The FIRE Community’s Greatest Flaw

Have you watched your investment portfolio tank recently?

There are dark clouds on the Financial Independence horizon at the moment – high inflation, food shortages, the energy crisis, supply chain issues, rising interest rates…

I find that times like these expose one of the FIRE community’s greatest flaws: our all-or-nothing attitude.

Let me explain. 

How we usually think about Financial Independence

Time for a quick FI 101 refresher. 

This is how we usually calculate our FIRE number using the 4% rule:

Annual spending x 25 = FIRE number


So if I want to spend $50,000 per year in retirement, my FIRE number is $1,250,000. 

What this also means:

$1,249,999 = Not FI

$1,250,000 = FI

And this is where the problem lies.

FIRE and… Pregnancy Tests

When you take a pregnancy test, there are only two possible outcomes: Pregnant or not pregnant. 

The traditional way to calculate our FI number looks at things the same way: We are either financially independent or not.

We all know that investing is nothing like this. It’s not black and white, all or nothing. Markets go up and down and sideways all the time.

In declining and volatile markets, this means that we could technically be FI one minute and not FI the next. You could be a millionaire when you meet a friend for lunch and lose tens of thousands of dollars by the time you order dessert. It’s normal and expected.

The lesson here is that if you make life decisions based on the FI / not FI response your spreadsheet spits out, things become stressful when markets slide.

Let’s have a look at an example to explore why this “pregnancy test” mentality doesn’t make sense.

Over The Moon And Back Down To Earth

Meet Emma. Emma is 45 and has been investing in *a popular investment product I’m not allowed to talk about anymore – thanks ASIC* for over 10 years. 

Emma’s FIRE number is $1,250,000. She can’t wait to quit the corporate job she hates. Emma checks her portfolio performance daily.

One day in December 2021, she logs into her portfolio tracker account and can’t believe it: she has reached the finish line (the equivalent of a positive pregnancy test)!

Emma finally reaches Financial Independence in December 2021. Chart created by Sharesight.

Emma is over the moon. She immediately starts making plans to quit her job in the near future. She can’t wait to finally live the good life. She doesn’t know what she wants to do once she finally doesn’t have to show up at the office 5 days a week, but she is sure she’ll figure it out.

She checks her portfolio again in early January 2022, and things are looking even better. Her net worth has passed the $1.3 Million mark.

But then something terrible happens: The share market starts falling. The news headlines are dominated by stories about rising inflation, skyrocketing interest rates and a looming recession. Over the next six months, Emma’s portfolio value continues to drop. By the end of June 2022, it is worth a meagre $1,085,351 – not even close to Emma’s FI number.

Emma’s portfolio value falls significantly over a six-month period. Chart created by Sharesight.

The Big Flaw

Emma went from financially independent to not even close to her magic number in just six short months.

Sure, the trinity study tells us that in theory, Emma’s nest egg should still survive over the next 30 or so years.

However, this theoretical knowledge will likely do nothing to tame Emma’s emotions and panic in this situation.

I challenge you to find one person in real life whose nest egg dropped significantly shortly after reaching FI and who just went on as if nothing happened. We are emotional beings, not robots.

The reality is that Emma will probably be a little freaked out. There is almost no chance that she would actually start making annual withdrawals from her nest egg under these circumstances.

Chances are that she would keep her job and continue saving until she gets back to or close to her FI number.

This is the big flaw in the FIRE concept: the idea that there is a definite finish line. That once we see the second line on the pregnancy test, we can finally relax and enjoy life.

It doesn’t work like that.

All we are doing by solely relying on our nest egg to provide the freedom we want is to shift from being financially and mentally dependent on a job to being dependent on the financial markets.

The Finish Line Illusion

The closer I get to my own FIRE finish line that I set for myself, the more I realise how irrelevant our “magic number” is. 

Don’t get me wrong, tracking our net worth is important and making progress charts is motivating and fun. I enjoy pulling all our numbers together for our quarterly semi-retirement updates. But charts and spreadsheets just don’t tell the whole story. 

The 4% rule is a great tool, but these days I see it more as a rule of thumb and a compass. It’s just one part of a good life plan in my opinion.

Many hardcore FIRE folks end up over-saving by either dropping their withdrawal rate to something like 3% and/or saving 35-40x their annual spending “just to be on the safe side”. This is also where the roots of One-More-Year Syndrome lie.

These “safety measures” might increase the likelihood of success in the financial sense. But making our plan more bulletproof usually also means that we’ll hold off on living our best life for longer. 

By saving more, we simply move the goalpost. We still follow the pregnancy test mentality. We just make it harder to get a positive result. 

It’s a fear-based approach. 

I personally think there is a much more effective AND enjoyable way to ride out storms like the current one. And that is to simply focus on building a great life based on our values. A life that prioritises connection, health, and personal growth that also includes some meaningful work.

A mix of passive investment income and active income from work I enjoy and am passionate about makes me feel financially bulletproof without wasting years of my life saving an absurd amount of money I may never need.

See The Market Correction as an Opportunity

This current market downturn is a fantastic opportunity to assess our relationship with “the finish line” and our “magic number”.

Do you suffer from all-or-nothing syndrome when it comes to your financial goals? Are you delaying doing the things you want to do with your life in the name of FIRE? Are you watching your investment returns like a hawk, obsessing over paper losses and potential buying opportunities? Are you re-thinking your plans and building in “safety buffers”?

If so this might be your chance to work on your mindset. You can use it to move toward living in the “green zone” where you get to enjoy life no matter what the markets and your spreadsheet are doing. That’s the real wealth Financial Independence can create.

Remember, life doesn’t take place in a spreadsheet. A drop in the market should not have a significant impact on our life decisions.

What To Do In Scary Times

The concept that we are either FI or not FI is too simplistic. And over-saving just to satisfy our scarcity mindset and fear of losing it all is not the solution either.

Instead, we should focus on creating the kind of life that won’t be impacted if your portfolio drops by 20%, 30% or even 50%. 

Here are some ideas to get you started:

  • Realise that the “pregnancy test” mentality is a fallacy when it comes to FIRE and investing.
  • Develop an abundance mindset and stop living in fear of not having enough.
  • Start living in the “green zone” of the financial freedom spectrum.
  • Create a balanced life with some enjoyable part-time work that you wouldn’t give up even if you didn’t need the income. 
  • Consider alternative FI approaches like semi-retirement.
  • Keep learning and developing new skills. 
  • Focus on your health and relationships instead of your spreadsheet.

Implementing some of these ideas will make your net worth number increasingly irrelevant. Not because your net worth won’t drop, but because it doesn’t impact your life choices. This is how you become immune to market downturns like the one we are currently experiencing.

So, what is your relationship with the “finish line”? Do you treat your portfolio like a pregnancy test?

26 thoughts on “The FIRE Community’s Greatest Flaw”

  1. Thank god i haven’t had a positive test LOL

    Its funny my number has moved up and down the last couple of months 84% of full fi down to 78% and now back to 82%….

    I’m semi retired loving the greenzone living, does the above changes affect or worry me – no not in the slightest. The small amounts of work my wife and I do pay all the bills and more so (Including adding to our investments). I think thats the beauty of semi retirement – we can totally enjoy life, ignore market noise and spreadsheet living.

    Just remember LIfe isn’t based on a number 🙂

  2. I love your message and your humor, Mrs. F!! I don’t think anyone has ever used a pregnancy test to illustrate a personal finance concept! I agree 100% with what you are suggesting. I have to say it is easier said than done and I would be lying if I said the current markets don’t worry me. Working on that green zone attitude though!! Cheers

    • Thanks Thomas! Yes, I realise some of these ideas are easier said than done. It’s all a process and it took me years to get to where I am at today. It’s also important to keep up the mindset work. It’s definitely worth getting started and moving deeper into the green zone. All the best!

  3. Absolutely with you on this one, great opportunity to be adding to your investments. I also agree with the ‘one more year itis’ but think if you transition to a part time career you love, or have other forms of passive income then it’s not really a big deal. A particular investment type *cough* index funds, should only be one part of your portfolio, not the whole pie so to speak. That way when it fluctuates you care less as you’ve got other income sources and you can choose yes not to draw down if you don’t want to.

    • I agree, diversification is definitely a good thing. I think it’s still a big mental shift for many to move from a secure high-paying job to a mix of passive income and part-time work (especially if it’s in a different field). So worth it though!

  4. We have a FI number. Tho we currently don’t see ourselves full out stopping to work at that point.
    We are now 36 and 37 and see us hitting Fi in 10-12 years.
    With then choosing to work or not as much or as little we want. Our current mind sit is simplie work enough to cover the diffrence we make on divedends and also intersts that we get monthly

  5. Hi Mrs Flamingo,

    I’ve been following your blog for a few years now and I don’t normally post to things but reading this today was just what I needed and wanted to let you know that your blog posts on the mindset side of FI are awesome and in my opinion are helping me more on staying the course to FI than finding another new spreadsheet or strategy. I too suffer from seeing FI as either 0% or 100% and in this current market has been really getting me down and after reading this post I have realised that I have been missing out on recognising those incremental freedoms that come on the way and I often times get stuck in the mindset that I am failing and will never get to FI. If life can be enjoyed more and more on the way then reaching full FI might never come but maybe you might never ‘Need it to’ – helps so much with the stress of it.

    Thanks Again!

    • Hi Adam, good to hear you are getting something out of the articles. I think it’s great you are at least aware you’ve got this all-or-nothing mindset which means you can work on it. Without the right mindset you won’t feel like you have enough, even when you reach FI.

      All the best for your journey! 🙂

  6. Hi Mrs Flamingo,

    I love reading your posts. As you allude to the problem is the paradigm itself, but what to replace it with? By way of background, my partner and I are gen-x, fully retired and we live solely off our investments.

    I kinda agree with you because there probably isn’t a magic number for net worth (pregnancy test is an apt analogy!). I definitely agree with you that flexibility is a practical solution to this. Flexibility can be on the expense side of the equation (reducing lifestyle costs) or it can be on the income side (getting/increasing part time work), or both. In that spirit, my partner and I are postponing some major purchases until the current market downturn has run its course (what ever that means!).

    I kinda disagree because you have to draw the line somewhere. 25x, add in a MMM safety margin and get to 27x or 30x… whatever. Whichever way you cut it, you end up with a number – if you’re stuck in the net worth paradigm. (Lately, some crypto true believers might be wondering if even 35x is enough!).

    Having said all that, our “x” ratio is something that I monitor on a month by month basis. It’s very useful as “the canary in the coal mine” and as a trigger to implement some of that flexibility that I mentioned.

    So, how to proceed? I would argue that a better (but still imperfect) paradigm would be to focus on on the *income* produced by your portfolio instead of the *market value* of your portfolio. Assuming a highly diversified portfolio, if the annual income produced by your investments covers your annual expenses (with a reasonable safety margin) then you’re in a pretty good position. Income is often less volatile than market value. In this respect, I think that Vicki Robin & Joe Dominguez’s graph of investment income v expenses nailed it.

    • Hi Jay

      you nailed that mate.

      I do calculate our NetWorth just for spreadsheet sake, but as you say the all important number as semi retirees is the passive income generated. (Particularly as we are dividend investors)

      Seeing our NetWorth bounce up and down is really of no interest to us as we have no intentions of selling our income producing holdings.


    • I agree with most of your comments, Jay. The x ratio and monitoring it becomes more important once you are fully retired (like you and your partner). Flexibility and diversification are definitely key in that phase. This article was more aimed at those who are still in the accumulation phase and who stress over the “net worth paradigm”. Most are a long time away from actually fully retiring and living off their investments, so over-thinking the whole net worth thing makes no sense.

  7. Great post. I think the “all or nothing” mindset is directly related to “one more year” syndrome. Instead of focusing on hitting the semi-arbitrary FI number and retiring, I think about using FI and skills to engineer a better work schedule. Once I don’t absolutely need to work full time, what’s stopping me from negotiating a reduced time position and using the extra time for me? Then instead of a binary “FI or not FI” it’s a more gradual approach towards full retirement without putting off the FI lifestyle until that number is reached.

    • Don’t be negative, even $1 closer each day is a step closer… marginal gains… each 1% you can make a difference all add up….

      I was nowhere near Fi when I was 50, in fact I’d never even heard about it, when I discovered I put a plan and date goal in place to semi fi by 55 and achieved it with 3 months to spare 😀 set goals make lots of little 1% improvements to all aspects and you may surprise yourself

  8. I had my FIRE number set up long before there was a FIRE movement. Mine had two parts. First, I wanted enough passive income to equal my living expenses, and Second I wanted $1,000,000 in retirement accounts as a back up. I felt once both of these criteria were met, I could retire anytime I wanted afterward. I actually didn’t want to retire when I met these criteria and worked part time for another three years until I felt I was ready to give up my medical practice.
    I’m adding this article to my Fawcett’s Favorites next Monday.
    Dr. Cory S. Fawcett
    Financial Success MD

    • Congrats! It’s just so common not to want to retire straight away after reaching one’s financial goals. Three years of part-time work sounds like a great transition phase. Thanks for including the article in your roundup! 🙂

  9. Great article! This is so true. It’s also why I retired accidentally.

    Life is not black and white. Not for your finances, and not for your emotions.

    You can get stuck in a “one more year” mentality, or you can find yourself in Emma’s situation. In both of them you are going to be worried all the time if you have enough money and what your next steps are.

    But at a certain point, you have to realize that you have ENOUGH money that you are financially free in so many ways. That is why I chose to embrace it. I retired early. I planned for the next few years. I bought an affiliate website as a cash flowing investment, and I continue to learn and make the most of life and enjoy my time.

    I embraced that FI is not a mark that you can easily hit where all risks evaporate. No, it is a ballpark estimate that you can

    • Thanks! 🙂 I completely agree, at some point you just have to make that mental switch to accept that you have enough. I think this is one of the toughest things for many people.

  10. If you don’t understand this concept, you likely should not retire early. Super basic idea, too bad so many people don’t get it. Thanks


Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.