Setting Your Retirement Plans on FIRE: 4 Steps to a (Very) Early Retirement | Freeman Capital

Setting Your Retirement Plans on FIRE: 4 Steps to a (Very) Early Retirement

Do you know your number? 

More specifically, do you know how much money you need to financially independent and leave the workforce for good? How old do you expect to be when you reach that number?

If you don’t have solid answers to those questions, don’t worry. You’re not alone. If you figure you’ll be forced to work more years than you’d like, you’re not alone in that, either. A recent study shows that nearly 1 in 4 people believe they will never have enough money socked away to retire. And another 1 in 4 feel certain they’ll still be working after their 65th birthday. On the other hand, there is a growing number of people who are preparing to retire in their 40s or even their 30s — before most Americans even start seriously thinking about retirement.

You may have heard some of these stories. It’s called the F.I.R.E. (Financial Independence/Retire Early) movement. Individuals who adhere to the F.I.R.E. philosophy live far beneath their means. They rarely if ever eat out at restaurants… live in small homes or apartments… and cut back on expenses others take for granted.  Their minimalist lifestyle enables them to save and/or invest 50%, 60%, even 70% or more of their income.

Obviously, this path isn’t right for everyone. All of us would love to achieve financial independence as quickly as possible. But the sacrifices and delayed gratification required may not seem worth it.

But the truth is this: you — yes, YOU — may be able to retire sooner than you previously thought possible by applying some aspects of the F.I.R.E. mentality. You don’t need a six-figure salary and you don’t have to strip every luxury out of your current standard of living. 

The Ins and Outs

Here are four F.I.R.E. principles to consider. Think about how they might fit into your life and how they could impact your retirement savings.

1) Know your “number.” With any plan, it’s critical that you know your end goal. If you don’t know exactly where you’re going, how can you get there?

So, the amount of money you need to retire and live comfortably is your “number.”

A simple way to find that number, according to some F.I.R.E. experts, is to multiply your current annual expenses by 25. That means if you’re living on $35,000 now, your number is $875,000. You can hit that number in two different ways: 

  • You can save and invest until you’ve accumulated the $875k…
  • Or you can invest in assets that will pay you $35k per year in passive income. If you can get a 10% annual net return — through dividends, selling shares of a growth stock, rental income from real estate, etc. — you’d need just $350,000 invested. 

Once you know how much dinero you need, you can create a formal and intentional plan to achieve that goal. The point of F.I.R.E. is to reach your number as quickly as possible.

With that in mind…

3) Save as much as you (comfortably) can. There is no shortage of nice things you can spend your hard-earned money on. And if you’re honest, you deserve those nice things. But you could also argue that you deserve to retire early — or at least have sufficient finances where retirement is an option. If that’s the case, it makes sense to re-evaluate your budget. Determine what’s worth buying and what’s worth skipping for now. 

The more you can save, the faster your money will grow

4) Make your money work as hard as you do. Saving is great, and it’s important. But if you’re sitting on cash, or if the money from your paycheck is piling up in a savings account, your money is growing at the slowest conceivable rate. Most savings accounts pay approximately the same interest as burying the money in a coffee can in the backyard. 

Want your money to grow? Invest it. 

Let’s say you’re aggressive and you’re able to save $25,000 per year. It will take you 35 years to hit your $875,000 number. On the other hand, if you invest that $25,000 into an investment vehicle that returns 10% per year, you can hit that figure in less than 14 years. You get there twice as quickly.  

That’s why compound interest has been called the “8th wonder of the world.” And your investment can keep growing and working for you after you quit working. Many followers of the F.I.R.E. movement believe it’s possible for anyone to reach financial independence decades ahead of schedule. 

Check out this retirement calculator and find out how you may be able to turn a few hundred dollars a month into tens or hundreds of thousands of dollars over time. 

With discipline and some careful planning, you could be retiring much sooner than you think.

Freeman Capital Advisors is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

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