FIRE, Financial Independence, Retire Early movement is fast gaining the attention of individuals across the globe as more and more people want to save sufficient money to retire early. Many people wish to pursue their hobbies or passion or even travel the world after retiring from a regular job. But, one of the common questions that every such aspirant has is what if he/she retires post 60 years of age and is then too old to fulfill such wishes? With the advent of the FIRE movement, it is possible to achieve one’s dreams by achieving financial independence and retiring early.
So, what does FIRE involve and how practical is it? Read on to know more about the FIRE movement and how you can join the same.
What is FIRE?
FIRE is a new-age movement that helps individuals attain financial freedom such that they need not depend on a regular job-based income for funding their lifestyle needs. This movement is about taking early retirement, using available savings and investment income to cover living expenses.
We often come across people who may be living frugally to maximize their savings to further invest it such that they retire by the age of as early as their 30s. They may save at least half of their income or more to easily retire early in life. However, this is not necessarily all that the FIRE movement is about.
How FIRE has evolved?
The FIRE movement has turned into a far broader concept in the past few years. With people placing increased emphasis on the “financial independence” component of FIRE as compared to early retirement.
FIRE requires one to adopt a shift in approach as far as money and work are concerned. It helps an individual carefully assess things that are the most important to oneself and how one can achieve financial freedom such that personal decisions are not governed by finances or money at all times.
Many principles of this movement, like saving and spending, consciously may be universal, but there can be a stark difference between how one adopts these in personal life and the final outcome.
Did you know?
In India, 67% of retired individuals continue to work for a living. Every 7 in 10 adults depends on their children post retirement. Does this not act as a signal for millennials to seriously consider their income and retirement planning?
(Source – Economic Times )
Principles of FIRE
The concept of FIRE is based on principles including higher saving, simplicity of living, and planning for a passive income for early retirement. However, FIRE may not always involve adopting a minimalist approach. Similarly, an early retirement need not be the ultimate goal in one’s life.
The focus is on giving oneself the financial freedom to choose what interests an individual, be it an early retirement, working towards a hobby, working part time, taking up an alternate career that is now financially affordable.
How can you achieve early retirement?
To adopt the FIRE movement positively in your life, here are some of the important factors to consider while financially planning your retirement:
- Know what retirement means: As a first step, you must envision what an ideal retirement should look like for you. It is important to determine whether you want to continue working post retirement or entirely stop working.
- Estimate expenses: You must also gauge your approximate annual expenses. By keeping a note of every outflow, you can arrive at a precise number that will help in planning your retirement easily.
- Adopt simplicity: To build a substantial retirement corpus, you may have to aggressively save and invest. This means you have to focus on significantly lowering your monthly expenses by adopting an inexpensive lifestyle.
- Focus on investments: It can be difficult or impossible to save enough for retirement without having any passive income source. Thus, it makes sense to invest in financial avenues that can offer reasonable and stable returns. This must be planned early on in life, especially in terms of choosing from options like Public Provident Funds (PPFs), mutual funds, national pension scheme, etc.
- Clear debt: Ensure that all your outstanding debt is paid off before the age of 40. This is because you may want to avoid having any such big-ticket financial responsibility post retirement.
How much money will you need in retirement in India?
As per the FIRE approach, if you wish for early retirement in India, you will need to have at least 30 times the money that you spend yearly. So, how much money is that? Let’s take an example to understand the workings.
Suppose your present age is 27 years and you spend about Rs. 55,000 per month. If you want to aim for retirement at 42 years, you have about 15 years to begin accumulating funds for your retirement.
By taking the inflation rate as 6%, the monthly expenses will be around Rs. 1.30 lakhs by the time you turn 42. Therefore, you will require Rs. 15.72 lakhs per year to cater to your lifestyle needs.
Thus, to attain financial freedom, it will be ideal for you to have around Rs. 5 crores by the age of 42. This number may not be possible to reach with savings alone. Although savings will be needed, you will also need to start investing in profitable avenues at the earliest. By selecting a financial investment option that offers an annual compound interest of 9%, you may be able to accumulate the desired funds in 15 years.
It is possible to achieve financial freedom by starting your investment journey early on in life. While this is important, it does not necessarily mean that you must compromise on your lifestyle needs. By creating a substantial retirement corpus combined with proper financial planning through diversified investments, you can still achieve early retirement. FIRE is not about denying yourself a leisure trip or never buying a high-end phone. It is about making financial adjustments that can let you enjoy your retirement in the right way.
FIRE is a realistic approach if one follows a certain level of financial discipline that is required to achieve financial independence and early retirement. Without appropriate planning, it is not possible. Hence, although realistic, many may not adopt the financial approach that is needed.
FIRE approach does not necessarily require you to hire a financial expert. It requires you to chalk out a plan, has a financial discipline, and stick to the plan to achieve the goals of early retirement and financial independence.
It is a common myth that healthcare expenses may not allow an individual to achieve financial independence and retire early. With appropriate financial planning and required lifestyle changes, one can adopt the FIRE approach even while paying for healthcare needs.
The FIRE movement is slowly picking pace in India, although it is still new as compared to western countries like the US.
Yes, FIRE movement is about incorporating all financial needs, including those of your dependents. Since it requires you to adopt financial planning, saving, investing, and possibly frugal living, you can continue to look after the financial needs of your dependents post-retirement.