Everything You Need to Know About the FIRE Movement: The Complete Guide to Retiring Early

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By Jeff Smith

Table of Contents

The FIRE movement is a lifestyle trend that promotes Financial Independence and Retiring Early. FIRE supporters live a life of conservative spending and conscious saving with the hopes of retiring in their 30s and 40s. That’s definitely not your average retiree!

The average retirement age in America is currently 61 but polls indicate that nonretirees expect to retire at age 66—that expected retirement age has been growing since the 1990s, according to Gallup. As thoughts of traditional retirement seem to grow more out of reach, that’s where the FIRE movement comes in.

The FIRE movement is appealing to people who feel stuck in a pattern of work and financial strain. Those working towards FIRE say that it’s less about wanting to spend their days on a beach and more about achieving financial freedom from an unfulfilling job.

Although the FIRE movement has its fair share of critics, the beliefs behind it can instill good financial habits like cutting excess spending, prioritizing saving, building credit and managing debt responsibly.

This complete guide to FIRE will take you through the pros and cons of the movement as well as outline steps to take toward financial independence and early retirement.

What is the FIRE Movement

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If you think only younger generations are prone to poor saving habits, you’d be mistaken. At least 33% of baby boomers (the age closest to retirement) have only $0–$25,000 saved for retirement, according to this study. Workers in their twenties and thirties are taking note and adjusting their habits.

The FIRE principles have been around for a while but with recent media attention, the movement has gained more traction and controversy. There is an entire FIRE community that has different beliefs on whether you should live a life of extreme frugality or save up to 50% of your income while working. One of the more well-known sites is Mr. Money Mustache, a blog and advice forum created by a man who retired at age 30 in 2005. He writes on topics such as living frugally, personal finance and investing.

Financial Independence

The goal of financial independence is to reach a life status where you have more freedom to make choices based on your interests rather than your financial responsibilities. Understanding financial literacy early on sets you up on the right path toward financial independence. Worrying less about money can help reduce stress and free up time for the things you enjoy doing.

Retire Early

Retirement usually brings to mind a sandy beach or green golf courses in your older age. But with FIRE, retiring early can look very different.

With the rise of the gig economy and side hustles, work flexibility is at an all time high. Early retirement could mean quitting a traditional job and trading it in for another source of passive income. Living comfortably in your retirement has a lot to do with the amount you’ve saved, the lifestyle you want to maintain, and of course, how long you expect to live.

Pros and Cons of the FIRE Movement

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Supporters of the FIRE movement encourage cutting expenses, saving aggressively and investing to reach a state of financial independence earlier than most. FIRE proponents value meaningful work and would rather work hard while they’re young than work into their late 60s. Living frugally and increasing their income are two methods of building up savings. However, the methods to get there may not be for everyone. The reality of debt and other large expenses propose another hurdle.

Critics of the FIRE movement argue that only a small population that can attain enough savings to retire early and that it would take extreme measures to get there. There has always been back and forth on how much savings you need to retire, but the general consensus is that it’s difficult for the average person to save that much. Some saving recommendations shoot up to $5 million while other sources say you should save 10x your pre-retirement income by age 67.

No matter when you plan to retire, there are steps you can take now to ensure you are being financially responsible.

Pros:

  • Controls your spending. FIRE relies on decreasing extra costs and finding ways to be more conservative with your living expenses.
  • Promotes saving (a lot). Most FIRE supporters have large saving goals and will find ways to maximize those goals by increasing their incomes.
  • Adds flexibility to retirement. Retirement doesn’t have to be a definitive stopping point. People can continue to work as they wish on projects and earn passive income.
  • Encourages a meaningful and satisfying life. FIRE is less about wealth and more about having the freedom to pursue your true passions.

Cons:

  • Extreme frugality isn’t for everyone. Saving nearly 50% of your income each year can be very restrictive on your budget. Expenses like a house, kids and college tuition make extreme frugality a little tougher.
  • Contains a lot of uncertainty. Planning for something years (or decades) away means you don’t have control over every aspect. Life, and the market, can bring many unexpected changes to your savings.
  • Increases financial risk. Throwing in the towel early may mean you miss out on benefits from those later years. Social services, healthcare coverage and tax benefits are all factors in retirement.
  • Unrealistic for most people. The reality is that debt carries a large financial responsibility for most people. The ability to save at certain life stages isn’t the same for everyone.

How to Achieve Financial Independence

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The FIRE movement is built on achieving financial independence. This means achieving a savings and income level that allows you to comfortably live the way you want. For most, that means lowering your spending, saving as much as you can and investing early.

Follow these steps to reach a level of financial independence in order to live your best life.

Step 1. Lower your spending and prioritize saving

The easiest way to save money is to cut your annual expenses. Following a strict budget will help you monitor your spending and find areas to cut costs. Some FIRE supporters maintain a savings rate of 25%–50% of their income each year by drastically cutting spending on food, clothing, and other expenses. Try negotiating expenses like monthly rent and medical bills to save in areas you weren’t expecting.

Step 2. Manage your debt responsibly

If you’re in your 20s or 30s, student loan debt or credit card debt may take a lot of priority in your monthly budget. Managing your debt in a responsible way will allow you to reduce your spending and avoid financial issues. Some tactics include negotiating lower interest rates and making consistent payments.

Step 3. Establish good credit habits

Your credit score is used to determine the interest rates you’ll receive on important things like a mortgage or your credit card. Having a good credit score means you’ll receive better rates that won’t detract as much from your savings.

Other factors like car insurance rates and finding a rental home or apartment are more reasons to have good credit habits. There are many ways to build your credit, including using credit cards wisely and making on time payments.

Step 4. Increase your income

Although it sounds easier said than done, you’d be surprised to learn that there are some creative ways to increase your income. Options include asking for a raise, starting a side hustle or earning an advanced degree to earn a higher salary. If you have a hobby you’re passionate about, try to monetize!

How to Retire Early

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Even if you’ve just started working, you’ve probably already thought about retiring. Whether you dream of moving to a different location or pursuing a passion, retirement looks different for everyone. This means that there isn’t an easy answer to how much you need to save. When in doubt, ask for help and consult a financial advisor to set up a plan that works for you.

Some common methods of calculating your retirement savings are:

  • The 80% Rule: Some retirement planning experts say your retirement income should be about 80% of your final salary before retiring. For example, you’re earning $100,000 at retirement so you’ll need to save $80,000 for each year of your retirement. Source: Investopedia
  • The 4% Rule: This simplified method takes your expected retirement income (take the $80K above) and divides it by 4% to calculate your entire retirement savings (= $2 million). Some assumptions are that you’ll receive a 5% return on investments and not receive any additional income like Social Security. Source: Investopedia
  • % of Your Starting Salary: To set saving goals at different life stages, save 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. For example, if your starting salary was $50,000, you’d want to save $150,000 by age 40 to be on track to retire at 67 with $500,000. Source: Fidelity

Step 1. Calculate your estimated retirement expenses

Just like setting any goal, you need to know what you’re up against. Although it seems far off, think about the lifestyle you want to have during retirement—is it traveling, living simply or relaxing? You can either estimate those monthly expenses and multiply by 12 or take your current monthly expenses multiplied by 12 and add on an extra 20% for some padding. Some important things to consider are your housing costs, healthcare and taxes.

Healthcare is one of the largest expenses for retirees. Estimates state that the average couple will need at least $285,000, excluding long-term care such as assisted living services. To prepare for these high costs, consider stepping up contributions to tax-advantaged accounts like an HSA.

No one wants to think about it, but chronic illnesses and disabilities impact healthcare costs. In case of unfortunate circumstances, consider getting long-term care insurance to help cover the cost of things like nursing homes or assisted living facilities.

Step 2. Calculate your estimated savings

Use some basic budgeting to determine the savings goal you have for retirement using any of the methods above or by talking with a financial planner. Keep in mind that these are goals and that planning for the future can never be guaranteed!

Step 3. Prioritize saving

Saving goes hand in hand with financial independence and retiring early. Keep up your savings and make sure to build up your emergency fund to plan for the unexpected. Definitely contribute to any employer sponsored retirement plans and contribute the maximum amount if possible. Since most retirement accounts can’t be accessed before age 59 ½ without some kind of penalty—think taxes and a 10% penalty—you’ll want to have your savings diversified into regular savings, emergency funds and investments.

Step 4. Invest

Less than half of younger Americans invest in the stock market, but that number is much larger for people over age 35, according to a Gallup poll. If stocks don’t seem like the best fit for you right now, consider investing in low-cost index funds, a Certificate of Deposit (CD) or bonds. Since the period of saving is much shorter for those who wish to retire early, you’ve got to make the most of your money while you can. When in doubt, meet with a financial advisor to set up your growth strategy.

FIRE Myths Debunked

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Myth 1: People just quit working

You’ve probably realized this already but many FIRE advocates plan to continue to earn money after “retirement” through side jobs, a part-time job or short-term employment. It just creates more flexibility in their later years.

Myth 2: It takes extreme frugality to retire early

Extreme frugality might mean coupon-clipping and relying on free hotel toiletries to some, but the reality is that most FIRE supporters live moderate lives and find creative ways to save. They may have a smaller budget for entertainment and travel, but you can definitely still enjoy life while saving.

Myth 3: Healthcare costs will be too much

It’s true that healthcare is one of the largest expenses for retirees, so it’s also a big concern for the FIRE community. Even people who retire in their 60s face uncertainty in carrying that cost. With proper planning, it’s possible to save and prepare for those rising costs.

Myth 4: Retiring early will be boring

Most FIRE supporters have a variety of interests and passions that add to their bucket list so finding things to do outside of their 9-5 shouldn’t be too hard. Since their main goal is to live a rewarding and satisfying life, they should be just as entertained as people who decide to retire later. On the flip side, if working doesn’t bore you, do it as long as you can!

FIRE Lessons to Keep in Mind

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Now that you’ve gotten the full scoop on what the FIRE movement is and what critics have to say, keep these main takeaways in mind as you plan your financial path toward retiring.

Lesson 1: Retirement is extremely personal and unique

Your retirement plan won’t be identical to your best friend’s or your parent’s or anyone else’s. Your unique goals will determine the steps you need to take to be prepared to live a happy retired life. Talking with a financial advisor or planner will help create a plan unique to you.

Lesson 2: Plans can be derailed by emergencies

As much as you can plan, there will always be unexpected obstacles. When planning for retirement, health and family emergencies can cause a lot of strain both financially and personally. Prepare for what you can and build up personal capital in case an emergency comes your way.

Most people will advise against checking your retirement accounts everyday since market fluctuations could have extremely volatile effects on the amount day-to-day. Try not to stress about the ups and downs while your retirement is still years or decades away.

Lesson 3: Start early and if not, it’s not too late

Saving while you’re young is the best and most sure way to build up your savings, especially when it comes to retirement. Instilling good saving habits now will make it more likely you can be financially free in the future. Don’t fret if you weren’t able to save earlier, there’s still time to make it up! Push yourself to save as much as you can, increase your household income and make wise investments for your future.

Final thoughts

Are you on board with the FIRE movement? As you’ve learned there are many pros and cons to this method of financial planning. No matter how you feel about it, practice good financial habits to secure a future for the life you want to live.

Additional Resources

Sources Gen Y Planning | Market Watch | Prudential | Roth IRA

About the author

Jeff Smith is the VP of SEO at Self.

Written on May 13, 2019

Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

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