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Financial Independence Retire Early

FIRE- 5 Steps to Get Financial Independence Retire Early

We often work for most of our lives, yearning to retire one day and eventually live the way we aspire to. But by the time we reach our conventional retirement age, we are left with dissipating energy and health, trapped in a cobweb of responsibilities. So, planning for retirement in terms of wealth and health is significant in leading a desirable post-work life. However, the timing to retire is paramount; if you are too old to enjoy your ambitions, what's the point? 

This is why, these days, many are considering early retirement to be able to truly live life when and how they desire. This presents an opportunity to reclaim our valuable time and invest it in personal activities and experiences that may have been pushed aside owing to professional duties. It allows us to prioritise our health, relationships, and personal development, resulting in a more balanced and meaningful existence. In fact, early retirement planning gives you the opportunity to explore entrepreneurial ventures, volunteer, or engage in activities that offer you joy and satisfaction.

What is FIRE (Financial Independence, Retire Early)?

The FIRE (financial independence, retire early) movement is gaining hold around the world, notably in India, as people want to break the pattern and retire before the conventional retirement age. FIRE encourages people to start saving money now and live a conservative lifestyle so that they can retire as early as 40. While it may look radical, the idea is simple: by saving and investing wisely, you may achieve financial independence much sooner than the average retirement age. 

This idea may have originated elsewhere, but it gained popularity after the publication of "Your Money Your Life" by Vicki Robin and Joe Dominguez. The FIRE movement offers an alternative path to early retirement in India, where the typical retirement age is sixty. It motivates people to reevaluate their spending patterns and place a higher value on financial independence, enabling them to retire early and fully enjoy life. Therefore, although FIRE was founded in the United States, its principles are worldwide and can inspire and give hope to everyone looking for an early and peaceful retirement.

What are the five key steps in achieving FIRE?

Here are a few key retiring early strategies for achieving FIRE (Financial Independence, Retire Early):

  1. Save Smart:

    To retire comfortably by 40, you typically need to save a hefty chunk of your income—around 50-70%. It sounds harsh, but by prioritising saving over spending and adapting long-term wealth management, you can rapidly build up wealth to support your desired lifestyle without relying on a traditional job. You can attain financial independence by maintaining a good balance of savings and investments.
  2. Live Wisely:

    The FIRE movement encourages modest living, trimming unnecessary expenses, and finding ways to boost income. Starting early, staying consistent, and choosing smart investment options are ways to head in the right direction. It's important to have a debt-free lifestyle, insurance coverage, and an emergency fund to prevent dipping into your retirement savings prematurely.
  3. Invest for Growth:

    Investing a significant portion of your income is key to FIRE success. Equity mutual funds offer long-term wealth-building potential. Even a small investment over time can grow substantially, especially when using tools like SIPs (Systematic Investment Plans) for consistency and ease. Even a small SIP of just Rs 10,000, invested 25 years ago, would now have built a corpus of Rs 1.88 crore. (Assuming investment in Equity Fund and an average return of 12.64% p.a. as per AMFI Best Practices. Guidelines Circular No. 135/BP/109/2023-24 dated November 01, 2023.) You can also apply tax-efficient strategies to your portfolio by investing in ELSS funds and the like.
  4. Calculate Your Retirement Needs:

    The "rule of 25" helps estimate your retirement corpus. Multiply your annual expenses at retirement by 25 to determine the amount needed. For example, if your current age is 25 and you spend Rs. 50,000 monthly, considering 6% inflation and a retirement age of 50, you'd need around Rs 6 crore to retire comfortably. This will be the basis of your asset allocation and diversification approach and strategy to get the best of it all.
  5. Withdraw Wisely:

    Once you've built your nest egg, withdrawing wisely is crucial. An SWP (Systematic Withdrawal Plan) can provide regular cash flow while allowing your remaining funds to grow. Since early retirement means more years without a job, withdrawing only 4-6% annually helps ensure financial security over the long haul.

Thus, whether you aspire to retire at 40, 50, or 55, achieving FIRE means having more retirement years. Tailor your FIRE plan to your situation. If your income is low, saving 50% might be challenging, but with a higher income, you can save more easily. Start saving and investing early in your career when responsibilities are less. As you progress, adjust your savings and investments to match your growing income and responsibilities.