Light my FIRE – could you really retire early?

Do you dream of retiring much earlier than your peers?

Many ideas which originated in the US have made their way across the Atlantic. The latest financial innovation to join index-tracking investments, budgeting apps and exchange traded funds is the FIRE movement – Financial Independence, Retire Early.

If you are a millennial or a member of Gen Z (born between 1997 and 2012) and not enjoying your working life, then FIRE has an obvious appeal. At the most extreme are people in their 20s, hoping to retire in their 30s or early 40s. That is a challenge in the UK given the current minimum age to draw a private pension is 55, soon to rise to 57, while the State pension now begins at age 66, increasing to 67 by April 2028.

Maximising savings

The FIRE movement revolves around saving enough from earnings (and any side hustles) to accumulate capital of about 25 to 30 times yearly expenses by retirement. The 25–30 multiple is driven by another US import – the concept that drawing 3%–4% a year from capital is a low enough level to be sustainable throughout life. To put that in context, the Pension and Lifetime Savings Association says the current minimum annual income level needed by a retired couple is £22,400, implying a FIRE capital target of £560,000–£670,000.

While the lure of FIRE is the promise of early retirement, its pre-retirement requirement may not be so attractive. The regular savings goal needed to fill up the retirement pot necessitates a minimalist lifestyle for most people. For example, to accumulate £600,000 in 15 years needs monthly savings of £2,275, assuming a net investment return of 5% a year. Add to that such imponderables as job security and inflation. If you had started in January 2009 with a £600,000 goal, then in terms of January 2024 buying power your pot would need to be nearly £930,000. No wonder there are stories of some FIRE enthusiasts who start out aiming to save 70% of their income.

Realistically, for all but those with the highest income who are content with the lowest standard of living, FIRE is more smoke than substance. The message of maximising your retirement savings where possible is, however, a useful takeaway.