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FIRE: An unconventional approach to retirement planning

The Financial Independence, Retire Early (FIRE) movement is a lifestyle characterized by high savings rates and earning multiple streams of income with the goal of retiring decades before the traditional retirement age. The FIRE movement is popular among millennials, especially those who work in finance and tech.

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What is the FIRE movement, and how can it help you achieve financial freedom?

In recent years, we’ve seen an increasingly popular retirement trend, especially among Millennials, called Financial Independence, Retire Early (FIRE).

The FIRE movement makes sense: Achieve financial independence early on so that you can live life on your own terms.

We’ll cover the basics: what the FIRE movement is, its benefits, and its problems.

What is the FIRE movement?

The FIRE movement takes basic financial planning principles — disciplined saving, frugality, and building passive income — and brings them to extreme levels.

The key is to get to the point where you can do what you want to do rather than what you have to do.

FIRE: A Simple Breakdown

Financial Independence

“Financial independence” can mean different things to different folks. For some, it could signify paying off grad school loans. For others, it means having the freedom to travel freely around the globe.

In general, it means living a life with less financial stress and the freedom to do the things you enjoy doing.

Retire Early

Everyone has a different definition of “retirement.” It can mean no more working for “the man,” or it can represent more time to work on meaningful projects.

3 paths to FIRE

The FIRE community sets high savings goals (50% to 70% percent of current salary) in order to retire in their 30s and 40s. Depending on your income and savings rate, you can pick and choose a different retirement lifestyle:



You have enough income to pay for very basic necessities, like food, insurance and rent or mortgage. No travel, no weekly golf outings, and no fancy gadgets.


Barista FIRE

This level accounts for health insurance. You can leave your regular job but work part-time at, say, Peet’s, and still receive health insurance coverage.



You have enough passive income to pay for all your needs and then some, like trips, nice dinners out, and more.

FIRE movement tips

So, what can you do to achieve financial independence, and possibly even retire early?

1. Work on aggressively increasing your income today

Balancing FIRE and a reasonable quality of life can be realistic if you’re in the 90th percentile of household income in your area.

If you’re falling short, do what you can to increase your income, whether that means asking for a well-deserved raise or building new job skills.

2. Invest early and regularly

Due to compound interest, it’s best to invest money early and regularly.

The Power of Compounding

The power of compounding means that saving money now could leave you with a bigger balance down the road. In some cases, smaller contributions over time could still earn you more than larger contributions later on.

Anna began investing at age 25.

Her initial deposit was $10,000, and she contributed $1,000 per month with an annual rate of return of 8.00%.

The power of compounding means that saving money now could leave you with a bigger balance down the road. In some cases, smaller contributions over time could still earn you more than larger contributions later on.

George began investing just 5 years later, at age 30.

Her initial deposit was $25,000, and she contributed $1,000 per month with an annual rate of return of 8.00%.

For most investors, it’s easiest to invest a fixed dollar amount on a monthly or quarterly basis to smooth out returns over time. You can do this through your employer’s 401(k) plan, and because it’s automatically deducted from your paycheck, you won’t need to think twice about it.

A more sophisticated investor may tap the expertise of a Fiduciary Financial Advisor who has sufficient In other words, the person genuinely understands what they need and want, and what they are getting from the seller.

Accelerate your journey toward financial independence

As Fiduciary Wealth Advisors, we take an interdisciplinary and multifaceted approach to building, managing, and protecting your wealth.

Get in touch to start the conversation today!

3. Save through retirement accounts — and take the 401(k) match

Contribute to pre-tax retirement accounts (e.g., Traditional 401(k), Traditional IRA, 457(b)) while you’re still working. This lowers your adjusted gross income and reduces your taxes.

If your company offers an Employer Match, take the maximum benefit. (It’s free money!)

Tip: However, don’t neglect the brokerage savings because those accounts will fund your early retirement years when you’d otherwise pay penalties for withdrawing from retirement accounts.

4. Roll retirement funds over into an IRA

When you leave your job, immediately roll your Traditional 401(k)/403(b) into a Traditional IRA. Since all of these accounts receive similar tax treatment, your IRA Rollover can be done immediately with no penalties or tax consequences to worry about.

With an IRA, you’ll enjoy many benefits:


  • A simplified financial situation. Simplify your retirement planning by rolling over and consolidating your retirement accounts.
  • Lower administrative fees. Your old retirement plan might have had all kinds of fees attached to it, including costs for each fund you held, administrative fees, and any number of possible other fees. With an IRA, you’ll save money on all those little expenses that can eat into your investment returns over the long term.
  • More control over your investments. Because you own your IRA, you’ll have complete control instead of having to work around the rules and policies of your former company retirement plans. For instance, you may buy and sell your holdings any time you want.
  • More investment options. Your previous employers’ 401(k)s had a limited investment menu. An IRA gives you access to more investment choices.
  • Easier to understand. Each company has different rules and set-ups for their 401(k). In contrast, IRA rules are standardized under the IRS regulations; no matter your broker, all IRAs operate by the same set of rules.
  • Investment guidance. With a Prosperity IRA, you’ll have round-the-clock access to Fiduciary advice about building a sound investment portfolio. Our Advisors can help you make more well-informed financial decisions to maximize your retirement outlook.

Need help with your IRA Rollover?

Our Retirement Specialists are here to answer your questions about rolling over your company retirement plan into an IRA.

Get in touch to start the conversation today!

5. Consider a Roth conversion

If you think you’ll need to access some of your retirement account money within five years, your Financial Advisor can help you convert an appropriate amount from your Traditional IRA to a Roth IRA.

You will have to pay tax on the conversion amount, so make sure you’re in a low tax bracket when performing the conversion. Convert only as much as you need to minimize the tax bite.

6. Plan for the retirement lifestyle you want

Your “magic number,” or how much you’ll need for the kind of retirement you want, will influence your savings strategy.

Start by visualizing a specific picture  of what you want your retirement to look like: What are you passionate about? What’s important to you? What is sustainable?

Then, your Financial Advisor can help you model out your financial needs for your desired retirement outcome.

Aaron and Alana

A Quiet Retirement

Aaron and Alana are retired. Neither of them works any longer. They receive some money from their pensions, their 401(k) withdrawals, and Social Security. Their homes and cars are fully paid off, and they’re living debt-free.Aaron and Alana live simply. They cook at home, and they enjoy inexpensive activities like reading, going to the local community center, playing with their grandkids, and spending time in their garden.

Bob and Betsy

An Active Retirement

Bob and Betsy are also retired. Neither of them produces income, and like Aaron and Alana, they receive money from their pensions and 401(k). Their homes and cars are also paid off, and they’re also debt-free.They live large in retirement. They dine at restaurants. They enjoy sailing, golf, and tennis. They own a property in wine country, and they enjoy spending their summers in Italy and France.

Charles and Carina

Working in Retirement For Fun

Charles and Carina are retired from their primary occupations, but both of them still work. They have enough money to live comfortably based on their savings, but continue to work because it gives them satisfaction and purpose.Charles runs a consultancy business, while Carina is writing a memoir. They receive added income from their jobs, which supplements their retirement savings.

Dirk and Davina

Passive Income in Retirement

Dirk and Davina set up streams of passive income when they were younger. Now their rental properties, royalties, dividends, and interest income provide enough for them to retire comfortably.However, their retirement lifestyle requires more hands-on management of their income sources. They often find themselves managing the teams of bookkeepers, property managers, and repair hands who keep their investments afloat.

Everyone’s ideal retirement is different. Some retirees are satisfied with a simpler lifestyle. Some want to enjoy international travel, participate in pricey hobbies, invest in fine wines, renovate their homes, and explore new experiences. Others choose to work for purpose and meaning — even if they don’t need the income.

7. Work with a Fiduciary Financial Advisor

A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.

Wayne Gretzky, regarded as the greatest hockey player of all time.

The most successful people in the world have coaches. Top athletes, CEOs of major corporations, and entrepreneurs all have trusted advisors that help improve performance.

Think of a Financial Advisor as your financial coach — they know where the puck is going, so if FIRE is your goal, there are several good reasons not to go about it alone.

One key to FIRE is understanding the math and history of the market. A Fiduciary Financial Advisor will help you stay abreast of economic megatrends, P/E ratios, and use a tactical allocation strategy to take advantage of the cyclical bull and bear markets within long-term market cycles.

Another key to FIRE is separating emotions from investing. A Fiduciary Advisor guides you on when to buy and sell at the correct times. When the stock market takes a dip, your Advisor helps you from making rash decisions that can lead to reduced investment performance.

The final key to FIRE is discipline. Your Advisor will help you build good habits, track your financial progress, make necessary adjustments, and keep you accountable to your long-term goals.

More on behavioral finance:

» Meet the Expert with Elliot Kallen®: Investing & Decision Making

» Meet the Expert with Elliot Kallen®: Investing & The Mortgage Market

» Money and Relationships: 7 Tips for Stress-Free Money Talks

Problems with the FIRE movement

Many people are drawn to the FIRE movement because it promotes the idea of creating a life you love and doing what makes you happy. However, the movement has its drawbacks and isn’t the right path for everyone.

Insufficient income

The FIRE movement requires a very healthy income and the ability to save large percentages of it. Many Millennials are bogged down by student loan debt or credit card debt and simply cannot save the 50 to 70 percent of income that is required.

Clashes with your money personality

Some people are turned off by the idea of watching spending so closely because it feels like the opposite of the financial freedom they’re trying to achieve — and may actually cause even more stress.

Elliot Kallen, Founder of Prosperity Financial Group, Financial Advisor, Wealth Advisor, Financial Planner, Wealth Planner

A Word With Elliot

Reconsider the “Retire Early” part of FIRE:

Retiring early means missing out on some of your highest-earning years, and it can be difficult to recover that loss in earnings if things don’t go according to plan. Of course, traveling, relaxing, and spending time with loved ones is wonderful, but you’re still going to have plenty of free time. Without a passion project, you may find early retirement to be quite boring.

Instead, focus on the “Financial Independence” part of FIRE:

Look at FIRE through the lens of freedom rather than retirement. Consider FIRE as your ticket to freedom from mandatory and undesirable work, and freedom to pursue more fun and meaningful work.

Another benefit? It’ll keep you from becoming overly focused on early retirement as a nirvana and help you avoid the hedonic treadmill effect.

Deprivation can lead to depression

The most extreme levels of FIRE require a lifestyle of extreme frugality to bolster your savings rate. This extremely frugal lifestyle takes shape by cutting out life’s small pleasures, including your daily latte and avocado toast, dining out on the weekends, shopping for new clothes, and gifting nice things to your loved ones.

This self-imposed deprivation — cutting out all your tiny splurges that keep you sane — can come at the price of your day-to-day happiness.

Lack of health care benefits

While living the FIRE life, you’re a sitting duck without health care coverage. When you reach the traditional retirement age, your Social Security benefits will be lower than if you had continued working.

Unforeseen costs

All of us know curveballs are a possibility, but we don’t know what they’ll be or when they’ll come: unexpected pregnancies, fertility treatments, aging parents, and freak accidents are all possible expenses that weren’t budgeted into your initial FIRE number.

Researchers found that delaying retirement by 3 to 6 months had the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years.

We Can Help

Ultimately, FIRE is a great way to bring more intentionality to your spending decisions. It’s also a great way to start thinking about how to make your money work for you in the smartest ways possible, so that you can live life on your own terms.

It won’t work for everyone, though. Speak to a Fiduciary Financial Advisor about whether FIRE is compatible with your retirement goals.

Need help building a FIRE financial plan that can survive the pyrotechnics of the market? Please fill out the contact form. We look forward to speaking with you.

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