What is the FIRE movement? (Financial Independence, Retire Early)

What is FIRE?

Financial Independence, Retire Early is a movement where people reduce their expenses, thereby dramatically increasing savings rates and investments allowing them to retire much earlier than the traditional retirement age of around 60.

This movement was born out of a book in the US, written way back in 1992 called Your Money Your Life by Vicki Robin and Joe Dominguez. The core thought is centered around a concept called the safe withdrawal rate.

Safe Withdrawal Rate

The concept of Safe Withdrawal Rate or SWR states that if you can live off 4% withdrawal from your investment corpus, then you have achieved the coveted Financial Independence status. For e.g. You have saved up a corpus of 1 Cr, 4% of that would mean 4 lakhs. If your annual expenses are 4 lakhs, then technically you have achieved FIRE.

What is the right safe withdrawal rate in India?

The core concept of SWR doesn’t change as long as you are comfortable with the withdrawal rate. Some may prefer to keep an extra buffer and may want to have an even lower SWR to give themselves mental comfort. They may look at for e.g. 2% SWR. In the example shared earlier, this would mean you would need to save up a corpus of 2 Cr. At a SWR of 2% that would mean 4 lakhs.

How you invest your portfolio is also equally important?

SWR however isn’t the only thing that matters. What also matters is the way the corpus is invested. Some FIRE retirees have an extremely high emergency fund. They tend to save up to 2 years of expenses in low risk liquid funds that are easily accessible. So that in case of market shocks like the ongoing COVID19, they don’t have to touch the mutual funds portion of their corpus. This way when the market goes down, they don’t have to touch the equity portion of their portfolio.

Is FIRE right for you?

While almost all of you may agree on the financial independence part, not everyone may be up for the RE part of Retire early. And that’s Ok! Retire early could mean different things to different people, for some it may be lazing away their days on a beach or at home. For some others, it could mean taking up the hobby you were pursuing full time, work for a company which has more meaningful work but might pay less. As you can see the end output of FIRE is personal. What drives you may not excite the other person. However most of us can agree that Financial Independence portion of the FIRE is worthwhile to pursue.

Read the next post in the series here