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Financial Literacy

What is the FIRE Retirement Plan and Is It for You?

What is the FIRE retirement plan? Many people are starting to look at this new retirement trend. As a new generation enters the work force, the idea of early retirement is gaining popularity.

But what exactly is this new retirement trend? And is it for you? Let’s take a look…

What is the FIRE Retirement Plan?

The FIRE retirement plans stand for "financial independence, retire early."

The FIRE retirement plan stands for financial independence, early retirement. The idea came from the 1992 book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. It’s supposed to give you the ability to retire before the traditional age of 65. For some, this could be as early as their late 20s. For others, it could be in their 30s or 40s.

People no longer want to devote their entire lives to working and making a living. Instead, FIRE followers work hard early on and save as much as possible. This helps them reach financial freedom. Then, they can start a new career path or hobby. This lets them spend more time doing what they love instead of what makes the most money.

It’s a new way of thinking. And it’s not for everyone. But whether or not you choose to follow the FIRE retirement plan, there are some key ideas everyone can benefit from.

FIRE Movement: 4 Key Takeaways

Following the FIRE movement can involve going to the extreme. You can save up an extreme amount of your income and often at the expense of current life style. But you don’t need to go that far to benefit from the FIRE movement. Here are a few key takeaways…

1. Think About Retirement

This might seem obvious to some people, but not everyone thinks ahead. In 2019, Northwestern Mutual conducted a Planning & Progress Study. It gave some insightful data:

  • 15% of Americans have no retirement saving at all
  • 17% of respondents have between $1 and $74,999 for retirement
  • 10% of respondents think they have enough money for retirement
  • 45% of respondents think they’ll run out of money in retirement
  • 41% of respondents admit they haven’t done anything to fix their retirement problems

There are many great ways to save for retirement. The first is to contribute to your 401k. A 401k is an employer-sponsored retirement plan. It offers a tax-advantaged savings account. And most employers offer contribution matching up to a certain amount. That’s free money!

Another option is an IRA. There are traditional IRAs and Roth IRAs. With a traditional IRA, your contributions are tax-deductible. But when you withdraw from the account in your retirement, you have to pay taxes on the amount you take.

With a Roth IRA, your contributions aren’t tax deductible. On the other hand, when you withdraw money from the account, it’s tax-free. Why? Because the money you put in was after taxes, which means you already paid what you owe to Uncle Sam.

However, there are contribution rules. To learn more about IRA accounts, check out our article, “What Is an IRA?”

The FIRE movement emphasizes saving for retirement. And this is great because the earlier you start saving, the longer those savings have to grow.

2. Lowering Your Expenses

Some FIRE followers aim to save close to 70% of their income. To do that, they need to effectively minimize expenses. And if you want to follow suit, you need to sit down and look at where your money is going. For many, housing, food and transportation are the three biggest areas people spend.

To make more cost-effective decisions, create a budget. This will break down where your money is going. If your rent is eating away at your income, consider finding a roommate or two to help bear the burden. If you can bike to work, sell your car to save on transportation costs.

One of the biggest expenses people tend to have is debt. The longer you have debt, the longer your money isn’t really yours. The quicker you pay off debt, the more money can go into your savings.

Cutting expenses is often where people struggle the most. The reason is because many don’t want to give up their current lifestyle. That’s why people who follow the FIRE retirement plan tend to sacrifice more now. But the idea is to work now and play later.

3. Increase Your Income

The more money you bring in, the easier it will be to save without hurting your current lifestyle. But that doesn’t mean you need to find the highest paying career and sacrifice your happiness. In fact, experts say you shouldn’t have the goal of retirement solely to leave a job you hate.

But you can find other ways to make money. You can turn your hobby into a side-hustle. Work part-time at a job, or two. Buy a rental property. Overall, generating passive income is one of the best ways to create wealth, and anyone can do it.

4. Invest

Investing is the number one way to create passive income. Wealth creating investments should be your best friend. By investing your money, it does the work for you. There are a couple areas you can invest in, depending on your risk tolerance.

  • Stocks. Investing in the stock market shouldn’t be viewed as gambling. You can make safe investments if you know where to look. Dividend stocks are a great way to produce passive income. Our income expert Marc Lichtenfeld recommends people look for companies with a long-standing history of paying increasing dividends.
  • Index Funds. Index funds are a good option for people who don’t want to worry about following individual stocks. Instead, this allows you to invest in the general market, such as the S&P 500, or sectors, such as energy or finance.
  • Bonds. Government bonds are often favored by people wanting lower risk. And long-term bonds tend to have the highest interest rates. So, if you’re in it for the long haul, bonds could be a good option for you.
  • REITs. By investing in real estate investment trusts, you invest in companies that own properties. By law, these companies are required to pay out 90% of profits in dividends.

If you’re interested in following the FIRE movement but are new to the world of investing, here are the best stocks for beginners to buy.

If you want to live financially free, sign up for our free e-letter below! It’s full of useful tips and research from our experts. Whether you’re a beginner or an experienced investor, there’s something for everyone.

When looking at your options for retirement, it’s important to remember everyone is different. You need to choose the plan that works for you. FIRE isn’t for everyone. But if you’re willing to put in the work, following the FIRE retirement plan can lead you to a life of financial freedom.


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