Here’s What People Get Wrong About the FIRE Movement for Early Retirement

Americans have been retiring later. The average retirement age is 61, up from 57 in the early 1990s. In recent years, the expected length of retirement in the United States has also fallen, which isn’t good news if you’re hoping to make the most of your golden years.

FIRE, which is short for “financial independence, retire early,” is the solution for many people. It’s a lifestyle where you focus on keeping your expenses low and your savings rate as high as possible. The goal is to invest your money and build your portfolio enough to where you can live off the proceeds and retire at a younger age.

The FIRE movement has been growing in popularity. While it used to be a small niche topic, quite a few online communities are now dedicated to it, including a subreddit with over 2 million members. But it also has its fair share of detractors.

The most common criticism is that you need to drastically lower your quality of life in the present for a payoff later, but that’s a misconception. While some people have done that, there’s no rule that you need to deprive yourself to achieve an early retirement.

There’s more than one way to retire early

It’s true that saving a large portion of your income is the key to the FIRE movement. Participants typically aim for a savings rate of at least 50%, meaning they use at least half their income for savings and investments. Some go even further and aim for rates of 70% or 80%.

Saving that much probably sounds extreme, and it is. To be honest, some of the measures people were taking to save more money didn’t appeal to me, either. I had no interest in buying a tiny home, living in a van, or never going out to nice restaurants just to retire sooner.

Before deciding that FIRE isn’t for you, understand that you don’t need to cut spending to the bone. There are alternatives that allow you to save more without ruining your quality of life:

• Increase your income. A good, ambitious approach is to try to raise your income every year. You could look for promotions and seek out raises at your current job, go job hunting, or both. Another option is to consider setting up a business or seeking out freelance work to build a side income stream.
• Cut back on big expenses that don’t matter to you much. For example, I haven’t had a car in five years. I haven’t needed one, and I’m able to save on a car payment, insurance, and gas. See if there’s anything you spend a lot of money on that you wouldn’t miss if you got rid of it or cut back.

Let’s say you currently take home $5,000 per month and save $1,000, for a 20% savings rate. If you get a raise to $6,000 per month and save all of the raise, then you’ve boosted your savings rate to 33%. And if you’re then able to cut a $400 expense, you’re now saving $2,400 per month for a 40% savings rate.

Retiring early while enjoying the present

You just saw how making a couple of hypothetical changes to your income and expenses got you to a 40% savings rate, setting aside $2,400 per month. What if you were to invest that $2,400 per month and get an 8% annual return, which is in line with the stock market average? After 20 years, you’d have $1.3 million.

Depending on your lifestyle, that may or may not be enough to retire early. It’s certainly far more than the average retirement savings and what most people have when they retire.

A big part of personal finance is finding the right balance between having a great quality of life in the present and preparing for the future. You can absolutely do that while working toward early retirement — if it appeals to you.