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FIRE movement in Australia

Financial Independence, Retire Early (FIRE) is about saving and investing as much as you can while you’re young, so you can retire in your 30s or 40s.

What is the FIRE movement?

The Financial Independence, Retire Early (FIRE) movement is a way of life that involves setting aggressive saving and investing goals while you're young, so you can achieve financial independence and retire by your 30s or 40s (or even younger!).

The 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez popularised many of the concepts used by people who are part of this movement. The origins of the term and acronym FIRE are unknown, but the term came to embody a core premise of the book: People should evaluate every expense in terms of the number of working hours it took to pay for it.

It's an informal, international movement that's challenging the status quo of getting a mortgage, working 5 days a week for 40+ years to pay off that mortgage and then, if you're lucky, retiring at age 65.

Key takeaways

Embarking on the Financial Independence, Retire Early (FIRE) journey in Australia is a compelling pursuit, offering the promise of greater autonomy and control over one's financial future.

As we explore the key takeaways of the FIRE movement, it's essential to appreciate the nuances and consider the potential challenges that individuals might encounter on this path to financial freedom.

  • Financial independence. The cornerstone of FIRE, achieving financial independence grants individuals the freedom to design their lives according to their values. However, it's crucial to acknowledge that the road to financial independence requires a steadfast commitment and disciplined financial management.
  • Savings intensity. The FIRE philosophy often entails a high level of savings and frugality. While this approach resonates with many, it may not align with everyone's lifestyle choices. Balancing the pursuit of financial goals with present-day enjoyment requires thoughtful consideration.
  • Market volatility. Investing is a key element of FIRE strategies, and the stock market's unpredictability can impact the journey. Understanding the inherent risks and developing a resilient investment strategy is paramount to navigating the fluctuations and staying on course.
  • Long-term commitment. FIRE advocates early retirement, but the path to financial freedom is a marathon, not a sprint. Sustaining the necessary level of dedication and discipline over the extended journey can pose challenges for some individuals.
  • Healthcare and contingencies. Planning for healthcare and unexpected expenses is crucial in the FIRE landscape. Early retirees must establish robust contingency plans to address unforeseen challenges, ensuring a secure and comfortable retirement.

Finder survey: What do Australians do to prepare for retirement?

Saved money44.19%
Increased your super contributions29.13%
No - I have not taken any action28.94%
Invested in shares21.06%
Calculated how much you need for retirement18.9%
Changed super funds12.01%
Purchased an investment property9.06%
Invested in cryptocurrency5.91%
Downsized your home4.63%
Sold an investment property2.46%
Source: Finder survey by Pure Profile of 1016 Australians, December 2023

How FIRE works

Like the name suggests, FIRE can be broken down into two key steps:

  1. Achieving financial independence

  2. Retiring early

This generally involves adopting an extremely frugal lifestyle, working extra jobs and save around 50% to 75% of their annual income until they've amassed enough money to let them retire early.

The idea is that if you make these sacrifices while you're younger, by the time you're in your 30s or 40s, you'll not only be debt-free, but you'll have enough money to no longer need to work. You'll be financially free.

How to calculate your FIRE number?

4% rule

The 4% rule is a widely recognised principle within the FIRE movement that provides a guideline for determining the amount of money needed for retirement. The rule suggests that individuals can safely withdraw 4% of their retirement savings annually without depleting their nest egg prematurely. This assumes a balanced investment portfolio, considering both equity and fixed-income assets, to withstand market fluctuations over an extended retirement period.

To calculate your FIRE number using the 4% rule, determine your anticipated annual retirement expenses and multiply this figure by 0.04. The result represents the target amount you should aim to accumulate for a sustainable retirement, where the 4% annual withdrawal aligns with your financial needs.

Read more about it here.

25x rule for retirement

The 25x Rule is a straightforward method to estimate the total amount of money needed for retirement. It involves calculating the annual retirement income you intend to generate from your own savings and multiplying that figure by 25.

How to use the 25x rule:

  1. Determine your retirement budget. Decide on the annual income you require during retirement. Consider all potential sources of income, such as Social Security and pensions.
  2. Calculate the gap. Identify the amount you need to cover with your investments by subtracting other income sources from your desired budget.
  3. Apply the 25x rule. Multiply the determined gap by 25. The result is the estimated savings needed for a safe withdrawal rate.

Example of the 25x rule in action:

Let's say you plan for a retirement budget of $75,000 annually. Social Security, pensions, and other income cover $25,000, leaving a gap of $50,000. Applying the 25x Rule, you would need at least $1.25 million in savings to safely withdraw $50,000 in your first year of retirement.

This aligns with the principle of the 4% Rule, a guideline allowing a retiree to withdraw 4% of their portfolio annually without depleting it early.

Understanding the relationship between the 25x rule and the 4% rule provides a strategic perspective on retirement planning, helping you set realistic savings goals for a secure and fulfilling retirement.

How to calculate your super balance needed for a comfortable retirement?

Calculating the ideal super balance for a comfortable retirement involves considering various factors. To assist you in this process, follow these steps:

  • Assess your retirement expenses: Identify your expected expenses during retirement, including housing, healthcare, daily living costs, travel, and any other significant financial commitments.
  • Determine your desired lifestyle. Consider the lifestyle you aspire to have during retirement. This influences the amount of income you'll need to maintain your chosen standard of living.
  • Use the superannuation calculator. To simplify the calculation, you can use our superannuation calculator. This tool takes into account factors like your current super balance, contributions, expected returns, and retirement age to estimate the super balance needed for your retirement goals.
  • Evaluate your income sources. Consider all potential sources of income during retirement, such as superannuation, investments, and potential government pensions.
  • Check your progress. Regularly review your super balance and contributions to ensure you're on track to meet your retirement goals.

For more in-depth insights and a comprehensive evaluation of your retirement readiness, you can also visit our guide on do you have enough money to retire.

This guide provides valuable information to help you make informed decisions about your retirement planning.

Types of FIRE

  1. Lean FIRE:
    • Approach: Emphasises a minimalist lifestyle, focusing on essential expenses during retirement.
    • Goal: Achieving financial independence with a frugal approach, allowing for early retirement.
  2. Coast FIRE:
    • Approach: Involves saving and investing enough to stop making contributions, allowing individuals to coast into retirement by the conventional age of 65.
    • Goal: Provides financial flexibility for those who prefer a more gradual transition to retirement.
  3. Fat FIRE:
    • Approach: Envisions a luxurious and extravagant lifestyle in retirement, allowing for indulgences and high-cost activities.
    • Goal: Building a substantial nest egg to support a more opulent retirement experience.
  4. Barista FIRE:
    • Approach: Balances financial independence with the pursuit of personal interests by taking on a part-time or flexible job (like working as a barista) in retirement.
    • Goal: Enjoying early retirement while still engaging in fulfilling activities and supplementing income.

These FIRE strategies offer flexibility, catering to different preferences and lifestyle goals.

Choosing the right approach depends on individual priorities and the desired balance between financial independence and the pursuit of personal passions.

How to gain financial independence in Australia

The first step on your FIRE journey is working towards financial independence, which involves paying down your debt, setting yourself aggressive savings targets and adjusting your lifestyle to help you meet them. But perhaps the biggest change of all is the change you need to make to your mindset.

Pocket Money podcast: A FIRE expert shares his story

What are the best investment options for achieving early financial independence (FIRE)?

Once you've paid down your debts and are actively working towards your savings targets, if you want to be able to retire early, you need to get your money working harder for you. This involves investing, sorting out your super and considering home ownership.

Here's what you need to know about the "Retire Early" part of the FIRE movement as well as some strategies to help you achieve this.

Risks of the FIRE movement

The FIRE movement, advocating early retirement in one's 40s, presents notable risks. Unplanned costs, like illness or job loss, can disrupt meticulous plans, necessitating a dip into savings. To mitigate risks, comprehensive insurance, good health, and a financial buffer are essential.

The stringent frugality of FIRE may mean sacrificing meaningful experiences, demanding careful consideration of personal priorities. Additionally, the movement relies on investment returns, with no guaranteed continuity of past performance, adding uncertainty. Superannuation, tied to market fluctuations, faces similar risks, requiring a balanced approach to navigate the potential challenges of the FIRE lifestyle.

Frequently Asked Questions

Written by

Alison Banney

Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds. See full profile

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