Before crunching the numbers, advisors can support FIRE enthusiasts by talking them through why they want to leave the workforce early.denisgo/iStockPhoto / Getty Images
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When the financial independence, retire early (FIRE) movement went mainstream more than 30 years ago, it was a relatively straightforward strategy of saving and investing aggressively to leave the workforce decades earlier than most.
However, rising costs, volatile markets, longer lifespans and the health concerns that can come with too much idle time have led to a few FIRE movement spin-offs that better reflect current economic and social realities.
Some examples include Lean FIRE, which involves more extreme saving and a minimalist lifestyle in both your working years and in retirement. There’s also Fat FIRE, which means working, saving and investing more in your 20s and 30s without sacrificing your quality of life. Barista FIRE is retiring early and taking on a part-time gig (with presumably less stress) to supplement your income.
Customization of the FIRE movement makes it more amenable to the changing needs and views of retirement today, says Jason Heath, certified financial planner and managing director at Objective Financial Partners Inc. in Markham, Ont.
It also helps advisors better match their clients’ finances with their retirement goals.
“I think it will help people appreciate that it doesn’t need to be all or nothing,” he says. “There are different ways to get from your working years to your retirement years.”
Achieving FIRE is also more challenging for younger people today than when the movement first gained attention in the 1992 book, Your Money or Your Life, by Vicki Robin and Joe Dominguez. Even millennials, who popularized the FIRE movement over the past decade or so, likely had it easier than their younger Generation Z peers, given the higher cost of everything from housing and mortgages to food and consumer goods today, Mr. Heath notes.
“Someone in their 40s might have been able to pursue FIRE 10 or 15 years ago because they bought real estate at a much lower price and interest rates were lower,” Mr. Heath says. “But, a 20-something pursuing FIRE today has a much bigger mountain to climb.”
The FIRE reality check
Julia Chung, chief executive officer, partner and senior financial planner at fee-only firm Spring Planning Inc. in Vancouver, says some people’s dreams of retiring early are often unrealistic, partly because they don’t consider variables such as taxes, health care costs and volatile markets.
“As an advisor, I sometimes have to give people an idea of what realistic is,” Ms. Chung says. “Often, people with this [FIRE] mindset are really walking the razor’s edge of assumptions. They don’t factor in the proper tax rates, inflation, and the possibility of requiring long-term care.”
Without proper, detailed planning, Ms. Chung says the comfortable and carefree early retirement that people envision can turn out to be stressful. And it’s not just a financial shortfall that can make retirement miserable, she says, but also not having a plan for how to spend the extra time work used to fill.
“People say things like, ‘I’ll travel more’ – but what will you do when you’re not travelling?” she says, noting that most people have lived by some type of schedule since they started going to school at around age 5.
“Then, suddenly, they have no structure. It’s a massive change, and the emotional and cognitive impact is enormous.”
How to know if FIRE is the right fit
Before crunching the numbers, advisors can support FIRE enthusiasts by talking them through why they want to leave the workforce early, says Simon Tanner, principal financial advisor with Dynamic Planning Partners at iA Investia Financial Services Inc. in Langley, B.C.
“Typically, people exploring a more rapid pace to retirement have a reason – they want to pursue a passion. But, do they really want to do that for the next 30 years?” Mr. Tanner says.
“The question advisors need to ask is not just what you will do, but why. What’s the purpose? If the purpose is just because you hate what you’re doing now, then FIRE may not be the only solution.”
He suggests people pursuing FIRE do a “dry run” of retirement such as taking a sabbatical from work for a few months or even a year, for which advisors can help them save as part of their financial plan.
Then, if someone is confident they’re ready to retire early, Mr. Tanner says the financial piece is similar to most retirement plans.
“It comes down to the same principles of saving more, spending less, seeking higher returns and having realistic and achievable goals,” he says. “At the end of the day, it’s just how quickly they want to achieve it.”
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