Are you on F.I.R.E.? (Financial Independence Retire Early)

There’s a lifestyle movement which is gaining traction amongst millennials called F.I R.E., an acronym for Financial Independence, Retire Early. There‘s a growing number of people who believe that, by minimising your expenditure and maximising your income, it’s possible to retire in your 30s or 40s, a whole twenty years before the age that most people manage to.

For these people, being on F.I.R.E doesn’t mean spending their days on Necker Island with Richard Branson, it means only working because you choose to, not because you have to.

To be fair I think that’s what retirement means to most people, it’s less about a gold watch and endless days of watching Lorraine and Countdown and more about stepping back from forty hours a week and into something less stressful that still keeps the little grey cells working, as Hercule Poirot might say. So, is it possible and, if it is, how are you going to get there?

How Much is Enough?

I’ve talked about finding your number in previous blogs and the same principles apply here, just several decades earlier. Before you can think about embracing F.I.R.E it’s important to understand how much you need. 

This exercise starts with working out your annual expenses when you’re not working any more. I’ve added some figures below to help you with that question, plus an idea of the numbers you might like to consider.  Bear in mind this is frugal living, but if you want to retire early, frugality is the key.


Essential ExpensesEstimate Annual
Council Tax£1.500
Television/Broadband/Mobile Phone£1,200
Entertainment/Eating Out£1,500

This calculation assumes that you’ve managed to repay your mortgage. So, you need £12,100 a year (£1,000 per month).

Savings Pot

The next question is how much you need to save today to provide that income for the rest of your life and never run out of money. The actual answer is no one can say, with complete certainty. The commonly accepted figure is that a 4% withdrawal rate increasing with inflation is sustainable. However, this depends on the level of risk you’re prepared to take, market volatility and a whole load of other variable factors.

And bear in mind, investments can go down as well as up and that there is much academic research around why a 4% withdrawal rate might not be so safe. It’s worth reading my good friend Abraham Okusanya’s book, Beyond the 4% Rule. Where he examines the rule.  But, for the sake of simplicity let’s pretend 4% is okay. £12,100 is 4% of £302,500, so now we have the capital figure you’d need to have saved to provide that income, how do you get there?

Monthly Savings

Einstein once said compound interest is the 8th wonder of the world. If you don’t know how compound interest works allow me to explain. Suppose you invested £100,000 today and could guarantee 10% return every single year for 20 years (you can’t and that isn’t a realistic figure it’s just easier maths).

In year number #1 you would earn £10,000 interest and finish the year with £110,000.  Year number #2 – £11,000 worth of interest. By the time you’ve reached the 20th year, that £10,000 a year interest has grown to a whopping £61,159.

How much would you need to save monthly to save £302,500 in 20 years? The answer is £830 per month, assuming a net return of 4% allowing for inflation (just in case you didn’t believe me the first time, investments can go down as well as up).

Let’s not forget that while you’re trying to save £830 per month you need to be supporting yourself too. The average house price in the UK is £231,000 so we need to factor in repaying that too. Let’s assume you have a 10% deposit and a mortgage remaining of £207,900, you would have a monthly repayment of £1,131 assuming an interest rate of 2.79%.

Now we have two figures, the figure you need to save and the figure you need to get the mortgage repaid, which comes to £1,961 per month. If we assume £12,100 a year for other expenses £35,362 is needed to cover those items. Let’s not forget income tax. Broadly speaking that’s a gross income of £47,100. It’s not a drop in the ocean but neither is it impossible.

This table show an estimate of your needs while you’re still working.

Frugal Living£12,100
Income Need Pre-Tax£47,100

Is this realistic though?  Most millennials I know are struggling to save enough for a deposit on a house, let alone saving 70% of their net income between mortgages and savings. Then there’s a question of what you do every day with only £120 per month spending money. Yes, I know the best things in life are free, but are they really? Ask any parent!

And then you have the reason why I went into financial planning in the first place, which was to help people save but make sure they lived every day like it’s their last. The F.I.R.E movement advocates not living at all until you can stop work and even then being incredibly frugal.  I know how that can end up, I even wrote a blog about it

What Next – Retire Early?

So, if you’re planning to retire early, you’ll need some help. A holistic financial planner will work with you through the Four Stages of financial planning.

  1. They’ll help you understand what you’re trying to achieve, early retirement yes, but you’re likely to be retired for 40 years or more so what are you planning to do with your time (Countdown gets tedious after a while)?
  2. Then they’ll help you work out how much your retirement will cost and make a plan.
  3. With their knowledge of tax, pensions, and investments they will recommend the best solution for your needs and finally
  4. Meet with you annually to make sure your plan stays on track.  

If you’d like to retire early 4 Financial Planning offers a free financial review. You can book a free initial consultation here

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