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The FIRE Movement - Is It Really That "Lit"?

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November 01, 2020

The FIRE Movement — Is It Really That "Lit"?

If you've spent any time on YouTube, you may have come across a community of people advocating for FIRE. No, not what Merriam-Webster calls "the phenomenon of combustion manifested in light, flame, and heat". It's not vigilantes running around with torches and pitchforks. This kind of FIRE is an acronym for Financial Independence, Retire Early, and it's a controlled burn to achieve a goal by some self-determined point in the not-so-distant future.

FIRE has become especially popular among Millennials through online forums and social media in the past decade, but it can trace its roots back to a 1992 book by Vicki Robin and Joe Dominguez: Your Money or Your Life. Their 9-step process can be distilled into one fairly simple premise: by following a very aggressive saving and investing strategy, you can potentially retire at a very young age. Maybe even in your 30s, depending on when you start. In even simpler terms, we're talking about delayed gratification in the extreme.

Making work optional well before your mid-life crisis sounds pretty attractive — especially to those who crave flexibility, who may be dissatisfied with their current job, who are concerned about the decline of employer-sponsored pension plans, or who worry that Social Security may not pay out to the same degree it does for our parents. It can also sound daunting or even impossible to achieve, considering the average 60-year-old American has less than $200,000 saved for retirement. How much do you have to save, then, and how young might you be able to retire? Well…that really depends on you. Chief among the factors are your current age, income, expenses, risk tolerance, and your retirement goal.

FIRE is a lifestyle as much as a savings and investment strategy. It addresses both accumulation through active income and the switch to withdrawals in the form of passive income.

Rather than the 10-15% savings rate generally touted by financial professionals, FIRE practitioners to try to save anywhere from 50-75% of their annual gross income. Once you've saved 25 times your annual living expenses, you're said to have achieved FIRE. This is predicated on the 4% rule, which says that, given a 7% annualized return, 3% inflation, and historical volatility in the markets, you can withdraw 4% from your portfolio each year to live on and not worry about dying penniless. In real dollar terms, if you had $1,000,000 of investable assets, you could reasonably expect to draw $40,000 a year in income.

There are even different iterations of FIRE depending on how serious your hustle is:

  • "Fat" FIRE — retiring on a large sum of accumulated wealth, which allows you to afford fixed and discretionary expenses with comfort
  • "Lean" FIRE — retiring on the cusp, where you can afford your fixed expenses but live modestly without much buffer for variable expenses or pleasure
  • "Barista" FIRE — a compromise solution that offers a security blanket of assets and passive income while still requiring you to work part-time to supplement income and help provide healthcare coverage
  • "Coast" FIRE — a more modest alternative to full FIRE that balances current quality of living with your future retirement goals, but takes longer to achieve

Although there's seemingly a version for everyone, everything has its perks and pitfalls. Here are some pros and cons to consider:

Pros:

  • Learned discipline
  • Potential to retire or make work optional at a younger age than previously imagined
  • Claiming greater agency in your life, reassessing what's most important to you, and defining your own brand of financial independence
  • The flexibility to find your own purpose in life outside of work

Cons:

  • Potential difficulty of finding a partner who'd be comfortable adopting the same laser-focused lifestyle
  • Risk of market downturn when you need to draw the same fixed amount from your portfolio to live on (sequencing risk)
  • Potentially not meeting 40 quarters of work eligibility to max out Social Security, and having to wait until your full retirement age to draw a benefit
  • Boredom in early retirement — needing to find a sense of purpose beyond the 9-5

Some of you may have read the above and thought, "Ouch…" After all, it can be a struggle to balance our checkbooks as-is with everything life throws at us, and it's easy to get derailed when unexpected expenses arise. Indeed, full FIRE may not work for everyone. It may not work for those who live paycheck-to-paycheck on minimum wage, or who are comfortable working longer to maintain a higher current standard of living. But I love the inherent optimism of the movement; the power it rests from the unknown and places back in our own two hands. The beauty of FIRE is that it gives you a playbook to assess your needs and wants, and to start building your own game plan.

If you are living paycheck-to-paycheck (whether because your income is low or your expenses too high), evaluating your spending habits and retirement goals may help you find the margin in your budget to start building an emergency fund, or the urgency to gain skills and credentials that could help you earn more. If you're a little older and feeling behind, it can give you clarity and focus there, too. Or if you're already well on your way, it'll confirm what you're doing right, help you discover greater efficiencies, and encourage you to keep up the good work.

Tell us about you. Where are you in your journey to financial independence? How soon do you want to retire, and what does your ideal retirement look like? Let us know how we can help you breathe easier — we're here as a resource to make your dreams come true.

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About the author

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Drew Pond

Wealth Plan Design Specialist

Drew Pond is an independent financial advisor and CFP® Practitioner at oXYGen Financial, specializing in portfolio construction, goals-based planning, life and long-term care insurances, and retirement plans, with 7 years' experience in the financial services industry. He lives in Midtown, Atlanta.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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