Here Is Why Extreme Saving Strategies To Retire Early Are A Bad Move
16 Oct 2019
Approx Reading time: 3 minutes
There is a growing trend among millennials that entails extreme savings so that the can retire early. Millennials are calling the new trend FIRE which means “Financial Independence Retire Early.” This is an interesting personal finance tool that will help someone to save so that they can retire at 30.
Save up to 75% and retire early
The FIRE movement members save up to 75% of their yearly income so that they can realize the dream of retiring at 30. Followers emphasize on cutting down their daily expenses so that they can save as much as possible. This is a growing trend among millennials who are increasingly becoming frustrated with high-stress and demanding jobs. However, there are concerns as to whether this is the right strategy considering how challenging it is to follow.
According to Jonathan Hoenig, the Capitalist Pig Founder saving is very important for young people. However, he feels that it is ridiculous for the young people to think of retiring at a young age. Hoenig affirms that working is something valuable so is productivity which ultimately brings about spiritual fulfillment.
FIRE movement steps include cut expenses, save and retire
There are fundamentally three stages of following the FIRE movement. The process includes substantially reducing your expenses and saving around three-quarters of your annual income. After saving around 25 times to 40 times your yearly expenses then you can retire regardless of how old you are.
The inspiration for the FIRE movement is Joe Dominguez and Vicki Robin's Book "Your Money or Your Life.” Published in 1992, the author of the book who is in her 70s but has not worked a single day since she was 20. Speaking to New York Times Robin said that the book aimed to have a low consumption world.
There are two levels of saving in the FIRE movement which include fatFIRE and leanFIRE. Followers of leanFIRE live economically and retire within the shortest time possible. FatFIRE followers can spend more than an average early retiree.
According to The New York Post, the FIRE movement has some negative impacts on the lives of followers. It can lead to misunderstanding from family and relatives regarding the motivation of the saving. Others can sometimes struggle to follow
FIRE not a sound investment strategy
Fox Business’ Kristina Partsinevelos has been critical of FIRE from an investment perspective. She argues that as an investment strategy this cannot work since there are varying periods when to invest and there are times of risk when one cannot make much of gains. Partsinevelos indicated that BlackRock forecasts the same and she doesn’t feel that this could be the right strategy. Saving is very important especially considering the market is very volatile currently.
The other challenge with FIRE is that it can only work for people with huge incomes. Regardless of how much someone saves on their income, it would still require a lot. In essence, you will be in the race to out-save inflation as well as the years you won't work when you retire.