The growing trend of retiring early and dying with zero

Dave Gow from Strong Money Australia retired at his late 20s.

In our final days of life, few of us will be thinking, “I wish I had spent more time at work”. Any regret is likely to be centred around not spending enough time with family and not enjoying more of what life had to offer. Not enough travelling, not enough time with friends, not enough life achievements.

A financial and lifestyle strategy becoming popular among millennials is the FIRE movement which stands for Financial Independence, Retire Early. The aim is to accumulate wealth quickly through a combination of frugal spending and prudent investing. And when you’ve accumulated enough, you stop working and live off the passive income from your investments well before the normal retirement age.

This is much easier said than done if you live in an Australian capital city, particularly Sydney or Melbourne, where you will have to navigate your way through some of the most expensive property markets in the world. To add to this, ongoing cost of living pressures have been grinding away at the average household’s capacity to save. For many, it is hard enough just to make ends meet, let alone squirrel away excess cash.

That said, if you are prepared to move away from the big smoke to regional areas where you can buy fantastic properties in many places for less than $500,000, it is possible to live the FIRE dream. However, buying a low cost property in itself is usually not enough to retire early; a reduction in living expenditure may also be required. Some achieve this by going ‘‘off the grid’’ with solar and trying to be self-sufficient by growing their own food.

Dave Gow from Strong Money Australia retired in his late 20s after realising he did not want to work a ‘‘normal’’ career while still a teenager: “I had an epiphany when I was 18 and working in a factory. I looked at my work colleagues who were in their 60s, and they did not look particularly happy, having done the same work for decades. It was clear they were there because they had to, not because they wanted to.

“I did not want to follow the traditional path and thought there had to be other options. I learned how to build wealth as I knew this would be key to retiring early. I lowered my spending, increased my investing, initially in property and then into shares, and then got to a point eight to nine years later where I did not have to work anymore.”

In a similar vein to the FIRE movement, there is a concept known as ‘‘dying with zero’’. The idea is that you work only as long as you need to and not a minute longer. You then retire and spend your capital gradually over your remaining lifetime so that when you die, you have nothing to your name, having used up everything.

You have probably heard people say that there is no prize for being the richest person in the cemetery. The dying with zero philosophy ties in with this and emphasises that people can waste the best parts of their lives working. Why prolong your career unnecessarily when you have accumulated enough wealth just because you have not hit the conventional retirement age?

Sounds simple, doesn’t it – stop working once you have saved ‘‘enough’’ money. But it is much harder to implement than it sounds. Even if you successfully work out how much capital you require to meet your retirement expenditure, based on a conservative investment return, so that the capital runs out at your expected life expectancy, life tends to throw us curveballs.

If you have adult children, helping them out financially is a common occurrence. And the problem is that the extent to which they require support usually cannot usually be quantified until the moment they say “Hey mum and dad, could we have a quick chat?”. House deposits, cars, grandchildren school costs, starting a business and financial support during a divorce are all common requests.

Aged care costs are also unpredictable. If you wish to move into a nice facility, it can cost over $1m given aged care spots are in high demand. Home care is also expensive and can result in you depleting your assets early, leaving you in a ‘‘alive with nothing’’ situation rather than ‘‘dying with zero’’ scenario as planned.

However, Gow sees the value in the FIRE and dying with zero approaches and says: “Although it is fine to follow the traditional path and work 30-40 years before retiring, your time at the end is not guaranteed. Declining health may affect your ability to enjoy retirement as you had imagined.

“If you are worried about outlier events, people can look to include an extra $300,000 to $500,000 as a buffer to cover the ‘what if’ scenarios. And if people still deplete their money, then there is the pension from the government that will help.”

At this point you may be wondering how an seemingly average person like Gow managed to retire decades earlier than the rest of us. How did he make his money? Well the answer is not as surprising or exotic as you may think. Gow started by purchasing investment property at a young age and experienced some good capital growth. But he realised that this by itself would not be his ticket to an early retirement:

“I started with property and then realised because of the mortgages and property costs, I wouldn’t achieve the level of passive income that I required. Even if I sold property to clear debts, the net rental yields were quite low. I then looked at shares and changed my strategy to focusing on high dividend shares which then helped me leave my job.”

In terms of whether early retirement is all it is cracked up to be, Gow says: “I found that by retiring at a young age, I had a lot of energy and wanted to productively use my time. I think a lot of people who retire early end up working again, not because they have to, but because it gives them a high sense of satisfaction, having chosen an area they enjoy.”

James Gerrard is principal and director of Sydney financial planning firm financialadvisor.com.au