Understanding the FIRE Movement

Understanding the FIRE Movement

July 05, 2022

There has been a lot of chatter about the FIRE movement – Financial Independence / Retire Early – over the last few years and you’re probably wondering whether it’s suitable for you and your family. The real answer is that it depends. Let’s examine the benefits and drawbacks.

What is the FIRE Movement?

The FIRE movement is made up of like-minded people who believe that if you cut your expenses and maximize your savings and investments, then you can retire early – very early. But it’s not about just reducing your expenses, it’s about living as frugally as possible during your working years so that your retirement can arrive decades before the traditional 65 years of age.

Vicki Robin’s book “Your Money or Your Life” popularized the idea and the typical blueprint says that you should work really hard, live crazily cheap into your 40s/50s, then retire much sooner than most others.

The Benefits of Fire

The reality is that many people would agree that reaching financial independence and retiring early is a great idea. And while most financial professionals suggest saving at least 10 – 15% of your income in a 401(k) or IRA, the FIRE movement suggests saving 50% of your income (remember there are limits in certain retirement vehicles). Mathematically, investing 50% of one’s income vs. 15% is going to give you a larger nest egg and sooner too.

FIRE disciples live by this: Each year of work could give you a full year of living expenses now, and a full year of retirement, if you can save at the 50 percent rate. This means every 10 years you work gives you 10 years of retirement, and that assumes no investment growth.

Then when you factor in some average rate of return on your investment, you will approach retirement at a rate faster than the one year of work/one year of retirement ratio.

The Drawbacks of FIRE

To make FIRE work, you need extreme frugality because saving 50% of your income is not easy to do. It means cutting way back on groceries, maybe planting a garden; using a bike or walking instead of your car, not using your home’s air conditioning or heating, and other extreme measures. Are you ready to do that?

We might not all want to work crazily long hours for 20 years and eliminate all but the barest of necessities. Is it “live to work” or “work to live?”

Or in the infamous words of Dolly Parton: “Never get so busy making a living that you forget to make a life.”

Investing the Other 50% of your Income

The FIRE movement does suggest that when you invest the 50% of your income, you pay attention to fees – and for the most part, they recommend low-cost index funds.

Perspective from a Financial Professional

All financial professionals would agree that helping their clients work towards financial independence and retire early is a great idea. But there is no one-size-fits-all blueprint for this goal.

That is why your long-term success hinges on a personalized financial plan for you and your family – and not one that remains static. Your life changes from year to year and so should your financial plan.