Is F.I.R.E. Still Possible in 2022?
“Financial Independence, Retire Early”, also known as the F.I.R.E. Movement.
Is it still possible in 2022, to retire early?
We personally believe that it is. As a result of inflation, market declines, and similar factors, it is getting increasingly difficult. If you are thrifty, you invest while saving. There are still many opportunities to build a life that allows you to retire early or, as we like to say, become “Work Optional”. The last few years have been rough, to say the least, and it looks like there could be more trouble ahead. Even if the pandemic is mostly over, we are experiencing record-high inflation, which has not happened in over 40 years. In addition, the stock market has already fallen 20% in 2022.
In addition, home prices are increasing at a historic rate, making it more difficult than ever to buy a first home. In January 2022, the National Association of Realtors reported that the median price of an existing home for all housing types was $350,300, a 15.4% increase over the previous year. This also shows that prices have risen for 119 consecutive months, which is the greatest increase streak history. Then there are gas prices, which are hurting people's budgets and the economy as a whole. The list continues from there.
With all of this in mind, you might be wondering if it is still possible to retire early. If you are part of the F.I.R.E movement (financial independence, retire early), which usually means saving a big chunk of your income so you can retire in your 30s, 40s, or 50s, this topic may be especially important to you.
Is it Still Possible to Get F.I.R.E.? It Depends…
F.I.R.E. can mean different things to different people, but most people who are interested who are interested in it aim to save 25 times their annual income in order to retire early and live on 4% of their portfolio each year. In order for a retired couple to spend $100,000 annually, they would need a portfolio worth $2.5 million. However, many individuals who support frugal F.I.R.E. intend to live on a far smaller budget and save the difference.
Early retirement typically requires two things:
1) Consistent returns while amassing wealth and;
2) The ability to manage retirement expenses within a specified range.
Given the volatility of the stock market and the record price increases, it is understandable why some F.I.R.E enthusiasts are concerned that their plans may not work out. In the next decade, it will almost certainly be more challenging to retire early and maintain a high quality of life. The dollar has lost more than 10% of its purchasing power over the past few years. However, prices have increased, and companies are unlikely to reduce prices even if the supply chain is stable.
Additionally, the return on investments is likely to be smaller. Supporters of F.I.R.E. have utilized annual returns of 8 to 10 percent to calculate how much money they will have when they retire. With record-low interest rates and relatively high valuations, this will be challenging to achieve. But does this make any sense? Even though the next few years do not bode well for investors and even the best "investment experts" are wrong at least half of the time, investors should still invest.
How to Bring F.I.R.E to Life?
If you are trying to achieve F.I.R.E. but are now depressed about the economy, you are not alone. Therefore, you should focus your efforts on something useful, such as developing a plan that will allow you to retire early regardless of what happens to the stock market in the following ten or twenty years.
Changing your perspective is a good starting point. Even though the stock market is down substantially in 2022, you should note that it performed exceptionally well in 2021. At the end of the year, the S&P 500 had a total return of more than 27%.
Your goal should not be to invest when markets are at all-time highs.
The optimum moment to start investing is when markets are down. If this keeps up, it could hurt investors who are in the accumulation phase.
In reality, you can take steps to F.I.R.E. when you want to (or close to when you want to), no matter how the market is doing. You might have to change your plans or live on less, but if you are willing to do some of the following, you can reach your goals:
1. Establish New Income Streams
The best way to boost your chances of reaching F.I.R.E. is to identify passive income opportunities. You should seek out opportunities to generate income in the future that differ from your traditional investments. For example, you could invest in real estate or start a side business.
Fact: You can depreciate the cost of buildings but not the land!
Increase your savings rate right now! Having a high savings rate is one of the best ways to become financially independent faster than most people. This means you have to save between 70 and 80% of your income. You may have to get creative with how you cut your expenses to reach this goal.
2. Pay off Everything You Owe
Getting out of debt is a big part of getting to F.I.R.E. Interest rates are going up, which means that the cost of variable rate debt, like credit cards, will also go up. If you can pay off all of your debt before you retire, your costs will be a lot less. Even though there is always a debate about whether to invest or pay off debt, you need to find a balance that helps you reach your F.I.R.E. goal on your timetable.
Useful Blogs to Check Out:
“How to Choose Your First Credit Card”
“Should I Stop Investing to Pay Off Credit Card Debt?”
3. Use Traditional Retirement Plans & Brokerage Options to their Fullest Extent
If you want to achieve F.I.R.E., you should max out your 401(k), your Roth IRA, and your traditional brokerage account. Consider international and emerging market stocks. They are riskier, but the math shows that they offer a higher return than U.S. stocks.
4. Hold On To the 4% Rule
The 4% rule is followed by many people who want to retire early. If you take out 4% of your portfolio each year, your money should last. This rule is great for giving you a general idea of where you want to be financially, but you might want to be a little more cautious and look at a withdrawal rate of 3.25–3.5%. Adding in cash flowing assets such as real estate can help ease the burden of the 4% as well!
5. Plan and Stick to Your Plan!
Another important step is to create a thorough, trustworthy plan for your finances. You can also consult a financial planner if you need guidance creating a plan for your money that will be effective regardless of the market's performance.
Also, beware of pessimists who will try to persuade you to jump in and out of the market, which is a surefire way to get lower returns.
To Sum Up:
You should try to be flexible with your plans and willing to do what it takes to retire early on your own terms. This may be the most important thing you can do. This could mean that you have to live very frugally during the first few years of retirement, or it could mean that you have to work longer or part-time after you leave your regular job.
Plan for the worst and hope for the best in terms of early retirement. No one knows what will happen in the future, but those who are capable of adapting will be able to keep going.
"Financial freedom is available to those who learn about it and work for it." - Robert Kiyosaki
I hope this information was helpful. If you have any questions feel free to reach out. I’d be happy to chat with you.
If you're interested in an investment advisory or financial planning relationship, please consider Vincere Wealth Management.