Has the FIRE movement burnt out?

It’s an acronym for Financial Independence, Retire Early and the movement has been especially popular among millennials online. In fact, the Reddit FIRE forum, which was set up in 2011, has more than 650,000 members. The basis of the theory involves frugal living and aggressive investing – it’s essentially pension planning turned up to 11!

The idea of being able to retire in your 30s or 40s is obviously attractive for some, but is it really realistic? As we’ve witnessed with the recent political and economic landscape, the future can be very unpredictable. There’s no doubt that saving towards your retirement in any form is significantly beneficial, but is the FIRE movement promising too much? Let’s consider the pros and cons.

Pros

This might be a short section, it doesn’t really take much explaining:

• You could retire significantly earlier than your peers

Sounds attractive, doesn’t it?!

Cons

• The lifestyle balance

Cutting back outgoings and investing the vast majority of your income every month might be realistic on paper, but the reality could be quite bleak. You would effectively be sacrificing experiences and memories in the pursuit of an early retirement and a healthy work-life balance is important for wellbeing.

Then, once you’ve retired, how do you intend to spend your free time? For the vast majority of people, their job is a large part of their social interaction. And, like it or not, it often defines us culturally. Retirement is no longer a binary event either. Many people will work flexibly throughout their retirement to supplement their income.

• Knowing your number

Retirement isn’t an age, it’s a number, and knowing yours is essential. How much money will you need to live comfortably for the rest of your life? If you’re retiring especially early understanding this figure is vital.

This is where cashflow planning offers clarity. Forecasting your income, expenditure and life events decades into the future means you can save appropriately.

• Running out of income

I wrote a blog at the beginning of the year explaining how you can ensure your money outlives you. One of the fundamental principles is understanding your likely lifespan, as many people underestimate it. If you live five or ten years longer than you anticipate this is likely to be a time in life where your health influences the income you need, especially if you require long-term care.

We also found research that debunked the myth that 4% income withdrawal each year was ‘safe’. In reality, it may be significantly lower. Unfortunately, this figure is still the basis for many advocates of the FIRE movement, even though its original intention was for a much shorter retirement, not the 40 or 50 years some FIRE followers hope for.

• A lack of empirical evidence

There’s no doubt that the FIRE movement is well-intended but given the relativity short time it has been popular, we’re yet to see if it’s sustainable. Fundamentally, however, when you break it down, it is simply aggressive financial planning. You define your goal – in this case retirement – and figure out how you’re going to achieve it.

The approach to financial advice has evolved significantly in the last decade, and as a financial planner, I’ve witnessed the benefits of retirement planning first hand. It’s true that people can often retire earlier than they realistically expect, but typically without the heavy-handed approach the FIRE movement advocates.

The financial benefit of receiving financial advice has been proven in the past. According to the most recent research by Vanguard, advised investors hit 80% of their financial goals. They’re also happier, with more than half of people stating financial wellbeing as a key benefit of receiving advice.

In any circumstance, saving towards your pension, whether as aggressively as FIRE or taken at your own pace, you need to invest for growth and ensure your portfolio is regularly reviewed. Your pensions savings, like any other investment, will need to be rebalanced in line with your tolerance to investment risk and proactively managed.

Has the FIRE movement burnt out? Possibly, but it has introduced a new generation to retirement planning and investing which can only be a good thing – they just need to talk to a professional financial planner to ensure their goals are achievable. If you’d like to discuss your pensions and retirement plan, FIRE influenced or not, don’t hesitate to get in touch.

 

The value of an investment can go down as well as up. Past performance is not a guide to future performance.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.

The Financial Conduct Authority does not regulate taxation and advice.