Ever dreamed of retiring in your 40s? With more and more women saying that Financial Independence, Retire Early (FIRE) is the way to do it, Stylist investigates just how accessible the movement really is.
Giving up work and travelling the world is something most people would do if they won the lottery. But according to those who follow FIRE, or “financial independence, retire early,” a financial freedom movement that was popularised in the US over the last two decades but has been gaining traction in the UK, it doesn’t have to be a pipedream at all.
Considering with Age UK’s warning that the retirement age will reach 67 by 2028 and is likely to keep increasing, it’s no wonder that so many of us are looking for ways to avoid the fate of working harder for longer.
But is FIRE, with its promise of liberation from salaries and daily work, really the answer?
In an economic climate where job insecurity is high and many have had to use whatever savings they possessed for survival throughout the pandemic, can this method actually work for the everyday person?
The FIRE philosophy is to save and invest to such an extent that you can retire far earlier than is the tradition, Emma-Lou Montgomery, associate director for personal investing at Fidelity International, tells Stylist.
“However, the idea of ‘retiring early’ is less about transitioning into a traditional view of retirement, and more about reframing it – ensuring you’re financially independent to make the choices that are right for you, such as being free to choose not to work for a period of time.”
“On paper,” she continues, “it’s quite simple: you save and invest as much as you possibly can, from as early as possible. In reality, it takes a lot of sacrifice.”
How do you achieve FIRE?
Montgomery explains that the FIRE rule of thumb is that you need a pot of money worth 25 times your basic outgoings. That means, if say, you need £25,000 a year to live off of, inclusive of housing, food and clothing costs, then you need a pot worth £625,000. That would enable you to take out 4% a year (the £25,000 you need to live off) and leave the rest invested and continuing to grow.
That’s an eye-watering amount of money that most of us could only ever dream of having stashed away, and begs the question of just how accessible this method is.
While in an ideal situation, we’d all live well below our means and squirrel away the rest in high-yield savings accounts and stock portfolios, that isn’t the reality for most people.
How can you retire early with FIRE?
Rochelle Warries, a 42-year-old accountant from South Africa, has been practising FIRE for over 15 years. “I’ve always been an avid saver,” she tells Stylist. “I come from a family that is not very well off, so since I started working I’ve always saved a percentage of my salary. I also knew early on that I didn’t want to work until I was 65.”
Rochelle began her FIRE journey by saving 10% of her salary as a trainee accountant. Now, she says, she puts away up to 55% of her salary every month, which she then invests to create a passive income stream.
It is because of FIRE and practicing extreme saving alongside clever investments that Rochelle says she is on track to both pay off her mortgage and retire before she is 45.
However, she admits that it can feel like a very lonely journey sometimes. “People think that you are depriving yourself or that you are not living your best life, which is totally untrue for me.”
In its simplest form, FIRE is about living with less in the now so that you can have more later. “It’s about sacrificing the things you don’t need, the luxuries,” she says. “It’s just about making certain adjustments to your lifestyle.”
This all sounds idyllic in theory, but what about in practice? Surely practising FIRE means saying no to plans, never eating out and tracking every single penny that leaves your account?
Rochelle insists that this isn’t the case. “What I tell people is I must plan for things. I might be able to afford a night out or a trip, but if I haven’t planned for it and put it in my budget, I’m not doing it. It’s about staying consistent and planning your finances, not stinginess.”
This isn’t a position she takes for granted. “I’ve been building this for a long time, and made a habit out of not living on my full salary – and it paid off. It actually took a pandemic for me to realise that I wasn’t crazy for doing this.” During lockdown, Rochelle’s salary was cut by 40%, and she says that it is because of practising FIRE that she was able to survive. Alongside her already frugal lifestyle, she cut back her monthly investments and sold her car.
“It made me realise that no job is secure, no matter how qualified you are, no matter which industry you are in. So you have to take your own financial freedom and security into your own hands in whatever way you can,” she stresses.
Can FIRE really help women gain financial independence?
“Where FIRE can help women is by showing them just how achievable some form of financial independence can be,” says Montgomery. “For example, increasing your contributions by just a small amount monthly can have a significant impact on your pension pot down the line. As our Global Women and Money study found, even contributing an extra 1% of your salary into your pension each month can help close the gender pension gap.”
For Rochelle, the motivation isn’t just financial, but personal. “I want to be able to travel and have more freedom, but my daughter is one of the biggest reasons I’ve stuck to this hard journey. It’s been difficult because you want to give your child everything, but there is a massive part of my salary that I’m saving or sacrificing, which affects her too.”
How to get started with FIRE
Montgomery admits that the FIRE movement is an extreme approach to saving, involving significant sacrifice that may only be realistic for a minority to follow wholeheartedly. However, she says, it does offer some principles that might prove useful more broadly and can help people develop a springboard towards their own version of ‘financial independence’.
“You need to be able to save between 25% and 50% of your take-home pay to be able to retire in less than, say, 20 years. And just bear in mind that you still have to have somewhere to live, food to eat and clothes on your back while you’re living, working and saving. This is not for the faint-hearted.”
“It might not be for everyone, but it does show how with some careful planning and diligent saving, it’s possible to establish a comfortable investment pot,” she adds.
Of course, the more you are able to put in, the more rewards you can reap later, but according to Rochelle, you don’t have to earn a hefty salary to practise FIRE.
“I originally got involved with FIRE after seeing it on Facebook and in some investing groups. It’s the community aspect and being able to share tips and experiences that really helps.” She has even published an ebook about her own experiences with FIRE and how to maximise it, which has sold over 120 copies to other curious savers.
“Regardless of how much money you have, the rules apply. Live as much within your means as you possibly can. If you have any “bad debt,” which is any money you owe for something that isn’t an asset or education, try and get out of it as soon as you can. Put off investing money until you can clear that debt. If you can’t afford it, go without it,” she adds.
Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.