Most people dream of the day they clock in for the very last time. Of course, in most cases, we imagine that’ll be when we’re a little more gray around the ears. What if you could take the freedom and independence of retirement and experience it, say, thirty years earlier?
That’s the basic principle of the F.I.R.E. movement, a community of young finance people who aim to put themselves in a position to retire in their 30s or 40s rather than their 60s and 70s.
And while it may sound like the perfect life hack, attempting to live out this dream does come with some serious challenges.
This article will review the basic tenets of the F.I.R.E. movement and talk about the tactics people take to achieve their goal of early retirement.
Let’s dig into some of the pros and cons, so those interested can see if they’re able to incorporate any elements of the F.I.R.E. movement into their financial lifestyles.
What Is the F.I.R.E. Movement?
F.I.R.E stands for “financial independence, retire early,” and it’s a movement wherein people attempt to gain enough wealth to retire far earlier than the traditional timeline calls for.
The movement can trace its roots to a 1992 book called “Your Money or Your Life” by Vicki Robin and Joe Dominguez, and started to gain a lot of traction, particularly amongst millennials, in the 2010s.
In order to achieve retirement at such a young age, F.I.R.E proponents devote 50% to 75% of their income to savings.
They also use dividend-paying investments in order to create passive income streams they can use to support themselves throughout their retired lives.
Of course, accumulating the amount of wealth needed to live up to 60 years without working is a considerable feat, and not everyone who aims at F.I.R.E. succeeds. The F.I.R.E. retirement timeline differs significantly from the conventional one most working people expect to take on, and making up the difference in time can be a challenge.
F.I.R.E. vs. Traditional Retirement Timelines
Before diving more thoroughly into the F.I.R.E. approach, let’s take a moment to review the traditional retirement timeline.
Most working people expect to retire sometime around the age of 65 or so, which is also when traditional retirement accounts and benefits start to kick in. For those born after 1960, Social Security benefits can begin at age 60, but full Social Security benefits don’t kick in until age 67.
Specialized, tax-incentivized retirement accounts, like 401(k)s and online IRAs, also carry age-related restrictions which have a de facto impact on most folks’ retirement age; for example, 401(k)s generally can’t be accessed before age 59 ½ without incurring a penalty, but account holders are required to begin making withdrawals from these and other retirement accounts by age 70 ½. These obligatory withdrawals are also known as “required minimum distributions,” or RMDs.
Even a traditional retirement timeline can be difficult to keep up with. In fact, recent data shows that approximately a quarter of Americans have no retirement savings whatsoever.
Online calculators and budgeting tools can you figure out the answer to the question, “Am I on track for retirement?”—and are customizable to your exact retirement goals and specifications.
Given the challenge of saving enough for retirement even by age 60 or 70, what kinds of lengths do the proponents of the F.I.R.E. movement go to?
Some early retirees blog about their experiences and offer tips to help others follow in their footsteps. For instance, Mr. Money Mustache is a prominent figure in the F.I.R.E. community, and advocates achieving financial freedom through, in his words, “badassery.”
His specific advice includes reshaping simple (but expensive) habits—like eliminating smoking cigarettes or drinking alcohol, and limiting dining out.
Of course, the basic premise of making financial freedom a reality is simple on its face: spend (much) less money than you make in order to accumulate a substantial balance of savings.
Investing those savings can potentially make the process more attainable by providing, in the best-case scenario, an ongoing passive income stream.
However, it’s important to note that many people who achieve F.I.R.E. are able to do so in part because of generational wealth or special privileges that aren’t guaranteed.
For instance, Mr. Money Mustache and his wife both studied engineering and computer science and had “standard tech-industry cubicle jobs,” which tend to pay pretty well—and require educational and professional opportunities not all people have equal access to.
And in almost all cases, pursuing retirement with the F.I.R.E. movement requires a lifestyle that could be described as austere, foregoing common social and leisure expenses like restaurant dining and travel.
Financial Independence Retire Early: Pros and Cons
Although financial independence and early retirement are undoubtedly appealing, getting there isn’t all sunshine and rainbows.
There are both benefits and drawbacks to this particular approach to finances that should be weighed before undertaking the F.I.R.E. strategy.
Pros of the F.I.R.E. Approach
Benefits of the F.I.R.E. lifestyle include:
• Having more flexibility with your time. Those who retire at 35 or 40, as opposed to 65 or 70, have more of their lifetimes left to spend pursuing and enjoying the activities they choose.
• Building a meaningful, passion-filled life. Retiring early can be immensely freeing, allowing someone to shirk the so-called golden handcuffs of a job or career; when earning money isn’t the primary energy expenditure, more opportunities to follow one’s true calling can be taken.
• Learning to live below one’s means. “Lifestyle inflation” can be a problem amongst many working-age people, who find themselves spending more money as they earn more income. The savings strategies necessary to achieve early retirement and financial independence require its proponents to learn to live frugally, which can help them save more money in the long run—even if they don’t end up actually retiring early.
• Less stress. According to a survey by BlackRock , money is one of the leading worries for many Americans. Gaining enough wealth to live comfortably without working would thus wipe out a major cause of stress, which could lead not only to a more enjoyable, but also a healthier, life.
Cons of the F.I.R.E. Approach
Drawbacks of the F.I.R.E. lifestyle include:
• Unpredictability of the future. Although many people seeking early retirement map out their financial plan well, the future is unpredictable. Social programs and tax structures, which may figure into future budgeting, can change unexpectedly, and life can also throw wrenches into the operation. For instance, an expense like a major illness or unexpected child could wreak havoc on even the best-laid plans for financial independence.
• Some actually find retirement boring. While never having to go to work again might sound heavenly to those who are on the job, some people who do achieve financial independence and early retirement struggle with figuring out what to do with themselves. Without a career or any specific non-career goals, the years without work can become difficult to fill.
• Finding oneself unable to rejoin the workforce. If someone achieves F.I.R.E. and then learns it’s not right for them—or is compelled back into the workforce due to an extenuating circumstance—they may find themselves facing a challenging reintegration. Without continued in-office experience, one’s skill set may not match the needs of the economy… and job searching, even in the best of circumstances, can be difficult.
• F.I.R.E. is hard! Even very dedicated proponents of the financial independence and early retirement approach acknowledge that the lifestyle can be difficult—both in the extreme savings strategies necessary to achieve it and in the ways it changes day-to-day life. For instance, extroverts may find it difficult to forego the consistent human interaction facilitated by an office job. Others find it challenging to create a sense of personal identity that doesn’t revolve around a career.
Investing for F.I.R.E.
An important part of achieving financial independence is investing. Investing allows F.I.R.E. proponents—and others—earn income in two important ways.
Dividend income is earned by shareholders when companies have excess profits. They’re generally offered on a quarterly basis, and all one has to do to earn them is simply hold shares of a stock.
However, because dividend payments depend on company performance, they’re not guaranteed, so other income sources (including substantial savings accounts) should be in place to back up this income stream for early retirees.
Investors can earn profit through market appreciation when they sell stocks and other assets for a higher price than they paid for them in the first place.
Even for those who seek retirement at a traditional pace, investing is one of the most common tactics used to create the kind of exponential growth over time that can build a substantial fund to draw off for the remainder of one’s life. There are many accounts built specifically for retirement investing, such as 401(k)s, IRAs, and 403(b)s.
However, these accounts carry age-related restrictions and contribution limits which means that those interested in pursuing retirement on a F.I.R.E. timeline will need to explore additional types of accounts and saving and investing options.
For example, brokerage accounts allow investors to access their funds at any point—and to customize the way they allocate their assets in such a way to maximize growth.
How SoFi Invest Can Help You Get Started on Your F.I.R.E. Journey
Whether you’re hoping to shorten your retirement timeline from 30 years to only 15 down the road or you’re just hoping to do the traditional timeline justice—or even if you’re just looking to grow your wealth in preparation for a major, shorter-term financial goal, like buying a new car—investing can be one of the most effective way to reach your objectives.
And if you’re looking for a way to start investing from scratch on your own terms, SoFi’s active investing platform could be the perfect way to do so.
SoFi Invest® allows members to learn the ropes as they go, joining a community of other people interested in finance who are doing the exact same thing—and who are invited to gather at exclusive events and educational experiences.
Investors can start their investing journey without worrying about any account minimums, and we don’t charge annoying transaction fees you may run into at other brokerages.
Invest account holders with SoFi also have access to a suite of investing tools that can help them become more knowledgeable investors, including a personalized stock watchlist.
You’ll also have the ability to buy fractional shares, so you can get access to major companies’ assets even if you’re just getting started.
SoFi also offers members access to SoFi Financial Planners who can provide personalized insight and help investors plan for their unique financial goals at no cost.
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