The hidden costs of early retirement - and why you might want to avoid this trend

The hidden costs of early retirement – and why you might want to avoid this trend

Would you be willing to make big sacrifices now, so you could retire decades earlier than planned? Gwen Merz and Derek Sall both thought so, until they started questioning their decisions.

“Financial Independence, Retire Early,” or FIRE, is a lifestyle movement that encourages you to build up a comfortable nest egg — at least 25 times what you’ll need for annual expenses in retirement — so you can leave place of work before the usual retirement age.

The FIRE movement started in 1992, but it really took off with millennials over the past 15 years. While the path to FIRE looks different for everyone, and there are different approaches within the movement, most journeys begin the same way: land a well-paying job in your twenties, save a significant amount of money (50% to 75% of your net salary), and living well below your means. Many FIRE participants also increase their income with a side business (or multiple side businesses) or through real estate investments.

It can also mean developing an obsessive focus on reaching your FIRE number, the specific amount of money you need to save to retire at your desired age.

The idea of ​​early retirement has a universal appeal that attracts many followers, but FIRE also attracts its fair number of detractors. Some drop out because it’s exhausting. Others realize that it costs them relationships and experiences that no amount of money can recover.

Headshot by Jovan Johnson

Jovan Johnson

“It takes a lot of discipline and sacrifice,” said Jovan Johnson, financial adviser at Piece of Wealth Planning in Atlanta. In order to save so aggressively, some FIRE participants forego years of important things like traveling with friends and family, Johnson noted.

That’s what happened to Merz, a 32-year-old IT professional from Missouri who went all-in on FIRE but became disenchanted with the lifestyle. “I could save a lot of money,” she said, “but I didn’t make enough money to save a ton and live the kind of life that made me a happy, fulfilled person. ”

For Sall, a 37-year-old personal finance blogger and founder of Michigan’s Life and My Finances, getting involved with FIRE meant putting his marriage on the line. After drastically cutting his expenses, he focused on getting more passive income, but that meant limiting quality time with his wife and newborn. “Luckily I got out of it,” Sall said. “I wasn’t going to end another relationship just to achieve my goals against our Goals.”

That’s not to say they haven’t learned practical advice from the FIRE movement on paying off debt, saving, or spending wisely. For many, finding a balance between extreme FIRE principles and living a good life is the sweet spot. This desire for balance has spawned offshoots of FIRE, like Barista FIRE and Coast FIRE, which still focus heavily on frontloading your savings and then transitioning to less stressful work to provide residual income.

Tyler Dolan headshot

Tyler Dolan

Whether you’re fascinated by pursuing FIRE or considering retirement at the normal age, stay in tune with your values ​​and priorities, said Tyler Dolan, Certified Financial Planner and Vice President of Keenan Financial, based in Boston. “It really comes down to checking out what your financial goals are, what your personal beliefs are about money, how do you handle money, what’s important to you?”

An all-consuming quest to save every penny

Portrait of Gwen Merz

Gwen Merz

If you have the bandwidth to dive into FIRE, it can pay off pretty well. In fact, Merz and Sall were successful early on when they started saving aggressively.

Merz went all-in on FIRE, living in the cheapest house she could find and keeping her expenses down to around $22,000 a year. She earned $65,000 a year, plus bonuses, and indulged in multiple hustles. At this rate, she planned to hit her FIRE number of $635,000 and retire at age 35.

Sall was also on the path to financial freedom. After paying off his mortgage and all other remaining debt, he reduced his expenses to just over $400 a month (food, phone bill, car insurance and utilities) and spent the rest on investments and utilities. savings. To earn passive income, he bought a house, fixed it, and rented it out to tenants, a pursuit that took a lot of time and effort away from his family, though it paid off.

Derek Sall and his family

Derek Sal

“At 29, I was making $60,000 a year at my job, I had just paid off my house, and I was headed to FIRE,” he said. What attracted him most to early retirement was the idea that, in a few more years, he could occupy his time as he saw fit.

The idea of ​​flexibility and financial freedom are the main drivers of the FIRE movement. “What’s most appealing about FIRE is just the idea that you’re sort of really free and independent from depending on traditional work,” Johnson said.

Fall in love with FIRE

Although he stayed on track and saved a considerable amount of money, Merz was not satisfied. She felt trapped in her corporate, 9-to-5 job and wanted more control over her time. It didn’t help that his workplace felt toxic.

But something deeper wasn’t clicking.

After five years of pursuing FIRE, Merz realized that it was mathematically impossible for her to earn and save the same amounts as her married, dual-income friends. She was also exhausting herself working on several side shoves.

“I became really disenchanted with FIRE when I realized that it was difficult for one person to retire incredibly early with an above-average salary,” Merz said.

Plus, the effort it took to maintain this lifestyle was starting to catch up with her, and it left her with little time to relax or connect with friends.

Sall’s relationships, most notably his marriage, were also beginning to suffer due to his early retirement goals. He remembers the exact moment he knew his obsession with FIRE was destroying his personal life.

He had gone to work repairing his latest “project house”, which he planned to rent out for extra income. As he approached the door, his wife stopped him, furious that he was once again stranding her with their baby girl.

“When is it going to end? I’ve had it up to here ! said his wife. “Is life going to be like this with you?”

Something changed in Sall, and he found himself reconsidering his priorities and reflecting on the mistakes of his past. He had become so focused on his goals that he forgot about their goals as a couple – a problem that ended his previous marriage.

Find financial balance

These days, Merz spends a good chunk of his income on a comfortable home in St. Louis. She no longer lives in cheap housing and has a new job at a non-profit organization where she feels empowered and supported.

In addition, she no longer hesitates to spend money to have a good time with her friends. Recently, she pulled out $200 in cash to spend the day with a friend at a massive annual garage sale that her former FIRE-focused self would never have even considered.

Although Merz has put a damper on her FIRE lawsuits, she doesn’t completely regret saving aggressively. “I’ll have more money than I know what to do with when I retire at 55,” Merz said. “This money will accumulate, grow and become millions of dollars.”

Now she’s built more room in her budget for things that make her happy. “It’s great to save,” Merz said. “But also don’t sacrifice your relationships and your ability to make memories while you can.”

Sall’s decision to leave the FIRE movement helped save his marriage. He and his wife sold the project house, along with their main house, and bought a new house in the woods with the profits.

“Looking back, I can honestly say it was the best decision we ever made,” Sall said. “I’ll probably still retire early, but instead of doing it at 34, I could be 44. Better to do it with my beautiful wife and kids who love me, than to have it broken and only.”

Merz and Sall are now in a better financial position because they tried FIRE. But you don’t have to go to the extremes of the FIRE movement to prioritize savings. To get started, Johnson recommends thinking about retirement and what it means to you so you can come up with a plan. Next, establish a budget or system for managing your money. Johnson said instead of being extreme when it comes to budgeting, aim to be flexible. This way, you can enjoy life today while saving enough to enjoy life later.

According to Dolan, some principles of FIRE are helpful for anyone who wants to assess where their money is going, make sure they’re not overspending, and continue to prioritize savings and debt repayment.

Johnson and Dolan both agree that FIRE offers a great strategy for getting out of debt, but don’t get too consumed. You should always have wiggle room in your budget for nights out with friends, family trips, or any other kind of connection you care about.

What makes one person feel fulfilled and accomplished will not be the same for another. “At the end of the day, everyone has their own beliefs about money. They have their own values, they have their own kind of habits with money that have been developed throughout their lives,” Dolan said. . And everyone should figure out what it is for themselves.

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