Greetings, Your Money Geek nation!
I want to thank Michael for letting me share with you all today. I really admire YMG and the library of resources he’s created here. I am honored to share the stage briefly!
I am Mr. SR, and I run a site about Semi-Retirement. To me, semi-retirement is the best way for middle-class workers to achieve their early retirement dreams!
The topic of Barista FIRE has been on my mind often, so I’d like to discuss it with you today.
What Barista FIRE Gets Wrong
One growing sect in the Financial Independence, Retire Early (FIRE) movement is Barista (or “Coasting”) FIRE. The idea behind Barista FIRE is that you can front-load most of your retirement savings early in your career, then work as a barista (or some other low-stress, low-paying job) and let your investments grow. Then when you’re older and can’t work anymore, you can live off of your portfolio.
Barista FIRE gets a lot of things right, but there are some red flags you should consider before going down that path.
You will be dependent on your employer
In Barista FIRE, you are necessarily reliant on your part-time job for income during your early retirement years. That job will pay for most of your living expenses so that you can protect your investments.
This immediately eliminates many of the “independence” benefits of FIRE.
If you limit your part-time job search to low-stress hourly work, you will be at the mercy of your manager and whatever varying schedule or number of hours they throw at you. What if you have a doctor appointment, a friend in town to visit, or even just an itch to travel for the weekend? Oh well, hope you can work it out!
At your hourly gig, you can’t just decide to work a bit extra on a certain week if you’re feeling energetic.
If you Barista FIRE, you’re still working for “the man.”
You will not meet your productivity potential
In the corporate world, I believe there is a misconception about what productivity really is. Too often, it’s equated with the number of hours worked. In reality, productivity would be better measured by meaningful results produced.
At your hourly job, you’re signing up to keep trading hours for dollars. And your hours will be spent doing activities that someone else chooses for you.
Worse still, in Barista FIRE, you will likely be earning a meager wage. If your FIRE timing math is based on earning such a small amount, you will be forced to stay at your full-time career and continue your high savings rate for years longer than you need to.
Since time is our most precious and limited resource, staying at your 9 to 5 longer than you have to is a major loss.
You could be more productive in another form of work during your early retirement years. But, I am not suggesting that you need to burn the candle at both ends. I will address this below.
You will be restricted in your pursuit of meaningful work
On my home site focused on semi-retirement, I describe how many traditional retirees feel depressed or a lack of purpose after leaving full-time work. A lot of conventional retirees actually choose to go back to work, even though they don’t need the money, just because it's enjoyable and can help them feel driven.
I argue that you should account for these future wages (if it sounds like something you and your family would be interested in) so that you can retire from your full-time work even sooner.
On the surface, this sounds very similar to Barisa FIRE, but there’s a fundamental difference.
Barista FIRE sets the goal as low stress, low wage work. Semi-retirement sets the goal as work that is profoundly meaningful.
The beauty is, though, that many forms of meaningful work will generate higher wages than serving coffees or similar roles.
From Glassdoor.com, May 15, 2019.
For example, let’s say you are a career accountant, and you decide to retire early and do a little part-time work. You could work as a barista and make $10 an hour. But, you really enjoy playing the guitar as a hobby. You could, instead, teach guitar lessons for $30 an hour.
Assume you would like to work for 15 hours per week, 46 weeks of the year.
Also, assume the following:
- Current age: 35
- Current retirement savings: $250,000
- $100,000 will grow until later retirement years when part-time work is not possible
- $150,000 will grow until early retirement, then be drawn down to supplement income
- Annual income during full-time working years: $80,000
- Annual saving rate: 25% ($20,000)
- Planned annual retirement expenses: $45,000
- 4% withdrawal rate during early retirement years
- 6% annual investment growth rate after inflation, compounded annually
($10 per hour)
|Guitar teacher scenario ($30 per hour)|
|Annual income from part-time work||$6,900||$20,700|
|Supplemental income needed from investments||$38,100||$24,300|
|Total portfolio required to support this drawdown||$952,500||$607,500|
|Years needed to grow the $150,000 to the target portfolio value||16.79 years||11.43 years|
By choosing to teach guitar lessons, you can semi-retire over five years earlier than if you wait to Barista FIRE.
If you plan strategically, you can maximize your fulfillment during your early retirement years, while also doing work you enjoy.
In the example above, teaching guitar lessons is an hourly job, in a sense. But you have the flexibility to reschedule lessons or advertise to get new students as your preferences shift.
If you semi-retire to project-based work, like consulting or freelance writing, you will have additional flexibility to optimize your productivity, working whenever you choose.
If you remember one thing…
I’ve found that when discussing politics or religion, people often don’t believe everything that their “label” may lead you to expect. Likewise, I want to acknowledge that some people pursuing Barista FIRE may have bigger plans than serving espresso.
My final plea is this: in a personal finance sphere where we’re obsessed with optimizing dollars, don’t sell yourself short on time. You can earn more dollars, but your years are limited.
You can retire even sooner, and invest your time in work that you actually care about.