Are You FIRE-d Up?!

Jun 1, 2021

Have you heard of the FIRE (Financially Independent Retire Early) movement? It’s beginning to make headlines nationwide. In its purest form, “firing” is aggressively saving with the intention to retire from Corporate America ASAP. Is this a recipe for success or a very bad ending?

Do You Have What It Takes?

Want to learn how to retire early? The key to becoming an early retiree is to have a solid financial plan in place. The meat and potatoes of that is a lean budget. Not surprisingly, the FIRE community is made up of super savers. In fact, the path to FIRE is often measured by rate of savings. Your savings rate relies on two factors: income and expenses. The more you earn, the more you can save. And the less you spend, the greater your savings potential. To retire early, you must focus on both.

You’ll need to make compromises - use off-brand items, take bare-bones vacations, and drive used cars. It’s not uncommon for members of the FIRE community to save more than 50 percent of their take-home pay!

You also must implement a safe, low-cost investment strategy. Since early retirees rely on their portfolios for income for a longer period of time, they often gravitate toward a stable and conservative asset allocation. A common thread among FIRE portfolios is the incorporation of income-producing investments such as bonds, dividend-paying stocks, or rental properties.

Whether you want to retire at age 40 or 50, you will need to rely on your portfolio for 40+ years. So there’s little margin for error! If you take a more conservative investment approach, this may require you to save even more than expected before retirement.

The Upside

The pros of early retirement aren’t necessarily tangible. FIRE community members often work in strenuous, high-paying industries that don’t leave much time for personal enjoyment. Having control over their schedules is a big draw for them.

The big plus of financial freedom is that it gives you options. You can enjoy a leisurely lifestyle or you can take a lower-paying job that aligns with your passions. For example, if you’re an avid cyclist, you might pursue a position at a local bike shop. While this part-time work won’t significantly add to your savings, it could reduce or prevent withdrawals from your portfolio and increase your personal satisfaction.

The Downside

Early retirement isn’t for everyone. Transitioning from 40-plus hours to zero hours each week is a huge change, especially when your friends are still at the daily grind. You’ll want to plan how to spend your time.

Realistically, you’ll need to approach early retirement with caution. The greatest unknown is the cost of healthcare. Early retirees must plan how to pay for health insurance until they’re eligible for Medicare at age 65. According to Peterson-Kaiser, which monitors the U.S. healthcare system, U.S. healthcare costs have risen 21.6 percent since the end of 2007. That’s an expensive bridge to gap!

Some financial risks are amplified when you’re on the path to FIRE. A significant market downturn early in retirement could make or break your plans. Let’s say your post-retirement investment portfolio assumes an annual return of 6 percent. In a retirement projection, this means that some years you’ll outperform expectations and other years you won’t, but on average, you’ll achieve an average return of 6 percent. Would you be capable of stomaching a 5 percent loss two years into retirement?

You’ll also need to consider longevity risk, which is the risk of outliving your assets. According to the Henry J. Kaiser Family Foundation, the average life expectancy of an American male is 76.3 years. American females have an average life expectancy of 81.3 years. To be safe, you’ll want to have enough assets to cover your needs beyond the average life expectancy.

Guaranteed income is just one key to FIRE. Pensions are all but a thing of the past, but Social Security benefits are an income stream that many Americans count on during retirement. Because Social Security is based on your 35 highest earnings years, leaving the workforce early or taking a lower-paying job, may reduce your Social Security benefits. Of course, if you believe the Social Security program won’t be around when it’s your turn to draw benefits this may not matter to you. That’s just one more risk you’ll have to consider!


Essentially, retirement is making the choice to flip your earnings switch OFF and your portfolio spending switch ON. Early retirement is making that choice and feeling confident that you have a fail-proof plan in place. Be sure you weigh the pros and cons before jumping aboard the FIRE movement!

If FIRE sparks your interest and you want to take it one step further, Early Retirement Extreme is a movement focused on retiring even earlier by living a truly anti-consumer, do-it-yourself (DIY) lifestyle where self reliance, resilience and simple living are taken to the next level.

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