A popular maxim in the FIRE (Financial Independence Retire Early) community that rails against lifestyle inflation goes something like this:
We buy stuff we don’t need, with money we don’t have, to impress people we don’t even like.
Is American consumerism the antithesis of financial independence? Perhaps. But if Americans are foolish with their spending, they are even more foolish about their ability to earn their spending money. Most Americans believe working themselves to death to please needy bosses and stingy companies will ensure they stay employed and the money train will roll on indefinitely. They couldn’t be more wrong.
If you believe your employer cares for you personally, pays well, provides meaningful work, and will guarantee your job until you choose to retire, then congratulations.
You found the unicorn! You possess the job nobody believes is real. The rest of us are jealous. We have complicated relationships with work.
Unsurprisingly, studies show 84% of people report disliking their jobs. And yet what do we unhappily employed Americans desire? It turns out, we hate our jobs but . . . somehow we also want to work our crappy jobs longer than our employers want us to!
In fact 2 out of 3 people plan to work until they are 66, a goal that tracks closely to the social security eligibility age of 67. Yet an astounding 50% of workers will get canned in their early 50s. Will you be amongst this 50%?
Early career death is not just a blue collar problem
We’ve all heard stories about factory workers replaced by automation. Or unions shuttered and replaced with non-union workers in Texas. Or low skill jobs shipped to low cost countries.
If you wear dress pants to work (or fuzzy slippers and a robe to your home office), perhaps you feel you are exempt from early termination career risk. Wrong.
The truth is no jobs are sacrosanct. College degrees aren’t safe either. I’ve witnessed loads of IT, engineering, software development, attorney, supply chain, and a variety of other office jobs get shipped overseas too.
I even had the personal (dis)pleasure of being assigned the task of training an India-based team replacing me and hundreds of my fellow coworkers. My experience is not unique, nor did my outrage save anyone’s job.
Even when workers don’t get replaced, they still aren’t safe. Positions get eliminated and consolidated, workloads double without pay, companies go out of business, benefits get cut, and people get canned long before they are ready.
It’s anecdotal, but in all my 15 years in corporate America at multiple fortune 500 companies, physical laborer career longevity far outpaces that of office worker longevity. I’ve seen very few corporate workers stay employed into their late 50s. And those who did make it that far weren’t long for the world of the employed.
Eventually they got “quiet fired:” demoted, blacklisted, moved to pointless roles, or placed on performance improvement plans. If they didn’t get the hint and still stuck around for the check, they were the first to be shown the door as soon as a recession or corporate restructuring season was on.
Why you should care
Your odds of holding onto your job with decent pay and benefits beyond your 40s is about a coin toss. A staggering 50% will get canned by their employers between the ages of 50 and 54.
The other 50% may dodge the executioner’s axe by ungodly work hours, shifting blame onto others, and blending into the crowd when the consultants come sniffing. But for how long?
Sooner or later, their cards will get pulled. Finding similar paying employment will be an uphill battle. Despite similar skills and loads more experience, studies suggest the older worker will be offered a job nearly 50% less than younger counterparts.
The jobs these older workers can land are likely to be less desirable: part time work, contract work with no benefits, or jobs at a fraction of the pay.
The few who wisely saved a sizable nest egg may just take a forced work severance as a sign to full retire. The rest will swallow their pride and face the humiliation to accept the table scraps leftover in the working world.
If you are early enough in your career, you have a choice to make today: let fate determine your financial future, or grab fate by the horns today and save for a potential early retirement.
Choose FI or flip a coin
Maybe you think your work skills, your personal network, and your adaptability will win the day, and you’ll be one of the lucky few to make it to your desired retirement age.
So today you spend what you want to spend, borrow what you want, and believe that you will keep making more money everyday. Will this work out for you? Maybe. But for how long?
Studies suggest that your odds of dodging the axe will only go down with each passing year. About 7 of 10 people permanently leave the workforce before they are ready. Will you be in the group of 3 that dodges executioner’s axe?
I wouldn’t bet on it. It’s not just a coin toss one day at the age 50. It’s like a coin that keeps getting tossed every year you work past 50. One day your luck will run out. That’s the risk you are running if you are only saving 5-7% like the average American and assume you will always have a good paying job.
The safest bet is to assume you have until about 50 to earn, save, and invest enough to become work optional. Counting on an ever-increasing salary and stable work past that date is as good as gambling. That’s the bad news.
Now for the good news: you can retire or be work optional by or before your 50s. It won’t be easy, but it is achievable. If you know much about the FIRE movement, then you know that means you have to:
- stick to a budget below your means
- resist lifestyle inflation
- invest as much as you can as early as you can
- legally dodge every tax dollar you can
- build an investment income stream outside of your employer’s paycheck
How long it takes to become work optional
Most early retirement enthusiasts use their personal savings rate % to measure their journey to financial independence. Popular blogger Mr. Money Mustache, for example, suggests you can retire in 17 years if you save 50% of your income and in 7 years if you save 75%.
These are aggressive numbers to be sure, but not unachievable. My wife and I became FI in 15 years. We started at a paltry 6% to get company match but banged out an impressive 85% savings rate in our final 3 years.
Our reasons for such a high savings rate are as complicated and varied as anyone’s personal finances. But the top motivator to invest aggressively in early retirement was anxiety about career longevity.
One day I was the motivated young hire learning from overworked corporate vets, and after a decade flew by, they were gone and I was the grizzled, old vet.
What happened to my predecessors? Missing like Jimmy Hoffa. Health issues, personal issues, mean bosses, corporate restructuring, recessionary job cuts, inability or unwillingness to adapt to change, stress . . . all reasons they met early career death.
When I looked in the mirror, I didn’t see the 35 year old mid-career professional with a great track record and infinite runway ahead. I saw an overworked corporate automaton who had a coin toss chance of his runway stretching past 50 . . . or ending abruptly in the middle of nowhere.
The calculus was simple for me. I chose to aggressively pursue FI rather than play the career longevity coin toss game.
Those on the back nine of their careers no doubt understand the tangled intersection of personal finances, personal health, and career stability. Since most don’t save enough young, this is precisely why the IRS allows those over 50 to contribute more toward their retirement in “catch up” contributions.
The government and 50+ know they will face the dreaded coin toss year after year and must race toward financial independence at an accelerated pace. Even so, 2 out of 3 will fail to finish the race even with catch up contributions.
My advice to early and mid-career workers: don’t under-invest and then have to catch up in your 50s. “Invest” in yourself today and achieve financial independence while your work value and earning potential are at their highest.
You have a choice to make today: build an early retirement hedge, or flip a coin. Which will you choose?