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Should You Consider Early (FIRE) Retirement?

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There is a growing group of people preparing to retire super early—like in their ’40s or ’ 50s. If that idea appeals, you may want to join FIRE. If you have the discipline and income to save persistently, FIRE can be a great way to work toward a work-optional lifestyle. Here’s what FIRE is and some clues as to whether it might work for you.

“Financial Independence, Retire Early” 

This program, inspired by Vicki Robin’s book “Your Money or Your Life,” is built on the idea of saving more month-to-month than traditional retirement planning and using low-fee investment options to be ready to retire earlier than the traditional age. 

The “financial independence” part of FIRE is considered to be about 25 times your yearly expenses. For example, if you decided you’d need $40,000 a year to live in retirement, you would need to save $40,000 x 25, or $1 million to be considered financially independent. Once that number has been met, you’d be able to retire and enjoy a life of financial freedom, withdrawing about three or four percent from your savings annually.

Things to Consider Before Joining the FIRE Movement

Could you really retire in your ’40s? It probably sounds impossible. In fact, the whole concept of retiring early can sound more like a daydream than a reality. And for most of us, it may be. But for people who are able or willing to embrace the frugal lifestyle required, financial independence early in life can happen. It takes making some big life decisions and being strategic about your spending. Here are some important questions to ponder before jumping into the FIRE:

Can You Live Frugally?

Three factors of the FIRE program are income, expenses and time. The bigger the gap between your income and expenses, the fewer years it will take you to reach financial independence. It sounds crazy, but depending on your timeline and projected income needs in retirement, you could be putting more than half of your income toward an early retirement. This has to be calculated separately for each person, as it is based on income and current expenses. However, living a disciplined, frugal lifestyle starting now is a requirement for all but the wealthiest among us who want an early retirement.

Do You Want a Traditional “Relaxing” Retirement?

For people wanting to retire early via the FIRE method, “retirement” doesn’t mean sitting around watching TV. FIRE followers are typically more focused on the “financial independence” part of the acronym, than they are on retiring early. They’re likely to still work in retirement—just in something that doesn’t require their current income-- or pursue a passion they previously were unable to with the confines of a regular job. 

Do You Have a “Why?”

Like other financial goals, it can be hard to find the motivation to skip dinners out or splurging on a dream vacation. When you have a vague idea of retiring early, there’s little motivation to miss out on enjoyment today for the possibility of an early retirement a decade in the future. 

Those who have embraced the FIRE method need a “why” for their savings programs, and it’s important to get as specific as possible. Wanting to quit a job you hate doesn’t bring much motivation or a promise for future fulfillment. If that’s your “why,” you may be better off starting down a new career path. Good “whys” for achieving financial independence include achieving your travel bucket list, or pursuing music or art full time. Maybe you’ve always wanted to start your own business and have an idea the world needs. Whatever it is, define your “why” and let it guide you in making positive progress toward financial independence.

What Will I Miss Walking Away?

If you plan to ditch your career much earlier than most people do, it is important to consider what you will miss: rewards like performing at a high level and helping the company grow. 

The FIRE program is an appealing way to reach retirement early in life--and allows for its followers to do what they love. But it takes a laser focus on saving and the ability to delay gratification. If you’re considering the FIRE method, it makes sense to work with a financial professional, make a plan you can refer to, and join a group of people with similar goals who will keep you accountable.

This content is developed from sources believed to be providing accurate information, and provided by Kelly Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.