'FIRE': what we can learn from this new movement in millennial retirement planning

'FIRE': what we can learn from this new movement in millennial retirement planning

Humankind's discovery of controlling fire has long been accepted as the decisive moment in our evolution, as it cultivated changes in diet, behaviour, hunting, and increases in productivity.


We are now seeing a different type of FIRE creating a turning point in retirement planning for younger generations. 

What is FIRE?

FIRE is a trending acronym that represents a new set of investment goals for young investors - Financial Independence, Retire Early. 

Financial Independence means no longer needing a full time salary to live comfortably. 

Retire Early means– as the name suggests simply means ceasing your full time career at a younger age.. The concept being the sooner - and the more - you start to invest the earlier you could be able to end your daily commute. 

Can millennials realistically achieve FIRE?

This seems like quite a simple philosophy and one that everyone should buy into. However, there are quite a few critics questioning how this works for young professionals who have student loan debts, stagnant wages, and are balancing the higher cost of living and different life choices. 

And that's before you mention that the earnings gap between millennials and older workers continues to grow.  A 2017 report from nonprofit advocacy group the Young Invincibles, compared the wages of a young adult in 1989 to young adults of the same age and education in 2013 and found that there was a 20% decrease in wages.

They also found student loan have increased by three times, during the same time period with average loans in 1989 being in the amount of $8,484 to over $25, 000 in 2013.

For young people, having the extra income to save and invest is challenging.

There is also the question about whether you would want to retire early. Careers for employees entering the jobs market today may be very different. Much has been made of the "100-year life", the notion that millennials may have multiple careers within their long working lives. 

So is the FIRE movement a bit out of touch with the fast-moving expectations of younger workers?

Like a lot of theories and advice, it is based a bit too much on an idealistic best-case scenario. However, that does not mean there aren't things to learn and best practices to integrate into your current retirement planning.

I personally believe millennials should focus on the Financial Independence aspect, and aim to reach that sooner. This is not to just Retire Early, but to avoid the financial uncertainty of the future. Achieving Financial Independence earlier can unlock the true potential of a multi-career life -  to pursue a second career, start a business, or work part time.

Six tips to help you achieve FIRE

Here are some common components of FIRE that millennials could use to achieve their saving and investing goals.

1. Avoid lifestyle inflation

Try to maintain living off a smaller budget, say your university or post-graduate budget, and you may be able to save or invest the difference. You have spent years living on less, so why inflate that budget just because you have a bigger income? 

2. 'Pay your future self' strategy

One way to ease the pain of saving is to think of it as paying your future self. So when your pay arrives, siphon a little off before you start to spend on your discretionary expenses.

3. Do not become house poor

Always pay attention to your fixed monthly housing costs. It is recommended that you do not pass a certain percentage threshold of your housing costs compared to your overall income. A common suggestion is that your monthly housing costs should not exceed 30% of your income. 

4. Consider investing 

Saving your money is a good start, but it's also worth thinking about where you put it. If you can afford to lock some of it up for long periods (more than five years and ideally for more than 10) then you might consider investing. Markets can be volatile but over longer periods, there's a better chance that the ups and downs can be smoothed out. As we've already explained on MoneyLens, compounding interest can be an incredibly powerful tool that can jump start your retirement pot. Remember that with investing, your money can go down as well as up and you may not get back the original amount invested.

5. Understand your pension

Whether it is employer matching or tax breaks, chances are your employer has some type of retirement benefit that can help you reach your goals quicker. Understand your options and take advantage of any benefits that can increase the savings power of your pound.

6. Continue to read MoneyLens :)

We are always thinking about how to help our peers continue to save and learn the ins and outs of the investment world. Here's some more links that might help...

Why some Millennials are choosing to rent the American Dream

Why some Millennials are choosing to rent the American Dream

 What millennials want from the workplace

What millennials want from the workplace