Most people dream of the day that they clock into work for the very last time.In most cases, we imagine that’ll be when we’re a little more gray around the ears, but 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 Financial Independence Retire Early (F.I.R.E) movement, a community of young people who aim to live a lifestyle that allows them to retire in their 30s or 40s rather than their 60s and 70s.
While it may sound like the perfect life hack, attempting to live out this dream comes with some serious challenges. This article will review the basic tenets of the F.I.R.E. movement and talk about the tactics people use to achieve their goal of early retirement.
These pros and cons can help you determine whether any strategies from the FIRE movement are a fit for your lifestyle.
What Is the FIRE 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 would allow.
The movement traces 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 among 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 for six decades or more without working is a considerable feat, and not everyone who attempts F.I.R.E. succeeds.
F.I.R.E. vs. Traditional Retirement
F.I.R.E. and traditional retirement both aim to help people figure out when they can retire, but they have major differences.
Given the challenge of saving enough for retirement even by age 60 or 70, what kinds of lengths do the advocates 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, “badassity.”
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, many people who achieve F.I.R.E. are able to do so in part because of generational wealth or special circumstances 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 can access.
In almost all cases, pursuing retirement with the F.I.R.E. movement requires a lifestyle that could best be described as basic, foregoing common social and leisure expenses like restaurant dining and travel.
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 62, but at a significantly lesser amount than if they wait to reach 67, their full retirement age, to file.
They typically save much of their retirement funds in specialized, tax-incentivized retirement accounts, like 401(k)s and traditional IRAs, which carry age-related restrictions that 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.
Even a traditional retirement timeline can be difficult for many savers. Recent data from the Federal Reserve shows that approximately a quarter of Americans have no retirement savings whatsoever.
Still, nearly 40% of Americans want to retire before they reach age 55, according to a survey from Hearts & Wallets. Online calculators and budgeting tools can help you determine when you can retire—and are customizable to your exact retirement goals and specifications.
Recommended: How Much Should You Have Saved for Retirement by 40?
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 strong benefits and drawbacks to this financial approach that investors should weigh 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 lifetime 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 among 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 advocates 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 study by the American Psychological Association , money is one of the leading stressors for nearly two-thirds of Americans. Gaining enough wealth to live comfortably without working could wipe out a major cause of stress, which could lead to a more enjoyable, and 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 thoroughly map out their financial plans, 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 plan. For instance, a major illness or an unexpected child could wreak havoc on even the best-laid plans for financial independence.
• Some find retirement boring. While never having to go to work again might sound heavenly to those on the job, some people who do achieve financial independence and early retirement struggle with filling their free time. Without a career or specific non-career goals, the years without work can feel unsatisfying.
• Fewer professional opportunities. If someone achieves F.I.R.E. and then discovers it’s not right for them—or must re-enter the workforce due to an extenuating circumstance—they may find reintegration challenging. Without a history of continuous job experience, one’s skill set may not match the needs of the economy, and job searching, even in the best of circumstances, may be difficult.
• F.I.R.E. is hard! Even the most dedicated advocates 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 might find it difficult to forgo social activities like eating out or traveling with friends. Others may find it challenging to create a sense of personal identity that doesn’t revolve around a career.
Investing for F.I.R.E.
Investing allows F.I.R.E. advocates—and others—to earn income in two important ways: dividends and market appreciation.
Shareholders earn dividend income 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, those relying on them to live should have other income sources (including substantial savings accounts) as a back up income stream.
Investors can also earn profits through market appreciation when they sell stocks and other assets for a higher price than what they initially paid for them.
Even for those who seek retirement at a traditional pace, stock investing is a common strategy to create the kind of compound growth over time that can build a substantial nest egg. 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 to maximize growth.
Whether you’re hoping to retire in a traditional fashion, shorten your retirement timeline, or are just looking to increase your wealth to achieve shorter-term financial goals, like buying a new car—investing can be one of the most effective ways to reach your objectives.
A great way to get started is to open a brokerage account online with SoFi Invest® brokerage platform. 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.
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