Why FIRE Isn’t Fair

The number

This post was first published in February 2021 and updated in August 2022.

If you want to embark on a thankless affair, look no further than the pursuit of financial independence.

There are a million constantly moving pieces being debated in the personal finance community.

Persistent calls to “index and chill”.

Heated discussions about safe withdrawal rates.

Citizens of the “side hustle nation” denigrating the nine-to-five.

On and on and on it goes. And yet, take a step back and you will quickly realize that from the perspective of a rational decision-maker, pursuing FIRE is hardly the way to go.

Skeptical? Let’s start with some cold, hard numbers.

Here Comes The Taxman

Imagine for a moment that you are earning £50k a year, which puts you at the very top of the 20% tax bracket here in the UK.

You start working away in your early 20s, put in forty years of solid effort, and retire at some point in your 60s.

It might (gasp!) even be a few years ahead of the statutory pension age.

Your freedom-loving, FIRE-seeking alter ego wants no part of that. She decides to put the pedal to the metal, work twice as hard – but retire in 20 years instead of 40.

Bring on Freedom 45!

With that in mind, this alter ego of yours either gets a second job or gets one that pays twice as well – all with a view to making £100k a year.

It’s not easy. She ends up working 80 hours a week – or getting a high-paying job that requires working as many hours.

Heck, it might even require going back to school, with the associated risk and opportunity cost.

But as it turns out, her hours aren’t the only thing that doubled. So has her marginal tax rate – all the way to 40%.

Now, over the course of your respective careers, both you and your “FIRE twin” will earn the exact same amount of money.

40 years at £50k or 20 years at £100k. £2m all in. A life’s work – at least in monetary terms.

And while option 2 doesn’t leave you any further ahead financially, it still means you will end up paying twice as much in tax.

What gives?

Adding Insult To Injury

Let’s imagine a different scenario here.

You and a good friend of yours graduate college and start working in similar jobs with similar pay.

Your friend has a penchant for living today and spending everything he earns.  You, on the other hand, are very focused on saving and investing in order to build your wealth.

Two decades later, you’ve managed to build up a nice nest egg.

Perhaps it’s $500k.

Perhaps, through a combination of risk and effort, you’ve even crossed into millionaire territory.

Well done to you, right?  Sure, you’ve had to make some sacrifices along the way, but it was all worth it.

Enter wealth taxes.

By virtue of delaying gratification and setting money aside, you’ve just nominated yourself for a wealth tax to the tune of 5% or even 10% of your net worth.

And for those who got there by earning more, that wealth tax will come on top of all the extra taxes they’ve ponied up to now.

Talk about a one-two punch.

Now, I am not about to use this post (or this blog) to debate the tax policy.

As a matter of fact, I’m quite content paying my fair share of taxes and have been cutting six-figure cheques to the HMRC for the bulk of my working career.

The free market (of which I’m a big fan) does a pretty crappy job producing optimal quantities of public goods.

The government has a unique (and frankly speaking, tough) job in righting that imbalance.

But it is also an undeniable fact that the pursuit of FIRE will leave you with a much higher tax bill versus the one you’d get on the “mainstream” path of working until you are 67.

Depending on where you live, there will be other monetary considerations as well.

For example, you are unlikely to qualify for any means-tested benefits. Your pension will likely be capped even though your total contributions might not be.

For what it’s worth, you might even get less of a helping hand from your family. Why aid someone who is managing pretty well on their own?

Feeling dispirited yet? And we haven’t even gotten around to the non-monetary part.

Hidden Costs

Given we all operate in our little internet echo chambers, it’s easy to overestimate the number of FIRE adherents out there.

You may think we are an army. In reality, we remain on the fringe of society.

Certainly not in concept (who doesn’t dream of retiring early?) but surely in number.

Many will struggle to get their significant others on board. Others will experience blank stares when trying to broach the subject with friends or extended family.

The online camaraderie notwithstanding, the pursuit of FIRE is still a solitary affair. And that presents a bigger challenge than many folks appreciate.

There’s the self-doubt. Will it ever work? What if this whole investing thing won’t live up to the promise?

The questions of balance. Should we really spend our best years (!) putting in all that extra effort – and delaying gratification to boot?

Sadly, there’s also the natural question of risk.  What if we die young and all that effort was for naught?

What’s the damn point of all of this?

If by this point you feel like closing your browser, selling off all the investments, and buying that mid-life convertible, I can’t blame you.

As a matter of fact, I bet that the vast majority of people on this journey have felt that one at some point or another.

So how do you keep going?

Price of Admission

A big hurdle I’ve alluded to above is the (mistaken) belief that reaching financial independence somehow implies a life of deprivation.

If that’s how you’re feeling about your own journey, you may want to pause, rethink, and reset.

Sure, there will be periods when you need to tighten your belt for a few months or years. I did just that when I was paying off my six-figure student loan.

But over the long run, cutting your budget to the bone is unlikely to move the needle in a meaningful way.

It is, however, guaranteed to leave you dispirited, depressed, angry, and ready to give up.

Being intentional with your spending, however, is an entirely different story.

Ramit Sethi has a wonderful saying that tells you to spend frivolously on things you love and to cut back ruthlessly on things you don’t.

To me, that’s the best advice one could receive. Follow it and being financially responsible will never feel like a sacrifice.

Let society dictate your spending habits and even a seven-figure income won’t be enough. I’ve come across many highly paid bankers, decades into their careers with absolutely nothing to show for it.

But that’s just the first step.

Gaining Agency

For me, the most important factor by a stretch is the notion of control.

Sure, the math may be stacked against us. But what is the alternative?

Being whipsawed around by the vagaries of life?

Having someone else (i.e., your employer) tell you what to do, when to do it, and how to do it?

Relying on the kindness of others (including the government) should you fall on tough times?

To be clear, there’s absolutely no shame in any of the above.

Lots of people go through their entire lives doing just that. Anyone reading (and writing!) these words might need to rely on a helping hand at some point.

Still, the vast majority of us have the option to chart our own path. Not acting upon it is to miss on one of life’s greatest gifts. In addition, having autonomy over our lives is one of the biggest predictors of happiness.

It has now been a decade since Bronnie Ware published her book on the top regrets of the dying.

The most common deathbed refrain was the following:

I wish I’d had the courage to live a life true to myself, not the life others expected of me.

Financial independence, on your own terms, is the ultimate opportunity to design your own life instead of letting someone else do it.

Don’t waste it.

Thank you for reading!

About Banker On Fire

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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43 thoughts on “Why FIRE Isn’t Fair”

  1. Nice one!
    The spectre of wealth tax could be a worrying development.
    Years ago I was told by a palliative care nurse that she had never had a patient who wished they had spent more time at work. That stuck with me!

    1. Very true – and something I’m painfully aware of given I typically work 70-80 hours a week.

      Indeedably once wrote in what became one of my all-time favourite comments:

      “We do the work because we loved the hunt, the thrill of the chase. Too old to be athletes. Too slow to drive racing cars. Too poor to race maxi-yachts. This was our means of showing the world how good we were.

      Perceiving ourselves to be superheroes in suits, saving the day as we strut amongst the glass towers of Canary Wharf, or jet around the world doing our very busy work.

      Meanwhile, the slick estate agents and slimy car dealers watch us rushing between meetings along Upper Bank Street. They don’t see masters of the universe, they see us for what we really were: prey in expensive suits.”

      The rest of the comment is just as good, you can find it here: https://bankeronfire.com/early-retirement-terrifies-me

      Now, my plan is to slow down quite a bit in the next 24 months. Hopefully, the strategy pays off and I have many long years to enjoy the fruits of my labour.

      But only time will tell if the risk and effort were worth it!

        1. I have actually – it’s a great piece of work, miles ahead of anything I’d be able to pull off.

          The first step in my “retirement” will likely entail taking a 40-hour/week corporate job, which will seem like a walk in the park compared to the hours I’m doing today.

          I will look to teach university-level courses on the side, with the idea of switching to teaching as my primary activity over a period of 3-4 years.

          I guess that’s to say that I won’t be “retiring” in the classic sense of the word anytime soon, so less worried about the monetary part of it. To me, it’s more about designing a balanced lifestyle while keeping the mental challenge.

          1. Sounds like a plan.
            You must let us know when you find that 40 hrs/week job – they are pretty rare!
            I have some experience of the, so-called, reduced working week concept. Unicorns come to mind – basically same workload for less pay/benefits! Having said that, I have a colleague who has found a way to make it work – but he was always pretty special.
            I also know somebody who went into “training” (more vocational CE than academic). Seemed this was OK until C-19 came along!

            Best of luck.

  2. Is this ‘wealth tax’ also known as the ‘inheritance tax’ in the UK?

    The first 2 points are mitigated by being sensible with your investing and using a SIPP and ISA combination. That way, you avoid income taxes and if you’re a higher rate tax payer (40%) you’re actually saving a lot more by way of government tax contributions. Those first 2 points only really impact GIA’s who are investing based on post-tax income. Good article, but worth pointing out it’s not all doom and gloom as you say!

    1. Fair point, and definitely not all doom and gloom.

      However, investing in SIPPs still leaves you with a “gap” to bridge between retiring say in your mid-40s and your late 50s when you can access the pension.

      Likewise, ISAs come out of post-tax pay, so you’d still pay the penalty for being responsible with your finances!

      1. You are missing out the consumption tax. If I have 20k post tax, and put it in an ISA for when I am not earning, I can spend it on food heating etc with no or lower VAT. If I spent on luxuries now, the government will take their cut.

  3. Tom-Baker Dr Who

    Great post! That’s exactly why, despite all this unfairness, it is still well worth pursuing FIRE. I’m a fellow investment bank employee and have been enjoying reading your posts for a while but never left a comment before. Thanks for sharing your thoughts and wisdom!

    1. Glad you enjoyed it Tom. Hope you are managing well despite the lockdown. Certainly has been intense on this end.

      1. Tom-Baker Dr Who

        Yes, it’s been intense indeed. So far manageable though. I think it can only improve from now on, but then again I can’t help always being a bit optimistic about everything.

  4. I guess that’s why ~95% of people pursuing FIRE have their own blog/podcast/YouTube channel. Through repetition and safety in numbers, we’re all trying to convince ourselves that we’re not insane, as we stare at our spreadsheet.

    Three years to go…

    1. Sounds like you’re in the home stretch now.

      I can only imagine what it must have been like for people in the 90s, or even in the noughties.

      1. gettingminted.com

        Some of us were unknowingly pursuing FI back in the 1990’s and 2000’s and were only able to read about it near the end of our journey.

        1. Hah, talk about life before SWR!

          Love your blog btw. Always enjoy reading stories of what it’s like to be on the other side.

  5. Not sure how, mathematically, doubling the marginal tax rate would result in paying double the amount of tax. The statement seems to demonstrate a fundamental misunderstanding of how taxes work.

    1. There’s a degree of simplification due to the personal allowance.

      In reality, you’d pay roughly £7.5k in taxes if you earn £50k and £27.5k if you make £100k, so actually about four times the income tax.


      Thanks for the snippy comment though. Seems to demonstrate a preference for superficial statements over the substance of the discussion, in addition to a fundamental misunderstanding of how taxes work.

      1. BoF, ignore him, good response though! Big fan of your blog and your content. Another excellent post, please keep them coming.

        1. Thanks Alex! As I’m sure my readers know, I’m always up for an intellectual debate, as long as it’s impersonal and constructive 🙂

  6. It’s even more stark if you compare £50k to £120k salary, and thus account for the loss of all personal allowance and thus have 67% marginal tax rate

  7. Keep hustling – the advice I give to the guys still back in IB – the mental pain of the boring as Bats& job is significantly more than offset by the 365th day cheque. Even post GFC. Once you are out, there’s no coming back.

    All is good in the Elysian fields over here in post banking consulting, control your time – but the $/hr is probably 1/2 (half the hours for 25% the pay).. still ok – and much more freedom to invest!

    1. Agree. Once the door shuts behind you, it’s tough to pry it open again. Too many people angling for your spot.

      And yes, it sure is nice to get that bonus in your bank account at the end of the year.

      Equally, one can only hustle for so long! Time is a scarce commodity for all of us

  8. i employed a reverse strategy here in the u.s. i spent all of my 20’s and half my 30’s goofing off and doing exactly what i wanted in case i died young. i really milked those young and healthy enthusiastic years for all they were worth without completely wrecking my finances. then i hitched up with mrs. me in our mid-30’s and cleaned up all the money stuff. granted, i never let it slip too far with huge debts and here we sit 17 years later financially independent in my early 50’s.

    i would not recommend that way but it can be done. i chose to slog in my 40’s AFTER all the pure fun. a balanced approach is probably best like your 50k factory worker. nice post.

    1. That’s a great story, thanks for sharing!

      As you say, probably very tough to pull off in practice, as requires a great deal of self-awareness and intention in your 20s, something very few possess.

      How long do you think it would take you to reach FI if you were to swap the two periods of your life around?

      1. i can tell you it took us 15 years as adults when we were mid-career and making more money. i wouldn’t recommend that method either just because a person can get caught up in that carefree life and forget to pivot towards responsibility.

        it sure is better to get investing and money into the market earlier in life.

        1. not your finance guru

          Same here – my 20s & 30s were a series of lucrative but shorter-term contracts, interspersed with ski seasons & travel. My net worth bounced around approximately 20% of what I now know is my fire number, nearly always in cash ‘in case the next contract doesn’t come through’..

          Hit early 40s and realised I was actually falling behind my lower-salaried and less fun peers and figured I had to knuckle down. Fortunately I landed a good salary in a low tax country and after ~5 years of focus, FIRE is now only 1-2 years away, which will see me FI by 49. I also got married which I had completely given up on!

          I got lucky and can’t recommend it. Had I come across FIRE way back when, I’m fairly sure I would have embraced it straight away and retired maybe 10 years ago, still young enough to do all the travel etc anyway! Plus all that lost compounding is hard to ignore…

          1. The good news is that it sounds like you’ve lived an enjoyable life in your 20s and 30s. To me, that might well be more valuable than hitting FI by 40 (which sounds like the “alternative” path)

            I’m still waiting to catch up on all the skiing / snowboarding I’ve missed out on due to work!

          2. Great job on this blog!

            I’ve not crunched the numbers but pursuing FI before pension age makes no financial sense to me. If you want money before then it has to be saved using taxed money, in the UK this is madness, so unless you’ve speculated at exactly the right time on Bitcoin or property then saving for FI means massive sacrifices to what would be a reasonable life over at least two decades.

            Ok, so some people will make the sacrifices but then their FI numbers are based on everything (emotions, values, interests, health, family) staying the same for potentially 50 years, meanwhile each year that goes by in FI is another lost year of earning power reducing options to pivot. This is a massive risk way bigger than any investment risks you can crunch in a spreadsheet. Then there is that the sacrificing during the saving years have to continue in your FI years because that is how the FI numbers work, multiple of your expenses etc, so that’s a lifetime leading the same frugal life based on assumptions everything stays the same.

            Then the sacred numbers for FI are predominately US based, but in the UK we get basic state pensions in our late 60s and free healthcare, I rarely see any adjustments for that. Then add that data shows as we age into our 70s and 80s our spending drops off massively, then these FI numbers set the bar way to high for a retirement plan in your late 50s.

            I love the FI values, principles, critical thinking and debates but the RE bit, the magical math numbers, the religion of it, it’s interesting but needs careful consideration for your own individual circumstances, I would bet they won’t work for you because life is not fixed.

          3. Banker On FIRE

            Thanks Graham, that’s a very insightful comment and I agree with your observations.

            Ultimately, leaving work is a bold move – both from a financial and a personal (i.e. intrinsic) perspective.

            Certainly, I can hardly imagine leaving work myself. For the time being, what I would like to solve for is a nice 9-5 job with free evenings, weekends, and holidays.

            Would I like to take a few months (or a year) completely off? Sure. But I am under no illusion that once I catch a breather, I won’t be happy not working. This is why, by the way, this blog is more about building wealth and not early retirement.

            That being said, I do know quite a few folks who packed it in and retired early. For some it’s a move that backfired, many others seem to be happy. Like most things in life, early retirement is not terminal.

            Much better to try and to see it’s not for you than to live the rest of your life wondering “what if?”

            And as you correctly point out, circumstances change. I agree the beauty of FI is in the approach to living (and spending) which ultimately confers far greater flexibility vs. the general population.

  9. Great point about the tax differential. That’s one of the good things about running your own business. More flexibility in managing profits due to deductible expenses and investments in the business.

    Once you can start making most of your income passively, then life is great actually in America. Tax rates for investment income are much lower than earned income.


    1. Yeah I agree. It’s passive income and solving the health insurance aspect that gives you freedom in the US.

      What most folks underestimate about the UK is (i) the work-life balance, including the ability to take 5 weeks of holiday, and (ii) the NHS, which is probably the best publicly run healthcare system in the world. This comes from someone who’s had a chance to compare quite a few of them, including private health care in the US

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  12. I’m a huge fan of both Bronnie Ware and Ramit.

    FIRE can definitely be a hard and lonely journey, where sometimes it feels like the only community that you can really talk to is online.

    However, choosing my own path (Top 5 Regrets Of Dying) and giving myself the flexibility to consciously spend on things I want to with the tradeoff of cutting back on things I don’t need (I Will Teach You To Be Rich) — I feel the combination of these 2 strategies make me fairly content while maximizing my chances of retiring early.

    1. I like Ramit’s approach to things as well.

      Very much in line with my mentality of focusing (and spending money) on things that move the needle for me and my family, all while ignoring the noise.

      And while the “system” doesn’t favour folks who pursue FIRE, I think the price is worth paying!

  13. I always thought the Fire movement was more about saving more of one’s income to invest rather than necessarily trying to earn more, certainly that seems to be the focus of the famous bloggers (MMM, ERE, etc), though I appreciate there’s a lot of chat about side hustles and so on. So I would compare 2 people both earning £50k where one saves 10% vs the other who saves 50%. In which case the person who retires early pays less tax actually because they’re not earning for as long. And that ties in with the intentional spending thing you talk about, saving more by being mindful about what you’re spending on. Just my thoughts.

    1. I think that’s part of it, yes

      That being said, for many people (especially those with kids / living in high cost locations), making more money is an integral part of the picture.

      Feels unfair to penalise them for it. Same for a family where the primary winner works two jobs while the partner looks after the kids (instead of both folks working one job each)

  14. Reading this reminds me of why I left over-taxed, socialist Europe. The last 25 years in meritocracy USA have been incredible. Working hard doesn’t result in punitive taxes.

    Many of my European friends (and interestingly many of my American friends) greatly exaggerate the health care cost issue here. An employed person will have to cover SOME of his/her healthcare costs. But it is a bargain compared to being massively over-taxed from cradle to grave, in the name of “free” medical care.

    Although my take is unpopular, it is a truth I arrived at after living on both sides of the pond.

    1. Banker On FIRE

      Thanks Fred, appreciate the perspective!

      Agree with you that the quality of healthcare you get in the US if you have insurance is much better than in the UK (I don’t have experience elsewhere).

      How are you thinking about health insurance post-retirement though? Are there reasonably priced options?

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