Let’s be honest, have we not all thought about this question at some point in our career?
There might actually be an answer to that and a way to FIRE your boss which I will go through in this post. It’s based on the “4% rule”, often used by the members of the Financial Independence Retire Early (FIRE) community.
Imagine a life on your terms even before the “normal” retirement age, how cool is that!
The 4% withdrawal rule
This is just a short summary of the key pillar of the FIRE philosophy, for a more detailed description check out this post The 4% rule to FIRE!
The 4% withdrawal rule, the 4% rule or the Safety Withdrawal Rule (SWR) is often used as a benchmark for how much money you need to be able to retire. There have been numerous studies done on the financial markets over very long periods of time to determine a viable withdrawal rate. The idea was to find out how much one can withdraw from ones investments over any 30 year period (retirement period) without the risk of running out of money. The conclusion they came to, based on historical numbers (no guarantee for the future), was 4%.
This means that if you need 25,000 USD per year to cover all your expenses, you would need a total investment portfolio of 625,000 USD (25,000/0.04). When you have that amount, based on history, you should be able to withdraw 4% every year and the money should last you for at least 30 years. As thirty years is a very long period, some in the FIRE community mean that 30 years or 60 years will have a small impact so you could actually say that the money would last you forever. As long as your investments grow with 4% after any fees and ideally after inflation and you can withdraw that 4% tax-free, you would be able to withdraw and live of those 4% in eternity.
Many FIRE advocates focus on this 4% rule to have a goal of how much money they will need to be able to retire. They decide how much money they need per month and year and then just do the numbers. They then invest as much as they can of their income whilst keeping their costs as low as they possibly can, hoping that compounding of returns will help them get there even faster.
There are of course many pros and cons with this “rule” and since it’s so widely used I will not go through them here, but if you are interested check out my full post on the 4% rule where I go through it all in more detail.
When can you FIRE your boss?
Let me just give you a few examples to illustrate this and the assumptions I am using.
The idea is that the person wants to have all their expenses covered for life and they have decided to rely upon the 4% rule. This basically means that they need to withdraw 4% from their investments every year and they rely upon the returns to be above that on average. I am not taking any taxes into consideration here as they differ depending on the country you live in at the time of withdrawal.
Below is a graph giving you a general overview of how fast you could retire depending on your savings rate (percentage of your income). If you want to play with the numbers yourself just use this link.
Now let’s look at a few scenarios where a couple of different people could FIRE their bosses!
Henrietta has just graduated and is 23 years old. She has heard about the FIRE movement and as a student she values her time and freedom and knows that she can live frugally. She has been working extra during her studies and hence has no debt to talk about but also no savings.
She has decided that she would need 1,500 USD per month as she could live anywhere (cheap location geographically). As she is well educated her salary is 4,000 USD and her take home pay is 3,000 USD.
This means she can save 50% of her income after tax which is a very good level for a FIRE member. Her financial goal using the 4% rule would be her annual expenditure of 18,000 USD / 0,04 = 450,000 USD.
For Henrietta to reach her goal, given a 4% return, would take her 17 years. That means even if she never increased the amount she saved (never had any salary increase), she would be able to retire at the age of 40 years and then live off her investments!
Let’s instead assume she found he soulmate during her studies and they both want FIRE. Most of the costs she thought she would have, are now split between two people. They are also inspiring each other and have decided their goal is to live off 2,000 USD per month. They want FIRE as soon as possible!! I here assume they have the same salary and then:
Instead of 17 years, they will now be able to retire in 10 years (given the assumptions here and the 4% rule). That means they can retire when they are 33 years old… Not bad!
The only question really is how bad you want to start living your life on your terms and when. Are you willing to invest a decade of your time for then being able to live for another 40-60 years, completely on your terms? Your call!
John is 40 years old and working in the corporate world. He has been climbing the career ladder but money seems to just fly out from his account even if he is making a nice 7,000 USD per month. Luckily he he has been putting aside his bonuses every year so he actually has 100,000 USD in investments.
Two weeks of vacation every year and a poor health is not really the life he was expecting, especially not when being as “successful” as he is according to his friends and family. That’s when he gets introduced to FIRE and get the bug… He immerses himself, goes through all his spending and comes up with a number he could force himself to live off, still “looking” the part at the office. He is yet not mentally ready to share his plans with his colleagues of FIRING his boss and becoming a true FIRE member.
His monthly take home pay is 5,250 USD and he is adamant he can live off 2,250 USD per month. So his 4% rule number is 2,250*12*25=675,000 USD
This is what his numbers could look like:
If John saves 3,000 USD per month, it will take him a bit more than 11 years until he can FIRE his boss. To simplify this, we have not assumed any salary increase, nor the annual bonuses John gets once per year… Nor have we taken his pension account into account. Had we counted all of that, the retirement age would have been even sooner!
As with the previous example, we can play with the numbers in many ways but the key really is to just play around with them and understand how important costs are, especially money down the drain… And remember, there is a cap on how low you can get your expenses but no cap on how much income you can have. Still you have to be in financial control to make this happen and the more disciplined you are, the faster the results.
In all of these examples, one have to bear in mind that one can either go for the financial goal using the 4% rule or find an alternative. Maybe you keep pushing but also realize that you can FIRE your boss even earlier by complementing your financial goal with an enjoyable side hustle. If that side hustle can make up a part of the cash-flow you need it would be perfect, since trading time for money doing something you love is not really considered work, that’s life on your terms!
As a FIRE person and without having to go to work, you can be the one deciding how you want to spend your time. You will spend it doing things that you love. Pursuing a hobby or another interest (or several) is very likely and those can for sure also generate an income. The focus on this post has been further information for those inspired by FIRE and hence the focus on financial investments for providing the return. However, as we have written extensively about before, there are almost limitless numbers of ways of creating passive or semi-passive income.
How you reach FIRE and FIRE your boss is up to you, the only thing I know on the subject it that there are endless of ways to make it happen and when you do, please let me know:)!!
Even if you do your numbers and it all feels “too far away”, remember that if you don’t do anything at all, it will be even further away! Look for another job to bump your pay as that might have a double effect. What you do and how you do it is completely up to you, the key is to take the first step. Then there are many ways to make it happen even faster and once you get started, it usually will happen. When you have created the right habits and the mindset, you will change and the way you think and act will change which will lead to you finding better, smarter and faster ways to a life on your terms!
Your life on your terms can and will happen just as fast as you make it happen. If you never take the first step, it will never happen. If you decide to take action today, you have taken the most important step already! Check out the suggested action points below to get you going on the way to FIRE your boss!
Actions to take:
- The Language of Money – a language for life
- How to always have enough money!
- Are you making money whilst sleeping?
- The Bucket System – Automating your Finances
- How to save +1000 USD in a few hours!
- Savings Ideas Section
- The “easy” way of becoming a dollar millionaire