Want To Retire Early? Here Are 5 Alternative Stages of Reaching FIRE Status You May Not Have Heard Of
Written by
Yaël Bizouati-Kennedy
Edited by
Cory Dudak
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The FIRE — financial independence, retire early — movement has been gaining steam in recent years, as the importance of retirement savings has become more prominent. In a nutshell, this boils down to saving and investing 50% to 70% of your income and investing aggressively.
Yet, this can be tricky for many young Americans who wish to retire early. That’s why some experts are offering alternative steps that can help you achieve this goal.
For instance, Jessica Fick and her husband Corey — founders of The Fioneers — came up with a framework to reach financial independence (FI), one which has five steps. Both in their 30s, they plan to retire entirely in their 50s, Fick said.
No. 1: Debt Freedom
This is the first step on the road to FI and a step which many experts agree upon.
“If you’re paying double-digit interest rates on your house, car, credit cards, student loans, you’re stacking the deck against your early retirement dreams,” said Joe Salerno, co-founder and chief investment officer for Yardsworth.
Only once you are freed from the burden of high-interest debt do you start to see your dollars working for you, helping to increase your net worth through passive growth, he added.
No. 2: “F-You” Money
To calculate “F-You” Money, consider current living expenses, desired lifestyle and inflation. Use the 4% rule (which dictates a projected withdrawal of 4% in your first year of retirement) as a guideline, said Ravi Moolchandani, CFP and principal director of Radiance Wealth.
“Overall, save 25 times your annual expenses to cover costs without needing to work. Adjust for risk tolerance, investment returns and personal goals,” added Moolchandani.
According to Jessica Fick, F-You Money is “any amount of easily accessible assets you have above a regular emergency fund of three-six months,” which can then grant you the leeway to exit bad situations or even take advantage of opportunities that have presented themselves.
“For example, when I took a career break in 2018 to deal with some mental health stuff, I had nine months of savings in my F-You Fund, which allowed me to leave without a backup plan. I didn’t need to be at Stage 5 — Fully FI,” she clarified.
No. 3: Reaching Coast FI
This is where the Ficks currently stand in their journey, according to Jessica. She noted that Coast FI is the point where saving and investing for your retirement becomes optional. And thanks to compounding, what you’ve already invested will grow in the background and provide you with what you need in traditional retirement.
“In the meantime, all you need to do is cover your actual costs. We reached Coast FI at the age of 31 because we front-loaded our investments in our 20s,” she said. “Even though I started my nonprofit career in AmeriCorps with a salary of $11,000 in 2010, I focused on increasing my income in my 20s and sending most of the increases to savings and investments while increasing lifestyle spending in an intentional way.”
She added that now, in their 30s, they have so much more freedom to work less (while doing work they enjoy). They also have time to travel in their camper van and to spend time focusing on their health, hobbies and relationships.
“We plan to retire entirely sometime in our 50s,” she said. “We’re coasting until then — and covering our expenses with active income from our business and/or other projects.”
No. 4: Entering Semi-Retirement
According to Radiance Wealth’s Moolchandani, semi-retirement — or as it’s also nicknamed, “Barista FI” — is a viable strategy where one works part-time or in less stressful jobs after achieving a level of financial security.
“It balances income earned with personal time, reduces burnout, and can be a step toward full retirement,” he added.
No. 5: Achieving Full FI
The final step: financial independence.
“This is when you’ve invested enough to live off the earnings forever,” said Shawn Carpenter, chairman and CEO of StockAlarm. “You’re not working because you have to; you’re working because you want to — or maybe you’re not working. This is the ultimate goal of the FIRE folks, and it’s what gives you the green light to retire early.”
According to Carpenter, people are getting creative with their savings, living lean, and investing wisely to make early retirement more than a pipe dream.
“It’s not easy, but if you can retire at 40 and spend your days sipping margaritas on the beach, wouldn’t you say it’s worth a shot?,” he added.
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