by Michael
This recent Monevator post gave me some thoughts. Less so on if it is realistic for younger people like the post asks, this blog wouldn’t exist if I thought it wasn’t realistic to try, but rather is it really harder for young people to achieve FIRE? I think it’s actually a complicated question.
In some ways, No
While I obviously don’t know what things were like back in the day, I can do some digging or chat with my parents to kind of get an idea of what someone would have had to jump through to try and pursue FIRE. I figure we’ll use the period in time when my parents were roughly the same age as I was as our baseline for comparison.
As far as investing, back in the 80s and early 90s, my parents didn’t really have the cash to spare. Nor did they really have the interest to look into investing even if they had any cash to spare for buying a stock or two. It just wasn’t on their, or to their knowledge people they knew’s, radar.
Had they been investing though, they would have had higher fees associated with investing compared to today and would have had to jump through more hoops just to place an order. Index funds and retirement accounts existed and, at least according to this source, commission fees had begun to trend downwards. I was having trouble finding good data on the potential load fees and expense ratios though.
They also had to save up enough cash to meet minimum investment amounts, assuming they were going with an index mutual fund or something similar, before they could begin investing, making it harder to get into the market. To top it all off, they would have had to call someone to actually place orders.
Had my parents been interested in starting investing, they would have either had to find an advisor or have found a book that could have gotten them started.
They probably wouldn’t have had much luck in finding information specifically for FIRE. They would have had to find books, assuming any had been published. I know some of the bigger titles like Your Money or Your Life wouldn’t be published until almost a decade later. The Trinity study that spawned the 4% rule, wasn’t published until almost the turn of the century. While all the pieces were there, I don’t know how easy it would have been for them to have found the information to make informed decisions about FIRE. I was unlucky with a quick Google search of even finding a number of people who had FIREd before the early 2000s.
Compare that to the resources I have today. When I started investing USAA would give you a brokerage account if you had $6,000 and you could do it in the same app you were already using for banking. Granted they charged commissions, but I could do it on my phone and set up trades at any hour to be filled at the next available time. Today I can do the same thing with no fees.
For less than $1,000 I can own a slice of almost the entire stock market, bond market, and a slice of the real estate market. These slices of the market have little or no load fees and have an expense ratio that is barely above 0%. I’m not even considering fractional shares that you can get through some brokerages.
I carry the Library of Alexandria in my pocket and I can get any information I want in a few moments. Just for this post I’ve been pulling up the change in CPI numbers and trying to find the minimum investment and fees with mutual funds when my parents were roughly comparable in age to me (may I note unsuccessfully finding the latter two).
A quick Google search on how to get started investing revealed this post in the second result after the ads https://www.investopedia.com/articles/basics/06/invest1000.asp. While not perfect, and definitely missing some info I would include, I think it would be enough to get someone from not having an account to having one and maybe even making some trades. It touches on some important concepts without getting so far into the weeds as to lose someone who isn’t a nerd.
For FIRE specifically, I can look up countless blogs of people working towards it or who have already achieved it and see how they did it or countless articles explaining the concept.
In Some Ways, Yes
While access to investing and investing information is definitely more accessible, I think for some it’s harder to save and achieve FIRE than it would have been 40 years ago. Mostly it’s that everything is more expensive and earning power hasn’t kept up.
I’m not going to be speaking from personal experience for this since I am definitely not the median American when it comes to earnings. I chose to use the median to try and control for outliers in either direction.
Looking at this census data for 1980, the median salary in 1980 was $21,020 using this calculator that would be equivalent to roughly $70,600 in today’s dollars. The median salary in 2021 was $70,784 (source). I’d say that overall, the difference in salaries is a wash.
I don’t think I could do a perfect comparison between the actual costs of what people spend their money on today and in the 80s (consumer purchasing habits have changed). But at least from some of the digging I did, some items are more expensive even after inflation such as cars. Although some items, like bananas, have become cheaper. While I didn’t do a comprehensive I’d say it’s probably a wash for someone who’s trying to FIRE where some items they have in their budget are probably more expensive while others are cheaper. Probably a little bit more towards the more expensive when you look at things like housing which I believe is more expensive after accounting for inflation. While this article didn’t have 2010s values, I got almost 25% after inflation just from 1980 to 2000. I also did not look at rents, those may have been more favorable after accounting for inflation.
So I’d say while buying power has stayed the same, disposable income has decreased slightly.
The More Things Change
While I think in some ways things have changed, I think there are a lot of places where it could be improved that haven’t changed in the last 40 years.
The average American is basically financially illiterate. Anecdotally, I know a lot of people who think the stock market is closer to a casino. I know a lot of people who don’t really understand how return on investment works. Let alone how tax-advantaged accounts like Roth IRAs work
I think a lot of people fail to take advantage of benefits through work like employer matches simply because they don’t understand how they work or they don’t know that such benefits are even available. I think better education, either in public school or through some other avenue would be the best help here. Otherwise, we can only help those who are interested.
Earlier I mentioned that it’s very easy for one to find any information they want on investing with only a quick Google search. I think this is a double-edged sword. While bad information is pretty much universal, I think that there is more of it now and it is easier for that bad investing information to boost itself and get in front of your eyes than it may have been in the past. While I did not do a comprehensive read of the most popular investing books of the 80s (all of my research kept bringing up books from the 90s and 2000s), I’m guessing there was at least one if not more that did not have good information in them. I’d think it could be easier for someone to stumble across bad financial advice that could more easily pose as authoritative today than it was in the 80s, but I have nothing to back that up.
The Incentives Favor FIRE
However, one big thing for FIRE is that I think the incentives have changed (if you look back to times earlier than the 80s) to favor it. At least for engineers, like myself.
My mom remembers when 401(k)s became a big thing. She remembers the big thing they stressed being that you could take them with you if you left the employer. I think things like the rise of 401(k)s (1978) and Roth IRAs (1997) rather than pensions (which fewer people had access to compared to 401(k)s) have helped incentivize high savings rates. These accounts provide tax benefits by saving some percentage of your income. If the median American maxes out their retirement accounts, they’re saving almost 40% of their income, before considering catch-up contributions. A little bit more and you could reach FIRE in almost just under 2 decades (4% withdrawal rate, no change in spending after retirement, and access to retirement account funds penalty-free).
I also think that being able to take your 401(k) has made it easier for high earners to move jobs to get even more income or take other risks. Almost all pensions I knew of tied it to having a minimum number of years of service to even be eligible. You can take a new job that pays a bit more or a little more easily try starting your own business.
I think shifts like this are a good thing overall and can be used to help people achieve their financial goals a little more easily than in the past.
Bringing it all Together
So after all that, what’s a summary of my thoughts on how the difficulty of achieving FIRE has changed over the past few decades? I think that overall it is probably easier today as one can find the information that they need more easily, even if it makes bad information more of a problem. But I think that some areas where the cost of living that have outpaced inflation could make it more difficult for someone to try and pursue FIRE as some of those are costs that are harder to cut from one’s budget.
