You’ve heard me say a million times that retirement isn’t an age—it’s a financial number. There’s no law that says you have to work until you’re 65. That’s a myth.
I’ve talked to many folks who are well on their way to leaving the workforce early. But there’s a new wave of younger workers who are taking early retirement to a whole new level. They’re on a mission to blaze a new path toward retirement as part of the F.I.R.E. movement.
They believe it’s possible to retire sometime in their 30s or 40s. You read that right! But how? Is it actually realistic to retire at age 45? Or even 35? Let’s take a closer look at the F.I.R.E. movement, see how people do it, and find out whether or not it’s right for you.
So What Is the F.I.R.E. Movement?
F.I.R.E. stands for “Financial Independence, Retire Early.” The goal is to save and invest very aggressively—somewhere between 50–75% of your income—so you can retire sometime in your 30s or 40s.
That’s right: You need to save at least half your income.
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How do people do it? In order to be able to sock away that much money toward investing, folks who are on F.I.R.E. are always looking to do two things: keep their expenses extremely low and raise their income. The general idea is that the higher your income is and the lower your expenses are, the faster you can reach financial independence. Think gazelle intensity—except the gazelle is literally on fire.
For those in the F.I.R.E. movement, “financial independence” doesn’t just mean sitting on some tropical beach or playing golf all the time. It means reaching the point where you don’t have to work a full-time job if you don’t want to. You can scale back to a part-time job or simply stop working altogether. The choice is yours.
What We Can Learn From the F.I.R.E. Movement
I have some mixed feelings about the F.I.R.E. movement. On one hand, I appreciate the focus and intensity these people have toward reaching their retirement dreams. No matter where you are on your financial journey, there are some key lessons we can all take away from the F.I.R.E. movement:
1. Start Dreaming and Planning for Retirement
The thing I like most about the F.I.R.E. movement is that it’s getting younger workers to start thinking about retirement—especially since less than half (41%) of Americans have tried to figure out their retirement savings needs.1 That’s like trying to aim for a target with a blindfold on. Defining what you want your retirement to look like and making a plan to get there puts you ahead of the game. And I’m all for that!
2. Find Ways to Keep Your Expenses Low
I’ve noticed another recurring theme among those who follow F.I.R.E. They take the time to really look at where their money is going. They define wants and needs and cut out spending that doesn’t make sense for them. That means getting on a budget and sticking to it. Those savings here and there add up, and they can help you make serious progress toward your goals.
3. Look for Ways to Boost Your Income
There’s no way around it. If you want to retire early—or really early in the case of F.I.R.E.—that means getting creative about finding ways to make some extra cash.
Maybe you’re on a career path that’ll lead you to a job with a six-figure salary. Or you’ve got a side hustle that you’re turning into a small business on nights and weekends. It could mean delivering pizzas for a while or saving up to buy a rental property.
Whatever that looks like for you, additional income will play a huge role in helping you to take a step back from the workforce and enjoy an early retirement.
4. Make Saving and Investing a Priority
If you want to retire early, you have to save and invest. There are no ifs, ands or buts about it. That’s why folks in the F.I.R.E. movement are radical about throwing huge chunks of their income toward their retirement.
Maybe saving 50% sounds like too much for you right now. That’s okay! We all have to start somewhere. I recommend you start by investing 15% of your income into retirement savings. The key is to get into a regular habit of saving and investing every month. When you do that, you let time and compound interest work for you instead of against you.
Why the F.I.R.E. Movement May Not Be for Everyone
Now, here’s the first big barrier to following the F.I.R.E. movement: You need to have a large enough income. Many proponents of F.I.R.E. agree that no matter how much you cut down your lifestyle, it’s going to take a large income—probably somewhere in the six-figure range—to have the ability to save enough to retire before your 40th birthday. Keep in mind, you’re trying to out-save a lot of inflation and non-working years the earlier you retire.
But that shouldn’t discourage you from building wealth! I’m here to tell you that anyone can do it. For my new book, Everyday Millionaires, we discovered that one-third of millionaires never had a six-figure household income in a single year. We also found that the average millionaire worked, saved and invested for an average of 28 years before hitting the $1 million mark.
While F.I.R.E. may be extreme, no matter what kind of career or salary you have right now, don’t fall for the myth that you need a high-paying job to build the wealth you need to retire securely. Anyone can become a millionaire—it just might take a little time.
Don’t Mess With Credit Cards—You’re Going to Get Burned
All income aside, there are some other issues and obstacles with the F.I.R.E. movement approach I want to tackle head-on.
Many F.I.R.E. advocates actually promote the idea of using credit cards for the points and rewards. Say what?
From student loans to credit cards, about three out of four millennials in the U.S. are in debt—carrying an average debt balance of $36,000.2 And let me tell you, it’s hard to save and invest when almost a third of your budget is going toward paying back debt. That’s not a recipe for financial success.
Listen to me: Don’t mess around with credit cards. Studies have shown over and over again that you’ll spend more with credit than with cash—in some cases, almost twice as much.3 Hmm. Wasn’t the goal to spend less money on stuff?
You may be saying, “But, Hogan, I pay my credit card bill on time every month!” You might get away with that for a while, but you’re not beating the system. There’s a reason why Americans have tallied $848 billion in credit card debt.4 All it takes is one missed payment or one major emergency that forces you to bite off more than you can chew and you find yourself in serious trouble. When you play with fire . . . well, you know what happens.
Don’t Do F.I.R.E. Just to Escape a Job You Hate
You might be drawn to the F.I.R.E. movement if you hate your job. After all, 70% of American workers say they’re completely dissatisfied at work.5 So it’s no wonder that a growing number of young workers are dreaming about leaving the workplace altogether.
But there’s a deeper problem that lies beneath the surface, and F.I.R.E. isn’t going to solve it. If you hate your job, you don’t need F.I.R.E. What you really need is a new career path. My friend Ken Coleman calls it “finding your sweet spot.” That’s the place where your greatest talents and passions intersect. Even folks who follow F.I.R.E. will tell you that!
If your sole desire is to retire early so you can escape going into work on Monday, you’re going to be disappointed. Life is too short to waste decades or even one year working a job you hate.
The Roadmap to Early Retirement
Okay, so you may be saying, “Hogan, I’m in.” If you have a goal to retire at 45, that’s great! I want you to dream big. But whether your goal is to retire at age 65 or 35, you need a plan. You need to know how much money you’ll need to have saved in order to retire when you want—and how much you’ll need to save toward retirement each month to get there.
You can use my Retire Inspired Quotient (R:IQ) tool to help you figure out what that number is. You should also sit down with a financial advisor who can walk you through your plan and tell you what you’ll need to do to retire early.
Here’s a step-by-step plan that will put you on the path toward an early retirement:
Step 1: Get Out of Debt and Finish Your Emergency Fund
I mentioned earlier that debt is holding back millions of younger workers from investing for retirement. That’s why I want you to get focused. Chop up those credit cards and attack your debt with everything you’ve got.
After you become debt-free and before you start investing for retirement, it’s time to build up an emergency fund. When you have enough money in a savings account to cover 3–6 months of expenses, you won’t have to worry about a broken air conditioner or a flat tire derailing your investing plan.
Step 2: Invest 15% Into Tax-Advantaged Retirement Accounts
Here comes the fun part! Now you’re ready to start saving for retirement. Begin by saving 15% of your gross income every month in retirement plans like a 401(k) and a Roth IRA—investing your retirement money in mutual funds with a great track record.
Step 3: Save for Your Kids’ College and Pay Off Your Mortgage Early
Do you have kids? If you do, then it’s time to start saving for their college fund. This is important because it’ll help give your kids a head start on covering college expenses and put them on a path toward graduating college debt-free.
While you’re doing that, get intense about paying off your home early. This is a huge goal that’s going to give you a ton of momentum toward early retirement! Think about it: How much more money would you be able to save for retirement if you didn’t have a house payment? What could you do if you were completely debt-free with a paid-for house?
Step 4: Investing Beyond 15%—Max Out Your Retirement Accounts
Now that you’ve got Junior’s college fund in place and you have a paid-for house, you can really start to make some headway on your early retirement goals. First, go back to your 401(k) and IRA and max out your contributions to those accounts. For 2019, you can put up to $19,000 into your 401(k) and $6,000 into an IRA.6 That’s $25,000 combined.
But remember: In most cases, you won’t be able to withdraw money from your 401(k) or IRA without facing an early withdrawal penalty until you hit age 59 ½. For example, with a traditional 401(k), you’ll not only have to pay income taxes on the money you take out, but Uncle Sam is going to take another 10% on top of that. Not a good plan!
There’s a solution to that problem that most people who want to retire early forget about. It’s called the bridge account.
Step 5: Build a Bridge Account—Open a Taxable Investment Account
If you want to retire early, the bridge account will help you “bridge” the gap between when you want to retire and when you can take the money out of your retirement accounts. As you plan your retirement dream, set a retirement age target and figure out how much money you’ll need to live on. Then make sure you’re on track to have that much saved in your bridge account for each year of your early retirement until you can access your retirement accounts without penalty.
So, once you’ve maxed out your 401(k) and IRA, open up a taxable investment account to serve as your bridge account. Here’s what I like about taxable investment accounts:
- You can take out money anytime you like.
- There are no contribution limits.
- You can open an account through a brokerage firm and invest in mutual funds.
The one big drawback to these investments is that you pay taxes on any money your account earns. It’s a good idea to sit down with your investing professional to work through the numbers and set a goal for how much you’ll need to have in your bridge account to retire early.
Work With an Investing Pro
There are a lot of different moving parts that go into retiring early, but it is possible—and you shouldn’t plan it alone! The best way to work toward turning that dream into a reality is to work with a financial advisor who will help you get there.
Our SmartVestor program can connect you with an investing professional in your area who will help you come up with a plan and show you exactly what it’ll take to retire early.
About Chris Hogan
Chris Hogan is a #1 national best-selling author, dynamic speaker and financial expert. For more than a decade, Hogan has served at Ramsey Solutions, spreading a message of hope to audiences across the country as a financial coach and Ramsey Personality. Hogan challenges and equips people to take control of their money and reach their financial goals, using The Chris Hogan Show, his national TV appearances, and live events across the nation. His second book, Everyday Millionaires: How Ordinary People Built Extraordinary Wealth—And How You Can Too is based on the largest study of millionaires ever conducted. You can follow Hogan on Twitter and Instagram at @ChrisHogan360 and online at chrishogan360.com or facebook.com/chrishogan360.