I ran across a study looking at how getting cancer affects finances. It’s pretty sobering. First let’s look at the chance of getting cancer. The risk for acquiring cancer for all invasive sites is 39.66% or 1 in 3. The risk of dying from cancer is 22% 1 in 5. So there is a big risk of getting it and a smaller but big risk of dying from it.
Here is the result from the financial paper:
Across 9.5 million estimated new diagnoses of cancer from 2000–2012, individuals averaged 68.6±9.4 years with slight majorities being married (54.7%), not retired (51.1%), and Medicare beneficiaries (56.6%). At year+2, 42.4% depleted their entire life’s assets, with higher adjusted odds associated with worsening cancer, requirement of continued treatment, demographic and socioeconomic factors (ie, female, Medicaid, uninsured, retired, increasing age, income, and household size), and clinical characteristics (ie, current smoker, worse self-reported health, hypertension, diabetes, lung disease) (P<.05); average losses were $92,098. At year+4, financial insolvency extended to 38.2%, with several consistent socioeconomic, cancer-related, and clinical characteristics remaining significant predictors of complete asset depletion.
The link above takes you to the original paper.
There was a recent brouhaha over Suze Orman and her attitude on FIRE. Presented above is a not unlikely scenario. 1/3 got cancer of those 2/5 DEPLETED their entire life assets.
FIRE is like taking a mortgage on your future. You and your future own the mortgage. You pay the mortgage from W2 assets. In addition you off load your risk of living on your employer. It’s his job to see you and your family are covered. His job to match your retirement. His job to pay for your vacation. His job to pay for your disability and unemployment insurance. While you glibly split your W2 into savings and spending. You feel pretty smug at your “investment prowess”, but your “prowess” amounts to buying some low cost mutual funds and letting the deadly accuracy of American enterprise make you “wealthy”. You are like a flea on a dog. You go where the dog takes you. You can crawl from the tail to the head and think you are so smart, but it’s the dog stupid, it’s the dog not you that is making the progress.
You “retire” early because you notice something about pulling a “number” out of thin air. Why all ya gotta do is save 25 times that “number” and you can live 30 years off the proceeds. If you look at this article, you see three faces of retirement. One with very low risk, one with medium risk and one with high risk. These risks are expressed by varying degrees of leverage on your future. As leverage goes up risk of failure goes up. In 60 year olds case his future was unlevered. In the 52 year old case moderately levered he needed to make up 15% over 38 years. In the 38 year old case he was extremely levered. He had to triple his money, while simultaneously living on his money. You can create math that supports the RE scenario but you can’t eat math. You can eat hamburgers. 60 year old is the one with the hamburgers. 52 year old may have hamburgers or maybe Ramen. 38 year old has smoke. Suppose each scenario gets cancer, 1/3 chance. Who’s portfolio survives? The other thing that happens when you retire is you take back ALL of your risk, and just owning that risk is expensive. Maybe Suze ain’t such a dope after all.
2 Replies to “Whip It Out, They’ll Cut It Off.”
I take it you haven’t announced yet that you started this site. Many will have plenty to say to you!
I don’t think Suze Orman is wildly crazy. She has seen more financial plans than all the internet bloggers combined. Employers taking risk for you is no small deal. I have had employees as you have, many of the bloggers have never. They know nothing of what they speak.
Suze Orman’s numbers may be high but maybe the FIRE bloggers numbers are too low. No one will know until many years into the future. If I was a betting woman, I’d side with Suze and get while the getting’s good.
Aside from health care, what about the ones who FIRE with young children. Now that will be a massive face slap when one comes up short for their kids. It’s okay to come up short for your kids due to lack of opportunity or back luck. But to come up short because you wanted to partake in an internet experiment while you had opportunities galore is patently silly.
I’ll let the site grow organically. My POV is a little contrarian and I’m on the down hill glide into the grave, so my risk perspective is different. Suze intrigued me when she said she had thousands of retirement failure letters. Understanding failure is the only way to assure success, I’m convinced of that. One thing for sure is you have to understand your post retirement situation with far more granularity than your accumulation. As I listened to Pant’s rebuttal at the end of her podcast it occurred to me Suze had screwed with her denial and she was going through retelling her narrative to herself and us to rebuild her denial and ours. Funny thing about denial, once the credibility is pierced it’s hard to rebuild. I haven’t quite figured out how you can quit your job but not access or spend down your portfolio. I think they call that magic.