To mark Financial Literacy Month, I’m dedicating this month’s Wednesday posts to money issues. Today, to kick things off, I’m looking at the FIRE movement. If you’re not familiar with FIRE, it stands for Financial Independence, Retire Early. It’s a popular movement, but is it a smart money strategy or a dream that’s beyond the reach of the masses?
Working in financial services, I read a lot of financial blogs and articles by personal finance experts. When I first started hearing about FIRE, I was intrigued. On the surface, wouldn’t we all want to be financially independent and retire early? Sounds like heaven, right?
Not so fast! While it may sound great, when you start to peel back the layers of the onion, you’ll find that FIRE may not be realistic for the average person.
This post was originally published in November 2021 and updated in December 2024.
What is FIRE?
There are different variations of FIRE but, according to Investopedia, it comes down to saving up to 70% of your income, and investing your savings aggressively, so you can retire far earlier than the traditional retirement age of 65.
The goal is to accumulate savings of 30 times your yearly expenses. That’s about $1 Million for the most frugal among us. Then you can quit your day job and live off your investments. Many people who embrace FIRE set a goal to retire in their 30s or 40s.
In a world where many people have high debt and no savings, how do these people do it? Let’s look at the good and the bad of FIRE.
Good things about the FIRE movement
Financial independence is a terrific goal. As I learn more about FIRE, the financial independence piece is based on some sound financial principles that everyone can, and should, get behind.
- Living debt-free. Even if you’re not into FIRE, paying off debt—especially high-interest debt—is a huge first step toward financial independence.
- Making saving a priority. You’ve probably heard the term “pay yourself first”, meaning you save before spending money on other things. Saving as much as you can, as early as you can, is an excellent way to build a financial nest-egg and give yourself options down the road.
- Investing wisely. Invest your savings in a low-fee diversified portfolio that will generate a decent return.
- Building a financial safety net that will give you the flexibility and freedom to handle life’s unexpected twists and turns.
- Finally, reducing consumption and adopting a simpler lifestyle. Frugality is one of the foundational principles of FIRE. As I work to declutter a lifetime of accumulated stuff, I have thought a lot about my buying habits. The wisdom of hindsight has taught me I could have lived with a lot less over the years.
Why FIRE doesn’t work for everyone
Sounds great so far, but when you look a little closer, you’ll see some things about the FIRE movement that make it unattainable for much of the population.
- First, you need to be debt free. If getting out of debt was that easy, more people would do it. Between young people starting out with high levels of student debt, the high cost of housing, and many seniors still carrying mortgage debt in retirement, it’s clear that managing debt is a huge barrier to saving for the average person.
- The whole movement screams privilege. No matter how frugal your lifestyle, with today’s high cost of living, you’d need a top tier income to be able to save 50 to 70 percent of your income each year and still keep a roof over your head, food on the table, and pay for the other necessities of life. With a median net household income of just under $70,000 in Canada, and the average rent for a one-bedroom apartment at $2,000 or more in urban areas, it’s easy to see that FIRE isn’t an option for the masses.
- In a low-interest-rate environment, you need to be comfortable with investment risk to generate a sufficient return to live off your savings.
- The “retire early” side of the equation is a bit of a misnomer. Even if you have enough money to quit your day job, you still need a purpose in life and something to occupy your brain. Reading some of the FIRE enthusiasts’ stories reveals that many who have achieved financial independence are still working in some form—albeit with a lot more freedom and flexibility than those shackled to a full-time job. With people living longer lives, someone “retiring” from full-time work in their 40s, or even their 50s, has a lot of years of life to fund—and fill with meaningful activities.
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What’s the verdict?
Life is short and, to coin an old phrase, you only live once. Living an extreme frugal existence to have more free time may work for some. Others may see staying in the workforce as a fair tradeoff if it lets them pay for travel and other life experiences.
It’s hard to argue against the necessity and desirability of some measure of financial independence. On the other hand, the retire early side feels unrealistic to me. In Is retirement dead? A look at the future of retirement, I questioned whether a traditional full-stop retirement makes sense in a world where people are living longer, healthier lives. I still believe that work, in some form, will be part of many people’s lives well into their senior years.
For those privileged enough to have the option to join the FIRE movement, is the sacrifice needed to accumulate enough wealth to live for 40, 50, or even 60, years worth it? Ultimately, the choice to pursue FIRE comes down to the kind of life you want to live, and the life experiences you want to have. There’s no right or wrong answer.
What are your thoughts on the FIRE movement? How much of your current consumption and lifestyle would you sacrifice to have more freedom down the road? Join the conversation below.
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Hi, Michelle, I agree with your assessment of this being a strategy for those in the top tier. Especially with everything (here in the US, anyway) having gone up in price so much since the beginning of Covid! If I retired early, I’d want to travel a lot, and we all know how quickly savings can go during travels! It’s best I just keep plugging along working! ☀️
You’re right Lisa. Travelling has gotten very expensive over the last couple of years. It would be easy to blow through your savings if you were travelling frequently.
I haven’t heard before of the F.I.R.E. movement but I came up to the same amount of money when decided to retire earlier than my legal age. But life has become increasingly expensive and I am not sure there will be better times. So, I decided to wait until my legal age and in the mean time I can buy more leave days for the coming years. Anyway, I think both approach are fine. When you are young you can work longer hours and maybe also have more that one job. As long as you get older, you lose energy (and maybe also motivation) and you would like to retire earlier. On the other hand there advantages with keeping on with work, as you say Michelle. My husband and I decided that we will travel more before my retirement (he is retired already) as we are still in good shape and we still earn a reasonable amount of money. We will keep our savings for the pension’s time and hope to be able to enjoy it.
There are so many different approaches and I think we all have to figure out what works for us.
I reduced my hours to 4 days a week last year to give myself a little more flexibility. I’m planning to “retire” from my full-time job next year but I imagine I’ll continue to dabble in a few projects to stay busy and engaged and bring in a little extra money.
Looks a fantastic plan Michelle !
I think there is a right answer though. FI is desirable but maybe RE can be put off.
That makes sense. I think we have to separate the FI from the RE. Even so, many people struggling to make ends meet aren’t in a position to achieve FI.
I love the honest conversation you’re having about this topic! I do love the idea of being able to work my own hours and be independent from a traditional job. Privilege is huge in attaining this though. You’re so right on that. It would be next to impossible for me to attain it living where I do at my salary.
When I had to rebuild my life financially, I sacrificed on entertainment/going out, shopping for pretty much anything but bare necessities, and lived on a super tight budget. It’s worth it to attain some goals, but I don’t know that I’d do it again unless it was for a guaranteed outcome.
I think we’d all love more freedom from work but I agree that, depending on where you live, it’s pretty much out-of-reach for many.
You make a great point about sacrificing. Some people are very happy living with very little and I think we can all get by on a little less. Ultimately though, life is too short to deny yourself all its pleasures!
Great post, Michelle! Ever since saving for my first home (a condominium mid-town Toronto), I developed a keen interest in money-saving strategies, practicing a minimal lifestyle and budgeting. I loved how much control I had in the process and how much my efforts directly contributed to my bottom-line. Knowing that, allowed me to foresee my future goal and make it that much more reachable.
I have read up quite a bit on the FIRE movement. You’re right, at first glance it is an appealing notion to work as hard as you can for the early years of your career in order to retire early. But another thing you touched on that hit me right away was ‘privilege.’ Not everyone gets to participate in this movement. A lot of people are working multiple jobs just to make the rent, much less a “rainy day/emergency fund.” First off, for those less privileged, the pay gap needs to shrink and the systemic changes to pay equity need to level up (but that’s a whole other post)!
Overall, the main principles of this movement are inspiring- pay down debt and live with less clutter (and hopefully focus on what matters: our limited time towards our real passions).
You’re right that setting financial goals and working toward them is very empowering. That’s one of the things I like about FIRE. However, I just can’t shake the notion of privilege. So many people are struggling just to make ends meet and FIRE is just another way to make them feel inferior.
I’ve been following the FIRE principles for a couple of years now. While I enjoy the small freedoms I’ve gained like getting out of student debt and building an emergency fund and small best egg, the biggest downside has been the lack of enjoyment I’ve felt for the present. FIRE is almost exclusively about the future and it can feel like a hard slug to get there. Like most things in life, it’s all about balance.
I couldn’t agree more Charlie. My philosophy has always been to enjoy the present, while keeping a good eye on and planning for the future. I think there is a middle ground to strive for.
This is a really good post & you raise an interesting dilemma. I too have read about the FIRE movement — and it sounds amazing — to be able to retire early and then live off your investments for the rest of your life without a 9-5 job?? that sounds like a dream -& it even sounds like it is too good to be true.
They say that you have to save the majority of your income. They also say that you have to be debt free.
That is hard to do especially since many of us are in debt, from student loans – to car loans to credit card loans. It seems that the only way to do that is by having two or three jobs, living as frugal as possible, just to pay off debts from biggest to smallest. And then, once you do that, you have to put them into investments — which take time to grow. It takes years — decades .And of course the amount of money that you contribute is a factor too. Only putting in a $100 or even a couple hundred every month isn’t going to cut it. You have to put in more.
And as you say, that just isn’t possible for many of us. And it is absolutely something that only people who are privileged financially can afford to do.
Thanks for writing this post and giving fresh insight on this FIRE movement.
Thanks Helen. I agree that it does sound amazing on the surface. When you factor in the high cost of education and housing that puts young people starting out at a disadvantage, I just don’t see how it’s possible unless you have a really high income. Even then, there’s a lot to be said for enjoying life because tomorrrow isn’t guaranteed.
I am frugal and I can’t even imagine trying to save 70% of our income. You would need to be making a lot to start with before that was an option.
I agree. Most people need their income to live. That’s why this whole FIRE movement is for the privileged few, in my opinion.
It’s not for me either. I want to live my life as fully as possible and usually, that means I’ve got to spend money.
These people could even die before they get to their chosen retirement age! It would seem pointless, then.
I agree with you Rachel. I am a saver but I also like to enjoy life. If that means I need to keep working, so be it. If my cancer diagnosis taught me anything, it’s that tomorrow isn’t guaranteed. As the old saying goes, you can’t take it with you! 😂