Back in the 1990s, a best-selling book grabbed the headlines by proposing anyone could retire early, not by a few years, but decades earlier than the accepted retirement age of 65.
“Your Money or Your Life” by Vicki Robin and Joe Dominguez set alight a new movement known as FIRE – Financial Independence, Retire Early. From the early days in the USA, the concept has spread worldwide with thousands creating their financial plans for FIRE here in the UK.
F.I.R.E. involves what Investopedia describes as “frugality and extreme savings and investment.”
- Those wishing to achieve FIRE would save up to 70% of their annual income and invest it.
- When their savings equalled approximately 30 times their annual expenses (or approximately $1m) they would retire.
- They would then fund their retirement lifestyle by withdrawing 3-4% of their savings, and also continue to maintain and manage their investments.
Three types of FIRE
Within the FIRE movement there are three types of FIRE plans:
- Fat FIRE involves maintaining current lifestyle, and usually requires a high salary, full-on savings and an active investment strategy.
- Lean FIRE is based on minimalist living and extreme savings, which does restrict lifestyle. Most who do this live on $25,000 or less per year.
- Barista FIRE treads the middle path, with part-time work and savings both funding an enjoyable lifestyle.
High-earners can retire earlier
If you want to retire in your 30s or 40s, FIRE is a technique for high-earners only as you simply can’t accumulate sufficient savings and live life on a lower income. For others it’s a way of thinking that instils the importance of financial planning (something we’d agree on) and as a side benefit, shows that we can probably live better whilst consuming less.
However, it also involves incredible discipline and (dare I say) a fair amount of self-denial during years when you might prefer to be enjoying life with friends and family. Not to mention funding major costs associated with family life, from prams to private school! FIRE is definitely not for the faint-hearted or those already on a tight budget.
Philanthropy and FIRE
It may seem contradictory, but many FIRE followers have a strong philanthropic ethic. According to posts on Reddit, this emerges in various forms including:
- regular donations treated as any other budget item
- donations of time
- donating significant amounts of time in retirement
- large sums gifted in their wills
As Reddit community member eseligsohn says:
“I have recurring donations to a number of charities which I re-evaluate annually, plus some budget room for one-time donations (disaster relief, friend fundraising for a good cause, etc.). I plan to volunteer some in retirement and leave at least part of my estate to charity.”
What’s the purpose of early retirement?
I think there’s another crucial factor that FIRE doesn’t address: a sense of purpose in retirement. Once you leave full-time work, what do you want to achieve? If you treat life after 40 as a permanent holiday, with no tangible goals or direction, you may find yourself drifting rather than journeying through the rest of your life. And if you retire aged 40, that could be another 50-60 years.
That’s a very long holiday.
Plan to retire
In my experience, many people who want to retire early haven’t really planned for life in retirement. Their finances are probably in place, and they’ve worked out how much they have in terms of assets and pension, and therefore know their baseline income in retirement.
What they haven’t figured out is what they will do day to day, year to year and, potentially, decade to decade, for the next 30+ years.
And if you adopt FIRE and retire in your 40s, you’ve doubled that retirement timespan.
FIRE and areas of retirement to think about
If you’re approaching retirement or considering early retirement, you need to sit down and have a good hard think about the core areas of your second phase of life after work. This should include:
- Family & Relationships
- Social Networks
- Mental & Physical Wellbeing
- Profession and Business
- Volunteering/Giving Back
- The Fun Stuff
Oh, and financial planning too.
And that’s before you retire, not afterwards.
Your unique retirement plan
Once you know what you want life to look like in these key areas, you can create your individual retirement plan. If that sounds intimidating, or you need some help, you are not alone. I created my Retire With Purpose programme to help people just like you who want to retire, to do so with confidence, purpose – and a bespoke plan.
Ready to retire?
I’m here to help. Join me on an Introductory 60-minute workshop in 2022 and gain invaluable insights into:
- The top 3 myths around retirement
- Time precious planning
- That crucial non-financial conversation
- How to create your own retirement game plan for the rest of your life
You can register here – no obligation, no sign-ups, just an email with dates you can pick from. And until the end of March 2022, the Introductory workshop is free, by the way.
If you’d prefer to discuss any aspect of your retirement planning 1 to 1 with me, then just get in touch. Our initial discussion is also free and again, no obligation and no upselling (I hate that as much as you do!).
