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5 Tips to Help You Aim for FIRE: Financial Independence, Retire Early

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Financial independence, retire early – sounds fantastic, doesn’t it? But is it still doable?

The so-called “FIRE” movement began to catch on in the last decade as Millennials envisioned a future in which careers weren’t their driving factor and sailing off into the Mediterranean before their hair turned gray wasn’t a fantasy.

But in 2010, the economy was on the upswing and a healthy job market allowed people to sock money away to focus on FIRE. What happens when the economic outlook isn’t as rosy? Well, it could require planning to retire a little later than you would have during boom times.

Regardless of the economic backdrop, however, the spirit of FIRE can still burn because FIRE’s core concept is about putting good financial habits into practice as early as you can and taking advantage of the tools available to maximize your ability to save.

To reach early retirement, FIRE devotees generally shoot for saving at least half their income, or being really aggressive and shooting for 75%.

Interested in being part of the FIRE movement? These five tips could help start on your way.

1. Estimate your retirement budget

This might seem obvious, but you can’t achieve financial independence without calculating what your expenses will be once you’re no longer working.

There are plenty of free retirement calculators out there to help estimate, but a general rule of thumb is you’ll likely need 80-100% of your annual salary immediately prior to retiring each year to maintain your lifestyle.

As you calculate how much you’ll need to retire, don’t forget to take into account healthcare and taxes. Unless your employer offers group retiree coverage for retirees under 65, you’ll lose coverage once you retire so it’s important to have a back-up plan.

You can consider options for retirees provided through the Affordable Care Act which tend to be more reasonable than individual private plans. Banking on Medicare?

Note that it might not cover dental, vision or hearing and you must be at least 65 years old to be eligible, so those aiming for FIRE may not meet the age requirement.

Similarly, most retirement savings accounts have an age restriction and require you to be 59½ to withdraw funds without incurring a penalty.

2. Open your retirement accounts

If your company offers a retirement plan, that means you can start building your retirement nest egg through the plan. Not only is it a good way to put pre-tax money aside for retirement, some employers will contribute or match a certain amount based on your annual contribution.

If your employer offers this, it can be a no-brainer as you can get “free money.” Though it is important to check with your employer that there aren’t fees associated with participating in your employer’s retirement plan.

If you are in a position to do so, it’s a good practice to try to max out your 401(k) contributions to the IRS-capped level (currently $20,500 for 2022 and $22,500 for 2023). If you’re over 50, you can also make “catch-up” contributions up to $6,500 for 2022 and $7,500 for 2023 (in other words, you could contribute up to $27,000 in 2022 and $30,000 in 2023).

You’ll want to check if any employer contributions you might otherwise be entitled to are subject to a vesting schedule and if those employer contributions have any conditions based on your service with the company.

If your employer doesn’t make employer contributions, another option for retirement savings is to consider opening an IRA, though the maximum contribution is lower than that of 401(k)s. See the IRS's "IRA Contribution Limits" for details.

One potential feature of an IRA is that you may have more control over how your funds are invested. In a 401(k), the investment options are typically selected by your employer (though there are some exceptions if the plan offers a brokerage window).

In an IRA, you can generally choose how to invest your funds, whether that’s stocks, bonds, ETFs or other traditional investments (read ahead to tip No. 5 for more thoughts there).

The two main types of IRAs are Traditional IRAs and Roth IRAs, so make sure you conduct research to find one that best suits your needs. Like a 401k, your contribution can help you accumulate money for later in life and you may be eligible to deduct that contribution on your tax return (more info, see here).

Also, important to note that if you’ve got a sideline business in addition to your regular employment, you might be eligible to put some of those self-employment earnings into a SEP IRA and potentially deduct the contribution from your income when calculating your taxes.

3. Automate your savings so you’re building reserves behind the scenes

Set it and forget it – that’s probably the second-easiest FIRE strategy to help ensure you’re saving. And again, it can be simple to set up automatic recurring transfers into your retirement accounts.

You can work this into your regular budget to guarantee you’re making consistent contributions each month that can help you build savings. A great way to do this is through salary deferral contributions, or funds you elect to take out of each paycheck automatically.

4. Eliminate debt to become more financially independent

It’s no secret that debt – especially debt with high interest rates – can be a huge roadblock to financial independence.

Keeping your debts low is a key to financial flexibility; paying them off entirely is ideal, although that can be difficult, particularly if you’ve got lingering student loan debt.

Though they cannot be applied to student loans in particular, personal loans are one good option if you’re struggling with other types of debt. Sometimes, personal loans can offer lower interest rates compared to the APR on your credit card to help you manage your debt.

5. Build a diverse investment portfolio to weather economic instability

If you’re set on retiring early, your margin for error in gauging the markets may be slimmer than those aiming for a more traditional retirement at age 65.

While most experts agree people in their 20s can typically afford to invest more aggressively in the stock market as they have 30-40 years to recover from short-term stock market downturns, that window may be smaller for FIRE.

Ensuring you have a diversified portfolio can be essential to weathering financial disruption, especially a bear market. A popular way of doing so is through investing in mutual funds. No matter your age, investment guru Warren Buffett recommends index funds, which are low cost and low risk.

The most important tip: Start

Even if jet-setting into early retirement might be more challenging in today’s climate, it’s never too early to set a good foundation to ensure you’re building up your finances to enjoy life on your terms.

As with everything money-related, it’s always best to consult a financial advisor. Investments in securities involve risk, and the value of investments and income derived from such investments may fluctuate.

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation to buy or sell securities, or of an account type, securities transaction, or investment strategy. This article was prepared by and approved by Marcus by Goldman Sachs®, but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC are or any of their affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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