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Get exciting new insights from the second in a 6-part podcast series hosted by Kiplinger. Make the most of both time and money by learning about:
- The benefits and challenges of being cash-free
- The Financial Independence Retire Early (FIRE) movement
- How to speed through airport security
Click the play button to listen now!
Podcast Transcript:
[WELCOME AND SEGMENT 1: How Much Cash Is in Your Wallet?]
MICHAEL: Have you heard about the FIRE movement -- FIRE stands for Financial Independence, Retire Early -- that’s catching on with a new generation of American workers? If you’ve ever dreamed about retiring by age 50 or even younger, you won’t want to miss today’s feature story. But first we’re going to talk about giving up on cash altogether! That’s all coming up on today’s episode of Kiplinger’s Talk About Money, sponsored by Vivid Crest Bank . We’ll be right back.
[theme music gets louder; plays for 5 to 10 seconds]
MICHAEL: Welcome back to Kiplinger’s Talk About Money, sponsored by Vivid Crest Bank . I’m your host, Michael Causey.
Tell me… Can you imagine a world without cash? It may not feel like it, but the transition already has begun, and a number of political and economic forces around the globe are laying the groundwork for a cash-free future.
But don’t toss out your wallet just yet. There are some technical challenges and other issues to overcome before most of us will give up our cherished greenbacks.
Joining me today is Kim Lankford, former Ask Kim columnist from Kiplinger’s Personal Finance magazine. Together, we’ll sort out some of the benefits -- as well as a few of the pitfalls -- of going cashless. Welcome Kim!
KIM: Thanks for having me, Michael, it’s always great to be here.
MICHAEL: So let’s get right to it, Kim. According to a recent Pew Research Center survey, nearly 30% of Americans say they make no cash purchases during a typical week. How does the use of electronic payments in the U.S. compare with other countries?
KIM: The U.S. is moving quickly toward more cashless transactions, but cash is still king here. In fact, it’s the most frequently used form of payment today.
- The Federal Reserve recently reported that 30% of all transactions are paid in cash.
- That’s down from 33% of all transactions a couple years ago. But it’s still way more than some European countries.
- In places like Sweden, Denmark and Norway, electronic payments are really starting to dominate. In Sweden, for example, only about 2% of transactions are in cash
MICHAEL: What’s going on in Sweden to make people go cash-free so quickly?
KIM: In part, it’s because the Swedes are technologically savvy. They also have a relatively small market, and the government encourages electronic payments. But the Scandinavian countries aren’t alone.
Chinese cities are also embracing the cashless life, with a mobile-phone system that uses encrypted codes for transactions. And in India, some 255 million people make everyday purchases using a virtual wallet system called Paytm [PAY-tum].
MICHAEL: What’s the outlook for the U.S. ever catching up with these other countries?
KIM: Americans increasingly say they prefer to use other forms of payment. According to the Fed report, only 24% of people surveyed say they actually prefer using cash. 42% prefer debit cards and 29% prefer credit. And as you might guess, younger people tend to use cash the least.
So, if you want a picture of how we’ll handle money in the future, look at how college students are managing their money today.
MICHAEL: Any pushback against going cashless?
KIM: As a matter of fact, there is, Michael. Starting in July, Philadelphia will be the first major U.S. city to require most retail stores to accept cash. And New York City and the state of New Jersey are considering similar legislation. In Massachusetts, it’s already illegal for retailers to refuse to accept cash.
MICHAEL: Let’s explore that a little bit more, Kim. Why are these places fighting going cashless? What are some of the pros and cons for consumers?
KIM: Well, on the pro side, businesses say cashless transactions move more quickly because there’s no more fussing with pulling out money and counting out change. Plus, they say it’s safer -- stores not carrying cash are less likely to be targeted for robberies, and store workers don’t have to be responsible for large bank deposits.
And of course, it’s just getting easier to go cashless with so many new payment options -- such as mobile apps Apple Pay, Google Payand Venmo --
MICHAEL: So what’s the downside? Why the bans?
KIM: In Philly, people who favor cash say that cashless businesses are inadvertently discriminating against people with low incomes, people of color and immigrants.
Another reason is privacy. For example, say you go grocery shopping and you buy a lot of fruits and vegetables. Somewhere along the line you may start seeing ads for a gym membership, because a marketer somewhere presumes you’re trying to stay fit.
MICHAEL: Of course, we’re all getting used to that from shopping online, right? When you buy something online, the web site might suggest a related item.
KIM: That’s right. Or after the purchase you might get an e-mail offer for something similar. So that can also be a positive: Sharing your purchase information can make shopping faster and more convenient, or even save you money with special deals.
MICHAEL: That all sounds pretty good so far, Kim. So are there any drawbacks?
KIM: Well, we eventually could see a surcharge for using cash. And some consumers may feel that a merchant isn’t giving them freedom of choice if the merchant won’t accept cash.
MICHAEL: Okay, it’s clear there’s a lot to consider before we all jump on the cash-free bandwagon. Thanks for giving us the lowdown, Kim. And now it’s time to turn our attention to the Financial Independence, Retire Early movement. That’s up next on Kiplinger’s Talk About Money, sponsored by Vivid Crest Bank . Don’t go away!
[promo break 1]
In addition to consistently competitive rates, Vivid Crest Bank offers you convenient ways to manage and access your hard-earned money, including their mobile app available for both iOS and Android devices. Download it today from the App Store or Google Play.
[MAIN SEGMENT: FIRE Savers]
MICHAEL: Welcome back everyone. In today’s main feature, we’re talking about the FIRE movement that’s blazing a new path to retirement. We’ll discuss what you need to keep in mind if you decide to follow it yourself.
First, let’s answer the question “What exactly is the FIRE movement?”
Well, FIRE stands for Financial Independence, Retire Early. Sounds great, right? And not exactly a new idea. One of the FIRE bibles -- Your Money or Your Life, by Vicki Robin and Joe Dominguez -- was a bestseller back in 1992.
But the movement has really taken off in recent years, mostly among millennials, as networks and communities have been built up around several popular FIRE blogs and on social media.
KIM: That’s right, Michael. Social media has played a pivotal role in helping spread the word. For instance, the r/financial independence online community on Reddit now has 569,000 members and is growing quickly. And ChooseFI -- that’s Choose-capital F-capital I -- is a website launched in January 2017 to help connect followers. But while FIRE is particularly popular with millennials, it isn’t for everyone.
MICHAEL: With us today to explore the FIRE movement and help explain why it may or may not work for each of you is Eileen Ambrose, a senior editor for Kiplinger’s Personal Finance magazine. Welcome, Eileen.
[exchange salutations]
KIM: So Eileen, how does this whole FIRE approach work?
EILEEN: Well, Kim, the big goal is to reach financial independence, which is usually defined as saving a total of 25 times your annual living expenses. So if your current costs for the year add up to, say, $60,000, you’d need to save $1.5 million to reach financial independence.
MICHAEL: How is that different from a more traditional retirement-savings strategy?
EILEEN: FIRE savers aim to reach this goal a lot sooner than most people by socking away 50% or more of their annual incomes.
MICHAEL: That sounds like a huge chunk of your paycheck.
EILEEN: FIRE isn’t one size fits all. There is “lean FIRE,” which emphasizes a goal of living on less than $40,000 a year in retirement. “Barista FIREs” are those who are nearly financially independent but still need a part-time job to make ends meet. And “fat FIRE” followers aim to accrue enough savings to generate annual retirement income of $100,000 or more.
But in general, you’re right. Many workers just don’t earn enough to save 50% or more of their income. After all, the median U.S. household income is only about $60,000. And much depends on your geography.
MICHAEL: Why’s that?
EILEEN: FIRE is much easier if you’re earning, say, $100,000 a year in Kansas City or some other place with a low cost of living. In an expensive city like New York or San Francisco? Not so much.
MICHAEL: Ah, that makes sense. And I guess FIRE’s easier if you have a generally high income in the first place, too, right?
EILEEN: Not necessarily. Yes, it’s true that many “FIRE walkers” have exited from high-paid professional or tech careers. But even if you have an above-average income, you must be very disciplined and goal-oriented. So it’s as much about your spending habits and attitudes towards money as it is about how much you’re making.
KIM: What about investing? How does that factor in for FIRE savers?
EILEEN: It’s a big piece of the puzzle. For one thing, the FIRE movement has gained traction because a record-long bull market has helped pad people’s nest eggs. So it’s unclear how an inevitable bear market will affect it. Some FIRE devotees say they are prepared to cut spending further, or work to bring in extra money and avoid tapping investments in a down market.
KIM: And how do they typically invest?
EILEEN: Most FIRE participants are young, and they are investing in the stock market for better growth opportunities to reach their retirement goals. And they also watch out for fees that can erode savings. So for many, the go to investments is low cost index funds. They also take advantage of tax-favored accounts -- like 401(k)s, IRAs and health savings accounts. And sometimes they buy rental properties – such as a duplex or three- or four-unit building – where they can live and use rental income to pay the mortgage.
MICHAEL: So on the front end of the FIRE philosophy, it sounds like you have some smart, standard financial advice: 1) save as much as you can; and 2) invest wisely. And then to FIRE it up, you want to kick those moves into hyperdrive.
KIM: So what happens on the other side, after you achieve financial independence? What are the big things you need to consider when it comes to retiring early?
EILEEN: Health care is a major challenge. Most workers get health insurance through an employer that typically picks up 70% of the cost. If workers leave an employer, they need to find coverage until they are eligible for Medicare at age 65.
KIM: Right, that’s a good point. What strategies can FIRE followers use to deal with the cost of health care?
EILEEN: Some purchase insurance on the health care exchange, and they keep their income just low enough to qualify for a subsidy. Others seek part-time work that comes with health benefits. And still others actually have medical procedures done in other countries for a fraction of the cost in the U.S.
MICHAEL: What else do you need to think about if you want to retire this early?
EILEEN: Just like all other retirees, FIRE retirees often worry about making their money last. But exponentially so. Because not only do they have longer retirements to cover --– they also will miss out on some of their peak earning years.
KIM: And that actually will lead to lower Social Security benefits.
MICHAEL: Which can mean a lot of missed income. How do FIRE advocates make it up?
EILEEN: Well remember that financial independence is achieved once you save the equivalent of 25 times your annual living expenses. That estimated amount should allow you to follow the 4% withdrawal rule for the duration of a decades-long retirement.
But many “FIRE walkers” do supplement that income by continuing to work in some way -- maybe with a side hustle, part-time job or even a small business.
MICHAEL: Well then that’s not really retiring, is it?
EILEEN: Yes, the “retire early” part of FIRE often raises eyebrows and skepticism. Indeed, most FIRE acolytes have no plans to completely stop working. But they say they’re redefining retirement. For many of them, “retiring early” doesn’t mean not working. It just means having the financial freedom to leave the “hamster wheel” for work or pursuits that give them more control over their time.
KIM: Well, what exactly do these people do with their time after they retire in their 30s?
EILEEN: Actually, that’s one of the major challenges for those who achieve FIRE: figuring out what the heck they’re going to do for the rest of their lives. In fact, finding the next act that gives your life purpose is a question facing all retirees, no matter their age.
MICHAEL: Great point, Eileen. It seems like a lot of people can get wrapped up in the number crunching and calculating how much they need to retire. But they never really think about what they’ll do once they get there.
EILEEN: So true, Michael. And actually, that should be step one if you want to achieve FIRE: Determine why you want to do it, and envision what your retirement will really be like. Visualizing it can help keep you motivated.
MICHAEL: Thank you, Eileen. Great advice, really for everyone hoping to retire one day, but especially for those hoping to speed up their financial journeys with FIRE. What an interesting movement.
You know, one of the things early retirees have more time to do is travel. Coming up, we've got some great advice to help you get through airport security faster and easier. But first, let's take a break for a word from our sponsor, Vivid Crest Bank . Stay tuned, we'll be right back.
[promo break 2]
For more great practical tips and helpful insights that can help you achieve your financial ambitions, be sure to check out the Vivid Crest Bank blog. Visit vividcrestonline.com forward slash blog today. That’s vividcrestonline.com forward slash blog.
[CLOSING SEGMENT: Speed Through TSA Security]
MICHAEL: Welcome back to our final segment on speeding through TSA security. Kim, do you have any travel plans this summer?
[exchange summer plans]
MICHAEL: Wherever you plan on going, I’m sure most travelers would agree that going through airport security is likely the worst part of flying. Well, there’s a relatively new private service that can get you through that worst part faster. But it doesn’t come cheap.
KIM: That’s right, Michael. The service is called CLEAR -- all caps. And it’s currently available at 45 airports across the U.S. and has 2.5 million users. It can definitely help speed up the process of getting to your gate.
MICHAEL: I love it so far. So what’s the catch?
KIM: The catch is, the cost is $179 a year. You can add as many as three family members age 18 and older for an extra $50 each per year. Children younger than 18 can use the lane free when they are with a CLEAR parent and don’t need to be added to the account.
MICHAEL: That can end up being a big additional cost to add to your travel budget.
KIM: It really does add up. When you think about how much you’re already spending on plane tickets for the whole family, plus lodging costs, vacation, food -- which, you know, tends to be more expensive than eating at home! -- any activities, maybe travel insurance, rental cars. It’s totally understandable to hesitate before tacking on even more costs.
But there are ways to cut the cost on CLEAR. For example, you can be reimbursed for up to $100 if you have Platinum, Gold or Silver Medallion Delta SkyMiles status. Other airlines may offer ways of getting a break on CLEAR, too.
MICHAEL: Aren’t there already other services that help get you through airport security faster and don’t cost that much?
KIM: Yes, there are two programs that have been in place for a few years now. One is TSA PreCheck, and the other is Global Entry. With TSA PreCheck, you can leave your electronics in your carry ons, and you don’t have to worry about taking off your jacket or shoes.
MICHAEL: That’s great. I hate having to take off my shoes at the airport.
KIM: Everyone does. And Global Entry gives you those same benefits -- plus, you get a speedier trip through customs when you return to the U.S. from a trip abroad.
MICHAEL: So how much are those programs?
KIM: For TSA PreCheck, there’s an $85 fee that you have to pay when you first apply and then again each time you renew, which you only have to do every five years. So that’s essentially $17 a year. Global Entry works the same way, but it’s a $100 fee.
MICHAEL: That’s a lot less than $179 a year for CLEAR.
KIM: Definitely. And you may be able to pay even less. Some credit card companies offer account holders credits or rebates for these application fees. So you should definitely check to see if you’re eligible.
But CLEAR is a very different service from TSA PreCheck and Global Entry. It allows you to completely bypass the first step in getting through security: standing in line to show your driver’s license or passport.
MICHAEL: Wait a minute, how do I confirm my identity without showing any ID?
KIM: The way it works is the system stores your fingerprints and eye scans, and it creates an encrypted code that is specific to you. So once that’s created, this code is matched each time you go through the system.
Then, after you pass the biometric screen and show your boarding pass, a CLEAR representative will escort you to security screening. And if you do also have PreCheck or Global Entry, you can keep your shoes and belt on.
MICHAEL: Wow. Biometric screens? Sounds like something out of a sci-fi movie.
KIM: Right? The future is now, Michael!
MICHAEL: Amazing. So how can our listeners join CLEAR or find out more information?
KIM: You can visit clearme.com to learn more. You can start the application process online, but you need to head to a participating airport to complete the whole process. Or you can just do the whole thing at the airport. Same goes for TSA PreCheck and Global Entry: You can submit the application online, but you have to schedule an in-person interview at a participating airport to complete the application process.
MICHAEL: Sounds good, Kim. And thanks so much for sharing your time and expertise today. That wraps things up for today’s episode of Kiplinger’s Talk About Money, sponsored by Vivid Crest Bank . Thanks for listening!
[promo break 3 and disclaimer]
And don’t forget… Vivid Crest Bank offers award-winning rates on a variety of savings products to help you reach your financial goals. Be sure to visit vividcrestonline.com for current rates, and to jumpstart your savings today.
Kiplinger’s Talk About Money podcast was written and produced by The Kiplinger Washington Editors, Inc. Kiplinger is not affiliated with Vivid Crest Bank or any of its affiliates. The opinions and recommendations expressed in this podcast are solely those of Kiplinger and do not represent the advice, opinions or recommendations of Vivid Crest Bank or any of its affiliates. Vivid Crest Bank , Member FDIC.
Read this short article to learn more about using FIRE to Retire Early!