Working professionals used to plan to remain in the workforce until 60 or 70, by which point they had amassed enough savings to retire comfortably.
Now, there are an increasing number of those who embark on an unconventional savings regime vying for the enviable position of early retirement – some by a margin of 20 years or more.
The movement known as FIRE, an acronym for Financial Independence, Retire Early, teaches that retirement age is a construct of modern consumerism. Simply put, if we don’t buy all the things that we don’t need, we won’t have to work.
This alternative view on retirement savings was popularised by the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez. The authors, who sought autonomy from the workforce in the interest of dedicating their lives to charitable causes, shared their experiences in the hopes of others doing the same. Since their book’s publication and the dissemination of their radical yet subtle philosophy, their ideas have steadily gained traction, especially amongst millennials.
The basic idea combines a simple, even ascetic lifestyle with an aggressive program of saving; in contrast with the typical 10 to 15 per cent of earnings saved by a traditional worker, a FIRE devotee might put away as much as 75 per cent for the future. In other words, the former might save one year’s worth of living expenses in nine years, where the latter might do the same in as little as four months.
In the US, when a person has saved between 25 and 30 times what they spend in a year – somewhere in the neighbourhood of a million dollars – they can retire, living at a similar level of comfort to which they are accustomed by drawing from their savings at a rate no greater than 3 or 4 per cent per year.
For those whose base income is high enough to support a simple yet sustainable lifestyle two to four times over, such a plan may work, so long as they can adhere to the strictures of their simple lifestyle. Typically, those working at or near subsistence-level wages must find work on the side to participate – something that 21st-century technology has made more accessible.
“The rise of the freelancer means that your colleague might be a coder, audio transcriptionist, editor or graphic designer by night.”
Today’s side hustles still include the traditional favourites: bartending, catering and pizza delivery. However, modern digital technology, most notably that which allows for remote work, has opened the door to a seemingly infinite number of possibilities. The rise of the freelancer means that your colleague might be a coder, audio transcriptionist, editor or graphic designer by night. Much of this work can be done on a more flexible basis and in shorter bursts of time. Some of it can be surprisingly lucrative.
For those with more room in their budgets, investment is a popular and long-established avenue to early retirement, albeit one that has certain risks associated with it.
Interest-bearing savings accounts are not as common as they once were, and even then, typical 2 per cent interest rates aren’t enough to retire on. Investing over a period of 20 years or more in a broad market index fund, however, may net a return of up to 8 per cent or more. In other words, the compounded interest on $2,500 saved a month translates to nearly one and a half million dollars over two decades.
Financial advisors can be a helpful resource on the path to early retirement through savvy investment, but they also take a cut. Those who would rather avoid this by doing it themselves can cherry-pick their stocks using app-based free trading services like Robinhood, which democratises access to stock markets.
“…Geoarbitage is a compelling option even before considering the non-economic factors.”
Around the World
Another FIRE strategy is known as “geoarbitrage”, which means moving, at least on a part-time basis, to a locale that offers lodging, food and other necessities at substantially reduced prices. For workers like the digitally nomadic freelancer, whose skill set allows them to perform their job duties on a remote basis, geoarbitage is a compelling option even before considering the non-economic factors.
In bustling Mexican cities – Playa del Carmen, for example – a well-appointed one-bedroom apartment costs a mere $400-500 per month. Food costs are a fraction of those in Europe or the US, with the average meal costing no more than $4.
The same is relatively true in locales all over the world, with workers from high cost of living nations flocking, mostly seasonally, to their favourite work-away hubs. Chiang Mai, Taipei, Budapest, Prague, Cape Town and Medellin are booming, thanks in part to the remote workers who call them home.
“For those with the self-discipline to resist the pull of the product…”
Less is More
These tactics aren’t effective without a fundamental shift in lifestyle, however – one that is not without sacrifice. Moonlighting or spending less on rent and food doesn’t translate to savings if it’s lost on the ephemera of consumerism.
For those with the self-discipline to resist the pull of the product, FIRE can allow the freedom to step away from a life of work sooner rather than later.
It’s an enticing prospect. Young people today are increasingly rejecting the notion that they will have to stay in the workforce until they are too old to enjoy their retirement. A robust and predominantly online dialogue has grown up over the past decade. Mr Money Mustache (Canadian Blogger Peter Adeney), one of the movement’s most popular avatars, proselytises on the inherent wastefulness of consumer culture, highlighting the difference between needs and wants. His point: frugality is freedom, not suffering.
Others emphasise the financial independence side of the equation, pointing out that debt-free people have more enjoyment in the present. Those indebted to banks, many for cars or houses that are above their means, tend to focus on a future “someday” instead.
“The FIRE movement might prove detrimental to those in the luxury goods industry, but its radical non-consumerism also has the undeniable potential to change society for the better.”
As the FIRE movement grows, so does concern over a generation of workers opting out early. Alarmists cite fears over “brain drain” – the potential mass exodus of talent no longer interested in payment for subsistence. To combat this loss before it happens, businesses might have to focus on other retention strategies like flexible work hours and value alignment – something that millennial employees often look for regardless of their financial security.
While existing businesses may encounter unexpected difficulties as a result of the FIRE movement, savvy entrepreneurs might benefit from a growing niche market. For example, there exists no centralised geoarbitrage agency. Ironically, those in the FIRE movement represent a largely untapped and affluent consumer segment. They might be less likely to spend money on the nonessential items that interest their peers but are probably more likely to spend money on products that enable their financial independence and early retirement.
The FIRE movement might prove detrimental to those in the luxury goods industry, but its radical non-consumerism also has the undeniable potential to change society for the better. On a fundamental level, consuming less is better for the environment.
At the same time, retiring early doesn’t necessarily mean not working; it just means that money is no longer the motivating factor. Instead of contributing to the bottom line of some distant corporation, early retirees might add value closer to home and in a more meaningful way. Those with financial freedom are more likely to start small businesses and non-profit organisations, using their creative talents to enrich culture with art and volunteering in their communities.
Retirement is Changing Regardless
The FIRE movement is only part of a broader change to how we think about retirement. While young people are increasingly leaving the workforce early, older workers find themselves staying at their desks longer. According to the US Bureau of Labor Statistics, by 2028, nearly one in four American workers will be 55 or older.
All over the world, octogenarian life expectancies mean that the state is struggling to support its aged retirees despite their lifelong contributions to state-sponsored retirement funds. Pensions either aren’t as significant or aren’t as effective as they once were. Retirement is no longer a state-sponsored event. Instead, it’s a self-funded project. With the FIRE movement, when that project comes to fruition is up for debate.