I have never considered myself to be a risk taker. In fact I would go so far as to say the opposite. I am naturally conservative; a trait magnified by my professional finance training.
On the whole, my life has followed a fairly standard path. I did as I was told – finished school – went to university – found a career with prospects – knuckled down – worked hard – put in the hours – climbed the ladder.
My instinct has always been to save rather than spend, avoid debt, build up a financial buffer.
So I’m confused when I hear people comment that the FIRE lifestyle is risky.
Unusual And Risky Are Not The Same Thing
Early retirement may be many things but I’m not convinced risky is one of them. It is unusual and achieved by precious few but those that do get there have usually either saved for many years or had a crazy high savings rate for a time or a combination of both. These people have amassed a nest egg capable of keeping them for the rest of their lives.
While friends, family and colleagues spent all their money on lifestyles and depreciating assets, the FIRE role-models spent thoughtfully, saved impressively and invested wisely.
They could “lose” half their wealth in a market crash and still be vastly better off than the majority.
So I wouldn’t call them risk takers. I would call them responsible. Thinkers and planners – people who take responsibility for their financial futures.
The Influence of Family and Friends
My father is one of the people I respect most in the whole world. His unflinching belief that education is the key that unlocks a better life is the reason I am in the position I am today. He led by example, with a work ethic I find hard to match – working six and sometimes seven days a week in a factory.
Whenever I mention the stock market to my father he says, “Be careful. You could lose it all”. And he’s right – plough it all into one stock and I could lose it all. But that’s not how I invest and so it bothers me when he says this. I can talk to him about rental property – like many Brits, bricks and mortar is something he can understand. But index funds are so far out of his comfort zone they must inherently be risky.
I tend not to get into deep and meaningful conversations about this, but the few times I’ve talked to friends the conversation always seems to go the same way too.
Friend: Retire early? I’d love to do that but I’d never be able to afford it.
Me: Save a high proportion of your income and invest it.
Friend: But isn’t that risky? I could lose all my money.
Me: What’s the alternative? What else would you do with it?
Friend: Spend it, use it, enjoy it.
Me: And then it’s gone right? Then you’ve lost it all – for sure. There’s no getting it back once it’s spent.
Friend: (Blank stare) I don’t know – your way just sounds risky….
I’m not saying they spend all their money. My parents were savers and put all of their money in the bank. I assume that’s where at least some of my friend’s cash is too. But the thing is, if you want to grow your nest egg, you have to be willing to do something different, trust your instincts and not be swayed by friends or family who may have the herd mentality goggles on.
Doing Nothing is in itself a Massive Risk
Doing nothing is perhaps the biggest risk of them all. I would be heartbroken if at some future time I looked back and realised I spent the best years of my life in the office. That I had stayed there years longer than I needed to because I couldn’t take the leap.
Every year that passes with this sedentary lifestyle I find myself a few pounds heavier and I get a little more concerned about the state of my liver. Sometimes I see myself in a photograph and I don’t recognise the person I’ve become. Where did those chins come from and the bingo wings…? Where is the person I once was – full of energy and enthusiasm? I feel like the real me has been replaced by this pale imitation of my former self and I don’t like what I see.
Heart disease, diabetes and stress related illnesses are real possibilities, becoming more likely with each year I spend chained to the desk.
Why don’t we think more about these risks? Why do we push them to the back of our minds, suppress them, year after year? Why is the fear of running down our nest egg bigger than the fear of a premature death?
When placed in the context of a life cut short, any risks of the early retirement maths being slightly off pale in comparison.
Is Early Retirement Risky?
I’m not there yet, so I can only imagine the day that I give my notice, but I imagine it feels scary. Like stepping off the platform and trusting the safety harness is secure for the exhilaration of the zip line.
It can’t be an easy thing to do – having spent decades working and accumulating to make the switch and start to withdraw.
So what could happen? Will I run out of money? Will my skills be out of date if I need to go back to work? Will the markets crash and not recover?
The thing is, there will always be something to fall back on even if the worst were to happen. It wouldn’t be the end of the world if I had to go back to work for a while. That’s what everyone else has to do every day. And true, it’s unlikely I would go back at the same level as when I left. But this isn’t a board game – I wouldn’t be sent right back to the start.
Suppose every worst case scenario happens – would all my savings suddenly go “poof”in one go? I am not going to lose the ability to check in on my finances just because I don’t have a job anymore. After a lifetime of being careful, I won’t stop living within my means. I’ll be watching the markets and I’ll know if it’s a good year or a bad one. I’ll know if my properties are fully occupied or if I’m without a tenant for a while and I’ll cut my cloth accordingly. It’s how I’ve always lived, it won’t change because my income is coming from investments instead of a job.
In fact, it may be that the bigger risk is that I am too conservative with my spending – I can definitely see myself cutting back in bad years but can’t imagine increasing my out-goings when returns are good.
So is early retirement risky as the naysayers would have it or is it just fear of the unknown? Staying in the same routine, following the life that is mapped out for us of working for 40+ years – these are the norms, they are the well trodden paths. Everyone else is doing the same thing and there’s safety in numbers, right? But stepping off the path and taking a different direction is just that – a different direction.
Sometimes you have to go out on a limb – that’s where the fruit is.
(954 days)
FIREthe9to5 
Early retirement is not a one way street. You can always change direction (go back to work), live somewhere else, reduce your costs. What I find risky is people who are not saving for retirement (there are so many) on the basis they can’t afford it – they can’t afford NOT to save but they just don’t see it.
Even worse is I know so many civil servants with their (our) gold plated final salary pensions who partially retire as soon as they hit 50 and take a massive actuary reduction in their pension JUST to get their hands on the lump sum this pension can pay out. Recent example was a colleague who gained £12k by dong this, taking a 45% reduction in her pension for the rest of her life as a result.
Early retirement is careful planning and sensible. After all you don’t have to retire, you can continue to work on your own terms if you so wish.
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Oh my lord – there should be protection to stop that kind of reduction happening.
Agreed- it’s not a one way street although it has taken me a while to get to that mindset.
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not quite as bad as it sounds. 45 % reduction to get a pension for about 15 years (assuming 65 is the normal retirement date) longer than someone who waits. They both pop their clogs at 80; one with 30 years of pension and one with only 15 🙂
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I think you could drive yourself crazy with the what if’s that aggressive saving and early retirement pose and that they can resolve. I am cautious and I hedged my bets by only slightly early retiring and while I think that was a good decision for me I can’t really defend why I worked as long as I did.
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Drive yourself crazy is exactly right – I do that to myself ! It’s helping me enormously to put things in perspective by writing down my thoughts like this. Something about committing my thoughts to the record is forcing me to be rational.
You did what felt right for you at the time and the fact you still think it was the right decision for you should be reassuring.
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So many of your questions and beliefs are exactly in line with my thinking. I took the plunge almost two years ago only to learn I should have done it earlier. But because I am ultra conservative, I didn’t. I hedged my bets to the n-th degree to the point that the only thing I am actually worried about is that we get to WW3 in which case we are probably all doomed. My investments, real estate, are recession proof and the income generated is much more than I need. I bought during a low and at a amazing exchange rate, so I can afford a 50% reduction in value, without taking a hit. I later found something I love to do (teach Scuba Diving) and made it my second career – it turns out I can live on that tiny income alone because I learnt how to focus on the things I truly love to do and reinvesting the return from the properties. On top, of things, I still get offers to come back to my old industry in my high paying job; in fact many more than when I worked, which is paradoxical, I find. I feel I eliminated all possibly manageable risks so when I have the discussion with ‘a friend’ who isn’t convinced I just let them be, and go back to traveling and Scuba diving, or investing my generated savings. Some people just don’t want to see / believe that it is quite possible to retire early from your corporate career and focus on one’s passion(s) full-time.
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That sounds amazing that you’ve found something to do that you love so much. You are in a fantastic position – well done. I do wonder how many of us work way too long but how do you ever know until you do it?
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Thank you Fire9to5! I often wonder this myself! Sometimes it’s good to take a break to try and find out. Looking forward to your future posts and thinking.
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It always makes me giggle that people are quite happy to have the vast majority of their wealth tied up in property but when you suggest they buy shares they say o no i could lose it all. Viewed as an asset property to me is on the same risk scale as buying a single company share. That’s effectively what it is. In fact it’s worse as its highly illiquid. My assistant at work literally looked at me like I’d lost the plot last year as i was considering selling my house. I have 200k in equity sat in there doing nothing. I said to her ‘would you buy 200k of shell shares’ she said no of course not shell is a big company but could still go bust. She couldn’t see the the comparison. Even my dad was suggesting my cousins widow buy a let property near where she lived to give her income with the life insurance money. And he bought property in florida and Spain right at the height of the market
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I get the same thing all the time – people want to know about my rentals but run for the hills if I mention stock. My views aren’t as extreme as yours on the property side and I like the balance it provides as an alternative income stream. People will always need somewhere to live so I don’t see buying “standard” housing in established areas in the U.K. as too risky. Buying overseas in markets you know nothing about? That’s risky.
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Im sure people in florida felt the same 😉
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Living the FIRE lifestyle isn’t just something you do when you’re aiming for FIRE – it’s all about developing habits, living more intentionally, without wasting money on unnecessary stuff, so even if you’re not aiming for FIRE, it’s a good kind of life to lead (ok, so I’m biased!).
Most people don’t think about their retirements, so have no idea of what income they will receive when they retire. They also don’t know how much they spend, so when the time comes to retire, they’re in a shock that what they will get won’t cover what they want to spend.
People on the FIRE path tend to log all their income and expenses so are much more prepared, whether they do FIRE or decide to carry on working.
As you say, the bigger risk is not doing anything.
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Great point of view! I think it is a good idea that if you retire early you have more than one income stream besides your portfolio, such as a small business or side hustle. I wrote an article about some side hustles you can do in order to decrease risk. Feel free to leave some suggestions!
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