What’s the average retirement age? Somewhere around 65, right? Give or take a few years depending on each individual’s plan, savings, work and lifestyle preferences, and medical condition.
It’s also less and less unreasonable for people to retire around 70 and this can be linked to a number of factors- some of them pleasant, some of them not so much. For example, some might enjoy working, they don’t have any medical conditions holding them back or they might need a few extra years to solidify their savings.
On the opposite end of the spectrum, there’s the F.I.R.E. movement. This community of young finance people aims to retire as early as 30 or 40! Could you imagine that? Does it sound too good to be true?
Well, there certainly are pros and cons to any financial and lifestyle decision, and today we want to uncover them all!
Before we get into the nitty-gritty, let’s look at the specifics of this new and exciting movement! If you feel like you too should retire 20, if not 30 years earlier, you need to know what you’re getting yourself into.
What Is the F.I.R.E. Movement?
Financial independence, retire early! Sounds neat, right? That’s what F.I.R.E. stands for. It stems from a book by Vicki Robin and Joe Dominguez, “Your Money or Your Life” written in 1992. The piece of literature has since gained a lot of traction, especially amongst millennials in the 2010s.
The movement differs from a conventional retirement timeline in that followers devote between 50 and 75% of their income to savings.
That, in addition to dividend-paying investments, creates enough passive income streams that they should, in theory, be able to support themselves with throughout their retirement.
So, if it sounds like accumulating enough money by the time you’re 30 or 40 in order to live out your life without working another day in your life sounds difficult… that’s because it is! A lot of people have attempted this but not a lot make it for a whole host of reasons.
Needless to say, it’s a challenging concept for most people, and you’d probably want to start when you’re already financially secure. Now, let’s look at the difference between traditional retirement timelines and F.I.R.E.
F.I.R.E. Vs Traditional Retirement Timelines
Alright, so the majority of working people expect to retire somewhere around the age of 65. That’s when most retirement accounts and benefits start to kick in. Social Security benefits can be accessed at 60 by those born after 1960, but even they have to wait to 67 until they access their full benefits.
But your Social Security isn’t the only thing that carries age-related restrictions. 401(k) and IRAs both do. For example, you have to wait until you’re 59 ½ in order to access your 401(k) funds without incurring a penalty, for the most part. You also have to start making withdrawals by the time you turn 70 ½, known as required minimum distributions (RDMs).
If you’re starting to feel the dread set in because you haven’t even started saving nor planning for your retirement, you’re not alone. A quarter of Americans, based on several studies, are in the same boat.
Long story short you need to figure out how much money you’ll need in order to live comfortably once you retire. Then you need to calculate how much you’ll need to save in order to achieve that goal. How long this takes is up to you, how much you save per month and how early you start. If you finish earlier than you anticipated initially you could either retire early or keep saving.
It’s also important to note that those who attempt and sometimes succeed typically have a leg up. Either they already have well-paying jobs that others might not be able to achieve or they have some sort of generational wealth pushing from behind. Those are two things you need to consider before you even begin planning out how you’re going to do this.
More Flexibility Vs a Boring Retirement
The earlier you retire the more time you’ll have to pursue activities that you love. Some people are lucky in the sense that they’re able to turn their passions or hobbies into small businesses. But let’s face it, not everyone can.
The F.I.R.E. movement will help you focus on your favorite activities for longer, especially earlier on in life. For most people, this means they won’t be held back by medical conditions, either, as these might appear later on in life instead.
But a surprising amount of people might find that retirement is boring. The days will begin to bleed into one another. You might lose sight of important things and could even spiral into days, if not weeks (or months) of doing nothing than watching TV. Without a career-goal in sight you might find it difficult to figure out what to do with your time. Hobby-jumping, too, could become tedious.
Some people, despite needing a structure to their days, might find it hard to come up and maintain one- which could in turn make your retirement especially boring.
Less Stress Vs the Unpredictability of the Future
Imagine getting rid of all that stress for decades? If you retire around the time you’re 40 and you live until you’re at least 80, that’s 40 years of living stress-free. That also includes not worrying about bonuses, overtime, raises, nothing like that. Pure bliss!
Or is it? Many followers of the movement, including those who have achieved their goals, swear by the ‘no stress’ pro. But others are quick to remind us that the future is unpredictable and that this unpredictability stands in the way of not being stressed. After all, how could you relax if you don’t know what the future might hold?
Just think about it. Tax structures, social programs, they can change with the drop of a hat, completely ruining your budgeting plans. One year you’re living comfortably and the next you’ll find that new calculations predict you’ll run out of money sooner than you might think.
What’s more, life could get in the way of your happiness. An unexpected child, a major illness, or even a natural disaster could all derail your plan. So unless you’ve planned and saved money for every worst-case scenario out there, you can never be too certain you’ll be safe!
A Difficult Process Vs Building a Meaningful Life
Those who claim that F.I.R.E. isn’t hard clearly aren’t playing by the same rules. We’re not saying it doesn’t count if you’ve inherited a ton of money… but that’s certainly not every American’s experience.
Extreme savings strategies are nearly impossible to achieve, but there may be smaller things you’ll miss out on that could discourage you. Say your work colleagues like having lunch at least once a week, together, at a favorite restaurant. That’s just one activity you’ll have to give up on, which might lead to distancing between you and the people you work with. This, in turn, could make your once loved office job feel empty, you might even feel ostracized.
But what if your personal identity doesn’t revolve around your career? Then the F.I.R.E. movement might be exactly what you need. Work hard enough early on so you’ll never feel shackled down to a job ever again.
You might even come to appreciate certain things a lot more, such as spending time with loved ones or not giving in to the fear of missing out by purchasing meaningless, unnecessary things! Your life will be passionate and full instead of mundane and empty.
Living Below Your Means Vs Not Being Able to Rejoin the Workforce
Have you ever heard of lifestyle inflation? No? Well, even if you haven’t, you’ve probably experienced it without truly realizing it. This happens when you spend more money the more you earn.
A huge part of the movement is saving as much of your income as humanly possible, so you’ll basically reverse the process of lifestyle inflation, a trap many working people fall into without really realizing it.
The movement will teach you how to live below your means- a powerful tool you can use even if you don’t retire early. You’ll know how to be happy with what you have and you’ll be able to figure out how to fix financial problems without bleeding money.
Living frugally will teach you how to value the way you spend the money you do have. It will stop you from impulse buying certain things in order to prioritize experiences. Gaining this sort of financial independence could be worth way, way more than just the numbers in your bank account.
But for some people that might not be worth it when you consider the fact you might never be able to rejoin the workforce. Depending on the state of the economy, finding a new job when you need it most could be nigh impossible.
Perhaps enough time has passed that you’d need to gain additional qualifications in order to return to work in your niche… but without money, you won’t be able to achieve any of them. You might end up working on a lower-paying job than the one you started in a field that you have virtually no interest in.
Worse, if you’re nearing the end of your savings by the time most people would normally retire, your chances of reentering the workforce will be even smaller- considerably so. After all, how many seniors have you seen applying and getting new jobs lately? This is yet another saddening fact we have to accept about today’s standards and what sort of people companies would be willing to hire.
Your expertise would have been valuable years ago, but now companies would prefer hiring someone younger, someone they could train and keep on the team for years to come, not someone who might re-retire a few years down the line.
Investing for F.I.R.E.
It’s not all about saving money, though. Most people won’t be able to achieve these results with just that. So if you’ve made your mind up and decided to try it out then you have to start thinking about investment opportunities. Without them, you might fall short of your dreams.
Followers of the movement typically go for dividend income, earned by shareholders when companies have excess profits. To put it simply, you’ll have to hold shares of a stock.
These are also not guaranteed since payments heavily depend on that company’s performance, so watch out! If you’re being advised to go this route make sure you also supplement it with strict budgeting plans and savings.
Alternatively, you can try to earn a profit through market appreciation by selling stocks as well as other assets. Do so with a higher price than what you’ve paid initially- which is easier said than done, true, but the basics aren’t all that difficult to wrap your head around.
Even if you’ve decided that F.I.R.E. isn’t for you, you should still look into these two types of investments. Want to stick to a traditional retirement timeline? Nothing stopping you from earning extra cash by this means. In fact, it’s important that you give it a go!
Just remember the golden rule, which is to diversify your portfolio!
Now you’re ready to make one of the biggest decisions of your life! Will you join F.I.R.E.? Let us know what your plans are in the comments down below.