What Is the F.I.R.E. Movement? | RamseySolutions.com

Retirement isnt an ageits a financial number. And theres no law that says you have to work until youre 65. Thats a myth!

Weve talked to many people who are well on their way to leaving the workforce early. But theres a new wave of younger workers who are trying to take early retirement to another level. Theyre on a mission to blaze a new path toward retirement as part of the F.I.R.E. movement.

They believe its possible to retire sometime in their 30s or 40s. You read that right! But how? Is it actually realistic to retire at age 45? Or even 35? Lets take a closer look at the F.I.R.E. movement to find out whether or not its right for you.

F.I.R.E. stands for Financial Independence, Retire Early. The goal is to save and invest aggressivelysomewhere between 5075% of your incomeso you can retire sometime in your 30s or 40s.

Thats right: You need to save at least half of your income.

How much will you need for retirement? Find out with this free tool!

How do people do it? In order to sock away that much money for investing, folks who are on F.I.R.E. are always looking to do two things: keep their expenses extremely low and find ways to raise their income.

The general idea is that the higher your income and the lower your expenses, the faster you can reach financial independence. Think gazelle intensityexcept the gazelle is literally on fire.

For those in the F.I.R.E. movement, financial independence doesnt just mean sitting on some tropical beach or playing golf all the time. It means reaching the point where you dont have to work a full-time job if you dont want to. You can scale back to a part-time job or simply stop working altogether. The choice is yours . . . imagine that.

We have mixed feelings about the F.I.R.E. movement, but the one thing we can get behind 100% is the focus and intensity these people have toward reaching their retirement dreams. And no matter where you are on your financial journey, there are some key lessons we can all take away from the F.I.R.E. movement:

The best thing about the F.I.R.E. movement is that its getting younger workers to start thinking about retirementespecially since less than half (41%) of Americans have tried to figure out their retirement savings needs.1 Thats like trying to aim for a target with a blindfold on. Define what you want your retirement to look like and make a plan to get there.

These F.I.R.E. followers take the time to look at where their money is going. They define wants and needs and cut out any spending that doesnt make sense for them. They get on a budget and stick to it.

Saving a few dollars here and there really adds up over time. And thats exactly what will help you make serious progress toward your goals.

Theres no way around it. If you want to retire earlyor really earlyyou have to get creative about finding ways to make extra cash.

Maybe youre on a career path thatll lead to that six-figure salary. Or maybe youve got a side hustle that youre turning into a small business on nights and weekends. It could mean delivering pizzas for a while or saving up to buy a rental property.

Whatever that looks like for you, additional income will play a huge role in helping you take a step back from the workforce and enjoy an early retirement.

If you want to retire early, you have to save and invest. There are no ifs, ands or buts about it. Thats why folks in the F.I.R.E. movement are radical about throwing huge chunks of their income toward their retirement.

Maybe saving 50% sounds like too much for you right now. (Thats a lot for most of us.) And thats okay! But we all have to start somewhere. Thats why we recommend you start by investing 15% of your income into retirement savings after youve paid off all your consumer debt and saved up 36 months of expenses in a fully funded emergency fund.

The key is to get into a regular habit of saving and investing every single month. When you do that, time and compound interest work for you instead of against you.

The first big barrier to following the F.I.R.E. movement is having a large income (and we mean large). No matter how much you cut down your lifestyle, its going to take a big incomeprobably somewhere in the six-figure rangeto have the ability to save enough to retire before your 40th birthday.

But that shouldnt discourage you from building wealthanyone can do it. In our study of millionaires, we discovered that one-third of millionaires never had a six-figure household income in a single year. We also found that the average millionaire worked, saved and invested for an average of 28 years before hitting the $1 million mark.2

No matter what kind of career or salary you have right now, dont fall for the myth that you need a high-paying job to build the wealth you need to enjoy a worry-free retirement. Anyone can become a millionaireit just takes a little time.

All income aside, there are some other issues with the F.I.R.E. movement that we want to tackle head on:

Many F.I.R.E. advocates actually promote the idea of using credit cards for the points and rewards. Say what?

From student loans to credit cards, Americans are carrying an average debt balance of $26,621.3

Listen: Its hard to save and invest when almost a third of your budget is going toward paying back debt. Thats not a recipe for financial success.

Dont mess around with credit cards. Seriously. Not only is it easier to swipe that plastic without thinking, but there are studies to back it up. According to The Survey of American Finances by EveryDollar, 90% of people say they spend more using a credit card or debit card than with cash.

You may be thinking, But I pay my credit card bill on time every month! That might work for a little while, but youre not beating the system. All it takes is one missed payment or one major emergency that forces you to bite off more than you can chew and find yourself in serious trouble. Theres a reason why Americans have tallied $820 billion in credit card debt.4

When you play with fire . . . well, you know what happens.

You might be drawn to the F.I.R.E. movement if you hate your job. After all, only 31% of American workers say theyre engaged at work.5 Its no wonder that a growing number of young workers are dreaming about leaving the workplace altogether.

But theres a deeper problem that lies beneath the surface, and F.I.R.E. isnt going to solve it. If you hate your job, you dont need F.I.R.E. What you really need is a new career path. Ramsey Personality Ken Coleman calls it finding your sweet spot. Thats the place where your greatest talents and passions intersect. Even folks who follow F.I.R.E. will tell you that!

If your sole desire is to retire early so you can escape going into work on Monday, youre going to be very disappointed. Life is too short to waste decades or even one year working a job you hate.

Whether your goal is to retire at age 65 or 35, you need a plan. You have to know how much money youll need to have saved in order to retire when you wantand how much youll need to save each month to get there.

This step-by-step plan will help put you on the path toward early retirement:

Debt is holding back millions of younger workers from investing for retirement. Thats why you have to get focused. Chop up those credit cards and attack your debt with everything youve got.

After you become debt-free and before you start investing for retirement, its time to build up an emergency fund. When you have enough money in a savings account to cover 36 months of expenses, you wont have to worry about a broken air conditioner or a flat tire derailing your investing plan.

Here comes the fun part! Now youre ready to start saving for retirement. Begin by saving 15% of your gross income every month in retirement plans like a 401(k) and a Roth IRAand be sure to invest your retirement money in mutual funds with a great track record.

Have kids? If so, its time to start saving for their college fund. This is important because itll help give them a head start on covering college expenses (and put them on a path toward graduating debt-free).

While youre doing that, get intense about paying off your home early. This is a huge goal thats going to give you momentum toward early retirement! Think about it: How much more money would you be able to save for retirement if you didnt have a house payment? What could you do if you were completely debt-free with a paid-for house?

Now that youve got your little darlings college fund in place and a paid-for house, you can really start to make some headway on your early retirement goals. First, go back to your 401(k) and IRA and max out your contributions. For 2021, you can put up to $19,500 into your 401(k) and $6,000 into an IRA.6 Thats $25,500 combined.

But remember: In most cases, you wont be able to withdraw money from your 401(k) or IRA without facing an early withdrawal penalty until you hit age 59 1/2. For example, with a traditional 401(k), youll not only have to pay income taxes on the money you take out, but Uncle Sam will be taking another 10% on top of that. Not a good plan!

But theres a solution to that problem that most people who want to retire early forget about: a bridge account.

If you want to retire early, the bridge account will help you bridge the gap between when you want to retire and when you can take the money out of your retirement accounts. As you plan your retirement dream, set a retirement age target and figure out how much money youll need to live on.

Then make sure youre on track to have that much saved in your bridge account for each year of your early retirement until you can access your retirement accountswithout penalty.

Once youve maxed out your 401(k) and IRA, open up a taxable investment account to serve as your bridge account.

Heres what we like about taxable investment accounts:

The one big drawback to these investments is that you pay taxes on any money your account earns. Its a good idea to sit down with your investment professional to work through the numbers and set a goal for how much you need in your bridge account to achieve your retirement goals.

There are a lot of different moving parts that go into successfully retiring early, but it is possible! And the best way to turn your dream into a reality is by working with a trusted financial advisor or investment professional who can help you get there.

With Ramsey SmartVestor, well connect you with up to five trusted investment pros in your area. The best part? Its free! Find your financial pro today and theyll help you start planning your dream retirement. Go check it out.

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What Is the F.I.R.E. Movement? | RamseySolutions.com