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Q2 2023 Advisor Insights

April 20, 2023 Wealth management

Set your retirement plan ‘on FIRE’

by Keith Blakely

For the vast majority of Americans, retirement is a 40-year journey that starts with obtaining an education, landing a job, saving 10 to 15% of your salary in your retirement account, and building your nest egg through your working years.

In recent years, there has been a movement taking place that takes direct aim at the conventional retirement age of 65: FIRE, or Financial Independence, Retire Early. While this lifestyle has many degrees of variation, and is certainly not realistic for everyone, it’s worth considering as you think about your retirement plans. Let’s take a look at some of the core beliefs of the FIRE movement. 

  1. Prioritize saving – Many FIRE followers have a goal of landing a high-earning job and saving more than 50 to70% of their income in various retirement and investing accounts. With the goal of retiring early, FIRE followers must build up savings outside of retirement accounts to cover their living expenses in their forties and fifties, as they cannot access retirement accounts until age 59 ½. Starting with a high salary is certainly a huge benefit if you are trying to save more than 50% of your income! 
  2. Extreme frugality – It should come as no surprise that to save more than half of your income, you must have the discipline to cut expenses at every corner. This typically means living in a modest house, driving an older model vehicle, and foregoing name brand clothes. Many FIRE followers budget to live on $3,000 to $5,000 per month, depending on income, location, and how early they want to retire.
  3. Retirement withdrawal rate – Let’s assume a FIRE follower does, in fact, retire at 40 years old. That means they will potentially have a 50+ year retirement to plan for – the advisor in me trembles at the thought! The traditional 4% withdrawal rate MIGHT work for them, but we would lean towards a 3.0 to 3.5% withdrawal rate from the portfolio to feel comfortable enough to make the numbers work. For a $60,000 annual spend, that means you need a portfolio of around $1.7 to $2.0 million dollars.

It’s important to weigh the benefits of retiring early against continuing to work longer, such as greater financial flexibility and maintaining social interactions. While some FIRE principles may seem drastic to most, the concept of prioritizing saving, being intentional and thoughtful about spending, and investing soundly could certainly be beneficial to our society as a whole. Reach out to me if you’d like to discuss the way you can lean towards the financial independence beliefs of this movement.


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