CAN YOU REALLY AFFORD EARLY FINANCIAL INDEPENDENCE?

Adecade into the workforce, many people start thinking of an early retirement. But even though many do succeed in their work life, the number of people who retire early are very few. While the Financial Independence Retire Early (FIRE) movement is a noble thought, it comes with several strings attached and one has to be really lucky to achieve it. FIRE as a concept comes from the book Your Money or Your Life by Joe Dominguez and Vicki Robin. The whole premise is driven by numbers and looks very little at life situations.

The idea is to adopt a method of living below your means to obtain financial independence and security as early as possible. To live frugally and furiously sounds simple, but it is difficult to implement—it has to become a way of life. Young Indians who dream of early retirement at, say, at 4045, forget a fundamental fact—increased longevity (we live much longer now thanks to improved healthcare and quality of life).

For FIRE to happen, one has to realise several financial goals in life, including a retirement plan in a 2025year work life (see Typical Stages in Life). Most often, one retires at 60, the retirement age for most Indians in the work force. Now, if the lifespan of an adult today is 80, it means that after achieving all financial goals before retirement, one also has to live off one’s savings and investments for at least another two decades.

There is a belief that one would need 7080 per cent of preretirement household expenses when one retires. This may not necessarily hold good, especially when one includes rising healthcare costs and several other emerging financial uncertainties. So, when someone thinks of retiring at 4045, they are actually ignoring the possibility of funding their retirement alone for the next four decades. Moreover, assumed inflation, interest rates, return on investments and cost of living are all factors that could drastically impact savings even if they change by a few percentage points.

A savingsonly strategy may only account for circumstances that exists today, but unexpected events, such as a family illness, death or divorce, can take a hefty financial toll. As it is, many wellto do retired Indians are grappling with their retirement owing to their dependence on fixed return savings, which have been dipping with reducing interest rates. Many are staring at oldage poverty and forcibly cutting expenses to just survive or have sought financial support from children and siblings. As much as one would wish to have early financial independence, the reality points towards working as long as possible to create regular financial inflows so that one can work on creating additional passive income sources.