Legal   |   ADV   |   Privacy   |   CRS

Catching FIRE: How to Retire Super Early

early bird

There’s a growing movement among some people today to retire far sooner than what is generally considered to be the traditional retirement age of 65.

Known as FIRE — which stands for Financial Independence Retire Early — this strategy generally involves living a frugal lifestyle in order to save large amounts of money for retirement. Some people practicing FIRE are retiring as early as their 30s, while others are retiring before reaching the age of 50.

The FIRE movement is generally considered to have started in 2010 when someone who went by the name Mr. Money Mustache (or MMM) launched a website and blog that described the strategies he implemented to retire at age 30. As the popularity of FIRE has grown in recent years, especially among young people, the MMM blog is now up to 7 million page views per month.

Aggressive Saving and Frugal Living

So how exactly are people managing their finances in such a way that they can retire at such an early age? Obviously, it starts with being very aggressive when it comes to retirement saving. Many FIRE devotees are putting well over half of their gross income into retirement savings — in some cases, people are saving 70-80 percent of their income for retirement.

Many of these super-savers aren’t necessarily wealthy or pulling down large salaries. Instead, they are living a bare-bones lifestyle in which they go without many things that most people today consider “essential,” such as expensive cable TV packages and cell phone plans, new vehicles every other year and dining out several times a week.

They also are usually very careful to stay out of debt by adopting a delayed-gratification mindset. In other words, they’re willing to forego current desires and not run up big credit card bills to buy things they can’t really afford. Instead, their focus is in on achieving a longer-term goal of retiring in their 30s or 40s and having the rest of their lives to do whatever they want.

Strategies to Consider

So how exactly does one achieve the kind of financial independence that allows such an early retirement? Here are a few strategies to consider:

  1. Set aggressive financial goals and make achieving them a high priority. It’s one thing to set an aggressive financial goal, like saving half your gross income for retirement. It’s another thing to actually follow through make this happen. Doing so requires making the goal a top priority. For example, when tempted to splurge on items that aren’t truly necessities, you’ll need to keep your eye on the prize and remind yourself of your early-retirement goal. One way to make this easier is to create a written plan for achieving your financial goals. Then you’ll have something you can refer back to occasionally and monitor your progress.
  1. Carefully manage your cash flow. This simply means spending less money than you make. And if you want to follow the FIRE model of super-early retirement, you’ll need to spend a lot less money than you make. This requires a high level of spending discipline for most people. One of the best ways to build financial discipline is to create a budget. Many people balk when they hear the “B” word but following a budget might be the surest path to managing personal cash flow and achieving the level of financial independence needed to retire super early.
  1. Be disciplined with saving and investing. As noted earlier, some people following the FIRE model are saving well over half of their gross income for retirement. This can be hard to do when you’re faced with immediate financial priorities like making the rent or paying for a major car or home repair, but it’s essential to retiring early. One way to build saving and investing discipline is to implement a strategy known as dollar-cost averaging. Here, you will invest the same amount of money at regular intervals, such as each pay period, via automatic payroll deduction. Automating the process makes it easier because you no longer have to think about it. This strategy can also even out share purchase prices over time, which could lower the average cost per share over the long term.
  1. Maximize your income. The more income you earn, they more money you’ll have to cover your expenses, save and invest for an early retirement, and pay down debt. To maximize your income, consider working extra jobs or starting a side gig. For example, maybe you could sell items online (such as on Etsy), start a blog, or perform freelance writing or design services.

Beneficial Nonetheless

Even if you don’t plan to retire super early like many FIRE devotees, you could still benefit by implementing financial strategies such as these. Please give us a call if you have questions about these or any other retirement strategies.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.