Planning To Retire Early? Here Are Some FIRE Tips From Experts
Editor's note: This story was originally published on June 16, 2023, and has since been updated.
Saving enough money to comfortably retire may seem like a tough goal for many. However, a growing number of individuals are challenging themselves to achieve financial freedom and retire early. This movement, known as FIRE (Financial Independence, Retire Early), is built on the premise that managing money efficiently can accelerate the path to financial independence. During a session at CNBC's Financial Advisor Summit, two experts, Grant Sabatier and Alex Trias, shared their strategies for achieving early retirement and offered valuable tips for anyone looking to improve their financial outlook.
Boost Your Savings Rate
The first key step to achieving financial independence is to increase your savings rate. Sabatier emphasizes that the higher the percentage of your income you save, the faster you can reach your goal. While the average savings rate in the US currently hovers around 2% to 5%, this is insufficient for most Americans to retire comfortably. However, by saving approximately 50% of your income, the average person can achieve financial independence within 10 years or less. Sabatier himself saved an impressive 82% of his income between 2010 and 2015, investing it in a total stock market index fund that has allowed his wealth to compound and grow.
Reduce Your Cost of Living
To achieve a high savings rate, it is essential to reduce your cost of living. Sabatier accomplished this by making significant lifestyle adjustments, such as moving from a $1,700 per month apartment to one that costs only $800 per month. Additionally, he opted for an $800 used car instead of purchasing a new one. By adopting a frugal approach to his expenses, Sabatier was able to live a lifestyle akin to that of a college student in his mid-20s.
Trias took cost-cutting to another level by relocating to Portugal, where he experienced a significant reduction in living costs compared to Washington DC. His annual property taxes decreased from around $11,000 to approximately $184. Furthermore, his health insurance costs in Portugal are only 10% to 15% of what he would pay for an unsubsidized plan in the United States.
Increase Your Income
Increasing your income is another crucial aspect of achieving early retirement. Sabatier realized that he needed a minimum of $23,000 per year to cover his living expenses. However, as his income exceeded $250,000 per year, his savings grew rapidly. Sabatier diversified his income streams by engaging in various side hustles, such as helping a friend's moving company, building websites, running Google ad campaigns, writing online, and establishing an online business.
The digital age has made it easier than ever to start a side hustle, with numerous online money-making opportunities that did not exist a decade ago. Similarly, Trias prioritized managing his portfolio and working for himself to reach his financial goals.
Considerations and Final Thoughts
Both Sabatier and Trias acknowledge that pursuing the FIRE lifestyle requires sacrifices and entails certain risks. It is essential to evaluate the trade-offs to ensure they align with your long-term goals and values. Not everyone who adopts the FIRE strategy continues until retirement; some individuals pursue it for a shorter period and enjoy the financial security and freedom that come with having more savings than they ever anticipated.
As Sabatier aptly puts it, "There are worse problems than waking up at 45 and having $1 million saved in the bank."
While early retirement may seem like an unattainable dream for many, the principles of the FIRE movement offer valuable insights into achieving financial independence. By boosting your savings rate, reducing your cost of living, and increasing your income, you can make significant progress toward your goal of retiring early. Ultimately, it is crucial to strike a balance that aligns with your personal circumstances, values, and desired lifestyle.