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FIRE: is it really possible to retire at 40?

FIRE: is it really possible to retire at 40?
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Would you like to retire at 40 and never work again? Sounds tempting, doesn’t it?! That’s the promise of the Financial Independence Retire Early (FIRE) movement.

But is it really possible to retire at 40? Here, I challenge some of the assumptions of the FIRE movement. And I explain why I won’t be buying a camper van any time soon and driving off into the sunset!

What is FIRE?

FIRE is an extreme budgeting method that is popular on social media. There are several popular books on the topic like Your money or your life and The simple path to wealth. There are some small differences, but here’s what most followers of the FIRE movement suggest:

  • Live extremely frugally by spending as little as possible.
  • Aim to save around 70% of your take-home pay.
  • Invest your savings in stocks or property.
  • Build up investments of around £700k.
  • Retire extremely early, maybe in your 30s or 40s.
  • Live on your investment pot by withdrawing 3%-4% every year.

What are the problems with FIRE?

I think that this extreme budgeting method is deeply flawed. It makes saving and investing seem out of reach. Here’s what I think are the main problems with the FIRE movement:

  • Saving 70% of your income is completely unrealistic for most people. Someone earning £30k would have to live on £600 per month. That doesn’t even cover most people’s rent in the UK.
  • Growing your investments to £700k is based on unrealistic assumptions. Your money probably won’t grow enough, even if you’ve managed to save 70% of your take-home pay. For example, if you earn £30k and manage to save 70% of your take-home pay from the age of 20, it would only grow to £546k by the time you reach 40, according to the Pensionbee calculator. (That’s assuming contributions of £1,400 per month and £250 employer contributions.)
  • You can’t take your pension before you’re 55 years old in the UK. That means if you want to retire early, then you need to think of other investment options like ISAs and property.
  • Living on a £700k investment pot is not enough. If you withdrew 3% per year, that would give you £21k to live on. Added to this, you wouldn’t get the full State Pension when you reach 65 as you wouldn’t have enough years of National Insurance contributions. It’s hardly a dream retirement income!

What is the alternative to FIRE?

So, is there an alternative to FIRE? Is there a more balanced and realistic approach to saving for retirement? Here are my top tips:

  • Join your employer’s pension scheme. They will usually match your contributions and there are also many tax benefits.
  • Start paying into your pension as early as possible. This will ensure your investments have longer to grow and make a good return.
  • Aim to contribute half of your age to your pension. That means that if you start a pension when you’re 20 you should contribute 10% of your income, 15% if you wait until you’re 30 and 20% if you’re 40.
  • If you’ve fallen behind with contributions, then don’t panic. There are lots of ways you can boost your retirement income and start saving more. Read our tips on what to do if you’ve not got enough in your pension at the age of 40 or by the time you reach 60.

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