Are you on FIRE Financially?
“They say on your deathbed you never wish you spent more time at the office — but I will.” - Michael Scott, The Office
Most of the people I know aren’t like Michael Scott. They aren’t aching to spend more time at the office. No one says TGIM (Thank Goodness It’s Monday). Instead, you hear TGIF, “A bad day fishing is better than a good day at work”, or that they are “working for the weekend”.
This is why the notion of early retirement is very appealing to so many. This is why the FIRE movement is so popular. For those who are not familiar with the movement, the acronym FIRE stands for Financial Independence, Retire Early. The movement has many advocates, with Mr. Money Mustache being one of the more famous. The principle strategy behind this movement is as follows:
- FIRE adherents are super savers that typically save between 50-70% of their income each year. They do this in two ways: (1) by having higher incomes, and (2) living very frugally. Just to give you some perspective, for those retiring around age 65, we typically recommend they save between 10-15% of their income each year in retirement accounts;
- FIRE adherents often save in non-retirement accounts because distributions occur prior to age 59.5;
- After saving sufficient income, FIRE adherents retire from work and use the significant savings to generate income to fund a continued frugal existence. For example, if a person saved up to $750,000 in an investment account they could potentially withdraw 4% each year, or $30,000. The distributions would be derived from portfolio gains, dividends (companies sharing profits with you), and interest (from bonds in your portfolio). It is important to note that this is done without having to touch the original investment of $750,000 which may continue to generate income in subsequent years. Clearly, a larger nest egg may provide you with a larger income; and
- Some FIRE adherents also move to less expensive locales (Costa Rica, Nepal, rural America, etc.) so their income can go farther.
While the FIRE strategy and lifestyle may not be for everyone, many are very interested in the notion of retiring earlier than the typical retirement age 65. A recent survey showed that the pandemic has impacted retirement planning mindsets with more Americans wanting to retire by age 55. Here is some of the interesting findings from the survey of nearly 6000 Americans, conducted by Hearts and Wallets:*
- 39% of U.S. adults anticipate retiring, or more precisely - stopping full-time work, by age 65 (up 9 percentage points over the past five years).
- A full 1/3 of those under age 54 “aspire to retire by age 55”.
What does it take to Retire early?
In short, a lot of planning. My financial planning clientele includes a number of early retirees and clients that are on track to do so. What may surprise you is that many didn’t have significant incomes; rather they lived well within their means and invested the difference. You could call it the FIRE-lite strategy.
In fact, my financial planning practice specializes in taking clients to and through early retirement and helping ensure that the next stage can be just as meaningful. However, there are many things one must consider when retiring early. Here are just a few that I will explore in future blog posts:
• Money Lasting a Lifetime — How does one manage their money so they have income for the rest of their lifetime, which for early retirees could be an additional 40-50 more years?
• Health Care — How does one ensure they have reasonable healthcare coverage before they are eligible for Medicare at age 65?
• Social Security — When should one take Social Security, since the earliest it can be taken is age 62?
• Taxes — How can one reduce their taxes so that they have more income?
• Meaning and Purpose — How does one make the next stage in life just as meaningful?
Unfortunately, for too many early retirement is not an option, as the same survey noted above showed that few are realistically prepared to do so with 71% having saved less than $100,000, and only 8% having saved $500,000 or more”. * Similar to something else Michael Scott said, “I’m not a millionaire. I thought I would be by the time I was 30, but I wasn’t even close. Then I thought maybe by 40, but by 40, I had less money than I did when I was 30.”
But as I explained during the Financial Fundamentals of Building Wealth webinars last week, appropriate planning can really help optimize one’s situation so that they can retire earlier than they thought they could.
Thanks for reading my blog. I hope you found it helpful. If you have questions regarding how to retire early, feel free to schedule a free introductory meeting by going to the “Contact Us” page.
Source:
*https://www.financialadvisoriq.com/c/3115304/388764/more_americans_want_retire_help
