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Stellar Recap | FI(RE) Strategies & I Bonds

Stella Min
Stella Min
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Explorations
FI(RE) strategies. This week, I’ve been exploring the evolution of the FIRE movement. If you’re unfamiliar, FIRE stands for Financial Independence Retire Early and the movement consists of a community of individuals who are strategically maximizing savings and investments while minimizing debt and expenditures in the hopes of reaching financial independence and retiring before the traditional age of 65. If you’re a social scientist like me, note that financial independence refers to the ability to afford one’s living expenses for the rest of their life without having to depend on employment or financial support from others, rather than strictly in relation to adult children and their caretakers. The origin of the former is often attributed to Jacob Lund Fisker, who began blogging about the idea in 2007 and published a book about it in 2010. Since then, several influential bloggers contributed to the popularization of the movement such as Financial Samurai and Mr. Money Mustache (Note that these early founders all identify as men and are married. Their partners are hardly acknowledged, although I suspect they were instrumental to their success). The basic strategy is to accrue investments that total to roughly $1 million or 25-30x your annual expenses so that you can withdraw between 3%-4% each year (aka the 4% rule or the Guyton-Klinger Rule) instead of working. However, this approach makes several assumptions worth questioning such as a 5% return on 10-year Treasuries and a 60/40 split between stocks and bonds with a return of 8%. The investing landscape is much different today, especially given the falling yields on US Treasury bonds and growing expectations that the return on equities will decline. BTW, if your eyes glaze over when you have to read about this sort of thing, PensionCraft provided an excellent explanation of the impact of declining yields while discussing the Berkshire Hathaway shareholders meeting (16 min). Another option is this podcast episode by Morningstar featuring Wade Pfau (55 min). The latter focuses primarily on traditional retirees and makes recommendations accordingly, like taking out an annuity. I’ve come across fewer strategies that directly address changes in economic forecasts within the FIRE community, other than Financial Samurai who recommends aiming for a target of $3 million although he believes $10 million is ideal. It’s worth mentioning that Financial Samurai has embraced Fat FIRE which aims to comfortably retire in luxury rather the Lean FIRE approach of minimizing all expenses beyond necessities. I imagine most people are aiming for something in between like Barista or Coast. Barista FI(RE) involves working at a job you enjoy, regardless of what it pays, and withdrawing up to 4% of your investment portfolio to help cover any additional expenses. Coast FI(RE) is similar, except that you save enough for retirement and continue working in a job that enables you to cover your expenses without having to withdraw from your investment portfolio. That way, you can coast into your retirement years while working in a low-stress job that you actually enjoy. These four are the most common strategies but during my research I also came across one other less formalized approach that I’ll call Snowbird FIRE. Based on these discussions (e.g., early retirement forum and r/financialindependence), it looks like it involves strategically saving enough so that you can travel to warmer areas during the winter. These niche groups are what attracted me to the FIRE movement in the first place. They’re a savvy group of people who are developing unique strategies to achieve their ideal lifestyle and are helping others along the way. Who doesn’t want to be a part of a community like that?
Discoveries
I Bonds. Investors and portfolio managers are discussing the attractiveness of I bonds because of rising inflation. I bonds are inflation-protected because part of the interest rate is adjusted semi-annually based on a key measure of inflation: the Consumer Price Index (CPI). The current annual rate for I bonds is 3.54%, which is much higher than the 0.57% APR you can get with a high-yield savings account. Individuals can purchase I bonds directly from the US Treasury Department. If you’re like me and wondering why they’re not more popular given how safe they are, it’s because the stock market has generally been a much better option for your money and inflation has stayed relatively low. It’s also a somewhat inflexible investment instrument since you must hold the bond for at least a year before you can redeem it. However, if you redeem the bond within the first five years, you must forfeit the last three months of interest. It cannot be traded and you can only invest a maximum of $10,000 a year which may not be much depending on the size of your retirement or investment portfolio. Note that you could also opt for an EE bond and hold it for 20 years, which is when the U.S. Treasury will make a one-time adjustment at the original maturity if the bond has not doubled in value from the fixed rate (currently .10%) to make up the difference. This article is from last year but it offers a helpful explanation of the effective interest rate on EE bonds. What I took away from all this is that I bonds are generally a better investment than EE bonds unless inflation is negative or you plan on holding the EE bond for the full 20 years.
Recap
Self-reflection and the one thing project
  • What’s one pandemic behavior you want to maintain?
  • What’s one thing that’s necessary for establishing and maintaining trust?
  • Name one teacher who has had a lasting impact on you and why.
  • What’s one thing that people can do to help others persevere through challenges?
  • What’s one clear sign of a toxic relationship?
Digital Gems
  • Asian Americans are less likely to be promoted to upper management roles than their white, Black, and Latinx counterparts. Yet they are excluded from corporate pledges to DE&I (Stella Min). Also see six impacts of the pandemic on Asian American workers (McKinsey & Company).
  • 😭 Over 10% of Florida’s estimated manatee population has died since the start of the year, surpassing the total number of fatalities in all of 2020 and on course to exceed the record high of 804, set in 2013 (The Guardian).
  • Starting in 2012, the flu virus had evolved to increasingly evade the human immune system, reaching a point where the flu vaccine failed to protect three-quarters of vaccinated people during the 2017-18 flu season. The global pandemic may have helped drive down the transmission rate to the point where scientists believe that the two most troublesome flu variants may have gone extinct (STAT).
  • A new survey showed that 39% of employees would rather quit than return to the office. Among workers under 40, that figure was 49% (Bloomberg). Another survey found that 64% would pick working from home permanently over a $30,000 raise (Biz Journal).
  • This TikTok account is asking people if they’re happy and what makes them happy. Show your support and spread the joy by sharing your story, joining their team of interviewers, and/or donating (R U Happy?).
  • The owner of HatWRKS in Nashville is facing fierce backlash for selling hats with yellow Stars of David on them with the words “Not Vaccinated” (NBC).
  • The Denver Metro Association of Realtors reported that the average home in Denver sold for more than $700K. The median price was $623.3K, up 26.1% year-over-year. Sellers received 105.9% of list price on average and the average home sold in 8 days (Axios). You can view 5280’s list of the top 25 neighborhoods, including the average price of homes here.
  • Average hourly earnings for workers in leisure and hospitality rose to $18.09 in May, which was mostly driven by a 7.2% rise in earnings among workers in non-manager roles (Reuters).
  • In May 2021, Carbon dioxide in the atmosphere reached the highest levels ever recorded since accurate measurements began 63 years ago (Washington Post).
  • The percentage of job seekers who relocated for work fell to 5% in 2020 and 4.2% in the first three months of 2021. That’s down from 5.7% in 2019 and 9.6% in 2018 (WSJ).
  • The average student of a for-profit medical program graduated with a median $294,780 in student loan debt. Graduates of private nonprofit med schools had $201,164 in debt and graduates of public med schools had $177,324 (NPR).
  • The Western monarch butterfly population has decreased 99% in California since the 1980s, partly driven by the decline in milkweed plants (SF Chronicle).
  • The number of job openings reached 9.3 million in April while new hires remained stable around 6.1 million. At the same time, total separations increased to 5.8 million, sending the quits rate to a new high of 2.7%. The layoffs and discharges rate decreased to a series low of 1% (Calculated Risk).
  • Top 10 cities with the lowest and highest rent prices for an average 2-bedroom apartment (Digg).
  • A thought experiment to help you gauge how much money you “need” to live comfortably in retirement (inc).
  • Jewelry sales increased 106.1% from March 2019 to March 2021, which is higher than apparel, hardware, furniture, and general e-commerce sales (Retail Brew).
  • The FDA approved the first drug that allegedly treats the underlying cause of Alzheimer’s and slows disease progression in early stage patients. Note that, last November, an expert panel advised against approval after a pair of studies showed conflicting results about its effectiveness. The treatment will be sold under the name “Aduhelm” and will cost patients around $56,000 a year (Reuters). Three members of the FDA panel have since resigned over the FDA’s decision (NBC).
  • It’s cheaper to rent than to buy a house in all of the 50 largest metro areas in the US (The Sassyologist).
  • Independent journalist and author, Kyle Chayka, made $33,000 in one week selling 131 NFTs for his newsletter called “Dirt” (Kyle Chayka).
  • The highly contagious Delta coronavirus variant is now the dominant strain in the UK and accounts for 6% of infections in the US. New symptoms have been associated with the variant, include hearing loss and gangrene (Digg).
  • Last year, Americans moved to a ZIP code where average home values were nearly $27,000 lower than in their previous ZIP code and 33 square feet bigger than their previous home (AP).
  • US consumer confidence fell in May. Wyoming, Utah and South Dakota showed the largest declines (Morning Consult).
  • The curious and racist beginnings of Kelloggs, a company that’s perhaps best known for their breakfast cereals like Special K (Not Past It podcast; 27 min.).
  • A new survey showed that the top 200 highest paid CEOs received 274 times the pay of the median employee at their companies, up from 245 times in the previous year (Equilar).
  • Two wildfires in southeastern Arizona have scorched over 60,000 acres and prompted evacuation orders for hundreds of people (CNN).
  • The Biden Administration is projecting a $68 billion long-term loss on the nation’s $1.6 trillion student debt portfolio, based on the latest data on 43 million student loan borrowers (WSJ).
  • “Psychedelic enthusiasts” are poaching Sonoran Desert toads because they secrete a powerful hallucinogenic substance called 5-MeO-DMT which fetch anywhere from $200 to $3,000 for medicinal retreats (High Country News).
  • Between 2014 and 2018, the top 25 richest Americans paid an average tax rate of just 15.8% on their adjusted income of $86 billion. That’s lower than the rate a single worker making $45,000 a year might pay including Medicare and Social Security taxes (ProPublica).
  • Online jobs ads at over 30 Apple suppliers in China contained discriminatory language against Tibetans, Uyghurs, Hui, Yi, Dongxiang from Tibet or Xinjiang (The Information).
  • The consumer price index rose 5% year-over-year in May, accelerating at the fastest pace in 13 years (CNBC). Prices for floor coverings, tools and outdoor equipment, and moving and storage, saw the biggest monthly spike since 1957 (Axios Closer).
  • A new poll by Gallup showed that support for same-sex marriage in the U.S. has reached an all-time high of 70% (NPR).
  • The number of earthquakes in Oklahoma, Texas, Louisiana and New Mexico have quadrupled since 2017, reflecting the growing impact of shale production (Bloomberg).
  • The first-ever NFT, titled “Quantum,” sold for $1.47 million while one of 10,000 CryptoPunks sold to the technology billionaire Shalom Meckenzie for $11.75 million. The price discrepancy illustrates that the crypto world prefers the equivalent of digital trading cards made by well-connected billionaires over the work of skilled artists (Axios Capital).
  • U.S. homeowners have seen their equity increase by 19.6% year over year, representing an average gain of $33,400 per borrower, since the first quarter of 2020. Collectively, this amounts to an equity gain of over $1.9 trillion (Calculated Risk).
  • Airbnb is searching for 12 people who are willing to spend an entire year living the nomadic lifestyle in home rentals around the world, all expenses paid (Travel + Leisure)–Thanks to Yvette Francino for sharing this with me!
  • The combined net worth of households and nonprofits rose to $136.9 trillion during the first quarter of 2021, with $3.2 trillion from the stock market and $1 trillion from the rising values of real estate (CNBC).
  • An Air Force study conducted cognitive tests on 40 active-duty soldiers who were staying awake for 34 hours, where half used a device that applied an electrical charge to the vagus nerve and the other half were given a placebo device that did nothing. While all performed worse on the cognitive test the longer they were awake, the performance of those in the placebo group was down 15% compared to 5% in the experimental group (Scientific American).
  • 117 employees of Houston Methodist Hospital staged a walkout and filed a lawsuit after the president and CEO, Dr. Marc Boom, after his decision to require vaccination against COVID-19 as a condition of employment (The Texan).
  • America lost more than $400 billion to fraudulent claims for employment benefits last year. Researchers estimate that at least 70% of the money left the country, ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere (Axios).
  • New research showed that synuclein fibres, a hallmark of Parkinson’s disease, first appear in the gut before spreading to the brain (Nature).
  • The words “Unprecedented Times” was mentioned in 2,128 calls in 2020, representing a 70,830% since 2019 (NYT).
  • Between April 2020 and January 2021, less than a quarter of eligible Black homeowners refinanced their mortgage compared with 40% of their white counterparts (Money), for reasons I discussed in my newsletter last week.
  • The 6 phases of retirement (Andy Millard).
  • Our personalities naturally change as we age but there’s also specific actions that we can take to change our personalities as well (PsychCrunch podcast; 26 min.).
Want to read more content like this? Follow The Sassyologist and browse through my bookmarks.
Wishing you a productive week
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Demographic Fact A Day
In the US, more than 70% of men born in the 1920s served in the military. The decline after that was steep, except for an increase for the cohorts who served in the Vietnam War (born in the 1940s). Now it's less than about 3%. https://t.co/jytwDasP3k
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Stella Min
Stella Min @OhhStellar

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