‘I tried the Fire method to retire early – my advice is don’t bother’
Would you give up your social life and embrace extreme frugality in exchange for an early retirement? What sacrifices would you make to achieve complete financial freedom in your 40s or 50s?
For those in the “financial independence retire early” (Fire) movement, living a hair-shirted existence in the pursuit of saving as much money as possible is a sacrifice worth making.
Fire started in the early 1990s, and promises followers an early escape from the rat race by drastically changing their spending and saving habits. Many Fire followers commit to extreme lifestyle cutbacks so they can save between 50pc and 75pc (or more) of their income each year. This is typically invested passively in index funds or exchange traded funds.
The aim is to save enough to retire – typically 25 or 30 times your annual expenses – and live off a 4pc drawdown from the investments, which can be adjusted in line with inflation, known as the 4pc rule.
The internet is awash with inspiring Fire stories. One user, a 25-year-old software developer, recently posted in the Reddit group FireUK explaining how he had just hit a £100,000 savings milestone, across Isas, crypto and pensions. He explained his approach is to “shovel as much money as possible into Global All Cap, prioritising Isa over pension for now”. Another, a 37-year-old man with a £1m savings goal, posted about being a third of the way there with assets of £333,000.
But many people who have attempted Fire say it is not worth the sacrifices, or it’s impossible to make work.
James Beckett quickly realised Fire was stopping him doing things he loved. The lifestyle became appealing to Beckett, 33, when he started his first graduate job in marketing for a consumer finance company. Because he found the work and culture “corporate, sanitised and demoralising”, he was after an early way out.
However, his graduate salary wasn’t enough to pursue extreme saving, so he didn’t start the method until his late 20s, following a new job and a pay rise.
Beckett says he was never one of those who saves 80pc of their salary and forgoes any enjoyment whatsoever. But for the next four years, Beckett, who still works in marketing, tried to save 15-20pc of his income. He stashed £1,500 each month in his workplace pension and put the maximum £20,000 in a stocks and shares Isa each year.
His end goal was to build a pot of over £1m to allow him to retire in his mid-40s, with around £30,000 in annual income, based on the 4pc rule.
Beckett, who lives in Hertfordshire, says he didn’t find the saving part difficult. The way he looked at it, for every £1,000 saved (plus investment growth), it was a month off his retirement date – which was very motivating.
But he quickly became aware of how much he was limiting his lifestyle and what he was missing out on. One experience he turned down was a weekend in Las Vegas for a stag do of a university friend. He says: “Travelling is one of my favourite things to do. So if I’m not travelling or spending time with my friends, it makes you question why you’re doing it. Why are you giving up the things you love?”
His philosophy shifted after reading Die with Zero, by hedge fund manager Bill Perkins. In a way, the book promotes a lifestyle opposite to Fire. Rather than “over-saving and under-living” it explores the idea of prioritising memorable experiences and enjoying your money while you’re alive.
Beckett says: “I realised I didn’t want to spend all this time saving to retire early with no purpose. It sounds nice to retire and spend all your time at the beach, but most of us would be bored after two weeks.”
Instead, he now takes three or four annual holidays to long-haul destinations, like Mexico, plus weekend trips, and ensures that he doesn’t save £20,000 in his Isa each year – and spends it instead.
He says he’s also feeling more optimistic about retirement. He plans to continue doing something he loves in later life, such as helping people with their personal finances via his website Moneystocker.com.
Recommended
How to retire early (according to the experts)
For property strategist Ian Davies, 52, the maths of Fire just do not add up.
Before lockdown he began cutting back on his spending and trying to maximise his income to retire 10 years early, with a good quality of life.
He calculated he would need £1.5m for a retirement income of £5,000 a month, through 4pc drawdown.
But even if he invested 60-70pc of his six-figure salary, he struggled to see how he would get there.
Davies, who lives in Chester, says: “It’s all very exciting on day one, when you’re dreaming of an early retirement. But then you look at the numbers. I’m a late starter to Fire, and I’ve also got a child who I may need to support at university one day.
“The UK tax system is so restrictive that even in a good year I couldn’t accelerate my savings enough. I don’t see how Fire is possible unless you were able to invest £20,000 into your Isa each year for 20 years, as soon as you start earning. But what 18-year-old is able to do that?”
Davies has since adapted his approach. He says even when he retires he would still like to work part-time and top up his pot. He has become very “minimalist” with his lifestyle, cutting back on unnecessary spending. He has not had a holiday for the past few years, which he says he doesn’t miss.
In addition, Davies has an alternative, and more tax-efficient, way of building up his retirement fund. Three years ago he became self-employed, allowing him to put over 70pc of his earnings into his pension. He then takes a £20,000 dividend, which he puts in his Isa, and pays himself a £12,570 salary.
Tom Selby, of AJ Bell, says there is one single potential ‘pro’ to a Fire lifestyle: that you may get to stop working early and enjoy more leisure time as a result. For lots of people, it’s worth the significant sacrifices.
However, he says there are also many downsides. Mr Selby says: “You need to consider how you will fill your time if you decide to retire extremely early, say age 55. If you plan to jet around the world and eat at fancy restaurants, this will cost a fair amount of money.
“If all of this money is coming from your pension pot, there is a risk it will run out early, potentially leaving you struggling to make ends meet when you get older.”
On the other hand, he says, if an early retirement means you have to continue living an ultra-restrictive lifestyle, following extreme frugality in your youth, you should ask yourself if it is really worth it.
Recommended
How much to save for retirement – according to your lifestyle
