Welcome to Later2FIRE! Our goal is to help you make smart financial and lifestyle decisions to achieve the retirement life you want. We believe that FIRE -Financial Independence Retire Early – provides an excellent framework to help you get there on your terms.
1. What is the FIRE movement?
The main ideas behind the FIRE movement are often linked to a book published in 2010 called Early Retirement Extreme by Jacob Lund Fisker. It provides the basic template of combining simple living with income from investments to achieve financial independence. It explains the relationship between savings rate and time to retirement which allows individuals to quickly project their retirement date given an assumed level of income and expenses.
Several influential blogs arrived on the scene around the same time: Financial Samurai (2009) and Mr. Money Mustache (2011). Both are still going strong. But the FIRE movement really took off a few years ago when millennials embraced it.
2. Why are people seeking FIRE?
Here are several reasons. One is the growing recognition that striving for financial independence (FI) is a worthwhile goal in and of itself. FI offers the choice of getting back time that otherwise is given to work. Check out the classic Your Money or Your Life book for more about money vs. time. Another reason is the desire to leave workplace stress behind. According to the American Institute of Stress: “Numerous studies show that job stress is far and away the major source of stress for American adults and that it has escalated progressively over the past few decades. Increased levels of job stress as assessed by the perception of having little control but lots of demands have been demonstrated to be associated with increased rates of heart attack, hypertension, and other disorders.” A third reason is that following the practices of FIRE can help people who are behind in their retirement savings catch up. I refer to this as Later2FIRE.
3. Is it only for younger people?
We attended FinCon 2019 which is the annual gathering of the FIRE community. We met and spoke with millennials, Gen Xers and Baby Boomers. So while it is millennials who are primarily driving the movement, there’s growing interest and participation from other generations.
4. How much do you need to save to achieve FI?
Many in the FIRE community refer to the 25 X rule. This rule of thumb says that you need to save 25 times your estimated annual retirement expenses to be FI. The 25 X rule is used in conjunction with the 4% safe withdrawal rate rule of thumb. I explain more in my presentation on Financial Independence.
5. Can anyone achieve FIRE or do you need a 6 figure income?
This is the subject of our second podcast which I encourage you to listen to. Our guests, Doc G and Paul Thompson from the What’s Up Next Podcast, cite examples of people achieving FIRE with comparatively modest or low incomes. Our belief is that mindset is more important than financial status. If money was the sole determinant, why are so many people in debt and have so little saved?
6. Are there variations of FIRE?
There are several types of FIRE based on annual expenses and supplemental income. First up is Lean FIRE which is based on spending $40,000 per year or less. Then there’s what I’ll call basic FIRE where people spend between $40,000 to $100,000. Those who plan to spend over $100,000 per year are pursuing Fat FIRE. Some people who have FAT FIRED such as Physician on Fire, advocate for saving more than 25 X to account for future unknowns. About 50% of FIRE seekers are pursuing Lean FIRE, 40% basic FIRE and 10% Fat FIRE. The latest entry is called Barista FIRE. This is where you can retire early, but to increase the longevity of your investments you get a part time job that pays the bills.
7. What are the steps to get to FI?
1) Awareness. Every journey begins with becoming aware of the possibilities. 2) Mindset. Know your “why of FI”; have a growth mindset; and be willing to be different. 3) Plan. Here’s where you calculate your annual expenses, your FI goal, develop a budget which implies maximizing the gap between income and spending in order to achieve a savings rate of 50% or more, come up with an investment strategy that balances your appetite for risk vs. return. 4) Developing and maintaining a lifestyle that supports your plan.
8. What are the risks?
Here are some of the risks that I see. 1) Forcing yourself to live a life with little enjoyment. 2) Not having what I call an investor level of financial literacy which could lead to bad investment decisions. 3) Close the Gap. Get your level of financial literacy to at least “saver”. Identify and obtain the resources you need. 4) Plan. Calculate your FI number; create your budget; and set goals. 5) Just Do It. Make lifestyle changes that support your goals; stay connected with your community; and adjust as necessary. FI is not about sacrifice. Live below your means, spend wisely, enjoy life! 6) Retire. Or not. FI doesn’t require the RE (Retire Early) part. FI means work is a choice. If you retire early, you will have many years to live off of your investments. If you haven’t planned accordingly, you may outlive your savings. There is risk in retiring without a clear plan and purpose. Retirement is number 10 on the Holmes and Rah stress scale.
9. Does FIRE require making sacrifices?
No. FIRE requires making choices that are consistent with goals and objectives. Many in the FIRE movement embrace minimalism and frugality which are different sides of the same coin. Minimalism emphasizes value over consumption and materialism. Frugality means getting what you need in the most cost-effective way. It is OK to spend on what you love. Enjoying life is always of paramount importance.
10. Do you have to retire early in order to achieve FIRE?
No. We believe that early retirement is optional once you achieve FI.
11. What if financial independence seems out of reach. Is practicing FIRE still worth it?
There is value in improving your financial literacy and developing good financial habits. There are rungs on the journey to FI. If you only get to a point of financial security, that is a worthwhile achievement.
12. What level of financial literacy is required?
Investor level. Even if you have someone else manage your investments, you need to understand what they are doing. While they are responsible, you are ultimately accountable for overseeing your investments.