The word “retirement” may seem a mythical thing, like the unicorn and Bigfoot – especially in the current economic climate. But in an age where lockdowns have forced many to cook more and go out much, much less (thereby spending much, much less), financial independence is suddenly both appealing and… attainable? Maybe, which makes the FIRE Movement very relevant.
FIRE, which stands for “Financial Independence, Retire Early”, is all about reducing expenses and funneling all income to some form of savings or investments with the sole purpose of retiring early. For example, in Ed Kopko’s book, PROJECT BOLD LIFE: The Proven Formula to Take on Challenges and Achieve Happiness and Success, he describes a young couple who went the FIRE route, and managed to retire at the ripe young age of 33. Does this sound appealing? If so, then read on!
What Exactly is Financial Independence, Retire Early?
Attaining financial independence is not a new pursuit. Likewise, the concept of saving for early retirement is rather common as well. But FIRE, which combines these terms, takes a more extreme approach to these concepts. In essence, FIRE represents a program where individuals save well over half their income in an effort to leave the workforce early. In most cases, this requires saving 70 percent of one’s take-home pay. And after attaining around $1 million in savings, which is often in their 50s, they completely retire. Thereafter, they simply take out roughly 4 percent each year from their savings to cover ongoing expenses.
The concept of FIRE began in the 1990s with the release of a book entitled Your Money or Your Life by Vicki Robin and Joe Dominguez. Later, in 2010, it gained additional momentum with Jacob Lund Fisher’s book, Early Retirement Extreme. The latter book provided a formula that defined the rate needed when saving for early retirement. And the former suggested that 30 times one’s annual expense was required in savings for financial independence to retire. In combination, both books served to motivate many to adopt FIRE concepts, with Millennials being the most receptive overall.
Variations on a Theme – Several “FIRE” Options Possible
The percentages of one’s income required for saving for early retirement using standard FIRE concepts is described above. However, there are several variations of FIRE approaches that might be more appealing for a specific situation or lifestyle. For example, Fat FIRE refers to saving for early retirement more than an average investor. But Fat FIRE doesn’t adopt the same degree of frugality. In contrast, Lean FIRE are those who adopt an extreme minimalist lifestyle with extreme savings for early retirement. And other variations include Barista FIRE, which leverages part-time work to leave the traditional workforce. Lastly, Coast FIRE uses part-time jobs to supplement insufficient savings for early retirement.
Certainly, several options exist to accommodate anyone wishing to attain financial independence and early retirement. In many instances, individuals take advantage of various supplement types of income to help attain this level of financial independence. Common types of supplements now include rental property income, side hustles, and part-time work in the gig economy. Through these strategies, and with smart saving for early retirement when young, FIRE becomes a feasible option. This is why a quarter of Americans have heard of FIRE as a legitimate way to achieve financial independence early.
Leveraging FIRE to Attain Life Boldness
Some experts have suggested attaining financial independence with FIRE programs may be inadequate. For example, the standard savings withdrawal rate of 4 percent after early retirement with FIRE may be excessive. Because withdrawals may span several decades, this may result in insufficient funds late in life. However, many are proving skeptics wrong as several FIRE couples demonstrate successful financial independence using a FIRE approach. Though fluctuations in the economy and interest rates occur, long-term commitments to FIRE concepts appear to work. It simply depends if this approach to financial independence and early retirement is for you.
When it comes to defining a bold life, many different pillars should be evaluated. Of these, financial aspects of a bold life are important in attaining your potential. For many, dreams of attaining financial independence allows the pursuit of other bold life pillars subsequently. And saving for early retirement is certainly one way to attain boldness in this area. But other pillars such as career and achievement may be more important for some. In this case, FIRE may be less attractive in the pursuit of financial independence compared to other strategies. Regardless, FIRE programs are an excellent way for many to attain the financial independence they desire. And in the process, enable them to live life more boldly in the years to come.