What Does F.I.R.E Mean?

Who doesn’t want to retire early? Just imagine not having to work the next day without the hassles of getting ready and commuting to your workplace.  Or, imagine the stresses of daily work set aside for early retirement.  What’s drawing a lot of people to this concept is the desire to reach the goal of early retirement.   

F.I.R.E. stands for Financial Independence/Retire Early.  It’s a movement that is gaining a lot of momentum recently, especially among millennials.   The goal is to save a lot of money and start investing very early so you can reap the rewards during an early retirement or at a state of financial independence.

Early Retirement?

Instead of the typical retirement age of 60 and above,  F.I.R.E. advocates are setting their goals at an earlier age – some even aiming for the ’20s.  Sounds impractical? Not if you save most of your income towards retirement savings plans and investments.  The earlier you start, the better handle you have for long term retirement. 

Early retirement relies on investment vehicles like low-cost index funds and real estate investments.  What’s often recommended is a passive investment so that you don’t have to worry about the day-to-day business operations.  You can set it and forget it.

Although the “Retire Early” part of F.I.R.E. is an important goal, most followers don’t always feel that retiring early is the necessary end.  In fact, being financially independent and secure is often thought of as the most important step.

Radicalize Savings

F.I.R.E. requires that you a greater portion of your income to savings.  Some would even argue that you can designate 80% of income for savings.   The whole purpose of this methodology is to place as much as you can now so your earnings will grow in the long run.   Given the average return on stock mutual funds is roughly 8%, your financial objectives can be achieved earlier than normal retirement years.  

It’s not hard to save, but the will to take a large portion of your paycheck for investments and savings could be a daunting task.

The Minimalist Approach

Keep in mind, many F.I.R.E. adherents don’t have a problem cutting luxuries such as dining out and purchasing nice thing. Want to get nice clothes or eat at a fine restaurant?  Some or all of the pleasantries you might find as normal would go away in this lifestyle.

Here are some of the popular ways that F.I.R.E. methods use to cut spending:

  • Housing  – Find cheaper rent or downgrade to a smaller home.
  • Transportation – Buy a cheaper vehicle or sell your vehicle. Keep the same vehicle as long as possible.
  • Food – Cut dining out and find cheaper meals to pay
  • Cable – Cut cable and consider streaming services.
  • Credit Card – Remove cards that are useless and have a fee.
  • Insurance  – Compare prices for car and home insurance.  

The list of things you can cut can go beyond this list, but you can get an idea on the cost-cutting measures.   It doesn’t require that you dwell in a cabin in the woods.  However, you’ll need to know that there’s some thought needed in deciding what to cut.

Quitting Your Job  and Retirement

One of the main objectives of F.I.R.E. followers is to eventually quit their jobs, or have a part-time job to sustain them.  Many feel that their jobs are unfulfilling or stressful.  By aiming to get out of the rat race, eventual retirement frees them to lead the lifestyle that they want.

Not all people feel the need to retire once they reach financial independence. Some even like their jobs since it gives them purpose and keeps themselves motivated.   Some even consider having a part-time job to get by and that might be sufficient for their livelihood.   In other words, it’s not necessary to retire.  Just knowing that you can quit your job is enough to feel peace of mind.  

The Critics

Some critics of the F.I.R.E movement feel that the movement is not realistic.  They believe that the freedom of leaving one’s job comes with a lot of sacrifices and high expectations.

Retirement Math

Critics often cite the investment performance may not be always ideal.

During economic downturns, your investments may fall behind and return negatively.  Today, we’re seeing one of the biggest bull markets in history, fueling higher expectations of positive investment returns.   Not all years are proven to have this kind of result.  And when we hit the downturns, the goal to reach retirement are set further and further back.  

Lower Standard of Living

A higher standard of living is not always the case with the F.I.R.E.  Because you’re not saving for an entire work lifetime, your savings may not be enough to provide a higher standard of living.

But that’s ok, according to many F.I.R.E. advocates.  Early retirement or financial independence outweighs being stuck in a job working many hours a day.

Unexpected Financial Events

Planning doesn’t always go your own way.  In fact, we often miss unexpected events.  Critics have argued that the planning for financial independence side steps events like medical emergencies.  Health care costs can skyrocket and for a lot of people in this plan, you’re not always in a great medical plan that is available through corporate benefits.

My Thoughts

The F.I.R.E. movement is certainly intriguing.  Many critics complain about the self-sacrificing habits that might be too much to bear.  However, the movement gets you to at least save for the long run.  I believe this gets you in a great habit.

As for the people willing to retire with a lower standard of living, I feel that this is fine.  As long as one knows what they’re getting into, one can adapt and normalize this lifestyle.

The worst that can happen is that you’ll find out that you a nice nest egg.

Is this realistic?  I believe so since I’ve heard of many stories of people living this lifestyle. They seem content and are fine with their lifestyle.

As for me, I am at a point where I don’t believe that this is the right fit for me.  There are too many things that interest me in life that requires a bit of spending.  But who knows?  Maybe my life situation will change and I might hop on the bandwagon.

More Information

Mr. Money Mustache – Major influencer in the F.I.R.E. movement

Wikipedia on the F.I.R.E. movement

The Road To Financial Independence: Passive Investments