Is The FIRE Movement For Early Retirement Right For You?

Going out for a fancy dinner, purchasing trending gadgets, owning the latest vehicle, or squandering money in luxuries; gone are those days when the youth tout their extravagant spending. In the time of economic instability, more of today’s generation are embracing the trending FIRE Movement.

What is the FIRE Movement?

Started in the 90s, the Fire movement stands for Financial Independence/Retire Early. Spending frugally and saving substantially to retire as early as in your 30s or 40s is the basic concept of this movement. By some smart planning to get rid of debts and achieve financial independence, you can reduce your retirement age considerably.

How is FIRE achieved?

Cutting down expenses

The easiest way to achieve an early retirement is to cut down the extra expenses and live life fulfilling only the basic requirements. But for some, this method might involve extreme planning, tight budgeting, and a lot of sacrifices. Sometimes this may mean cutting back on your needs and considering your wishes as luxuries.

Saving more

The focus should involve a saving of 50% to 70% of the yearly income. Then invest these funds wisely to get higher returns. If the savings reaches a point where it is 30 times that of your annual expenditures, you can quit your job, maybe forever.

Calculate your retirement expenditure

The FIRE movement works on the 4% rule. According to Investopedia, a retiree can only withdraw 4% of savings on an annual basis, so as not to run out of the saved money. This method considers the yearly growth of the stock portfolio by 7% and the inflation rate at 3%, leaving the remaining 4% for expenditure. This model represents an ideal case for a 30 year retirement period. Not accounted for in this scenario are more extended retirement periods and unexpected market risks.

Is Fire Movement For Early Retirement Right For You?

Supporters of the Fire movement are always encouraging financial freedom as early as possible to live a better and meaningful life in the future. On the other hand, critics consider the whole movement as unrealistic because aggressive saving in real life is too complicated. Let’s find out the pros and cons of the FIRE movement to determine if it is right for you.

Pros 

1 – Encourage an intentional life

Your highly paid job may not be the best thing for you. The daily work pressures can take you away time from your hobbies and all the other things you might always want to do. Early retirement can give you the pleasure of living your life on your terms. You can have all the time you want to do all the things you’ve ever wanted to do.

2 – Enjoy more family time

Living life in a cubicle for more than half of your life can rob you from spending time with your loved ones. The benefits of retiring early include spending more time with family and cherishing even the smallest moments with them. You will love being around more, enjoying your favorite drink like Dusse, and strengthening your relationships.

3 – Promotes good health

Work-related stress is increasing at a fast pace. According to a study, workplace stress has gone up by 20% in three decades, and 66% of employees face health issues like sleeplessness. Early retirement can promote a stress-free mindset and a fit body supporting the notion that health is the real wealth.

4 – Opportunity to start a new career

Gaining financial independence early in life will allow you to start a new job doing something you’ve always wanted to do but didn’t pay as well. Or you can start your venture and be your own boss. Your new career can even be a volunteer job with a worthy organization.

5 – Gaining financial freedom

With rising uncertainty in the economy, it has become more critical to manage your debts and increase your savings. FIRE movement helps you to save more, invest a reasonable amount, and increase your wealth. All of this can eventually lead to financial independence. And after all, it’s said, a penny saved is a penny earned.

6 – Value life over money

FIRE is all about living a contented life and giving value to your life over money. Ultimately, what matters is how happy, healthy, and relaxed you are in this world.

Cons

1 – Unrealistic goals

When talking about the savings, the FIRE movement can seem unrealistic. For some people saving 50% of their wealth can be near to impossible with existing financial liabilities. Especially for the middle class, which comprises the most significant section of society, financial independence is a far-reaching goal. Retiring early for them can be out of the question.

2 – A boring life

Early retirement may seem quite exciting initially, but without proper work, no productivity, no hobbies, limited social life, life can become monotonous and boring. The adaptation of a chaotic life from a full-time job can be rough. Again, if you think of returning to your previous working life, remember that the acceptance rate with employers is much lower than your younger counterparts.

3 – Compromise

Retiring early needs a lot of strict planning and execution of your money. This means you have to curb your expenses today for securing your life tomorrow. In other words, it needs a lot of compromising with your desires. A classic latte and even having dinner out can be considered as a luxury, which could mean not enjoying your life thoroughly.

4 – Deteriorating health

Retirement can often affect your health. The research shows that in retirement, 6% of people have a deterioration of physical health and a 9% decline in mental health. Early retirement can negatively affect the health of people, especially if they are physically and socially inactive.

5 – Not enough money

High inflation in education, healthcare, and housing sectors can decrease the worth of your savings. The money you saved as per your retirement plan may not be enough for you and your family’s requirements. Also, with advancing age, healthcare expenses rise. You also tend to outsource most of your daily household chores, which can add to your cost of living.

6 – Uncertain future

Your retirement savings may not last as long as you planned for. An unexpected economic slowdown or sudden significant expenses can hit your savings anytime in the future. A financial crisis can crop up that you didn’t plan for that are decades away.

Points to keep in mind for FIRE

Considering the pros and the cons, if you are still planning for a FIRE, keep a few things in mind.

1 – Start saving early

Your money grows exponentially when you start saving early. The reason for this is that compound interest is adding value to your money. Even if you save only 20% of your money in your early 20s, you save a considerable amount for your retirement. The amount of early saving is inversely proportional to your retirement age. The earlier and more you save, the more you can reduce your early retirement age. But if you didn’t start to save until now, it’s never too late. You can start today and still achieve financial stability early.

2 – Eliminate debts

Debts are risky. While planning for retirement, settle all debts beforehand. These can include various loans and credit card payments. Paying off these liabilities will make you stress-free as you don’t have to worry about spending your retirement savings or losing your assets to satisfy an existing debt.

3 – Create an emergency fund

The future is always uncertain. You can’t predict it accurately. Unplanned personal expenses, even like travel, can substantially add up. Also, external factors like a sudden fall in the stock market can even affect your net worth. Therefore it is advisable to have an emergency fund for future use. In addition to an emergency fund, you can also have other dedicated savings accounts for different financial goals such as a vacation or romantic weekend away.

4 – Insurance is a must

Health insurance is a must if living in the US and other high health care cost countries. Usually, your employer provides you coverage, but once you quit your job, you’ll be on your own. The plan will need to cover all dependent family members. You have to keep in mind that with an increase in age, your healthcare expenses and your health insurance premium will rise. Health insurance may be an early retiree’s most costly expense unless you consider moving abroad.

5 – Plan retirement to align with your desires

Retirement planning is a personal choice. It is you who decides when to retire. Careful planning is the next step to achieve your goal. You should remember that FIRE doesn’t always mean you are quitting a job forever. It may simply mean you want to work remotely part-time. Or take on a job that you’ve always wanted to do but pays less. So a substantial retirement fund may or may not be on your bucket list at present. You can easily add it in the future as your goals change.

FIRE Movement Bottom Line

The FIRE movement is growing your wealth while retiring early. Although it seems to be a perfect plan, you need to educate yourself to acquire that financial stability to secure your future. So now, that you know all about the FIRE movement, no matter what you decide, maybe start to achieve your savings to live a life that you’ve dreamed of.

And what can you do if you retire early? How about some Adventure Travel.

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