by Ashley
Image credit: Pixabay/Alexas_Fotos
One of my long-term goals is to retire early. Early in my debt-reduction days, I learned about the FIRE movement and it really appealed to me. FIRE stands for Financial Independence, Retire Early. The philosophy is to stay out of debt and have a high rate of savings, living below one’s means so that it’s possible to retire early.
I’ve personally had a goal to save approximately 50% of our household income. We aren’t quite there, but we’re not too far off (when you include all types of savings, including HSA and IRA contributions, etc. etc.). When saving 50% of your income, and assuming approximately the same rate of spending in retirement, 1 year of working = 1 year of saved living expenses!
With my husband’s job, he’s going to be eligible for retirement (with a pension!) at age 50. At 43 now, that finish line feels more in-sight than ever before. We’ve run the numbers and he’ll actually make MORE in retirement than he does now, so there’s literally no reason to work longer than that. He’s talked about potentially getting a side hustle or part-time job to keep busy, but it’d be more of a “for fun” job rather than a job intended to pay the bills.
At my work, I don’t get any type of pension so my only retirement money is from my own retirement account that I contribute to personally (and employer matches up to 7%). I can retire at any age, but obviously we’ll be better situated financially if I continue to work longer. That said…. I know myself. I already know that when hubs retires in 7 years…. it’s going to be tough for me to keep working full-time.
This brings me back to the FIRE concept. I was only familiar with the traditional FIRE. But, I recently learned that in addition to the standard FIRE philosophy, there’s also CoastFIRE and FatFIRE.
All the FIREs!
Standard FIRE is when you save enough that your investments can cover your living expenses indefinitely, allowing an early retirement. People typically use the 4% rule (deducting 4% from savings/investments per year for living). Assuming this, you would calculate your planned annual spending and multiply by 25 to determine the amount needed for retirement. For example, if your annual spending is $100k/year, then you’d need $2.5 million to retire.
CoastFIRE is when you save super aggressively early in life until you hit an amount that, left untouched, will continue to grow to fully fund retirement by the time you plan to retire. Let’s say the goal is to have 3 million by age 55. If you’re able to save 1 million by age 40, you no longer have to make any contributions whatsoever. That 1 million will continue to grow and can reach 3 million by the time you’re set to retire at 55. In that way, you save aggressively early, and then you just “coast” while the interest compounds.
FatFIRE is when you want to have a higher spending standard than the traditional FIRE or CoastFIRE philosophies, which both emphasize living quite frugally in order to prioritize savings. Maybe you like to travel, have expensive hobbies, want a nicer lifestyle, or live in a higher cost-of-living area. For this philosophy, you multiply your annual spending by 30-40. Let’s say you spend $150,00/year, then you’d need $4.5 – 6 million to retire comfortably.
Retirement Planning
This whole concept is really intriguing to me and it’s brought up topics and questions that have been great conversation starters for hubs and I to discuss. For instance, he’s assumed that once the kids are grown, we would downsize our home to something smaller and cheaper. I assume the opposite – that we would maybe get a house with less square footage, but that we’d go a step up in terms of builder and finishes, which would likely mean it’s more expensive. (Caveat: honestly, we got our house at a great deal on a short sale, so even looking at “downsized” homes – most cost more than what we paid for our current house).
Then it becomes a question of how much do I value “lifestyle” (home and travel are my two big things) versus wanting to retire early. If I want a nicer home and want to continue traveling, then there’s realistically no way I’ll be retiring when hubs retires at 50. If I’m okay with continuing to penny-pinch and keep expenses super low, then it might be a possibility.
Right now I’m leaning toward continuing to work so we can afford the lifestyle I’d like to have in retirement. But it’s really a fun thought experiment and has led to really great financial conversations about our goals, where we want to be, etc.
