It may be what you’re ultimately striving for, it may not: here’s why.
There is a lot of recent attention given to this laudable goal of reaching FIRE: Financial Independence, Retire Early movement. I guess on the one hand retiring at age 35 or 45 does sound dreamy, but is it, really?
Maybe because I genuinely enjoy work and find a tremendous amount of fulfillment and purpose in my career, the idea of retiring early doesn’t exactly entice me. Most of my clients aren’t eager to quit the workforce early either (although some really are!). My hope is that enjoying your career can be the outcome when you construct your life in alignment with your values and financial goals.
That said, it’s fair to say many of my high-powered and high-earning (read: over-worked?) Silicon Valley tech employees are often talking about either down-shifting their work intensity or aiming for FIRE altogether.
After all, if your life was exactly what you wanted it to be right now, while you’re working, would you still want to retire early? Of course this is that deep personal question only you can answer, but certainly be thinking about that as you read on.
While I’m not pursuing FIRE personally, as a fiduciary financial advisor, I am very enthusiastic about proper financial preparation. And if there is one thing the FIRE Movement demonstrates very well is how financial planning and discipline can help you manifest meaningful financial results in your life! From my experience, you can achieve the same things in life that the FIRE Movement offers without prematurely concluding your time in the workforce, unless of course you’re sure that’s the route you need to go to maximize your own quality of life.
Should you pursue FIRE? Ultimately, that is completely up to you. Here are a few points to consider as you contemplate your financial direction.
Where Did the FIRE Movement Come From?
First, let’s take a look at where FIRE came from in the first place. By many accounts, the beginnings of the officially dubbed FIRE movement can be traced back to 1992 book titled “Your Money or Your Life” written by two leading financial voices.
In it, authors Vicki Robin and Joe Dominguez make the point that your expenses translate into hours of your life spent at work in order to pay for those things.
In other words, how much of your life are you willing to sell or give up in order to pay for material possessions? It’s definitely a question worth spending some time pondering!
How Specifically Do You Achieve FIRE?
For most people, you have to earn a high income and you have to save most of it. Successfully achieving the FIRE goal relies upon adhering to a strict lifestyle of saving as much as 70% of your annual income. Translation: No Excess.
FIRE movement participants typically achieve their financial freedom by being a part of the traditional workforce while living an extremely low-cost lifestyle and saving far more than ordinary humans. They achieve their “Retirement Number” early, and then they leave their jobs to pursue other ways to pass the time. FIRE is essentially a normal retirement come early.
What Are the Dangers of FIRE?
Investing smartly to compound savings is a key part of achieving FIRE. Be forewarned, though: Because the whole point of FIRE is to get to that Retirement Number in a shortened time period, riskier investments can lead to investment mistakes that can be unrecoverable. If you’re guessing on individual stocks or investing in other complex types of investments that suffer default risk, you could lose everything.
Not only that, but once you stop working, now you’re at even greater risk of making an irreversible mistake. The day you stop earning money is one of the most important days of your financial life! On that day, you are betting everything that your money will outlive you. Drawing income for expenses from your nest egg is easy in a 10-year bull market, but what happens when the market is down 20%? 30%? Or more… as it was in 2008?
Volatility will return, and when it does, so will the emotions that ruin prudent investment plans, such as fear and panic. Even if you are able to calm your fight, flight or fright reaction to watching your portfolio balances decline quickly, you still have to be accurate about how much money you can pull from your portfolio in a down market and not pull so much that it can never regrow. I mention all this to caution you. It’s just the reality of how market cycles work and something all investors need to be prepared for, especially those pursuing early retirement.
Ways to Accelerate Your Financial Goals
Reaching financial independence as soon as possible is a goal I wholeheartedly support and work to achieve with my clients. After all, getting to a place where you do have enough to cover what you need is transformative and life-changing. But it doesn’t have to be to the exclusion of continuing to work and earn an income.
For anyone looking to retire at some point in their life, you’ll have to make investing a priority. The main difference is that if you are pursuing FIRE, you’ll have a much shorter timeline for those investments to pay off, so working with a financial advisor can not only help you maximize your efforts and your growth, but can also significantly reduce the chances of making financial mistakes that end or impact your FIRE tenure.
To achieve FIRE, throughout your working years you’ll want to actively increase your income. While this can sometimes be easier said than done, confidently asking for raises, creating extra revenue streams in your business, or taking on a side gig can help achieve this aim.
>> Related Content: Episode 132 Negotiating for More, Part 1
>> Related Content: Episode 133 Negotiating for More, Part 2
How Do You Know When You’ve Achieved Financial Independence?
The benchmark of success for FIRE is amassing your Retirement Number as soon as possible. Once this goal is accomplished, it may be possible to leave your day job behind or say goodbye entirely to any form of employment.
For everyone, financial independence is simply when you have enough money that you can afford your living expenses for the rest of your life without having to work or being dependent on anyone else.
The Bigger Question
For many of my clients, retiring early isn’t necessarily the goal. However, being able to retire and to work when and how you want to is. So, I’ll reask the question I posed at the beginning of this article: If your life was exactly what you wanted it to be right now, while you’re working, would you still want to retire early? If your answer is yes, then pursuing FIRE is an exciting and ambitious goal that a financial advisor can certainly help you accomplish. If your answer is no, then let's take a closer look at what needs to change so you can live in alignment with your professional and personal life.
You have so many choices when it comes to your financial reality. You may just not be aware of all the possibilities. If you feel like you need a change or want to see what’s possible in your financial life, let's talk.