Can the FIRE movement help you retire early?
The “Financial Independence, Retire Early” (FIRE) movement is helping many people retire early. It’s a fairly new movement that incorporates relatively extreme saving and spending strategies, allowing people to stash away as much as possible for retirement. That said, it’s not for everyone.
“FIRE” stands for “Financial Independence, Retire Early” and is a movement dedicated to helping adherents retire early.
The FIRE movement was inspired by Vicki Robin and Joseph Dominguez's 1992 book Your Money or Your Life.
There are a couple of broad saving “rules” that some adhere to help them FIRE, such as the 4x or 25x Rules.
Working with a financial advisor may help you increase your savings and reach your retirement goals.
What is the FIRE movement?
The inspiration for the FIRE movement dates back to the 1992 release of ‘Your Money or Your Life’ by Vicki Robin and Joseph Dominguez, but the idea remains popular today.
FIRE is a radical savings movement that encourages followers to clear their debts early, including student loans and mortgages, and then live frugally by saving around 50 percent of their income.
Depending on their incomes, the amount followers need to accumulate, which they then save or invest, could be closer to 75% or as low as 25%. Passively managed funds that track the stock market are particularly popular with FIRE followers, who aim to earn enough to attain financial freedom and retire early.
Reaching that goal may mean aiming to retire as early as 38 and stopping work altogether. Or, it may mean retiring in your 40s from a full-time job and then working part-time for many years after. Alternatively, you may aim to stop work earlier, just before you turn 60, which is usually when you can start drawing from your retirement accounts, such as a Roth IRA.
Some of the common routes a FIRE adherent may stick to could include:
The traditional route: They follow the 4% and 25x rules (see below)
The “lean FIRE” route: Lean FIRE savers are happy to live frugally and achieve their goals earlier, potentially with less money stashed away.
The “fat FIRE” route: Fat FIRE savers want to live their best lives in retirement by making passive income through investments.
The “barista FIRE” route: Barista FIRE savers don’t want to retire fully and instead want to work part-time while their savings support their lifestyle.
How much do people aim to save before retiring early?
You generally can’t start withdrawing money from your private retirement accounts or Social Security until you hit certain age thresholds (without penalties), so FIRE followers must account for how they’ll manage their budgets if they manage to retire early, and can’t start tapping those funds.
The amount you’ll need to save to retire early depends on the amount of post-retirement income you’ll need and the age at which you want to stop working. The traditional FIRE formula should help you determine how much you need to save and how feasible your goals are.
There are two rules you should consider:
The 25x rule: You save 25 times your estimated annual expenses to help you achieve financial independence.
The 4% rule: You withdraw no more than 4% from your funds yearly.
For example, if you hope to retire at 45 and expect your annual expenses to be around $35,000, you’ll need $875,000 saved up, at a minimum. But that’s not all: You’ll also need to consider setting aside a little extra for unforeseen circumstances, evaluate your plan regularly, and adjust your contributions if required.
Remember, if you’re serious about trying to retire early using the FIRE method, you may want to speak with a financial professional. Find a financial advisor best suited to your needs here.
What are the pros and cons of the FIRE movement?
While the FIRE movement can offer an attractive lifestyle, there are a few benefits and downsides to consider.
The advantages include:
It can help you achieve greater control over your life.
You can use the principles to plan for the lifestyle you want.
You can increase your savings and investments even if you only follow the FIRE rules for a short period.
There are no hard and fast rules, so you can change your mind if necessary.
The disadvantages include:
You could spend a lot of time and effort living frugally and saving, only to regret not having enjoyed yourself or taken a less stressful approach.
FIRE principles can be hard for those with lower incomes to follow.
Investments are a vital part of the strategy, and they may perform poorly, jeopardizing your plans.
If you leave the workforce for a while and later need to return, you may need to refresh your skills or have trouble finding a job.
Six tips to help you achieve your FIRE goals
If you’re considering using the FIRE principles to push forward your retirement, these tips may help:
1. Build an emergency fund
If you want to retire early and be financially independent, you should have an easily accessible emergency savings fund. This should cover at least three to six months of expenses.
2. Be realistic about your expected retirement income
Many underestimate how much income they’ll need as a retiree, especially if they have no mortgage, commuting costs or children at home.
It’s worth doing your research so you can make an accurate estimate.
3. Retirement accounts are vital
Some retirement accounts offer tax-free growth and withdrawals, which should be a key part of your retirement planning.
4. Maximize your income when you’re working
If FIRE is your priority, focus on your income. The more you earn, the quicker you can grow your savings pot. This might mean taking on a second job or choosing a higher-paid career.
5. Spend wisely and have long-term goals
It can be tempting to spend on luxury items, but frugality is a critical part of the FIRE movement. So, you should avoid spending unnecessarily and focus on the lifestyle you’re aiming for.
6. Make sure you keep your costs low
It might be worth spending extra time to get the best deals on essentials like groceries. Little cost-cutting measures can add up to considerable savings over time.
The importance of having a backup plan
Whether you plan to pursue the FIRE lifestyle or not, a backup plan is vital.
For example, ensure you have a healthy emergency fund and diversify your investments.
It’s also a good idea to plan to retire at several different ages and account for scenarios or variables outside of your control.
Get expert financial advice
The FIRE movement may not be for everyone, as it’s a relatively extreme way to save and invest, and may require some drastic lifestyle changes. With that in mind, though, it may also help make your early retirement dreams become a reality.
Find an independent advisor through Unbiased to support you on your financial independence journey, from retirement planning to investment strategies.
Content Writer
Sam Becker is a freelance writer and journalist based near New York City. He is a native of the Pacific Northwest and a graduate of Washington State University. He has worked as a business and finance journalist and writer for more than a decade, working with media publications, brands, and experts in the field