What is the Financial Independence and Retire Early (FIRE) Movement?

A new social movement is seeing many young Australians approaching the concept of retirement a little differently – but what is the Financial Independence and Retire Early (FIRE) movement?

For some Australians, retirement can be a daunting prospect. According to the Australian Seniors Insurance Agency, 69% of us feel anxious about what that stage of our lives might hold.

A similar report in 2017 from super provider MLC found that more than half of Australians don’t think they’ll have enough money to retire on.

While funding a comfortable retirement may be a worry for some, a wave of young Australians is taking a different view on what retirement could mean – and when. They’re turning to the FIRE ideology – Financial Independence, Retire Early movement.

What is the FIRE movement?

Financial Independence, Retire Early essentially boils down to the desire to live more frugally and make your money work harder for you, in order to be able to retire from the full-time workforce as soon as possible. FIRE devotees believe that if your assets generate enough income for you to live off, then you would no longer need to work.

The FIRE movement is essentially a way of life that started in the US and is followed largely by millennials, according to survey from the financial independence Reddit page  (US only). It was largely popularised by US blogger Peter Adeney, AKA Mr Money Mustache, a former software engineer who retired at 30 (yes, 30). Through regular updates on his blog, he claims to be mortgage-free with over $600,000 US invested in index funds. He insists he’s no cheapskate by any means, and instead follows a simple approach: he lives a lifestyle that’s roughly 50% less expensive than his friends and peers and invests the surplus in index funds and rental properties.

His methods, and those of other FIRE enthusiasts, might include things like:

  • Devoting half of your take-home pay (while still working) to your early retirement fund
  • Not spending unnecessary money on your social life (while still having one)
  • Only shopping for the necessities
  • Traveling frugally

According to advocates, the FIRE movement doesn’t necessarily mean you would never work after a certain age, although some people might choose to see it this way. Instead, the main focus for many is the first part: financial independence. Being financially secure enough that you don’t have to work, but do because you want to, is the goal for many. The work doesn’t have to be paid either – many FIRE ‘retirees’ like Mr Mustache himself claim to have devoted their early retirement to charity work, while others choose to stay at their job on a part-time basis or start freelancing.

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FIRE in Australia

The FIRE movement is also beginning to take off in Australia. Many FIRE bloggers and podcasters have sprung up over the last year or so, and the financial independence Australia Reddit page (similar to the US one mentioned above) is closing in on 10,000 subscribers. Here, Aussie FIRE enthusiasts can share their stories, give tips, celebrate successes and mourn failures. It’s generally an open forum where people can discuss their money matters and get ideas from others.

But what about superannuation?

Australia has one of the best retirement systems in the world, according to Mercer’s Global Pension Index, where we rank below only Denmark and the Netherlands. Our compulsory superannuation contribution guarantee of 9.5% of ordinary earnings for most workers is designed to provide those on a steady income with a nest egg for when they say goodbye to the 9-5 (or shift work!).

However, our current rules on withdrawing super – known as the preservation age – mean generally you can’t withdraw from your super until you’re at least 55, barring special circumstances. This obviously isn’t ideal for someone who plans to retire in their 30s, so what do FIRE devotees do with their super?

One popular FIRE blogger Pat The Shuffler claims to not factor superannuation into his progress tracker, as he believes the rules regarding super may well change in the future. According to the blogger, he still plans to have over $100,000 in super by the time he retires in his 30s, but says his main source of income will be his personal investments.

For Australians, one of the main ways to provide for retirement is your superannuation. The table below displays a snapshot of 5-Star super funds rated by Canstar, sorted by provider name (a-z). The Star Ratings are based on a super balance between $100,000 and $250,000 for a 30-39 year old. 

What does our expert say?

If you’ve made it this far, you might be thinking ‘wow, maybe I should retire early’. While that might be possible for some, it won’t be for everyone.

Canstar’s Josh Callaghan, General Manager of Wealth, said the FIRE movement was ‘inspiring’ in the way it encouraged people to cut down on their expenses and optimise their wealth creation, but urged people to weigh up whether it’s the right approach for them.

“There is no shortage of niche movements that capture the attention of people across the world and inspire them towards a higher way of living, and like most of these movements, FIRE is grounded in principles which we can all learn from,” Mr Callaghan said.

“For many of us, the most effective way to make more money is simply to spend less, as our lifestyle costs can grow along with our incomes. Cutting back on discretionary spending and putting it away into broad-based exchange-traded funds is one of the approaches I hope all our readers are challenged to consider.

“Financial independence, or what I would term ‘financial margin’ is exactly the point of building your wealth. Retiring early could be the ultimate goal for some people but may not be everything it’s cracked up to be once you have arrived at your destination.

“Financial margin is about providing yourself with options such as working less if you wish, starting your own business or, should you lose your job, having the financial stability to wait out for your next great job.”

Josh’s advice:  Find happiness in what you’re doing because if you can’t find it today, you won’t necessarily find it in retirement. 

 

Ultimately, the decision whether to become more frugal in order to retire early is one only you can make. Some people prefer to spend their leftover money on things that make them happy, while others value the sense of purpose that working provides. No matter what your goal is, you can read about all things investment at Investor Hub, and can also compare super and investment products with Canstar.

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