Pick up any blog post, podcast or book about the FIRE Movement and you are likely to read stories of young millennials saving a million dollars and retiring in their early 30’s.
You will hear their stories of rejecting the accepted ‘hamster wheel’ of ‘college – job - mortgage – retire at 65’.
Free from their 9-5 jobs, they pursue their life passions or travel the world without the need to return to their jobs after. A dream for many that would have seemed impossible even a decade ago.
Increasingly though, you may also have begun hearing stories of a group of people older than these young Millennials. Generation X folk who for decades have been on the very same hamster wheel that these Millennials have managed to escape.
Just like their younger counterparts, these older folks have googled ‘how to retire early’ and discovered the wonderful world of FIRE.
To us, the older Gen-X folk, the Millennials appear to embrace FIRE as a defiant act. They symbolise ingenuity and resourcefulness, defining a new life outside the norm, full of opportunity and positive vibes. They are victors over the system.
However, to these Millennials, it may appear that their older counterparts are chasing FIRE in an act of final desperation. (Help me Mr Money Mustache, you’re my only hope).
Generation-X might even appear a little defeated by the system.
The fact is that lessons learnt from Millennials in the pursuit of FIRE are the same for anyone, regardless of age.
There are some subtle differences for this older group pursuing FIRE – the reasons behind their decision, how their finances look when they start out, as well as the tools that they have at their disposal.
The differences, while subtle, can also be advantageous in some ways. You'll read in this chapter how this older group can reach FIRE despite their late start. The following sections will give you better insight into FIRE for late starters:
- Life on the Hamster Wheel
- The state of personal finance for Gen-X
- Generation X - The Sandwich Generation
- Discovering FIRE - spend less, earn more, invest the difference
- Millennials and Gen-X - The Fundamental Differences
- How the 3 Levers of FIRE work differently for Gen-X
- Conclusion
Life on the Hamster Wheel
Generation X are those of us born between 1965 and 1980. When we were in our 20’s and 30’s Gen-X had only ever heard of the sort of life where you went to school, then got a job, got a mortgage, and worked your entire life until the traditional retirement age of 65. This is the sort of life that those in the FIRE community call the Hamster Wheel. Unlike the millennials, few of us Gen-X folk ever thought to challenge this way of life.
The problem for Generation X is that the promise of a lovely retirement that the hamster wheel provided to generations before us has not happened for us. At the same time that we become aware of our 50th birthdays looming on the horizon, we have also become aware that our generation is in a terrible financial situation. A low balance in our Super, a lack of savings and mountains of debt.
Generation X has been hit with the realisation that we are less destined for a champagne and caviar lifestyle in retirement, and more likely a beans-on-toast existence.
The state of personal finance for Gen-X
According to a recent study by the Australian Housing and Urban Research Institute (AHURI) nearly half of Australians between the age of 55 and 64 are still paying off their mortgages, with many unable to pay off their mortgage by the time they retire.
Not only that but by age 55, the average super balance is less than $175k for men and less than $100k for women, By age 65 the average is $270k for men and $160k for women. That’s way less than even the $1million that was being suggested as the minimum amount you needed saved for your retirement years ago. Hit with this grim vision of our future, we look at our savings then look at the time left till retirement.
On the one hand – we think about how few years we have to earn enough money to afford to retire comfortably, that’s if we can hold on to our jobs. At the same time, we feel exhausted and can’t contemplate having no option but to have to work all those years.
No wonder we feel so overwhelmed.
Generation X - The Sandwich Generation
So why can’t Generation-X Save?
One big reason is lifestyle creep – we simply want more things than our parent’s generation did.
But the other big reason is with children staying at home longer, and parents living longer, Generation-X is the most likely generation to support others.This is why Generation-X is sometimes called the Sandwich Generation.
Discovering FIRE – spend less, earn more, invest the difference.
If you are anything like me when you came to the realisation that your investment savings were not where they needed to be approaching your 50th birthday, you would have felt a whole range of negative emotions. Anything from feeling frightened, feeling angry, or just feeling pretty bloody stupid.
How did I get here?
Why didn’t I think to save more and invest more when I was younger?
Is it too late?
The biggest challenge to getting out of this mess and getting your finances in order is to drown out that negative talk, figure out what needs to be fixed and work like hell to fix it, as if your life depended on it. (PS - your life doesn’t, but your lifestyle in retirement certainly does)
‘Accept Reality, Make a Plan and Move’ - Ramit Sethi, Author of ‘I Will Teach You to be Rich’
Making a plan is where FIRE comes in. The three levers of FIRE that enable people to achieve Financial Independence at any age are:
- Spending Less
- Earning More
- Investing the difference.
Using these 3 levers, it is equally possible for Generation-X to achieve Financial Independence as it has been for Millennials.
Millennials and Gen-X - the Fundamental Differences
It goes without saying that the greatest difference in the journey towards Financial Independence for Millennials and Gen-X is TIME! The time when they start their journey toward FIRE, the time they have for compounding to work, and the time left to keep earning an income for investing before they reach retirement age. Obviously, someone in their 40s or 50s starting out on the road to FIRE today is much older than their Millennial counterparts.
Given they are older, they have had more time earning money which means more opportunity to:
- Earn a large salary
- Build up their Super
- Save more money
- Buy their own home, and
- Pay down their mortgage.
- Build up consumer debt, and
- Experience lifestyle creep.
Of course, that also means they have had more time to:
But what exactly is lifestyle creep?
Lifestyle Creep
Remember when you first started working and how little you paid for rent, clothes and going out for meals? The sort of car you drove and the standard of hotel (hostel?) you were happy to stay in when you travelled?
Now think about how much more you were happy to spend on these things once your salary increased over time. How much do you spend now?
That’s what’s known as Lifestyle Creep or Lifestyle Inflation. When the amount you spend on non-essentials increases every time your income goes up.
Things that seemed like a luxury when you started your work life, suddenly feel like a necessity that you can’t live without.
The great thing about starting on the path to FIRE later in life is that you have DECADES of Lifestyle Creep to cut out from your budget – potentially way more than someone starting out on the path to FIRE in their 20s.
Once you remove those lifestyle expenses away from your hopefully significant income, your potential to save should be substantial.
This means that you can reach your target savings rate much quicker, just by cutting out a raft of non-essentials from your life.
The biggest challenge will be convincing yourself that you can actually live a good life without your (luxury) ‘essentials’ (non-essentials). Understanding that this ‘sacrifice’ will lead to less worry about money and achieving Financial Independence early.
What about time in the market?
You would think that someone starting out in the pursuit of FIRE in their 40s or 50s has less time to have compounding work its magic than someone in their 20s.
That’s certainly true if both were trying to reach FI by say 60 – the Millennial would have decades more to use compounding to reach their FI number, whereas the older Gen-X investor would likely have less than 1 decade.
But let’s not forget, most millennials aim to reach Fi within 7 to 10 years, which is also the aim of Gen-X, so really, what’s the difference? Not only that, but in theory, Gen-X starts with more money in super, savings and other investments, so they are already ahead of the game.
How long is the journey you are planning for?
Of course, you also have to think about how each Generation needs their FIRE nest egg to work for them.
For example, imagine that both the millennial and the Gen-X live till they are 100.
If the millennial reaches FI at age 40, and the Gen-X reaches FI at age 60, the millennial needs to make their money last for 60 years, while the Gen-X only needs to fund 40.
On the other hand, the Millennial has 60 years of compounding to take advantage of, but the Gen-X only has only 40.
How the 3 Levers of FIRE work differently for Gen-X
When you think about it in terms of net worth at the start of the road to achieving FIRE, the average Gen-X should (should) be starting their FIRE journey ahead of the game compared to most millennials.
In other words, Gen-X should have more assets:
- They own their own home, even if it is mortgaged
- They have upgraded to a more expensive home
- The home should have grown in value over time
- Their super balance should be way higher than a millennial’s
- They might already have investments like rental property or shares
- They own lots more ‘stuff’ including more expensive cars
On the flip side, the Gen-X could also have more debts:
- A larger mortgage left to pay off
- More consumer debt
- Car loans, etc
And finally, even if they are not a real go-getter, in theory, the Gen-X should have a bigger salary than a millennial, at least compared to someone in a similar industry.
Here’s how Gen-X uses the 3 Levers of FIRE to get from a state of desperation to achieving Financial Independence.
1. Spending Less
When it comes to the idea of spending less, the first thing you hear is a collective groan, and then all sorts of mutterings like ‘I can’t cut anything out’, and ‘it’s gonna be horrible’, or ‘boring’, and ‘I hate budgets’.
As Grant Sabatier says in his book ‘Financial Freedom’, budgets are too fine-grained to make any real impact. In other words, if you have a bonafide budget and you are tracking everything you are likely to focus your attention on the little (and easy) things like how many lattes you buy, rather than the big 3 categories:
- Housing
- Transport
- Food
I would argue that in my own experience, you should add number 4 – Insurance.
Notwithstanding the significant benefits of leveraging Lifestyle Creep in your favour, here is how the mechanics of spending less is different for Gen-X.
Spending less on Housing
Sure, if you are in your 40s and 50s you probably can’t move back in with mum and dad. Couch surfing is probably not your thing either, particularly if you have a partner or even kids or fur babies. And years of living independently probably makes it hard to conceive of even living in a house share.
But if you have exercised your Lifestyle Creep muscle when it comes to housing, you likely rent or own a place that is way more than you really need, which would allow you to move into something smaller, move into an area or a complex that is more affordable, or both.
One of the options that my Financial Planner modelled for me was selling my home and renting. All the modelling and anecdotal evidence suggests that you are way better off when you own your home outright when you retire. Not just the financial stuff, but the sense of security too. Barefoot Investor certainly supports this argument, too.
That doesn’t mean you can’t downsize, but you should really think carefully about going from owning to renting.
Spending less on transport
To be honest I am not the greatest source of information when it comes to spending less on transportation since I have lived without owning a car for over a decade. That is certainly made easier since I live in a small flat in an inner Sydney suburb (is that then called an ‘urb’?) and work in an office that’s a 15-minute walk away. I have 3 supermarkets within a 5-minute walk including an Aldi and more restaurants, bars and pubs than I can walk to in 10 minutes, and way too many more within a $10 Uber ride radius.
15 years ago, I owned a $15k Honda Civic (the car of choice for FIRE bloggers and podcasters in the US) that was sitting in the basement of my then apartment building in Brisbane. I wasn’t using it since I could walk to work and my choice of bars, restaurants and shopping. After I sold it, I figured that I was at least $600 per month ahead, compared to hanging on to it.
Since it was just sitting there in the garage I was only paying for insurance, rego and the loan. My savings would have been even higher if I had actually been using it and also paying for petrol and maintenance.
Trust me, it takes a lot of uber and taxi fares to make a dent in a $600 surplus you get from not owning your car.
It should come as no surprise that if you have exercised your lifestyle creep muscle when it comes to the number of cars you own, or the calibre of car that you own, then you have the ability to liquidate some of those assets, or at least downgrade and have money available for saving and investing.
Spending less on food
Again, taking advantage of lifestyle creep is your friend when it comes to reaching Financial Independence – by dramatically reducing how much you spend on food then saving and investing the difference.
The obvious way to spend less money on food is looking at how much money you spend on eating out.Look at it this way – the less brunches you indulge in on your path to Financial Independence, the sooner you will get to financial independence and the more brunches you will get to enjoy once you are retired (hopefully in Paris or New York or at least Noosa).
As far as eating out is concerned, Gen-X may not be much different to the Millennials (avocado toast anyone?). It’s just that because we may have gotten into the habit of eating out more often, and at more expensive venues, we have that much more spending to cut out. Spending less money on eating out and instead cooking great meals at home will significantly increase your savings rate.
Which leads to groceries. Do you still do the bulk of your grocery shopping at Coles or Woolies? (Do I dare ask if you shop at Harris Farm or DJ’s Food hall?). If so, consider swapping to supermarkets like Aldi, if you haven’t already.
When I finally gave up my anti-Aldi Snobbery, I really started seeing some real savings on groceries.
For me, shopping at Aldi not only reduces decision fatigue (there’s only one type of everything) but it’s seriously cheaper than sticking to Coles for your Fly Buys. Plus the quality is at least as good and often better (yes better) than Coles, if my own experiences are anything to go by.
And those savings go straight into your retirement nest egg.
2. Earning More
When it comes to earning more, the FIRE community means ‘earning more than you are right now’.
It should come as no surprise that as a Gen-X you have been working for many years and have loads of experience, so you are probably earning more than a millennial working in the same industry (that’s not necessarily always the case of course - there are some seriously minted Wunderkinds out there).
Here are some ways that Gen-Xers can ‘Earn More’.
Earning more at the Peak of your Career
Chances are that in your 40s and 50s you are at the peak of your career and earning way more than someone in their 20s and 30s, particularly compared to someone working in the same industry as you, doing a similar job.
A 70 percent savings rate of a $100,000 take home salary is way higher than a 70 percent savings rate of a $50,000 take home salary. That helps you to pay down or pay off your mortgage sooner than the millennial, get investing and reach FIRE sooner than them.
You’re already ahead of the game.
Earning more at your 9-5 job.
The unfortunate truth is that unless you change jobs frequently, or have the opportunity to get equity as a partner or director in the business where you work, it’s unlikely that you will be able to increase your salary significantly once you hit this peak.
This is unlike our Millennial counterparts who still have plenty of scope to increase their salaries through promotion. And of course, moving around early in your career marks you as a go getter, compared to later in your career, when it is frowned upon. You get labelled as being unreliable or just plain difficult.
Not to mention that changing jobs is harder later in life because it’s harder to get a new job that pays a high enough wage to justify the change, and by this age you will be more specialised than not, and so finding the right fit is extremely challenging.
Earning more with a second job or side hustle
Finding a second job or side hustle is one tool heavily favoured by millennials in their quest to reach FIRE quickly. But for Gen-X, this is often a harder proposition. For one thing, since you are earning in a higher tax bracket, any extra money you earn driving Uber quickly erodes making it less of a great use of your time. Not only that, but being a senior member of your team means increased work demands and the need to justify your wage. That translates to having to work long hours and experiencing high levels of stress, meaning that you are likely to lack the time and energy to pick up a second job or side hustle once you hit 50.
And if you do have the energy to start a side hustle, the ability to scale it in a way that makes it profitable is more challenging than if you were younger.
3. Investing
As mentioned previously, the biggest perceived constraint to investing for Gen-X compared to Millennials is the lack of time in the market.
And as I have also said before, achieving Financial Independence in 7 to 10 years is 7 to 10 years regardless of whether you are 25, 45 or even 55.
Here is how investing to get from where you are at the beginning of your FIRE Journey to achieving Financial Independence is different for Gen-X.
Investing – you do have enough time for compounding to work.
Most people who discover FIRE later in life, do so in their 40s and 50s, and tend to give themselves anywhere between 7 and 10 years to reach FIRE That’s no different to someone aged 25 aiming to reach FIRE by age by 35. In theory, a 25-year-old and a 45-year-old starting out on the path to FIRE today, could achieve their goals in exactly the same time.
That’s equal amounts of time for compounding to start working its magic, both on what you invest now, and what you have sitting in your Super.
The only difference is the 25-year-old would likely be planning on having many more years of post-retirement life to look forward to.
Investing – taking advantage of years of Super already saved
Compulsory Employer Paid Super came into effect in Australia in 1991, meaning those of us working since then have had several decades to build up a tidy nest egg in their Super account.
If you recently looked at your balance and thought that it was lower than you had hoped, remember that you are much further ahead than you were in your mid 20s, and that much closer to Financial Independence than you realise.
Not only that, but you have that base fund sitting there and able to continue compounding, in addition to compounding you get from any other investments you make outside of super.
Investing – access your Super Early than the pension Age
The good news is, you can begin to access your Super as early as age 60 without any taxation penalties.
That means that if you reach FIRE at age 55, you only have to wait 5 years to access your super, compared to say, 25 years, for someone reaching FIRE at 35.
In fact, most people in their 20s and 30s will tell you that they will never be relying on the pension.
I imagine that they won’t be relying as heavily on their Super as Gen-X either since they are fully focused on living off of their savings between reaching FI and reaching preservation age.
Conclusion
Pursuing FIRE in Midlife is uniquely different from pursuing FIRE in your 20s or 30s. Discovering a lack of retirement funds as you approach 50 leads to a sense of desperation as you google ‘how to retire early’.
However, when you discover FIRE and apply the 3 levers you quickly discover that your ability to successfully reach Financial Independence in midlife is 2% basic math and 98% psychology.
In order to reach FIRE when you start out late, it’s important to believe that it’s not too late.
You definitely can change things around.
The secret is to stop focusing on the past and start focusing on what you can do NOW.
Once you really reduce spending, start saving and investing, you will really start seeing results.
You will start feeling less anxious and you will know that you are well and truly on the road to Financial Independence.
About Shaun from Project Palm Tree | projectpalmtree.com
The year before I turned 50, I realised that if I didn’t take control of my personal finances, I would have no option but to work well into my 60s. Not because I was passionate about my job, but because without that money, I couldn’t have a comfortable retirement. I write about my journey towards reaching Financial Independence as a member of Generation-X.
NOTE: Aussie FIRE is a free educational resource prepared by Pearler, with permission from the co-authors. At Pearler, we strive to make investing for your long term goals easier and fun, but we only provide general information and/or general advice. We don’t present you any options based on your personal objectives, circumstances, or financial needs. Any advice is of a general nature only. All investments carry risk. Before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services Guide before deciding to use or invest on Pearler.
