Gen Z wants to retire early. They're off to a good start
businessinsider.comI read FIRE subreddits a lot and see a little too much optimism and unreasonable expectations. They are ready to retire with just another decade of incredible stock market returns. It’s rarely that easy. All signs point to another lost decade coming, like after 1968 and 2000, that is going to break a lot of hearts I’m afraid. Unless they plan for it appropriately and have reasonable expectations.
https://financial-charts.effingapp.com/
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I couldn’t stand being around anything FIRE related mid way into The Fed’s free for all near 0% interest rate decade. The influencers were the ones making money by spreading lies and shame and everyone else seemed to be scrambling to be another influencer. A lot of those influencers came from money and had inheritance already, and/or had very high paying tech jobs, but hid that well to give hope to their readers.
The main thing I question about FIRE is...how many people can achieve FIRE and live off the stock market returns, essentially contributing very little to society, before society is unable to sustain the "parasitic" load they generate?
Someone retiring "normally" around 60-70 has traded their labor for money, usually in ways that can benefit other people in some fashion. When they retire, there are multiple benefits -- their previous position opens up, hopefully allowing the next generation to be promoted. Their years of experience help shape the way the next generation runs the business, hopefully because they know why things are the way they are (Chesterton's Fence) and can pass that information along. This is pending the retiree not being a serial job changer of course, institutional knowledge requires people staying to learn it.
Compare that with someone who worked as little as they had to, achieved FIRE and retired early at 30. They didn't "pay into" an organization, they just extracted value and retired. They didn't help lead anything. They didn't shape the culture for the next generation. And at the risk of stereotyping, I imagine "succeeding" in FIRE would inflate one's ego in very unhealthy ways.
I don't want to say "FIRE is evil" but SOMEONE has to create the value they are extracting, and if it reaches a tipping point where more are extracting than creating, it will make for a novel problem. Replacing workers with AI is an obvious stopgap, but that just perpetuates the current, weird monetary system we have and that profit would have to be redistributed as UBI or something for it to replace workers in a way that they don't just starve.
Society is changing and it's gonna change even more so it will be interesting to see where we end up.
>The main thing I question about FIRE is...how many people can achieve FIRE and live off the stock market returns, essentially contributing very little to society, before society is unable to sustain the "parasitic" load they generate?
I wonder how many of these people are even factoring changing demographics. As the population continues to age, retirement is going to get even more expensive because labor will continue to cost more and more
Especially as people are deferring starting a family as long as they can, with some just giving up entirely. Lots of countries are struggling with replacement birth rate and our economy is based on endless growth, so something's gotta give.
It could get even worse - imaging that they have so much wealth that they pass it onto their children who don't even have to work till 30. You could imagine a growing class of people who don't work and merely live off their inherited wealth. Of course, that already exists; they're called wealthy people.
Sure, but the mindset of the FIRE Zoomer is much different than wealthy people in the past. An easy example would be Fred Trump, whose "winners and losers" mindset was taught to Donald in a way that Donald went to college, started businesses, and maximized his "wins". He taught this mindset to his children and they went to college, even if it was just for networking.
What would a FIRE Zoomer teach their children, especially if they invested in crypto early and got lucky? Why work hard if mom and dad "don't" work at all? Why go to college if the point of college is training for a career? How will those children be shown by example how to be a helpful member of society?
I suppose a lot of FIRE people likely intersect with the Child Free crowd where they are achieving financial independence by not having any expensive dependents they need to care for. That does reduce the amount you must spend by quite a lot, but if enough people do it the economy will have issues finding workers at all as more people voluntarily check out of the system and leave no descendants to continue in the future.
Well, there's a few things there I'm not really interested in touching, but perhaps if a society is interested in perpetuating itself, it should try and make people happy to live in it and reproduce?
>perhaps if a society is interested in perpetuating itself, it should try and make people happy to live in it and reproduce?
I agree with you. Currently at odds with the goal of having a society of happy people is the society-wide tendency to attempt to extract value from others. This can make for a lot of very unhappy people who have no resources to reproduce.
Regardless, society is made up of people, and people come from families. The tendencies those families normalize are likely passed down. There are negative tendencies that damage society, and positive tendencies that support society. Working for and with each other is one of those supportive tendencies, and while it can be learned at work or school, kids imprint and learn from their parents the most.
My main point is that if a FIRE couple ends up raising a family but don't have to work for a living, the kids may be missing out on a fundamental aspect of society in their day to day lives. Obviously entitlement is an issue with humans in general, but at a societal level FIRE feels a lot like a selfish "FU, I got mine" and that's not a great tendency to pass down to kids.
> My main point is that if a FIRE couple ends up raising a family but don't have to work for a living, the kids may be missing out on a fundamental aspect of society in their day to day lives.
Again, if you replace FIRE with wealth, I don't see much of a difference. Perhaps you have bought into some wealthy ubermensch-like mythos of the rich as the "job creators", but I assure you that they're capable of as much laziness as anyone else. Much more in fact since they don't actually need to work.
I agree with you again. My original question was asking "how many FIRE people can there be before it negatively affects society" so my thoughts and comments are scoped at that level -- how many FIRE people/families/descendents would it take to affect society in a meaningful way.
I haven't done a good job of making that clear at all, and I apologize. There are surely a lot of people trying to reach FIRE goals and if that were to be a meaningful 15% of the population, how would we be affected as a society?
One thing that's interesting in all this is that a common FIRE tactic is to live very frugally your whole lives to achieve and then maintain FIRE. If a meaningful percentage of Americans stopped spending as much money, the economy would feel it at a certain point.
These are the kinds of society-level thoughts I have been aiming to discuss. FIRE makes for some interesting futurism if it becomes the dominant American household financial strategy.
I suppose the whole concept of FIRE is a bit hard to pin down. I believe most peoples' goal is indeed to retire eventually, so who's to say when the appropriate age for them is? If someone takes 50 years to generate enough value to live out their remaining days while someone else only takes 5, then isn't that determined by the labor market and their desired lifestyle? I'm all for a more collectivist "we're all in it together" type of society where retirement is a bit more of a managed concept (I get the impression France is like that where private retirements are rare and that's why Macron raising the retirement age was such a bitter pill), but that is not exactly the way that the US works.
I agree completely with everything you are saying. I always ask my brother- if everyone is retiring and the population is aging, who are you selling your stocks to when you want to retire?
Why would you need to sell them? Many companies pay dividends.
https://www.physicianonfire.com/selling-shares-beats-collect...
But the question still stands, where will the dividends come from if the companies are underperforming and everyone is retired/dead?
Looking at it from a "retiring now-to-soon" perspective, FIRE is great! Keep buying everything I have to sell! There will definitely be someone around to buy them off you when you need to sell ;)
> For Gen Zs, there seems to be a correlation between gambling and investing—particularly, high-risk investing. In the United States, 61% of surveyed Gen Z investors said they gamble online or in person, compared with 29% of non-investors surveyed. Their propensity for gambling is also associated with riskier investments; 70% of US Gen Z investors who gamble frequently invest in crypto, and 38% invest in non-fungible tokens.
(from the CFA Institute survey cited in TFA, https://rpc.cfainstitute.org/en/research/reports/2023/gen-z-...)
I was literally going to point this out but missed it in the article.
All of my "Gen Z" family and colleagues invest, certainly, but many "invest" in the same way a millennial invests when they visit Las Vegas.
Translated: They did not experience a stock-market crash yet and the societal memory of risky behaviour resulting in a stock market crash fades.
Well, from what I've seen the propensity for gambling increases in post-crash poor societies...
Well, there haven't been real big, bad crashes in the living memory. And anyway, this isn't what investors are worried about - they are worried about protracted bear markets.
Other than 2008, you mean?
I was a freshman in college the week that crash happened. Called my dad and asked him how he was faring and he offhandedly mentioned losing $250k in 3 days. He wasn't concerned because he was 10+ years from retirement and confident he'd make it all back with a bit of work, but it was still eye opening and it definitely affected how I chose to invest my own money as I got older. I'm much more conservative and hands-off with it than he ever was. I'm still doing well compared to my peers, but I'm behind where thinks I should be.
> Other than 2008, you mean?
To state the obvious, 2008 was 15 years ago. So someone who was a senior in high school at 18 in 2008, is over 30 today.
So it is true that there's a generation that includes everyone in their 20s and those in their early 30s that have never experienced a significant market crash.
This is a pretty myopic definition of “experienced.” I was in middle and high school through the GFC, and watched my friends and family lose their jobs and worry about their livelihoods.
The topic is stock market investment expectations which is not the same. The market can be going up even as unemployment rages.
The vast majority of middle schoolers were not trading stocks in 2008.
To have experienced one downturn, a trader must've been trading back in 2007/early 2008. It is safe to say most traders in their 20s today were not active traders back in 2007. I'm sure exceptions exist.
Counter to the other comment, I was in the middle of college and somehow didn't know about that until years later. After I started working in 2011 at least.
How did you miss it? I graduated in 2009 and it was the only thing people were really talking about after the 08 election wrapped up. It took a lot of people I knew over a year to find work.
Graduated in 2010, decided to take the summer off before looking for work. I don't recall anyone talking about it.
May I ask where you went or what you majored in?
BS in CS in Chicago, but from the suburbs and went back there and didn't work during summer/winter breaks.
I think the CS degree maintained a lot of value in those years and probably kept you away from general Econ talk.
Maybe 2008 doesn't count because that's when they realized you could just print money any time the economy blinked and that would fix everything.
Started in 2007, but that’s a quibble…
That wasn't a big, bad crash. It was recovered very quickly.
Jobless recovery…IIRC…
Jobs never really came back.
Their increased appetite for risk has to do with the world they were handed. Homes are unaffordable, payroll has not kept up with inflation, politics seems hell bent on ending any and all aid programs, to provide funding for tax cuts to people that pay less than I do in taxes already, while making many, many more 0s.
I'm reminded of the midwit meme.
Low end of bell curve: Invest in index funds
Hump of bell curve (midwits): STONKS!!!
High end of bell curve: Invest in index funds
> Given that financial advisors say that Gen Z will need roughly $3 million for a 20-year retirement — a high bar even for smart money managers
If we assume a 2% inflation rate going forward, that's only ~$600,000 in today's dollars. Seems like a relatively low bar, no?
People shouldn't pay any attention to these articles.
I retired early years ago. It isn't the annual budget that one has to plan for, but the unforeseen expenses. I took care of my mom and dad for a while. He had top notch medical insurance, but no one covers mental health problems. The total for 4 years of that was just into 7 figures.
Also how about that medical insurance for yourself and your family? Unless people plan on dying young, medical insurance is a huge expense. And that's just insurance, which doesn't cover all eventualities. Ambulance ride? Not covered. A quick whistle to the ER can leave you $50k lighter without trying hard. And then there's the piles of medications, many of which aren't covered.
My friend's grandmother got upper and lower dentures. $40k. Dentures, mind you, not implants.
Also, there's the every increasing cost of everything. Houses, cars, food, all types of insurance are seeing vast annual increases.
$3 million total for a retirement is a bit of a laugh, unless that person plans on keeling over at 65.
$40k for dentures? She got fleeced.
$3M for retirement right now is plenty, but you have to live like an actually middle class person.
If you are living like the middle class (i.e. income comes both from capital ownership and labour) then you can't possibly be retired. Retirees are those who have transitioned into the upper class (i.e. income comes from capital ownership alone).
Assuming you have a paid off house and car, what else are people bleeding money on?
Medical expenses like OP said. If you retire at over 65 then possibly Medicare/etc can cover some of this.
But if you're wanting to retire early, it's a huge gamble on medical expenses in the US.
That's why medical tourism exists.
That's not how it works.
They'll need the equivalent of today's $3 million in inflation-adjusted dollars for the time they retire.
What you're saying amounts to a Zimbabwean being able to retire with his lunch money AFTER the country got 1000x inflation and everybody had trillions in their pockets just to get some food for the day - based on the purchasing power of that amount before the inflation.
That would imply you also need $3 million today. Retirement will be more expensive then, but scaled in line with inflation.
I think that is 3 million now, not 3 million by the end of the retirement period.
If we assume they have three million now, in 40 years when they have 20 years of retirement left, assuming it sees a 5% annual rate of return, they will have $21 million.
Are you suggesting that they actually need ~$21 million for a 20 year retirement?
I'm saying the article is saying they need 3 million before entering retirement.
Yes, that's right. Assuming a typical lifespan, they will have 20 years left in ~40 years. Assuming a 2% inflation rate, $3 million in 40 years is equivalent to ~$600,000 today. A 60 year old holding $600,000 today does not seem like that high of a bar.
> A 60 year old holding $600,000 today does not seem like that high of a bar.
Gen Z isn't 60 years old today. They don't have 600k, and for them, it is a high bar.
That's right. They have ~40 years left to acquire $3 million before they have 20 years left, assuming the typical human lifespan. Which, adjusted for inflation, is the same as someone who saved $600,000 over the past 40 years.
So, like, not so many people, and even less going forward?
https://fortune.com/recommends/banking/57-percent-of-america...
I am not sure what emergency savings has to do with retirement savings. Retirement savings are often not very liquid, so they wouldn't be available to use in an emergency, typically.
And certainly some people never did manage to save $600,000 over the past 40 years, but it remains that the bar does not seem that high. Even the lowest bar will not be met by some people, but that doesn't mean the bar is high.
You think those without $1000 emergency savings have retirement savings, but they just aren't liquid enough?
In any case, if you want the categories separated, here you are:
In 2019, about half of American households had no savings in retirement accounts, according to the Survey of Consumer Finances (SCF). These accounts include individual retirement accounts; Keogh accounts; certain employer-sponsored accounts, such as 401(k), 403(b), thrift savings accounts; and pensions.
> about half of American households had no savings in retirement accounts
We're looking at those who have 20 years left, not those who could have 60 years left. Naturally one could avoid saving anything for 39 years and then plop down a $600,000 lump sum in the final second and you would be in the exact same place as someone who slowly amassed $600,000 over the span of 40 years, so half of the population having nothing saved doesn't tell us anything.
Bringing us back to the actual topic: Of those who have 20 years left, how much do they have saved?
>Naturally one could avoid saving anything for 39 years and then plop down a $600,000 lump sum in the final second and you would be in the exact same place as someone who slowly amassed $600,000 over the span of 40 years
Sure, they could for example win the Powerball.
The other thing with the previous comment is that it only looks at registered retirement accounts. What about savings that can be used for retirement, but aren't registered as such? How much is found there?
That article is misleading clickbait. Per the US government (BLS), the median household has ~$1,000 per month left over after all ordinary expenses. That is, after car payments on their BMWs, healthcare, iPhones, etc.
The median American can afford to save considerable money but they tend to spend it on lifestyle flexes instead.
He means the article is saying they will need $3 million in today's dollars to retire
The needs of retirement should scale with inflation, so that means you also need $3 million today (in today's dollars) – which is rather high. $600,000 is not too far off what is the minimum recommended amount of saving to retire for 20 years on today, so it seems they simply adjusted that figure for inflation and then forgot that the income used to build up those savings also goes up with inflation.
$600,000 for 20 years is 30K per year. They'd get by on those for the next 20 years if they were to retire today?
$30K per month, even 40 years from now based on 2% inflation, is equivalent to $13k per month today. You'd have to try really hard to not get by on that.
I assume you mean $30k per year. The recommended is more like $700,000, and that factors in your pension, but we're just using approximate figures here. Still, $30k per day today is quite doable for a retiree. What are you going to spend your money on, exactly? You've already purchased everything you need by that point in life, so you're just in maintenance mode.
For starters, that's the "point in life" where most medical emergencies arrive.
That's true. As a non-American I forget that you have to worry about such things. The $3 million is in line with what I would expect will be needed in 40 years, sans healthcare costs. It is, adjusted for inflation, in line with what is recommended today where healthcare is provided to all. So, it seems it seems that figure assumes that US healthcare will be 'free' in 40 years?
> $600,000 for 20 years is 30K per month
I do believe that would be 30k per year.
Yes, fixed.
2% inflation rate is super optimistic. You have seen the levels of sovereign debts?
Could be, but a higher rate of inflation will make attaining $3 million even easier. If inflation is 5%, they will only need ~$400,000 in today's dollars.
> Could be, but a higher rate of inflation will make attaining $3 million even easier.
A higher inflation rate also raises the goalpost money you need since life will be more expensive than predicted.
That 3M would be in today's dollars already, so need to adjust up for future (predicted) inflation.
Note the catch "for a 20-year retirement". So if you think you might live to be 85, you get to retire at 65.
If you want to retire early, you need more decades of runway thus a lot more cash saved.
Gen Xer here. I also want to retire early, but... not off to a good... middle? That's in large part my own fault - it wasn't even a consideration or on my radar for a very long time.
I came from a blue collar background, hand-to-mouth background. We were, as John Scalzi would say, "broke" but not quite "poor." My parents didn't retire so much as age out of the workforce and scrape by.
Hope Gen Z'ers do better than I have...
Same, but broke millenial here. Will be working until day I die, likely. Sucks. Never had the momentum to accumulate wealth, and now I have no idea what to do.
> Gen Z started saving for retirement at the median age of 19, earlier than any other generation
? Median? These numbers seem unrealistic for anyone I know who went to college, and those who didn't are in low pay jobs with no retirement plan
"Gen Z... in the survey pool". It's a good study, and used solid methodology for finding participants (Harris poll). But the pool of people who will self-select to do a 30+ minute personal finance survey in exchange for points that can be exchanged for gift cards is inherently going to skew towards the kind of people with the aptitude (and, for the young, parental influence) to start saving early.
Still a useful stat in the relative sense to compare inter-generationally, or to previous surveys.
The study said four in five gen z investors. I wonder how many of those gen z investors maybe bought a little crypto along the way when it was a fad.
Or got Robin Hood account and deposited minimum amount of money to speculate on whatever...
Yes, thats what they mean by "investing". I don't consider meme stocks investing, but I'm a grumpy Gen Xer.
That's because it's not investing, it's speculating at best, and usually just gambling. Investing is just another word we've lost in recent years from people trying to justify to themselves that they aren't acting like fucking idiots.
Reminds me of Carlin's bit about the softening of language.
Also median of 19. Meaning quite good bit would have started saving before age of 18 right? That sounds off... Considering what type of jobs they would have had.
> Meaning quite good bit would have started saving before age of 18 right?
Not necessarily. It is quite possible for the median to be 19 even with nobody saving before the age of 19.
Consider a case of 10 people. 6 started saving at the age of 19. 4 started after the age of 19. 0 started saving before the age of 19. The median age is: 19.
> That sounds off... Considering what type of jobs they would have had.
Why?
1. Jobs aren't the only way to get money.
2. Typically parents cover living expenses at that age, so job income is pure profit.
3. You don't need huge sums of money to invest.
I think this is more about the mindset and knowledge, than the actual money.
Gen Z's are working now? Makes me feel so old.
The oldest Gen Z are about 25 or 26 years old.
Life is short. Gen Alpha is entering teenage years. Gen Beta starts next year, 2025, or 2026, depending on the definition.
"There's a sucker born every minute" - P.T. Barnum
1. Does all of this just rely on surveys instead of real data? 2. Investing for old age retirement is seen a necessity, since many people in my generation (Germany, 1989) don't believe they'll get pensions above what everyone gets as social safety net anyway. 3. Since nothing relies on actual numbers, it's hard to tell whether GenZ is just more savings-conscious, as compared to really saving more. A boomer that bought a house on credit in the 70s invested more than a comparable GenZ who invests in an ETF what little money they have left after paying rent. 4. With most GenZ working safe desk jobs - which goes easy on their health and is also easier to do in old age - I doubt they will have to retire as early (let alone even earlier!) as the generations before them.
a disturbing amount of the gen-z i know are full on NEET
you mean like youtubers, tik-tokers, influencers ... ?
I don't know that I would put youtubers in that category, there are a lot of youtubers who put a ton of effort into their channel and make it a business. Tik Tokers could qualify, guess it depends, but influencers can easily be either or. Making yourself into a brand takes effort but I would argue that most of the time it isn't effort that makes other people's lives better.