If retirement in your 30’s or 40’s sounds appealing, the FIRE Movement may be just for you.
Financial Independence, Retire Early (FIRE) is a popular movement that espouses extreme saving of up to 70% of annual income to enable retirements decades earlier than the traditional age.
Proponents suggest aggressively saving during the working years to accumulate enough to meet the 4% annual withdrawal rule necessary to sustain retirement. Typically, that amounts to roughly $1 million, or 30 times the average annual living expense.
FIRE followers typically fall into three categories: completely retired and entirely dependent on savings; working part-time to supplement daily expenses; or working part-time but with sufficient funds to cover retirement. Some commit to frugal retirements as well, while others engage in income-generating jobs such as consulting or freelancing.
The concept was popularized by blogger Mr. Money Mustache and has generated both a following and criticism from financial experts.
The criticisms include:
- Strict saving discipline that is difficult, if not impossible to adhere to. Typical sacrifices include: cooking at home instead of going out; biking to work and outings instead of driving; buying secondhand clothes; and, forgoing vacations. Living so frugally without any rewards for so many years can be difficult and depressing.
- No more employer-sponsored medical insurance. Many people fail to accurately calculate healthcare costs. With insurance no longer available through their employer and Medicare not accessible till age 65, costs can quickly skyrocket and deplete savings faster than expected.
- Insufficient or no safety net. Unpredictable events such as a medical crisis can be financially devastating. Costs not typically accounted for but associated with a disease diagnosis include: daily nursing care at home or in a facility; home renovation to accommodate a disability; and medication, dietary needs and routine devices such as oxygen tanks and wheelchairs. A divorce can also be very expensive, with a couple’s savings not typically enough to suddenly support two separate households.
- Insufficient protection from sudden market downturn. Wise investors create balanced portfolios to accommodate fluctuations. But expecting a portfolio to be sustainable for roughly 40 years while it is being annually depleted is risky. With employer contributions no longer in effect once a FIRE follower quits his job, he has limited protections and can only rely on time to support recovery.
Other possible downsides to FIRE include boredom and a sudden lack of identity. Many who long for early retirements may miss the social and intellectual stimulation of steady work. They also can become lonely and isolated.
While the FIRE movement has many proponents, it is not for everyone. Many find it unfulfilling or unmanageable. Returning to their earlier careers may be difficult or impossible. It may also require a pay cut or a demotion to reenter the working world.
At Silverman Financial, we support retirements that are stable and sustainable. We provide customized financial roadmaps for our clients that fulfill their wishes and needs while protecting them throughout their retirements.