Investing: Millennials are embracing trend of retiring early; should you?

There is a constant barrage of media that tells us millennials are burdened with more  debt  than ever before and are going to have to retire later than ever. However, there is a new movement that has popped up around the United States of professionals who are on FIRE. No, not literally. They are taking advantage of FIRE, the savings methodology acronym which stands for “Financial Independence, Retire Early.”

The idea of FIRE can be traced back to Vicki Robin, a 72-year-old who turned an inheritance in her 20s into an income that sustained a modest lifestyle in the 1970s. She co-authored the book “Your Money or Your Life” in the 1990s. Now, the principles from the original are making a comeback in a revised second edition released in 2018.

In general, this movement is for people who would like to retire much earlier than the traditional age of 65. The participants want to enjoy their youth and not be beholden to a traditional 8-to-5 job. Their retirement often involves doing creative, enjoyable work at a low salary or volunteering, while living primarily off money generated from  investments . But some take a true retirement, swearing they have never worked a job for money in their early retirement.

Though they may be unaware of the trendiness of their financial strategy, I have clients participating in this movement. So I do have some firsthand experience and tips for anyone thinking this might be something for them.

Know your own goals:  Everyone has different financial goals they want to achieve. If you don’t know what yours are, it’s time to start thinking about them. You might have to make some compromises if you want to retire early, so prioritizing your goals will be crucial.

Discipline:  No one said that it was going to be easy to be retire early. It is going to take a lot of discipline and effort to save as much as you need to live off your investments. Most advocates of this movement are saving between 50 and 90 percent of their take-home pay. That means cutting back on entertainment, dining out and traveling.

Invest:  You are not going to be able to retire early with just saving alone. Your money needs to not only to beat  inflation , but also have significant enough return to help you achieve your end goal. This is the most important thing to discuss with your adviser.

Additional streams of income:  Working one job might not provide enough income to achieve your end savings goal. Having a  side hustle  is not uncommon for these participants to help offset living expenses.

Retiring early might sound like the dream, but there are many aspects you might not have thought of that your adviser can provide input on.

Inflation:  Don’t forget to factor in the rate of inflation, which will steadily eat away at 3 percent of your assets.

Health care:  A 21-year-old with no preexisting conditions living in Tennessee currently pays around $2,700 each year for health care, a cost that will only rise with the rate of inflation. The ability to take advantage of a spouse’s health care plan could be a boon.

Account limitations:  With most retirement accounts, like an  IRA  and 401(k), you won’t be able to withdraw until you reach age 59.5 without incurring a 10 percent penalty fee. Therefore, you need to have a firm understanding of where to properly contribute your money so you have access to it without penalty.

Returns:  Finally, you need to ensure that you have realistic expectations about the  return on your investments . If you anticipate a higher return than is achievable based on your investment allocation, it is going to hinder your time horizon on when you can retire.

Ultimately, you need a strategy that best suits you. A financial adviser can help you develop a plan specific to your situation, and he or she can guide you on how much you need to save and what to invest in to achieve your final goal.


Jennifer Pagliara is a financial adviser with CapWealth and a proud member of the Millennial Generation. Her column speaks to her peers and anyone else that wants to get ahead financially. For more information about Jennifer, visit capwealthgroup.com.