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What is the FIRE Movement?

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If you think that leaving it until you are 65 is too late to retire, you are probably ready to join the FIRE movement – Financial Independence Retire Early.

The FIRE movement believes that you can retire well before the State Pension age - by living a simpler life, spending less, and making the most of your investments and pension savings.

It has recruited members in the UK and the US retiring in their 50s, 40s and even 30s. Indeed, one 29-year-old Briton is documenting his road to achieving early retirement through his blow by blow account on the website FIRE Lifestyle.

Before rushing to join the FIRE movement, there are two questions you might want to ask yourself:

  • are you financially independent; and
  • do you want to retire early?

They are two seemingly simple and straightforward questions, naturally begged by the acronym FIRE. So, let’s see just what the questions are likely to involve.

Financial independence

What does it take to become financially independent? That all depends, of course, on how much you spend.

Proponents of FIRE stress a frugal lifestyle and general thriftiness. As much as 70% of their income aims to be invested, explained an opinion piece in the Financial Times newspaper on the 30th of August 2019. The target for that savings pot is typically around 25 to 30 years’ of expenditure, withdrawing no more than about 4% each year so that the capital amount remains more or less intact.

Describing the reasoning at a FIRE seminar in London, on the 4th of January, iNews suggested that investments are typically centred on broad-based index-tracker funds which help to spread the risk and, so, reflect the generally upward long-term trend of the stock market.

As the article also warned, however, if you are looking to invest any large, long-term amount, you may be well advised to seek the help of an independent financial adviser.

But financial independence is all about how much you spend. As an example – using the target 25 years’ of annual expenditure – a story in the Guardian newspaper on the 18th of August last year explained that if you eked out a living on spending just £10,000 a year, your savings and investments pot would need to be £250,000. If you are chasing annual spending of £40,000 a year, the savings pot to support it would need to be £1million.

No matter how committed you are to living a frugal life, there are elements which might throw the arithmetic into the air. Aiming to save as much as 70% - or even a more modest 50% – of your income if you have rent to pay is likely to prove more than a stretch. If you managed to buy your home early and the prospect of paying off a mortgage is in sight, however, your task may be considerably easier.

If you have children, then trying to maintain your savings targets while they are growing up, going to college or university, and aiming for some independence of their own, may again prove a mighty challenge.

Or, you may have elderly parents whose care you need to pay for.

Finally, your dependence on a return on investments of around 4% a year may prove optimistic in the current economic climate.

Retire early

Do you really want to retire early? Personal circumstances and career choices may well have a lot to do with your decision.

Some people are perfectly content with the jobs they have chosen. They have a fulfilling and rewarding career that, in many cases, they fight tooth and nail to continue way past the “normal” retirement age of 65.

As an article in the Spectator magazine on the 28th of November 2019 put it, these are the lucky ones who welcome the financial independence their career gives them. But when it comes to the second part of the FIRE equation, would rue the day that they give up their satisfying career.

For others, working might well be a drudge, and the prospect of retiring early seems like a heaven-sent opportunity.

But are you prepared for the strict frugality and thriftiness needed during what remains of your working life? Is there a risk you might simply be swapping one form of drudgery for another – the drudgery of forever scrimping and saving rather than living life to the full?

Your decision

FIRE might not be for everyone – but the movement may have some positive messages, even if you are not inclined to join the ranks of its adherents.

FIRE is about choices – about striking the work-life balance that suits you and your personal preferences. There are times when you may need to work – even if you are less than enthralled by the job at hand – but if you spend, save and invest wisely, you may widen your choices about when you retire.

Financial planning becomes a question of keeping your options as open as possible – and that does not have to entail throwing in your lot entirely with the FIRE movement. The balance you strike is in your own hands.

Any data cited in this article is correct as at the time of writing.

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