Monday is a cruel thief. The thought of its impending arrival steals my Sunday and pulsates through the day like a low-grade headache. To ease the anxiety, I’ll check my email “just to get a jump on the week.”
I wish I were retired and could enjoy anxiety-free Sundays.
So why don’t I?
Other people retire early. What’s so special about them?
Well, some are idiots and will end up destitute, but others have discovered some amazing financial and lifestyle tricks that will help us retire early and safely.
FIRE it up!
FIRE is an acronym for “Financial Independence, Retire Early”. It’s an informal lifestyle subculture movement with a singular goal of extreme early retirement. Devotees radically and permanently change their lifestyle to save and aggressively invest 50% to 70% of their income. With dedicated focus and a decade or so, they’ll have enough to sustain them for the rest of their life, unshackled from the burden of a normal job.
We can learn from these maniacs. These people are professionals in the sport of early retirement, and we can study their moves from the bleachers without breaking a sweat. While we may never have the discipline that Michael Phelps had to burn the equivalent of 21 Big Macs in his legendary Olympic practices, we can certainly become faster swimmers by studying his routine.
Likewise, we can study the routines of FIRE retirement pros and learn some tricks to use in our own lives. There’s nothing to lose and a whole lot of anxiety-free Sundays to gain.
Common characteristics of FIRE
Financial Independence is having enough money to escape reliance on a conventional job to fund a conventional lifestyle. Early retirees have abundant time to travel to unconventional places, write blogs, homeschool, sell pottery and jewelry, write and perform music, act, paint, study, or a myriad of other activities, some income-producing and others not. The point is they don’t need to make money.
The devout among them follow these four commandments:
1. Live simply and deliberately: An intense commitment to building a lifestyle around what’s truly important in life. They value quality time and freedom over physical belongings and prestige. This new lifestyle is a permanent state, not a temporary phase of austerity.
2. Extreme frugality: They buy used cars, or better yet ride used bicycles. They skip coffee shops and drink tap water. They live in inexpensive locations in inexpensive homes, grow their own food, and find entertainment, social, and travel options that are bargains.
3. Boosting income: They increase their take-home every way they can. They work overtime, take side jobs, consult, or drive for Uber. Creativity and imagination are all they need to bolster their income by a little bit more every day.
4. Aggressive saving and investing: With discipline, every extra penny earned is saved and invested for maximum growth. Investments may be in the stock market or real estate, but they’re typically high-risk, high return, often with a goal of producing passive income in the future.
How does it work?
The math behind it is simple: If you save 50% of your income you can retire with that same lifestyle in 17 years. If you save 70% of your income, you can retire in 8.5 years.
Let’s say you’re 22 years old and you earn $40,000 a year. If you alter your lifestyle so you can invest half your income — $20,000 — every year for 17 years, you’ll have about half a million dollars. The 4% rule of investing says you can retire at 39 and make that same $20,000 a year for the rest of your life — without working.
Early retirement gives you total control of your time to do whatever you please — so long as it’s within your budget. Simplifying your life can remove workaday pressures and ease the constant struggle for more money and nicer things. Your outlook is better, your health improves, and you’ll have time for social activities, recreation, and travel.
What could possibly go wrong?
The FIRE movement is inspirational, to say the least. Who wouldn’t want to have the freedom to choose how to spend their time without worrying about bills? You could keep doing what you’re doing if you enjoy it, or you could pick something completely different to try.
You can find plenty who boast about living the joyous life of financial freedom, but not all FIRE retirees are successful. The road to extreme early retirement is littered with potholes.
You could still run out of money. The 4% rule isn’t a guarantee. If you had retired in 1999, you’d face 2 years of market declines erasing 40% of your investments and completely ruining your plans. 2007 retirees got the same result. Social Security won’t be much of a cushion either since you didn’t pay much into the system.
Radical life changes. Sustaining a lifestyle of extreme austerity is hard. Everything you do is under the microscope of a rigid budget. You may get used to it, sure. But forever? That’s a long time. It’s easy to give up daily croissants and new BMWs but picking up the family and moving to a small home in a new city and riding an old bicycle to work every day — that’s hard.
Family. Kids are expensive — costing upwards of $250,000 to raise. College adds more. Children can be the most precious gift you’ll ever receive, but they seriously impact your finances and ability to retire early. Where to live, what house to buy, friends, activities and so much more depends on your family plans.
Health. People tend to be emotionally and physically healthier without the soul-crushing burden of work. But unfortunately, genetics and age will ultimately catch up with you and it can destroy your plan. Medicare helps when you reach 65, but a health catastrophe before then would be crippling — even with insurance.
Life Happens. The dreams you had when you were twenty may not be the same dreams of the fifty-year-old version of you. Change is easy and low risk when you’re young but picking up broken pieces of your life and starting over when you’re fifty can be heartbreaking.
Don’t despair, there is comfortable middle ground
The math holds up nicely even if you don’t want to be an extreme-retirement contender. Rather than saving 50% to 70% of your income, you could put away 35% and retire in 25 years. Or you could save 25% and retire in 32.
Given the choice of retiring decades early with a radical life change, and retiring a handful of years early with a modest life change, most would choose the latter. But don’t dawdle. The first choice is easy: Choose to start today because the longer you wait the harder it gets.
To help, I’ve extracted core teachings from the doctrine of the FIRE movement and softened them with some modest and mortally achievable rules. The result is a comfortable middle ground:
Ten Commandments of modestly-early retirement:
1. Start today. Time is your best friend and you’ll never be younger than you are today.
2. Save big. Like the department store slogan, save big and save often. Take every penny of your company’s 401k match and pile more on top of that. Make it hurt. Log in right now and raise your retirement plan deduction. Go ahead, I’ll wait…
3. Earn more. Every $125 invested today will become $1,000 in 30 years. Talk with a career counselor. Ask your boss for a raise. Get a second job. Turn a hobby into a business. Buy and rent a second house. Opportunities are endless.
4. Invest in the stock market. No 20-year period in S&P 500 history has ever shown a loss. Typical long-term investments return 6% to 8%. One common approach is to keep several years of living expenses in a less volatile portfolio and the rest fully invested (and untouched) in the market.
5. Eliminate debt. There is only one acceptable debt: home loans. Use your credit cards — they’re great for a good credit rating — but pay them off religiously.
6. Stay flexible. Your expenses should be like yoga: flexible enough to stretch up and down as the economy changes. Build in plenty of leeway and avoid long-term commitments so you can cut back quickly if you need to.
7. Make small changes to big things. Think very carefully about big expenses like cars, vacations, and homes. Are you buying for function or prestige? If your friends don’t respect you without a Lexus, I’d recommend getting new friends before getting a new car.
8. Positive lifestyle changes. Any age is the right age to discard expensive habits. You’ll get more pleasure dreaming of early retirement over a tasty sandwich at home than you will from a $12 cheeseburger at the mall. Like they do in the FIRE movement, approach these simple changes as a positive lifestyle improvement — not a sacrifice.
9. Be healthy. Lifestyles changes aren’t just financial. That homemade sandwich is healthier too. And with the time you saved driving to the restaurant you can take a walk or ride your used bicycle. Get your heart rate up the right way: from exercise, not stress.
10. Plan and plan again. Even if you’re not competing at the extreme-retirement level, you still need a game plan and a way to keep track of the score. Write down some goals and start tracking expenses. If you don’t know how to get there, how will you know when you arrive?
Above all, have some fun with this. It’s your life, your plan, and your pleasure. Whether you retire early at 34 or 64, make each day the best it can be. I’ll be there with you, enjoying our anxiety-free Sundays.