How The F.I.R.E Method Can Help You Plan An Early Retirement

'FIRE' is spreading very quickly. Wait, fret not, we¡¯re talking about the F.I.R.E. movement, which stands for ¡®Financially Independent to Retire Early¡¯. More than a movement, it¡¯s a life goal that many millennials and Gen Z are working towards in order to have an early retirement as early as their 30s or 40s.

What Is F.I.R.E?

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FIRE is an early retirement plan that is more of a lifestyle choice that aims to achieve financial independence and retire early by saving and investing a large portion of one¡¯s income.

One of life¡¯s most important lessons that most of us learn early on is that the concept of a free lunch is nonexistent. With the FIRE movement, though, you are provided with the means to stretch yourself early on so that you can enjoy a longer period of retirement wherein you don¡¯t have to work. Under the FIRE movement, a number of people have begun working towards a single goal.

This goal sees them saving enough money to retire several decades (while they¡¯re in their 30s, 40s, or even 50s) before the usual retirement age of around 60.

This movement brings with it the promise of flexibility and freedom, provided you act with discipline and are determined at an early age. If you wish to become part of this movement, you would be expected to save aggressively and direct a major portion of your income towards investments, as per ETmoney.

The FIRE movement gained credence once the 1992 book titled Your Money or Your Life by Vicki Robin and Joe Dominguez became a best-seller and inspired thousands.

Also Read: F(N)AQ: How Do I Make My Retirement Corpus Last Longer?

Understanding The Mechanism

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The FIRE movement emphasises creating adequate savings such that passive earnings generated via investments over an indefinite time frame can offset your annual expenses.

In order to amass this amount of wealth before the traditional age of requirements, you must be prepared to lead a non-conventional lifestyle.

Here are a few characteristic traits that are linked with the FIRE movement.

Ample Savings Sought: Most FIRE movement supporters save 50 percent or more of the money they earn each month.

Frugal Lifestyle: The more one is able to save, the faster they are able to acquire financial independence. A minimalistic lifestyle is often sought by those pursuing FIRE, as it allows them to increase their savings rate.

Straightforward Investments: A number of FIRE enthusiasts gravitate towards low-cost index funds for their investments. A handful may even purchase rental properties to acquire passive income.

Also Read: How To Calculate Your Retirement Corpus Amount?

How Much Do You Need To Save Under The 'FIRE' Method?

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To answer this, many people pursuing the FIRE movement use the Rule of 25. It means that your retirement corpus should be at least 25 times your first-year expenses post-retirement.

So, if your first-year expenses post-retirement are Rs 12 lakh or Rs 1 lakh a month, then your retirement corpus should be 25 times that amount, or Rs 3 crore. This rule is also called the 4% rule. It is just another way to look at the Rule of 25. If you have accumulated Rs 3 crore and can withdraw only 4% from it, you will get Rs 12 lakh in the first year.

Tips To Calculate Retirement Corpus

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To arrive at the estimated amount you need to accumulate as a retirement corpus, you can use a calculator introduced by India¡¯s market regulator, SEBI. SEBI launched an interesting calculator that can help you arrive at the retirement corpus required to be accumulated. Click here to understand it.

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