How To Retire Early?

“Life is a race, if you don't run fast someone will crush you and pass you.” We joke about this line from 3 idiots. Despite this, many of us still find ourselves in this rat race, prioritizing a stable salary over our dreams and aspirations.

What if there was way where you could plan your earning that you can retire early? Being able to live a life that you truly desire, without constantly worrying about financial stability.

This kind of thought gave the fruit to a movement called Financial Independence, Retire Early abbreviated as FIRE. It aims to challenge the conventional social structure of retirement and encourage to pursue people’s actual interests with financial independence.



What is FIRE?

Education-Employment-Marriage-Parenting-Retirement. This is the usual timeline and after retirement you try to enjoy a calm life, that is if you are not stricken with illness. Why should you wait that long to enjoy your time here?

It started in 1992 based on the term used in the book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. The FIRE movement aspirants hope to build on a solid financial footing so they can leave their jobs early and live the life they want. Though it gives of an idea of making as much money as you can and taking a step back, it's not. It's about understanding your priorities in life and setting financial goals to accomplish your personal objectives.

Types of FIRE

There are mainly 3 types of FIREs based on the lifestyle:

• Fat FIRE: how to achieve FIRE goals without reducing their current lifestyle spending is the objective of this FIRE type. For this high-salaried job, aggressive investment strategies are required.
• Lean FIRE: these individuals try to spend much less and promote extreme savings of up to 70%.
• Barista FIRE: people who are between the above 2 categories are Baristas. That is, they want to live their life a bit and at the same time reduce their expenses as well. They usually utilise the benefits of part-time and the rest are put into savings.
• Coast FIRE: when you have saved enough to stop contributing to retirement savings and investments grow to meet your goals by retirement age is denoted here.

How do I estimate how much I have to save to achieve FIRE?

There are 2 thumb rules for calculating the amount required for your retirement. The first one is the 25X rule which is multiplying your annual expenses by 25 to estimate how should be in your bank to put in your retirement papers. If your annual expense is Rs. 3 Lakhs, then Rs. 75 Lakhs is your target amount.

Back in 1994, William Bengen introduced the 4% rule, which is another helpful guideline for those planning an early retirement. This rule recommends withdrawing 4% of your investment portfolio each year during retirement, without exhausting your savings. If your investment portfolio is worth Rs.10 lakhs, you can withdraw Rs.40,000 in the first year. Subsequently, the withdrawal amount will be adjusted to inflation in the ensuing years.Both of the rules are meant to be guidelines to achieve the financial freedom the followers of FIRE are aspiring for.

Why FIRE?

• People do not want to be on the 9-5 schedule and want to see the world without the fear of money pulling them back.
• No need to stick with a job you are not fit for or have any interest in for the sake of making the money. You can do whatever you want such as running NGOs, helping people, or simply doing nothing.
• One can pursue whatever one wants to do. Do you want to study psychology? You can do it. Do you want to go just fishing? You can. FIRE helps in setting people to find their path.

Why not FIRE?

• Maybe retirement is not for you. You need something to keep you going away from the boredom of the quiet life.
• Too many calculations. The goals can be achieved only through careful planning and execution of the person and achieving the same within the period. Mistake in estimation could increase your retirement age.
• Unexpected health issues or market issues can destroy the plans created and you may have to work again for the money.

In short FIRE is a way of achieving what everyone is trying to do; financial independence. While most workers strive to meet their needs and save for the future, FIRE aspirants save extensively to pack the bags early. But its not just about the money to enjoy the life, its about enjoying the time in this small time as much as you can and doing whatever you wanted. And for that, money is really helpful.