‘Retiring’ at 45: Part 2
FINANCIAL INDEPENDENCE, RETIRE EARLY Underlying the movement is thinking about your expenses in relation to time.
The majority of people are not able to retire at 65. Surely retirement at 45 is a pipe dream? Most people still think of retirement as a period where you don’t work at all. Fortunately, this is changing and whether you are 45 or 65, in future “retirement” will probably include some form of work.
While the FIRE movement’s proponents save a substantial amount of their income and accumulate enough assets to generate a passive income that would allow them to “retire” in their 30s or 40s, at its core, the movement is not about getting to a point where you could stop working and sit on the porch. Rather, it is about the optionality a debt-free lifestyle provides and reaching a phase where you have more freedom around how you spend your time.
In that sense, the focus is rather about reaching financial independence than “retiring” early.
Regardless of whether you think this is achievable, there are principles underlying the FIRE movement that can be helpful in financial planning, even if you are not in a position to save 30% of your income. Buying decisions are often made by considering the money you have “available”.
If someone can relatively comfortably “afford” a monthly car instalment of R5 000, it may seem like a standard financial decision.
The FIRE movement encourages people to think about such expenses by considering the time they would have to spend at work to pay for the purchase. Thinking about expenses in relation to time instead of money provides
a different perspective. The most important determinant of people’s spending is arguably their income.
Saving a large amount of your income (FIRE followers sometimes save more than 50% of their income) forces you to live below your means. This not only creates a buffer for when something unexpected happens, but also allows compound interest to work its magic.
If you decide to save 25% or more of your income, you would have to scale down on largest purchases – your car and your house. Financial independence gives you a much greater degree of flexibility around how you spend your time. If you have large amounts of debt and expenses that need to be repaid, you need a regular income to meet the instalments.
If you are debt-free, don’t have significant expenses, and reach a point where your passive investment income can cover your basic needs, you have much more flexibility to decide how you spend your time.
This doesn’t mean things can’t go wrong. Maybe you will need to return to work full time, but in a world where people are living to 100, managing finances for the long run shouldn’t be about reaching a point where you can finally say goodbye to work.
It should be about managing your finances in a way that will put you in the best possible position to reach your goals.
It’s time to think about retirement in a completely new way.
The focus is about reaching financial independence