It’s an attractive idea – who doesn’t dream of leaving their job forever? But it comes with some financial realities. The traditional model of FIRE described by the movement’s early torchbearers, like Mr. Money Mustache, was based on earning a high salary while living on the bare minimum to keep expenses low.
“That message doesn’t really sit well with most people,” says Jessica Vick, who with her husband, Corey, runs The Fioneers, where they produce content and offer courses, training, and retreats centered around financial independence.
“Most people don’t get paid as software engineers and can’t live on $30,000 a year,” she adds.
In other words, if you’re an average person living on an average salary, the goal of saving enough to achieve the goal will either require a lot of deprivation or take a long time. If it’s the latter, Jessica and Corey think you should enjoy life along the way.
“We look at how people can make the life they want to live a reality on their way to the fire, not right after it,” says Jessica.
The Fixes, 36, have identified five stages of financial independence, and say they are currently at level three, known as “Coast FI”. They’ve saved enough money to eventually retire — they estimate they’ll be able to stop working in their 50s at the current rate — and they can allocate the money they earn now to pay for their lifestyle.
For the couple, that means having a home base in Boston and spending six months in 2023 traveling the country in a truck, spending time outdoors with Madison.
Here’s a closer look at the five levels of financial freedom.
The first step towards financial independence: freedom from debt. The Fixes are not anti-debt fundamentalists. A mortgage, for example, can be part of a perfectly sound financial plan, they say.
But for those saddled with high-interest-rate debt, like a credit card balance, paying off debt means creating room in your budget to save more aggressively for retirement.
“The main thing about debt freedom is that it reduces your expenses,” says Corey. “Once you get rid of that debt, you can either save more or work less.”
Building enough wealth to say “I forget about you” isn’t just about hitting a specific cash number, the Fixes say.
“It’s a feeling too,” says Jessica. “It’s the amount you feel you need to get out of a bad situation, or to take advantage of an opportunity, such as leaving a toxic job or starting a new business.”
This number will vary depending on lifestyle factors such as whether you have children and how easy it is to switch to a new job in your field if your current job is not successful. It doesn’t have to be cash – you can account for investment accounts, for example, if you want to take advantage of them under the right circumstances.
But that preparation is key: “Money is no good to you if you don’t feel like you can use it,” says Jessica.
Determining whether you’ve made it to Coast FI will require some math. First, you need to keep the FIRE number in mind. Generally, you find this number by determining the annual income you want to live on in retirement and multiplying it by 25. In fact, you divide by 4% — the amount you think you can safely withdraw each year in retirement without running out of money.
Let’s say you thought you could live comfortably in retirement on $40,000 a year. Under the traditional FIRE number calculation, you would need $1 million in investments to make this happen.
If you reach the level that Fioneers calls Coast FI, the money already in your investment accounts will reach your FIRE number, given some market assumptions, without you having to invest another dime.
You can try the compound interest calculator to see if you are on the right track. Going back to the previous example, let’s say you’re 25 and aim to reach your FIRE number by age 50. If you have $175,000 in a Roth IRA and expect to earn a 7% annual return on your portfolio, you’ll be on track to become a millionaire by age 50 without having to add to your investments.
Meanwhile, every dollar you make goes to fund your current lifestyle. In other words, you coast.
For the Fixes, this means investing money in a business venture that becomes profitable enough to allow them to quit their day jobs and hitchhike.
“The dream is location independence and being able to achieve that before we reach financial independence,” says Corey. “Buying and building a campervan and being able to travel three or six months a year is part of the dream.”
Someone can theoretically “reach” retirement, but if you continue to contribute to retirement accounts and live below your means, you may find yourself able to live in semi-retirement—a state some FIRE followers have called “barista FI.”
At this point, you can work less, or accept low-paying work that you find enjoyable—for example, making cappuccinos at your favorite local coffee shop—and supplement your living expenses with withdrawals from your investment accounts.
“You can withdraw 1% or 2%, but still cover the rest with active income,” Jessica says. “Even with the withdrawal, your investments will continue to grow to provide you with the traditional retirement number you will need later.”
At the ultimate level, withdrawals from your savings replace the income you would have earned from work. At the current rate, Fioneers expect to reach full financial independence in their 50s, but that number is not set in stone. If their income exceeds their current lifestyle needs, they can put the excess money toward medium-term goals.
They can also resume investing toward retirement, which may boost their FIRE number or bring their retirement date closer.
“Having access to Coast FI doesn’t mean we can’t save another dollar,” Corey says. “It just gives us the option to live a more intentional life.”
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paying off: Unable to fill out your FAFSA? “Don’t panic,” says the expert, which is why you may not be able to reach it