Want to retire (really) early, but at what cost…?


I have seen a couple of articles this week referring to FIRE. So what is ‘FIRE’? FIRE is an acronym for Financial Independence Retire Early. Okay, so retiring early as a statement has an appeal, but how is it proposed one achieves this FIRE position? Well I’m sure you won’t be too surprised to hear that it is effectively saving money towards your retirement but done to the extreme.

So what’s new? Saving money towards your retirement has been around as long as retiring has, but the concept of FIRE goes far beyond the ‘usual’ idea of trying not to spend monies on un-necessary things and then saving these same monies into something for the future (that I as an IFA would generally advise) and, takes the concept to extremes.
The FIRE idea advocates that you should retire well before you hit your 60s, with some even advocating retiring by 30. One advocate of this approach reckoned that he and his wife saved about 50 percent of their income into funds. The combination of their low cost of living, two rental properties and, their investments meant that he was able to retire at 30 years of age.

To make FIRE work, you need to combine both aggressive savings with extreme frugality, which is probably the most difficult part of FIRE for most people with a middle-class income. The particular advocate (above) estimated that they lived on a budget of $25,000 per year (just under £20,000 p.a.)! Yes, that’s the whole annual budget for a family of three living a roughly middle-class lifestyle in a smallish city near Denver in the US. Can you imagine getting your expenses down to such a level?

Cutting your expenses to less than $10,000 (£7,900) per person per year requires some serious sacrifices and, lots of planning. It means cutting back on food and it also might mean bikes instead of cars, the library instead of Amazon and, turning things like coffee shops and restaurants into true luxury items rather than daily or weekly occurrences.
You would need to be saving 50% or more of your salary!

The concept of FIRE I believe is somewhat like comparing a healthy balanced diet to an extreme ‘fad’ one. I do not knock in any way or form the concept of not wasting money and saving for the future, far from it, but life is a journey not a destination. What if you undertook this extreme FIRE route and as a ‘side-effect’ you ignored ‘additional schooling’ for children or, declined dental care to save money and retired with no teeth? That is to say nothing of family experiences and holidays you may have foregone along the way. It doesn’t matter how much money you have in retirement, you can never buy memories.

An extreme is exactly that!

Neil Dainton Dip PFS
Financial Planner

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