FIRE
Retirement is not an age. It is a number.
“When do you want to retire?” The classic line that starts any financial discussion. Almost everyone responds with a number in the 60’s. 65 is the usual consensus. I’m not sure how this age came to be the standard. I assume is revolves around Social Security and Medicare. Because the laws have all centered around people retiring in their 60’s, I guess we have all decided as a country that we should work for about 40 years and then be free to do as we please.
Thankfully, there is a movement inspiring people to rethink this! Financial Independence, Retire Early (FIRE).
The name says it all. Your goal is to save enough money so that you can retire anytime. Crazy, right?!?! Not at all. This goes back to the question people ask all the time about employment, “If you didn’t have to worry about money, what would you do every day?” Go ahead. Think about it. How would you spend every day for the rest of your life if you didn’t have to worry about money? It’s not as easy as saying you would lay on the couch and watch Netflix. You couldn’t do it! Human beings are not wired to just exist. We want to thrive. We want to be challenged. We want to experiment and figure things out. We want to help others.
Retirement is not an age. It is a number.
There is a specific dollar amount that would allow you to do this. It is different for everyone, but you can figure it out. List out all your expenses for the year and figure out how much your current lifestyle costs. There is an amount of money (usually invested in bonds, real estate, dividend-paying stocks, etc.) that will produce enough income to allow you to keep that lifestyle. That’s the essence of the FIRE movement. Now here comes the hard part.
Most of us want our lifestyle to increase when our income does. FIRE followers rebel this notion! They are willing to live on 50% of their paychecks if it means having the freedom to retire early. They will pay off their homes and sacrifice acquiring material possessions if it means having freedom. It goes back to the argument about whether a bigger house, nicer car, and/or nicer clothes will really bring you joy. FIRE followers don’t believe those things will bring happiness to their lives. Freedom will.
One other thing to point out. Retirement usually doesn’t mean unemployment for these people. It usually means finding something that they are passionate about and it ends up becoming a business. They also have the flexibility to work at a job they may love but doesn’t pay much. How many people would teach, do social work, or non-profit work if they were not worried about money? They could just do those things to have a meaningful impact on society.
Retirement is not an age. It is a number.
How does it work? Once you have established the cost of the lifestyle you are willing to live, you then figure out how much to save. The saving strategy usually ends up being 40% or more of your income. Savings need to be in non-retirement accounts for the most part because you need access to the money before you turn 60. It is hard to write out exactly how it would work for you, but there are many examples online of people who have done it.
Are you willing to set your life on FIRE? I encourage all of you to think hard about this question. You may not be living your forever lifestyle yet, but what would it take? What lifestyle would you accept if it meant being free to do what you are passionate about? It is possible for you. You just need a plan and some help along the way. Also, you will make sacrifices. This is difficult to achieve and takes years of hard work and persistence. That is no question, but financial freedom is worth the effort.
Retirement is not an age. It is a number.
Mike Zeiter, CPA/PFS
