Fire Movement: How To Retire Before Retirement Age
In a nutshell, F.I.R.E or Financial Independence, Retire Early is a movement or lifestyle adopted by people where they adopt extreme savings and investment aims so that they can retire early.The methods of FIRE are far more extreme than traditional methods of budgeting and retirement plans.
The 1992 best-selling book: ”Your Money or Your Life” by Vicki Robin and Joe Dominguez greatly helped in the popularity of the FIRE movement.
It comes with the notion that you don’t have to wait until retirement age in order to retire. FIRE proponents believe that they can achieve early retirement through very aggressive savings and investing. Many of them believe that it is really possible to retire in your 40s and even 30s.
But is FIRE suited to you? Or are you even financially qualified to join the FIRE movement? Find out in this article.
Note: This information was taken from my actual experience being semi-retired in my 40s, and from online websites about the FIRE movement.
Summary of How To Retire Before Retirement Age Using FIRE:
1. What is the FIRE Movement?2. What is Retirement by FIRE?
3. What are the Most Common FIRE Types?
4. Is FIRE for You?
5. FIRE Steps
5.1 Plan for Early Retirement
5.2 Keep Expenses Extremely Low
5.3 Increase Your Income
5.4 Get Out of Debt as Early as You Can
5.5 Don’t Just Save, Invest as Well!
5.6 Max Out Your Retirement Accounts Contributions
5.7 Have a Second Career
Final Words
The Details:
1. What is the FIRE Movement?
Strictly speaking, the goal of FIRE is to save and invest aggressively, which comes to about 50 to 75% of your income. The goal is to retire sometime in your 30s or 40s.
As you can see, the methods and goals of FIRE are extreme. A lot of people globally don’t even have enough money for savings after all their expenses have been paid, and FIRE expects you to save a majority of your income.
FIRE practitioners attempt to succeed in this undeniably extreme financial goal by saving as much as they can and by earning as much money as they can even at a very young age.
The ultimate goal is to be so financially independent in your 30s or 40s such that you have the option of not having to work anymore just to financially support yourself. You can still choose to continue working, but at your own pace and terms.
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2. What is Retirement by FIRE?
FIRE is a direct contradiction to the popular retirement plans today and the industries that perpetuate their practice.
FIRE followers plan to retire way earlier than the standard retirement age, which is about 65 in many countries now. They intend to do this by saving as much money as they can.
They hope to have a large financial portfolio even at an early age. They aim to make small withdrawals to this portfolio which would be used to subsist them during their retirement.
The usual plan is to save 30 times of what they earn a year, or for others, USD one million. Their savings plan include the interest and other income derived from their financial portfolio. They plan to withdraw between 3% to 4% of their financial portfolio annually.
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3. What are the Most Common FIRE Types?
There are many types of FIRE that dictate how FIRE proponents live, but the most common are these three:
3.1 Fat FIRE:
These are for people who don’t want to substantially change their financial lifestyle but still want to adopt FIRE so they can be better financially from average people.
The caveat of this FIRE type is that you generally need a high salary and must adopt aggressive savings and investment strategies.
3.2 Lean FIRE:
For this FIRE type to work, the FIRE proponent must adhere to stringent minimalist living and make extreme savings which necessitate a restricted lifestyle. Proponents of this FIRE type usually have only living costs of USD 25,000 a year if you are a US citizen.
3.3 Barista FIRE:
This FIRE type is between Fat FIRE and Lean FIRE. Proponents of this FIRE type are usually able to quit their traditional 9-to-5 jobs and use a combination of part-time work and by dipping on their savings to live a less-than-minimalist lifestyle.
By working part-time, they are able to access health coverage which if they have to pay on their own, can put a dent on their retirement financial portfolio.
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4. Is FIRE for You?
If you did a casual analysis of the FIRE’s methodology and purpose, you’ll easily see that it is actually geared towards people who are earning a substantial income. If you are an American, it would be around in the six figures.
You might not be strictly qualified for FIRE, but at least you can adopt the principles of the movement which is beneficial to anyone who intends to retire at a certain age, even way past retirement age.
Isn’t being able to do the things you love without considering money one of the core dreams of anyone? You might not be able to retire in your 30s and 40s, but FIRE helps you to aspire to be able to do the things you love whether retired or not.
Most of all, the purpose and methodologies of FIRE is to be able to save as much money as you can. This is just good advice to anyone whatever financial status they have.
Also, according to a study of millionaires in the US: one-third of millionaires never had a six-figure household income per year. This means that even if you are not a high-earner, FIRE methodologies and purpose can still apply to you.
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5. FIRE Steps
These are the steps you can do to have a chance of retiring early using FIRE methodologies:
5.1 Plan for Early Retirement:
Make an assessment of your current and even future financial status, like how much you save, what your expenses are, and any investments you currently have.
And when I mean plan, I do mean really plan. This would include the financial position of your partner, children and how much you are likely to have from your inheritance and pension.
Many people fail to factor in their partner’s and children’s finances as well as their inheritance and pension when these factors can greatly affect the outcome of your FIRE efforts.
For example, there are countries in Asia where adults continue to stay with their parents even though they are already married and have children. The adult child automatically inherits the home of their parents. So, mortgage shouldn’t be a problem for them.
That’s why its important to calculate when you would likely retire and how much money and possessions you would have already by then.
It is also important to know what you would be doing when you retire and how much they cost. This would help you assess if your financial retirement plan is possible.
5.2 Keep Expenses Extremely Low:
You should by this time, know where your money is going. You would already have a good idea of what you want versus what you need to live. You should already know how much is your monthly expense is and what they are.
You should be able to cut spending to the bare minimum and disciplined enough to stick with a budget.
Every few dollars (if you live in the US) you save adds up over time. You could invest your accumulated dollars which further increases your financial portfolio. You repeat the cycle until what started out with just a few dollars is already a substantial amount of money.
5.3 Increase Your Income:
You cannot build wealth if you have no income which can come from being an employee, a business owner, and/or investor. So find a way of making extra money whenever you can.
You should try any means of earning money as long as its legal and not dubious. Avoid get-rich schemes. Usually they’re too good to be true that you end up losing a great deal of money instead of earning some.
5.4 Get Out of Debt as Early as You Can:
Debt is one of the biggest factors that prevents people from being able to save for their retirement. We see people trying to look rich but are only able to pay the interest of their already maxed out credit cards.
Though credit cards are a necessity for many, like to electronically pay for utility bills, it must be used with the utmost discretion and paid fully on the due date as much as possible.
Paying debt especially means paying your mortgage as early as you can. Even a slight increase in inflation can send interest rates up which further increases your mortgage repayments.
5.5 Don’t Just Save, Invest as Well!:
Saving your money in the bank is one of the poorest way to make your money grow. Although it is one of the safest, you risk losing the value of your savings to inflation.
But what to invest in? This is not an easy question to answer. This is because everyone’s financial risk tolerance and financial knowledge is different from everyone else.
Some have made excellent financial returns investing in stocks, others in mutual funds, bonds, collectibles, and so on.
But the most important thing to consider is that you must fully be aware of what you’re investing in and how much financial risk it has.
For example a very low risk way of increasing your savings in the bank is by investing it in long term deposit plans which you should be doing as this is money meant to be only used after a long period of time.
5.6 Max Out Your Retirement Accounts Contributions:
Retirement accounts are one of the safest investments because they come with either a money-back guarantee and/or a government guarantee.
They are also one of the most generous as these accounts are held on a long term basis and are only paid out usually on retirement, making them earn handsome returns.
Maxing out your retirement account as early as you can helps you prevent higher premium payments which regularly happen after a certain period.
5.7 Have a Second Career: After retiring during my mid-forties and observing the life of more senior retirees than me, I can deduce that it could be boring. This is one of the benefits of working, it helps stave boredom and lets you contribute to society.
A second career no matter if its just only a few hours a week can stave off boredom and allows you to earn as well.
By this time, you would have a lot of control with your second career and you are doing it because you really want to do it and not out of a need for income, although income is an added benefit.
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Final Words
Strictly speaking, FIRE’s purpose and methodologies are suited well for high earning individuals. This is because the goal of FIRE is financially extreme and it usually needs extreme finances in order to succeed.
But as millionaire studies have shown (at least in the US), even households not earning high incomes can benefit from FIRE’s purpose and methodologies.
The goal of fire is simple: to save as much money as you can during the early stages of your life so that you don’t need to reach the standard retirement age just to be able to retire.
From my experience, it is really possible to retire or at least in my case, to semi-retire (even though I can already retire) even though you still haven’t reached retirement age. I have done it and have seen other people who do. It’s really possible if you work at it and have a bit of luck.
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You Might Be Interested To Read This Article:
Saving for the Future: 7 Easy Steps You can do Right Now
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Also, do you know that in America for example, 4 in 10 adults do not have money to cover USD 400 of unexpected expenses? These people would likely have to resort to bad measures like borrowing money from loan sharks or selling their prized possessions at meager prices.
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