We are going to try this after the kids are done with daycare. Cars should be paid off by then too. We should be able to live on one of our salaries by then and the other will go into savings. I think we should be able to retire in 15 years if we do this the right way and don’t have any major setbacks like sickness or job loss.
FIRE is having a moment, and it’s not hard to understand the appeal. Financial independence? Sounds great! Retiring Early? Sign me up! It’s a movement that’s quickly gaining momentum, too. We spoke with four FIRE enthusiasts and asked them to share what the movement is all about, and what it takes to achieve this elusive goal of Financial Independence/Retire Early.
What Is FIRE, Exactly?
When you think retirement age, you probably think of someone in their late 50s or 60s, and there’s a reason for that: it’s the norm. The Social Security Administration allows you to start taking benefits at age 62, for example, and you can start withdrawing money from your Individual Retirement Account without a penalty at age 59 ½.
While this is the standard age in which most people start thinking about retirement, people who strive for FIRE retire much earlier than this, usually in their 40s, 30s, and sometimes even in their 20s.
(Chances are, you’re skeptical right now. You’re probably thinking something along the lines of, “This sounds great, but what if I only make 35k a year and I’m drowning in student loan debt?” Don’t worry, we’ll get to that. Many FIRE enthusiasts wholeheartedly acknowledge the privilege of the FIRE movement.)
Early retirement is the literal definition of the FIRE movement, but there’s a much more robust meaning when you start digging into the principles behind FIRE. Namely, it’s about flexibility.
“Financial independence ultimately means that you can shape your life without taking money into consideration,” said Tanja Hester, a recent FIRE graduate and founder of the website Our Next Life. “Most of us have to consider our finances in nearly every decision we make, or maybe even make decisions solely based on money. But once we reach financial independence, we get the freedom not to be bossed around by what we earn or what we have saved.”
Contrary to our traditional view of retirement, FIRE doesn’t necessarily mean you have to quit your job, either. (The movement works on a loose, non-traditional definition of what it means to be “retired.”)
“It’s less about retiring early and more about having the freedom to pursue your dreams and ambitions,” said Deacon Hayes, author of You Can Retire Early! Hayes adds that FIRE is really about “the freedom to choose to work or not.”
In fact, the FIRE community seems to focus less on the “retire early” aspect of the movement and more on the financial independence component, “which is a powerful aspirational goal that is readily achievable if people are willing to make some small, but important, optimizations in their lives,” said Jonathan Mendonsa, co-host of the ChooseFI podcast.
Mendonsa is currently pursuing financial independence and explains there’s a concrete definition of it: when your net worth is 25x your annual expenses, you’re considered financially independent. “So if your annual expenses are $40,000, you are financially independent when your total net worth is $1,000,000,” he said.
If you have a high-paying but soul-sucking job, FIRE probably sounds pretty good right now. Hester warns against this, however:
“Retiring early because you don’t like your job is a bad reason to do it, and is a recipe for being bored or aimless when you get there,” she said. “Achieving FIRE is a big deal, and it takes a lot of focus and determination. It’s not for those who want to get rich quick, or for those who just hate their job. The better solution then is just to find a new job, or a new career path. I’m a huge believer that you can love your job and still want to retire early or just achieve financial independence! That was true for us. We loved our work, the people we worked with, and our clients, but we didn’t love the pace of it, the pressure or the constant travel.”
Hayes would agree. He says that if you’re willing to develop and stick to a plan, it really doesn’t matter whether or not you quit your job to pursue financial independence.
“Many people who achieve financial independence, do so as a W2 employee,” he says. “Also, financial independence doesn’t mean that you have to quit your job. It just means that your job needs you more than you need them. This gives you an upper hand to be able to negotiate things like your hours, vacation time, etc.”
Early retirement is less for people who hate their jobs and more for those who have a clear idea of a different lifestyle or goal they may want to pursue.
“A good reason to retire early is that you have an alternate vision for your life that you are eager to pursue, but which you can’t pursue while employed full time,” Hester said. “Achieving financial independence allowed us to leave that career chapter of our lives from a place of gratitude and appreciation, and move onto our next chapter that we’re in control of.”
Other investments, like rental properties and passive income streams, are a big part of achieving financial independence, too. And so is frugality. The less money you need to live, the less money you need to save in order to fund the rest of your years.
“To highlight the value of cutting expenses, for every $100 per month you can trim, it means you need $30,000 less to achieve FI ($1,200 yearly expense x 25 = $30,000),” Mendonsa said.
Thames breaks it down this way — there are three basic elements to FIRE: time, expenses, and income. The goal is to put space between expenses and income. “How much space you put is how much time it takes you,” she said.
If you relying on investing in anything related to stocks, then that throws the whole "financial independence" thing completely out the window. You're very MUCH dependent on a TON of factors...
Then there's this list, or the "10 pillars". Each and every one of them is faulty:
Lowering your housing costs
Driving used cars
Cutting the cable
Lowering your tax liability by maxing out your tax-deferred vehicles such as your 401k, 457, 403b, IRA, HSA, etc.
Using cheaper cell phone service
Use credit card rewards and smart financial habits to help fund your travel
Cut your grocery bills
Increase your income and consider adding multiple income streams
Low-cost index fund investments
The 4% rule: The ultimate equation behind achieving financial independence. (The 4% rule involves how much you can safely withdraw from your nest egg each year in order to make sure you still have enough money down the road.)
>If you relying on investing in anything related to stocks, >then that throws the whole "financial independence" thing >completely out the window. You're very MUCH dependent on a TON >of factors...
That's true... that's why people wanting to follow FIRE while primarily being invested in the stock market often use Monte Carlo simulations to come up with the probabilities that their nest egg will last as long as they need it.
You give the simulation parameters such as how much your nest egg will be, how much you'll spend each year and how long it will need to last and it will tell you the probability of you making your target based the best and worst markets overt he same length of time.
People that want to be as safe as possible keep saving until they're almost certain they won't run out of money in even the worst market periods.
If you save minimally, it'll take forever to hit 25x mechanically but you'll likely get there a little sooner since you'll give the market time to give you returns.
If you can manage to hit the aggressive end of the savings rate (55%+), your investments won't have alot of time to really grow so most of your savings is just saved money.
>Then there's this list, or the "10 pillars". Each and every >one of them is faulty: > >Lowering your housing costs > >Driving used cars > >Cutting the cable > >Lowering your tax liability by maxing out your tax-deferred >vehicles such as your 401k, 457, 403b, IRA, HSA, etc. > >Using cheaper cell phone service > >Use credit card rewards and smart financial habits to help >fund your travel > >Cut your grocery bills > >Increase your income and consider adding multiple income >streams > >Low-cost index fund investments > >The 4% rule: The ultimate equation behind achieving financial >independence. (The 4% rule involves how much you can safely >withdraw from your nest egg each year in order to make sure >you still have enough money down the road.)
The first 9 things are different avenues to save money. They may not be available to everybody but they're things to keep in mind when making financial decisions.
Like, I'd love to live near work and be able to walk or bike... but, we bought into the suburbs, far from my current job. I dunno if I'll ever be able to find a job close enough to bike to, but I'll keep that in mind when I'm looking for my next job or if we consider moving.
9. "We finally paid off our phones and just pay for service" In response to Reply # 8
That’s a savings of $40 a month.
I never buy new phones anyway so next phone will be used iPhones bought online at full price.
It’s really about cutting down on dumb purchases.
Eating out is my biggest waste of money. Also, even when we go with a list our grocery bills are stupid high. Impulse buys are a problem. Need to try the grocery purchase online and curb side pickup. A coworker does it and says they spend )25 less because they aren’t making impulse buys. I like the grocery store tho, it’s the closest thing to going out to the club now that I have kids
4. "I didn't read the details, but my in-laws did something like this." In response to Reply # 0 Thu Dec-06-18 02:07 PM by Cam
They retired in their 50s. I believe they lived on the lesser salary for nearly 20 years. Financially they're very comfortable now.
But it's a new day, I don't think it's as feasible for us.
They were a Doctor and an Attorney and only rented a home for one year then in the 70s they bought the house they still live in. Their childcare was free, and they sent their kids to public schools--until college. They also had pensions, then lucked out with company stock options, working for big pharma, then ED drugs happened and made those stocks much more valuable.
My Dad, a journalist, also retired in his late 50s after a buyout from the paper he was last at, he's 68 now, he then moved to Asia after his third failed marriage and lived in different Asian nations--3 months at a time for visa reasons--fairly well. He supported himself with one of his pensions and occasionally working as a freelance photog and university english instructor. He's back now, with his new woman who's in a grad program at GW, they have a comfortable condo in NoVA and he's still retired.
My Mom is in her 60's, she's twice left corporate jobs and is semi retired. Now she works part time and remotely, for a 30 year old company she's a co-owner of. She had some financial issues in the past 10 years after a couple failed relationships, but has since inherited a decent amount of cash and is ready retire totally by her 65th birthday next year.
I fully expect to be going to an office through my 70s.
10. "The biggest knock on FIRE is that it's mostly for higher income folks" In response to Reply # 0
Most of the blogs are focused on people that were already making good money and figured out they could save alot of money while still enjoying what's important to them.
The blogs don't do much for people making alot less that don't have much fat in the budget to cut.
I think it can still be useful to low income folks though if they still hear the general message that you can still live a quality life without alot of the stuff or the lifestyles we're sold. That way, they can avoid alot of the lifestyle creep that traps alot of higher income people into wage slavery.
Their focus would naturally have to be on making more money but if their secondary focus is on maximizing their savings and investments along the way, it'll actually be easier for them to reach some of the extreme levels of savings.
12. "Sometimes I think about just cutting all my extraneous expenses" In response to Reply # 0
I have my shit together savings wise, but having that total freedom would be really nice. To go from "I wont be homeless if I get laid off" to "I only have to work if I feel like it"? Damn. That would be a great feeling.
But I also like being able to buy stuff (within reason). I've definitely just inflated how much I spend every time my income has increased. Easy to get caught in that trap.