Is FIRE Really Feasible?

I’m a Certified Financial Planner™ practitioner, and I also “retired” from my first career at age 52 after 26 years in Technology.  I had planned for “Financial Independence, Retire Early” or FIRE (before it was called “FIRE”) since my mid-twenties; however, I did not realize until my mid-forties that “retirement” for me just meant finding a vocation where I could help people while doing something I’m passionate about.  An important factor when planning for FIRE is to know what you’re retiring to.  Or maybe a more appropriate phrase would be “work optional” rather than “retire early” as my friend Cody Garrett, CFP® at Measure Twice Financial points out.

For me it was simple once I came to the realization that I needed meaningful work that I love and that makes a difference in people’s lives.  I’ve been a personal finance nerd since high school, and helping people with their personal finances is my passion now.  It’s more like a hobby than a job!

I absolutely believe that financial independence prior to the typical retirement age is still obtainable today.  In fact, I would argue that it’s more achievable now than ever before.  For one thing, we’ve shifted from a pension mentality where we didn’t really have to worry about funding our own retirement (because the company we spent our entire career with would provide for us) to one of having to be personally responsible for producing our own income in retirement.  This has led to a number of tax-advantaged savings vehicles and the mobility to leave our employer for better opportunities without the fear of losing our retirement benefits.

At this point, I think it’s appropriate to define what I mean by “financial independence, work optional.”  In its simplest form, it just means that you have enough assets and passive income to replace the income you receive from your employment for the rest of your life.  There are many other variations of the FIRE movement, but that is what it means to me.  Obviously, some assumptions on longevity, inflation, healthcare, social security viability, withdrawal rates, and investment returns must be made in order to produce a reasonable estimate of the assets required to replace your pre-work-optional income.

In my case, I wanted to be able to replace 110% of our household income with a Monte Carlo probability of success greater than 95% based on a moderate portfolio of 60% equities across a variety of asset classes and 40% fixed income.  The Monte Carlo “probability of success” just means the likelihood of not running out of money before you die.  Or stated more eloquently, the probability of your plan succeeding.

The formula is simple but far from easy, and it hasn’t changed for investors looking to achieve financial freedom:

• • • Live on less than you earn
    • Save first and live on what’s left (in other words, pay yourself first)
    • Automate your savings
    • Diversify your investments; don’t take too much risk in a single company or asset class
    • Take an appropriate amount of risk for your time horizon and tolerance for the ups and downs of the markets
    • Dollar cost average into the markets so that you buy more shares when prices are low and fewer shares when prices are high…in other words, just keep buying!
      
      • NOTE: with automated savings and investments into mutual funds or ETF’s, you will be dollar cost averaging by default…that’s a good thing

Investors looking to achieve financial independence today should look out for and avoid the same mistakes that have plagued investors in the past:

• • • Resist the temptation to trade in and out of stocks (or any other asset, for that matter)
      
      • That’s more like gambling than investing, and it’s not a game you are likely to win. If you have a full-time job that is NOT analyzing individual companies all day every day, you have no chance of beating the folks who do it for a living over the long-term.
    • Avoid chasing hot tips, fads, and speculative ideas
    • Avoid chasing performance (in other words, avoid investing in something that has already run up in value simply because it has run up…or a fund manager after he/she has had a good year)
    • Avoid over-concentration in any one particular asset class, stock, or crypto holding
      
      • And speaking of crypto/digital currency investing…Peter Lazaroff has pointed out that the global stock and bond market caps are roughly $200 trillion, combined.  Bitcoin’s market cap is around $1 trillion.  If you’re allocating part of your diversified portfolio to Bitcoin, a reasonable starting point might be around .5% (that is, one half of one percent).
    • Don’t try to time the market…just keep buying…regularly!

FIRE is attainable.  It just requires a plan and the discipline to stick to the plan.  If you’re in your twenties, putting the right plan in place now can make this journey much easier than waiting until your forties or fifties to figure it out.  Time covers up a lot of mistakes.

If you’re in your forties or fifties already and find yourself behind, you can still get there.  But you need to take action now.  And avoid the temptation to take extra risks to make up for lost time…that’s a recipe for disaster.

If you need help defining your plan for financial independence, schedule a free consultation and let’s talk about it.