Is it really possible to retire early? Look at how you are spending your money – The Irish Times

At one point or another across our long working lives, who hasn’t had the fleeting fantasy of telling a boss to stick a job up a certain anatomical location?

The reason most of us don’t aside from politeness is that we need the job, at least for now, because we rely on it to fund our lives – the mortgage, rent, groceries, creche fees and other bills.

But the allure of having enough money one day to do what you want without worrying about a job remains.

Which is why the Financial Independence Retire Early (Fire) movement has grown globally, accelerated in the past few years by blogging, social media and podcasting.

The most well-publicised cases often seem to be people who were able to retire before 40 and enjoy the views on their self sufficient property out in nature, which sounds pretty good to a lot of us fighting for a seat on a commuter train at 8am in the dark.

But how does it all work? And just how easy is it to pursue in Ireland?

What is Fire?

The nuts and bolts of Fire’s basic concept – the idea of living frugally to reach financial independence – grew out of the 1992 best-selling book Your Money Or Your Life. The Fire movement itself doesn’t have one leader or inventor. It’s made up of thousands of people pursuing one goal – financial independence. That’s being able to meet your expenses using the income from your own resources, instead of an outside source such as a job. These could be things such as savings, pensions, investments, rental properties or passive income from businesses.

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While most people agree on the financial independence part of FIRE, there are debates over the “retire-early” aspect. For some, the movement isn’t about leaving the workforce asap but about having the financial freedom to pick and choose how, when and where they want to work instead.

How does it work?

There are multiple pathways and versions of FIRE depending on preferences and lifestyle factor. There’s Lean Fire (extreme saving), Fat Fire (focus on maintaining lifestyle over faster results) and Barista Fire (where the aim is not to retire but to be able to work a job that isn’t 9-5 and that may be less paid but more enjoyable) for a start.

However, the basic formula for most remains the same: cut expenses and use that money to set you up for the future (pension, property, savings and investments).

Be prepared for those budget cuts to be deep with FIRE adherents usually aiming to save 25 to 75 per cent of their income to reach their destination.

Who can manage that, especially in Ireland?

Micheal Houghton, apparently. The New Zealander turned Limerick local says he and his wife were able to save 75 per cent of their income at the start of their Fire journey.

Since 2017, Houghton says their strategy has “built a portfolio of €500,000″ mainly in the form of pensions and property investments.

“With my wife and three kids, we tried to live off around €40,000 a year,” he says.

While he credits lifestyle factors such as living in Limerick as opposed to Dublin for making that target viable he says budgeting was the main enabler.

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However, he stresses FIRE “is not meant to be about sacrificing now for later”.

“I have more time and freedom. In the last 18 months I’ve taken a less stressful job on less money to have more time with the kids,” he says at 4pm when he’s finished work for the day and is getting ready to play games with his six-year-old son.

It wasn’t ambitions of financial success that led Houghton to FIRE but a particularly bad case of post-Christmas back-to-work dread in 2017.

“I had been a web developer for the previous two years, getting ready to go back to work but with nothing to show for it. I was living paycheck to paycheck like the 95 per cent who live like that,” he says. “And I thought how am I meant to keep doing this until I’m 65?”

Houghton found FIRE, started adding up expenses and looking for ways to cut back. But still saving up to 75 per cent of his income?

How did he manage that with three kids?

According to Houghton the three biggest expenses for most families are accommodation, childcare and transport.

“Accommodation is going to be the missing piece to be honest for a lot of readers,” he says, acknowledging that in some ways he had “got lucky” by 2013 in securing accomodation before the steep price increases of the 2020s.

However, he continues to save deposits and purchase new investment properties in the current market and says to consider strategies such as house hacking (renting rooms below the tax threshold to cover a personal mortgage).

In terms of childcare, Houghton’s family was in a position to get rid of childcare costs when they decided it “wasn’t necessary for his wife to work” after she decided she wanted to stay home. Comparing childcare costs against her income meant it made financial sense.

It’s not about being cheap, or skipping out on your round of drinks, it’s about making smart choices with your money

—  Micheal Houghton

Lastly, transport costs were whittled down by going down to one family car that was older, energy efficient and bought without relying on car loans which can be “crippling”.

Family circumstances will dictate whether they can just have one car, own their own home outside Dublin or have (or even want) one parent leave work to care for children.

But Houghton says the strategy that made the biggest difference in budget was “switching from Tesco to Aldi” – something most families can do.

Other aspects of his lifestyle might horrify you with Houghton happily admitting to only eating out once a year, spending holidays in Kerry not abroad and going off drink completely in 2019.

He says the latter was more to do with realising “the hangovers are never worth it” rather than saving.

“It’s not about being cheap, or skipping out on your round of drinks, it’s about making smart choices with your money,” he says.

Houghton, the host of Irish Fire Podcast, says the WhatsApp group he started for local Fire movement followers in Limerick has grown to more than 200 members all around the country.

While it’s gaining popularity in Ireland, the majority of experts, books and literature about how to achieve Fire come from the United States, Canada and Australia.

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This is a problem given Ireland’s different approach to pensions and taxing personal and investment income for a start. An Irish resident following advice from another jurisdiction to invest in ETFs might get a nasty shock to learn their gains are taxed at 41 per cent, for example.

For that reason Houghton focuses on putting money in pensions – “if your company matches contributions it’s a no-brainer”- and property in Ireland. In his case, he also found becoming self-employed and forming a company meant he was able to avail of certain tax advantages.

But what are the downsides?

Houghton is clear that “all investment is risk” even in pensions because aside from the fluctuating returns there’s no guarantee that the rules around the age of access will stay the same.

So even with saving for years and calculating out how much you need using the 25-year rule (annual expenses x 25) or the 4 per cent rule (only drawing down 4 per cent of your savings annually to live off in retirement) – you might not be able to draw down at age 50 or get the state pension at 66 as planned for reasons outside your control.

Cian Callaghan, a certified financial planner with Metis Ireland, says that while “there’s a lot of positive coming from it about people taking control of their finances” there are a few things to consider before signing up to the FIRE movement.

The first is the extreme savings rate it demands.

“Every case is different but for the average nine-to-fiver living in Dublin and if you have kids in day care there’s not much hope of saving 50 per cent, the costs are staggering,” he says.

Money is there to help you do the things you want, it’s best used in a way that gives the most value to you – in my case that’s two hours we have together with my daughter

—  Cian Callaghan

“If anyone was saving 50 per cent of their income I’d want to be certain they’re doing things they want to do right now and some families with a lot of disposable income can and that’s great. But before you put money away you need to make sure they have the quality of life they want.”

Callaghan gives his personal example of paying for the odd takeaway meal to free up time between the end of work day at 5pm and his daughter’s bedtime of 7pm, which might otherwise be spent cooking and cleaning.

“Money is there to help you do the things you want, it’s best used in a way that gives the most value to you – in my case that’s two hours we have together with my daughter,” he said.

Then there’s the risk that the delayed gratification might never pay off.

“People might say I want to retire at 50 so I’ll spend less and save more but realistically most people’s goal for retirement is to have more time to do what you love and you might not have the quality of life or health in your 50s to do that,” he says.

Instead, he focuses on “families achieving financial independence as early as possible” so they can feel confident stepping back from work if they need to. Something Houghton echoed by saying he now finds work much more enjoyable with a financial safety net.

Lastly, Callaghan suggests people should take professional advice before committing to FIRE.

He says the DIY approach, favoured by some FIRE advice means putting a lot of pressure, anxiety and research demands on those outside the finance industry when it could be outsourced to a CFP.

“Even with a DIY mindset it makes sense to check everything over with an independent third party,” he says.

While Fire can be achieved in Ireland, it can depend on particular lifestyle and income factors such as being able to live outside of the more expensive counties, access to pensions, an ability to buy property, cheaper or free childcare and self-employment.

It might not be for everyone in the end but it’s is also worth considering the questions it raises about how we spending our money; on things that actually make us happy or is that Amazon order of junk just holding us back from future happiness?