Lighting a FIRE Under Your Retirement Goals

A popular online movement wants to make 40 the new 65.

FIRE stands for Financial Independence Retire Early. The idea is that by working as hard as you can and saving as much as you can as soon as you enter the workforce, you can become financially independent and retire well before the traditional retirement age.

It’s an appealing idea in theory, but in practice there are some major pros and cons to consider.

PRO: You don’t have to work a job you don’t like.

Of course, the biggest appeal of FIRE is freedom. If you don’t have to work, then you’re free to spend your days doing what you please. Some may dream of living in a state of near-permanent vacation. Some, on the other hand, may dream of working at a job that fully engages their passions and skills.

CON: You may not be able to return to your previous career if you change your mind.

Professional skills and networks quickly deteriorate when not used. Resume gaps can prevent you from getting past the first cut when seeking new positions. A complete break can be an irrevocable decision even if you think it’s not.

PRO: You’re saving more than you spend.

There are not many “one size fits all” rules to good financial planning, but “save more than you spend” is definitely one of them.

This rule is the cornerstone of FIRE as well. FIRE retirees might be on an accelerated financial path, but their path demands extremely disciplined spending and saving. Many FIRE retirees save as much as 50% of their income. Some also invest in index funds or buy properties they can rent out to provide some passive income once they do retire.

CON: Saving almost everything.

You might have noticed that many FIRE social media posts include pictures of young people living out of recreational vehicles, boats, log cabins, and small “pod homes.” For many FIRE retirees, simple living is part of FIRE’s appeal. But sticking to a shoestring budget is also a necessity when you’re living off your savings. Unless you develop a circle of like-minded friends, you’ll find yourself under substantial peer pressure to spend like your peers, many of whom may never be able to retire.

By the way, don’t count on historical stock market returns of nearly 7%. Current yield of the S&P 500 is approximately 2 percent, and current economic growth is approximately 2 percent. Why would you expect an index fund that includes the largest portion of U.S. economic activity to grow more than the sum of those two?

FIRE retirees will also find some basic financial responsibilities are more difficult. Credit cards, mortgages, and auto loans are harder to get when you don’t have steady verifiable income from an employer. FIRE retirees will be buying health insurance for, potentially, decades until they’re eligible for Medicare. Depending on how long they do work, FIRE retirees might not be eligible for Social Security, or their benefits might be severely reduced.

The Big PRO AND CON: Life happens.

We are all-in on FI goals. Financial Independence at any age can open some amazing doors in your life: new hobbies, new experiences, new career paths. And the whole point of financial planning is to live the best life possible with the money you have.

We’re a bit more cautious about RE. What happens if it turns out to be less fulfilling than you’d imagined? You really won’t know until you try and once you’ve started this FIRE it can be very difficult to put out. Let’s talk about your early retirement goals and come up with a timeline that will give you freedom to live the life you want and the flexibility to cope with life’s major transitions.