What is the FIRE Movement?
FIRE is an acronym that stands for Financial Independence, Retire Early.
Members of the FIRE movement believe that through disciplined investing, saving, and money management they can retire comfortably before they reach their sixties.
The goal of many FIRE movement participants is to retire sometime in their thirties or forties without seeing a dip in their standard of living.
FIRE And Retirement
You may have heard the common phrase “retirement isn’t an age, it’s a number.”
To put it another way, once your personal net worth—or the net worth of you and your spouse—reaches a point where you can cover your day-to-day expenses without relying on the income of a job, you are free to retire.
This could be at age thirty, fifty, or sixty-five, depending on your rate of wealth accumulation and the number of years you are expecting to spend in retirement.
FIRE wealth accumulation is produced through a combination of maximizing savings, reducing expenses, and investing aggressively.
It is always commonsense financial investing advice to minimize expenses and save for the future while investing where you can, but the FIRE movement goes much further toward building a nest egg in the shortest amount of time possible.
Financial planners often recommend good saving practices that will result in 10 to 15 percent of income being saved.
These savings build up over time to be used in the event of an emergency or some other surprise financial event.
Adherents to the FIRE movement maximize their saving rates to tailor their savings to a much more aggressive goal of replacing living expenses.
To understand how much money this will take, we can reverse engineer a target savings rate based on the amount of living expenses that can be offset through savings.
This calculation assumes that income and expenses are constant and does not take into account income or losses from investments.
Based on these calculations, if you are able to save 75 percent of your income, you will be able to save enough money to cover expenses for thirty years by working for roughly a decade.
A Focus on Simple Living
To reach a savings rate of 75 percent—or even 50 percent—it is necessary to find ways to relentlessly reduce expenses in the here and now. This often means postponing large purchases, avoiding frivolous expenses such as impulse purchases or dining out, and finding additional income streams.
This level of extreme frugality requires a significant amount of discipline and often runs counter to the consumer-minded culture that we find ourselves in today.
Criticisms of the FIRE Movement
Many critics of the FIRE movement have pointed out that a lifestyle of extreme frugality can easily be derailed by unexpected financial hardship. Additionally, some critics have gone so far as to say that the FIRE principles are accessible only to those who have high incomes already and that the average American household is unable to meet the strenuous and lofty savings rate goal of 75 percent.
Further criticism takes aim at the FIRE premise itself. The expense profile for an individual at thirty or forty years of age doesn’t take into account the potential increasing medical needs that commonly accompany aging.