It’s a little disarming to hear Kristy Shen, age 36, casually mention her current state of “retirement.”
“The first year [my partner and I] retired, our friends were like, ‘Ha-ha, that’s adorable. We’ll see you in a year,’” said Shen, who quit her job at age 31 to travel the world, relying entirely on money she’d made and invested. She decided she would never work again. “By the third year everyone was like, ‘Can you come look at our finances?’”
Shen is one of the leaders of the FIRE movement, short for Financial Independence, Retire Early. By following a particular financial plan, FIRE disciples say, it’s possible to amass enough money to retire early, then spend the rest of your life doing what you love.
People are skeptical. Many assume that FIRE is only possible for people who can fall back on a parental safety net or a trust fund, said Shen. But Shen, who grew up in rural China, where her family lived on 44 cents a day, says “FI” is attainable for people from all kinds of backgrounds. I spoke to Shen about her new book, “Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required,” and a few tangible steps she claims make it possible to retire before you hit 40.
The interview has been edited for length and clarity.
Caroline Kitchener: Is FIRE mostly a millennial thing?
Kristy Shen: The appeal is mostly for millennials, yeah. The media likes to make fun of millennials, saying we are all are entitled, complaining about not having job stability, not being able to afford a house. But in reality, all the rules our boomer parents followed, the status quo of, “Go get a job ‘till your 65, get a pension, buy a house” ... those rules don’t apply anymore. Houses might have cost our parents two or three times their annual salary. Now in major metropolitan areas, houses are often 10 times the average salary or even more. And there is no longer such a thing as a golden pension.
CK: There’s all this research saying that millennials actually like to work — that we see work as an essential part of our identity. Do we really want to stop working?
KS: Becoming financially independent actually facilitates you towards doing what you love. If you try to rely on a job and it’s this essential part of your identity, and that job goes away, what do you do? If you become financially independent, you have what I call “FI armor”: If you lose the job, that is perfectly fine. You can freelance, work for free, volunteer doing what you love. The fact is that we can’t rely on our employers and we have to rely on ourselves: That is the new future.
CK: You retired at 31. How exactly did you do that?
KS: It comes down to the 4 percent rule: You can safely withdraw 4 percent out of your accumulated money each year, if it’s invested through index funds, and have that money last for the rest of your life. To figure out your “FI number,” or how much money you need to accumulate before you can achieve financial independence, use the 4 percent rule of thumb: You take your yearly expenses then multiply by 25. My yearly expense is $40,000. That means my FI number is 40,000 x 25 = $1 million.
CK: Okay, okay, but how do you actually get to $1 million?
KC: The first thing is to pick the right industry. I say in the book there can be a real danger to following your passion right away. My passion was creative writing, but I went into computer engineering. The important thing to consider is the POT score: pay over tuition.
CK: What’s that?
KS: It’s the idea that, when choosing a major and a job, you have to figure out how much that particular field pays you, over the minimum wage, and then divide that by your tuition. That will tell you whether that degree is worth it, financially. What’s really interesting about this is that you shouldn’t necessarily just go for the jobs that pay well. Take a doctor, for example: Yeah, you get paid a lot, but you’re in school for 10 years and come out with so much debt.
CK: You point out in the book that “plumber” has an insanely high POT score. If we want to be financially independent by 30, should we all become plumbers?
KS: A plumber has a great score because the degree is cheap, and it’s always going to make money: There aren’t that many plumbers out there, and everyone needs them. So if everyone is going off to get English degrees but no one knows how to fix a sink, then maybe it does make sense to be a plumber. Don’t be so enamored with the idea of getting a degree. Getting a degree doesn’t necessarily mean you’re going to get a prestigious job.
CK: So the strategy is to do something you don’t care much about in a field that, ideally, you don’t have to pay much money to enter — and then follow your passion once you achieve financial independence. I imagine that could be particularly difficult for women who want to have children because, at least if they follow your timeline, they’ll reach their FI number right around peak childbearing time. Does that make it harder for women to be part of the FIRE movement?
KS: I agree with you. Women have a timeline, men don’t. But women who decide to have kids probably just have to take a bit longer before becoming FI. Within the FIRE community, there are people who have been able to do it with kids. You definitely have to be practical about it.
One of the things [my partner and I] are thinking about right now is, do we want to have kids? If we do, we are going to combine financial independence and Worldschooling, a community of people who travel around the world, using the world as their classroom. It’s all about contrarian thinking ... questioning whether the school system is actually the best way for your kids to learn.
CK: You’re probably not going to make $1 million by age 30 just off a plumber’s salary. What’s the most important component of becoming FI?
KS: Definitely learning to invest, and getting into the market, through index investing, as quickly as possible. Having grown up in poverty, the idea of investing was terrifying to me. It felt like gambling. If a company like BlackBerry, which everyone expected to retain value, could have such a downturn, then how could I possibly pick the right stock?
CK: So how did you learn to be successful at this?
KS: We got into index investing, which is when you’re betting on the entire stock market, not individual companies. With index investing, you have to put in the money over a very long period of time, and you make money gradually. It’s not, “Let’s buy a bunch of bitcoin and let’s see what happens!” You’re looking at years, not weeks or months. So you want to start when you’re young because you have a long runway for your money to actually compound.
CK: How old were you when you started?
CK: What is the one piece of general advice for somebody who is looking to start investing for the first time?
KS: Stay the course. Realize that, over time, you will make money. It is so hard not to press the sell button, thinking, “Oh my gosh, all my money is going to disappear, it’s already gone down 20 percent.” The thing is that the stock market always goes up. If every single company on the S&P 500 goes bankrupt, we’re basically in the “Hunger Games.” Time to buy some shotguns. The aliens have attacked, and we’re all screwed anyway.
CK: How long does it take to reach “FI?”
KS: The time it takes to reach FI depends on your savings rate and not your salary. If you save 50 to 60 percent of your salary, you are only 12 to 16 years from retirement. But if you save only 10 percent, you are 46 years from FI. The more you save, the faster you get to FI. This is why my friend, Colby, who became an English teacher overseas in South Korea, is only 10 years from FI, despite making just $30K/year, because he saves 67 percent of his salary.
CK: In the book you talk about cutting down on some unnecessary spending, but not all. How do you figure out what splurges are worth it and which aren’t?
KS: The biggest three categories that you need to nail down are housing, transportation and food. Once those three are in a good spot, optimized and cut down as much as possible, making a splurge of regular lattes or avocado toast … none of those things will really make any difference in terms of slowing you down towards retirement.