FIRE or Traditional Retirement? Barbara Ginty Says To Plan for Both
Written by
Catherine Collins
Edited by
Carly Brashears
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Over the past few years, the idea of FIRE — that is, Financial Independence Retire Early — has gained momentum. There are many people who are currently planning their early retirement through a combination of aggressive savings, increasing their income, and smart investing. Many people have retired in their 30s, 40s, and 50s using FIRE strategies to help them reach financial independence early.
While reaching FIRE at a young age is admirable, financial expert and podcast host Barbara Ginty says those who focus on FIRE should prepare for traditional retirement, too. That way, if you encounter unexpected expenses, emergencies, or health issues that make FIRE difficult, you have a long-term backup plan.
Here are some of Ginty’s insights on properly planning for retirement — whichever type you pursue.
Diversify Your Income Sources for Retirement
Ginty, a certified financial planner, recommends you have three income sources in your retirement years. These include Social Security income, a pension or pension replacement, and your own personal savings. The goal is to have your Social Security and retirement plan income cover most of your monthly expenses. Then, your personal savings can cover the extras, like visiting your grandkids, going on vacation, or finally getting the big garden of your dreams.
To get a full understanding of how much money you will have in retirement, you can use a retirement calculator to see where you currently stand. You’ll enter your current age, current savings, retirement savings, retirement income, and your expected Social Security income. If you don’t know what your social security income will be, you can go to SSA.gov and get a benefits estimate.
Don’t Rely Only on Social Security
Although it’s a good idea to know what your Social Security benefits will be, Ginty cautions against relying on Social Security for your full retirement savings unless your net benefit is enough to sustain you in your retirement years.
For most people, Social Security income is not going to be enough to retire on. Because of that, it’s important to have multiple streams of income in retirement if you want to maintain the lifestyle you currently have.
Some other examples of retirement income, aside from pensions, Social security, and traditional retirement accounts, are dividend income, annuities, and rental income.
Choose Investing Options That Are Passive
How you spend your retirement years is up to you. Many people enjoy investments like real estate, especially within the FIRE movement, but Ginty says real estate might not be as passive as you think. You often have to handle tenants and maintenance issues, even if you have a property manager. Additionally, it’s important to stay organized with your tax paperwork for multiple properties.
If that doesn’t sound like how you want to spend your retirement years, Ginty says to consider investing your money in the market instead, which she says is a more passive endeavor. If you’re unsure of how to invest in the market or which funds are right for you, speaking to a certified financial planner can help.
Plan for Both FIRE and Traditional Retirement
If you’re pursuing FIRE, Ginty recommends a dual approach. Think of your retirement investing as two separate savings goals: one for retiring early and one for traditional retirement.
Many people who retire early invest in brokerage accounts they can withdraw from without penalty. However, if you’re pursuing two separate goals at once as Ginty suggests, that means you’ll still contribute to your traditional work-sponored retirement plans or IRAs too.
The reason for this is that if FIRE doesn’t go as planned, “you haven’t jeopardized your old age retirement,” Ginty said.
Your pursuit of FIRE could get interrupted for a variety of reasons, such as illness, job loss, or divorce. Hopefully, these scenarios don’t happen, but it’s a good idea to have a backup plan for traditional retirement if they do.
Final Thoughts
Barbara Ginty is a certified financial planner who owns a financial firm that helps clients from all ages and backgrounds. She has taught over 2,000 students financial literacy courses and also hosts a podcast called Future Rich. She has the experience to help people with a range of income and financial goals. If you’re among the people who want to reach financial independence sooner rather than later and retire early, her advice could help you. By focusing on saving for FIRE and traditional retirement at the same time, as Ginty suggests, you’re able to give yourself a safety net and be prepared for a range of future scenarios.
More From GOBankingRates
