When I first discovered that early retirement was even a thing, I was so excited. Here I was thinking that we have to work until our mid to late 60’s at soul crushing jobs. To find there was an ‘out’ was invigorating.
I was in my early 30’s at the time. Not married and no kids. This meant I could easily turnaround my spending patterns and drastically lower my expenses. With a few calculations I discovered that at the current rate I’d be able to retire by 40. Great.
There’s a few problems with mine, and many person’s calculations, when they first discover FIRE.
tHE PROBLEM WITH YOUR FIRE CALCUALTIONS
Problem one: Inflation
Let’s say you are currently spending $50,000 per year. Using the very crude 4% rule, you discover that you can retire with $1.25 million in 15 years. But if inflation were to average 2% over the next 15 years, your $50,000 annual spending would be more like $67,000. This would mean you would need close to $1.7 million based on your 4% calculations. Almost half a million off the mark just because things get more expensive as we get older.
Problem two: Lifestyle changes
As we age, our situation often changes to. If you are like me you may get married and have kids. Despite what people say, kids are expensive. Just the addition of one child can have a big impact on your FIRE number that you didn’t originally plan for. Or maybe you get divorced. Calculating your FIRE number as a couple, only to experience a split, will no doubt make your path to FIRE longer. Life isn’t static.
Problem three: Lifestyle inflation
As much as I try to rein in spending, as I get older my spending does tend to increase more than the rate of inflation. In other words, our lifestyle is inflated. Now that I have hit 40, I do enjoy nice things. Nice food, nice living arrangements, nice holidays etc. I’m no longer content eating noodles and mince every day, or backpacking through countries. You may be different, but I would more often than not, expect your own lifestyles to inflate as you earn more and age.
Problem four: My retired lifestyle is going to cost more than my non retired lifestyle
The activities and travel I have planned, along with the extra leisure time I will have, will mean an increase in spending above inflation. When planning for your retirement it’s so important to consider what your retired lifestyle will cost. I see many people who make plans on their current lifestyle, not realising their retired lifestyle will be completely different. Sometimes costing less, but often costing more. Especially for early retirees.
FINAL THOUGHTS
All these changes, can mean a heck of a lot more needed for retirement than your original plan. My original plan to retire by 40, would probably be more like age 46 if I continued on the same path. In another few years it may be pushed out again if I inflate my lifestyle even more. So at least 6 years has been added to original date.
It’s easy to get discouraged to see your target date pushed further and further away.
I’m not willing to have my ideal lifestyle keep pushing further and further out. That’s why I’m now striving for Coast FIRE. You can read more about that decision here. By designing my ideal lifestyle now, I am not so worried when I achieve full FI. Yes, it will be nice, but I am no longer in such a hurry. Once I make the transition to part time work, delays to financial independence will not concern me, because it is work I would want to do whether I was retired or not.
Basically, I just wanted to say, for anyone just discovering FIRE, embrace the excitement, but be realistic that your life can change a lot, and your FIRE number will often get further and further away the further along the journey you get. So, if you are in a miserable job, hoping to get out ASAP, then I suggest not waiting for FIRE. Start looking to make changes earlier, rather than later. Because you may be waiting longer than you thought and life is too short to be miserable. Don’t think achieving FIRE is a sprint. It is a marathon.
And the benefit of FIRE is what you do with your time, not the fact that you achieve FIRE. FIRE is not the finish line. Enjoy the journey.
If you need help with your personal retirement planning, then get in touch today.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here