Financial Independence, Retire Early (FIRE)
As part of our pre-marriage financial summit, my wife and I took a long look at our retirement goals. At the time I hadn’t discovered Mr. Money Mustache or any of the FIRE crowd. What we found was pretty dismal. I had graduated from a top university with no debt, had worked with a generous salary for 6 straight years, and had managed to accumulate a personal net worth of about $70,000. Of that, my TSP held only slightly more than half, even after six years of investing. Somehow I had managed to spend nearly my entire paycheck each year, despite renting cheaper places, driving a used car, and dressing modestly.
It took almost a year before we really turned our lifestyle around, and the burden fell the heaviest on me. With six years of earning behind me, I was used to spending with impunity.
My conversion began when I stumbled upon MMM. Suddenly I was introduced to someone who was showing me it was possible to not work till 65, to retire early and enjoy some of the peak years of your life!
The Military and FIRE
The military is set up perfectly to support early retirement. What other job still gives a defined benefits package worth about $30K + at 20 years of service? A sailor, airman, or marine who entered the service at 17 could have 20 years in and be retired by 37. In my case, I would be 42.
We realized that if we played it right, my wife might be able to retire early and care for our future kids, and I would be able to retire early and be around for the adolescent years of our future children’s’ lives. We want to travel, own our own home, grow a garden, hunt, fish, and raise our family.
Looking at our lives, we agreed to buy our freedom – freedom from the nightmare of working until 65, moving to Florida, and dying.
Buy Our Freedom with FIRE
As I mentioned here, saving is the road to Financial Independence, and the first step is tracking expenses. Once you know what you need to live and have saved enough to support your lifestyle indefinitely, you are no longer a slave to earning wages.
But what about Retiring Early? How would we know when it was safe to stop working?
Enter the Trinity Study. In short, numerous researchers have demonstrated that it is nearly impossible to run out of money in retirement if you only withdraw 4% of a balanced portfolio per year, for 30 years.
By tracking your expenses, you can find your annual spending. Algebraically then, the Trinity Study says you must have 25 times your annual spending in the bank… and then you can retire.
Early retirement adds some kinks into the equation, calling into question both the success of the “4% rule”, and the success of a balanced portfolio, over longer time horizons.
Can you retire early? Play with your own numbers (Rule #1)
- Expect to not live like a grad student in Early Retirement? make your multiple 30X expenses
- Have reservations about the 4% Rule? plan on only withdrawing only 3.5%
- Concerned about Balanced Portfolio returns- go all equities!
Our goal is for me to work for as little time after age 42. Based on my calculations, we will need $900,000 in the bank, plus my annual pension. It’s a freeing goal, knowing I don’t have to work forever. The only thing standing in our way is our lifestyle.
Do you aspire to FIRE?
Further FIRE Reading:
Disclaimer: I am not a licensed financial counselor of any sort. The opinions contained here are my own. Investing has implicit risk, past gains are no guarantee of future returns. You may lose money, including the principal. These opinions are my own, and are not endorsed by any of the armed services or the US Government.