As someone who’s been writing about FIRE (Financial Independence Retire Early) since 2009 and actually leaving full-time work for good in 2012, it’s been quite an interesting ride. For the most part, I’ve been lucky because the stock market and real estate market have generally trended up, except for in 2018 and 2022. 12 good years out of 14 is an 86% win rate.
So if you want to retire, it’s better to retire in a bear market than during a bull market. Because if you can leave a steady paycheck when times are bad, that means you’re battle tested and will eventually benefit from a tailwind that makes staying retired easier.
But now that the economy is heading toward stagflation again and the stock market is correcting, I thought it’d be good to share some insights. Not only do I not have a day job, but it costs between $200,000 and $300,000 after tax for a family of four to live a relatively middle class lifestyle in San Francisco.
For reference, the city just offered free childcare for families that make under $310,000 a year. Further, several private universities such as Yale are offering to pay your child’s full tuition if your household earns under $200,000 a year, what they consider low income.
So yes, your family may comfortably live off less than $100,000 a year. But please understand the cost of living is different across the country, and roughly half the U.S. population lives in an expensive coastal city.
FIRE Psychology When The Economy And Stock Market Are Collapsing
This article is for those of you who’ve grinded away for many years and are sick of your jobs and want to retire.
Maybe you’ve made a fortune working at Meta and YouTube, where you know your product can create addictive tendencies that cause mental and physical harm. With the stocks no longer going up, it’s harder to look the other way if you’re not making bank.
Maybe you work at a processed foods company like PepsiCo and General Mills, where you know your products contribute immensely to the obesity of America. The consumption of excess sugar is likely a top three killer in the world, which no longer feels good if your stocks are going down. So perhaps you also want to leave and do something for your soul.
These type of moral dilemmas gnawed at me during the Global Financial Crisis. I was in finance, supposed to help make my institutional clients money. Some of my clients ran teacher pension money, like TIAA-CREF. But the vast majority of us were losing boatloads, so I asked myself, what’s the point of grinding 60 hours a week.
But being FIRE with no paycheck is kind of like jumping off a cliff into the ocean with no parachute. You will probably survive if you have properly saved, invested, and planned for years before you jump. But it will still be scary nonetheless. And because of that fear, especially of retiring right before a downturn, many people get stuck in the “one more year” syndrome.
1) Biggest Concern Is Whether Your Net Worth Is Diversified Enough To Survive
You get rich through concentration, and you stay rich through diversification. And your first thought during a downturn is whether your net worth is diversified enough to lose the minimum.
Stocks are generally the first to plummet, which means you feel your stock portion impact on your net worth first and the most. So that’s where you do most of your portfolio review analysis, which can be done yourself with free financial tools or a free financial checkup with a professional.
About 35% of my net worth is in stocks. The range has been 25% to 38% since 2012, when I left work. I keep this range because this is what feels appropriate to me and my risk tolerance. I dislike the volatility of stocks, probably because I was traumatized by extraordinary downturns in 2000 and from 2008 to 2010.
Experiencing 30% to 50% declines on 35% of my net worth equals a 10% to 17.5% decline in my net worth. That’s plenty enough loss for me to feel sick to my stomach. The historical bear market drawdown is closer to 35%, which means I’m really able to comfortably stomach closer to only a 10% decline in my net worth due to stocks.
The fear of financial loss when FIRE is actually less than the fear you have when working, despite a weaker ability to replenish losses with active income. The reason is because you’ve been through more downturns, so you’re more used to it. Further, by the time you FIRE, you’ve better discovered your appropriate risk tolerance and made asset allocation adjustments accordingly.
2) You’ll Worry About Whether You’ll Lose Some Freedom
Losing money stinks, but ultimately, losing money when FIRE is about losing some of your freedom. Because once you taste freedom as an adult with financial resources, there is simply no way you’d ever want to subject yourself to a work schedule again. Having to be at someone’s beck and call is not an ideal life. .
You worry that if you lose too much money, you lose too much time being able to stay retired. If your losses become too great, you will have to find some way to earn active income again. In my case, that would largely come from corporate consulting, personal finance consulting, or more business development deals.
From 2017 to 2024, this fear was the highest because my son was born in 2017 and my daughter was born in 2019. I made it a goal to be a full time stay at home dad for the first five years of their lives. I succeeded with my son, but only succeeded 85% of the way there with my daughter.
Put Our Financial Independence In Jeaopardy
In late 2023, I blew up our passive income and temporarily lost our FIRE status when I bought a new home we did not need. We lost about $150,000 of passive investment income as a result due to my inability to be satisfied with the home we had.
But as a real estate fanatic, I had never seen a home with an enclosed front yard on this size of a lot in San Francisco for less than $25 million. And given my stocks had rebounded and real estate was suffering from a hangover from 2022, I figured why not YOLO. I strongly believe the best time to own the nicest house you can afford is when you have the most number of heartbeats at home. Buying a nicer house after the kids leave seems backwards.
Once I started living paycheck to paycheck, I logically took on a part time consulting role and swallowed some pride. As the father, providing is my number one job, so I did what I had to do.
For four months, I added about $40,000 in extra liquidity and then left when I realized the fit wasn’t for me. Part of my annoyance was because I was being called into meetings while I was having one-on-one time with my four-year-old daughter on her two days off a week from school.
3) You Eventually Start Feeling Good About Not Having To Work In A Downturn
If you feel financially secure and have the skills to do so, it is better to work less during a downturn than work more. If you work more while your bonus declines and your company’s shares drop, then you are reducing your Return on Effort. However, if you do the minimum and quiet quit, then your Return on Effort increases.
Of course, if you do the minimum, you risk getting fired and eliminating your primary source for wealth creation. Therefore, you need to have the awareness to know about your abilities to make people believe you’re working hard when you’re not really.
If you are FIRE, once you get over the fact that your investments are losing money, you start appreciating your freedom from work once more. After about a year of not working, you naturally start taking your freedom for granted. But a downturn jolts your appreciation awake as you realize millions of people are grinding away just to run in place or worse.
You become incredibly thankful for not having to commute to work and face constantly low morale. I felt this way for years during the global financial crisis where I never knew who would be laid off next. Over a two year period, I counted seven rounds of layoffs. How demoralizing.
The most you will ever feel like a rat in a cage with no way out is when you are forced to show up to work during a downturn. You’re damned if you do, and damned if you don’t.
4) Finally Get To Fully Relax and Eliminate Your Remaining Greed/FOMO
One of the hardest things about achieving FIRE is to actually quit making maximum money. If you do it correctly, it’s almost like being a monk who decides to shun worldly pleasures because they have enough.
However, being FIRE during a bull market can really tug at your greed component. Even though you should be happy with what you have, which is why you left work in the first place, you can’t help but want to get richer when others are getting richer in a bull market.
From 2020 to 2024, I felt this FOMO as I played pickleball for hours during the middle of the weekday with Google, Facebook, and Uber employees. They were all making multiple six figures working on their pickleball game with me, instead of actually working.
So during that time period, I declared the FIRE movement as obsolete, because if you didn’t have to go into the office and could play, nap, and run errands during the workweek, you didn’t need to FIRE. I wanted to make $300,000 to $700,000 a year playing pickleball too!
But when the economy is heading down the tubes, any desire to return to work disappears completely. Meanwhile, any self imposed activities I put on myself starts to lax as well. For example, instead of posting three times a week, I may just post once or twice a week guilt free. All these objectives simply aren’t as urgent when the economy is going in reverse.
5) You Better Appreciate Your Paid Off Home
I’m a believer that by the time you no longer want to work, you should pay off your home. It doesn’t matter whether you retire at a traditional age or if you retire early. If you’ve already won the game, you should get rid of all debt and simplify your expenses as much as possible.
The whole argument saying you should never pay off your mortgage because you could earn more money investing is moot. You’ve already got all the money you need. T
During a downturn, your paid off home holds its value far better than paper assets. It already provides for a comfortable living environment to enjoy life and raise your children. But when your stocks and other assets are cratering, the consistency, utility, and reliability of your home becomes front and center.
At the extreme, think about the Zombie Apocalypse scenario. Your paper or digital assets mean nothing. It’s all about owning real assets that provide utility and make your life better. Homes, cars, tools, clothing, books, bikes, and phones are all infinitely more valuable than stocks when society breaks down.
6) You Better Appreciate Your Health, Friends, and Family
Finally, when the world is falling apart, you look to the things that are priceless. They are your health, your friends, and your family. I don’t think this psychology is any different when you’re working.
When your portfolio is bleeding and the headlines are screaming recession, no amount of net worth recovery will matter if you’re too stressed to sleep, too distracted to be present, or too isolated to lean on anyone. The cruel irony of grinding for decades is that the very things you were grinding to protect – your time, your relationships, your peace of mind – are exactly what the grind erodes.
Being FIRE during a downturn is a powerful reminder to invest in these areas the same way you invest in index funds: consistently, patiently, and without expecting an immediate return. Call your parents more. Coach your kid’s soccer team. Go on that long walk with your spouse instead of refreshing your brokerage account for the fifteenth time that day. Your net worth will eventually recover. The years your children are young will not.
On the health front, a downturn is a fantastic forcing function. Gym memberships get cheaper, restaurants get emptier, and the cost of going outside for a run remains exactly zero.
When I feel financial anxiety creeping in, the single best thing I do is exercise. It costs nothing, it directly combats cortisol, and it reminds me that my body is an asset far more valuable than any stock I own. Protect it accordingly.
The Bottom Line
If you have been diligently saving and investing for years with the goal of achieving FIRE, a market downturn should not derail you. It should clarify you. It strips away the noise of bull market comparisons and quiet quitting debates and forces you back to the core question: what are you actually working toward?
The psychology I outlined above are not perfectly linear. You will ping pong between fear and relief, between gratitude and guilt. But over time, the emotional weight of a downturn gets lighter for the FIRE person because your identity is no longer tied to a job title or a quarterly bonus. You already made your bet on freedom, and no correction can take that away.
So if you are still on the fence about pulling the trigger, let the current chaos be your motivation rather than your excuse to wait. The best time to stress test your FIRE plan is before you leave, not after. Run your numbers conservatively, diversify your assets, pay off your home if you can, and build a life that a bear market cannot destroy. You will never regret betting on your freedom.
Readers who have retired, what goes through your head during an economic downturn and stock market meltdown? I’d love to read about your emotions, fears, and hopes during this disappointing time period.
Recommendation To FIRE And Stay FIREd
To improve your chances of retiring early and staying retired, stay on top of your net worth with Empower, the web’s #1 free financial app. Track your cash flow, x-ray your investment portfolio for excessive fees and inappropriate risk exposure, and use their retirement calculator to plan for the future. The more you understand your finances, the more confident you will be when a correction inevitably returns.
I’m mailing out signed copies of Millionaire Milestones each month for those who take advantage of Empower’s free financial check-up this year. You can read about my experience and the promotion instructions in this post. I’ve taken advantage of three free consultations with Empower over the past decade and each session has helped me better understand my finances.
Financial Samurai is a promoter of the Empower Advisory Group, LLC (“EAG”), and is not currently a client.
