The FIRE Movement: Achieving Financial Independence and Early Retirement
What is the FIRE movement, its variations, its impact on socioeconomic factors, government revenues, and the future of work?
The FIRE movement, which stands for Financial Independence, Retire Early, is a financial strategy aimed at achieving economic freedom at a younger age than traditional retirement allows. Rather than being locked into a salaried role while contributing to a pension, proponents of FIRE try to frontload their earnings and savings, including investing in income-generating assets such as real estate that they can draw down on in the future.
Variations Within the FIRE Movement
Within FIRE, there are different variations that cater to diverse financial goals:
Lean FIRE: Economising throughout working life to facilitate a lower-cost retirement.
Fat FIRE: Planning for adequate passive income generation to afford a luxurious early retirement.
Barista FIRE: Aiming for partial retirement and part-time work to supplement income.
Coast FIRE: Saving aggressively early on so investments grow enough to support retirement without additional contributions.
The Intersection Between FIRE and Overemployment
There is an interesting intersection between the FIRE movement and overemployment. Some people are willing to maximise their earnings to achieve earlier financial freedom, even if it means working multiple jobs simultaneously. Organisational flexibility and the option for asynchronous and remote work can facilitate this. In some ways, better working conditions can lend themselves to overemployment to boost earnings, which in the past was driven mainly by a need to make ends meet. This creates a paradox where workplace comfort serves as a platform for more economic activity overall, though not necessarily benefiting the organisation providing the comfortable working conditions.
Socioeconomic Factors Influencing FIRE
Achieving FIRE may be more attainable higher up the socioeconomic ladder due to:
More Savings Potential: Higher incomes allow for greater savings and investment opportunities.
Greater Access to Financial Education: Individuals with more resources may find it easier to improve financial literacy and investment knowledge.
Lower Debt-to-Income Ratios: Higher earners typically have less debt relative to their income, easing the path to financial independence.
This demonstrates how FIRE may exacerbate socioeconomic and health inequalities as people age. Those lower down the socioeconomic ladder may continue working in less comfortable conditions, needing to work for income via a salary and other aspects of compensation, including access to healthcare. In contrast, those who started with more resources may be able to build out a savings plan allowing them to afford to work less and more flexibly as they age.
Impact on Government Revenues and Healthcare
Another interesting angle is the potential impact on government revenues and healthcare if more people pivot to a FIRE approach:
Reduced Tax Contributions: Early retirees leave the workforce during their peak earning years. Employers will no longer contribute to aspects of social security funding through taxation via earned income.
Tax Rate Differences: Earned income is often taxed at higher rates than capital gains and dividends, potentially leading to decreased government revenue.
Increased Public Service Demands: Regardless of what happens with tax contributions, demands on public services are likely to increase with an aging and less healthy demographic, exacerbating financial strain on government resources.
Future Considerations for Employers and Governments
We must think ahead about how people across demographic groups will decide to work going forward. If employers want to keep experienced hires in their workforces, they need to find ways of retaining workers who may prioritise financial independence to create scope to move away from earned income earlier in their careers. Strategies employers could consider include:
Flexibility: Offering remote work, flexible hours, or less than full time positions, such that people are willing to take on a salaried role as part of a portfolio career where they have autonomy in other aspects of their working week
Incentives and Benefits: Providing competitive benefits that align with employees' financial goals, that would be difficult to achieve if working freelance
Governments must anticipate changes to tax revenues as people shift away from typical earnings trajectories. There is a risk that socioeconomic gaps will widen as people with fewer resources have limited income, limited career flexibility, and less autonomy in how and when they work, particularly as they age.
Lara’s take
The FIRE movement is an interesting example of how people are trying to change the relationship between work over time and financial security. While just one example, the FIRE movement demonstrates that society no longer has a cookie cutter approach to career, financial and lifestyle aspirations. People piecing together their own routes will have a sphere of impact beyond an individual and their unit, via organisations and tax contributions to public services. Staying current and understanding how work culture evolves is essential to ensuring economic activity is leveraged appropriately, on a societal scale.
Increasingly, there are different ways of doing things when it comes to work. This should be a good thing in creating options that suit a broader range of situations and goals. But true progress will only be made when freedom in how we work reaches all socioeconomic groups.
