Early retirement: what is the ‘FIRE’ movement?

While millions of the UK’s workers are hoping to retire at state pension age, some are aiming to get off the employment treadmill much sooner.

A growing number of younger people are hoping to achieve that goal through a movement known as FIRE, which stands for Financial Independence, Retire Early.

The retiring early part of the movement “can be something of a misnomer”, said the BBC, as many “don’t plan to spend 50 years playing bridge or taking leisure cruises”. Instead, the aim is to put aside enough money through savings and investments to ensure “that the ensuing decades can be spent doing something other than chasing pay raises and promotions”.

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How to retire early

Achieving FIRE status is an ambitious goal that involves hard work and a lot of calculation. Many followers of the movement follow a simple formula to help build up savings.

According to this formula, you “need to build up a net worth of 25 times your estimated annual expenses and spending”, said The Times Money Mentor. A “maximum of 4%” can then be withdrawn from this savings pot each year.

For example, someone aiming to retire at 40 with an income of £20,000 would need a pension pot of £500,000. According to figures from pension provider Royal London, this would require saving £16,000 per year from the age of 21.

The “magic of compound growth” is also likely to be needed, said NerdWallet.

While interest rates are currently climbing as the Bank of England continues to increase its base rate, savings rarely keep pace with inflation. So saving cash in an instant access account “probably wouldn’t be enough to sustain you for the next 40 years”, the website added.

Instead, FIRE enthusiasts “have to rely heavily on compound interest (and strong stock market returns)”, said The Balance. Compound interest essentially means "interest on the interest" and is a key reason for the success of many investors.

Capital is always at risk with investment, however, and could go up or down in value – something to bear in mind before embarking on a FIRE journey.

Is early retirement possible?

Yes, but “it takes a lot of discipline,” said Glamour.

Laura Howard, a personal finance expert at Forbes Advisor, told the magazine that FIRE “isn’t for the faint-hearted”, owing to the sacrifices involved in living the required frugal lifestyle, and the attitudes of friends and family who may not be on board with the decision.

Many people feel FIRE is unrealistic, but it can be adapted to suit the needs of the individual, with various iterations of the movement arising in recent years.

“There is no single way to achieve FIRE,” said Time Magazine. Some opt for “Lean FIRE”, a strategy “for minimalists who plan to achieve financial independence by living a more frugal life both before and during retirement”. Others follow “Barista FIRE”, where they continue to work “but at less demanding jobs or part-time”.

The main “obstacle” for anyone hoping to retire early, said Unbiased, is time, which is the “single biggest factor when it comes to pension saving”.

Taking action early is key to building up savings without too many sacrifices.

Is early retirement for me?

For the lucky few who achieve FIRE, it may not all be plain sailing from that point onwards.

“As nice as early retirement sounds,” said Smart Asset’s Brian O’Connor, “it comes with two compounding problems.”

First, investors “have less time to save and allow their investments to generate compound gains”. In addition, early retirees will have to depend on and make this money stretch for more time than they would have done in employment.

Early retirement means waiting even longer for entitlements such as the state pension and pension pot access to kick in.

“You’ll need some other form of savings to tide you over from – say – 50, until you can access pension savings and the state pension,” said The Motley Fool.

Boredom or feelings of lack of fulfilment may also be an issue. Many early retirees “have a tough time making the transition from the daily routines of a full-time job to the unstructured life of retirement”, Investopedia said. And “it isn’t easy to get back into the workforce once you’ve left it, voluntarily or otherwise”.

Along with considering these potential problems, anyone considering early retirement needs to get their finances in good shape. This could involve taking financial advice or speaking to the Citizens Advice Bureau or MoneyHelper for guidance.