With the Holidays and year’s end in sight, now is the time when people reflect on the past year and start looking towards the next. And for some, looking to the future means thinking about planning for their retirement. With that in mind, let’s take a look at one of the hottest trends in retirement planning, the FIRE movement.
The FIRE early retirement strategy
These days, anyone interested in researching theories on retirement strategies doesn’t have to go any further than a quick Internet search to find a wealth of concepts, movements, and yes, acronyms. One of the latest and most intriguing is the FIRE movement, basing itself on the promising mantra of Financial Independence, Retire Early. It’s a shift from the accepted norm, but one that appeals to millennials for obvious reasons‑with its retire-in-your-40s goals, who wouldn’t want to give FIRE a serious look?
But anything this promising will surely leave any retirement planner with a number of questions. So, let’s take a closer look.
Is FIRE for you?
The FIRE movement appeals particularly to people who want to get rid of debt, who want a financially secure life, and who want to do something they feel really good about. The early key is on frugality and a simplified lifestyle (hence the millennial interest) and has many young people thinking ahead about their financial futures far earlier than their parents did. And that’s not a bad thing.
Achieving financial independence
While early retirement is literally part of the definition of the FIRE movement, it’s really about flexibility and reaching financial independence. Financial independence gives people the freedom to make life choices without making money part of the consideration. So, the emphasis of the FIRE movement is really less about retiring early and more about having the freedom to choose to work or not to work.
The basic concept is simple: spend less than you earn and save the difference in low-fee investments like index funds, or passive income streams. Frugality is also a factor. The less money you need to live, the less money you need to save. Think of it more like being intentional with your money and limiting yourself to purchases that have value for you, rather than the archaic notions of what frugality means.
Staring into FIRE
Serious FIRE planners will need to be earning and saving enough to quickly amass sufficient capital to fund a potentially lengthy retirement. Remember, the more space you put between expenses and income, the less time it will take you to reach financial independence.
The first step to attaining FIRE is to identify what you want to be doing in the future—including where you want to live, what you want to do, and what your family expectations may be. From there, you can figure out what your lifestyle costs by tracking your expenses (often a shocking figure for many people) and you can start looking for ways to shrink that number. After solving that, the only factor remaining to attain FIRE is time.
Will Social Security feed the FIRE?
Of course, your savings shouldn’t be all you have to rely on during retirement. Social Security should add to your retirement funds, but depending on your approach to FIRE, the amount added can vary greatly. By staying within the Social Security Administration’s PIA (Primary Insurance Amount—the amount that will be returned to the beneficiary), FIRE maintains relative self-sufficiency for its adherents. Highly compensated, younger planners find their Social Security benefits to be a nice bonus in retirement. Plus, FIRE adherents have found they can increase their Social Security benefits by filling in “gap years” with entrepreneurial or gig work. As opposed to the FIRE full-stop retirement model, “gap years” work is a relatively small commitment with a significant upside.
Finding a reliable means of establishing a passive income source, such as property rental or even building a blog, is another great way to supplement your available funds during your retirement years. FIRE retirees find the nearly effortless nature of passive income sources to be exactly the type of situation that helps bring about the vital Financial Independence portion that fuels their FIRE dreams.
Many people have found great success and happiness within the FIRE movement. And if a healthy balance of income and expense works for you, then maybe FIRE is in your future. Either way, there’s something we can all learn from it. By taking small steps to cut expenses and grow savings, the idea of an early retirement can be more than a lot of smoke and mirrors. Be sure to stop by your local credit union to speak with a qualified financial adviser about FIRE and other retirement savings options.