On FIRE: 5 strategies for retiring way early
A new financial movement is afoot in which some people are striving to retire much sooner than the traditional retirement age of 65. Referred to as FIRE — or Financial Independence, Retire Early — the strategy involves saving for retirement very aggressively, mainly by living a super-frugal lifestyle.
In some cases, people are retiring as early as their 30s or 40s by putting FIRE principles into practice. Even if your goal isn’t to retire this early, you can still learn a few things from the FIRE movement that could help you ignite your retirement goals.
Maxing out retirement savings
FIRE strategies start with maximizing retirement savings. It’s commonly recommended that individuals set aside at least 10% of their gross income for retirement. But retiring in your 30s or 40s could require saving much more than this. For example, some people practicing FIRE are saving 70% or 80% of their income for retirement.
Here are five strategies that can help you maximize your savings and retire on your timeline, whatever it is.
- Set (and prioritize) aggressive savings goals. It’s one thing to set aggressive goals such as saving half of your income for retirement. For many people, the challenge lies in following through and making these goals a priority.
Start by putting your savings goals in writing. For example, if you want to save half of your income for retirement, determine exactly how much money this is and write it down. Then set benchmarks for how much money you should have saved by the time you reach certain ages so you can monitor your progress toward your long-term retirement goal.
- Slash your expenses. When they look carefully at their expenses, many people are surprised at how much money they spend on nonessential items. Scrutinize your monthly budget in search of wasteful and unnecessary expenses.
For example, can you cut the cable TV cord or downgrade your cable or satellite package? Cut way back on entertainment, eating out and expensive cups of coffee? Keep your vehicles well maintained so you can drive them for 10 years or longer instead of getting a new car every few years?
- Save and invest with discipline. A good way to accomplish this is to sign up for automatic investing into a retirement plan (such as a 401(k) plan) at your place of work. This way, funds will be automatically transferred into your retirement account each pay period with no action required on your part. Consider contributing a fixed percentage of your earnings rather than a fixed dollar amount. By doing so, with each raise or bonus a portion will go to your retirement, presuming you’re not at the maximum allowed. Also, don’t neglect a match offered by your employer.
- Boost your income. There are many ways to earn extra income in today’s “gig” economy. For example, can you start an online retail business by selling merchandise on sites like Amazon, eBay or Etsy? Drive for a ride-sharing service like Uber or Lyft? Or offer pet-sitting services to friends and neighbors when they travel?
- Eliminate your debt. Carrying excessive consumer debt is one of the biggest obstacles to retirement for many people. Strive to eliminate your nonmortgage debt as soon as possible, starting with high-interest credit cards. Many FIRE devotees also put extra money toward their mortgage principal each month in an effort to be mortgage-free by the time they retire, thus eliminating their largest monthly expense.
Difficult, but possible
There’s no question that retiring in one’s 30s or 40s is rare and difficult to accomplish. However, implementing some of these strategies could help you achieve your retirement goals no matter when you plan to retire.
Your financial advisor can provide more retirement planning guidance based on your specific situation and goals.
For more information on our services, please visit our tax services page or our general services page. If you have any questions, please contact one of our tax professionals at (973) 298-8500.
© 2019
