The “FIRE” (Financial Independence – Retire Early) lifestyle has been receiving a whole lot of outside press lately, while this is obviously a good thing as it has the power to greatly improve the lives of those that choose to adopt it’s lifestyle and philosophies, it also has drawn the wrath of many that choose to focus on the Early Retirement aspect alone and point out how it may or may not be actually feasible as a long term plan. To be able to properly separate the two ideas we first need to define them.
Many people in the FIRE community may have first been introduced to personal finance by Dave Ramsey and his Financial Peace program, Dave preaches that debt creates bondage in the form of financial obligations from the lender to the borrower. Financial Independence is a very similar concept in that once someone reaches FI they have the peace of mind to know that they are in a financial situation to make choices that are not afforded to people who are living paycheck to paycheck. Financial Independence in a nutshell is the point where an individual has accumulated enough income producing assets to live off of without having to work any longer, this freedom allows them to choose to either continue what they are doing or pursue either another career or even stop working all together. For most in the FI community the game plan seems to be the accumulation off a large enough investment portfolio to withdraw 4% of the principle to cover living expenses, while allowing the interest earned over and above the 4% withdrawal to continue to accumulate, thus creating a perpetual money machine. There are of course many other routes such as rental income form real estate and passive income from ownership in private businesses. There are different stages of Financial Independence, from having enough saved to be able to take time off from work or to accept a lower paying position that offers a better quality of life, to having enough money saved to never have to work again. Financial Independence allows an individual to have many options not available to most people and one of those options is Early Retirement.
Early Retirement or the “RE” in FI/RE is as mentioned earlier when someone has accumulated enough assets to live off of the earnings and no longer depend on outside income derived from another person or entity. Everyone has a different path to Financial Independence and therefore will arrive at the crossroad of continuing work or Retiring Early at different times and stages in their lives. Retiring Early is an option only afforded to someone that has already achieved Financial Independence. Many detractors of the Early Retirement movement point to the fact that there is not much data to back test to see whether the 4% rule will actually work over a 40-50 year retirement period, however they fail to see that the main point is that the individual has achieved financial independence at an early age, something that the majority of people may not ever actually achieve in their entire life, this is great evidence that Financially Independent people are extremely good at handling their personal finances and that if a problem does arise in the future they will most likely be able to resolve it with the same hard work, focus, and discipline that got them to financial independence at such an early age. Another thing to keep in mind is that the 4% withdrawal rate was not just picked out of thin air but actually derived from a study known as the trinity study that sought to find the highest withdrawal rate that would allow for complete certainty of never running out of income and in fact the majority of the time the scenarios in the study had someone using the 4% rule end up with much more money than they started with 30 years later, even after making yearly withdrawals of 4%. This is because the stock market on average returns much more than 4% and thus allows the principle to continue to grow over time.
Fortunately their are many young and extremely intelligent bloggers in the FIRE community that are there to help and not just offer generic advice but give highly specific and specialized advice to people of all walks of life, so regardless if you are a physician, a mechanic, a pharmacist, a chef, a military officer, or even a single parent, there is a blog out there just for you that offers specific advice that can not only save you money but time and frustration from trying to comb through what seems like never ending advertisements from investment firms wanting to charge you to invest your money.
As you can probably tell from the name Chef on FIRE, I mostly speak to the restaurant and service industry segment about how to maximize their incomes and investments. I have a personal love for those that choose to serve others and feel that they deserve to be able to retire in confidence and hopefully enjoy having someone serve them for a change. While this is the audience that I focus on, I am constantly learning from reading post from other bloggers and think that they offer a great insight into the lives that other professions offer. It is great to know that regardless of the type of career one chooses, they have to ability to become Financially Independent if they are willing to work hard, save money, and learn to invest it wisely.