Want to retire in your 40s, even 30s? This desire has become an obsession for many people who follow the FIRE Movement (Financial Independence, Retire Early). FIRE is a financial strategy that aims to achieve financial freedom earlier than the conventional retirement age (usually between 55-65 years, maybe even older).
In recent years, this movement has become increasingly known and loved by many people. This concept was first popularized by Vicki Robin and Joe Dominguez in their book Your Money or Your LIfe, and gained momentum through online financial communities.
Principles of the Fire Movement
The FIRE Movement encourages people to save and invest most of their income, allowing them to live off investment returns without working. This approach lets you “retire” and spend time on what truly interests you. You are free from work that you do not enjoy so that you no longer feel tired or burnout. In general, FIRE Movement adherents target a savings ratio of 50 percent to 75 percent of their income, much higher than the general standard of only about 10-20 percent.
The FIRE Movement relies on several pillars: reducing expenses, increasing income, saving and investing aggressively, and determining the financial freedom number. You have to reduce non-essential expenses to be more frugal, adopt a minimalist lifestyle, and not buy unnecessary items. For example, choose to use public transportation instead of private vehicles or avoid debt. Income must be increased.
How? Improve skills, look for a job with a higher salary, look for a side job. Saving is not just saving. Investments are not just investments. Allocate most of your income to be invested. This is an absolute requirement that must be met. Investments can of course be made in stocks, mutual funds, bonds, property, and so on. However, also consider the risks of each investment. Determining the amount of money needed after early retirement is one of the essential aspects of the FIRE Movement.
Types of FIRE Movement
There are four types of FIRE based on the desires and financial conditions of each individual. The four types of FIRE Movement are Lean, Fat, Barista, and Coast.
Lean FIRE
Lean FIRE is suitable for those who aspire to retire early with a simple and minimalist lifestyle. They keep expenses as low as possible. Money is only used to meet basic needs.
Fat FIRE
Fat FIRE is a more comfortable retirement style that can be enjoyed. To enjoy it later in life, one needs to invest more money so that one’s lifestyle can be maintained after retirement.
Barista FIRE
People who apply Barista FIRE continue to work part-time or do light work after retirement. The goal is to cover expenses (even if the amount is not much).
Coast FIRE
In Coast FIRE, someone saves and invests aggressively at a young age until they have enough funds that can grow on their own until retirement arrives, without the need to add more savings.
How Many Are Successful in “Early Retirement”?
In reality, only a few have succeeded in realizing the FIRE Movement. Based on Montley Fool data collected between 2016-2022, the percentage of United States (US) citizens retiring in four age groups is 1 percent for those aged 40-44, 2 percent for those aged 45-49, 6 percent for those aged 50-54, and 11 percent for those aged 55-58.
Furthermore, Gallup research shows that the percentage of retired adults between the ages of 55 and 74 is declining. The average reported retirement age is 61 in 2022. This is earlier than originally planned but still much slower than most FIRE Movement goals.
Why Do Few People Successfully Retire Early?
This is because realizing FIRE is not easy. People face major obstacles, especially due to economic conditions. Inflation erodes the value of money, investments fluctuate, and economic downturns and technological changes cause layoffs. As a result, people must redirect money originally meant for investments to cover living expenses. Let alone investing, saving is getting harder.
The next obstacle is changing needs and lifestyle. This happens, for example, when someone gets married and starts a family, has children, experiences unexpected events, and has new interests that require extra expenses. Health costs tend to increase with age. The discipline factor also plays a role. Many fail to realize their FIRE ideals due to weak discipline and commitment. Discipline to save, discipline to invest, and discipline to control expenses.
The FIRE Movement is also difficult for lower-class or low-income people to apply. This is because limited funds require them to prioritize their daily needs.
Another thing to note is that FIRE is not a path that must be followed. Many people enjoy working so they don’t think too much about retirement. They also don’t mind saving and investing little by little, not all at once in large amounts. After retiring from their old place, they work elsewhere. This is of course perfectly fine.
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