Retiring in your forties, or even thirties, might seem like a lofty ambition, but that’s the goal of the advocates of an extreme savings movement known as the FIRE method.
The FIRE movement is a revolutionary, albeit controversial, approach to financial freedom that challenges conventional retirement norms. Emerging in the US, the movement has garnered a massive following in the UK and Ireland, too, all with the promise of helping you to escape the 9-to-5 grind and unlock the secrets of early retirement, all while living comfortably off your investments.
Here, Nick Charalambous, financial advisor and Managing Director of Alpha Wealth, gives his views on the FIRE movement and offers advice for owning your financial future.
What is the FIRE Movement?
“FIRE stands for ‘Financial Independence, Retire Early.’ In its extreme, the FIRE movement is about creating an investment portfolio, passive income, or both, that allows you to effectively retire before you are 40 - or even sooner.” Nick explains.
“The essence of FIRE is living frugally, saving aggressively (up to 70% of income), and investing wisely to achieve financial independence and the option to retire well before traditional retirement ages.”
What are the steps to FIRE?
So how do we go about achieving ‘‘financial independence’? “Financial independence is having no debt, funding all planned expenses and assets that allow you to draw 5% to support your lifestyle requirements. So, for example, if you wanted an income of €50,000 every year, you would need income-generating assets - such as pensions and investments - of one million.”
If achieving FIRE by your 30s or 40s sounds daunting and possibly unrealistic to you, Nick agrees: “To achieve this by 40 requires about 50-75% of earnings to go towards saving and isn’t a sacrifice we would advocate.”
A realistic approach to earlier retirement
Advising a more sustainable, achievable approach towards earlier retirement, Nick says: “In practice, if you avoid unnecessary debt, financially budget, and look to take advantage of the concept of compound interest, especially in your pension, this isn’t as difficult as you think to achieve by age 50.”
“For example, if you started a Pension at age 25 and made contributions which averaged €1,000 per month you will accumulate around one million euros at 50 years of age. Whilst €1000 per month might seem a lot, bear in mind that the tax man will pay €400 per month of this, so it will only cost you €600 each month. This potentially falls to €200 monthly if your employer matches your payment which a lot of employers will do especially as companies will be compelled to put up to 6% of your salary into your pension within the next 10 years through a scheme called Auto Enrolment.”
Nicks adds that the principles of FIRE can be useful: “The FIRE movement fosters awareness about financial freedom, emphasizing tax mitigation, which is the biggest cost we face in our lives, enables us to have more options at an early age.”
“Whether it's retiring early, semi-retiring. which can mean working less or changing to a less stressful career, or adapting to life's twists, such as health or employment, the FIRE principles offer flexibility and security, which we would certainly be in favour of.”
For trusted financial advice on pensions, investments, tax savings and more, book a financial review with Alpha Wealth at www.alphawealth.ie.
