What the Media and Academics Don’t Understand About FIRE

FIRELast month, Stanford University Professor John B. Shoven, and three former Stanford students, Gila Bronshtein, Jason Scott, and Sita N. Slavov, published a paper entitled “The Power Of Working Longer” through the National Bureau Of Economic Research.

One of their key findings was “that working 3 to 6 extra months has an equivalent impact on the affordable sustainable standard of living as saving one percentage point more for 30 years.”

Their “primary conclusion is that working longer is relatively powerful compared to saving more for most people.”

The media jumped upon their research, with Bloomberg View columnist Justin Fox gushing that a 49 year old “could take the drastic step of upping your retirement savings by 10 percent of your salary. Or you could achieve the same result by retiring two years and five months later than you had been planning to.”

Which left me shaking my head.

I get that saving an extra 10% of your salary is a big step.

But life expectancy for a 49 year old man is just over 30 years, and 34 years for a woman.

Working nearly 2 1/2 more years means a 49 year old man would spend an additional 8% of his expected lifespan working, instead of saving an extra 10% of his salary during his working days.

Since money is easy to quantify, I think the takeaway for many readers of the paper, and the media, is to just work longer, make more money, and then hope you’ll be one of the lucky 50% who live longer than average.

But as someone focused on reaching financial independence, I like to think that I try to fully appreciate the value of my time, in addition to the value of money.

And it’s not clear to me that spending another 8% of my life at the office would be preferable to cutting back on expenses and trying to save an extra 10% of my salary.

To be fair, Fox does recognize that the tradeoff is ultimately between your money and your life, noting that “for every month that you delay retirement, you’re (1) increasing the amount you’re able to save and (2) decreasing the number of months you can be expected to live after retirement.”

But I think his article’s title, “The Remarkable Financial Benefits of Delaying Retirement”, explains everything you need to know about his take on the Stanford study.

Why would you try to save more money when you can just work longer?

Interestingly, some of the assumptions made by the paper’s authors also seem in stark contrast to the perspectives of those focused on achieving FIRE.

One of the paper’s core assumptions is that people don’t start saving for retirement until age 36.

Most people I know already have 15-20 years of social security earnings by the time they are 36. For most of us those probably aren’t our peak earning years, but assuming that the typical person hasn’t saved a cent for retirement by their mid-30s seems to me to be starting off with a defeatist perspective about the value of saving money.

And for the record, many proponents of the FIRE movement are actually already living their definition of early retirement by the age of 36!

My hunch is that if the study assumed people started saving some money towards retirement at age 26, or 22, or even 18, the results might be very different. In that a lot of people might not even need to make the type of tradeoffs the authors discuss, because they’d already have enough money saved up to support their expected lifestyle by having another 10-15 years of savings and compounding.

“The Power of Working Longer” also assumes that retirement savings are just 9% of salary, 6% from the employee, and 3% from the employer.

Is it really surprising to learn that working longer is viewed as the holy grail, when the savings rate of 9% implied in the study lines up with a working life of over 50 years, according to Mr. Money Mustache?

Because the savings rate assumed in the paper is so low, one of the paper’s key findings involves the value of Social Security. In the author’s base case, they note that “despite 30 years of saving 9 percent of earnings, the annuitized 401(k) balance accounts for only 19.4 percent of retirement income with Social Security accounting for the remainder. This fact alone highlights the incredible value of Social Security benefits for primary earners.”

No it doesn’t!

That fact alone highlights that a saving rate of much higher than 9% is probably prudent, and that you might want to start saving something for retirement before you are middle aged!!! Counting on Social Security to fund over 80% of your retirement seems like an absolutely horrible idea to be advocating to Americans in 2018!

To be fair, when the authors finally factor in potential investment returns, the impact of 401(k) savings versus potential Social Security benefits becomes somewhat more balanced, but they still note that “even when asset returns are very high (7-8%), the impact of Social Security still dominates the increase in retirement income.”

Because of the relatively low savings rates involved and the assumption that nobody saves for retirement until they are in their mid-30s, it’s not shocking that the solution is to just work longer.

But for those of us pursuing financial independence and early retirement, those are unacceptable assumptions.

Positively, there is some useful information in the paper for potential early retirees.

The paper does note that one alternative strategy is to save one percent more of earnings, pushing the savings rate to 10% from 9%. Over the course of 30 years, even this tiny change can impact the retirement date by more than three months.

The authors also note that the impact of savings is more significant when real investment returns are higher. If an investor can achieve 7% investment returns, the time value of saving an additional 1% for 30 years increases to six months.

Of course, the impact of either scenario would also be much more significant if that additional savings were to start in one’s twenties, rather than at age 36!

The authors also note the value of investing in more cost-efficient portfolios (go Vanguard!) They find that investing in lower cost mutual funds to improve “returns by 60 basis points for 30 years has about the same impact as saving one percentage point more for the same duration.”

Finally, the authors note that because of the way the Social Security program is structured, there are also potential benefits associated with delaying claiming Social Security.

While the authors’ assumptions don’t line up very well with the way most of us pursuing FIRE try to handle our finances, their findings do illustrate some truths that those of us pursuing financial independence hold to be self-evident:

  1. Higher savings rates make it easier to achieve financial independence than lower savings rates.
  2. Higher investment returns make it easier to achieve financial independence than lower investment returns.
  3. Earning more income makes it easier to achieve financial independence than earning less income.
  4. Lower investment expenses make it easier to achieve financial independence than higher investment expenses.
  5. Starting saving earlier makes it easier to achieve financial independence than starting saving later.

The best day to start pursuing your early retirement dreams was yesterday.

The second best day to start on the path to FIRE is today!

Good luck!


  • LF Tommy

    February 23, 2018

    I definitely had the same thoughts about the percent of my remaining life spent doing something I no longer enjoyed doing before my first early retirement. It also came into play when I decided to end my encore career. There is always a financial reason to work longer, if you can. But I felt there was a higher non-financial value to apply to FIRE.

    • ROMT

      February 23, 2018

      I couldn’t agree more! All else being equal, more money for early retirement would be better. But there are potentially significant trade offs to those decisions, and none of us are promised tomorrow.

  • Steveark

    March 6, 2018

    Oh man, this gave me an awesome idea for a post, I’ll reference yours as the source when I put it out. Because this really raises the question of whether how long you work impacts how long you’ll live. Is it really correct to assume you’ve got the same no. of years to live regardless of your retirement date choice? In other words, is early retirement or late retirement good or bad for your longevity? Common sense leads me to think early retirement is good for your health but the research may say otherwise. Not hypothetical for me since I’m early retired and want to live a long time!

    • ROMT

      March 6, 2018

      Intuitively I agree with your common sense assumption Steveark, but I have also seen some research that indicates otherwise. I’d hypothesize that early retirees might have a somewhat different demographic profile than traditional retirees, which hopefully would result in better longevity relative to one’s peers. I am also hoping that it won’t be a hypothetical question for me in a few years when I’m hoping to reach financial independence and early retirement!

  • Turned around, I think it’s far better to say that you can buy back 2 years and 5 months of your life from work by saving 10% of your salary now. And 10% isn’t that much! I suppose that number seems insurmountable to the general public but that’s a failure of our society to imagine that delayed gratification and reduced consumerism is a good thing. Personally, that’s a trade-off I’d make any day.

    • ROMT

      March 6, 2018

      I couldn’t agree with you more! When you put things in those terms (focusing more on the life aspect than the money), to me the trade-off seems even more in favor of trying to save more now. Saving 10% more now is significant, even for those of us with a mindset more open to delayed gratification than many of our peers, but like you it’s a trade-off I’m willing to try to make!

  • Caroline

    April 1, 2018

    I suppose it depends on what value you place on security. I would definitely work the extra 6 or 12 months once I had enough money to be able to retire, but I would consider it a purchase of a type of financial insurance and I quite enjoy my job.

    But ironically that same desire for security I have makes saving a mere 9% of my income seem way, way too risky.

    However what is useful from the study is the quantification of savings rate versus extra time working. For those with high cost special needs kids or other significant budget pressures it makes it easier to decide whether to trade off spending for time.

    • ROMT

      April 4, 2018

      Thanks for stopping by and taking the time to comment Caroline! I agree that the study is valuable in quantifying the potential trade-offs between savings versus working.


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