Financial Focus®: Is the FIRE movement a fit for you? What early retirement really requires

The appeal is easy to understand: leaving the 9-to-5 years ahead of schedule and living life on your own terms. You may have heard of the FIRE movement, but what does it actually mean, and does it deliver on the excitement around it?

FIRE stands for Financial Independence, Retire Early. Some people who follow it are focused on stopping work early, while others want enough financial independence to give themselves more choice over their careers, lifestyles and future plans.

Whatever side of that spectrum you fall on, FIRE usually rests on three core habits: saving heavily, living frugally and investing consistently. Advocates often aim to save 50% to 75% of their annual income, according to CNBC Select, while keeping spending low and putting those savings to work for long-term growth.

Why FIRE appeals to some people

• It can help clarify priorities. You may want a long and rewarding career, but you may instead value retiring sooner or choosing a path that gives you more time with family, more meaningful work or a break from your current routine.
• It reinforces solid money habits. Living within your means, saving toward your goals and investing for long-term growth can build a strong financial base.
• It encourages future planning. Reaching a retirement goal can be easier when you know what you want retirement to look like and have a plan to get there.

Things to think about before pursuing FIRE

• Your budget may not stay the same. Future costs may differ from current ones. Family responsibilities, emergencies and other life changes can raise the amount you need in early retirement.
• You may need to fill the retirement-benefit gap. Medicare helps cover many healthcare costs for retirees age 65 and older, but early retirees must find and pay for health insurance until they qualify. They may also need to rely more on personal savings for a longer period before claiming Social Security. Because Social Security benefits are generally based on your highest 35 earning years, leaving work early can lead to a smaller benefit than continuing to work.
• Your flexibility may be reduced. Market downturns can be especially difficult in retirement. Cutting spending is one way to respond, but a lean budget with more fixed necessities may leave less room to adjust.
• Your plan should be tailored to you. Many FIRE supporters point to rules of thumb such as the 4% withdrawal rate and saving 25 times annual expenses. But retiring earlier than usual means your savings must last longer, and inflation can have a bigger effect. That means your withdrawal rate may need to be lower and your savings target higher than traditional guidelines suggest, with goals customized to your own situation.

Begin planning now

Whether your goal is early retirement or a more traditional career path, a financial advisor can help you build a plan for your objectives and the road ahead.

This article was written by Edward Jones for use by Edward Jones Financial Advisor, Garrett Stramel. Member SIPC