Playing with F.I.R.E. Without Getting Burned

By Tammy Trenta, MBA, CFP, CTC, CEXP; Founder and CEO - Family Financial

We live in a world marked by immediacy. Technology fills our days with instant gratification where even the most obscure requests can be met on demand. Convenience is the new ideal; it should be easy to get the ‘boring stuff’ out of the way quickly to do the things we truly want to do.

The F.I.R.E. movement (Financial Independence, Retire Early) is an example of this new mindset; some are banking their futures on the peaceful coexistence of immediacy and practicality. F.I.R.E. throws the old standard - working a nine-to-five job through age 65 - out the window. It states that with enough discipline, people can and should retire as young as they choose - even in their 30s.

But achieving any ambitious goal requires sacrifice - which is rarely convenient. To avoid being burned by F.I.R.E., you’ll need to find the right balance of sacrifice and practicality.

Knowing how much to save

The first step is to figure out how much you’ll actually need during your retirement years. Think about what you want your life to look like and what is likely to change over time (Family status? Location? Inheritance?). And don’t forget about inflation!

Once you identify the amount you’ll need and when, consider what you need to live on now and your capacity for saving. Will you make it? If the answer is no, your options are to spend less, earn more, or a timeline adjustment. Each option requires a hard reality check.

Spending less

What are you (really) willing to give up today for an independent tomorrow? If you’re just starting out, drastic adjustments are easier to implement. But if you’ve already achieved a comfortable lifestyle, are you realistically going to go backwards to save money?

I speak from experience. Prior to the pandemic, our family was comfortable, but overwhelmed by the accumulation of stuff. The minimalist lifestyle was appealing, so we downsized. But when COVID hit and my son was home from school for a year, we were overwhelmed in the opposite direction - we quickly learned that staring at each other in our 800-square-foot apartment was enough to drive us all mad.

Sacrifice is a very individual concept and will look differently for everyone. Housing (often your largest expense) is a great example. Teaming up with roommates or living with parents to save money can be appealing for some, but is a dealbreaker for others. In major cities, we are seeing a big push for “pods” - inexpensive spaces just large enough to sleep in, with communal areas to eat and shower. While this doesn’t appeal to me, it works for many.

Earning more

If you are ambitious enough to try to retire before 40, chances are, you’re also ambitious enough to shoot for a job that pays very well. When it comes to your (short) career path, a good rule of thumb is to aim to double your income every 5 years.

Gone are the days of corporate loyalty when people would work at the same job for decades. Now, trading up for more money is all but expected. And today’s gig economy offers plenty of flexible options for those looking for an income boost. However you go about it, remember, doubling your income means doubling your savings - a big incentive if you’re a F.I.R.E. adherent.

And be sure to give higher education the scrutiny it deserves. We’re well beyond the days when college automatically equaled better income potential. If you’re into F.I.R.E., you may be savvy enough to learn the skills you need without the hefty tuition bill.

Controlling the Burn

If F.I.R.E. feels a bit too hot for your lifestyle, there are F.I.R.E.-lite alternatives. Retiring at 50 instead of 40 could give you some freedom while giving your pocketbook additional power. Extended breaks here and there could allow you to explore while keeping your earning potential intact. And part-time gigs are a way to give your daily life breathing room.

So before you jump into the F.I.R.E., let's sprinkle in a dash of reality. Life, with its beautiful unpredictability, may throw a curveball or two. If you're blessed with a long, vibrant life expectancy, remember: plans sometimes dance to their own tune. And should you grace the world with your presence longer than expected, make sure your treasure chest is bountiful. No crystal ball here, just some heart-to-heart advice: tread with care and ensure the adventure is truly golden.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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