Understanding the FIRE Retirement Movement

If you’ve ever dreamt of retiring in your 50s, 40s, 30s, or even as early as your late 20s, you may be interested in joining the FIRE retirement movement. This strategy, designed for those disciplined in their savings habits, provides a roadmap towards a work-optional lifestyle much earlier than traditional retirement planning typically allows. Let’s explore what a FIRE retirement strategy entails and how to determine whether or not it makes sense for you and your financial goals.

What is a FIRE Retirement Strategy?

The acronym FIRE stands for “Financial Independence, Retire Early.” This concept was originally inspired by Vicki Robin’s book “Your Money or Your Life” and is built upon the premise of saving more money on a monthly basis than a traditional retirement approach and leveraging low-fee investment options to accommodate an early retirement.¹

The “financial independence” aspect of a FIRE strategy is defined as 25 times your annual expenses. For example, if you estimate a minimum yearly budget of $50,000, you would need to save $50,000 x 25, or approximately $1.25 million in order to be considered financially independent. Once you have achieved that number, you would be able to retire early and live off approximately 3-4% of your nest egg each year.

Top Considerations Before Joining the FIRE Movement

Retiring in your 30s may sound too good to be true. In fact, the whole FIRE movement and concept of retiring early can sound like more of a fantasy than reality. For many individuals, it may be just that. However, for those who are able or willing to embrace a frugal lifestyle earlier in life, financial independence is attainable.

Here are three important considerations to make before deciding if the FIRE program may be right for you:

1. Spending Wisely is Essential

The foundation of the FIRE program hinges on a strategic balance of income, expenses, and time. The bigger the gap between your income and expenses, the less time it will take you to reach financial independence. While this may sound a bit extreme, depending on your timeline and desired income level in retirement, you could be looking to save more than half of your income to put toward early retirement. This is something that should be carefully calculated based on your individual income level and expenses.

2. Not a Traditional Retirement Approach

For those looking to retire early using the FIRE approach, “retirement” is not thought of as an endless vacation. In fact, FIRE enthusiasts are often more intent on achieving the “financial independence” part of the acronym than simply retiring at a young age. That means that they’re likely to continue working in retirement or pursue a passion project that they were previously unable to due to the confines of a full-time job.

3. Define Your “Why”

As with many financial goals, it can be difficult to pass up on dinners with friends, splurging on a new outfit, or unwinding on a relaxing vacation. Adhering to a strict savings strategy such as the FIRE method requires a tremendous amount of willpower and commitment. When you are young, there is little motivation to skip out on enjoying life today for the possibility of retiring early a decade down the line. However, those that have embraced the FIRE movement strive to identify a “why” for their savings plan that will continually motivate their financial decisions. Defining your specific “why” is crucial to making positive progress toward your financial independence.

Getting Started

The FIRE program is an appealing financial strategy for many who possess the goal of achieving an early retirement and allows for its followers to find increased flexibility in doing what they love. However, it requires strong self-discipline and the ability to spend less today in order to save for tomorrow. If you’re considering a FIRE approach to retirement, reach out to a financial advisor who can help you understand your current spending habits and what you’ll need in order to achieve the financial independence you seek.

¹Vickirobin.com, 2023