Vanguard opining on the FIRE fun

Earlier this month, Vanguard published this report on FIRE and set some anti-FIRE cats amongst the proverbial pigeons. You know, pigeons like us who have bought into the “idealogy” that you really can’t afford to be chained to a job for a paycheck for decades and decades. You need to get out of the rat race as soon as you can, as if your life depended on it.

The article, bullet-wise (as all good articles should have), talks about:

  • the dangers of blindly following the 4% withdrawal rate (given how the market is expected to perform poorly over the next decade),
  • using appropriate retirement horizons,
  • the effect of the cost to invest,
  • the importance of having a diversified portfolio, and lastly,
  • the need to have a dynamic spending strategy

All true. And most rational people pursuing/in FIRE would say so. These factors are nothing new. The 4% SWR is not gospel, the recent returns of stocks is the outlier than the norm, investing costs are to be merciless slashes, diversifying, and having a spending strategy – and even an earning strategy in FIRE – that is flexible, are all built into the plan!

Here is the real, inflation adjusted, historical return YoY (CAGR) of the stock market since 1871. Yes, over 150 years worth of data. It stands at 7.06%, adjusting for inflation and reinvesting dividends, for over a century and half. You can select the time period you want – MoneyChimp Market CAGR.

Here are two simulator applications, that runs multiple iterations (hundreds) of how a portfolio performs over extended draw down periods. I’ve run 3 simulations on each. (there are some underlying assumptions, such as stock/bonds allocation, expected inflation, etc. I encourage you to explore and play with the tools):

  1. Portfolio of $1.5M, expected spending of $50k/year, inflation adjusted, to last for 50 years, withdrawal rate of 3.33%
  2. Portfolio of $1.36M, expected spending of $50k/year, inflation adjusted, to last for 50 years, withdrawal rate of 3.67%
  3. Portfolio of $1.25M, expected spending of $50k/year, inflation adjusted, to last for 50 years, withdrawal rate of 4%


Scenario 1 – Success rate of 99%

Scenario 2 – Success rate of 93%

Scenario 3 – Success rate of 84%

firecalc (running the same 3 scenarios)

Scenario 1 – Success rate of 96%

Scenario 2 – Success rate of 91%

Scenario 3 – Success rate of 77%

If someone told me that I’d have between 77% and 84% success rate of an endeavor that I was about to embark on, I’d take those risks. But we are almost hard wired to be extra cautious about money. Especially our own money. So I understand if the 4% rule is bent into the 3.33% rule to get into the the 90% certainty range.

And, Vanguard keep those costs low. We’re all good here.

The reasons Americans don’t save

Read this piece by JD Roth of GRS. Thought I would explore the topic in more detail here, rather than just leave a comment on his blog.

JD, and few of commentators on his post, talked a lot about the tactical barriers to saving. JD lays out the numbers that exemplify the sorry state of affairs and the potential solutions. Instead, in quite a role reversal, I have tried took at the malaise from a social and cultural viewpoint; the prevailing conditions that has molded us to become a nation of non-savers. I have made an attempt to answer the philosophical question on why we, Americans, don’t save more. The inherent barriers which we must understand; those that prevents us to save up.

Here are my, almost certainly controversial, reasoning.

Devoid of context, any person should be able to save as much as they want. But they don’t. Everyone knows that saving more is good but invariably they won’t. Saving is hard, or that is what we are told. Saving means sacrifice. Saving is delayed gratification.

More than anything else, saving is a mind game, where the players have made their decisions based on the following:

a) What they have seen their parents do. Knowledge transferred from a previous generation.

b) What they see their peers do. People whom we interact on a daily basis. Our immediate circle of family, friends, co-workers, neighbors.

c) What the general society considers the norm. The current culture as epitomized by television, music, sports, politics.

d) A need for them to break away from the previous 3 points. If everything in my universe tend to point that saving is not a high priority, there is no reason to prioritize it. 

Safety nets

I put the blame squarely on the various safety nets provided in American – or broadly, in first world – society. 


Health insurance, life insurance, personal property and vehicular insurance. Insurance on phones, pet insurance, deposit insurance , even insurance on insurance! And anything else you can think so. Even declaring bankruptcy is a form of insurance – the last stand before I get wiped out clean. For generations Americans have been trained to think that insurance will bail them out of serious trouble if they were unfortunate enough to encounter some terrible event. 

Don’t get me wrong here. Obviously, health insurance, even if it is not universal, is a great thing! The point I’m trying to make here is, there are safety nets to hold you if things go south. Now compare it with a scenario in most developing countries. Insurance is a very flighty concept. It is every man, or family, for himself. There is nothing to protect the house you built if an earthquake occurs. If a family member falls ill, you go to the general hospital and get the treatment that’s available, paying all out of pocket. Your bank fails, you lose all your savings. Insurance provides us a sense of security, even entitlement. You can afford to not save, just pay the monthly premium.

Governmental safety nets

Another form of insurance, if you may. Social Security, Medicare, Medicaid. All subsidized form of guaranteed payments when you’re old or sick. 

Another reason not to worry about money for old age or while sick.


Till about the 1980s most American workers were guaranteed a pension when they retired from active work – another form of safety net.  

Safety nets – The primary reason for Americans not to save for an unexpected rainy day.

Here’s the next big prevailing factor that intrinsically inhibit Americans to save …

Getting paid more frequently than once a month

I’m thankful that my first paychecks were monthly. I know, the horror! Monthly paychecks are standard in Europe and Asia. It’s the US where employees are paid on a more frequent basis.

Getting paid monthly instills a sense of budgeting that semi-monthly or fortnightly (it is NOT biweekly – biweekly means it’s twice in a week) or weekly paychecks fails to do. Getting paid on a more frequent basis not only fails to prepare employees to budget it actually propagates the mentality of living paycheck to paycheck.

After safety nets of insurance, getting paid more frequently than once a month is one of the primary reasons most Americans do not get to budget properly, and consequently save.

There are other, less pressing, reasons that shape the American mentality that saving is not a priority …

Relative geographic isolation and abundant natural resources of the US

This is a country that shares its borders with just two countries, one of which is another developed nation. From oil to natural gases; from fertile farmlands to verdant valleys; from cattle ranches to lobster farms. America is so fantastically blessed to have such abundant natural resources that “scarcity” is a foreign concept. Deep down no one fears that the gas at the pump is going to be so exorbitantly prohibitive that they actually have to save money to buy gas.

No war fought on home soil in over a century

Extending the previous concept about the geographic isolation of the US, we have been incredibly lucky that no war has been fought on American soil, except for Pearl Harbor. Even then, Hawaii at that point was a US Territory, and separated from the landmass of the 48 contiguous states. The international, political, and military ramifications was undoubtedly huge, but most Americans have not had to really live through a war in their backyard. Notwithstanding the physical trauma of wars, the mental scars of scarcity, fearing for one’s life, and general “staying alive” hasn’t been on the forefront of most Americans.

Contrast this with most developing nations where some kind of war has been waged in the past 50 years or so. Even the prosperous Western European nations such as Britain, France, and Germany had their beaches and cities turned into blood soaked demolition derbies.

Unprecedented economic prosperity

This runs off the previous two points. Since the Great Depression there has been no cataclysmic economic upheaval in the US. Three generations – Baby Boomers, Gen X-ers, Millennials – of adults haven’t had a need to save and scrimp. Sure there have been recessions, great ones too, but nothing to derail the economic juggernaut that is running for 80-90 years now. With this great run has come the access to easy credit, thereby loosening our resolve to save even more. ———————————————————————————————-

There you go. The safety nets provided by government, societal, and private insurance; semi-monthly or weekly paychecks; the isolation and resources of the country; with no wars on home soil; and a great economy where credit is dirt cheap, has lulled most of us into a sense of security without having to work hard for it. Saving has mostly been an afterthought.

Our parents, and possibly grandparents, never really had to save. Our friends and neighbors don’t save. Flashy, shiny, new toys are readily bought on credit, without a second thought on how to actually pay for them. Ours brains are wired to not save. There’s no justifiable reason to. Not saving has worked earlier, it is working now, and there is no reason to believe why it shouldn’t work in the future.

When presented with an alternate version of reality – FIRE  – most people are living, they tend to recoil from this supposed blasphemy. Given some time, exposure to the concept, and logical thinking, a few come around to embrace it. It’s just not human nature. Oh, make that, just not American nature.

What do you think? Any other intrinsic factors I’ve missed out?