People's obsession with retiring early is at best misguided. In truth, I'm not fussed how long I work for.
Are you on the FIRE bandwagon?
FIRE stands for Financial Independence, Retire Early. It's a movement that started in the US but is gaining in popularity across the pond, calling on workers to save huge amounts in their 20s and 30s whilst living as frugally as possible.
There are literally hundreds of aspirational articles out there from people who've managed to pack it all in long before State Pension age. In fact, here's one we published a little earlier.
But should voluntarily retiring early really be our main goal in life?
Abandoning a career means missing out on experiences, earnings and even discounts.
And that's before you factor in how much risk you'll have to take.
Do I really want to retire decades before my friends and family?
I should emphasise that I don’t love my work and particularly the millennial ‘hustle’ culture that Erin Griffith took down so brilliantly in the New York Times.
I'm 27 now and I can’t see myself retiring early, because with no work I’d be bored witless. Instead, I’ll focus on more interesting and hopefully worthwhile projects.
Admittedly, people who do manual work might have fewer options in old age due to health concerns, but you'll find very few of them in the FIRE movement.
Plus, there's the dreaded question of 'so what do you do then?' There's a reason why flexible retirement is booming – and it's not just for financial reasons.
A risky business
Where I agree with the FIRE bunch is that’s it’s possible to slash the amount you spend.
But simply saving money isn’t enough. You need to be able to live off those savings for decades: the FIRE movement recommends saving 25 times your annual expenditure.
Just saving up modest pension by State Pension age takes a lot of effort – starting at age 25, you’d need to contribute 16% of your income, or £370 if you’re on the average wage.
Under auto-enrolment, you’re probably saving just 5% (3% from you, 2% from your employer), going up to 8% in April. If you’re self-employed, there is no auto-enrolment.
To retire early you'll need to save much more and your savings will need to grow, not just sit there gathering dust. With bank interest rates rarely even keeping up with inflation that means you’ll need to invest your money into Stocks and Shares.
A lot of statistics are thrown around when it comes to investing. It is true, as AJ Bell pointed out, that if you had invested £100 into each of the FTSE 100 companies in 1984 you would now be sitting on £164,977.
Yet past performance isn’t a guide to future performance and that applies whether you read it in some dull small print or a financial freedom blog post.
Markets fell last year and there’s no guarantee that they’ll recover – meaning lower growth or even losses for your hard-saved investments. To get a decent return on your savings, you’d need to turn to riskier and riskier investments.
If you’ve given up your job and are living on your investments, that means you’re at risk too.
Good luck with that crystal ball
Imagine I somehow managed to retire at 40, living off my investments and savings accounts.
My life expectancy is 87, which I worked out from the Office for National Statistics’ fantastically-morbid calculator.
If the ONS is correct, I would have to live off my investments for 47 years.
Predicting that your investments will continue to perform, or that interest rates on savings will stay high enough over that time frame is extremely difficult.
There’s another important side to this argument.
In the US, where the FIRE movement started, your money is your safety net. If you’re unsure about the future, accumulating a vast sum of money makes sense.
While the UK Government might be chipping away at the NHS, State Pension and Jobseeker’s Allowance, these institutions still exist (and have all survived longer than 47 years).
So, whilst a ‘rainy day’ fund is still essential, it doesn’t have to be enormous. Instead, why not enjoy your money by spending some of it?
Discounts for the young
By devoting all of your 20s to diligently saving, you don’t just miss out on life experiences, you won't make the most of some significant discounts.
Direct discounts for younger people include railcards giving you a third off – but only if you use them – and cheaper insurance
But it’s the indirect examples where the savings really accumulate.
Not yet having children is probably the biggest saving in the book, whether it comes to housing costs, travel or simply buying groceries.
Being younger, your comfort threshold enables you to live in a nasty-but-cheap apartment or take that 17-hour flight in economy class.
No kids and no mortgage means you have fewer fixed costs and hence more flexibility.
If you don’t like your job, why not request more leave? Or go freelance? Or start your own company?
I’m proudly financially dependent
I’m not advocating spending beyond your means until you’re deep into debt.
But being terrified of all debt reduces your options when it comes to getting an education, taking a holiday or buying a home. Instead, think of the interest rate on your debt, which ideally should be 0%.
More widely, the goal of financial independence sits uneasily with real-life obligations to your partner, your children, elderly relatives and your community.
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