A growing movement of investors aspires to work for shorter periods, supercharging their savings and investing during their early years and enabling them to retire at a younger age than the generations before them. This strategy, referred to as Financial Independence, Retire Early (FIRE), may sound like a good plan, but it can be challenging to attain and may go awry on implementation.
FIRE expands on the basic tenets of long-term retirement planning to be smart with spending and saving and create an investment plan that allows the money you save today to grow and sustain you for the rest of your life, replacing the income you will lose when you stop working. However, with FIRE, these concepts are much more extreme.
First and foremost, achieving FIRE demands discipline. Be prepared to maintain a strict budget, living below your means and saving as much as 80 percent of your discretionary income during your working years. It also requires you to regularly and closely monitor your plan to respond to unexpected market declines or life events, such as the loss of a job, health issues or the birth of a child, which may put a dent in your plan and necessitate a swift change in strategy or timeline to retirement.
Additional risks to consider before starting FIRE include the following:
- Will the value and returns on your investments keep up with the rising future costs of goods and services and allow you to maintain your standard of living in retirement, or will rising prices threaten your future retirement security?
- How the government taxes your income-producing retirement assets now and in the future could mean you pay more to Uncle Sam. Another risk that comes with retiring at a young age is the penalty you may face for taking distributions from your retirement accounts before you reach age 59½.
- Sequence of Returns Risk. Poor market performance during your retirement years, when you are drawing down your portfolio, could deplete the income available to you at a faster rate, thereby leaving you with fewer funds to afford a comfortable retirement. Generally, your early retirement years pose the greatest risk to your long-term plan. FIRE magnifies this risk as you draw on your portfolio for a longer-than-average retirement period.
- Sources of Income. While having a large portion of your portfolio invested in the stock market can help expedite your savings timeline, it also exposes you to market volatility and uncertainty. Financial professionals can help you diversify your portfolio between stocks, bonds, and other asset classes to help you achieve your FIRE goals and maintain an acceptable balance of risks and rewards.
FIRE is not an all-or-nothing concept. You may want financial independence and the freedom to reduce your working hours while you are younger so you may spend more time doing the things you enjoy, including launching an entrepreneurial business.
About the Author: Shane Phillips, CFA, CAIA, CFP®, is a senior portfolio manager and financial advisor with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Shane Phillips, CFA, CAIA, CFP®, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
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Updated on May 28, 2025