Suze Orman vs the FIRE Movement
Over the past few decades, Suze Orman has built a reputation as a straight-talking, no nonsense personal finance expert. My all-time favorite part of her show is the “Can I afford it?” segment. I find it to be the perfect blend of education and entertainment. Not everyone shares my sanguine feelings for her though; and throughout the years, she has been a controversial figure that has initiated discussions. Recently, she made some disparaging remarks regarding the burgeoning FIRE community that has set discourses ablaze.
In October 2018, Suze Orman was a guest on Paula Pant’s “Afford Anything” podcast. On the show, she essentially denounced the entire FIRE (financial independence retire early) movement and said it would be the biggest financial mistake anyone can make. Orman warned of rising health care costs, higher income taxes, losing the power of compounding returns, higher inflation rate, and the potential for catastrophic events that can wreak havoc on your finances. Basically — anything can go wrong! When that happens, what are you going to do with no income?
Reactions From the FIRE Community
After the podcast was released, a number of disparaging articles came out to describe how “out of touch” she was. I have to admit, some parts of the podcast was difficult to listen to. Orman estimated that you need between $5 million to $10 million to retire, and even brought up a scenario where someone needed $350,000 a year to live in retirement! So understandably, this ruffled the feathers of some from the FIRE community.
I completely understand what the uproar is about from members of the FIRE community. Based on the U.S. Census Bureau, real median household income was $59,039 in 2016. Even if a family at that median household income try to save as much money as possible, it would be very difficult to build a portfolio that is worth anywhere near $5 million. So is Orman a bit out of touch? Maybe.
But Does She Have a Point?
Before you completely dismiss her opinion, I think it’s worthwhile to analyze the points she makes.
Income Taxes: Nobody knows what the tax rate will be in the future. Depending on when you retire, there is a high probability that U.S. income tax rates will be higher than what it is today. The national debt continues to climb and the government will need to collect as much tax revenue as possible. So if taxes go up in the future, the amount you take home may be less than what you had planned for.
Life Expectancy: Thanks to medical breakthroughs and continued focus on healthier lifestyles, people are living longer than ever before. Living longer is great unless you didn’t budget for that financially. Food and accommodations are only the tip of what you need to pay for. The cost of healthcare is also a major concern; if you’re like any other average American, you may need to pay for assisted living or expensive drugs as you age.
Entitlement Programs: Nobody knows how entitlement programs such as social security or Medicare will change in the future. Based on the increasing level of national debt, you should expect federal or state-funded benefits to decrease in the future. The government is always looking for ways to save money through entitlement reforms.
Real Wages: Something that does not get enough coverage in the press is the lack of growth in real average wage (wage after accounting for inflation). News articles tout the low unemployment rate without discussing how real wages have been stagnate. According to the Pew Research Center, today’s average hourly wage after adjusting for inflation has just about the same purchasing power it did back in 1978. So it will be difficult to increase your savings rate since any increase in your paycheck will barely keep up with the rising cost of everything you need to buy.
Compounding Returns: Orman spoke about the power of compounding returns. If you want to build a large stock portfolio from an average income, you need to be invested in and keep contributing to the market over a long period of time. It doesn’t work as well if you are pulling a small percentage out every year. Imagine that if you saved an extra $500 a month or $6,000 more a year, and if you compound that at 8.0% annual return, you would have $87,000 after 10 years. Not bad, right? Furthermore, if you keep that up for 20 years, that grows to $275,000!
All Things Considered
All in all, I think that her key points are valid. As for her warning about potential accidents or unfortunate events, it’s definitely something to consider but obviously difficult to plan for. So even if you don’t agree with everything that she said, you need to understand the concerns underlying her reasons why she believes $1 million or $2 million might not be enough for retirement. Instead of criticizing Suze Orman, let’s appreciate a different point of view on some of the concepts underlying the FIRE movement.
If you are restlessly counting down the days to your eventual retirement, perhaps the more important question you should ask yourself is why you are not doing something that you enjoy. Being stuck in your current job or feel like you are not making any progress financially is indeed painful. Try to figure out ways to change some aspects of your life.
For better or worse, Suze Orman encourages listeners to live the life they want to live and find that passion so they can continue working. I agree with that. I believe it is important to feel engaged, challenged, and obtain a sense of accomplishment from your professional life. To be able to find love in your professional life and your personal life … well, now that is the real key to happiness!