No, all caps in FIRE up your retirement isn’t a typo. It’s an acronym for Financial Independence – Retire Early.
When I started blogging in late 2017, I discovered this vibrant personal finance blogging FIRE community.
To my surprise, this community is full of Millennials and Gen Xers intent on becoming financially independent.
The goal of that financial independence is to give themselves choices, freedom if you will.
The problem? How do you define financial independence? What does early retirement mean?
We will look at these questions and how they might apply to you regardless of age and stage of life.
The History and Basics of FIRE
This article from the Early Retirement Dude (AKA ER Dude) blog says the FIRE movement has been around for 800 years. It sounds crazy, but he makes a pretty convincing case.
The ER Dude is a textbook case for FIRE. He’s an MBA who entered the corporate world and retired at age 36. Here’s how the ER Dude describes his situation at the time. “I’d saved roughly $1.6 million and finally achieved financial independence and early retirement (FI/ER). I was thirty-six, and nobody could ever tell me what to do again.”
Don’t get hung up on the standard definition of retired.
For now, let’s say that it probably isn’t the definition you think. These folks aren’t sitting back in their comfortable chairs or on their front porches sipping their favorite adult beverage.
No. That would be crazy at age 36.
Most FIRE “graduates” worked hard to gain financial freedom so they could choose not to HAVE to work at their corporate jobs.
They try to achieve, though, is the financial freedom to walk away if things out of their control change. Maybe the job is no longer rewarding, challenging, or mentally stimulating. Perhaps they get laid off or get a new boss from hell.
Many continue to work in those jobs. If so, it’s not because they have to. It’s because they choose to.
Others have started businesses, blogs, or work for nonprofits representing causes they care about.
FIRE is all about choice. That’s the basics in a nutshell.
I can sum up the concepts of FIRE as follows:
- Spend less than you make
- Save and invest the difference
- Reduce or eliminate debt
Nothing complicated here, right? Some pretty basic stuff.
Another textbook FIRE story is from Steve at ThinkSaveRetire. Like the ER Dude, Steve left the corporate world at age 35. He and his wife both had great jobs in the tech world, making some serious money. At their peak, it was over $250,000 annually.
Steve was miserable in his corporate work. So he decided to do something to get out. They saved his wife’s entire salary. They maxed their retirement accounts and set up investment accounts at Vanguard with low-cost index funds.
Steve is a great writer, and their story is inspiring. In his two-part article series, you can read their story, The day I realized my life was crap – Part 1.
What I love about these stories is the passion for pursuing another way of life. To not be stuck in a job you don’t like or a career that’s going nowhere.
Most of us stay stuck.
FIRE advocates get to work and do something to change their circumstances.
After all, you have to have the means to support yourself.
FIRE participants are fiercely committed to the three principles listed above. They are aggressive savers who work hard to reduce expenses.
Debt is the enemy. They keep it to a minimum or eliminate it.
The conventional wisdom says contribute to your 401(k) at least up to the amount of your employer match. That’s pretty much the bare minimum amount.
FIRE disciples save 50%, 60%, or 70% or more.
Investment accounts stay diversified. I don’t just mean the investments. I mean diversity in the types of investment accounts (taxable, IRAs, Roth IRAs, 401(k)s, etc.).
After all, most FIRE “retirees” are well under age 59 1/2. After reaching 59 1/2, withdrawals from retirement accounts avoid the 10 percent early withdrawal penalty. So, it would help if you had a mix of taxable and nontaxable accounts to take out income efficiently.
Following this formula puts you in a position to have choices. You aren’t slaves to debt. Your expenses are well under your income. You’re saving well over the minimum recommended amounts.
One definition of early retirement might mean the point at which you have the assets to support the lifestyle you want, whether you’re working or not. The age at which that happens depends entirely on the age at which you start living this way.
A Different Definition of Retirement
What does retirement mean? Like early retirement, the answer is different for everybody.
It’s the freedom to be able to decide without worrying about how you will pay for it.
For most, retirement does not fit the “normal” description. You know the one.
You work until some arbitrary retirement age (62, 65, maybe even 70) and then live the rest of your life living off your Social Security, pension, and investments.
Many plan their retirement around when they can either begin or maximize Social Security. In general, that’s age 62 (earliest age) or age 70 (latest age).
For many in the FIRE community, Social Security is not even a consideration. Either they’re retiring well before becoming eligible. Or they don’t believe it will be there for them when they reach the age of eligibility.
So, they plan without it.
What About Work?
Many still work in early retirement. When that’s the case, the argument I often hear is if you’re working, then you’re not retired.
Who made this rule, anyway? For many, working is an integral part of planning.
When I help my financial planning clients prepare for retirement, one of the first things we talk about is what they will do with their time.
The worst thing a person can do is start retirement after an active career (regardless of the type) and not be active in retirement. That can lead to physical and mental health issues and can stress a marriage.
If you are active pre-retirement, you have to find a way to stay busy post-retirement as well.
Many retirees and early retirees follow their passions, doing things they couldn’t do while in the workplace.
For some, that’s starting online businesses (blogs, Amazon reseller, eBay reseller, etc.). For others, that’s consulting in the field in which they’re experts.
Whatever the activity, you must keep your mind from atrophy. Reading, writing, consulting, travel, part-time work, the list is endless. Successful retirees, early or otherwise, don’t just plan for the money.
They’ve planned for how they want to spend their time.
FIRE up Retirement – Not for Everyone
The median income for Americans in 2016 was $59,039. What if you’re living at or below that income?
The principles stated earlier are sound financially, regardless of age, stage in life, or income.
However, not everyone can execute them. It takes discipline and hard work to live this way.
To the extent possible, avoid debt. Debt, especially credit card debt, can derail your finances in a hurry.
Controlling costs is essential for everyone. If those with lower incomes, it’s even more critical.
Though harder, financial independence is achievable for those with lower incomes. Some may not want to make the sacrifices necessary. The stress of doing that may be higher than maintaining the status quo.
I love the thinking in the FIRE community. We live in a society strapped with debt. The advertising industry bombards us with messages of things they tell us we can’t live without.
The 24-hour news cycle never ends. Advertisers pay to keep it going. We have the world at our fingertips on our cell phones and tablets.
We are always connected. Advertisers count on that!
If we let the day’s messages get into our psyche, we will spend money on things we don’t need. We may even spend money on things that are bad for us.
Those working toward financial independence discipline themselves to avoid making these mistakes.
How do you get there? Live frugally. Be mindful of how you spend. Invest wisely. Minimize or avoid debt.
This formula works regardless of age or income. It applies to everyone. If you’re happy in your profession, job, or career, by all means, stay with it.
Though many do, FIRE isn’t about leaving the corporate world. It’s about having the freedom to live the way you want without worrying about finances.
It won’t just happen. You must be intentional. You must plan and have the discipline to execute that plan.
It’s never too late to start!
What do you think? Are you currently following these principles? If not, do you believe it’s possible? What adjustments can you make to do better?