What is the FIRE Movement? A Toolkit for Financial Independence or a Passing Trend?


When one watches a colleague collapse after 14-hour days and witnesses paramedics rushing him to a waiting ambulance, a lifestyle modification might suddenly seem like an attractive option. That’s how Toronto information technology professional Kristy Shen described her wake-up call to the New York Times, a moment that finally drove her to join not a health club, but an ideology known to millions as FIRE.

But just what is this Financial Independence, Retire Early (FIRE) personal finance ideology that seemed to burn through the internet recently? And, given the acronym’s homage to flammability, does this practice seem financially safe?

Discover the FIRE movement, including the history, key tenets, criticisms, and core questions the ideology poses for adherents.

What is FIRE?

FIRE is a movement kicked off by a best-seller originally released in 1992, Your Money or Your Life. Now considered the trend’s bible, the book argues for an extreme savings and investing lifestyle, which in theory allows advocates to retire far earlier than either conventional retirement plans or personal finance wisdom envisions.

A core tenet of the book embodies continuously comparing expenses and working hours against the hours of one’s life. In other words, the book advocates comparing every expense to the time spent earning the income allocated towards each one of those purchases.

By saving extreme proportions of their income, devotees aspire to stop working as soon as possible. When their savings reaches about $1,000,000 (or approximately 25 or 30 times one’s annual expenses), many proponents might quit their day jobs or even retire completely. In the movement’s purest embodiment, they then plan to live only off of judicious portfolio withdrawals in the 3 to 4 percent range.

This definition turns upon the term extreme. Enthusiasts attempt to save over half of their income, with some even trying to save as much as 70 to 90 percent. For example, one 23-year-old Google engineer gave up his Silicon Valley apartment and instead slept in a windowless 40-foot truck in one of the firm’s parking lots.

For decades, economists have encouraged high savings rates not only because of advantages for individual savers but also because of tremendous benefits to the U.S. economy, but Americans have been notoriously poor savers compared with citizens of other nations like Japan. Contrast the 90 percent savings objective of that 23-year-old Google engineer with the recent U.S. national savings rate in December 2017, which was only 2.9 percent. In other words, he was attempting to save money at a rate 31 times the national average.

Motivations Driving the Trend

But why? Why would anyone at such a young age deprive themselves of what most of us consider to be life’s necessities?

It seems ironic that the philosophy espoused by Your Money or Your Life originally targeted a group of people harboring radically different intentions from today’s FIRE adherents. The book appears to have grown out of the “heart of the country” back-to-the-land movement started on hippie communes more than two decades earlier in the late 1960s. One author, Vicki Robin, told the New York Times:

Our aim was not just to have a whole bunch of people quit their jobs. Our aim was to lower consumption to save the planet. We attracted longtime simple-living people, religious people, and environmentalists.

Robin acknowledges that the book’s original audience seems to have little in common with FIRE’s modern-day enthusiasts. She notes that by contrast, today’s readership is “very numbers oriented, fascinated by the minutiae of taxes and accounting.”

Times writer Steven Kurutz observes that FIRE’s followers “tend to be male and work in the tech industry, left-brained engineer-types who geek out on calculating compound interest over 40 years, or the return on investment (R.O.I.) on low-fee index funds versus real estate rentals.”

Kurutz also observes that in particular, Millennials “have embraced this so-called FIRE movement…seeing it as a way out of soul-sucking, time-stealing work and an economy fueled by consumerism.” Robin concurs: “The worker in this economy has very little sense of control over their existence. People are expendable. You’re a young person and you look ahead and you say, ‘What’s there for me?’”

Late Baby-Boomer executives currently enjoying their peak earnings potential might take pause once they recognize the “brain drain” that this kind of movement could fuel among their firms’ supplies of talented young labor—or that many FIRE practitioners don’t appear even to have thought about finding more rewarding jobs instead of leaving the labor force.

Criticisms of FIRE

Certainly, as tens of millions of online page views over the past few months demonstrate, FIRE has broad appeal. After all, who wouldn’t want to quit working by age 40? But some commentators criticize the concept for several reasons.

Dangerous & Shortsighted

MarketWatch, a media outlet with vested interests counter to the FIRE philosophy, levies one of the most damaging criticisms of the movement: it’s dangerous and shortsighted.

MarketWatch’s Mark Hulbert argues that “only a very small minority of individuals have sufficient assets to retire early at more than a subsistence level.” He suggests that situation can lead to dangerously risky investment strategies once the majority wakes up to the inconvenient truth their 401(k) and other individual retirement account (IRA) plans contain far less in savings than what they reasonably would need to retire early.

Hulbert cites Vanguard’s statistics that the median 401(k) account size among investors age 35 to 44—arguably the target group FIRE most inspires—is only a paltry $25,800. That’s nowhere near the kind of savings required to fund a 40-year-old who, with advances in medicine, might need six decades of financial support. In Hulbert’s view:

It’s akin to luring a young basketball player to drop out of school with visions of someday making [it] into the N.B.A. The net result in virtually all cases, of course, is that the player will be worse off for the rest of his life.

Those of us who counseled students as academic advisers in business schools at NCAA Division I universities often grabbed the attention of distracted student-athletes with realism: “You’ll need this course for your career if you never make it into the pros.

For us, Hulbert’s analogy bears special significance. Who would have ever thought that affluent young professionals—many of whom enjoy privileges from race, class, gender, and background—might find themselves vulnerable to a form of reasoning that’s similarly seductive and potentially dangerous?

Unanticipated Circumstances

Second, what might happen in the event of unanticipated circumstances, such as another market collapse or emergency medical expenses? The nine-year bull market recovery has energized the FIRE movement but may have also fueled optimism that may turn out to be catastrophic for those unlucky enough. Moreover, Fidelity Investments points out that a 65-year-old couple will need almost $300,000 for health care—which doesn’t include the budget they also may eventually need for long-term care.

Unrealistic Expectations

Third, FIRE proponents can labor under unrealistic expectations of just how much work may be required to satisfy their savings objectives. One personal finance adviser, CEO Josh Brown at Ritholtz Wealth Management in New York, writes, “You need to accumulate assets in order to generate large amounts of passive income. You need to work like a dog over many years and not spend in order to accumulate those assets. There’s no in-between unless you win the lottery.”

Deprivation—and Depression?

Fourth, FIRE’s enthusiasts not only need to work much more but also need to cut back or eliminate the things that for many of us make life worth living, like vacations, restaurants, sports events, concerts, and movies. Could such extreme deprivation result in depression?

Financial planner Anthony Badillo told MarketWatch, “They often have to live on a shoestring budget and forgo things that make life enjoyable. I believe that we should use our money to live our best lives according to our specific values and beliefs.”

Lost Years of Prime Earning Power

Fifth, extremely early retirees forgo the income they would have received during their prime earnings years. For executives, those years may not occur until one’s 50s or 60s. And stopping earned income not only stops one’s greatest defense against life’s expenses, but it also truncates other forms of compensation underwritten by employers, such as health insurance or retirement account contributions. Moreover, stopping income can significantly reduce Social Security benefits later as well.

Withdrawal Penalties

Federal benefits such as Social Security and Medicare are not available to most of us until we reach age 62. However, 401(k) and other IRAs levy severe early withdrawal penalties. Such penalties “make it unlikely these income sources will sustain early retirement through age 62, at which point individuals could claim Social Security income,” New Jersey-based financial adviser John Middleton also told MarketWatch.

Staying Power of the FIRE Movement

Despite these criticisms, FIRE’s core tenets appear to be about much more than only earning and saving money per se.

FIRE poses profound questions such as:

Time will prove the greatest test to the FIRE movement ideology and its adherents, especially in this world of economic uncertainty.

Douglas Mark
Douglas Mark

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani, and AT&T. Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. Doug graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.

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