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Have you ever thought about retiring early…extremely early? We’ve been seeing an increasing amount of interest in the concept of FIRE, which stands for financial independence, retire early. The FIRE movement is largely one of younger people planning to achieve financial independence before 50 and sometimes before 40 or even by 30. If you’re interested in pursuing FIRE, here are some things to consider:
What does FIRE mean to you?
In other words, what would you do if you didn’t have to wake up to an alarm clock and go to work anymore? Would you continue to work at a job that you find fulfilling even if it doesn’t pay the bills or start a risky business venture? Travel or spend more time with family and friends? Move to a new area? Your FIRE lifestyle can have a huge impact on how much money you’ll need.
How much will you need to save?
Speaking of how much money you’ll need, saving enough is the biggest challenge to achieving FIRE since you generally have to save at least 50% of your income. You can use this popular FIRE calculator to see how your early retirement plan would have fared over every time period of your choosing since 1871. (Don’t enter any commas in your numbers since one quirk is that it treats commas like periods. Keep in mind that you won’t qualify for the full projected Social Security benefits on your statement if you don’t work until you collect so you’ll want to use a reduced amount.
The FIRE blogosphere (Mr Money Mustache is probably the most popular) is full of ideas on how to cut back on expenses, both to save more now and to require less income in retirement so you don’t need to save as much. Just be aware that many of these ideas may require significant lifestyle changes if you’re living beyond a college level standard of living. For example, I live in a small studio apartment that I bought in cash, only recently bought an inexpensive used hybrid car that I generally only drive on weekends, and have no student loans, children or pets. FIRE is like the financial equivalent of training to be an Olympic athlete. In other words, it’s not for everyone.
How will you invest those savings?
If you’re planning on FIRE, you may be able to invest more aggressively than an older person with the same number of years to retirement. Higher expected returns can …….
