Suze Orman, the personal finance guru and self-proclaimed queen of needs vs wants, gets it wrong about how much money you need to not to work rest of your life. In fact, she gets it wrong twice, first here, and then here. I am not taking anything away from what she has achieved; she has done herself well with net worth of $30 m as reported by the wikipedia. It was very nice of her that she even supported her mother and took care of her. More power to Suze.
Yet, in her podcast with Paula Pant on 1 October 2018, Suze surprised me for not knowing the concept behind FIRE (financially independent, retire early), but still had her comments reserved for it: I hate it, I hate it, and I hate it. Sure Suze, you can hate it, but you need to know it before you hate it. And on 13 October 2018, she wrote a post on Linkedin where she noted that she was given bad information about FIRE. Well, we could ask her, by who? Never mind.
In the podcast, Suze goes on about how wrong FIRE is about finance and work. She says, it is not possible to live well if you do not have $5 m or $10 m. She also mentions that the retirement age for people should be 70, not any earlier. According to her, $2 m is nothing but pennies. Never mind that the US median household income for 2017 was $60,336. How many people can afford to spend $2 m on their family medical needs (which Suze did)?
First, there must be others who have spent more than $2 m; but they are exceptions, rather than the norm; they are some very rich people. Second, more important, you need not, and even Suze did not have to, spend $2 m on medical costs. That is because such needs are to be taken care of by insurance. If you think that you need high insurance, take one by paying higher premiums. There are people who think that a much lower insurance is enough. For them, basic, standard insurance will be just fine. For every calamity you think you might face, you are entitled to, and should, take an insurance. Accumulating cash just to deal with it is both unnecessary and unwise.
The same goes about the size of financial assets. Who are we to generalize and say that $5 m, $10 m, or more is required before one can retire? To each his or her own. If Suze requires $30 m before she can afford not to work for money anymore, great for her. If Spendy thinks she requires $100 m, more power to her. On the other hand, if Frugally's idea of enough is $1 m, we cannot much argue against that either, can we?
The key is that the financial assets will have to be reasonably sufficient compared to the person's sustainable annual costs. If a family's annual costs are $20,000, having $1 m in financial assets covers a period of 50 years assuming zero real rate of return. I can safely say that it is enough. I can also see that while Suze may not be able to live on $20,000, someone else might live on that quite happily. Wouldn't it be wrong on anybody else to pass a judgment on that?
The same can be said about having $40,000 costs and $1 m assets. People who are aware of basic math and some knowledge of finance should be fine with this situation. This is how it should work: In the normal times, the family will spend $40,000 in annual costs adjusted for inflation; in down markets though, the family will learn to bring down the annual costs; substantially down if required. You see how a flexible family can adjust, yet live happily if it wants to. Suze will not understand it, forget appreciating it. She even missed that these people's math is based upon compounding over a long period of time. But I don't blame her because she has much more money; it is difficult to think different in such a situation.
Yet Bill Gates, the richest man at the time, said, beyond a million dollars, it's the same hamburger. He may have said it in 2011 (or I don't know when), but the hidden meaning from it holds good all the time: That you do not need a fortune to live well. What you do need is the right mindset. If you lack it, we cannot help it.
Don't get me wrong; it is great to have $10 m or much more. But like everything, it has a price tag: How many hours of work, especially that is not enjoyable, will one have to spend in order to get it? For instance, if one is able to get that number at age 60, after 40 years of selling time, what good will that $10 m or $100 m do to him or her? Heck, the precious time is already lost; that's a huge opportunity cost. If that person is fine with $1 m at age 40, what's wrong with it? In fact, here's what is good with it: That person can spend rest of the life in doing things that are fun. Who cares if that does not bring more cash? Doesn't it bring more gratification and pleasure?
Suze implies that $200,000 to $400,000 is what one requires annually to live. I am not sure how many will be able to afford that even after 40 years of labor. Then there is this statistics that tells us the number of millionaires in the US. Their definition of millionaires: households with at least $1 m in investible assets, excluding primary residence. As per the report, there were more than 11 m millionaire households in the US in 2017. That means we have about 115 m households that are not millionaires. Of course, the concentration of wealth in the hands of high net worth households is disproportionate. So what should these 115 m households should do, go after $10 m, or fun and happiness?
The question to ask is: After basic needs can be taken care of by the cash that you have, will you be happy working just for the sake of more money or on things that really make you happy in life? The endgame is actually about happiness, not cash. If someone likes photography, not coding, what good that extra cash from coding do? That person will be happier in life, and therefore more successful in life - (happiness is success) - with photography. That is basic commonsense, but not many are capable of pursuing it.
In her Linkedin post, Suze acknowledges that not working in a place that is not enjoyable is a good idea. But then she says that one has to look for another place so that it can bring money. For her, having 25 times costs and retiring at 40 without working is too risky which will not work for 50 or 60 year period.
The thing is that these FIRE people are a bunch of smart people. They know the math, finance, and logic behind their choice. In fact, the RE is actually a misnomer; retire early is not retire from work altogether; it is retire from unwanted, not enjoyable work; it is a choice to retire from working for money; there is no obligation at all. None of these people have the idea of sitting idle in life. They want to do work that is both meaningful and fun for them; and they want to keep doing this for the rest of their life; there is no retirement from this work. If this work brings money great; if it doesn't it is fine. But mostly, there is some money coming in that contributes to their bills. Some even like the idea of taking up part time work just for bills, and use rest of the time for fun. There are too many possibilities; but sucking thumbs is not one of them.
Basically, the FIRE people are frugal which gives them immense power and option to adjust their lifestyle according to the needs of the time. Spending $2 m on medical costs is not one of them; they will buy insurance for it. They know that oatmeal and rice-n-beans isn't a bad deal if combined with fun-filled day's work. Being financially independent is a very powerful idea. They have time for leisurely meals, for healthy meals that cost less, for workout, for work that they like, for good sleep, and for all the fun in their life. If they chased many millions of dollars instead, they wouldn't be able to do any of this. They are more likely to be happier than others, although I agree that happiness is relative and elusive.
May be it should not be called FIRE, but FIFA (financially independent, fun all time).
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