F.I.R.E: Millennials may just have the secret to early retirement!!
Millennials over recent years have become increasingly obsessed with the idea of saving, with books such as the Barefoot Investor adding fuel to the fire (pun intended). The motivation behind this movement is not to purchase a home or invest but, early retirement from their corporate jobs.
The drive towards early retirement has the youth of today budgeting strictly and living sparingly. Research has found they are even working multiple jobs to put at least 50 percent of their earnings into savings.
What is F.I.R.E?
Financial Independence, Retire Early, otherwise known as F.I.R.E, is an international movement for people who are seeking financial flexibility and control. This is executed by individuals boosting their income early in life, allowing them to rely on dividends from shares and other low cost investments beyond their 40’s.
Individuals are driven to the F.I.R.E method because they want to retire early, or be financially comfortable later in life to have the option to work in a job they love.
The 1992 best-selling book, ‘You Can Retire Early! Everything You need To Achieve Financial Independence When You Want It’written by Vicki Robin and Joe Dominguez, works as a guide for the movement. It utilises strategies to allow individuals early retirement, without sacrificing their ‘golden years in the process.’
Millennials have become obsessed with this idea of not having to work in their corporate jobs past their 30’s or 40’s. Furthermore, relying on financial resources such as savings to switch to a job they love or spending time with family.
Sydney-based Investment consultant Dominic McCormackdiscussed that the F.I.R.E method could work if done correctly. He stated:
“Over a longer time period, it is more likely that some form of disaster may hit. If you are retiring on a very frugal budget, you need everything to go right, including in life and the assets market.”
McCormack also examined the importance of also taking into consideration life events such as illness or inflation when undergoing the F.I.R.E method.
“At the same time, younger people who follow F.I.R.E need to be willing to give up on eating out a lot or going on expensive holidays, and a lot of millennials are about experiencing life as well.”
The F.I.R.E Attitude…
A shift in mentality towards one’s priorities and their overall happiness can be used as motivation when trying to stick to a frugal and restricted budget. Their attitude is that spending money on something they don’t need, further delays their progress towards ‘freedom.’ Tightening up spending and surrounding yourself by like-minded individuals when approaching the method will work as a positive start in the early retirement journey.
FIRE chasers focus on investing in shares via EFTS and listed investment companies. They believe that there is a high likelihood that they will be able to live off 4% of dividends from the portfolio.
The Fall-backs of F.I.R.E
The F.I.R.E method has been scrutinised for relying a little too heavily on the withdrawal of 4% of their portfolio. Are these millennials looking to set themselves up for at least 50 years of retirement? For some, maybe, however many are working towards living a financially comfortable life working in a job they love.
Another downside of this new way of living may be missing out on life experiences or alienating oneself from friends and family due to monetary reasons. Also – people often associate their careers with meaning and connection, a reason to get up every day.
Whilst we’re not quite sure the FIRE method is the best attempt at early retirement, it’s definitely food for thought!!
We do not recommend this strategy, although it is important to control your spending in order to maximise your income. Wealth creation strategies start with a focus on long term accumulation of your net income, after your expenses.