your company that you work for, right? And then in the last couple of decades, it's been shifting to the onus being on the individual saving in like a 401(k) or IRA or whatever other retirement vehicle.
Lizzy: Yeah. And I think even prior to that, there was much more of a communal. element, right? Your family took care of you when you were older. You know, the kind of social structure of families has changed. And then to your point about pensions, you know, people used to stay at a job for 30 years and earn a single pension.
Lizzy: And it was a good job and they had a retirement and the economy has changed. The workforce has changed. And now that is incredibly rare. And most, uh, Most companies don't even offer that, unless, you know, maybe you still see it in like a government backed education or, you know, firefighters, something like that.
Lizzy: But, um, now it, it is more of this self directed approach. You have to figure it out on your own.
Lissa: And for those who don't know what a pension is, it's a, it was essentially, well, there's still some that exist, but it's essentially when you work at a company or something and they pay into, Like the equivalent of like what your 401(k) is, but it's a whole different financial product and they put money in it on your behalf.
Lissa: And the longer you stay with them, the more gets put in your pension. So when you do retire, you have this payout that takes care of you. For the rest of your life and essentially replaces your income and it's tougher and tougher for any company to offer pensions just because of like how long people stay at jobs, but also like life expense.
Lissa: Life expectancy has increasing increase. So So, you know, retirement age that's in this like 60 year old range, like people are living to be like 90 something, that's like 30 years of taking care of someone's pension or even the government social security. That's why it's becoming a concern and in places like the U.
Lissa: S. like the onus is falling on the individual to figure out like how are you going to fund your life when you're not going to work, when you're unable to work anymore. Right.
Lizzy: Right. And. Interestingly, this is not to get too into the weeds, but pensions themselves have to invest that money to try to make that same return to outpace inflation.
Lizzy: That's called institutional investing. That's, you know, they pool in billions of dollars that, you know, represent their entire workforce's retirement and then try to make that return. And, you know, it's a big part of the financial markets.
Lissa: So conceptually retirement, right? You work, work, work, save, invest.
Lissa: And at some point, you don't. You either don't want to work anymore or you can't physically or what, what have you, so you retire. That whole definition of retirement is changing both with the fire movement and just in general, like the way society is shifting.
Lizzy: Sure. To your point about life expectancies, right?
Lizzy: If you're living longer, you're living healthier longer. What you maybe wanted to do with your time and your life at 65, Maybe you can work longer. Maybe, or, or then you're looking at 30 years. And that kind of brings to another point of just the mental and emotional challenges of retirement. I actually did, uh, workshops for the L.
Lizzy: A. City employees retirees. So they had newly retired. And, um, I put on these workshops around purpose because often you'll see people enter into retirement. They've lost their structure. They've lost their sense of purpose. They have all of this time. that they don't really know what to do with, and you tend to see an increase in mortality rates and, uh, chronic health issues and those kind of detrimental things right after retirement.
Lizzy: Yeah.
Lissa: Because it's a challenge. Including mental health issues, including suicide rates.
Lizzy: Exactly. And so we have this very rosy picture, I can't wait till I'm retired, and that speaks to this fire movement of, all right, well then let's try to get there early. But, retirement isn't everything. Because there are other challenges to that and stressors as well, right?
Lissa: So I do think something I appreciate from what I know of the fire movement is it's not just this Mindless. I want to retire early so I don't have to work There is an element of like figuring out purpose and what life is to you and what will you be doing with your time? That's different from now once you retire Do retire.
Lissa: And for some people it's not like full retirement for the rest of their life. Like some people choose to work, maybe whether that's part time or working in industry that might not make as much money as you used to, because you don't have to make as much money. You can do something more for passion now.
Lissa: And so I do appreciate that about the whole, I think that's part of the whole movement too, is getting people to understand like what. What life can look like. What is purpose. Right. Um, as opposed to just like, Oh, I want to retire early because I'm, I'm done with working. I hate working. I'm, I'm over it. I'm not built for it.
Lissa: Yeah, I'm over it.
Lizzy: Yeah. So I think that's a good segue into what are some of the key elements of the FIRE movement. Um, again, there's very specific methodologies, but in general, obviously we mentioned is saving a big portion of your income. And that typically has a specific. Target. So, um, some of this goes with the mindset that, like, saving first, right?
Lizzy: Versus I'm gonna spend everything. theoretically save what's left, but that can be challenging. So prioritizing the saving first and then spending what's left. Um, and that's kind of like a profit first mindset. That's another book that kind of approaches that with, with business, but pay yourself first.
Lizzy: Yeah. Um, and that goes along with keeping your expenses low. So often amongst, uh, followers of this that can be taken to a Serious extreme, um, very frugal or simple living, either as a means to this goal or because it does align often with that idea of what's actually important to you. Are, you know, material things important to you or is time and experiences, and I have noticed as well, there's a strong correlation amongst followers of this mindset, um, with prioritizing family.
Lizzy: With prioritizing, um, experiences to a lot, spend time or want to spend time traveling, but in, you know, maybe more cost effective ways. Um, and so I, I think I agree. I think there is a thread of finding the purpose behind why you're doing this.
Lissa: I do think, I think, um, frugality is a part of, of this that's highly correlated with fire movement, but I do think part of it is a misconception.
Lissa: Okay. Um, which is why I think there are different types of fire, like sure, that fire. Um, I can't define those for you because I really don't know what they are, but when I was looking them up, I was like, Oh, so not all people have to like, save 80 percent of their right. There are different ways to approach it.
Lissa: Um, even like financial independence, Work optional is something that I'm hearing a lot where it's not so much that you're, you want to retire for the rest of your life, but at least for the foreseeable future, like you can take many, many retirements, right? Maybe for the next five, 10 years, I have enough funds and I don't want to work.
Lissa: And, or maybe I work part time. I think there's something called, I saw called barista fire. It's like you work a part time job. Yeah. Yeah. To supplement. To have connection, to have, yeah. Yeah, so I think. Something to do. Yeah, but I do, I, from what I do know, yeah, obviously to keep your expenses low, there has to be some element of frugality.
Lissa: Sure, sure. Frugality.
Lizzy: Or certainly mindfulness.
Lissa: Right, mindfulness.
Lizzy: All of this in, in, in. entails a often high amount of mindfulness and intentionality around your finances.
Lissa: There's nothing bad with frugality. I actually think frugality is a, is a strategy because people who are frugal as opposed to being cheap, um, are people who want to make sure they get the most value, the most bang out of their buck.
Lissa: And so there's an element of strategy there to make sure that you are fulfilling your life and lifestyle with the The things you want and need for as, as the lowest cost as possible.
Lizzy: One of the things I really admire and appreciate about this movement or this mindset is that it prioritizes being thoughtful about these things and having a forward looking view, because I think, uh, especially if you don't, uh, grow up being exposed to these ideas or learning that you, you know, you're Should start thinking about retirement early.
Lizzy: Um, it's very easy to just spend money, get by, not even look at what you're spending. And I've, I've gone through phases with that. And sometimes that's great. It's really freeing. Um, but I appreciate the intentionality of integrating your financial decisions into your lifestyle and understanding that those are, those can be positive choices because how you approach your finances, of course, affects how you live.
Lissa: Mm hmm.
Lizzy: What is your personal take? How do you feel about that balance between, you know, saving so much or being really frugal versus, you know, I'm going to enjoy my life today?
Lissa: I'm big spender, you know, I, I'm a big spender, um, because I do really value enjoying today. and not putting off fulfillment, enjoyment until later.
Lissa: But I try my best to do that in like a responsible way, right? Like I, I'm not gonna like blow all my money today because who knows if I'll be around tomorrow. Like, no, no, no, I'm gonna be around tomorrow and the next day and the next day. Um, when I was doing like some of the research for this episode because I wanted to learn more about the FIRE movement because I've never, you know, I actually considered myself in the fire movement, but like all, a lot of the elements that I found about it, like align with how I coach and counsel clients and how I live, right?
Lissa: Paying yourself first, saving and investing as much as you can. Like for me, it's not 50, 60, 70%, but I try to when I have proper cashflow, um, keeping expenses low, um, less. relevant for me, but definitely on the values based spending is super important to me. Definitely. Um, so something I've gotten better at in the last five years or so is uh, really thinking about every purchase that I make.
Lissa: Um, not so much just weighing like, oh, should I You know buy this serial brand versus the generic kind like not just small decisions like that But like when I make a purchase really thinking about what value does it bring to my life, right? Flying first class we can have a whole episode on that right but like Things like that where I know I'm paying for an experience, right?
Lissa: So Whether, like for me, it's beyond crunching numbers, is it worth it financially, because I'm paying for an experience. And that's important to me right now. It's something I value. So, you know, when it comes to fire and trying to save 70 percent of income or having this experience, I'll make that, I'll actually be conscious about making that decision.
Lissa: Right. A lot of times I'll go towards making the decision to to purchase the thing or buy the thing and that's why I think I don't follow the FIRE movement so closely even though a lot of the principles do align with how I live. Sure, that makes sense.
Lizzy: Yeah. Yeah. One thing I think is important to call out in terms of why does this Matter so much is the time value of money.
Lizzy: And so if you have ever kind of engaged in these retirement conversations or, you know, talk to a financial advisor or something, they're going to point out the fact that, you know, an investment accrues interest and then you get compound interest, which is those, that interest is then reinvested and you get interest on your interest.
Lizzy: So it grows more exponentially than linearly. And so the earlier you invest, the more you will end up with. So, you know, 100, 000 invested for 30 years is going to be very, very different than the same 100, 000, even adjusted for inflation. If you only have it in the markets for 10 years. Um, and so. That is what kind of can put that pressure or, you know, emphasis on spending, excuse me, on saving and investing as much as you can earlier to increase that time horizon.
Lizzy: But that can be an interesting balance, right? If you, on one extreme, you're saving or investing every single dollar that you have to maximize that so you have more later. Well, what kind of lifestyle are you really living? And kind of to your point about, um, once you then retire, then what lifestyle do you have?
Lizzy: You've created a whole life around this certain type of approach, then what are you going to do with that money later?
Lissa: Yeah. Well, that's why I think, like, as with all things, there are probably people in the fire movement who approach it very thoughtfully, purposefully. And whatnot. And then there's some people who haven't thought those things through.
Lissa: They just know that they just want to do it. Sure. And at what cost that that's the question we asked at the very beginning of the episode, like at, at what cost, at the cost of saying no to every, um, event to every gathering, every outing with friends, you know, In ten years time, when you retire, you're not gonna have any friends.
Lissa: I mean, you can make new friends, but like, you're not gonna, you're gonna miss out on some things.
Lizzy: Right, so when you're trying to save very, very deliberately, and potentially very aggressively, not always, but if you were to try to save very aggressively, you might be saying no to nights out, to eating out, um, to buying new clothes, to buying a new car, to That's a big one for me, um, to having experiences, but maybe even other things like gifts for friends or family, um, things that can impact your social relationships.
Lizzy: So being present, you know, someone has a, A wedding, that's a destination wedding. Are you going to make that choice? Is that aligned with your lifestyle and your values and your goals? And these can be challenging decisions. And I think for some people that are at the more extreme end, not everyone understands it and it can, it can have a cost and then at the same time, yeah, you're not enjoying your life in the same way.
Lizzy: That doesn't mean you need material things. You need to spend money to have fun or enjoy your life. But. Are you depriving yourself? What is the balance between sacrifice?
Lizzy: And not living.
Lissa: Right. I mean, playing devil's advocate, other end of the spectrum, like, if you live a completely YOLO life, like, you only live once, I'm gonna do it right now.
Lissa: Then, and you're only thinking about present day you, you're not thinking about future you, then future you's gonna have a hard time even though you're having a blast right now. So, obviously the answer is somewhere in the middle. But what, how does that vary based on, like, who you are and what you want in life?
Lizzy: Sure. So, for me, there are a few things that I would consider to be kind of my non negotiables. I have historically been pretty frugal, even when I've had high income. Um, and that definitely comes from my upbringing of just not having a lot, and growing up in a household with no money. Almost no emphasis on material things.
Lizzy: I mean, very, very little. So, that's kind of normal for me. Um, and I was traditionally very cautious. But that said, there are things that I am just going to do unapologetically. And the number one is travel. I am not going to wait until I'm retired. I'm not going to wait until I'm 65 to travel. I travel a significant amount.
Lizzy: I think I'm pretty, you know, I don't, wouldn't say I'm frugal necessarily anymore. I'm not trying to, uh, absolutely minimize my travel costs. You know, I, one thing I am bougie about is hotels. That's probably the number one thing I'm bougie about, but I'm not going crazy, you know, um, Yeah, you're, you're taking it to the next level than I do, but that's okay.
Lizzy: But so for me, that is my one thing. I'm not going to, you know, I was in Paris for two weeks. I probably spent maybe four or 5, 000. I'm not sure. I haven't, um, recouped all my budgeting yet. Um, a lot of it was, was split with my mom and my sister, but I spent two weeks in Paris. Um, I have many other trips planned this year, and to me, that 5, 000 is way better spent on those two weeks of an experience that I will never forget than it would be in an account occurring interest for 30 years.
Lizzy: That's just my personal take. So I find some balance. The other thing for me. I definitely was late to the game in saving for retirement, partially from not knowing and partially because my first 10 years in the workforce. So basically 18 to 28, I was at a really small company that didn't offer retirement benefits.
Lizzy: And so I don't have the like huge nest egg already saved or invested. I, you know, I have, I have some, but I'm probably behind the eight ball in terms of like getting to where I will need to, to live my lifestyle. at 65, but I also know I'm definitely more of like that barista person. I can't imagine myself not having a project, something to do, some kind of job.
Lizzy: I'm going to be on the board somewhere. I'm going to have some business. It may not be a full replacement for my current income, but I can't see myself waking up every day. Like, what do I do now?
Lissa: But I think that's an interesting thing to call out because that is a mindset that we pretty much learn from day one, especially in a, in a capitalistic society of like earning, right?
Lissa: Right? Like, not just being and living life, but making a living in life, right? So, I'd be curious to know, because you, you said you're, you're more, you would, you would be more baristifier because you, you have, you want to find, you find fulfillment in working, Making money in
Lizzy: You know what? It's not even the making money.
Lizzy: No? No. For me personally. It has nothing to do with making money. It's having something to do that is a creative exercise and a use of my mind. I like to feel productive. Not necessarily in the sense of it produces income. Oh, so it could be a hobby. It could be a hobby, but it would be something I would take seriously.
Lizzy: Seriously, you know me, I'm not going to just have, you know, half assed hobbies. It's going to be one, probably why not turn it into some kind of business because I enjoy entrepreneurship. Um, but it will be something, it'll be an endeavor that gives me purpose that I put a lot into because of my own like creative instincts.
Lissa: Well, so that makes me curious too, because you've alluded to age 65 a couple of times. For you then, what? What, what would be ideal in terms of, do you think you're going to be, um, making money from now until the day you die? Or is there ever going to be a time where you just chill and do your hobbies?
Lizzy: No, no, no.
Lizzy: That's, that's a great question. So, um, and I, I say 65, cause that's the typical age of retirement. Honestly, my current plan is, uh, I'm co founding a new business and the goal is to stay really engaged with that business for, let's say, The next five years, it could be shorter. It could be longer where I'm really hands on in that business.
Lizzy: And if things go well, generate a significant amount of wealth for myself. Um, to the point where I have a lot more, even more freedom over my time and can, can chill for a bit and 100 percent pursue whatever the next. is for myself, but not have to do it for financial purpose. I will absolutely be making money till the day I die, but not necessarily through labor.
Lissa: Not through active.
Lizzy: I have a job. I don't think I'll ever have a traditional job ever again. I mean, I don't. Now I am an owner and an entrepreneur and I think I will probably always have my hands in businesses, whether that's through investing or being on a board or being a mentor. Right.
Lissa: And that comes with knowing more about money, right?
Lissa: Like, there isn't just active earned income. There's passive income, portfolio income, other ways to make money where you don't have to, like, expend your energy to do so.
Lizzy: Yes. Or you do so, At a different proportion because I think there's a misconception of like earn passive income doing this. Yeah, no, you do a little bit here None of it is passive.
Lizzy: Yeah, that's that's a fallacy. Yeah, but Or you're taking on a tremendous amount of risk for something that's truly passive, but The return on that on effort is is higher for a lot of these Um, types of investments. So yeah, having real estate, having income producing investments, I think will be a big part of my life.
Lissa: Well, a reason, another reason I'm pointing out that 65 retirement age thing, and like, is because I want people to re evaluate what retirement means for them. Like, you don't have to join the fire movement, but here, here's one practical reason why it matters, right? So a lot of people ask me Should I max out my 401(k) or not?
Lissa: And so a 401(k) for those in the United States, it is a retirement account that you can't go open yourself, but a lot of employers will sponsor one for you. And they do this as a means to incentivize you to come to their company and work for them. And then a lot of times they'll offer a match to incentivize you to put money into it.
Lissa: So then you're saving for your own retirement. they're giving you, you know, a benefit for working there and you know, you, you can start building what's called your nest egg. So on the question of whether or not you should max it out, um, the first thing I talk to people about is like, what do you want your life to look like?
Lissa: When do you want to retire? Because the The main differentiator between putting money in a 401(k) and investing it through the 401(k) versus investing it in any other type of account, like an individual taxable brokerage account, is the tax advantage.
Lizzy: Mm hmm.
Lissa: Right? So you have some tax advantages in retirement accounts depending on the type of retirement account.
Lissa: 401(k)s are pre tax, meaning if you put money in it today, you're not going to get income taxed on that money today. You'll get income tax later in the future, but nobody's thinking about that far in the future the kicker like the the the big Restriction is that you can't take money out until age 59 ½ or later And so what that what you say when you are prioritizing all your resources all your money towards maxing out your 401(k) because there is actually a Maximum to how much you can put in it per year for sure if you're prioritizing that what you're saying is like I I'm going, I'm cool with putting this in there and not touching it until age 59 ½.
Lissa: Which begs the question, is are you going to work until now, between now and 59 ½? Because if you want to retire earlier than that, you have to, you have to, Put money in other places too. So that actually, there's no right or wrong answer to whether or not you should max out your 401(k), whether you should max out your mat, your employer match.
Lissa: A lot of times that's a yes for me because it's like free money, what they consider free money. But at the end of the day, like your own individual situation and what you want in life and when you want to retire is going to determine what types of accounts you have in your investment portfolio. Thank you.
Lissa: Absolutely.
Lizzy: As it should.
Lizzy: And these are nuanced things. Everyone has different goals and objectives, and there are different strategies and means to get there.
Lissa: But it's hardly talked about, right? Because we, at least for me, I went into the workforce making Go to school, get an education, get a good job, and then retire later, like 40 years later?
Lissa: I'll figure it out. I'll figure it out. I never thought about entrepreneurship in that way. I don't think entrepreneurship's for everyone, but I do think there are other ways to make money besides earned active income 40 hours a week. It type of stuff, right? So that, that's why I do appreciate, I guess, movements or structure around retiring early, like the FIRE movement.
Lissa: Right. Agreed.
Lizzy: But I think it's also important and, and spoiler alert, we'll talk about entrepreneurship in a future episode, but I think it's important to highlight that some people really value the steadiness and the security. Of a nine to five job and that's important to them because of their own personal goals or you know Whatever they have in their life and could be anything you have kids later in life.
Lizzy: And so you want to have that security until they get out of the house or, you know, whatever it may be. And so this, this is not to say that you have to want to retire early, that you have to start thinking about a way around the more traditional approach. That's perfectly valid as well. Yeah.
Lissa: You just have to understand the risks, right?
Lissa: Because if you're. if you only have that one source of income and you do plan to work until age 59 and a half or you're, you know, 60s when, uh, to get social security later on, um, you have to understand the risks, which are, what if something happens to you between now and then that you're not able to work?
Lissa: What if something, you know, What if your lifestyle expenses change? Like what if certain things change? What if you get laid off from that job? Right. And you know, how are you going to get by or what if things change? Um, like it's hard to know what you're going to want 5 years from now, 10 years, let alone 1 year from now.
Lissa: Yeah. But you kind of just have to do your best to, knowing yourself as best as you can and make your decisions according to that.
Lizzy: Absolutely. I completely, completely agree.
Lissa: 20 cents. 20 cents. 20 cents is the segment of the show where both Lizzy and myself, Lissa, each get 60 seconds to give our two cents on today's topic.
Lissa: Whether we think the fire movement is a net positive or a net negative, where does 20 cents come from? Because you get the opinion of two dimes. Two dimes. Wait, is dimes even something that people refer to?
Lizzy: Do people even say that anymore? I don't think they say that anymore. Are we so old? I gotta check Urban Dictionary.
Lizzy: You know what, I don't even care. That's what, that's what it was called back in our day. Back in our day. Two dimes.
Lissa: All right, Liz, is the FIRE movement worth it? You have 60 seconds.
Lizzy: All right. This is an interesting one for me because traditionally when I thought of FIRE, it was that very extreme, uh, take on being, you know, aggressively frugal in order to, you know, retire significantly early.
Lizzy: But I think as we've discussed it and as I've learned more about it, I think I actually do in many ways. Engage in that mindset where I do not expect to be working a traditional nine to five job till I'm 65, probably not even till I'm 45 and I am positioning myself for that actively. Um, so my personal approach is to balance the things that are important to me, like travel and experiences while still saving and preparing for this kind of nontraditional, I guess, early retirement.
Lizzy: And so. I will say net positive.
Lissa: Positive. Yeah, I kind of surprised myself. Surprise. Yeah, cool. That's cool. All right. What about you? All right, so for me Like I said when I was doing the research for this episode and I was like Oh, this is what the fire movement is like the actual specifics. I'm like, oh I do that.
Lissa: Like that's Um, part of the way I think, um, minus the fact of like aggressively saving and trying to aggressively keep expenses low, um, those two just don't fit in my current lifestyle in the way that I see money. Um, all that said, I am building a life similar to Liz to where, like, I will have multiple sources of income now throughout the rest of my life.
Lissa: I don't, at this point, plan to go to like a traditional 9 to 5. I was for 11 years. Um, who knows, that might change. But, in terms of the actual FIRE movement, I don't consider myself to be part of it. Even though I do want financial independence, I do want to retire early. I just have a different definition of what retirement means and looks like.
Lissa: So, for me specifically, I'll say FIRE movement, net negative. Alright. For me. Um. Although I like the principles of it. All right, all right. So it's a little bit in the nuances here, in the meanings. Lots of nuances in the meaning. Maybe I have to do more research to see, like, is there like a sign up? Like, how do I join this community?
Lissa: Like, am I part of it? Right. Just because I say I'm part of it. I know.
Lizzy: I don't consider myself a follower of the movement. But I think I, Agree with the principles. Agree with the, yeah, the principles. Interesting.
Lissa: Alright. Well, remember, this is what we think at this moment in time. Can't nobody make that decision but you.
Lissa: So what do you think? Is the FIRE movement worth it for you?
Lizzy: Hit us up. Let us know what you think. DM us on Instagram at netnetpodcast. Or email us at hi@netnetpodcast.com. And if you want to follow us individually, here's where you can find us.
Lissa: I'm at wealthforwomenofcolor on TikTok, YouTube, and Instagram.
Lizzy: And you can follow me on TikTok and Instagram at live_well_lizzy.
Lissa: All references, Statistics and resources mentioned can be found in our show notes. This podcast is for educational, informational, and entertainment purposes only, and should not be constituted as financial advice.
Lissa: Remember to always do your own research, consult a professional as needed, and feel empowered to make your own damn decisions.