Do You Have The Financial Independence To Retire Early?

In the aftermath of the Global Financial Crisis (GFC) a new savings and investment movement called FIRE germinated. While it has remained relatively unknown, it is fast gaining traction, especially with the millennial crowd. FIRE or Financial Independence, Retire Early is the new millennial mantra. The idea was first introduced by financial gurus Vicki Robin and Joe Dominguez in their 1992 best-selling book “Your Money or Your Life”. The main premise of their book was to strike a balance between expenses and time spent at work and compare every expense with the time spent at work in order to earn the purchase.

FIRE is a movement that extols the virtue of frugal living and saving. The aim is that by saving a very high proportion of your income today, you will be able to accumulate a retirement corpus much earlier than anticipate and thus, retire early. By saving upto 70 per cent of their income, people who adopt the FIRE philosophy hope to be able to quit their jobs early on and live solely off small withdrawals from their portfolio for a longer period of times. 

Millennials across the world have been embracing the FIRE movement with the sole purpose of retiring well before the traditional retirement age of 65. Many begin this journey of extreme saving by saving as much as 70 per cent of their yearly income as soon as they enter the work force. Once they are able to save approximately 30 times their yearly expenses, they may choose to quit their day jobs, take up part time assignments or retiree completely, eschewing all forms of employment. After retiring young, FIRE devotees make small withdrawals from their savings, usually around 3 per cent to 4 per cent every year. 

For many millennials, the prospect of retiring early can be very alluring. However, it is important to understand that in order to create a corpus that can help you maintain the desired lifestyle, you need to be extremely disciplined and diligent with your savings, and monitor your expenses and investments on a continuous basis. Additionally, if you retire early, there is always the additional risk that your savings might run out or you might outlive your retirement savings. However, the biggest impediment to following this movement is the requirement of a high savings rate. For most individuals, it would be almost impossible to consistently save 70 per cent of their earnings.