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What is FIRE Retirement and Should You Consider It? Thumbnail

What is FIRE Retirement and Should You Consider It?

If the idea of retiring in your early 50s, 40s, 30s or even late 20s appeals to you, you may be interested in joining the FIRE retirement movement. Designed for those who have both the discipline and cash flow to save diligently, FIRE can be an effective path toward living a work-optional lifestyle. Below we’ll discuss what FIRE is and whether or not it may be right for you.

What Is FIRE?

FIRE stands for “Financial Independence, Retire Early.” This program, inspired by Vicki Robin’s book “Your Money or Your Life,” is built on the premise of saving more money month-to-month than traditional retirement planning and utilizing low-fee investment options to be able to afford retirement earlier than the traditional age. 

The “financial independence” portion of FIRE is considered to be about 25 times your yearly expenses. For example, if you decided you’d need $50,000 a year to live off of in retirement, you would need to save 50,000 x 25, or $1.25 million to be considered financially independent. Once that number has been met, theoretically you'd enjoy a life of financial freedom, withdrawing about three or four percent from your nest egg each year.

Top Considerations Before Joining the FIRE Movement

Retiring in your 30s or 40s may sound too good to be true. In fact, the whole FIRE movement and premise of retiring early can sound like more of a daydream than reality. For some, it may be just that. For others who are able or willing to embrace the lifestyle, financial independence early in life is possible. Here are a few important considerations to make before deciding if the FIRE program may be right for you.

Consideration #1: You’ll Need to Spend Wisely

The big factors of the FIRE program are income, expenses, and time. The idea being, the bigger the gap between income and expenses, the less time it will take you to reach financial independence. While it may sound extreme, depending on your timeline and desired income level in retirement, you could be looking to save more than half of your income to put toward an early retirement. This is something that would need to be calculated individually, as it is based on your income level and current expenses. However, living a frugal lifestyle now is almost always a universal requirement of the FIRE program and other early retirement seekers.

Consideration #2: FIRE Followers Don’t Embrace Traditional Retirement

For those looking to retire early using the FIRE method, “retirement” doesn’t mean sitting around and doing nothing. FIRE followers are typically more focused on the first part of the acronym, “financial independence” than they are on retiring early. That means that they’re likely to still work in retirement or pursue a passion project they were previously unable to due to the confines of a full-time job. Consider this as having the freedom to work, or not, vs. having to work.

Consideration #3: You’ll Want a “Why”

Like other financial aspirations, it can be hard to find the discipline to skip dinners out or not splurge on the new New Balance 1600s from Japan (which released yesterday and are already sold out, by the way). When you have a nondescript idea of retiring early, there’s little motivation to skip out on some enjoyment today for the possibility of an early retirement a decade down the line.

Instead, those who have embraced the FIRE method often put a “why” to their savings programs, and it’s important to get as specific as possible. Simply wanting to quit a job you hate doesn’t bring much motivation or a promise for future fulfillment. If that’s the case, you may be better off exploring a new career path. Instead, you may want to find financial independence to achieve your travel bucket list, or you may want to pursue music or art full time. Perhaps you’ve always wanted to have your own business. Whatever it is, define your “why” and let it guide you in making positive progress toward your financial independence.

Even if you embrace frugality and are disciplined, a word of caution comes with subscribing to the FIRE program. I recently saw a tweet from a young man in his late 20s who achieved his FIRE goal. His tweet wasn't about how great his life is and how free he is; it was about the amount of regret he has in his short life. He shared that having this laser focus on FIRE has led him to miss out on a lot of experiences that his peer group enjoys like going to concerts (pre-Covid, of course), taking vacations, dating, kissing a girl. Tradeoffs abound in life and the question is whether you're willing to make the aggressive lifestyle changes necessary to reach early financial independence.

If you are willing, the FIRE program may be an appealing method of reaching retirement early in life and allows for its followers to find the flexibility in doing what they love. It does, however, take self-discipline and the ability to spend less today to save for tomorrow. If you’re considering the FIRE method, it may be wise to work with a financial planner who can help you understand your current spending habits and what you’ll need in order to find financial independence for an early retirement.

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

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