Retirement planning lessons from the FIRE movement

Debbie Bongard - Oct 26, 2021
The dream of retiring early is nothing new, however in recent years it has gained traction as a growing trend in the investment world, coined as the Financial Independence, Retire Early (FIRE) movement. Participants of the movement set the staunch go

The dream of retiring early is nothing new, however in recent years it has gained traction as a growing trend in the investment world, coined as the Financial Independence, Retire Early (FIRE) movement. Participants of the movement set the staunch goal of living as minimally and frugally as possible in order to save enough money to retire in their 50s or even as early as their 30s.

 
It’s a movement that is built on a mantra of save now, enjoy later, revolving around the idea that you don’t need to wait until your 60s to pursue your passions, travel the world or spend time with family.
 
For some, the FIRE movement may seem extreme, however its disciplined focus on saving and frugality are not dissimilar from traditional retirement planning strategies. In fact, there are a few lessons we can all take away from the FIRE movement:

 

  1. Be diligent with your savings goals

 
It’s no surprise that the first step in any retirement plan comes back to saving. However, FIRE movement followers take it to the next level, typically aiming to save more than 50 percent of their annual income, ideally, saving up to 70 or even 80 percent.
 
In order to achieve these extreme savings goals, FIRE followers seek to live minimally and lower their expenses as much as possible. a
 
While this level of saving may seem unrealistic for most, there is a valuable lesson to be learned: every investor can and should establish a firm retirement savings goal. This goal should be realistic and solidly contribute to your retirement plan. It may require some critical analysis of your current spending – if you aren’t meeting your retirement goals, maybe it’s time to take a page out of the FIRE handbook and pare down your lifestyle to make more significant contributions to your retirement fund.

 

  1. Figure out the (realistic) lifestyle you want

 
As is common with any form of retirement planning, figuring out how much you need to save completely depends on how much you need to live, which is why it’s important to get real about your lifestyle – both how you live now and how you expect to live in the future.
 
Figuring out what your standard of living will be is a top priority, especially if you’re hoping to retire early FIRE style. The best way to determine these costs is to meet with a financial advisor to help you map out your current cash flow and expected future costs, from saving for old age care to costing out your travel ambitions. Meeting with a professional is the best way to ensure to align your money management with your lifestyle.

 

  1. Regain your control

Sometimes, retirement planning can be frustrating when it seems like there are elements of your finances you cannot control, whether it’s the markets or your annual earnings; however, one thing that the FIRE movement can teach us is to take control where you can.
 
This shift in perspective can bring a whole new sense of empowerment to the act of saving. By downsizing some of your spending and lifestyle choices and increasing your savings goals, you are taking the reigns and regaining control of your finances.

 

  1. Rethink what ‘retirement’ really means

 
A large part of the FIRE movement mantra is realising that retirement is not what it used to be, in fact for many, retirement no longer means you have to stop working.
 
For FIRE followers, retirement is a state of financial independence that doesn’t require you to work full time, but instead allows you to take on different opportunities, often part-time, freelance and ever increasingly remotely.
 
It blurs the lines of retirement altogether and enables people to keep working but in a dialled back capacity that better suits their lifestyle. It allows people to work in a reduced environment, far different from the corporate 9-5 structure so many of us become used to.
 
The idea is to achieve financial freedom and unlock the ability to pursue a new kind of working life - to pursue work because you love what you do, not because you need to pay the bills.
 
There’s no question that the FIRE movement can seem extreme at times, however there is real value in securing financial freedom earlier in life. It’s a movement that promotes frugality and independence – by saving now you can unburden yourself from the risk of being financially insecure later in life. While you don’t have to follow the FIRE movement guidelines exactly, it never hurts to limit your spending, boost your savings and let your money work for you so you can enjoy a happy and stable retirement at whichever age you choose.