Retirement. Early retirement. Semi-retirement. Are these all just pie in the sky dreams?
I don’t talk a lot about the FIRE movement (Financial Independence / Retire Early). But it has certainly impacted my life and I believe everyone should at least strive for financial independence.
I think a lot of the bad press related to FIRE comes from the “retire early” part. Whether people see it as lazy to retire at 40 and sit on the beach, or are jealous of those that earn six figure incomes and flaunt their ability to retire early because of their astronomical savings rate, the concept of retiring early tends to be frowned upon.
I personally don’t think I’ll ever “retire” in the official sense of the word. I think I’ll always be working on my next entrepreneurial idea (next up: starting a bookkeeping business!), or spending my time giving back to the community through my church or other local organizations.
But there is another path entirely that allows more people to access the benefits of freeing up time to enjoy their families, hobbies, or other interests: semi-retirement.
I asked my friend Mr. SR from Semi-Retire Plan to tell us about the difference between FIRE and semi-retirement, and why it might be a better option for you. Take it away, Mr. SR!
Sleek technology and design. Muscle cars and motorcycles. Rock and roll and electric guitars.
There are certain topics and industries where the phrase “sex appeal” can be used to describe things that are not inherently sexual in nature. I don’t think hobbyists necessarily even mean that the thing is sexual, just that it provides a type of exhilaration. There’s a “wow!” factor.
The FIRE (Financial Independence, Retire Early) movement offers that same exhilaration in the personal finance community.
Why is FIRE “Sexy”?
Financial topics historically have a reputation for being boring and opaque — insurance, annuities, estate planning… yawn.
But the FIRE movement has a different feeling. The concept of the FIRE movement is that working full-time into your 60s or 70s is unpleasant. If you can save aggressively for retirement, you can completely retire at a much younger age. You can even strategically access your retirement savings early!
The FIRE movement is about freedom, telling your employer you don’t need them, and riding into the sunset. There’s a feeling of bucking the trend and rejecting the status quo. FIRE shares a feeling of rebellion with the “sexy” topics above.
In many ways, the personal finance community owes a lot to the FIRE movement. It appeals to a new audience in a way that traditional personal finance has failed to. The FIRE movement is growing. And, in my opinion, that’s mostly great news!
The Downside of FIRE
Any polarizing movement will face some resistance. I don’t consider myself an opponent of FIRE, but I do think there are some negatives.
Let me first say, though, that if you can save a large percentage of your income without severely affecting your quality of life and mental health, then the FIRE movement may be a good thing for you. I am not opposed to building wealth and achieving freedom to spend your time in a way that is fulfilling and valuable to you and your family. Those are worthy aspirations!
I also recognize that FIRE vs semi-retirement does not have to be a black and white distinction. Many early retirees plan to FIRE, then pick up some part-time work just because they enjoy it. It’s not a firm “one or the other” distinction.
The FIRE Movement Can Turn People Off
For low- or moderate-earners, the FIRE movement can feel unattainable. Fervent FIRE adherents save upwards or 60% of their income, which is amazing, but those rates can feel infeasible for people without six figure incomes. If you’re able to save 15% or more of your income, you are doing significantly better than most Americans, but you are a disappointment by FIRE standards.
Next, there’s the question of what your life should be like once you are able to stop working. How will you spend your time if you’re 40 and you don’t need to work?
Many early retirees actually find that they’re bored or don’t have a strong sense of purpose. Most or all of their peers still work full-time. Many early retirees ultimately choose to go back to work or at least find ways to make money from home and spend their time. This is actually what inspired me to begin writing about semi-retirement as an alternative.
Semi-Retirement: The FIRE Alternative
Work itself may not be the problem. You may just want to work less doing something different that you actually care about. If so, you could save less intensely and still create the life you want. This shifts the financial equation and timeline in your favor.
Savings rate (and income)
There are exceptions, but on FIRE forums and discussion boards I tend to see high income earners.
Consider if you aim to save 50% of your income. It’s much easier to save $100,000 when you make $200,000 than it is to save $25,000 when you make $50,000. In the first scenario, you still have $100,000 to live off of, compared to living off of only $25,000.
So it makes sense that low- or moderate-income earners tend to not be able to reach those high savings rates. It’s just not viable for most people in the U.S. to live off of only $25,000 each year (before taxes and deductions).
When planning to FIRE, the goal is to completely replace your income or to replace enough of your income for you to live your planned retirement lifestyle.
Alternatively, by doing a job you enjoy for a few hours each week during a semi-retirement phase, you will earn an income. This means that you will not need to replace as much income from your investments during that period, which in turn means you don’t have to save as much while you are working full-time. Therefore, you don’t need to have as high of a savings rate.
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I don’t want to gloss over this point — this is a big deal. If you can account for future work you’re interested in doing during your semi-retirement years, you can spend more on meaningful experiences and relationships in your life now.
Within certain boundaries, you may be able to leave your full-time job sooner with a lower savings rate if you plan to semi-retire, compared to a full “FIRE” retirement.
Intensity vs. Flexibility
FIRE and semi-retirement start out the same way — saving intentionally while working full-time. But there can be a major difference in the level of intensity.
Would you and your family be willing to live an ultra-focused life for a few years for greater financial liberty later in life? Or would you prefer to live a more moderate life both now and later?
One final benefit of semi-retirement that I value highly is the flexibility to supplement your spending as your interests and investments fluctuate. Retiring fully because you are completely uninterested in working places significant limits on your future self.
If the stock market drops and you don’t want to withdraw as much from your investments while the market is down, the semi-retiree can schedule a few more hours of their work they enjoy to add more income to their budget.
If you decide you want to travel more than originally planned for a few months, just do a few more semi-retirement projects to fund it.
If you’re trying to decide if the semi-retirement or FIRE path is a better fit for your life, consider the following questions:
1) What is my vision for my life for the next few years?
2) What is my vision for my life long-term?
3) How intensely am I willing to save during my full-time working career? Is having discretionary spending for travel or other luxuries a priority during this initial period?
4) If I had free time and did not need money, would how I choose to spend my time generate an income?
5) Would I rather retire from my full-time career sooner and work part-time in a job I enjoy, or retire a few years later and not have to work at all?
I don’t want to prescribe semi-retirement as the appropriate path for everyone. However, much like how FIRE made personal finance exciting to a new audience, I hope that semi-retirement can make early retirement accessible to a new group of people — people working hard and earning at a moderate level.