The coronavirus crisis and the lack of a reliable job market may lead more people to investigate the FIRE philosophy. That is, Financial Independence, Retire Early.
Two forty-somethings sold their Seattle home, said goodbye to their jobs, and set off on an around-the-world journey in 2018 as part of the FIRE movement. They could not have known the true significance of that decision.
At the time, U.S. markets were still on the upswing and all was well for Ali and Alison Walker.
Then came the coronavirus pandemic. The Walkers’ investments took a huge hit and they found themselves confined to an Airbnb in San Miguel de Allende, Mexico, because of travel restrictions. They eventually got a flight out, leaving in May instead of March, and documented their adventure online.
The FIRE adherents had solid nest eggs, allowing them financial flexibility at a critical moment, because they had pursued their goals by saving aggressively, according to a profile recently published in Barron’s.
“We planned for some type of a black-swan event,” said Ali, who worked in marketing and business development. “We couldn’t have planned for the coronavirus, but we assumed there would be a tough bear market or a prolonged down market for one reason or another.”
Just as people flocked to the movement in the wake of the 2008 recession, the current crisis may lead yet more people to FIRE strategies.
“What part of ‘biggest unemployment spike in history’ makes you want to be more reliant on your job?” says Tanja Hester, author of the book “Work Optional” and the FIRE blog Our Next Life. “It’s a huge reminder that workers are expendable, and there isn’t a great safety net out there for us.”
The Walkers set aside five years of cash to cover their expenses in the case of a sustained downturn and decided on a conservative annual withdrawal rate of 3% of their savings. They also gave themselves plenty of wiggle room in their budget to pare back expenses if needed.
“One of the great things about the FIRE movement is that it talks a lot about the different scenarios you should prepare for before deciding to retire,” says the 56-year-old Alison, who had worked retouching images for catalogs and corporate clients.
Marcus Miller, a financial planner who specializes in working with FIRE clients, says the philosophy attracts disciplined investors of a cautious mindset. “If you take a look at the people who comprise the FIRE movement, it’s people who often live below their means and have built this war chest to live off of. They may be better equipped to weather a storm like this than the majority of Americans.”
Timing is everything, says Matt Ryan, a financial planner at San Diego–based Creative Capital Management Investments. “Two months ago, the people who are close to financial independence and retiring may have been pretty close to their goals,” he says. “But now they may have to adjust their timing.”
Grant Sabatier, a personal-finance blogger and author of “Financial Freedom: A Proven Path to All the Money You Will Ever Need,” said now may be a difficult time to pursue a FIRE lifestyle. But he said that this is a good moment to take the time to understand their values and plan how they want to save, spend and invest in the future.
“Use this moment while we’re all stuck inside to figure out your relationship with money and how to be more intentional about it when this is all over.”