Have you heard of the FIRE Movement? In case you haven’t, it stands for Financial Independence Retire Early. When I heard about it in college I immediately wanted to do it. The idea was simple: earn as much as you can and save as much as you can so that you can retire early.
Right when I got my first job in college I started applying the idea. For every paycheck I get, I set aside the amount that I needed and pushed the rest into savings. The plan worked great and my savings account was increasing monthly. Sometimes my friends would invite me to go out for dinner or movies and I’d decline because that would be money I could’ve put in my savings. My friends thought of me weird and wondered why I’m even thinking about retirement when I haven’t even graduated college yet. I’ve always preferred to plan ahead for everything no matter what it may be. This was no different. However, it was because of this early planning that I soon realized that the FIRE movement doesn’t really work unless you’re a high income earner.
If you plan to retire at age 30 and want to have a yearly budget of $50,000 till the average age of 80, then that means your nest egg would need to be $2,500,000 or more. Even if you graduate college after 4 years at age 22 with a bachelors, the annual amount you need to put into savings for those 8 years from age 23-30 would need to be $312,500 per year. Realistically, the average 1 person household income is about $50,000. Even if you go on a strict budget for all those 8 years and manage to push $48,000 ($4,000 monthly) into investments making 12% returns per year compounded, you’ll still only get $639,709 at age 30 out of the $2,500,000 you need.
If you plan to retire at age 40 with a $50,000 annual budget, then your nest egg would need to have $2,000,000 or more. This is easier to achieve with the longer timeline but will require an annual amount of $111,111 put into savings. However, if you manage to invest and push $36,000 ($3,000 monthly) into investments making annual 12% returns compounded, you’ll be able to reach $2,273,582 by age 40. Retiring at this age has a higher probability, but of course this would mean you are not using those funds on big purchases like a house or car.
I think the idea is pretty much clear. You need to have a high earning income to do the FIRE movement. Of all the FIRE movement article and videos I’ve seen online, I have not seen anyone do it on an average income. This is because the lower your income, the harder it is to save.
Right out of college, my first full time job provided an annual salary of $50,000. Although I no longer follow the FIRE movement fully, I appreciate what it has taught me about frugality, savings, and retirement. The knowledge it has given me has helped me make better financial decisions especially going forward towards my retirement.
The Money Noob 