Financial Independence Retire Early (FIRE)

Eddie SammonInvestments

What is the Financial Independence Retire Early (FIRE) movement? 

These days it is mostly an online community of people who reject the traditional idea of working for 40-odd years and retiring in your 60s. They discuss ways of achieving their goals and the problems that they encounter. A lot of books have been published on the topic. They mostly try to achieve their early-retirement goals by saving heavily, investing, prioritising income maximisation and cost minimisation.

 

What do financial advisers think about Financial Independence Retire Early (FIRE)? Is it realistic for most people? 

There are not many novel concepts, a lot of the common principles are simply traditional financial planning principles but re-branded to make discussions easier and more fun. Any reputable financial adviser or planner will ask you about your retirement goals and if you tell them that you wish to retire in your 40s then the adviser should be able to do a feasibility study and create a financial plan to help you achieve this, if it is realistic for you. Is it realistic for most people? Generally not, but it is a realistic goal for many above-average earners if they plan their life around it.

 

I have heard that there are different variants of FIRE, what are they?

There is no definite list but the most commonly spoken about kinds of FIRE are the following:

  • LeanFIRE: aiming to retire whilst not really being considered as rich, often based around cost minimisation and sometimes even moving abroad to lower cost of living countries.
  • FatFIRE: aiming to retire with a large amount of cash and a net worth of approximately 10 million US dollars or more.
  • CoastFIRE: this involves saving heavily early in your career and saving less aggressively later on, allowing your investment growth alone to enable you to achieve your financial targets
  • BaristaFIRE: aiming to save a sufficient amount of money that allows you to quit a high stress job for a less stressful or part-time job, such as working in a coffee shop.

 

What kind of investments are popular within the Financial Independence Retire Early (FIRE) movement? 

The FIRE community has been heavily influenced by Warren Buffet’s 2017 quote to “Consistently buy an S&P 500 low-cost index fund”. If you have the right risk profile for an S&P 500 fund (100% US equities), and you can afford this risk, then there are far worse investments that you could make. However, this kind of investing lacks diversification and doesn’t make much sense for anyone outside of the US. Aisa International can provide you with investment advice in order to recommend the most suitable investments for your profile, situation and goals.

 

How much money do I need to FIRE?

The FIRE communities often talk about saving enough money so that a withdrawal rate of 3-4% per year is enough to fund your entire lifestyle, therefore, according to this logic, if you want to have a retirement income of approximately €30,000 per year, you would need to save at least €1 million. What does a financial adviser think about this? To be honest, it’s not a bad starting point but it may be a bit too conservative for many people and the sustainable withdrawal rate depends upon future conditions such as investment performance, inflation and your own life expectancy. It also often fails to consider any government or other guaranteed income pensions that you may be able to qualify for later in life. For instance, if you a high-ranking government employee with a very good pension then you may only need about 15 years of savings in order to retire at age 45, so €450,000 in my above example, as your government pension might start from age 60 and be sufficient to fund your lifestyle.

 

Accessing some investments and pensions before others, and quitting high-stress jobs for a lower stress one, is simply known as phased retirement by traditional financial planners, so there is nothing new to concepts such as BaristaFIRE. A good financial planner will study your finances as a whole and not rely on one-size-fits-all concepts such as a 3-4% withdrawal rate. If leaving an inheritance isn’t important or relavant to you, then you can also obtain better than 3-4% income rates with annuities since government bond yields and interest rates have increased. Lifetime equity release may also help you to free up cash without increasing your monthly costs, but at the detriment of the inheritance that you leave for your loved ones.

 

How can I FIRE in France? 

The first thing you need to consider is how you will obtain a residency card (titre de séjour) if you do not have French or EU citizenship. It isn’t very difficult to obtain a residency card without the right to work but it is a lot more complicated if you plan on working in France. You can check out this blog for information on investor and self-employed visas. Otherwise, you may need to find a company in France to sponsor you, which will not be considered for most job vacancies. You could ask for a country transfer if you work for a multinational company, but this may only be for a limited amount of time and if you want to transfer on a permanent basis, they may cut your salary to match local ones (if local ones are lower).

 

How can Aisa International help me to “FIRE”? 

We can help you to create a realistic financial plan and help you to optimise your investments and achieve your goals as efficiently as possible. Feel free to contact us for a free initial consultation.

 

Useful links

 

The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. Additionally, the author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, this article is dated and is based on legislation as of the date. It should be noted that legislation changes, but articles are rarely updated. Sometimes a new article is written; so, please check for later articles. Additionally, check for changes in legislation on official government websites. Finally, this article should not be relied on in isolation.