FIRE – Financial Independence, Retire Early

Many of us dream about an early retirement, spending time doing things we enjoy. Financial realities inevitably mean few of us will realise those dreams. You may have heard of the Financial Independence, Retire Early (FIRE) movement, which claims it can boost people’s chances of early retirement success. But how attainable is it really?

Igniting the fire

FIRE stands for ‘Financial Independence, Retire Early.’ The movement has a growing band of UK-based devotees, having taken off in the USA where followers adopt extreme saving techniques meaning they are able to invest as much as possible during their working years. The aim is to attain financial independence at a relatively young age, with some retiring in their late thirties or early forties, while for others it’s simply the financial freedom to be able to work part-time.

Playing with fire

Some of the key principles associated with the FIRE movement include maximising savings, with followers setting aside up to 70% of their income every month; paying off a mortgage and other debt; and living exceptionally frugally. Devotees also invest, for example into a stocks and shares ISA, hoping to maximise returns while sheltering proceeds from tax.

Another pillar of the movement is the ‘4% rule.’ In very simple terms, it’s considered that 4% is the amount someone can typically afford to withdraw from their retirement pot each year without too much risk of running out of money. So, if someone expected to spend £20,000 a year, they would need a pot worth at least £500,000.

The reality of the FIRE approach to investing

The basic principle of FIRE may sound appealing, especially if it means you can retire in your 30s or 40s. But the reality is it requires extreme financial discipline to aggressively save money, and lifestyle changes often meaning you’re living below your means.

For most people in the real world living this way is not going to be achievable, and only spending thrifty amounts of money all the time is a pretty miserable existence.

If you have ambitious retirement goals, the best thing you can do is talk to us, we can help you put an achievable plan in place.