What is the F.I.R.E. retirement plan? Many people are starting to look at the newest trend of retirement. As a new generation enters the work force who dont want to work away the best years of their life, early retirement is gaining popularity.

But what exactly is this new retirement trend? And is it for you? Lets take a look

The F.I.R.E. retirement plan stands for financial independence, early retirement. The idea came from the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez. Its supposed to give you the ability to retire before the traditional age of 65. For some, this could be in their 30s. For others, its as early as their late 20s.

People no longer want to devote their entire lives to working and making a living. Instead, people who follow F.I.R.E. work to save up at least 50% of your income. Most aim for around 70%. Then, they usually start a new career path or hobby so they can spend time doing what they love instead of what makes the most money.

Its a new way of thinking. And its not for everyone. But whether or not you choose to follow the F.I.R.E. retirement plan, there are some key ideas everyone can benefit from.

Following the F.I.R.E movement involves going to the extreme. You need to save up an extreme amount of your income and often at the expense of current life quality. But you dont need to F.I.R.E. your way to retirement to apply the idea to your life.

This might seem obvious to some people, but not everyone thinks ahead. In 2019, Northwestern Mutual conducted a Planning & Progress Study. It gave some insightful data:

15% of Americans have no retirement saving at all

17% of respondents have between $1 and $74,999 for retirement, far less than the recommended $1 million.

10% of respondents think they have enough money for retirement

45% of respondents think theyll run out of money in retirement

41% of respondents admit they havent done anything to fix their retirement problems

There are many great ways to save for retirement. The first is to contribute to your 401k. A 401k is an employer-sponsored retirement plan. It offers a tax-advantaged savings account. And most employers offer contribution matching up to a certain amount. Thats free money!

Another option is an IRA. There are traditional IRAs and Roth IRAs. With a traditional IRA, your contributions are tax-deductible. But when you withdraw from the account in your retirement, you have to pay taxes on the amount you take.

With a Roth IRA, your contributions arent tax deductible. On the other hand, when you withdraw money from the account, its tax-free. Why? Because the money you put in was after taxes, which means you already paid what you owe to Uncle Sam.

However, there are contribution rules. To learn more about IRA accounts, check out our article, What Is an IRA?

The F.I.R.E. movement emphasizes saving for retirement. And this is great because the earlier you start saving, the longer those savings have to grow.

If you follow the F.I.R.E., you aim to save close to 70% of your income. To do that, you need to effectively minimize your expenses. To do this, you need to sit down and look at where your money is going. For many, housing, food and transportation are the three biggest areas people spend.

To make the most cost-effective decisions, create a budget. This will break down where your money is going and how much. If your rent is eating away at your income, considering finding a roommate or two to help bear the burden. If you can bike to work, sell your car to save on transportation costs.

One of the biggest expenses people tend to have is debt. The longer you have debt, the longer your money isnt really yours. The quicker you pay off debt, the quicker that money can go into your savings.

Cutting expenses is often where people struggle the most. The reason is because many dont want to give up a comfortable lifestyle. Thats why people who follow the F.I.R.E. retirement plan tend to sacrifice a quality lifestyle. But the idea is to work now and play later.

The more money you bring in, the easier it will be to save without hurting your current lifestyle. But that doesnt mean you need to find the highest paying career and sacrifice your happiness. In fact, experts say you shouldnt have the goal of retirement solely to leave a job you hate.

But you can find other ways to make money. You can turn your hobby into a side-hustle. Work part-time at a job, or two. Buy a rental property. Generating passive income is one of the best ways to create wealth, and anyone can do it.

Investing is the number one way to create passive income. Wealth creating investments should be your best friend. By investing your money, it does the work for you. There are a couple areas you can invest in, depending on your risk tolerance.

If youre interested in following the F.I.R.E. movement but new to the world of investing, here are the best stocks for beginners to buy.

If you want to live financially free, sign up for our free e-letter below! Its full of useful tips and research from our experts. Whether youre a beginner or an experienced investor, theres something for everyone.

When looking at your options for retirement, its important to remember everyone is different. You need to choose the plan that works for you. F.I.R.E. isnt for everyone. But if youre willing to put in the work, following the F.I.R.E. retirement plan can lead you to a life of financial freedom.

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What is the F.I.R.E. Retirement Plan and Is It for You? - Investment U