Retiring early is something most people would choose if possible, and a growing online movement outlining how this can be done has captured the imagination of young workers in Cork and across the country.
Over the past decade or so, lifestyle plans aimed at creating the circumstances necessary for early retirement have gained traction, especially with those aged in their 20s and 30s.
Advocates of the increasingly popular ‘FIRE’ movement (Financial Independence, Retire Early) aspire to hang up their work clothes well before they hit their mid 60s.
The movement’s devotees across Ireland follow a range of principles including drastic lifestyle changes which slash their monthly expenses and making smart investments with those savings.
Despite the growing popularity of the movement among Millennials and Gen Z, the vast majority of people will still rely on their pension in retirement. And some people with private pension pots might also also choose to withdraw some of their pension early.
It is possible to cash in your pension when you turn 50, giving you access to a 25% tax free lump sum, which could pay for a well-deserved holiday, or put towards paying off your mortgage.
Only some pensions are eligible for cashing in early – you can only do so if your pension fund is with a former employer and your line of work is in the private sector.
This means that pensions with your current employer don’t qualify, and those working in the public sector also can’t access their pension early. If you think you might qualify, it is worth calculating your pension lump sum eligibility to see if it’s something you could benefit from.
But those following the FIRE lifestyle are more interested in bypassing pensions – and some of the more extreme ideas and techniques have captured the minds of those who see it as a way of escaping the rat race decades before their peers.
The main idea of the movement is to have enough money to live comfortably without working, i.e. financial independence without relying on employment.
The ‘FIRE number’ is where its adherents are striving to get to – which is essentially savings and investments which total 25 times their total annual expenditure.
To achieve this, those in the movement try to eliminate all debt and live as frugally as possible, while making smart (and lucky) investments.
In practice, this means that if your monthly expenses are €3,500, you would need just over €1 million to retire. With a return on investments, this should be enough to sustain you for the next 30 years provided you withdraw 4% per year.
This might sound like a pipedream for most people – but some who are starting out on their career are choosing academic courses with a future of financial freedom in mind, and it can be achieved with smart decision making and extreme frugality for a decade or two.
Another core premise of the movement is to evaluate every expense in terms of the number of working hours it took to pay for it.
This allows people to see their expenses as hours worked, ultimately motivating them to find ways of saving money, and getting to the magic FIRE number of 25 times your annual expenses.
