FI - A Larger Perspective

What could be the long-term implications for a society in which more people would work significantly less? Whether that's on a monthly basis or in the case of early retirement on an overall life-long basis. In some aspects, early retirement is similar to part-time work, while in others it differs significantly.

Human development is characterized by efficiency-gains.
What are we going to do with it?
In an ideal scenario, with part-time work, you work only as much as is needed for your immediate needs. You would calculate with retirement at age 65 and save no more than what is necessary to do so.

In the FIRE-scenario you try to compress all your life's work into a shorter timespan and invest your surplus income wisely. Therefore being able to live off of the returns for the rest of your life.

But what are the implications of those individual lifestyle choices if they would be adopted by a significant part of society? Granted, this is not an in-depth analysis of any underlying economic dynamics or market evaluations. To come up with conclusions about the impact of such choices, I believe we have to take a more long-term perspective and look at how our lifestyles are changed by those circumstances.

Environmental impacts:

Individuals who are no longer following paid employment and are spending the majority of their adult life in financial freedom will lower their overall environmental impact. If this is a model to be adopted by a major part of society, it can only be achieved by drastically reducing spending and increasing savings. This will lead to a lower environmental burden, at least in today's fossil-fuel-based economy. Except for the very rich, who could spend their retirement with virtually unrestricted spending, most people would become more stationary and reduce their environmental impact.

Changes in human behavior:

Living in a society that is focused on paid employment and where much of our social status is determined by a career, lots of human energy is focused on maintaining and improving social recognition. Reports of people in early retirement reveal a shift away from the need for social recognition through advancements in one's career paths. This will, in turn, enable people to focus much of their time and energy into more meaningful pursuits.

I predict that we will see a rise of interest in areas like spirituality and personal development. Naturally, as the lower levels of human needs (Maslow's hierarchy) are fulfilled, new levels of wants and needs emerge. And those are typically related to spiritual pursuits as the search for meaning continues beyond the fulfillment of basic survival needs.

Economic implications:

What happens to the economy if a large proportion of people rely on dividends for their income? Instead of pure capitalism, it is actually an option for sustainable economic growth. By not reinvesting all profits into business development and therefore maximum future growth, it is actually sustainable to use part of the profit for dividend payments. Dividend payments mean that shareowners receive the benefits of the efficiencies already achieved by the current system. Instead of rapid, ever-changing growth, the economy would become more focused on producing the necessities of life in the most efficient way. This is required for sustainable dividend yields without compromising the health of the system.

Another change we would see is a shift away from shareholder value to stakeholder value. Companies would focus more on fulfilling their responsibilities for employees, society and shareholders alike, to secure long-term success and sustainable growth. The reasons for this shift are manifold. Concerning early retirement, the most interesting aspect is the shift in perspective. People entering the workforce with the idea of early retirement have a long time horizon for their investments. Intuitively we understand, that we will have to set up long-lasting systems and companies that will cover our needs with less input of human labor if this is to become a model for more people.

In January 2018, Larry Fink, head of BlackRock, declared that to “prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society . . . [and] benefit all of their stakeholders”.

We can see that a change in perspective is happening. The understanding is growing that to maximize long term returns, short term capital gains can not always be maximal too.

The market

For the markets, this will likely show itself as long streaks of bearish and bullish market situations and less volatility over time as people focus more on long term investments. As we come to understand that short-term, above-average capital gains always come from someone else's losses. As a whole, it is impossible to achieve a return greater than the average. For every investor with above-average returns, there is also an investor with lower than average returns. As a society, we have to expect that the average return is what's realistic.

The reality

On the physical level, this means a return to quality over quantity. As corporations are interested in their long-term return, they will make sure that their assets are long-lasting and provide stable quality output for many years.

An interesting way to think about the difference between quality and quantity is in terms of their effects over time. Economic growth based on quantity can be seen as an immediate (short-term / in the present) extension of business to the detriment of competing products or service. Growing businesses based on selling more items or services have other businesses shrink, as there is only so much human activity to go around.

Economic growth based on quality has a different effect. It spreads the gathering of return out over time, which can be much more sustainable. We could even say that this is exactly what we need for the early retirement lifestyle. A simple example would be to see how you would replace your own work. Let's say you have a homestead where you grow vegetables that require daily irrigation. Instead of doing this by hand every day for the rest of your life, you invest a lot of effort upfront to build a high-quality irrigation system that lasts for a lifetime with minimal maintenance work. You would probably be working on that for several weeks. In that time-frame, it is more work than watering the plants directly, but it pays off over time.

The same dynamic is going on on a global scale if we manage to build high-quality products that make life easier.

For our society this means we can benefit from our work for much longer, being the ticket to early retirement.

Why, with all our technology, are we still working so much?

Gains in efficiency were not used to create more freedom and time. What we have done collectively instead is quite interesting. Efficient ways of obtaining our basic needs were not enough. We continuously use the freed up time and surplus human potential to increase our consumption. New inventions made it easier to consume vast amounts of energy and resources in a short amount of time.

Intercontinental business class flights burn up money at a rate of 5$/minute. Something we couldn't do without technology. Instead of getting all of our life's work done in a couple of years or in fewer hours per week, we collectively decided to keep working regular hours and inventing new ways of consumption and distraction.

Luckily, this is an individual decision for the most part, if one is not entirely oblivious to the desires created by the marketing sector. I don't predict that we will reduce our activity overall. Rather we will focus more on the joy and meaning a particular activity brings us. Free individuals tend to ask the question of meaning more often than people solely concerned with covering their survival needs. This translates into a restructuring of our value system and what we pursue as a society. In fact, all artistic and creative endeavors are the result of well allocated freed up human potential. But with the need to derive an income from their art, creators may change their work based on that. With many more early retirees becoming creators of their own, we might see an emergence of new forms of art.

Financial Independence is the logical next step. We have transformed the physical need to cover our basic needs into a virtual need for financial security. We have transformed what we do physically to survive, but it has not freed up our minds to pursue higher goals of personal development. In our minds we still struggle to survive, only the object of desire has changed. The tangible goods, food, water, and shelter have been exchanged with the goal of making money. Financial freedom will open up possibilities of personal transformation we haven't seen before on a large scale.