Have You Heard of FIRE?

  by Shelley Seagler

Most people plan on retiring in their 60s when Social Security benefits kick in and they’re eligible to withdraw from tax-deferred retirement plans. But a small group of people plan on retiring much earlier. The Financial Independence Retire Early, or FIRE, movement is challenging the status quo and helping people retire in their 40s, 30s, or even 20s.

Let’s take a closer look at the FIRE movement and whether you may want to consider becoming a follower.

The History of FIRE

There’s no doubt that people have been contemplating the idea of early retirements since Henry Ford introduced the eight-hour workday in 1926. But Jason Lund Fisker formalized the idea of frugality and savings as a means to early retirement in 2007 with his book and blog, Early Retirement Extreme. These ideas inspired what has become the FIRE movement.

The FIRE movement began as an extreme budgeting and saving plan for early retirement, but modern followers focus on financial independence rather than retirement. By building up enough savings and lowering monthly expenses, you can shape the life that you want — working or not working — without taking money into consideration at every corner.

FIRE retirement

Why People Choose to Retire Early – Harris Poll 

By 2018, the FIRE movement had received mainstream coverage across traditional media outlets. A 2018 Harris Poll found that 11% of wealthier Americans 45 and up have heard of the FIRE movement by name and another 26% were aware of the concept. These figures are even higher for Millennials who have been eager to embrace the idea.

The rise of budgeting software, such as Mint or YNAB, and savings software, such as Acorns or Betterment, have made it easier to achieve FIRE goals. Rather than enter expenses into a spreadsheet or remembering to rebalance a portfolio, these apps put everything on autopilot when it comes to saving and budgeting to achieve financial independence.

Is It Right for You?

The FIRE movement may sound appealing, but it may not be possible or the right choice for everybody. If you have children, you may have a limited ability to cut back on expenses. If you have a low-income job, you may not be able to save enough. The FIRE principles require a sufficient gap between income and spending that’s not possible for everyone.

Download our free Checklist of Strategies to Cut Monthly Expenses to see where you could save money each month and reduce your cash flow requirements in retirement.

Even if you have enough income and spending flexibility, you may not want to make the sacrifices necessary to achieve financial independence. Early retirement can also be a source of boredom for those that aren’t self-driven or able to find purpose in life beyond their work. If you are simply unsatisfied with your job, a new job or career may be better.

There are also a few pitfalls and criticisms of the FIRE movement to consider before making a decision. For example, the 4% rule was originally developed for a traditional retirement time frame of 30 years and the same strategy may not work when applied over a 70-year timeframe. This means that the retirement savings amount may not be sufficient.

If you have the means and willingness to make sacrifices, then the FIRE movement could be a great way to achieve financial independence and pursue your dreams. You may want to speak with your accountant or financial advisor to ensure that you’re saving enough for retirement over the long-term unless you plan to re-enter the workforce.

How to Get Started

Start by asking why you want to pursue financial independence. Do you want to start a business? Do you want to travel? Do you want to spend more time with your kids? A tangible goal goes a long way in motivating you to get through the tough times and follow through with the extreme budgeting and saving to achieve financial independence.

Don’t forget to download our free Checklist of Strategies to Cut Monthly Expenses to see where you could save money each month and reduce your cash flow requirements in retirement.

The FIRE movement recommends saving 25 times your monthly income requirements, or in other words, saving up enough to make a 4% withdrawal every year. By investing these savings into passive income streams, you can usually generate enough to live without depleting your retirement savings. You can achieve this goal by both saving more and spending less.

For example, a person living on $500 per month would require $150,000 in savings and a person living on $2,000 per month would require $600,000 in savings. Each $100 reduction in monthly expenses reduces the savings requirement by $30,000, which means that frugality plays just as important of a role in financial independence as savings.

These savings should be invested in passive income streams. While rental properties and dividend stocks are the most common options, these investments could be anything that has an attractive yield. For instance, the Snider Investment Method helps investors generate predictable cash flow by writing covered call options against a portfolio of stocks.

Take our free e-course to learn how stock options can help you generate a passive income after you’ve saved enough to become financially independent.

The Bottom Line

The FIRE movement began as a strategy to retire early through extreme saving and budgeting. Since then, the movement has focused more on financial independence than retirement. The ultimate goal is to save 25 times your monthly expenses and invest those savings into passive income streams to generate sufficient cash flow to fund your lifestyle over time.

If you want to learn more, check out Playing with Fire. This documentary follows a family’s journey to independence and interviews many popular figures inside this growing financial movement.

If the FIRE movement isn’t right for you, you can still embrace some of its tenants to improve your current retirement plan. You could start cutting a few expenses and save a little more to reach your retirement goals faster. A savings rate of 10% means it takes nine years of work to save for one year of retirement, versus just three years for a 25% savings rate.

The Snider Investment Method leverages stock options to generate monthly cash flow. You can generate a higher yield than dividend stocks while remaining ‘in the market’ with a portfolio of stocks rather than bonds. You can manage your own portfolio using our strategy guidelines and proprietary screener or choose a done-for-you asset management option.
Take our free e-course to learn how stock options can help you generate a passive income after you’ve saved enough to become financially independent.

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