Would you give up your social life and embrace extreme frugality in exchange for an early retirement? What sacrifices would you make to achieve complete financial freedom in your 40s or 50s?
For those in the “financial independence retire early” (Fire) movement, living a hair-shirted existence in the pursuit of saving as much money as possible is a sacrifice worth making.
Fire started in the early 1990s, and promises followers an early escape from the rat race by drastically changing their spending and saving habits. Many Fire followers commit to extreme lifestyle cutbacks so they can save between 50pc and 75pc (or more) of their income each year. This is typically invested passively in index funds or exchange traded funds.
The aim is to save enough to retire – typically 25 or 30 times your annual expenses – and live off a 4pc drawdown from the investments, which can be adjusted in line with inflation, known as the 4pc rule.
The internet is awash with inspiring Fire stories. One user, a 25-year-old software developer, recently posted in the Reddit group FireUK explaining how he had just hit a £100,000 savings milestone, across Isas, crypto and pensions. He explained his approach is to “shovel as much money as possible into Global All Cap, prioritising Isa over pension for now”. Another, a 37-year-old man with a £1m savings goal, posted about being a third of the way there with assets of £333,000.
But many people who have attempted Fire say it is not worth the sacrifices, or it’s impossible to make work.
James Beckett quickly realised Fire was stopping him doing things he loved. The lifestyle became appealing to Beckett, 33, when he started his first graduate job in marketing for a consumer finance company. Because he found the work and culture “corporate, sanitised and demoralising”, he was after an early way out.
However, his graduate salary wasn’t enough to pursue extreme saving, so he didn’t start the method until his late 20s, following a new job and a pay rise.
Beckett says he was never one of those who saves 80pc of their salary and forgoes any enjoyment whatsoever. But for the next four years, Beckett, who still works in marketing, tried to save 15-20pc of his income. He stashed £1,500 each month in his workplace pension and put the maximum £20,000 in a stocks and shares Isa each year.
His end goal was to build a pot of over £1m to allow him to retire in his mid-40s, with around £30,000 in annual income, based on the 4pc rule.