Episode 082

My Thoughts on F.I.R.E. (Financial Independence Retire Early)

If you’ve ever thought of early retirement, hoping to live your best life as soon as possible, chances are, you’ve come across FIRE. FIRE, which stands for financial independence retire early, is a movement that’s been gaining traction among many. Why? Well, this movement offers anyone the possibility of getting out of a 9-5 grind far before the age of 65. How? By adopting a frugal lifestyle and manifesting a high savings rate.

What is There to This Movement?

Most people who become a part of this movement set a goal to retire by 40. But think about the amount of money you’ll need  to live the rest of your life. As of right now, average Americans save between 9 and 13 percent of their income. Which, by the way, isn’t enough to seriously consider this movement. In fact, you’ll need to save between 50 and 70 percent of your income to achieve FIRE. However, having money to save means cutting expenses, and in this case, quite a few. It may also mean finding ways to significantly increasing your income. So, knowing your “FIRE number” is very important. Typically, this follows the Rule of 25. You take your annual expenses and multiply by 25. This is the amount of money you’ll need by your early retirement age. After this, you’ll be able to withdraw no more than 4% from your investment portfolio to have enough money to last the rest of your life.

There are a few variations to FIRE.

  • Fat FIRE: for those who want a luxurious lifestyle and plan to live in high-cost areas.
  • Regular FIRE: for those who want to have extra money to spend after covering basic necessities.
  • Lean FIRE: for those who only want to cover basic necessities.
  • Barista FIRE: for those who plan on working part time during “retirement.”
  • Coast FIRE: for those who can invest aggressively right now allowing their investment to grow into their FIRE number by retirement.

Regardless of which variation you choose, you’re going to have to be clear on your why. Everyone has a different to reason run through the path of FIRE. Sure, it offers a fast way to reach retirement, but it may feel longer than anticipated. When you realize how much money you need to constantly be saving, you might feel discouraged. So, having a strong why can remind you of the light at the end of the tunnel.

Things to Consider to Avoid Getting Burned by FIRE

                Planning your FIRE journey is going to be difficult. Life expectancy is expected to grow. This means your (hopefully) long and happy life will need a lot of money to get by. The unknown rate of inflation may be a threat to your FIRE lifestyle. Since prices of everyday goods are increasing you may find yourself needing more money as years go by. At some point you’d also need to have cash on hand. With the swings of the stock market, it would be a tragedy if you’re retired, living on a restricted FIRE budget, and your investments plummet. Tax structures can also change over time, so your withdrawals may be taxed at rates you didn’t expect. Besides these cons, FIRE offers some great pros. Early retirement, learning how to save and live fiscally responsible, and having lots of flexibility in your retirement years is pretty neat. At some point, it might be smart to get help from a financial professional. Maybe then, the process of firing your job may feel a little more realistic.