Financial Independence, Retire Early (FIRE): How To Make A Dream Come True

Introduction

Does Arjun's (as portrayed in ZNMD) dream of retiring at 40 (or early retirement) resonate with you? If yes, then this blog is for you.

In this article, we will talk about the FIRE (Financial Independence, Retire Early) movement. It is a financial planning method for early retirement that challenges the popular belief of working until 60-65 years, the conventional retirement age. This concept has recently gained popularity among Gen Zs and millennials.

So, let us dig in to understand the fundamentals of this unique financial rule in detail.

What Is The FIRE Movement?

Vicki Robin and Joe Dominguez introduced the FIRE concept in their book “Your Money Your Life” in the early 90s. The FIRE movement is a lifestyle movement aiming towards financial independence and retirement as early as possible. People following the movement try to find ways to earn more and spend less, thus saving more. They also invest aggressively to grow their income. The endgame is to build up enough corpus to fund their retirement life.

Variations Of FIRE Movement

Based on people’s financial habits, the FIRE movement has several variations. These variations are:

Lean FIRE

• Minimalistic Lifestyle: Focus on frugality and embracing the bare minimum.
• Fulfilling Essential Needs: Covers the basic cost of living without luxury.
• Strict Budgeting: Emphasises extreme levels of savings.
• Low-cost Investment Plan: Often go for straightforward investments requiring low initial costs. 

Fat FIRE

• Comfortable Lifestyle: Luxurious lifestyle with no compromise on the current standard of living. 
• Higher Spending: Involves a financial buffer for indulgences and above-average cost of living.
• Multiple Streams Of Income: Builds different sources of passive income.
• Aggressive Investments: A diversified portfolio generating passive income from multiple assets. 

Barista FIRE

• Part-time Work: Shift from “working for a living” to “working for what you love”.
• Transition To Full Retirement: This often is a transitional phase before retirement.
• Balanced Approach: Combination of savings, careful financial planning and flexible work.
• Income-Generating Investments: Preference for investments that provide regular income given partial retirement.

Coast FIRE

• Frontloaded Savings: Involves making retirement contributions in the early years.
• Minimal Retirement Contributions: Focus on benefiting from the power of compounding. Stop making retirement contributions in the later years.
• Focus On Financial Independence: Achieving financial security quickly to relax later. 
• Mixed Investments: Prioritise high-risk options in the early years and eventually shift to conservative options.

6 Investment Strategies For Early Retirement

Retiring early requires a regular, stable and fixed income source. Investors can look for below to generate passive income.

• Inflation-beating
• Non-volatile
• Tax-saving investments

Moreover, investors should aim for investment diversification, including options across the entire risk-reward spectrum. These options can include a mix of stocks, bonds, SDIs, real estate, other alternative investments, etc. 

Here are some options to help your financial independence and early retirement journey.

1. Systematic Investment Plan (SIP)

A SIP can help investors experience the power of compounding. It encourages investors to invest regularly in small amounts for a longer period. SIPs are the easiest way to invest in mutual funds and SIPs in corporate bonds. Moreover, this option is open-ended, enabling investors to withdraw the total corpus whenever they want.

2. Employee Provident Fund (EPF)

EPF forms a significant part of any retirement plan despite withdrawal restrictions. Employees and employers contribute a percentage of their monthly salary towards EPF, which earns interest. It is also one of the tax-saving investments. Alternatively, they can also contribute to the Public Provident Fund (PPF).

3. National Pension Scheme (NPS)

NPS is a market-linked pension scheme that allows retirement planning. In this voluntary scheme, investors can contribute till the age of 60. After that, they can purchase an annuity with 40% of their savings and withdraw the remaining amount either as a lump sum or systematically on a monthly, quarterly, half-yearly, or annual basis.

4. Securitised Debt Instruments (SDIs)

An SDI is an exchange-listed, rated and regulated debt instrument. It helps investors access fixed returns of up to 16% pre-tax IRR, higher than traditional options like FDs. The returns from SDIs are not subject to market volatility. Investors can explore many SDI opportunities (LoanX, LeaseX, BondX, InvoiceX) at Grip Invest and diversify their portfolios and achieve their retirement planning goals.

5. Corporate Bonds

Companies issue corporate bonds to raise capital from investors for a predetermined time. Investors receive periodic interest payments and principal repayment upon maturity. This option is attractive for investors seeking stable monthly/quarterly income. However, investors should invest only in investment-grade bond opportunities to mitigate credit default risk.

6. Fractional Real Estate

Investing in real estate is the most common way to build passive income for retirement. It is considered an appreciating asset that simultaneously provides investors with rental income. However, real estate investments require large initial capital and due diligence to mitigate associated risks. Conversely, investors can generate stable yields by investing in fractionalised commercial real estate (CRE) through alternative investment platforms. With CRE, investors can own a part of the carefully vetted property at lower investments and earn stable periodic returns. 

Conclusion

In conclusion, the FIRE movement requires patience, consistency and a well-planned savings/investment approach.  It is essential to understand that the objective of FIRE varies from person to person. For some, it is just a means to achieve financial security; for others, it represents an escape from the “9-5 daily grind”.

Carefully examine your objective and adjust your lifestyle to achieve the goal of early retirement. A sound investment plan is one of the most significant parts of this movement. Explore stable investment strategies on Grip Invest that can help you achieve your FIRE with curated, rated, SEBI-compliant and listed opportunities.

Frequently Asked Questions

1. What are the challenges of the FIRE movement?

Some of the potential challenges include:

• Market volatility
• Unexpected life events
• Tax Changes
• Medical expenses, etc. Hence, it is always important to keep an emergency fund.

2. Can you join the FIRE movement with low income?

Individuals with low income can also go for FIRE. They can focus on LEAN Fire with minimalist living, strict budgeting, and intelligent low-risk investing.

3. What is the typical FIRE retirement age?

There is no fixed age. However, it aims to retire before the traditional age of 60-65. Most of the followers of the fire movement aim to retire in their 40s or 50s.

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