Retire in your 30s or 40s – FIRE movement guide

How soon do you want to retire? In 20 years? How about in just 10 years? This introduction to the FIRE movement will show you how it’s possible.

What is the FIRE movement? FIRE Movement for Beginners

FIRE stands for Financial Independence, Retire Early.

Financial Independence typically means having enough money to cover your expenses for at least the next 30 years.

Retired Early means retiring significantly before the average retirement age of 62. Some people aim to retire in their 30s or 40s. In some rare cases, even in their 20s!

The main principles to achieve FIRE are:

1. Saving a significant portion of your paycheck (think 50-90%)
2. Investing those savings
3. Retiring when you’ve amassed enough money

How much is enough money to retire?

Standard FIRE

If you’ve amassed 25x your annual spending, it is estimated that your money will last you for the next 30 years. According to Schwab, you can withdraw 4% from your portfolio each year, adjusted for inflation, with a high very high level of confidence that your portfolio will last for a 30-year period. 

Let’s say your annual spending is $50,000. You will need to amass a portfolio of 25x that, which is equivalent to $1,250,000. Then if you withdrew $50,000 accounting for inflation every year, the money should last you at least 30 years. 

Of course your portfolio can’t just be in low-interest savings accounts. Schwab recommends a portfolio of roughly 50% stocks and 50% bonds so that it will continue to generate returns, even during retirement.

There are two other types of FIRE:

Lean Fire

Lean Fire means retiring with with enough to cover your expenses by DECREASING your standard of living. 

For example your annual standard of living requires $50000. But you really want to FIRE so hard! So maybe you move to a cheaper apartment, get roommates, cut out eating out, and make various other sacrifices to cut your standard of living to say, $30000. Multiply that number by 25 and you’ll see that you need a portfolio of $750,000, rather than the $1,250,000 needed for Standard FIRE. 

Even if you retire early under Lean FIRE, you might even enjoy taking side jobs to supplement your income and potentially keep a level of health insurance. Some have even dubbed this Barista FIRE, because you can make some side cash by working as a barista.

Fat Fire

Fat Fire means retiring with enough money to actually INCREASE your standard of living during retirement. 

For example your annual standard of living requires $50000. But you want to BALL SO HARD during retirement. You want to move to a condo upstate and drive the newest Prius. So maybe you decide that you’ll need approximately $70,000 a year to maintain the higher standard of living.

Multiply that number by 25 and you’ll see that you need a portfolio of $1,750,000, rather than the $1,250,000 needed for Standard FIRE. 

Fire Benefits

Sounds good right? Who doesn’t want to retire early and maybe travel the world? Start a blog… write a novel, and spend extra time with their kids and family?

You can spend more time on hobbies, like gardening in the yard, fixing the cracks in the driveway… even catch up on re-runs of The Office.

You can cut out your commute and stop buying business casual clothing.

You don’t have to take orders from your boss or maybe even those annoying co-workers.

What could go wrong?

Fire Calculations

Want to retire early? You will need to save a LOT.

Let’s imagine you’re making $80,000 pre-tax, and approximately $60,000 post-tax.

According to CNBC, housing accounts for about 37% of the average American’s budget (pre-tax). 

So if you’re anything like the average American, then you’re spending 37% of your salary of $80,000 on housing, which equates to $29,600.

The personal saving rate in the United States amounted to 7.6 percent in 2019 according to Statista. 

So here’s how long it would take the Average American to retire. 

Average Retirement American:

Back to the scenario where your annual salary is $60,000 after tax. You save $4560 (a 7.6% savings rate) and your expenses are $55,440 every year. When you retire, you want to maintain your standard of living of $55,440 a year. It would take you 33.2 years to retire. Here are the results using the fire movement calculator at Engaging Data.

Standard FIRE American:

To retire early, less say in about half the time, you’ll have to make huge sacrifices.

You’ll have to save 50%, nearly 7 times the average savings rate.

Back to the scenario where your annual salary is $60,000 after tax. You save $30,000 (a 50% savings rate) and your expenses are $30,000 every year. When you retire, you want to maintain your standard of living of $30,000 a year. Using the same fire movement calculator, we see here that it would take you 14.1 years to retire.

That means, to retire in 14 years, you’d need to:

1. Save 7 times the average American for 14 years.
2. Keep your decreased standard of living during retirement. 
3. Since you’re only spending $40,000 to maintain a 50% savings rate, and $38,850 is going towards housing, then you only have $1,150 remaining to spend on food, clothing, transportation for the entire year (or $96 per month).

Still think it’s worth it?

Fire Challenges:

FIRE assumes historical market returns

Your money should last 30 years if the market matches or exceeds historic return. But what if the market dramatically underperforms during your retirement? Your money might last less or even dramatically less than 30 years.

What happens after 30 years?

Let’s say you retire at 35 years old. If your money only lasts 30 years, what will you do at 65 years of age? How will you re-enter the labor market with a 30 year gap on your resume? The future of work will evolve quickly; How will your skills hold up in a labor market three decades from now?

Accessing your retirement accounts

In most cases, you’ll have to pay a 10% penalty to withdraw money from your 401(k) or IRA before the age of 59 ½.

Unexpected expenses

You may think you can you estimate your living expenses, but can you really? Do you know how many kids you are going to have? Do you know which of your kids will be attending a private college on the East Coast, that YOU’LL have to pay for? If the housing market heats up, what will you do if your landlord raises your rent 10% every year?

FIRE Story #1

Amon Browning, 39 and his wife, Christina, 41, parents of two daughters, retired after eight years of saving.

Amon Browning’s net worth is approximately two million dollars.

They made some adjustments in their lives by investing 70 percent of their income, flipping fixer-uppers and trading in their expensive BMW for a used minivan.

They even started driving for Uber and Lyft to earn a little extra.

Now, Amon and Christina are living their retirement dream in Portugal with their two daughters.

In their spare time, they chronicle their journey to financial success on their YouTube channel.

Source: Good Morning America

My Analysis of Story #1

• They saved 70% of their income, nearly 10 times the average savings rate of the Average American.
• They took on extra jobs for additional income.
• They had to move to a low cost Country to cut their expenses.
• Not exactly “retired”, as they’re making money by creating Youtube videos.

Is this really FIRE if you move to a low cost country and work to create content for money?

FIRE Story #2

Alli and Matt Owen, a married couple who are 28 and 29, made a combined $250,000 a year. They decided to “retire” in 10 years.

Their goal was to save $1.2 million by then, so they could live off $40,000 a year for the rest of their lives.

But they both began to struggle with mental health issues including anxiety and depression, and decided to leave their jobs earlier than planned, never reaching that $1.2 million goal. Instead, they left work in April 2018 with a combined net worth of $600,000, to travel around the U.S. for about six months.

The day before they left, they got some bad news. Their computer had been hacked. And along with it, $17,000 worth of cryptocurrency they bought was gone, too.

The Owens don’t know what their futures will hold and whether $600,000 will be enough to support it. For one thing, they want to have children, and they’re not completely sure how much that will cost.

So to make a little more income, they’ve started two businesses: one to coach others on their finances and another selling a food product for the ketogenic diet. 

Source: Marketwatch

My Analysis of Story #2

• They failed to reach their savings goal.
• They faced an unfortunate financial setback by being hacked
• Definitely not “retired” – they’re working two businesses

This is not a successful FIRE story, at least not yet.

Why FIRE is not right for me – Downsides to FIRE

Meaning

No, I don’t want to retire in my 30s or 40s. I find joy and meaning in my work, not to mention it makes me feel like a productive member of society. I like to use my critical thinking skills and accumulated knowledge to accomplish goals and set my team up for success.

Skepticism

From the two stories I presented, and various other stories I stumbled upon in my research, I noticed that these “retirees” aren’t exactly sitting on the couch watching Seinfeld re-runs. Sure, they don’t report to an office or a job-site 40 hours a week. But they are still supplementing their income from side businesses, blogs, and social media… and often times making less per hour than they would have at their regular job.

No co-workers

Who will you turn to, to complain about your family? Just kidding.

Getting out of bed

Do you remember when you were a kid, and for whatever reason you weren’t enrolled in summer school… so you just sat around all day watching cartoons and playing video games? It was fun for a few weeks but after a while you really missed hanging out with your friends at school.

The grown up version of that? I look forward to collaborating and chatting with my coworkers by the proverbial water cooler. Without the structure that a job provides, I’d be tempted to sleep in until 2pm everyday.

Putting it all together

So what is the FIRE movement? It means achieving Financial Independence and Retiring Early. This is accomplished by saving a huge chunk of your income and investing it, hoping that it will last you for the next 30 years.

Now let me now your thoughts!

Is the FIRE movement right for you? Why or why not?