Pharmacists on FIRE, is it possible to retire early?
What is FIRE?
FIRE is a fairly new phenomenon, it stands for Financial Independence, Retire Early. The financial independence movement started about 5 to 10 years ago.
I only learned of the FIRE community when I read news articles discussing about Mr. Money Mustache and other millennials retiring in their thirties.
Recently, Your Financial Pharmacist blog posted a really good overview of what FIRE is and if it is something pharmacists can participate in. That got myself interested as I wanted to write a post dedicated to FIRE.
For physicians there’s the physician on fire, in the pharmacy world, do we have a pharmacist on fire?
In this post I wanted to focus on real life examples of pharmacists on fire and if it’s something I am pursuing.
First Real Life Example: Jason Long
According to his blog, one of the reasons Jason left his job is the stress of working in a pharmacy, presumably retail pharmacy, and the fact that he had to “argue with morons.”
Long’s portfolio is a 60% US stocks, 20% international stocks, and 20% municipal bonds. He plans to withdraw 3% from his portfolio yearly, as long as its valuation is above $1 million.
Retiring early allows Jason to spend more time on his hobbies and other interests such as reading, marathon training, catching up on video games, movies, and volunteering.
Example two: Jonathan Mendonsa
Like most pharmacists, Jonathan graduated from pharmacy school with a debt of $168,000 in student loans. He’s able to pay off his loan in 4 years and co-founded ChooseFI, and is seeking financial independence.
Jonathan hopes to achieve his FI goal by developing multiple passive income streams. One of his passive income streams is undoubtedly his Choose FI blog and Choose FI podcasts.
Jonathan quit his job as a pharmacist and is devoting his entire attention to his blog and podcast. I am guessing that his side hustle income helped him gain his financial freedom.
Jonathan hopes to reach financial independence from following his pillars of FI
According to USA Today, FIRE can be summed into 3 tenets.
These are the mainstay principles for those seeking Financial Independence:
- Index Fund Investing
- Affordable Housing
- Affordable Used Cars
- Decreased Grocery Bill
- Tax Optimization
- Travel Hacking
- Cut the Cord
- Multiple Income Streams
- Savings Rate and the 4% Rule
Index Fund Investing
Vanguard index funds are the go-to place for low-cost index funds. These funds offer low fees and return averages around 10%. There are many different funds to choose from but most FIRE bloggers suggested the Vanguard total index fund (VTSMX).
Most FIRE practitioners advocate for low-cost housing. You should downgrade your big house to a smaller house in order to cut costs. Cutting the biggest expense is also one of the to-do lists, therefore, it’s best to pay off your mortgage as soon as possible.
Due to depreciation, it’s best practice to buy a used, reliable car. Or better yet, if one live and work in a big city, getting rid of their car completely is an alternative. A bike or walking can get them from work and home, plus it’s good exercise!
Decreased Grocery Bill
Grocery hacking goes into play here. I am thinking coupon clippings, stocking up on on sale food, meal planning and eating lots of chickens.
The strategy here is to maximize tax advantaged plans such as Roth 401 (k) and Roth IRA.
Using credit cards bonus and other methods to essentially travel for free.
Cut the Cord
Cutting the Cord is a growing trend in America. According to Cord Cutting Statistics in 2019, in the 3rd quarter of 2018 alone, approximately 1.2 million of Americans chose to cut the cord. According the same source, the average savings amounted to over $1,200 dollars a month.
I chose to cut the cord from DirecTv in 2019 and will save $1,900 by year’s end from a monthly average bill of $160.
Multiple Income Streams
This is when a person seeking FIRE seeks to increase their earning through various different gigs. There are many ways one can hope to supplement their income through both side hustles and passive income streams.
Saving Rates and 4% Rule
Finance professionals usually recommend 10 to 20% savings rate. For the FIRE community, the rates are recommended to be at least 50% or more.
The 4% rule is when you reached FI and are on the RE side you are to limit your withdrawals to 4% of your holdings to sustain your retirement.
Jonathan and a growing number in the FIRE community are emphasizing the FI instead of the RE in the FIRE movement.
Interested in more guides? Financial Samurai has a really good post on how to retire early and never have to work again.
However, some may misunderstand what the FIRE movement is all about.
Below are a few misconceptions on what FIRE actually means.
- One of the myths is when you retire early, it does not mean you’re not working or not earning any income.
- According to a Washing Post survey, 75% of those who are financially independent think security is more important than retiring early, with the most important factor being work-life balance.
- Myth: FIRE means extreme frugality: WP noted that 67% of respondents said FIRE is not worth it if they have to live like they’re broke.
- Lastly, 68% of the respondents rather retire at a normal time if it means they have to live a low-cost lifestyle in retirement.
Reasons preventing you from retiring early?
- Market crash
- Frugality is harder in practice
- Compound interest
- Higher social security checks
- Financial plan failure?
- No more active income
- No access to retirement accounts
- How much is enough?
Remember the 2008 market crash? When will be the next one? Are you equipped to weather the storm?
Frugality is not easy
What if you’re living a frugal life style like that frugal pharmacist but your friends are vacationing in Hawaii or Skiing in Aspen?
You can only travel the world so many times. What are you going to do with the rest of your time? Are you going to be bored to death? Here, I guess the remedy is to pursue a passion that you were not able to do when you had a full time job.
Don’t underestimate the power of compound interest. If you invested money as soon as possible, thanks to compounding interest, you may be a 401 (k) millionaire by the time you retire the traditional way.
Higher social security checks
I discussed this in my previous post. If you waited until you are at your full retirement age. Better yet, if you waited until you’re at 70 years old, your security check can increase substantially.
No more active income
This is an obvious reason, but still an important point. When you are on FIRE, you have left your full-time job and lost your active income stream. Will your passive income stream be enough to cover your remaining years?
No access to retirement accounts
For the most part, you cannot withdraw money from your retirement account until you’re at least 59 1/2 years old. Maybe there are early hacks or loopholes to deal with this issue?
How much is enough?
The conventional wisdom is that you need $40,000 a year to retire early, this is known as leanFIRE. On the other side, fatFIRE is when you retire with $75,000 or more per year. Lastly, there is BaristaFIRE, this is when you’re retired but can choose to work on a part-time basis, perhaps with Starbucks? Then there’s that itching question, how much money is enough?
What about an alternative to FIRE? Financial Independence, Retire Never
What if you love your job so much that you never wanted to leave? I have seen pharmacists work into their late 60s or even in their 70s. Is it because they made crucial financial mistakes when they were younger or do they really love being a pharmacist?
FIRE principles can be very useful. I am learning as I go and the final destination is financial independence. Once you’ve achieved this milestone, work is optional. You can choose to continue to work until the minimum retirement age of 62, wait til you’re 67 or even 70, this is your preoperative.
You can choose to work part-time, PRN (per diem or as needed.) Having these options is worth pursuing. Financial independence or financial freedom is definitely a goal that I will set out for myself.
Can Pharmacist be on FIRE? Absolutely, this is the beauty of the FIRE movement, ANYBODY can pursue the end goal of FIRE. We’ve got examples of regular Joe, to Pharmacists, to Physicians and so forth.
Are you a pharmacist pursuing FIRE or just FI? What about FIRN? I think it’s never too late, the time is NOW.