5 reasons why FIRE can be a big financial mistake

I really enjoy my work, but I have always wanted to retire early so that I would have more time for my family and hobbies. I make it a point to save a portion of my income every month for retirement, and I’m happy with the progress I’ve made so far. But what I have done is nothing compared to those involved in the Financial Independence, Retire Early (FIRE) movement.

These ambitious people live frugally and put as much money as possible in their retirement and savings accounts. This strategy allows some of them to retire as early as age 30. But while that sounds appealing, it’s not an approach I’m comfortable trying myself — and it might not be the right choice for you, either, for one of the following reasons.

1. It reduces your quality of life today

The FIRE movement requires you to set aside large sums of money each year – often 50% to 75% of your income. For many working people this is impossible. Those in low-income jobs, those living in high-cost areas and those caring for dependents may find it particularly difficult as they currently have greater income needs than those with higher incomes, lower costs of living and few or no dependents persons.

Even those who manage to pull off this incredible feat of savings can be dissatisfied with it because it forces them to say no to so many things they want in the present. Some people try FIRE for a while and then get burned out because it’s just too hard to not make a single purchase for years while saving.

2. Gaining early access to pension funds is complicated

Most retirement accounts will charge you a penalty if you withdraw your savings before age 59 1/2 without a qualifying reason, such as major medical expenses or the purchase of a first home. This is a problem for participants in the FIRE movement, most of whom hope to retire before 59 1/2.

There are ways around this, but they require a little extra planning. One way is to put some money in a taxable investment account that you can rely on until you can access your retirement savings without penalty.

Fidelity is a great option for beginners because it’s easy to use and doesn’t charge commission fees for online stock and ETF trades. Check out Fidelity if you want to reach your FIRE goal faster by keeping costs to a minimum.

3. There is an increased risk that you will outlive your savings

Outliving your savings is always a risk, no matter when you plan to retire. But this is more likely to happen if you retire at a younger age, simply because you have more years of uncertainty to plan for. If a costly accident occurs, you may end up spending more than you expected. If this happens a few times, it can wipe out a large portion of your savings.

This could put you in an unenviable position of having to return to work, possibly after decades of retirement. Or maybe you need to cut back. That’s not always easy if you’ve already designed your retirement budget to cover the bare minimum.

4. It can be difficult to return to work if necessary

It can also be difficult to return to work in your later years. For example, if you retire at 35 and return to work at 55, you will have a twenty-year gap in your employment history. This may be a concern for some employers, especially if you’re looking at a tech-savvy industry where you need to stay abreast of changes in the industry.

You may have to settle for a lower-paying, less satisfying job than you expected. This in turn can affect what you can afford and how long you have to work before you can finally retire.

5. It can reduce your quality of life after retirement

Even if you successfully retire early, you may find that you have enough to cover your basic expenses, but not much else. This depends greatly on how early you retire, how much you can save and the performance of your investments. If you’re hoping to travel or make major purchases in retirement, you may be disappointed with what you can afford.

None of this is meant to scare you away from the FIRE movement if it is something you are truly passionate about. It is certainly feasible. But it’s important not to overlook these concerns as you focus heavily on saving. Make sure you have a backup plan in place for what to do if you’re unhappy with the quality of your life or you find your savings running out too quickly, so you know exactly what to do if these problems arise. occur.