The Sunday Best (10/7/2018)

The Sunday Best
The Sunday Best is a collection of articles I’ve curated for your reading pleasure.

Expect most of the writing to be from recent weeks and consistent with the themes presented on this website: investing & taxes, financial independence, early retirement, and physician issues.

 

Presenting, this week’s Sunday Best:

 

FIRE is back in the mainstream media. [Did it ever leave?] This time, it includes me! From Eileen Ambrose, senior editor at Kiplinger, FIRE Savers Race to Retirement.

 

lucidityGrownups say the darndest things, particularly when meeting an early-retired person. Mr. Firestation shares some oddball reactions from the people he’s met since saying goodbye to his 9 to 5. Funniest FIRE Reactions.

 

Those reactions are nothing compared to that of Suze Orman when asked about the FIRE movement. The battleaxe rants for the better part of an hour at our friend Paula Pant from Afford Anything#153: Why I Hate the FIRE Movement, says Suze Orman.

 

I’ll share my thoughts on Suze Orman’s rant later in today’s post, but first I’ll give you those of the Early Retirement Dude. Suze Orman is the New Avocado Toast. You Can’t Afford to Buy Her.

 

Mr. Money Mustache doesn’t post all that often anymore, but he felt compelled to weigh in on this latest “controversy,” which is really an amalgam of misunderstandings that seemed to come to a head this week. What Everybody Is Getting Wrong About FIRE.

 

It may be that Suze Orman is just fighting back in response to slights against her, however well justified. In 2012, she referred to FinCon founder Philip Taylor as an idiot when justifying her prepaid debit cards. Earlier this year, PT’s buddy Jeff Rose of Good Financial Cents revisited that unpleasantness while listing 14 Reasons to Not Listen to Suze Orman.

 

The Financial Wellness DVM, a Doctor of Veterinary Medicine for those of you not into the whole brevity thing, explains how and why she began pursuing financial independence. Interestingly, it has less to do with her career than that of her husband’s (he’s a surgeon). What is Lighting Your FIRE?

 

CMG“None of this is about retiring, though people confuse retirement with financial independence. It’s about having choices, and being able to deepen your self-knowledge while aligning how you spend your time with what you care about most. It feels amazing to live life this way.” – Vicki Robin. As an appropriate complement to my recent Retired Not Retired article, the Your Money or Your Life co-author gives her unique perspective on Financial Independence — What’s the Point?

 

With another FinCon in the books, some of my favorite bloggers got together on Florida’s gulf coast and pondered money and life questions, partaking in a fun exercise answering the titular question in four ways with different stipulations. From J.D. Roth of Get Rich Slowly, How Would You Spend $100,000?

 

We’ll close with an article on how a few people spend the money they earn. I don’t love the slideshow format, but one of the featured spenders is me, so I’ll give this one a pass. From Cameron Huddleston, writing for Go Banking RatesWhat It’s Really Like to Live on $50K, $300K and $1M.

The Time I Asked Suze Orman a Question and She Answered.

 

I was curious as to how the self-proclaimed “matriarch of money” felt about the 4% rule (of thumb) as a safe withdrawal rate, so I asked. And she answered! In video, no less. This was several weeks ago, before the brouhaha over her hatred of the FIRE movement.

To see the 12-minute video, you must first join Elizabeth O’Brien’s Retire With Money Facebook group — you’ll then have access to the video where she answers my question (at about the 3-minute mark) and a handful of other questions.

I’ve taken the time to transcribe her answer here. First, I’ll say that I appreciate her taking the time to do a Facebook live with a small group of about 1,500 members, and particularly for fielding my question. I’ll also say that I don’t always do a great job of answering questions on the spot, but she does have a couple decades’ of experience doing exactly that.

 

Does Suze Orman Agree with the 4% Rule?

 

Here’s what she said when asked if she agrees with the four-percent rule when presented with the question by my Facebook alter-ego Milo Andersson:

 

“No, I actually don’t. Because… if you withdraw 4… let’s just go back a little, back to 2007. Let’s go back to 2008. Now, let’s say Milo’s in retirement now, and let’s say it’s lasted a long time. Now, I get the stock market turned around in 2009, but it still took a long year, many years to come back to where it is now.

DDQNow let’s say Milo was taking out 4% and now his money has just crashed and it’s down there and now he’s eaten up because there’s not a lot. He can’t live on 4% of $10,000. Maybe he was living on 4% of $200,000, but he can’t live on 4% of a reduced amount of money.

So now what’s he gonna do? Now he’s not going to take out 4%. He’s gonna have to take out 50% and 100%, so do you understand, Milo, it isn’t across the board that you’re going to be able to take out 4% of your retirement for the rest of your life because things fluctuate.

Now, with that said, if your money is in dividend-paying stocks, and it’s yielding you 5% a year, and those dividends are solid and you’re just taking out 4%, then OK, ’cause then we don’t care what happens with the fluctuation of your money. But not many people are 100% invested in dividend-paying stocks. Are you, Milo?”

 

To answer the question, no, I’m not invested in 100% dividend paying stocks. In fact, I’m not a big fan of dividends. I’m more interested in the total return and having better control over the tax implications of receiving money from my investments.

 

Does Suze Orman Understand the 4% Rule?

 

Just after deriding the 4% rule as leaving you destined for ruin, she wholeheartedly greenlights Dave’s inquiry as to whether or not he can retire in his fifties with 27x expenses saved up. “You’re approved. Go for it, boyfriend.”

Dave’s relying on a 3.7% initial withdrawal rate. I guess that extra 2 years of expsenses (the 4% rule implies having 25x expenses saved) makes all the difference in the world. Like many in the FIRE community, he’s accounted for health care and has a paid off house.

How does one reconcile having no faith in the 4% rule while thinking someone with just a little bit more is A-OK? To be honest, I don’t think Ms. Orman has a firm grasp of what the 4% rule entails. I doubt she’s read the work of William Bengen, the Trinity Study, or more recent safe withdrawal rate research from Wade Pfau, Michael Kitces, or ERN.

None of these authors say the 4% rule is foolproof and the “rule” doesn’t imply that you withdraw 4% of your portfolio each and every year.

What the studies do suggest, based on the last 90-plus years’ returns, is that if you withdraw 4% of your initial portfolio in the first year of retirement and increase that amount with an inflation adjustment annually, your portfolio has a better than 95% chance of lasting at least 30 years, and a decent chance of leaving you with more nominal dollars than you started with.

In Ms. Orman’s response, we go from living on 4% of $200,000 (living on $8,000 a year — maybe she meant to say $2 Milliion?) to not being able to live on 4% of $10,000, or $400 a year.

I realize these numbers were thrown out off-the-cuff, but they represent living far below the poverty line and a sudden 95% drop in portfolio value. I don’t have confidence that Suze Orman can relate to her target audience any easier than we can relate to her life of flying a private jet to her private island, her reality which she boasted of numerous times in the now-infamous podcast interview on Afford Anything.

 

a penguin and some boobies on a private island

 

In her hypothetical, “Milo” has been retired a long time and things have been going well. If that’s the case, Milo isn’t drawing down 4% of his portfolio at this point. After a couple good decades, if he’s following the 4% rule blindly, he’s probably now drawing less than 2% of his portfolio. If the market drops by 50%, he might be back to actually drawing 4% to meet his standard of living, but not 50% or 100%.

Suze Orman wants to take Milo back to 2007 or 2008. Well, my friend “Big ERN” has taken us back to an even worse time in history — the year 2000. The 2000 retiree has been through two of the worst three market drops in the last century.

“Big ERN” has looked in detail at the 2000 retiree with $1 Million following the 4% rule without variation despite the two market disasters that befell her. Guess what? Despite making no adjustments whatsoever, this person is back to a portfolio of about $1 Million.

Due to inflation, today’s $1 Million doesn’t have the same purchasing power, but it’s only about 30% off what it was 18 years ago. With some adjustments along the way (spending a bit less or earning a little money along the way), earning power could have been preserved.

We recognize that the 4% rule isn’t a be-all-end-all. It’s a starting point. It’s best to be flexible and willing to spend less money, earn some money, and respond to market conditions as needed. Most of us won’t have to do that, though — the 4% rule (and most of us retiring early use a smaller number of 3.5% or less) accounts for a nearly-worst-case scenario. If we were aiming for a 50% success rate, we’d use a 6% or 8% rule.

You may think we shouldn’t care what Suze Orman says, but she has tremendous influence, and millions of people will accept what she says as gospel. If we don’t refute her poorly-conceived notions about what is and isn’t acceptable as a retirement goal or plan, how are people to know they don’t actually need $5 Million or $10 Million to retire?

Why should people be scared into working until age 70 when they could take a calculated risk and pivot to a more meaninful life (that may or may not include some form of work) a decade or three earlier?

Just as I did when reading all those negative comments on Doximity, I felt a need to respond. The level of ignorance out there proves we still have a lot of work to do.

 

A $500 Cash Welcome Offer on No-Annual Fee Chase Business Credit Cards

 

These are pretty great offers. Chase has two business cards with no annual fee ever that currently offer $500 back after spending $3,000 in the first three months.

If you have anything that could be considered a business (professional survey taker, eBay seller), you can qualify for a business credit card.

The Chase Ink Business Cash card gives you the aforementioned $500 welcome bonus, plus 1% cash back on most purchases, and 2% to 5% back on specific, rotating categories.

 

The Chase Ink Business Unlimited card does away with the categories and gives you 1.5% cash back on every purchase (plus the $500 welcome offer).

 

 

Finally, if you don’t mind a reasonable annual fee, the Chase Ink Business Preferred card offers 80,000 Ultimate Reward points, which can be used to fund travel worth $1,200 or more after spending $5,000 in your first three months as a cardholder. The annual fee is $95.

 

Not a business owner? Check out the current top offers for personal cards from CardRatings. As always, don’t even consider applying for a credit card if you have consumer debt or can’t afford to pay a card in full every single month.

One More Thing

 

Like Suze Orman, I earn money writing and talking about money. I didn’t earn a dime speaking at FinCon, but I’ve found a number of other ways to earn money online. You see those ads and cards up there? And down below?

Another quarter has come and gone, and I’ll be sending out my quarterly progress note tomorrow with interesting statistics, including this site’s revenue — numbers that I share only with e-mail subscribers. If you’d like my newsletter to land in your inbox, please subscribe below. You’ll have the option to unsubscribe or switch to a weekly newsletter anytime.


Track your investments for free with Personal Capital. That's how I track the PoF portfolio.  

 

Have an outstanding week!

-Physician on FIRE

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31 comments

  • Thanks for writing a response to The whole Suze Orman thing.
    Famous people responding that way do damage to the movement we’re trying to spread…so thanks for your work-you’re much appreciated.

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  • Math is pretty hard for some people including Suz Orman.

    If you can’t do math than FIRE may not be for you; if emotions run your world then you’d be best off hanging out with Suz and her 10 millions and private jets.

    I don’t think she did any damage to the FIRE movement. The people who pay her attention are not the kind of people who would ever FIRE.

  • I cannot bring myself to listen Suzy for an entire hour. The transcript of your question pretty much shows that she is clueless about the FIRE concept. I am waiting for a live debate between Suzy and MMM.

    • Wouldn’t that be something? Philip Taylor did offer to debate her at the next FinCon — a challenge posted on Twitter, but I highly doubt she’ll respond.

      Best,
      -PoF

    • Paula Pant

      I’ve heard that from a lot of people, so I created a transcript of the interview. You can download it for free on my site. (Vicki Robin told me that she read through the transcript and … well, she has some thoughts she’d like to share.)

      PoF, thanks for everything you do to bring more awareness of FIRE to the world.

  • I think Suze Orman has a couple of self serving interests when bashing the FIRE movement.

    The first one she obviously accomplished because of the controversy and that was to get all the publicity. Publicity good or bad ends up always helping a person as it thrusts them back into the lime light.

    The other reason is to justify her financial advice. FIRE individuals are more likely to be to DIY when it comes to managing money which can be seen as a direct threat to the financial advisor industry which Suze is a part of. By essentially saying we are getting it all wrong implies that we need a financial advisor since we don’t know what we are doing.

    Suze is being ultra conservative with her doomsday scenarios which she justifies needing a minimum of 5 million to retire on. Yes there are a ton of things that can deplete even an 8 figure portfolio but if you try and plan for every contingency you will never retire. In fact Suze has gone on record before saying we should work into our 70s.

    • Yeah, like several other money pundits, I think she relies more on loudness and omnipresence than logic sometimes. I’m not saying all of her advice is bad, but some of her recent responses and tirades were lacking in both compassion and rational thought.

      Best,
      -PoF

  • Man can Paula Pant Withstand a Rant! In her interview of Suze, Paula sounds intelligent, polite, calm and professional. Maybe it is because she is all of those things!

    At any rate, it makes it hard to even listen to Suze’s shrill nonsensical rant. Suze had a few good points but she didn’t make them clearly.

    I did meet some 20 and 30 somethings who think they will never need to work for money. Many of those have declared victory too soon because of some of the issues Suze raised.

    Let’s face it we consult people like Suze Orman not due to their powerful intellect, bulletproof logic, or financial wisdom. We consult them because they can stir controversy, boost viewers, boost clicks and traffic and make money for others. This interview boosted sales for Suze’s book, let people know she is out of retirement and raised awareness of the great work Paula Pant does. That isn’t all bad. Just don’t expect to agree with every answer Suze gives.

  • Ah suze. It’s nice of her to give the movement time, but I don’t blame her for not liking it. fIRE types are not her target audience. For all of us out there we just need to keep keeping on. Fincon seemed fun. Maybe next year, when it is in DC, I can make it.

  • Suzy Orman, ugh! She has quite an ‘interesting’ backgrounder, if you look her up. No thanks on her advice.

    Thanks for the callout on the FIRE reactions post. Appreciate it!

    • You bet — I got a kick out of that one. I’m already struggling to tell people what we’re doing next as people have a hard time understanding that I’m not going from this job to another one.

      Cheers!
      -PoF

  • Great to see Financials Wellness DVM get a shout out! Veterinarians were scarcely represented before she came around

  • Gasem

    I’m not big on Suze O but she has one thing I have yet to see on FIRE blogs: letters from the land of failure. That is the most valuable thing she has to offer. You can’t error correct unless you can analyze failure. I think it’s disingenuous to rationalize: 4% isn’t REALLY 4%, it’s more like 3.2%, and 25 times isn’t really 25 times it more like 30 times, and I’m not really living off my investment income I have a blog or a consulting job or a wife who is still slaving away for the man keeping my dead ass out of bankruptcy (oh but she loves to work!). You either live on 4% x25 or you don’t. If you don’t you can’t say she’s a dope for reacting to the 4 x 25 question. If you’re doing any of the above fudges (or others), you don’t believe in 4 x 25 either.

    We are entering a time here to for unknown. We are 25T in debt heading to 50T. We’re sitting on 100T of unfunded liability. We’re into a time where a workforce IS going to be replaced by robots. In the past most workers had a pension even if meager. Today 43% have less than $10K saved for 40 years of possible retirement. We’re in a competitive international geopolitical situation. 4% x 25 was based on very different economic circumstance and history. Past is not prologue if the economic reality changes dramatically.

    I’d like to learn about the failures and Suze has the data. For every ESI “look at me I’m a millionaire” post I’d like to read an analysis of “I FIRED and had to go back to work at a crappier job” post analyzing what happened.

    • Academic Heart Surgeon

      Excellent points …. in many ways it seems the FIRE crowd is overly defensive and emotional about something very objective (risk analysis) … it makes me think there are more fears under the calm surface of the FIRE crowd that maybe Suze has aroused (?)

    • I think Suze has this one stereotype of the FIRE movement as it being all MMM clones who will retire early at 30 with $1M net worth. Being a part of this community for the better part of 3 years, I can tell you that is far from the truth.

      Yes, it’s good to have contingency plans, insurances, and of course, the future is unknowable. We talk about these things ad nauseam, and she made it seem as if she’s the only person who knows this.

      An uncertain future seems like a great reason to pursue FIRE, save more than the average person, and do some amazing things while you have your youth and vitality.

      Best,
      -PoF

      • Gasem

        So how many failure letters do you have? I’d like to read them. She claims to have thousands. Like I said I could care less about Suze O’s histrionics but one thing is for sure she made a lot of dough and managed to keep it and she knows a lot of people who are even more successful so I wouldn’t blow her off as a crank. Successful people are smart and often have something to teach. She possesses data beyond all the hand waving and hair on FIRE projections. We do talk about it ad nauseum and that’s the problem. Ad nauseum projection is not success, it’s just hoped for success. If hoped for success doesn’t materialize that’s called failure. The study of failure on the other hand is the thing that assures success. If you understand failure you then know how to not fail. If you listen, Pants sets her up for a 4 x25 question then sets her up for a 3 x33 question, and Suze responds in a less than positive way and FIRE land loses their minds. What if she has 100 letters on 3 x33 failure? A thousand letters on 4 x25 failure? I’d like to know that data. Because of Pant’s own retirement plan insecurity she blew her off. Suze O’s rap was screwing with Pant’s own denial and insecurity so at the end she goes into a rant about her real estate holdings or something to rebuild her denial. She tells herself a narrative.

        A much more interesting interview would be to question her about failure, and not get into a power struggle over theology. Bill Bernstein recommends 2% WR or a fixed portfolio of laddered TIPS from retirement to projected death, to be truly bullet proof. Is anybody in FIRE land is doing that? So is Bernstein a histrionic dope too?

      • I don’t have any failure letters, Gasem, but if Suze has thousands, I’m guessing they’re from people who followed a safe withdrawal rate in an inconsistent or incorrect way. Much in the way that she seems to understand or misunderstand what a SWR actually is. Paula had a great followup podcast that I’ll be linking to next week, diving into what she and listeners liked and didn’t like, agreed with and didn’t agree with.

        There was this recent post about anxiety in a “mini-retirment” but in spite of the less-than-best optics, Chris considers it to have been a personal success. I suppose it’s about how you frame it.

        Best,
        -PoF

  • Mrs Thompson

    I’m no fan of Suzy either, but I fail to see the point of calling her a “battleaxe”.

    • I don’t know — the first result in Google is wikipedia, which describes a battleaxe as an aggressive, forceful, domineering woman who is battle-tested. If you listened to the linked podcast, I would say each of those words applies, and is not as big of an insult as those she levied at the supposedly clueless and doomed people pursuing FIRE.

      Perhaps the term means something different to different people.

      Best,
      -PoF

      • I thought using “battleaxe” to describe Suze was a laugh out loud funny reference. I didn’t realize it was also so accurate. Wikipedia FTW! Lighten up Mrs. Thompson.

  • I’m going to be slightly contrarian and say that I see some of her points. I listened to the FIRE part of the interview and and actually the follow up podcast. If you cut through her trying to stir the pot and ranting and get to what she’s saying she makes sense. It seems like she agrees with the FI part of FIRE. She supports paying down debt, mortgage and aggressively saving (maxing out retirement, etc, etc).

    Where she breaks is concern about stopping working and the risk that occurs from lack of a support system. I’d never heard of FIRE has a concept until reading blogs like this. However, one thing that makes me concerned is the scenario where you need to go back to work after some period of time. Especially those of us in procedural specialities. I’m not sure if I could go back to being a peds intensivist if I stopped doing it for a few years. Now I could probably adapt and do something but not as lucrative as PICU.

    I mean say your house burns down and you want to rebuild while there is insurance w/o an income stream that could be dicey. Or say someone gets sick and you need to hire live in help that insurance doesn’t cover.

    One thing she does bring up is that you should do something that give you purpose it seems like many who do FIRE hate their cubicles so use fire as a way out. Perhaps if they had a career more meaningful they wouldn’t. I think Physicians are in a different class from a FIRE standpoint because of our higher incomes and greater ability to amass wealth. Also, as I’ve seen on the blogs many physicians use FIRE as a way to serve a higher purpose (work for pleasure vs the paycheck and donate time and money).

    • The followup podcast was excellent. I think either Suze doesn’t know much about the FIRE movement or she pretends to hate it to drum up headlines. Probably a little from column A and a little from column B.

      I think if you don’t mind your work as a physician, it makes good sense to work until you’re well beyond financially independent before considering leaving. Once you’re done for more than a year or two, re-entry will be quite cumbersome. Of course, an M.D. degree is valuable outside of clinical medicine, too.

      When I first started blogging, I said I wanted to have 40x to 50x annual expenses for these reasons. I adjusted that down to 33x, but it looks like we’ll end up with 40x or more our anticipated expenses, anyway, and I’m not done earning an income when I leave.

      Thanks for sharing your thoughts,
      -PoF

      • PICU MD: I have one simple question I love to ask medical professionals: If you were FI and then some, would you work at your current practice for free? Short of working on a medical mission and family docs from 40 years ago, I have yet to find anyone who would say yes.

        Leaving medicine is tricky. Any extended period not practicing medicine must be accounted for when looking at a CV of an applicant which usually indicates a red flag as an employer. Periods of absence greater than a year or two will require some retraining.

        I know several administrators who left clinical medicine for the c-suite only to return after realizing it wasn’t what they dreamed it would be. Every one of them struggled to practice as their skills deteriorated and aspects of practicing changed. They all required retraining under a supervised model but eventually were able to transition back.

        Generally speaking, I would instead continue practicing part-time than loose a skill set that is difficult to replace.

        As far as Suze is concerned, I remember watching the documentary, How Suze Orman SCAMMED the World (2016) https://tinyurl.com/ybqsvjmz, and it validated my views of her. She is an excellent self-promoter and master of media influence. She has cleverly taken a contrarian position on a popular movement to enhance publicity for herself. How many articles have been written and buzz created?

        Oscar Wilde:

        The only thing worse than being talked about is not being talked about

        She could care less about the Fire movement or anyone else for that matter and will laugh all the way to the bank.

        My 2¢😋

        DOAT

  • Just for the record, I’d have to stress that -ironically – Suze gave the right advice (though using the wrong justification). In your 40s you might be a bit more cautious about the SWR and pick something below 4%, especially with today’s equity valuations. In your fifties, a 3.73% SWR (=1/27) is likely safe.
    Of course, I don’t agree with Suze’s bumbling-crazy justification. Certainly not with the 200,000 to 10,000 drop of the portfolio. Maybe she meant 200k->100k? Apparently, her mouth talks faster than her brain thinks. It’s not the first time she’s playing fast and loose with numbers.
    Also that year 2000 retiree who is now 30% below starting value (in real terms) will likely not run out of money if the original horizon was 30 years (only 12 years remaining). But an early retiree with a 50y horizon now has 32 years left and is withdrawing $40k out of a $700k portfolio. That’s a 5.7% withdrawal rate and will almost certainly fail over a 32-year horizon with today’s nosebleed-high valuations. Of course, that retiree can now adjust the SWR to 3.5%. But that’s 3.5% of 700k, equal to $24,500. A permanent cut of withdrawals by almost 40%. Not everyone will have that flexibility. Hence, my skepticism about “flexibility!” 🙂

    • Thanks for the analysis, Big ERN. Another reason I think it’s good to aim for “fatFIRE” as you and I have. We’ll have a better ability to cut expenses dramatically if the need arises given the amount of “fluff” in our budget.

      Cheers!
      -PoF

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