Did you know that there are thousands of bloggers dedicated to writing about their personal finances? If you are a follower of one of those blogs, you will have undoubtedly heard of FIRE. FIRE has quickly taken the internet by storm, even garnering mainstream attention after Suze Orman addressed FIRE in a recent podcast. If you are new to this hot topic, read on to learn more about it.
What is FIRE?
The simple yet catchy acronym stands for financial independence, retire early and was initially coined by blogger Peter Adeney, also known as Mr. Money Mustache. The concept is fairly straightforward: by aggressively saving throughout the early working years to build up a sizeable portfolio, one can gain financial independence and leave the perceived rat race, while living off the passive income derived from the invested portfolio. Although reaching financial independence and retiring early are not new ideas, the FIRE movement is a bit more radical.
What makes FIRE so radical?
The FIRE approach is not for the faint of heart. The goal is to build up a portfolio 25 times the size of one’s annual spending. For example, if a family has spending needs of $40,000 a year then they would need to amass a portfolio value of $1,000,000. This may seem achievable at first glance when amortized over one’s working career of say 40 years, but do not forget what the “E” stands for in FIRE: early. There seems to be a real sense of urgency where the earlier one can reach retirement, the better. To that end, a typical FIRE follower is saving at least half of their income and in many cases much more. Such a feat will come with some massive overhauling of expenses. Welcome to a life of extreme frugality!
Is FIRE right for me?
The FIRE movement is appealing for those feeling trapped in unhappy work situations. Early retirement gives the freedom to pursue other endeavours, whether it be charity work, travel or a less stressful occupation. We have come across some exceptional case studies of couples retiring in their early to late-thirties to pursue a life of travel and we applaud the hard work that went into achieving such a goal. So, although it can work for some with varying degrees of success, such a radical approach will not be right for everyone.
There are positives to take away from this fast spreading FIRE (pun intended). In a world consumed by materialism, it is refreshing to see the call to minimalism, an underlying theme of FIRE, taking off among younger people. At Capstone, we have always been advocates for prudent saving and a part of that is becoming more thoughtful about spending habits. There are also those that would argue that continuing to be economically productive for as long as possible brings a sense of fulfillment that could not be found in conventional retirement. However, overall, we believe that a more moderated approach to financial freedom will be appropriate for most.
We can help.
Contact your Portfolio Manager if you would like to talk about retirement strategies that are right for you.