The past few years of the pandemic have resulted in many people reevaluating their lives to determine what will bring them more purpose and meaning. Instead of living day to day, what will make us happy in the long term? Some have quit their jobs as part of what is being called The Great Resignation. Others have become interested in something called the FIRE movement. But what is the FIRE movement and should you consider it too?
The Financial Independence, Retire Early (FIRE) movement promotes extreme savings and investment to allow people to retire far earlier than traditional budgets and retirement plans would typically accommodate. The idea originated from a 1992 book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. By saving up to 70% of their annual income, followers hope to be able to quit their jobs and live solely off of small withdrawals from their portfolio before reaching the traditional retirement age of 65.
The FIRE Movement Pros
The cool thing about FIRE is it is helping younger generations think about their retirement and what it looks like decades ahead of when they used to. It uses the same levers or inputs that financial planners factor into retirement planning – how much we save, how much we spend, and the compounding factor of time for investments to grow. It also helps younger generations choose a long-term goal and encourages changing behavior to get them to that goal, rather than living day to day and realizing in your 40’s or 50’s “hey, maybe I should think about how much I need for retirement.”
FIRE Movement Cons
The drawback to the FIRE movement is the challenge of taking into account all the life changes and associated costs that may take place over a potential span of fifty or so years. When you make a financial plan or retirement plan with that much time in it, there are so many bumps and life events that disrupt the end result. Marriage, children, health challenges, job loss, our partners spending and saving habits, taking care of elderly parents, etc.
Additionally, while it encourages structured principles and habits earlier in life (spending and saving) it can be taken to an extreme. And people may miss out on some of the daily beauty and opportunities that make life meaningful. Being in the moment, going on a trip with friends, seeing the world. I had the opportunity to go to a friend’s wedding in a castle in Germany years ago. How often does that happen? I still regret not going.
Other potential risks may relate to underperforming investments and outliving your funds. Early retirement, while attractive in theory, also isn’t for everyone. You might get bored and miss working or having some purpose. It isn’t always easy to get back into the workforce once you’ve left it, voluntarily or otherwise.
A 2008 analysis from the National Bureau of Economic Research reported that retirement leads to declines in mental health, mobility and increases other poor health outcomes such as heart disease and stroke. You will also need to find health insurance coverage until you are eligible for Medicare at age 65, which can be expensive and not something you budgeted for.
Choosing when to retire is a complex decision. The great news about the FIRE movement is it encourages people to start thinking about what they want out of life and retirement earlier and make a plan. At the end of the day, making early smart structured moves in your career can enable you to live the life you want – whether that be retiring early, or a reduced work schedule that allows for more work/life balance and flexibility. If you are interested in learning more about the FIRE movement or any other financial planning topics, please contact one of our financial advisors in Austin.