- FIRE enthusiasts eschew a lot of traditional money advice, and financial experts agree with that.
- But they say FIRE can easily be taken to extremes, leaving fans without a secure financial future.
- They recommend planning for the worst, planning for health care costs, and rethinking “retirement” entirely.
- Read more Personal Finance Insider stories.
The FIRE (financial independence, early retirement) movement originally began in the 1990s thanks to books like “Your Money or Your Life” by Vicki Robin and Joe Dominguez. However, the spread of the Internet and financial blogs has caused the movement to take on a life of its own since those early days.
As we approach 2022, the concepts of minimalism and early retirement are practically conventional. However, the principles behind the FIRE movement still seem to contradict traditional financial advice, and in particular the advice of financial advisors.
After all, most early retirement enthusiasts tend to invest on their own with a primary focus on index funds. Those who preach FIRE also share an abhorrence of financial products like whole life insurance and annuities, as well as the very idea of paying financial planner fees, which can cost up to 1% of their portfolios each year.
With all this in mind, we wonder what financial advisers really think of the FIRE movement and its members, who are largely unaware of their services. This is what they said.
The FIRE move is good when not taken to the extreme.
Financial planner Michael Kelly of Switchback Financial told Insider that he thinks a lot of FIRE’s fundamentals are solid. For example, living below your means is a great practice that even those outside of the FIRE movement could benefit from. Kelly also loves that those seeking early retirement tend to focus on living a comfortable life today rather than waiting decades to retire.
Unfortunately, Kelly says she has seen the FIRE movement push people to extremes, as some people end up sacrificing their financial future to live how they want today.
For example, some early retirement enthusiasts might think retiring and living full-time in an RV with minimal costs is a great idea, but in the process they could easily give up years or decades of savings for their later years. “Retiring” very young and living a minimalist lifestyle can work, but only with enough money saved and invested for the rest of your life.
“The extreme cases that exist make it seem so simple and attractive,” says Kelly. “It may work for some, but it draws many who may not have that radical minimalist mindset to take the potentially dangerous leap only to find they’re not okay and in a financial hole.”
‘Retiring Early’ Doesn’t Always Mean Full Retirement
Financial adviser Matt Fizell of Harmony Wealth says he has mixed feelings about the FIRE move, most of which have to do with the “retire early” part of the equation. As a consultant who has enough clients who work to retire early, he says most of them don’t really want to quit. Instead, they want to make work optional and have the option to pursue exciting projects.
“With my younger clients, this may mean cutting back on work hours to make up more time, not feeling the urgency or need to move up the corporate ladder, or risking working with a startup or even starting your own business.” he says. “Work should be something that helps you fulfill your purpose, not something that just pays for a lifestyle.”
Like any other lifestyle, FIRE has pros and cons.
Financial adviser Matt Hudgins of Mosaic Wealth Management says he believes the FIRE movement has many advantages, including the fact that its supporters focus on investing early and learning to live within their means. However, he has serious concerns about how users put their plans into action.
For example, Hudgins says he wants to make sure FIRE enthusiasts are planning for a long lifespan. His grandmother just passed away at age 99, he says, and advances in medical technology could see many of us living longer than we think.
Meanwhile, Hudgins points out that health care costs are rising faster than inflation, and often faster than the markets themselves.
If you’re looking to retire early but don’t have a plan that makes sense for an extended lifespan or incorporates rising medical costs, you could find yourself in a bind later when it’s too late to do anything about it.
FIRE enthusiasts should hope for the best but plan for the worst.
Financial advisor Melissa Joy of Pearl Planning noted that the FIRE movement has really taken off over the last decade, meaning the movement’s popularity hasn’t been tested by a prolonged economic downturn or
In fact, the Dow Jones Industrial Average has only seen two years down since 2008 (-2.23% in 2015 and -5.63% in 2018), and the S&P 500 saw similar losses during the same two years (- 0.73% in 2015 and -6.24% in 2018). In the meantime, we all know that the stock market has been on a long bull run over the last decade. In 2021 alone, the Dow Jones and S&P 500 are up 16.32% and 25.08% respectively (at the time of writing).
We can hope that those planning for early retirement are building portfolios that can last through good times and bad, but the last decade may be setting an unrealistic precedent.
“Some will have built plans that can support another great
says Joy. “Others won’t be seaworthy.”
FIRE made personal finance great, but it’s not accessible to everyone
Finally, financial advisor Eric Schrum of The Christian Retirement Show says that the FIRE movement transformed financial education and planning from a boring topic his father talked about at dinner parties into something interesting and relevant for a new generation.
However, he acknowledges that the movement is mostly pursued by wealthy professionals who are already doing well. That’s not terrible in and of itself, but he hopes the movement and its basic tenets will continue to spread.
“My hope is that the same awareness of financial education that FIRE started in high-income millennials can flow to the less fortunate so they too can set themselves up for financial success,” says Schrum.