FIRE movement

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The FIRE (Financial Independence, Retire Early) movement is a lifestyle movement with the goal of gaining financial independence and retiring early. The model became particularly popular among millennials in the 2010s, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums. [1] [2] [3] [4] [5]

Contents

Those seeking to attain FIRE intentionally maximize their savings rate by growing the gap between their living expenses and their income, and investing the difference. JL Collins, an author who has been called the “godfather” of financial independence, [6] has advocated:

“Spend less than you earn—invest the surplus—avoid debt. Do simply this and you’ll wind up rich.” [7]

The objective is to accumulate assets until the passive income from these assets provide enough money to cover living expenses. Some proponents of the FIRE movement suggest the 4% rule as a rough withdrawal guideline, thus setting a goal of at least 25 times one's estimated annual living expenses. Others, such as economist Karsten Jeske, suggest planning for a more conservative withdrawal rate such as 3.25% or 3.5% (accumulating around 28 to 30 times one's estimated annual living expenses) when planning to retire very early. [8]

When a person reaches financial independence, paid work becomes optional, allowing them to pursue new activities or retire before reaching a typical retirement age.

Background

FIRE is achieved through aggressive saving, far more than the standard 10–15% typically recommended by financial planners. [9] Assuming expenses are equal to income minus savings, and neglecting investment returns, observe that:

From this example, it can be concluded that the time to retirement decreases significantly as savings rate is increased. For this reason, those pursuing FIRE attempt to save 50% or more of their income. [10] At a 75% savings rate, it would take less than 10 years of work to accumulate 25 times the average annual living expenses suggested by 'the 4% safe withdrawal' rule.

There are several ways to pursue FIRE. Some of the best-known are:

LeanFIRE: LeanFIRE is about achieving financial independence earlier by living exceedingly frugally. With very low expenses, a smaller investment portfolio is needed to achieve financial independence. [11]

FatFIRE: FatFIRE is a strategy for achieving financial freedom and early retirement with a larger budget than traditional retirement planning. Unlike other FIRE methods that may focus on minimalism and reducing expenses, Fat FIRE allows for a more luxurious lifestyle in retirement. This approach requires saving and investing a significant portion of income to build a substantial nest egg, enabling individuals to retire earlier than conventional retirement age while maintaining a higher standard of living. [12]

CoastFIRE: CoastFIRE has at least two stages. In the first, an investor aggressively saves and builds their investment portfolio. This continues until the investor is satisfied that their portfolio will grow sufficiently through the power of compound interest alone. In the second stage, the investor can stop or reduce their investing, and enjoy a measure of freedom without being fully financially independent. [13]

BaristaFIRE: BaristaFIRE allows people to partially retire before they are fully financially independent. It involves switching to a less-demanding (usually part-time) job that provides some income, and perhaps benefits such as health insurance. [14] (The term is a reference to part-time jobs at Starbucks, which provide health insurance.) [15] With this approach, a person covers their living expenses with income as well as modest withdrawals from an investment portfolio. [16] During this period, the investment portfolio should continue to grow.

FIRE is viewed as a lifestyle, not simply an investment strategy. A common thread that challenges individuals that subscribe to the FIRE lifestyle is finding partners that share the same fiscal goals. Availability of online resources helps the movement to expand among Millennial high-net-worth individuals. [17] [18] [19]

The emergence of social media has brought more attention to workers discussing their dissatisfaction. "Social media has made lives appear more glorious and expensive, but also allows others to broadly share about their financial freedom." said Zachary A. Bachner, CFP(r) of Summit Financial. [20]

History

The main ideas behind the FIRE movement originate from the 1992 best-selling book Your Money or Your Life written by Vicki Robin and Joe Dominguez, [21] [22] as well as the 2010 book Early Retirement Extreme by Jacob Lund Fisker. [23] These works provide the basic template of combining a lifestyle of simple living with income from investments to achieve financial independence. In particular, the latter book describes 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.

The Mr. Money Mustache blog, which started in 2011, is an influential voice that generated interest in the idea of achieving early retirement through frugality and helped popularize the FIRE movement. [24] [25] Other books, blogs, and podcasts continue to refine and promote the FIRE concept. [26] [27] [28] [29] A notable contributor to this movement includes Financial Freedom author Grant Sabatier, who works closely with Vicki Robin and popularized the idea of side hustling as a path to accelerate financial independence. [30] [31] [32] In 2018, the FIRE movement received significant coverage by traditional mainstream media outlets. [10] [21] [22] [24] According to a survey conducted by the Harris Poll later that year, 11% of wealthier Americans aged 45 and older have heard of the FIRE movement by name while another 26% are aware of the concept. [33]

2020 saw the introduction of dating sites and blogs dedicated to bringing partners that share the FIRE lifestyle together. [34]

Criticism

Critics of the FIRE movement have alleged that it is "only for the rich", citing the challenges of attaining high savings rates on a modest income. [35] [36] Justin McCurry, who retired from civil engineering at age 33 and writes the Root of Good blog, has written:

“Financial independence is well within reach of an average college graduate... If you’re only making double the minimum wage, it is a lot harder. But for the vast majority of college grads it is in within reach, even for people who earn less than $100,000.” [37]

Another common criticism is that the FIRE community is dominated by "tech bros"[ clarification needed ]. [38] However, a New York Times story has highlighted women within the FIRE movement in a piece spotlighting Kiersten Saunders (co-author of Cashing Out: Win the Wealth Game by Walking Away) and Tanja Hester (author of Work Optional). [39] In addition to Kiersten Saunders, other women of color who have been featured in news articles about FIRE include Christina Browning (co-creator of the Our Rich Journey YouTube channel with over 600,000 subscribers), [40] Paula Pant (host of the Afford Anything podcast), [41] , and Jamila Souffrant (host of the Journey to Launch podcast). [42]

Critics have also suggested that early retirees may not be setting aside enough funds for safe withdrawals during retirement. [43] Tanja Hester and economist Karsten Jeske have advocated for considering a conservative safe withdrawal rate of 3.5% or less, rather than the 4% rate mentioned in many retirement articles. [44] [45] This adjustment requires accumulating approximately 30 or more times one's annual expenses, rather than the conventional 25 times.

See also

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References

  1. ↑ Brenoff, Ann (2018-04-24). "7 Things You Can Learn From The FIRE Movement". Huffington Post. Retrieved 2018-07-07.
  2. ↑ Wong, Kristin. "The Basics of FIRE (Financial Independence and Early Retirement)". Two Cents. Retrieved 2018-07-07.
  3. ↑ "Young People Say Screw It, Retire in Their 30s". Free. 2018-06-05. Retrieved 2018-07-07.
  4. ↑ Avenue, Next. "What 30-Year-Old Retirees Can Teach The Rest Of Us". Forbes. Retrieved 2018-10-22.
  5. ↑ "A Growing Cult of Millennials Is Obsessed With Early Retirement. This 72-Year-Old Is Their Unlikely Inspiration". Money.com. April 17, 2018. Archived from the original on March 1, 2021. Retrieved 2018-10-22.
  6. ↑ JL Collins: The Many Paths to Financial Independence, 31 October 2023, retrieved 8 March 2024
  7. ↑ Collins, J. (8 March 2021). The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life. JL Collins LLC.
  8. ↑ Karsten Jeske: Cracking the Code on Retirement Spending Rates, 2024, retrieved 9 March 2024
  9. ↑ "When should I start saving for retirement?". Money. Retrieved 2018-12-18.
  10. 1 2 Stokel-Walker, Chris. "FIRE: The movement to live frugally and retire decades early". www.bbc.com. Retrieved 2018-12-18.
  11. ↑ Adcock, Steve (2024). Millionaire Habits: How to Achieve Financial Independence, Retire Early, and Make a Difference by Focusing on Yourself First. United Kingdrom: Wiley.
  12. ↑ Adcock, Steve (2024). Millionaire Habits: How to Achieve Financial Independence, Retire Early, and Make a Difference by Focusing on Yourself First. United Kingdrom: Wiley.
  13. ↑ Riley, James. Journey to the Coast: Coast FIRE, Geoarbitrage, & Financial Independence. USA: Amazon Digital Services LLC - KDP Print.
  14. ↑ Dogen, Sam (2022). Buy This, Not That: How to Spend Your Way to Wealth and Freedom. United Kingdom: Penguin Publishing Group.
  15. ↑ "Benefits and Perks: Starbucks Coffee Company". Starbucks Coffee Company. Retrieved 27 February 2024.
  16. ↑ Oelker, Katie. "My husband and I want to retire early, and a simple equation will help us get there without sacrificing our lifestyle today". Business Insider. Retrieved 27 February 2024.
  17. ↑ "Financial Samurai". Financial Samurai. Retrieved 2020-10-21.
  18. ↑ "Road To FIRE". Road To FIRE. Retrieved 2020-10-21.
  19. ↑ "Buck by Buck". Buck by Buck. Retrieved 2020-10-21.
  20. ↑ Meason, Cynthia (2022). "Retirement is changing -- do experts think it's for the better or worse?". Microsoft News.
  21. 1 2 Tergesen, Anne; Dagher, Veronica (2018-11-03). "The New Retirement Plan: Save Almost Everything, Spend Virtually Nothing". Wall Street Journal. ISSN   0099-9660 . Retrieved 2019-01-28.
  22. 1 2 Kurutz, Steven (2018-09-01). "How to Retire in Your 30s With $1 Million in the Bank". The New York Times. ISSN   0362-4331 . Retrieved 2019-01-28.
  23. ↑ Bejder, Eva (2018-12-15). Stå af hamsterhjulet - med penge nok til resten af livet [Get off the hamster wheel - with enough money for the rest of your life] (Television production) (in Danish). Denmark: DR2. Event occurs at 6:16. Retrieved 2019-01-29.
  24. 1 2 Moss, Stephen (2018-11-20). "Can anyone retire in their 30s? Meet the people who say yes". The Guardian. ISSN   0261-3077 . Retrieved 2018-12-18.
  25. ↑ Pennington, Sylvia (2018-02-23). "FIRE followers Down Under seek early retirement". The Sydney Morning Herald. Retrieved 2019-01-29.
  26. ↑ "Mad Fientist - Financial Independence and Early Retirement". Mad Fientist. Retrieved 2021-09-23.
  27. ↑ "Ask the Savings Guy". Ask The Savings Guy. Retrieved 2021-09-23.
  28. ↑ "Podcast". Afford Anything. 2018-11-03. Retrieved 2021-09-23.
  29. ↑ "Home - Physician on FIRE". www.physicianonfire.com. 2023-05-12. Retrieved 2023-11-08.
  30. ↑ León, Concepción de (2018-02-08). "How One Book Changed My Relationship With Money". The New York Times. ISSN   0362-4331 . Retrieved 2019-10-01.
  31. ↑ Marte, Jonnelle. "How this millennial saved $1 million by age 30". Washington Post. Retrieved 2019-10-01.
  32. ↑ "I'm a Millennial Millionaire. Here's How I Got So Rich". Money. Retrieved 2019-10-01.
  33. ↑ The Harris Poll (2018-11-27). The FIRE Movement Survey (PDF). TD Ameritrade . Retrieved 2019-01-29.
  34. ↑ Charles, Mathews (2020-10-09). "Dating FIRE" . Retrieved 2020-10-09.
  35. ↑ Howard, Miles (January 2018). "Being frugal is for the rich". The Outline. Retrieved 2018-12-18.
  36. ↑ Moss, Stephen (2018), "Can anyone retire in their 30s? Meet the people who say yes", The Guardian, retrieved 1 March 2024
  37. ↑ Here's how to retire long before your 60s, 2022, retrieved 29 February 2024
  38. ↑ "The False Persistent Myth About FIRE and Tech Bros". Our Next Life. 19 September 2018. Retrieved 2021-02-16.
  39. ↑ Cowles, Charlotte (7 June 2019). "For these women, a FIRE that burns too male and too white". The New York Times. Retrieved 2021-02-16.
  40. ↑ 3 aggressive saving strategies a San Francisco couple used to save 70% of their income and retire early, 2020, retrieved 29 February 2024
  41. ↑ How this entrepreneur quit her job to now teach people how they can afford anything, 2022, retrieved 29 February 2024
  42. ↑ George, Dana (5 February 2020). "5 Black Financial Gurus to Follow". Motley Fool. Retrieved 2021-02-16.
  43. ↑ FIRE: The movement to live frugally and retire decades early, 2018, retrieved 1 March 2024
  44. ↑ Hester, T. (28 February 2019). Work Optional: Retire Early the Non-Penny-Pinching Way. Hachette Books.
  45. ↑ Karsten Jeske: Cracking the Code on Retirement Spending Rates, 13 October 2020, retrieved 29 February 2024
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