Everyone talks about retiring on a beach with a colorful drink in your hand with an umbrella. Driving a convertible like some 90s montage into the sunset is the ideal retirement goal. But many people may not want to wait until their sixties to get there. Some may want to retire early and put working behind them to enjoy a relaxing life.
But is that realistic? People like to dream but what does it exactly take to reach those goals? It’s a long path full of sacrifice and resourcefulness. Reaching FIRE is hard work, but worth it for those eager to reach true financial freedom.
What Is F.I.R.E.
That’s all fine and dandy, but what exactly is FIRE? It stands for financial independence retire early. It’s a growing community of people aspiring to reach financial freedom and retire early from their work. I know, retiring at a early age sounds crazy.
Did you know 45% of people in their 60s believe they are on track for retirement? That’s less than half, in case you couldn’t figure that out. In fact, 13% have no savings at all. It’s an unbelievable number that is quite hard to stomach.
For those that wish to achieve FIRE, creating a nest egg is absolutely necessary. Figure out how much you need realistically to live off of the rest of your life. Say $50k is the ideal number to continue living the life you want. Multiply that number by 25 and you got your goal.
Saving $1.25 million is the end goal of retiring on $50k. People. Use the 4% rule make that money last forever. If you withdrawal 4% of your nest egg it will never run out.
Is It Possible?
Yes, of course it’s possible, but there’s a caveat. Reaching early retirement is no picnic and it’s definitely not the party you’re expecting. You’ll be required to make plenty of sacrifices, especially depending on when you plan to retire.
What Does Retiring Early Require?
Most people working towards F.I.R.E. are aiming to retire in your 30s. The main point is to live off income from investments and not touch the initial capital.
Like I mentioned, you would use the 4% rule to keep money going longer, but typically follow 3% if retiring earlier. Studies have shown if you retire much earlier than your 60s, the 4% is less likely to last for that long. A safer percentage to follow then is 3%. It will cover your long retirement and help you continue living off the income from your investments.
But if you lower the withdrawal rate to 3%, that means the initial capital would need to increase. To continue living off of $50k for life, you would need $1.7 million to reach FIRE.
Let’s do some math though. If you want to retire at 35 and invest for 15 years to reach your goal at 8% interest, you would need to save $59k a year. Wow. That’s $4,900 a month to save for 15 years.
That number definitely doesn’t sound realistic and so people instead try to lower their costs of living. That way they don’t need to save as much capital. So instead of $50k, it could be closer to $30k.
Most people tend to try to save 20% of their income. This is a fair savings rate to build a decent size portfolio to retire in your 60s. F.I.R.E. people typically save at a much higher percentage like 70% to 80% of their income.
Learning From The FIRE community
So FIRE may be out of reach for some, or just not realistic for others. Or you could just not be interested in general, but it’s important to look at the community and try to learn from qualities they strive for. Among those would-be frugality.
They are masters of being frugal in their everyday life. There is no wasted spending, no need to order out or buy cars outside their budget.
They mainly focus on minimalism in their life. There is no need to so many materialistic things and they would much rather live a simple life outside the scope of a 9-5.
If we take some of those qualities into our own life, we could easily raise our savings rate for a more comfortable and less complicated life.
The Dark Side of FIRE
Retiring early is the dream. Just image walking into your boss’ office, give him the finger and walk out. But there are circumstances that could prevent you from reaching that goal or just delay it for a few years from a thing we call life.
In some situations, your investment portfolio could experience some heavy losses early on. The market these days has been very volatile and if you choose the wrong stock, you could have easily lost 30% these past few months. Losses like this can easily push retirement date back as you try to get your portfolio back into fighting shape.
Others may come into some health issues that require high medical bills outside the scope of investment income. These situations are completely unpredictable, and you really can’t prepare for events like this. This is could push you out of early retirement, forcing you to go back to work to make up some of that lost money or delay it altogether.
Others could lose their job or experience disability to prevent you from working and achieving FIRE. Investments could be susceptible to inflation or decreased dividend payouts that effect your passive income. There are many what-ifs that could become hurdles on your path to FIRE.
FIRE is much trickier to pull off than anyone ever thought. In fact, many early retirees actually continue to work. The FIRE movement isn’t just about retiring early. In fact, many of the early retirees continue working at some capacity.
Either they just enjoy their work or like to have that security of saying, “I can quit right now if I really wanted to.”
The True Meaning Of FIRE
The main purpose of FIRE isn’t just to retire early. Its main goal is to seek financial independence. You could retire early, but you have the option not to.
This way you could take on part-time work or start passion projects not focused on the money. You would have more flexibility to do what you want to do and not rely on your typical day job.
Early retirement may not be as glamorous as you think it is. This isn’t to discourage you, but it’s simply not realistic for many. Some may not be able to lower their expenses to achieve that high savings rate.
But it’s important to take the tips of the FIRE mindset to your day-to-day living. Frugality is a helpful mentality to reach your goals.
FIRE is harder, but not impossible. Figure out what you really want and go for it.
