Can the FIRE movement help you retire early?
If you want to retire early, one potential option is the Financial Independence, Retire Early (FIRE) movement. Here’s everything you need to know about it, including the pros and cons.
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.
The amount followers need to accumulate, which is then saved or invested, could be closer to 75 percent or as low as 25 percent, depending on how much they earn.
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.
This attractive goal might mean you aim to retire as early as 38 and stop work altogether or retire in your 40s and work part-time for the next two decades.
Alternatively, you may aim to stop work earlier, just before you turn 60, which is usually when you can access your Roth IRA.
Some of the common routes a FIRE saver might go down include:
The traditional route: They follow the four percent and 25x rules, to be explored below.
The lean route: Lean FIRE savers are happy to live frugally and achieve their goals with less money in their pot.
The fat FIRE route: Fat FIRE savers want to live their best lives in retirement by making passive income through investments to fund expenditures.
The barista 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?
As you must reach certain ages to access your private retirement accounts or Social Security, FIRE followers must account for how they’ll manage before withdrawing from these funds.
The amount you’ll need to save to retire early depends significantly on the amount you want to be able to have as a yearly retirement income 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 four percent rule: You withdraw no more than four percent 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 at a minimum.
You’ll need to consider setting aside a little extra for unforeseen circumstances, evaluate your plan regularly, and adjust your contributions if needed.
If you want to retire early using the FIRE method, it’s wise to seek professional financial advice. Find a financial advisor best suited to meet your needs here.
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:
If you’re unhappy with the outcome, you’ll spend a lot of time living frugally and saving – and regret not having enjoyed yourself.
FIRE principles can be hard for those on lower incomes to follow.
Investments are vital, and they can perform poorly, jeopardizing your plans.
If you leave the workforce for a while and have to return, you may need to refresh your skills.
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. So, for example, ensure you have a healthy emergency fund and diversify your investments.
It’s also a good idea to plan for several different ages and scenarios and account for variables you can’t control.
For support with your financial independence journey, from retirement planning to investment strategies, find an independent advisor through Unbiased.
Senior Content Writer
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.