The FIRE Movement — Is it just a fad?

by Matt Knoll, CFP®

Reading online finance articles, blogs, and tweets, there always seems to be a hot new trend. At the very beginning of investment history, the trend was tulip bulbs. Not too long ago it was bitcoin. Is the current FIRE movement a legitimate planning strategy, or more of an aspiration?

Let’s first look at what the FIRE movement actually means. F.I.R.E. stands for Financial Independence, Retire Early. The movement doesn’t focus solely on a single investment strategy. Rather it encompasses an entire lifestyle change, one that has grown increasingly popular among the millennial generation.

FIRE followers try to save enough money, by living a minimalist lifestyle, to be able to retire at a very early age.  Because the retirement period in this strategy is about double that of the average American, there are a lot of factors that can be overlooked.

FIRE enthusiasts tend to be high wage earners, in their early 20’s, who save over 50% of their total income.  This limits the strategy to most demographics thinking about retirement.  The idea of giving up over half of your spendable income boils down to having to make significant sacrifices and cutbacks.

This minimalist lifestyle isn’t for everyone, of course. I certainly don’t’ consider myself to be committed to this style of saving and spending. Still some FIRE guidelines work no matter what your age and lifestyle. Here are some tips for enjoying a comfortable retirement that you can follow today:

  • Start saving now! The most valuable dollar you will ever save is the FIRST one! Saving even a small amount will help you reap big rewards long-term if you get started now.
  • Know what you are spending. In today’s digital world, automatic payments, online shopping, mobile-money transfers, and credit cards all provide extreme convenience, but make it difficult to track spending. Create a budget to help you stay on track.
  • Automate your savings. Setting up automatic deposits into your 401k, investment account, or savings account can get you headed in the right direction by making saving easy, out of sight, and out of mind.
  • Get your 401k match. Many employers will match the dollar amount that you put into your 401k. This is like free money. If you can afford it, save at least enough to get your employer’s full match.
  • Pay down debt. Try to pay off your credit card balance every month. Then focus on your debts that charge highest interest rate next. Any extra money you can put towards paying off debt will save you time and interest in the long run.
  • Set goals. Knowing the amount of money you need to reach a certain goal makes saving easier and much more rewarding once you reach it.
  • Talk with someone you trust about your life’s money objectives. Working with a professional advisor can help you make progress in your financial journey.

While all these points apply no matter your lifestyle, there are many additional things to consider if you plan to use the FIRE strategy. For example, many retirees are dependent on government benefits once they stop working. Social Security benefits typically don’t start until most retirees reach their 60’s.

Your eligibility will depend on the amount of “work credits” you have paid into the system over time.  Ensuring you have earned enough credits to qualify for Social Security is essential, as the amount you have paid into the system will determine the benefits you receive.

Another consideration is health care costs. Many people are covered by their employer’s health insurance plan. Qualified retirees who qualify, in turn, have access to Medicare at age 65. In the FIRE strategy of retiring by middle age (meaning one’s mid-30’s to 40’s), there is a large gap in the years that will need to be covered on health care costs.  Living off a financial portfolio intended to cover these costs, particularly over such a long period of time, injects a fairly large degree of risk into any financial plan.

One of the biggest factors to consider for those in the FIRE movement is the transition they will experience in life itself. Setting a goal like following the FIRE strategy isn’t impossible for the right individual. But as we all know, life changes.  As people get married, start families, and change careers, their goals and aspirations may start to change as well.

I think the answer to whether the FIRE movement is right for you all comes down to the purpose for your retirement. If your purpose is retire as early as possible because you hate your job, maybe you should focus instead on finding a job that you love to do. Lastly, remember that making sure your goals align with the people in your life is an important conversation to have. That is an indisputable truth no matter when you decide to retire.


Matt Knoll, CFP®  is a Financial Planner in the  Quad Cities office of The Planning Center, a fee-only financial planning and wealth management firm.

Email him at: mattk@theplanningcenter.com.

Tags: , , , , ,