$5MM is a Scary Number

Life is scary.  It's Halloween after all.  You should be scared.

At this point, we've all heard the Suze Orman interview on Afford Anything.  And I'm also sure at this point you've probably read most of the very judicious responses:

• Mr Money Mustache: https://www.mrmoneymustache.com/2018/10/05/the-fire-movement/ 


• Coach Carson: https://www.coachcarson.com/suze-orman-fire-movement/


• Big Ern: https://earlyretirementnow.com/2018/10/15/suze-orman-vs-fire-movement/

Hell, even Paula herself gave a great rebuttal on her own podcast: http://podcast.affordanything.com/154-youll-need-at-least-10-million-to-retire-early-says-suze-orman/

So, Suze made a point that you need somewhere between $5 - $10 million to retire because life happens.  According to her, life is just a giant seagull that flies in on your beautiful beach day and shits all over everything.

I mean if it's going to cost me $30,000 a month to put my parents in an old folks home, we can't afford that even while we are working full time.  So, why should we even try?

But, just how out of touch is she?

I wanted to know how far out of touch this actually is.  I mean $5M - $10M is a LOT of money.  It's more money that most people will ever see in their entire lifetime.

So, like most things in life... I built a spread sheet, so we can see how all this plays together.

Some quick things:

• I made some variables that you can change, and I also made it so that when you hit your goal you stop.


• I made it a fixed tax rate of 30% to get the gross income number.


• I found the income percentiles for the US for 2017 here: https://dqydj.com/united-states-household-income-brackets-percentiles/

Anyway... Blah blah blah.  Enough with the disclaimers.

Let's assume we start with $0 at age 20.  And we want to have $5MM saved up by the time we are 40, where does that leave us?

Get $5M in 20 Years

What does that say?

At a 50% savings rate and 8% returns, you need to be saving $9,000 a month to make it to $5MM in 20 years.

And, where does that put you on the income scale?

You need a household income of $308,000 for those 20 years to make that happen.  So, your income would need to be in the 98th percentile of all households in the US.

Now, let's put that in perspective, that means that if you walk down the street and you pass 100 people, you are making more than 98 of them.

Yes, in order to make that happen, you by definition need to be in the top 2% of income earners in the US.  And not just for a little while, this is saying you have to start making that type of money at age 20, and maintain that income until you are age 40.

No wonder people freaked out when she started saying that!

There's just no chance for a normal person to come even close to that.

Let's put some more realistic numbers into our little model and see where it shakes out.

How about $500 a month, saving 15% of their income, where do they come out?

A Normal Person

Well, they build a considerable amount of wealth, if they retire at 70 like the Matriarch of Money suggests.  At 70, they will have ~$3.5M saved up.  And on a fairly modest salary of $57K, or 50th percentile, meaning 50% are below that number & 50% above.

Ok, good advice, I guess, but wait a minute, how much money is that going to generate??

Well, if I live on $57 a year, saving a portion of it while I'm working, why exactly do I need access to $143K a year in retirement?

That seems excessive, working until you are 70 to give yourself the biggest raise you have ever seen in your entire career.

I mean, there will be other expenses, medical care,  etc.  But, most of your expenses will go down, you'll stop commuting, you'll likely own your house, and you'll likely have some form of insurance to guard against most things.

But, what about all the fire and brimstone that will come raining down from the heavens during our life time??

I'll tell you what, getting run over by a car happens.  Retired or not, 30 years old or 70 years old.  This shit happens, so you gotta plan for it, but you also have to accept it.

Why does this FIRE movement make so much sense?

Here's why I think this FIRE movement is grabbing hold of people's attention.

On a modest salary, I can regain a large portion of my life to do what I want to do, granted I'm not a complete idiot.

Let's see...

On that same 50th percentile salary, I can save $1MM in 26 years at a 30% savings rate.

Saving $1MM on $57k/year

What's nice about this is spending is something that is completely in your control.

And this portfolio will output $40,000  based on the 4% rule to cover my spending of $28k/year.  Well that just makes sense, and seems reasonable and actually feasible to the average person.

So, what's with all the vitriol??

With the FIRE community, we have a realistic solution to a problem that faces a large portion of people.

But, after years of messages saying this just isn't feasible to the average person, the general public just doesn't believe it's possible.

WHY?

There are products to sell!!!  A simple Google search show this:

PROBLEM questions help make your prospect aware of a problem that needs to be solved and identify problems that are often overlooked. These pain-points will be used to accelerate a deal.

Wow... if you have a product to sell, and your customer doesn't need it.  Create a problem that your customer wasn't aware they had.  Then sell them the product to solve that non-existent problem.

Don't have $5MM in the bank to retire early???  Buy my book!

Don't have a Private Jet and a Private Island???? Buy my BOOK!!!

Need better credit???? Buy my SHITTY pre-paid debit card that has exorbitant fees.

It's sad in a way.  We just showed that a very large majority of people will never even come close to this, and yet here's a person preying on the general public that is simply attempting to make their life better.  Selling them a solution to a problem, they didn't even know they had.

A word to the wise

When ever you hear about a seminar, or a class or something that claims to "Teach you the way."  Ask yourself a question:

If this is so successful, why aren't they out doing it?  Why are they SELLING this method to other people? If they really wanted to help and teach, why not write it for free... On the Internet?

If I found a way to make guaranteed money in the stock market, don't you think I would just simply make ungodly amounts of money in the market??  I certainly wouldn't be writing a book to let everyone else know my secrets.

I'll end with something I try to live my life by:

Open your eyes, be a little skeptical, and follow the money...

You'll be surprised where it might lead.

Wanna play with the spreadsheet, here: it's free.  Change the Yellow Boxes.