Financial Independence Retire Early

Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions

Georgios Kaklamanos

Nov 4th, 2020

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 1 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Outline

1 Introduction

2 F.I.R.E. Concepts

3 Practical steps to F.I.R.E.

4 Resources on the Topic

5 Conclusions

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 2 / 19 However ◦ The basic practices have been life-saving for me ◦ I honestly believe in this approach

Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Disclaimer

Please note the following ◦ I haven’t reached F.I.R.E. (yet ;-) ) ◦ I am not a ﬁnancial advisor ◦ This is more “life-philosophy” than “ﬁnance” talk

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 3 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Disclaimer

Please note the following ◦ I haven’t reached F.I.R.E. (yet ;-) ) ◦ I am not a ﬁnancial advisor ◦ This is more “life-philosophy” than “ﬁnance” talk

However ◦ The basic practices have been life-saving for me ◦ I honestly believe in this approach

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 3 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Inspiration

Why are you doing what you’re doing? ◦ Working 9-5, 5 days a week? ◦ Expect retirement at ~65? ◦ Have a job that requires commute? ◦ Live where you live? ◦ ...

Do you know what are your terminal values? ◦ and are you adapting your instrumental values to reﬂect that?

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 4 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Motivation

Retirement plan ◦ never integrated enough to a country’s system ◦ need to save money myself

Antifragility ◦ a way to handle shocks ◦ a backup plan / way out

Autonomy and Freedom ◦ work on whatever I want ◦ work whenever I want

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 5 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Enter F.I.R.E.

Financial Independence ◦ have enough passive income to cover living expenses

Retire ◦ not the “mainstream” retirement idea ◦ free from necessary employment

Early ◦ before the age of 65 ◦ “usual” goal is before 40 ◦ “extreme” before 30

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 6 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Your Savings Rate (SR)

Savings Rate Workyears for Working Years (Percent) 1 year oﬀ till retirement Savings Income - Expenses 10 9 51 SR = = 20 4 37 Income Income 30 2.33 28 40 1.5 22 The only metric that matters 50 1 17 ◦ years before aim is to maximize it needing work 60 1.5 12.5 Column 3 assumptions: 75 3 7 80 4 5.5 ◦ 5% investment returns after inﬂation 90 9 < 3 ◦ you use the 4% rule ◦ you want your stash to last forever Table 1: Working years, related to savings rate [Ref]

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 7 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Your F.I.R.E. Number — The 4% Rule

Your F.I.R.E. number: ◦ Amount of money need to be FIRED ◦ 25 x “Annual Expenses” ◦ Assumes a 4% annual withdrawal

Trinity Study ◦ original in 1998 ◦ calculate the safe annual withdrawal rate for a portfolio to last 30 years ◦ modeled diﬀerent portfolio allocations ◦ 75% / 25%, with 4% was the safest bet

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 8 / 19 Also faulty assumptions from the study ◦ Never get any more income ◦ Never adjust spending to economic reality ◦ Expenses would remain the same over time

Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Usual Criticisms and Responses

Criticisms: ◦ F.I.R.E. is only for privileged ◦ F.I.R.E. is only for single people ◦ You can’t live with that few things ◦ Trinity study is based on prosperity anomaly ◦ Even at 4% there are chances of portfolio failures ◦ What if a big bad thing happens?

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 9 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Usual Criticisms and Responses

Also faulty assumptions from the study ◦ Never get any more income ◦ Never adjust spending to economic reality ◦ Expenses would remain the same over time

Increasing Income ◦ Not much you can control ◦ Investments / Side Hustles / etc ◦ “Simple Path to Wealth” approach

Reducing Expenses ◦ Completely in your power ◦ Frugal lifestyle / Minimalism / etc ◦ “Early Retirement Extreme” approach

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 10 / 19 Diﬃculty lies in staying the course ◦ not panic-selling when market goes down ◦ not think you’re smarter and able to pick stocks ◦ not waste money in fund managers / transfer fees / etc

Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions The Simple Path to Wealth

One of the core-reading of the community ◦ its core assumption is that the market always goes up

Promotes “Buy and Hold” Total Market Index Funds ◦ he’s big on Vanguard and VTSAX ◦ you can also throw in VBTLX (Vanguard Total Bond Market Index Fund), for a smoother ride.

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 11 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions The Simple Path to Wealth

One of the core-reading of the community ◦ its core assumption is that the market always goes up

Promotes “Buy and Hold” Total Market Index Funds ◦ he’s big on Vanguard and VTSAX ◦ you can also throw in VBTLX (Vanguard Total Bond Market Index Fund), for a smoother ride.

Diﬃculty lies in staying the course ◦ not panic-selling when market goes down ◦ not think you’re smarter and able to pick stocks ◦ not waste money in fund managers / transfer fees / etc

Another core-reading (and personal favorite)

Contains very little ﬁnancial advice. It really is about the philosophy of things, that lead to customized ﬁnancial choices.

Promotes Renaissance-man lifestyle ◦ build competency in a wide range of ﬁelds, instead of specialization

Provides methods and suggestions on how to reduce daily expenses and how to think about costs and ﬁnance in general ◦ e.g. cost of commute

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 12 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions ERE Example

Issues with specialization ◦ high risk if future demands change a lot ◦ locked-in a single position

An appropriate response to a problem is a solution that uses just enough resources to solve the problem no more, no less ◦ responses can be divided in labor, time, and capital ◦ many are short on skill (management) and time (labor), therefore money (capital) is spent to compensate

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 13 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions The Hedonic Treadmill

Hedonic Adaptation The observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes

Most people think they can’t live without X. They’re wrong.

No matter the event, your life-satisfaction would adjust to a base level ◦ the aim is to increase the base-level ◦ doesn’t depend on stuﬀ, but on your philosophy of life

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 14 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Track every expense

You can’t optimize something until you measure it. ◦ Calculate annual expenses and deﬁne your FI number.

Identify major expenses and takes steps to reduce them to get a SR of ~60% ◦ do you really need to live next to the train station? ◦ how much money you spend on dessert at R2?

Useful tools / Concepts ◦ You need a budget [YNAB] ◦ Double Entry, plain text accounting [hledger]

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 15 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Accumulating wealth

Save enough (cash) to be able to survive without job for a year

Start investing in Total Market Index Funds and / or ETFs. ◦ Investigate your options for a broker and any hidden costs on that. ◦ A lot of interesting material on Emanuel’s Talk about passive investments using ETFs [Ref]. ◦ Info on Brokers for people living in France, on a previous talk by Marton Ady [Ref].

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 16 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Books

Early Retirement Extreme: Also there is a website / blog. The Simple Path to Wealth: Similarly the website / blog. The Bogglehead’s guide to investing: Guide for people looking to invest in index funds. Your Money or Your Life: Haven’t read it but it’s also highly promoted in the community. Nomad Capitalist: For digital nomads, oﬀers ways to take full advantage of the system. Also has a [YouTube Channel] and [a website] Choose FI: A book from the people who made the [synonymous website] and podcast. Playing with F.I.R.E: Book from the folks who made the [synonymous movie]. Scarcity: Why Having Too Little Means So Much It’s really interesting to see the eﬀect that scarcity of money and time have on people’s mindset and behavior.

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Mr. Money Moustache Mustachian Post: A blog focusing on FIRE in Switzerland. It also has a [community forum]. Financial Independance Europe Podcast: Focusing on people looking for FIRE in Europe Bogglehead wiki: Also a lot of resources for people following these kind of investment strategies. The Minimalists: Along with the documentary, a lifestyle promoting living with less. Waking up: App for mindfulness mediation. You can get the full version for free by [sending them an email]. Helps to increase the base-level of life-satisfaction. Center for Applied Rationality Handbook: Contains a lot of techniques to help on how to think about things (Goal Factoring, Units of Exchange, Negative visualization, etc).

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 18 / 19 Introduction F.I.R.E. Concepts Practical steps to F.I.R.E. Resources on the Topic Conclusions Final Thoughts

F.I.R.E. is not for everyone ◦ there is risk involved ◦ requires a lot of lifestyle changes ◦ requires eﬀort ◦ there is the risk of becoming the “weirdo” at your social circle.

Still, it’s possible, especially for people at CERN ◦ on Doct Student salary it was easy to have a SR of ~56%.

And I think it’s a worthy pursuit ◦ just think about all the possibilities it opens

...... Georgios Kaklamanos Financial Independence Retire Early Nov 4th, 2020 19 / 19