Retire Early With Our Financial Independence Tips

10/19/2021

Have you heard of the FIRE Movement? It stands for Financial Independence, Retire Early. Financial independence is the goal and followers of the movement aspire to retire early, often in their 40s or even earlier. If you’re interested in joining the FIRE Movement, maximizing savings is key and a Roth IRA is one way to turn up the heat. 

What’s the FIRE Movement?

FIRE is a financial movement defined by frugality, extreme savings, and investing. The goal of FIRE Movement enthusiasts is to retire early and live off withdrawals from accumulated savings. The movement is extremely popular among younger workers who are trying to take the early retirement age to another level—with the goal of financial independence and retiring early—often as early as their 30s or 40s.

There’s no law that says you have to work until you’re 65, and many members of the FIRE Movement have been successful blazing new paths toward early retirements. The lifestyle is popular among millennials, but anyone can join. The goal is to save and invest aggressively—somewhere between 50–75% of total income.

So, what does it take? Followers of the FIRE Movement know the answers to two key questions: How much income do they need to sustain their lifestyle and how soon can they retire early. 

The FIRE Movement is often broken down into two main categories: Lean FIRE and Fat FIRE. According to Census data, the average U.S. household spends about $61,000 a year.1 Lean FIRE is when someone has saved 25 times their annual expenses, spending less than the average U.S. household. They tend to live a very frugal lifestyle and instead of owning homes, proponents often reside in rental properties where the cost of living is lower than the average. Most Lean FIRE followers plan to live off $40,000 or less in retirement. 

Alternately, someone following a Fat FIRE lifestyle has reached financial independence and spends more than average. People who adapt the Fat FIRE lifestyle usually are high earners and often have passive income sources, allowing them to live upper/middle-class lifestyles after early retirement. Fat FIRE numbers vary depending on desired lifestyle and geographic location, but a common number is annual spending of $100,000 in retirement. This means they need to have no less than $2.5 million invested based on the 4% Rule to be financially independent.

Thinking of joining the FIRE Movement?

Experts agree that if you’re considering joining the FIRE Movement, you should be sure to do these things:

  • Adjust your current budget
  • Calculate your retirement spending
  • Estimate savings needs
  • Invest for growth
  • Minimize expenses
  • And don't overlook taxes and healthcare expenses in retirement

From popular podcasts to blogs, many resources are at your fingertips that make it easy to share advice and experiences with others. And remember, our savings and budget calculators are a simple way to get started.

Fuel the FIRE with a Roth IRA

Now that you know a little about the FIRE Movement, let’s take a look at ways to get there. A common misconception is that all followers of the lifestyle are frugal to an extreme and live a life of sacrifice. 

Make no mistake—there are some strategic sacrifices involved—but even the most hardcore followers make room for enjoyment and self-indulgence. But to reach FIRE sooner, FIRE Movement followers often use common sense best practices including maximizing employer matching in retirement plans such as a 401(k) and using tax-advantaged accounts like a Roth IRA to reduce taxes on retirement income.

Unfortunately, a large percentage of private sector workers don’t work for a company that offers a 401(k) or employer-sponsored retirement. But if your goal is to retire early and if you have earned income, you can open a traditional IRA, a Roth IRA, or both. With a 401(k) plan and traditional IRA, contributions are made on a pre-tax basis. Contributions to a Roth IRA are made after tax. And if you’re able to retire early, Roth IRA accounts have several advantages. Because they are funded with after-tax dollars, you can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on the earnings in your Roth IRA before age 59 ½. 

For more information, or to open a United Bank Individual Retirement Account (IRA), speak with a Financial Advisor at United Brokerage Services, Inc.

Developing your FIRE financial strategy

The most important thing to know about planning for a comfortable retirement is that it’s never too late to start. Regardless of your income, setting a goal and developing a well-rounded retirement strategy can put you on solid financial footing. United Brokerage Services, Inc. offers a variety of investing options and services to match your personal style and needs. And if you’re considering adopting the FIRE Movement lifestyle, keep these tips in mind:

  • Save for 30 years of your annual expenses. To be able to do this, you need to save 50% or more of your salary. Our Retirement Calculator removes the guesswork and helps you reach your retirement goals.
  • Be on top of your finances. As a United Bank customer you can  log in to Online Banking and enroll in Personal Finance to budget, track, and create financial goals.
  • Get a handle on your future net worth. Our Net Worth Calculator puts the answers at your fingertips.

Remember, when it comes to your financial health, United Bank is here to help.

1 Consumer Expenditures 2020, U.S. Bureau of Labor Statistics, September 9, 2021 — https://www.bls.gov/news.release/cesan.nr0.htm

Improve your experience with the Bank With United Mobile Banking App

  • Download the app
  • Sign in using your Online Banking username and password
  • Easily view and manage your United Bank accounts