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November 2019

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F.I.R.E. Away?

Greg_Mattacola_Bio_Half Greg Mattacola | Articles

Read Time: 2:00 min

Retirement

Weighing the pros and cons of the FIRE retirement plan

Much has been written in the past several years about the FIRE movement. No, not the music festival on Pablo Escobar’s tropical island that went horribly wrong. That was FYRE and its’ founder Billy McFarland is still in federal prison over it. They should have thrown the Instagram models and Ja Rule in there with him, but I digress.

The other “FYRE” Movement…

Instead, I refer to FIRE which stands for Financial Independence, Retire Early – a movement that has gained popularity amongst millennials and which has been fueled and grown by blogs, podcasts and online forums.

FIRE is an uber-aggressive retirement savings plan – on steroids. The objective is to accumulate enough assets to retire extraordinarily early (30s and 40s) and live off the passive income. It involves saving up to an astonishing 75% of one’s income versus the 10-15% that has traditionally been considered financially responsible. This savings is made possible by earning well, extreme frugality, little to no debt and utilizing side hustles when possible.

To get to this early retirement, FIRE disciples attempt to save 50% or more of their income and accumulate at least 25 times their average annual living expenses suggested by the “4% safe withdrawal” rule. (This is the traditional rule of thumb to determine how much a retiree should withdraw from their retirement accounts each year.)

4%

“Safe Withdrawal Rule”

This 4% is the traditional rule of thumb to determine how much a retiree should withdraw from their retirement accounts each year.

FIRE followers are always trying to accomplish two main things – keep expenses very low and raise their income so they can save more and reach retirement/financial independence earlier.

Anytime a “movement” has people thinking about reducing living expenses and saving/investing more – that is a good thing – particularly amongst young people. There are a few things to note, however. The 4% rule has been a useful guide for traditional retirees – those retiring in their 60’s needing their savings to last for an approximate 20-25 year range.

It has been discussed much lately that 4% is perhaps too conservative a number to shoot for, that a more realistic spending percentage may be in the 6% range. That is for traditional retirees, mind you. This is even more a concern with FIRE followers who are looking to retire considerably earlier and have their savings/investments last much longer.

A higher spending/withdrawal percentage when retiring at a vastly younger age is not difficult to imagine.This will obviously affect the amount needed to retire.

It has been discussed much lately that 4% is perhaps too conservative a number to shoot for, that a more realistic spending percentage may be in the 6% range.

Greg Mattacola, ESQ, Financial advisor

 

One other thing as well — when perusing the blogs and articles on this subject, you run across people living so frugally, to reach their desired FIRE retirement age, that they virtually give up any and all life enjoyment for a decade or more. I question the extremity. If you offered me the chance to stop working 10 years earlier, but in exchange, I had to live a barren life for the preceding ten years, I would not take that deal. The goal is to live your very best lives both now and in retirement.

You do that with financial discipline, yes, but tempered with moderation and balance. Eating a jelly sandwich for lunch and dinner every day and working nonstop without ever traveling or enjoying life – that’s not living.

So, do you jump on the FIRE train? Perhaps, just take some of the lessons – tighten the reins, increase your savings percentage, and work towards eliminating debt while increasing wealth. But not at the expense of all else.

Live well, live with love. Until next time.

HEADSHOT_QUOTE_BIO_GREG

Original content provided by Gregory Mattacola, Esq., Financial Advisor at Strategic Financial Services. Content is provided for educational purposes only and should not be used as the basis upon which to make investment or financial decisions.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.3 billion.

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