You may have heard about the new FIRE movement urging a new way of approaching your finances, retirement, etc. FIRE is a retirement strategy that stands for financial independence retire early. There is a growing movement of Americans who are embracing these principles to retire decades earlier than tradition dictates. Many critics have come on board in favor of the movement, while others denounce it. Below, we give our humble opinion.
1. Who Does FIRE?
Those who tend towards a FIRE mindset include middle-income types who use a formula of high savings rates from about 50% to 70% of their entire income(s). They do this through frugal living, also known as minimalism, Tiny House syndrome, as well as other names. A FIRE plan can also include a low-cost stock index fund. This is all done in order to reach financial independence within a short period of them, generally in ten years. The ultimate goal is to retire early in order to pursue your true passions.
2. Are There FIRE Examples?
One of the most famous purveyors of the FIRE mindset is a blogger called Mr. Money Moustache. He and his wife retired at 30 and write a blog about their journeys. They achieved this by living a lifestyle that was about 50% less expensive than most of their peers. They also invested income surplus in conservative Vanguard index funds, as well as rental properties. Mr. Money Moustache also enjoys Betterment, a user-friendly way to perform index-fund investing. The tool allows you to hold Vanguard index funds, and they also perform automatic rebalancing to minimize your tax liability. Betterment does charge a fee for every $100,000 invested with them. The blogger feels it is worth the expense.
3. What is the Downside to FIRE?
The obvious downside is near elimination of all the indulgences, impulse buys, luxury brands, and other purchases that can add joy while piling on debt. You may never drive a new car again. You may never take an extravagant vacation. For those of us who like working, you will retire. But there are also other setbacks. For example, noted financial guru Suze Orman “hates, hates, hates” the FIRE movement. She uses an example of a couple having to save $2 million in order to do this sort of early retirement. This comes to $80,000 per year at a 4% withdrawal rate. She states this is not enough to protect a family “when the floods come.” She even believes $3 million that is split halfway between bongs and equities drawn down at a rate of three percent is still not enough. Suze loves saving, but not retiring at 35.
4. Where Can I Learn More?
We strongly advise you learn as much as you can about any retirement strategy before going all in. Just a few resources include:
- “Playing With Fire” The Documentary – Click here
- Suze Orman on FIRE Interview on YouTube – Click here
- Mr. Money Moustache Blog – Click here
- B&J Advice on Investing + Related Topics – Click here
- Interesting Kiplinger Article on Fire – Click here
More Houston Bookkeeping Tips
It is important to set retirement goals, develop a plan to meet them, and stick to it more than to follow a financial fad. Give us a call if your family or business needs help in planning for retirement or keeping the books.