You may have already heard of them. Kristy Shen and Bryce Leung made headlines in 2016 when the media picked up on the story of how the 30-something couple had saved up $1 million and quit their jobs.
Now, after four years spent travelling the world, they’ve written about it in Quit Like a Millionaire, published by an imprint of Penguin Random House.
So how did they do it? By getting high-paying jobs, saving like champs, investing in the stock market and not buying a house, according to the story.
“If you do what everyone else does, you’re going to have a life like everyone else,” Leung said.
But going against the grain wasn’t always the plan.
“Originally we were following the prescriptive path that our parents gave us, which is get a job, buy house, work until you’re 65, and retire,” Shen said.
But that script started to sound painfully out of step with reality when the couple began looking for a home to buy in Toronto.
“The housing price would just run away,” Shen said.
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Every open house seemed to immediately spark a bidding war, she recalled. Dilapidated properties would go through cosmetic renovations and be flipped for $800,000.
“I thought, ‘I don’t really know if this is a good idea,'” Shen said. “It’s like a Ponzi scheme.”
Shen and Leung, both computer engineers, had already saved up half a million dollars for a down payment. But they weren’t prepared to sink all that money into a house and get a massive mortgage on top of that.
Instead, they kept saving more than three-quarters of their combined after-tax income, which was more than $150,000 by then, and invested the money in the financial market. The year was 2012.
By 2014, their savings, invested in a portfolio of 60 per cent stocks and 40 per cent bonds, had grown to one million. By 2015, they’d saved up enough for a $25,000 emergency rainy day fund and were ready to take off.
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A story of F.I.R.E.
Shen and Leung are spreading the gospel of the F.I.R.E. — financial independence retire early — which has become all the rage. The message is simple: set aside almost everything you make for a few years, grow your money in the financial market with DIY investing, and set sail into super-early retirement as soon as you’ve saved enough.
The target, in many cases, is $1 million. F.I.R.E. devotees say that’s enough to last a lifetime if you have a well-diversified, low-fee portfolio and can manage to live on $40,000 a year after-tax.
That’s exactly what Shen and Leung did.
In the book, they explain in detail how they were able to build their seven-figure nest egg and keep growing it even after leaving their jobs to spend their time jet-setting around the globe. There’s even an appendix chronicling their monthly budget year by year.
But can anyone really replicate what Shen and Leung pulled off, as F.I.R.E. believers insists?
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Financial independence and six-figure incomes
To Shen and Leung, a $1-million portfolio was a rocket. For Shen, in particular, it was the spaceship that would help her break through the unbearable grind of a job she had come to despise and catapult her into the life she really wanted, one spent travelling and writing.
But can one reach escape velocity without two six-figure incomes powering the spacecraft?
That’s the thing people must keep in mind when they read about F.I.R.E., says financial planner Shannon Lee Simmons.
“What’s really great about the free movement is that it gets people motivated to think about where they’re spending their money and really living within their means,” said Lee Simmons, who is herself the author of two best-selling personal finance books.
But it can also have the opposite effect.
“It can create a sense of ‘oh, I’m a failure because I can’t save that much money,” she added.
Shen and Leung argue that even those with middling income can attain financial independence.
They cite the example of a Canadian car salesman making $30,000 a year who quit his job to become an ESL teacher in South Korea. While the pay wasn’t much different, he was able to save more than 65 per cent of his salary.
The moral of the story: even if you can’t boost your income, you can slash your living costs if you’re willing to relocate.
Lee Simmons agrees.
“If you have a job that you can do internationally and still earn the wage you’d get in an urban centre while living in a cheaper place — that’s the winning combination,” she said.
But that doesn’t work for everyone, she adds.
Not all jobs are portable, she said, and “what about if you don’t want to … leave your community or you have kids in school?”
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Pay over tuition
While Shen and Leung say a high salary isn’t the only way to retire early, they make a strong case for choosing a career path that guarantees a fat paycheque.
When Shen, who spent her early childhood in extreme poverty in rural China, had to choose her field in university, she took a very pragmatic approach. Her top pick was creative writing, but instead of following her passion, she found two other options she thought she could live with: one was accounting, the other computer engineering.
She then ran the numbers to see which would yield the better return in terms of pay against tuition costs. Needless to say, creative writing came in dead last.
In the end, though, Shen managed to become a writer anyways — with a book backed by a top publisher, no less.
“The Steve Jobs thing where you follow your passion and the money will follow, doesn’t really work,” Leung said.
You might say that Quit Like a Millionaire flips that adage on its head: figure out the money, and your passion will follow.
Figuring out the math before you start paying tuition is advice financial planners like Lee Simmons can get behind.
“I think everyone should be looking at ‘what’s the return on investment for my education’,” she said.
“These days, I don’t know that an undergrad degree is going to get you in the way it did 10 to 15 years ago,” she added.
But doing the math isn’t necessarily about giving up on or postponing pursuing your passion, she said. It’s about “going into it with your eyes open so that you have a plan.”
“Maybe you have to live with a roommate for a lot longer after school than you thought you might have to. Or you might want to live at home for a little bit longer,” she said.
And while picking a course of study that promises higher earnings may make sense for some people, it’s important to keep in mind that every career choice is a bit of a guessing game, she added.
Industries can change significantly in the four years or so it will take you to graduate, Lee Simmons warned. And more people can flock to a popular, high-paying profession, driving wages down. In short, a job’s projected salary isn’t guaranteed.
Does the F.I.R.E. investing strategy actually work?
When Shen and Leung finally took off on their rocket to financial freedom, they immediately ran into some turbulence. The year was 2015, and the Canadian stock market tanked along with global oil prices.
“It was like hearing a rattling in our rocket just as we were being launched into space,” they recall in the book.
But the investment portfolio performed just as the couple expected, and the spacecraft made it through its maiden voyage just fine.
That was luck, though, according to Benjamin Felix of PWL Canada.
The market correction of 2015, he said, “was a tiny little blip.”
Felix is especially critical of Shen and Leung’s decision to temporarily beef up their portfolio of exchange-traded funds with higher-yielding assets like preferred stocks, real estate investment trusts and corporate bonds.
The move is meant to boost the investments’ cash flow for the first five years to minimize the chances that the couple would have to dip into their capital at the very beginning of their early retirement, which would increase their chances of running of eventually money.
The strategy worked through the oil-price dive, according to the book, but Felix says things could have turned ugly if the couple had been retiring in 2007, just before the financial crisis.
Preferred shares pay more yield because they’re riskier assets, Felix noted. In a financial crisis where companies are going bankrupt or facing liquidity issues, a portfolio skewed toward high-yield investments is only more likely to take a severe beating, he added.
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But while what Shen and Leung call “the yield shield” is their own spin on classic F.I.R.E. retirement math, Felix also warns against a key tenet of the movement known as the four per cent rule.
The rule maintains that the so-called safe withdrawal rate in retirement is four per cent. That notion is based on a 1994 paper by financial advisor William Bengen, who ran portfolio simulations based on several decades of U.S. market history, including the years of the Great Depression. He found that withdrawing four per cent per year out of a portfolio made up of 50 per cent stocks and 50 per cent bonds would allow investors to go through 30 years of retirement without running out of money.
A similar study in 1998 found a 95 per cent chance of retirees not prematurely depleting their capital using a four per cent withdrawal rate.
Felix’s main issue with the rule is that it’s meant for those planning a 30-years retirement. If you’re looking at 50 or 60 years of non-work, as many F.I.R.E. retirees plan to do, there isn’t as much historical data to run simulations.
When Felix tested the four per cent rule against a 55 year period based on expected future market returns, he found that the safe withdrawal rate was a much lower 2.2 per cent.
The most efficient way to withdraw from a retirement portfolio is to be “flexible in your spending and your financial planning,” he said.
Still, extra-early retirees may do just fine if they’re willing to work a bit as needed to occasionally replenish their portfolio.
But, he argues, that’s not truly retiring.
Shen and Leung would probably agree.
The “F.I.” part of F.I.R.E., Shen said, is mandatory. But the “R.E.” — as in never working again — is optional.
“Once you become financially independent you can choose to do what you want,” she said.