Friday, 24 May 2019

Cash Course: Exploring the early retirement movement – Quad City Times

A new movement has grown more popular across the country, and it’s not hard to see why. More people are seeking early retirement to obtain financial independence.

For those who consider age 65 too old for traditional retirement, people — who don’t mind saving more than they spend — are aiming to retire years or even decades earlier. Financial adviser Matt Knoll, with the Planning Center in Moline, said it’s called the FIRE movement, which stands for financial independence and retire early. 

“The FIRE movement is this kind of younger generation wanting to save over 50 percent of their income to live a minimalist lifestyle and then retire at a very young age,” Knoll said. “So a lot of times, that’s in the mid-30s or 40s, so you have this freedom to not work anymore. It’s a fairly new movement, so I wouldn’t be surprised if we start seeing more young people with this goal.” 

But it’s not necessarily your typical retirement plan. Rather than quitting work completely, there’s a greater focus on financial independence and flexibility, he said. 

Rather than spending the last decades of your life relaxing, members of the FIRE movement often emphasize flexible work schedules in retirement, as well as pursuing goals, such as starting a business or making investments.

How does it work?

To retire early, many members of the FIRE movement often live a strict lifestyle to be able to save 50 percent or more of their income. 

It’s a balance of aggressive savings with a minimalist way of living, Knoll said. 

“If you’re saving 50 percent of your income, you’re very limited to the kind of lifestyle you can live,” he said. “And a lot of things change, like getting married or starting a family. When those things happen, you have to make sure you can continue to restrict your lifestyle and stick to the savings plan, which can be difficult.” 

Living off of an investment portfolio for decades, Knoll said, requires careful consideration. He said FIRE members have to monitor the portfolio and pay attention to market conditions.

“Depending on the market, you may need to save more than 50 percent depending on what your goal is, or less depending on how market conditions react,” he said. “If this portfolio is essentially your only source of income if you’re not doing work on the side, then you need to talk to somebody who is knowledgeable on how to maintain that lifestyle.” 

Sacrifices versus reward

The FIRE movement isn’t for everyone. And, it can seem nearly impossible for low-wage and middle-class workers.

But for those considering it, Knoll said early retirement is a balance of sacrifices and rewards.

Saving 50 percent of your income could mean giving up many material objects, social outings and hobbies, he said. 

“And another huge thing to consider is when people retire at 65, Medicare kicks in, huge savings for health insurance,” Knoll said. “When you retire, you lose a lot of company benefits, so you have to go out and pay for insurance on your own. There are additional expenses to consider if you retire at such an early age.” 

To make it work, Knoll said you have to stay focused on the goal and adjust as life changes happen.

“It can be doable,” he said. “It’s just knowing what the rewards are versus that sacrifice. We always encourage younger people to start saving. So if you start on this strategy and it doesn’t work out, you’ve still saved a lot. It’s just making sure that as life changes, this is a long-term goal you’d want to stick with.” 

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