How to Approach Early Retirement

Hands up those that have already started thinking about their retirement! Wait, you haven’t? Don’t worry, you’re not alone. For many of us, retirement doesn’t even cross our minds until we’re much older.

The official retirement age in the UK currently stands at 63 for women and 67 for men. So, if you want to retire any sooner, you’ll likely have a problem, unless of course, you’ve invested in a private pension plan. Indeed, 40% of British workers between the ages of 18 and 34 expect to retire when they’re in their 60s and over 30% of them expect to leave their work after they’re 70!

However, there is a growing movement of 20 - 30 year olds who don’t want to spend another 40 odd years living in the “Eat, Sleep, Work, Repeat” cycle. Their mission is to work, travel, live a frugal life, save, invest and escape the corporate machine all before their 40s. Impressed? Meet the FIRE Movement.

The FIRE (Financial Independence and Retire Early) movement, which originally started in the US, has in recent years, gained considerable momentum across the globe. FIRE aims to brings together those who strive for financial freedom. It encourages early retirement (hence the name), but for its followers quitting your job is not as essential.

The idea behind the concept is simply that you are no longer a slave to your income, and you can make life decisions without taking money into account. It’s quite a unique way of approaching early retirement, as it focuses more on having the freedom to do what you want rather than leaving your job. Having said that, leaving the corporate machine and never looking back is the end goal for many of the FIRE community members.

So, when is a good time to slow down and swap out your office attire for a bikini? The recipe for success is to minimize spending, save and invest the surplus. Most of the FIRE community members save over 50% of their monthly salary and follow the 4% rule or the rule of 25.

How do those rules work? Well, the rule of 25 says, that to live comfortably once retired, you should try to accumulate 25x your annual expenses. Once you’ve got that amount, you will be able to provide for your life at retirement by withdrawing a small amount of that sum every year. The rule of 4%, on the other hand, says you can withdraw 4% of your investment portfolio value every year, without the risk of ever running out of money.

But will following any of those rules allow you to have a peaceful retirement without ever worrying about money? Some, to make sure they’re well protected, combine the rule of 25 with the 4% rule and locate some of their savings in real estate or stocks. To be able to do that, they really have to squeeze their salary and put aside much more than just half of their monthly income. Sounds a lot, right? It is, but the reward is worth the sacrifice if you can afford to make it. Yes, while you work you have to save and put money and finance at the top of every decision you make, but in return, you could have the financial freedom to do whatever you please within just a few years.

FIRE isn’t for everyone. Following FIRE is not for people who hate their jobs or for those who just want to make a fortune. If you retire early, but you don’t have a plan for your “life after work”, you might end up feeling bored, purposeless or even depressed. That’s why the community members highlight how important it is to be “retiring to” and not “retiring from”. It’s important that those who want to reach financial independence, have an alternative and exciting life scenario prepared for when their career comes to an end. Hating your job won’t help you with that either. Indeed, some of the early-retirees are of an opinion that hating your job doesn’t make retiring any easier. Some of them retired despite liking their job – they just wanted to shift their focus in life from career to personal development.

FIRE is certainly not for the faint-hearted, yet it continues to attract more and more followers. It paints the picture of a brighter future; to spend more time with loved ones, travel, time for hobbies and fulfilling dreams. That bright future, however, comes at a cost. FIRE followers are often misunderstood, as many people mistake their desire to retire early with being unambitious and lazy. FIRE members can also struggle with finding likeminded partners or friends who are likely to understand and support their approach to money. That’s why many of them choose to keep close to the FIRE community through blogs or forums. Being around people who share the same hopes and values helps with having to save so aggressively.

There’s also a physical aspect to early retirement. Many studies list the disadvantages of quitting your job at an early age. IEA research found retiring at a young age can have a detrimental impact on our mental and physical health. Early retirement increases the probability of clinical depression by 40% and raises the possibility of being diagnosed with a medical condition by 20%. Another report, published by AEA showed that professionally active people perform much better in memory tests than those who are already retired. According to scientists, this is a proof that early retirement can contribute to a mental decline. However, it’s worth noting that both reports only focused on 60-year olds. So, there is no evidence to confirm the impact of retirement on a younger group of people.

So, what are the true feelings of the FIRE movement? To investigate that, I decided to interview people at different stages of their journey to full financial freedom. Those who already pulled the trigger and got out of the corporate machine, and those who are only just on their way to getting “FIREd”. I’m curious to find out what motivates them, whether the journey has been hard, and finally, if early retirement is everything that they expected it to be?

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