In case you haven’t heard there is an emerging trend which is steadily gaining global attention, the FIRE lifestyle. Simply put, this is when someone works out a regime that enables them to become financially independent such that they retire early. Just a first impressions look at that sounds so alluring right? However, it really isn’t as easy as it sounds. Lots of people are still watching from the side-lines trying to get wind of whether or not it’s a worthy undertaking. I’m obviously not surprised that many people are still sceptical about it. If you look at it from a holistic perspective it’s in many ways a gamble & is riddled with so much uncertainty. Let’s unpack some issues here:
What Is Financial Independence?
Financial independence denotes the state of earning income (coupled with savings) that far outweighs your total expenses – that’s the crux. Generally, it’s said that you assume the title of being ‘financially independent’ if your net-worth becomes at least 25 times more than your total expenses in a whole year.
What It Takes To Attain It
Frugality is the code name; extreme cost-cutting & delayed gratification becomes your mainstay to get there. So whatever methodology you employ, the ‘suffer now & enjoy later’ mantra will be your daily devotion. This will call on you to have an elaborate plan & see it through with all the determination you can muster. Ultimately the thrust will be to build up formidable savings. Also in that phase you’ll need to institute long term passive income-generating initiatives that will continue to passively generate you money well after you have retired. Some people emphasize that the hallmark of passive income-generating initiatives is premised on acquiring assets. Saving for early retirement takes longer if it’s based on a salary alone. Therefore you’ll need to have multiple streams of income in order to shorten the savings duration needed for you to become financially independent.
What Retiring Early Entails
Retiring early implies that you strip yourself of the basic benefits you get when formally employed e.g. medical cover, social security, pension etc. Bear in mind that making early claims to such things as social security or pension means there might be penalties incurred. So this implies that retiring early makes you wholly & directly responsible for a lot of bills – lots of people are particularly concerned about the health cover (i.e. how will one manage it since health issues tend to gobble up lots of money). Plus once you are off formal employment it’s generally difficult to get competitive health insurance policies. Retiring early also means that you might have to be in a position to cater for children’s school expenses whilst out of a job. These are all things you should ponder on if you ever decide to go down this FIRE path.
To circumvent this some people suggest signing up for low-cost health insurance policies, so long the premiums expense fits into your projections – I’ll talk about projections in a moment. With regards to children, there is a couple who are on FIRE who say that they had to enrol their children at low-cost public schools and they encourage them to work during school vacations to earn some money.
How Do You Make Projections?
Remember for you to be able to pursue the FIRE lifestyle your savings & investments combo must exceed the total income you would receive had you remained employed. So you must save, that’s a given – but how do you determine how much you have to save? You use what is called the 4% rule. Here is how you do it: you determine the total all-inclusive money you spend in a year then you multiply that by the number of years you project to live retired. Once you get that total, you’ll then ensure that you spent 4% of that every year (assumption here is that your retirement duration will be 25 years). This will offset some years from your initial retirement duration projection (if your retirement duration is more than 25 years) – these you can compensate for by adding mark-ups to your subsequent savings premiums.
The total you get from multiplying total annual expenses by projected retirement years gives you a benchmark upon which you’ll decide how many years you want to take in building those savings. When calculating your periodic savings premiums from that total it’s also wiser to add an incidentals mark-up on top (remember inflation can kick in). Note: if you are stingy in these projections it will limit you once you are retired because you’ll be forced to live a life that conforms to those prior projections. Also remember that the 4% rule is a generally adopted standard; that doesn’t stop you from changing the percentage to suit your own context.
How Attainable Is This In Zimbabwe?
Quite frankly the FIRE lifestyle in Zimbabwe is a long shot given the ailing economy and the absence of our own currency. If you are enterprising enough you could but it’s not going to be easy. Besides, Zimbabweans seem so accustomed to working so much that retiring early is something many don’t even contemplate. Lots of would-be pensioners are still employed & totally at peace with it. What’s your take? Comment in the comments below.
At the end of the day you have to objectively look at whether or not it’s worth it. I think the idea of retiring early sounds tempting but is it really worth it? I know of people whose health drastically deteriorated even to the point of death owing to adverse reactions to leading a less active life after retirement. The other question is, is delayed gratification really worth it? Especially considering that one might never live to enjoy what they spent some time sacrificing for due to unforeseen circumstances. Would you aim for a FIRE lifestyle?