Who Can FIRE?

Who can FIRE? This was a questions that was raised at the dinner table in the Cheesy Finance household. It was actually on the day we had the podcast interview. To be brutally honest, we are really spoiled  privileged. Take two people with a MSc. degree and professional designations, two full time jobs, a reasonably frugal nature, and you have a winning recipe for FIRE. But what if you earn a median income, or less, how good are your chances to FIRE? Can  you even FIRE?

Who can FIRE? Perhaps you can!

Who can FIRE? Perhaps you can!
Source: https://pngtree.com/free-fire-background

Who Can FIRE?

Before we can answer the question who can FIRE? We need to define some boundary conditions. Otherwise there are simply way too many variables. Here we go:

  • Three “situation” scenarios: Single, DINKS (Dual Income No Kids) & a family (two adults, two kids)
  • FIRE age no later than 50 years (so you have about 25-30 years to get to FIRE)
  • You start with the journey to FIRE once you get our of school (without student debts!)
  • Median income in the Netherlands (2017 data) is €37.000 gross and about €25.000 net
  • Return on investment is set at 6% average (assumed inflation adjusted)
  • 4% rule is applicable (in either withdrawal or as a net cash-flow)
  • No social benefits (I.e. allowances for healthcare, low income, etc.) during/after working years
  • No wealth tax included as an expense during working years (to simplify)
  • Assumption of a steady amount of savings throughout the years (to simplify)
  • No expensive live events (i.e. divorce, illness, etc.)
  • Wealth tax calculated on actual wealth (no “discounts” included that you could have with real estate valuations)

Dutch Income Distribution

How much are Dutch households earning? The latest (visual) data available from the Dutch bureau of statistics (CBS) is from 2014. The graph below shows the number of households vs. their available net income. This is shown for “all households” (in light blue) and for “families without kids before age 65” (dark blue):

Who can FIRE? Income distribution

Who can FIRE? Income distribution (net income per household)
Source: http://visualisatie.cbs.nl/nl-NL/Visualisation/Inkomensverdeling

 

Some data that accompanies the above graph.

  • Total households in 2014: 7,950,228 (light blue)
  • Single households: 2.803.852
  • Couple households: 2.498.744 (“DINKs” are the subgroep is shown in dark blue)
  • Family households (1 or more kids): 2.647.632

When I looked at the data behind the graph, about 50% of households need to “survive” on less than €30.000 net per year. Obviously, if you are a single, that should not be an issue. But for a couple with 2 kids this is a bit more difficult, albeit certainly not impossible. Many folks are in that position (say about 25%), as you can see in the dark blue section of the graph above.

Let’s look at a few scenarios and see if FIRE is possible before age 50?

Scenario 1: Single

You are single and earn a median income (€25.000 net per year). When you are very frugal and have a simple life (“barebones”), your expenses are assumed at €15.000 per year (€1.250/month). This leave €10.000 for investing and thus a savings rate of 40%. If you want to enjoy life a bit more (“comfort”), and don’t’ mind to work a bit longer, your expenses are assumed at €20.000 per year. In short, you have €5.000 per year to invest which is a savings rate of “just” 20%.

Based on the two lifestyle scenarios (“Barebones” and “Comfort”), you will need about €420.000 and €585.000 in assets. These numbers are based on the 4% rule (or 4% net cash-flow) and incorporate wealth taxes (2018 percentages and discounts). For more details on how this work, see this post (still contains 2016 tax percentages, but the calculations are the same!).

Who can FIRE? Scenario Single

Who can FIRE? Scenario Single

The graph above show wealth as a function of years, based on a certain amount of absolute savings per year. Based on this graph, you will need 30 years before you will reach a “comfort” level FIRE and about 21 years to reach a “barebones” level FIRE. In both cases you will be able to actually FIRE before the target age of 50 years! That is good news.

Keep in mind that in the Dutch retirement systems you might get a lot of extra spending money (or financial buffer, depending how you look at it), once your pension and/or old age security kicks in at about 65-70.

Scenario 2: DINKS

The next scenario assumes that there are two of you and both have (or combined you get) twice the median income (€50.000 net per year). When you are very frugal and have a simple life (“barebones”), your expenses are assumed at €20.000 per year (the benefits of living together compared to the single scenario!). This leave €30.000 for investing and thus a savings rate of 60%.

If you decide to enjoy life a bit more (“comfort”), your expenses are assumed at €25.000 per year. This leaves a very healthy €25.000 per year to invest and calculates to a savings rate of 50%.

Based on the two lifestyle scenarios (“Barebones” and “Comfort”), you will need about €565.000 and €730.000 in assets. Same logic applies as per the previously discussed Single Scenario.

Who can FIRE? Scenario DINKS

Who can FIRE? Scenario DINKS

Looking at the graph above, you will reach a “comfort” level FIRE in under 15 years. To reach a “bare bones” level FIRE you just need 12,5 years!. This is fairly quick and well before the age of 50. Saving more, in absolute and relative terms will get you to FIRE a lot sooner, but that’s nothing new 🙂

Scenario 3: Families

The final scenario assumes that there are 4 of you in the family and you guys earn 1,5 times the median income (€37.500 net per year). When you are a very frugal family (“barebones”), your expenses are assumed at Є25.000 per year. This leave €12.500 for investing and thus a savings rate of 33%. In the scenario that you want more family time and events (“comfort”), your expenses are assumed at €30.000 per year. This leaves a €7.500 per year to invest and calculates to a savings rate of 20%.

Based on the two lifestyle “choices” (i.e. “Barebones” and “Comfort”), you will need about €730.000 and €895.000 in assets. Again, same conditions as noted above.

Who can FIRE? Scenario Family

Who can FIRE? Scenario Family

When studying the graph above there is still some good news, becoming FI is possible! But you will need 35 years to reach “comfort” level. This means you can still retire before the official retirement age (and with a significant amount of wealth), but not before the magic “50” happens. To reach a “barebones” level FIRE you will need 28 years, so there is still hope for you to call it quits before the age of 50.

Now, this is technically a bad example, as by 28 years I really hope that your kids are living on their own and that you can get to the “DINKS” levels in terms of expenses. That being said, this depend on the age you get kids of course. So many variables! “Personal” finances eh?

No Median Income?

What if you don’t earn a net median income (as about 60% of the households do; see net income per household percentage graph below)? Subject to how low you can go in expenses and/or by living in another country, there are still options to FIRE (or at least RE). But it’s certainly not “easy” for most people.

If you want to stay put in the Netherlands and don’t want to deprive yourself of too much, the sad reality is that it will be difficult for the large majorty of the households/people.

Who can FIRE? Income distribution 2014

Who can FIRE? Income distribution 2014
Source: https://www.cbs.nl/-/media/_pdf/2016/26/2016welvaartinnederland.pdf

Note to the graph above, this is showing “a standardized” household income = 2,2 people. The associated graph for standardized net income is shown below (the one at the beginning of the post is not standardized to 2.2 people!).

Who can FIRE? Standardized Income distribution

Who can FIRE? Standardized Income distribution
Source: http://visualisatie.cbs.nl/nl-NL/Visualisation/Inkomensverdeling

Conclusions

Albeit not all data and scenarios presented above match “statistically/mathematically”, the general trend is pretty obvious.This post was then also not a complete surprise. But I was a bit disappointed in how many people should be able to reach FIRE in the Netherlands. Even when people are frugal and invest all their savings, FIRE is simply not for most. This does not mean that you should not live below your means and invest your money, but getting out (really) early is just for “a lucky few”. For the majority of the people it is a dream (hence the large numbers that play the lottery) .

Want to FIRE as a single, make sure you save and invest at least €2.500 per year (~€210 per month) and be/live (very) frugal.  Couples should aim for at about double that. As a family, you better start aiming for about €7.500-10.000 per year (€700-800/month)! For these scenarios FIRE won’t be very luxurious (unless you move), but you will have a lot of time to do fun things! Part time work is also always on option of course! Just work 2-3 days per week, instead of 4-5. You are still better off this way.

Cannot save this much? You can still retire a number of years (say up to 10) before the traditional retirement age. Just eat into your savings/investment until the time old age security (AOW) and pensions kick in (assuming you have any). But leaving “some” wealth to supplement and provide a general financial buffer. With the formal retirement age trending towards 70, this is still very good news for a lot of people! One additional note if you do get out sooner your pension contribution will drop and you will get less once your are eligible! Always check what you your estimated income will be after formal retirement at https://www.mijnpensioenoverzicht.nl/pensioenregister/.

 

What are your thoughts on this?

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36 comments

  1. Honestly, anyone can FIRE, as long as you’re willing to downsize your lifestyle. I know a lot of people who go island hopping through developing countries while working online. THey can still save a lot of money because living costs are just so much lower overseas!

    1. Sure, there are a few people that could do that. But I think you are overestimating the majority of the population in terms of mental en intellectual capabilities to become FIRE. Primarily for income reasons but also the financial management side of things. You can downsize a lot, and that will open up the door for way more people to FIRE for sure, but there are limits. Let alone if you have any medical conditions (physical or mentally).
      Thanks for the feedback troy.

  2. Great post team CF. Really made me think and reconsider some of my own (financial) planning. About to become a family and much of the cost that are associated with that seem inevitable. On the other hand – I am still very motivated to RE. I reckon many future trade-offs will have to be made.

    Have fun on your upcoming trip!

    1. You are doing quite well already! For you it’s really just a matter of keep investing your money and you will be able to RE, heck even FI might be in the books. But glad that the post added some value to your planning. Makes me happy 🙂

  3. Nice charts. So it can be done. Piviliged indeed. Working from home and co-housing with my father has certain advantages. Taken into account a 4% SWR I could have fired a while ago. But not working at my age is socialy not accepted in my family and in my peer group. You are supposed to work your ass of and complain about how hard and difficult life is. Even tough most of my peer group earn more than I do. Planning to work up to 55 and working towards a 2% SWR. Me FIREing will be a mystery to many. Then again, I am not the one buying those 200 euro boots.

    1. Hi An, seems like you are financially set, congrats on that achievement! Well done. Just curious, why still wait? The 2% SWR is probably overkill, especially as you likely will have a pension too (and social security?), right? Even though it may not be “what you are supposed to do”, how cares! It’s your life, you should be happy and enjoying it to the fullest where possible. (is my motivational speech working? Probably not eh? 😉 )
      Thanks for the comment!

      1. Yes indeed, I am finacially set. But decided on playing along with the ‘life is hard’ game for the moment. In Belgium we have a way of saying ‘pour vivre heureux vivons cachés’ Talking about FIRE is a delicat subject, most people don’t get it and don’t believe it can be done. I think ATL once made a post about how hard it is talking FIRE to other people.

      2. I tried explaining the same to the guy registering my new company yesterday. Not sure I could convince him in that 5 min 😉
        Congrats again on getting yourself set financially, still a major achievement! Hope you can break the stigma and enjoy it too (if you are not already by having the feeling of freedom).

  4. Roughly 40% that should be able to retire before 50 isn’t that bad. It is actually huge compared to people who actually do it!

    Also, those earning less than median wage are often employed in much more manual jobs closer to home. This gives them more time and easier access to side hustles (with the income reported or not …). I am really good in the administrative processing of interest and exchange rate derivates (cap floors, swaptions, COPT and NDF). Good luck finding a side hustle with that. But if you work on cars or motorcycles, with metal or wood you will find ‘side jobs’ left and right. Overtime is also often available to those willing in a lot of those jobs. So a nice portion of those below median income should be able to actually reach median income …

    Which would bring the number of people being able to reach FIRE before 50 to about half the population …

    1. That first statement is so true! The rat race at it’s finest 🙂
      You might be right on the 50%, but that means its still a pipe dream for half the population!

  5. EEEKKK! I am single income with kids! I often read how hard it is to achieve FIRE with my circumstances and I actually set up a blog about it. My findings? Its really hard! 🙂
    I agree with Joost that most people seem to start aiming for FIRE in their 30’s. I’d be really interested in the why’s around that.

    LMF

    1. Hey LMF,
      We also started in our 30’s. Guess you mentally develop yourself and start to appreciate time more then the money (if you have it/earning it). In my case not liking the day job had a massive impact on the road to FIRE. It was the main reason I started to look at the concept in the first place. Discontent can be a great driver, if you listen to it.
      Thank you for the comment and best of luck! You are indeed not in an easy position, but I hope you will succeed if/when possible! Even if FI might not be possible, the RE(er) is definitely worth going for!
      Cheers.

  6. Nicely produced!
    There’s a theory in the U.S. that Europeans keep on working because they may actually be less stressed about their work: e.g., more vacation and holiday time, and restricted hours. Certainly if you have a good work life balance, continuing to work might not be such a grim prospect.
    I also wonder, are the communal living arrangements common in Holland as well? I’ve read they’re popular in Denmark. I think, what a great way to help single parents afford housing by sharing some common spaces with neighbors…

    1. Communal living definitely does exist, but it’s not very popular. Only know one girl that does it, but there is some sense to that type of living for sure. The “lack” of privacy is what ultimately will get to me.
      Thanks for the comment Big C.

  7. Very complete analysis. That’s awesome 🙂

    I’m currently single, but will soon be married and in one year should go to DINK. However, we’ll then go family. I’m a bit worried about FIRE and kids. I’ll see, but I’ll probably have to rethink my goal of RE before 50 years.

    1. When you start off well during your single and DINK years, you are getting a great head start. Once the kids come along, the impact will be less. You should be fine! Good luck anyways (and with the upcoming marriage!)
      Thanks for the compliment on the post!

  8. What a great article Team CF. There are so many factors that can contribute to this and I agree, it can take the perfect storm of situations to achieve. I think single is the easiest. You only have to worry about yourself and you control your destiny 100%. If you want it bad enough, you can make it happen because you don’t have the same roots as a married person. Oh shoot, I fall into the married category? What the heck was I thinking?? Personally, I’m a DINK at the moment but I don’t hope to be soon. But that has given my wife and I a huge advantage over the last year because kids are freaking expensive. It is an expense I can’t wait to have and will not trade for the world, but they aren’t cheap! And I think you hit the “Rest” category of the right group of people that are willing to live the super frugal lifestyle needed to achieve FIRE. It takes the right mindset, esepcially if your income is below the median, and unfortunately not a lot of people have that mentality.

    Others on twitter and comments have made a great point. Man it is critical to discover FI/RE early to start the saving and compoinding process ASAP.

    Bert

    1. Thanks Bert! Yes, you are indeed in a very good position to build your wealth and set course to FIRE. Two incomes, highly educated, good jobs (don’t make any kids though, expensive habit). Should be easy for you guys too! It just takes time. But what if you are at the other end of the spectrum: minimum income. There is a fat chance you will ever get FI, perhaps you can RE a bit?? But you that is a very difficult (and different) situation to be in.

      Cheers!

    1. We certainly are privileged! When we look at this and look at our situation, there are only few folks in a better position, the large majority of the population is off a lot worse. Something to be thankful for indeed.

  9. Cool data Cheesy. I definitely think a lot of us that ‘make it’ in our 30’s are pretty spoiled.

    It really depends upon the savings doesn’t it? For lower income people, it’s definitely going to be harder (but not impossible) to retire a bit earlier.

    1. It does really depend on the savings rate indeed! Guess FI is not for all, but RE definitely is. Just how early will heavily depend on what you do (and how life treats you).

  10. Cool charts cheesy! I can’t speak for a Dutch scenario, but in the United States there are a lot more people who should be able to achieve financially independence but don’t. Of course we have tons who could never possibly do it, but with 330 million people there’s plenty in both camps.

    And you started your post by saying you are “spoiled”. That’s nonsense, you worked hard I’m sure to get to where you are. The word spoiled to me means getting something you didn’t deserve. That’s not the case at all, I assume. Unless you robbed a bank or something 😉

  11. Nice analysis! Off course there are a zillion parameters extra for each different situation, but the core message remains the same, as they say in dutch: “zuinigheid met vlijt, bouwt huizen als kastelen”

  12. I think the situation is a bit better. Usually before you have a family, you are single asnd then you are in the DINK category. Both are with significantly better saving rates. And the money you save during the early years means a big boost to the numbers. Plus later (as you also said), you’re DINK again once the kids leave home.
    So the magic recipe is: start saving and investing early, once you find a partner get him/her on board, and also use protection at college 🙂 The savings in the early years will do the trick. Oh, and don’t get divorced!
    Of course it’s very sad that there are still many people for whom reaching FIRE is not an option or at least very difficult. But it doesn’t mean they should not try to save and invest at least a bit. They might not be able to retire early, but a significant income boost in their elderly age is also very nice…

    1. Funny you mention better, I think it’s worse. Amongst others due to live events (like the divorce you mentioned, but also (mental) health scares, traffic accidents, moving, hobbies, etc.). Albeit everyone starts out as a single, you also earn a lot less as you are young. Also, look at the graphs, there are such a lot of people that earn relatively little. These folks simply don’t have €200 a month to spare.
      But granted, the earlier you start and lower you keep you expenses, the better you position yourself. Even if you cannot get to FIRE, a healthy bank account is very, very useful down the road. Albeit the theory of FIRE is simple, emotions will be in the way for most folks too.
      Thanks for the feedback!

  13. Somewhat disappointing it takes so long for so many. It’s great to see this general info on FIRE in the NL though. As DINK’s, we have it fairly easy to save money.

    Seeing this, the ‘side-hustle’ mentality from the US can really speed up the process if you’re willing to commit to it.

    1. The side hustles certainly might help, but it heavily depends on how much money it makes you (and what you do with that money of course! DINKs generally have it well, that’s for sure!

  14. Great post! And also a discussion topic _in de fruitboomgaard_, however we never bothered to really dive in as deep as you. Kudos to you!!
    Indeed, good to rmember how lucky you/we are. And how little savings rates mean if you don’t know the figues behind them.
    And two other things come to mind reading your post (for all scenario’s):
    – when do you start on the road to FIRE? Most will be in their (late) 30’s? So the time till 50 is short.
    – these are the ‘happy’ scenario’s, a (big) f*ck-up i.e. house sell with loss can set you back for years. as can other life events (devorce, illness etc.).

  15. Great post and very important. It’s so much easier to become rich of you have 2 x times salary. However, once you reach FIRE, I think it might become harder to do the thing YOU want to do, without having to include your famiy in every expenditure.

    1. Good point! Perhaps your expenses will be higher as you would like to help your family once you are FIRE. Guess you have to opt to not spend money but donate your time. Only way to keep those expense in control!

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