Retiring in your 30s or 40s probably sounds impossible, and for a lot of people, it is. But for followers of the Financial Independence, Retire Early (FIRE) movement, it’s the ultimate goal. These workers save aggressively and plan meticulously so they can quit the workforce as soon as possible.
It sounds like a great plan on the surface, but it’s definitely not for everyone. Before you hop on the FIRE bandwagon, you may want to weigh the following drawbacks.
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It takes a lot of sacrifice
The average worker estimates they’ll need $1.8 million for retirement, according to a recent Schwab survey — and that’s for typical workers, many of whom retire in their 60s. FIRE followers aim to retire much earlier than this, and that means they’ll need to save a lot more. It’s not easy to pull off.
It requires saving a large percentage of your income — sometimes 50% or more. Some workers take on side hustles to bring in extra money. They may also reduce their current spending to the bare minimum to free up more cash for saving, which means forgoing a lot of enjoyable activities right now.
Some people might be willing to make that trade-off, but others burn out after a while. If you don’t think you can sustain this kind of a lifestyle for the years it’ll take you to reach your retirement savings goal, FIRE probably isn’t for you. You may be better off opting for a slower retirement savings rate, so you can enjoy more of your time and money right now.
Longer retirements bring greater uncertainty
Unplanned expenses, like medical bills, insurance claims, and broken appliances can happen in any retirement. But you’re more likely to encounter them when you’re retired for longer.
You may be able to weather a few of these unexpected costs by budgeting for them in your retirement plan. But if you find yourself facing a serious medical issue, for example, or you have to completely rebuild your home after a natural disaster, your current savings may not be enough to cover that and all the money you’ll need for living expenses for the rest of your life.
Coming out of retirement may be an option for you in this situation, but health issues could prohibit that. You may also find it challenging to return to work after years or possibly decades away. Employers may be reluctant to take a chance on you, particularly if you work in a fast-changing field where knowledge of the latest regulations or technologies is crucial.
Remaining in the workforce for longer reduces the likelihood that you’ll find yourself without enough savings and without an easy path to a steady paycheck. If you’re not comfortable working full time until your 50s or 60s, you could consider dropping to part-time work instead, as long as you’re on track for your savings goals.
You’ll get less from Social Security
The Social Security Administration bases your benefit on your income from your 35 highest-earning years. FIRE followers hope to retire before they’ve been in the workforce for that long. They may still qualify for benefits as long as they’ve worked enough to earn 40 credits, where one credit is defined as $1,730 in earnings in 2024 and you can earn a maximum of four credits per year.
But when you’ve worked fewer than 35 years, you’ll have zero-income years factored into your benefit calculation. Even one of these can shrink your checks by several dollars a month, and if you have 10 or more of them, you’ll probably short yourself hundreds of dollars per check. That could result in thousands less throughout your lifetime.
This may not concern you if you planned to cover most or all of your retirement expenses on your own. But if you were banking on larger Social Security checks to cover a significant portion of your expenses once you reached your 60s, you’ll be disappointed.
If you feel prepared to take on these challenges, then it may still be OK to try to retire early. But if any of them give you pause, you may want to delay retirement a little longer. It may not be ideal, but there are upsides to it too. You’ll be able to save a little less aggressively and enjoy your time more today.
