- FIRE enthusiasts eschew much traditional money advice, and financial experts are fine with that.
- But they say FIRE can easily be taken to extremes, leaving followers without a secure financial future.
- They recommend planning for the worst, planning for healthcare costs, and rethinking full-on “retirement.”
- Read more stories from Personal Finance Insider.
The FIRE movement (financial independence, retire early) originally started back in the 1990s thanks to books like “Your Money or Your Life,” by Vicki Robin and Joe Dominguez. However, the expansion of the internet and financial blogs has caused the movement to take on a life of its own since those early days.
Now that we’re nearing 2022, the concepts of minimalism and retiring early are practically mainstream. However, the tenets behind the FIRE movement still seem to fly in the face of traditional financial advice — and particularly advice from financial advisors.
After all, most early retirement enthusiasts tend to invest on their own with a major focus on index funds. Those who preach FIRE also share an abhorrence toward financial products like whole life insurance and annuities, as well as the mere thought of paying financial planner fees, which can cost up to 1% of their portfolios every year.
With all this in mind, we wondered what financial advisors really think about the FIRE movement and its members, who largely ignore their services. Here’s what they said.
The FIRE movement is good when not taken to extremes
Financial planner Michael Kelly of Switchback Financial told Insider he believes many of the fundamentals of FIRE are solid. For example, living below your means is an excellent practice that even those outside the FIRE movement could benefit from. Kelly also loves that those in pursuit of early retirement tend to focus on living an enjoyable life today instead of waiting decades until they retire.
Unfortunately, Kelly says he has seen the FIRE movement take people to extremes — as in, some people wind 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 they could easily give up years or decades of saving for their later years in the process. “Retiring” very young and living a minimalist lifestyle can work, but only with enough money saved and invested to last the rest of your life.
“The extreme cases out there make it seem so simple and inviting,” says Kelly. “It may work for some, but it entices many who may not have that radical minimalist mindset to take the potentially dangerous leap only to find themselves not OK and being in a financial hole.”
‘Retire early’ doesn’t always mean you fully retire
Financial advisor Matt Fizell of Harmony Wealth says he has mixed emotions about the FIRE movement, most of which have to do with the “retire early” part of the equation. As an advisor who has quite a few clients working toward early retirement, he says most of them don’t actually want to stop working. Instead, they want to make work optional and have the option to pursue passion projects instead.
“With my younger clients, this can mean cutting back work hours to take back more of their time, not feeling the urge or need to climb up the corporate ladder, or take a chance on working with a startup or even starting their own business,” he says. “Work should be something that helps you live out your purpose, not something that simply pays for a lifestyle.”
Like any other lifestyle, FIRE has pros and cons
Financial advisor Matt Hudgins of Mosaic Wealth Management says he thinks the FIRE movement has plenty of advantages, including the fact its followers focus on investing early and learning to live within their means. However, he has some serious concerns about how users put their plans into practice.
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 breakthroughs in medical technology could leave many of us living longer than we ever thought.
In the meantime, Hudgins points out that healthcare costs rise faster than inflation and often the markets themselves.
If you are pursuing early retirement but you don’t have a plan that makes sense for a long lifespan or incorporates rising medical costs, you could find yourself in a pickle later on — when it’s far 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 pointed out that the FIRE movement has really taken off over the last decade, which means the popularity of the movement hasn’t been tested by a prolonged economic downturn or
In fact, the Dow Jones Industrial Average has only seen two down years 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 the stock market has been on a long bull run over the last decade. In 2021 alone, the Dow Jones and the S&P 500 have increased 16.32% and 25.08% respectively (as of this 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 weather through another great
,” says Joy. “Others won’t be seaworthy.”
FIRE made personal finance cool, but it’s not accessible to everyone
Finally, financial advisor Eric Schrum of The Christian Retirement Show says the FIRE movement turned financial literacy and planning from a boring topic your dad talked about at dinner parties to something cool and relevant for a new generation.
However, he recognizes that the movement is mostly pursued by affluent professionals who are already doing well. That’s not terrible in itself, but he hopes the movement and its core tenets continue spreading.
“My hope is that the same awareness in financial literacy FIRE started in high-earning millennials can flow down to those less fortunate so they can be set up for financial success as well,” says Schrum.