FIRE

Since before the dawn of time (or at least it seems that way) financial advisors have been telling us how to save for our retirement. For a long time, they claimed there was some kind of magic formula and if you were lucky enough to reach that equation, you’d be ‘set for life’. They, of course, knew the secret route on that successful journey toward retirement bliss and happiness.

Back when I cared, their magic number usually hovered around three-quarters of a million dollars. At last count, it has now reached a zenith of one million, two hundred and fifty thousand dollars. Once there, you are assured (according to them) of a comfortable retirement…without ever really defining what that is supposed to look like.

A while back, I was jaw-boning about this new approach to financial literacy with a retired school administrator and investor friend of mine. He’s written a book about safe, sane investing aimed at the educational community. As a past educator, he knows that many of his fellow teachers are not as financially savvy as they should be. We talked about our own divergent pathways to retirement and he mentioned a new movement that he’s become intrigued with now.

It’s called FIRE and it purports to have found a new route to financial freedom for the younger generations. For the two of us, that would be anyone under the grand age of sixty. My friend tells me that millennials in particular seem to have gravitated toward this new ‘routine in financial living. FIRE is an acronym for ‘Financial Independence, Retire Early.’ To better understand the concept, I’ve borrowed some of the high points of this philosophy from the Investopedia web site.

The web site explains that: ‘Financial Independence, Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.

Born out of the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, FIRE came to embody a core premise of the book: People should evaluate every expense in terms of the number of working hours that it took to pay for it.

Key Takeaways of FIRE

• Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and extreme savings and investment.
• By saving up to 70% of their annual income, FIRE proponents aim to retire early and live off small withdrawals from their accumulated funds.
• Typically, FIRE followers withdraw 3% to 4% of their savings annually to cover living expenses in retirement.
• Detailed planning, economic discipline, and wise investment are key components in achieving a FIRE retirement.
• The FIRE movement was inspired by the 1992 book Your Money or Your Life, written by two financial gurus.

The FIRE movement takes direct aim at the conventional retirement age of 65 and the industry that has grown up to encourage people to plan for it. By dedicating a majority of their income to savings, followers of the FIRE movement hope to be able to quit their jobs and live solely off small withdrawals from their portfolios decades before they reach age 65.

As reported by Vox, in recent years, millennials in particular have embraced pursuing a FIRE retirement. Proponents of the extreme-saving lifestyle remain in the workforce for several years, saving up to 70% of their yearly income. When their savings reach approximately 30 times their yearly expenses, or roughly $1 million, they may quit their day jobs or retire from work altogether.

To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% of the balance yearly. Depending on the size of their savings and their desired lifestyle, this requires extreme diligence to monitor expenses as well as dedication to the maintenance and reallocation of their investments.

Several FIRE retirement variations that dictate the lifestyle that the FIRE movement’s devotees are willing and able to maintain have evolved within it, as reported by Forbes Advisor.

• Fat FIRE—This is for the individual with a traditional lifestyle who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. It generally takes a high salary and aggressive savings and investment strategies for it to work.
• Lean FIRE—This requires stringent adherence to minimalist living and extreme savings, necessitating a far more restricted lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
• Barista FIRE—This is for people who want to exist between the two choices above. They quit their traditional 9-to-5 jobs but use a combination of part-time work and savings to live a less-than-minimalist lifestyle. The former lets them obtain health coverage, while the latter prevents them from dipping into their retirement funds.

Most people think that FIRE is meant for people who can pull in a substantial income, generally in the six figures. And indeed, if your goal is to retire in your 30s or 40s, that probably is the case. However, there is plenty for everyone to learn from the principles of the movement that can help people save for their own retirement and even achieve an early one, if not quite as early as 40.’

Sprinkled throughout the web site are some interesting points about good old simple planning ahead for retirement. For many folks, that’s easier said than done. One pundit commented to me that the best time to save is when you’re first starting out in a new job or getting married and settling into a new lifestyle. Of course, he never mentioned that that period in our lives is when we generally incur a lot more expenses than earlier in life.

If you are married, have kids, a house payment and other household expenses then saving for retirement isn’t usually high on your radar scope.

The Investopedia web site does have some disturbing, but not surprising, facts to consider. It explain that:  ‘It is important for everyone to plan for their retirement, and yet, according to a May 2021 report from the Federal Reserve System Board of Governors, in 2020, one in four Americans had no retirement savings whatsoever, while 36% who did have savings felt that their retirement plans were not on track. The FIRE movement stresses the importance of having a de-tailed plan and sticking to it, principles that will aid anyone in saving for retirement and maintaining a decent emergency fund.’

Another article from Financial Advisor Magazine claims that: ‘33% of millennials and 32% of Generation Z identified student loans as their largest debt burden. It went on to say that ‘a lot of people who do have that kind of debt are lacking a surplus of cash that they can invest in. This debt might be holding people back from purchasing a home or even getting money to invest.’

The article went on to say ‘there are other costs and it’s so easy to be influenced by social media and spend money on traveling or a night in the city. A lot of those surpluses are going toward these variable expenses.’

The FIRE movement has many solid, common sense arguments in its favor. While I have no desire to poke holes in their concept, I do find one equation that is either seldom mentioned or just passed over briefly; that is, living the life you want to live. Postponing life events, small pleasures, and everyday occurrences just to save a buck doesn’t seem to me a good way to spend one’s life.

The web site argues, quite convincingly, that: ‘no one can achieve a secure retirement without investing in their retirement savings. FIRE adherents invest larger portions of their income than the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings to a point where they can assure you financial stability in your later years.’

In the end, I think those FIRE proponents and I are probably talking about the same ‘means to an end.’ I’ve always felt that living within ones means, spending money wisely but still ‘having a life’ is the best way to go. Another way of putting it is being ‘thrifty smart’ and not ‘stupid cheap.’

It doesn’t hurt to be able to recognize the difference between ‘having to have’ verses ‘wanting to have.’ Our good old capitalistic society thrives on the economic engine of consumption and always wanting more. A recent advertisement for Lincoln automobiles proclaims that: ‘Owning a Lincoln means you have arrived.’

No it doesn’t!

It just means you’ve bought into the American Dream of having more and feeling good about yourself. Real success lies in ‘living a satisfying, fulfilling life’ and not having a new car in the driveway just to impress your neighbors. It means spending as much time as you can with your kids and/or grandchildren when they’re young. It means spending quality time with your spouse or partner in life. It means taking the time to ‘smell the roses’ and treasure each day as a gift to be shared, used, enjoyed and relished as if it were your last.

Because at some point, it will be… and all the money in the bank can’t make up for lost time or opportunities to ‘live your life.’

Just sayin.