F.I.R.E Yatra

I first came across the concept Financial Independence Retire Early (FIRE) around 10 years ago. I spent some time crunching the numbers and understanding the lifestyle changes suggested for a F.I.R.E aspirant. I discussed with my wife about our current lifestyle and adjustments needed to pursue FIRE. We concluded it was too austere for us. So, we just left it there. Over the years FIRE became more inclusive and branched out to cater to retirees of all stripes.

The Essence of F.I.R.E

The lure of F.I.R.E is the way it reimagines Retirement. Let's start with the conventional definition. Oxford dictionary defines Retirement as “to leave your job and stop working, especially because you have reached a particular age or because you are ill”. The operative phrase is “stop working”. If some of us were pursuing careers they did not enjoy only because it paid handsomely and allowed them to retire well, they had little choice but to hunker down and grind it out till they reached their formal retirement age. They sacrificed the best 40 years of their lives doing mind numbing work, pursuing soul crushing careers. FIRE holds out hope to them suggesting all is not lost. There is another way. It starts with attaining Financial Independence thereby allowing people to be flexible with their Retirement.

FIRE instills great appreciation for value over owning shiny new things. Rent over buy, used over new. Achieve similar outcomes by spending less, maximise value and start a virtuous cycle of saving and investing. Hand over the savings to Mr. Compounding and trust him to grow the corpus through solid index funds. Then at some point, hopefully way before the formal retirement age, break off the corporate shackles and embrace one's passion. Monetise it. The combination of early savings compounded through index funds along with the supplemental income generated through gigs that don't overwhelm, allow people to live their best lives.

F.I.R.E is a toolkit having an array of wrenches and a manual on how to use them. Beyond that, to each their own. Pick your version of FIRE, go over the manual and toolkit, evaluate and pick what works for you and good luck! Hopefully, you do not have to slavishly work a corporate job till eternity just to get through retirement. FIRE focuses on 2 things.

1. Income - If you don't have the needed retirement corpus, evaluate what you can retire to in order to bridge the gap between your expenses and what your corpus can realistically generate. Generate alternate sources of income that embody your passions or are less stressful than your current vocation.

2. Expenses and Investments - Critically evaluate your lifestyle. What sacrifices are you ready to make in order to achieve early Financial Independence. Save more, spend less, invest in Index funds.

Lets crunch some numbers to better appreciate the maths behind FIRE. Let's start with the most basic scenario. Scenario where one just saves and invests. No side hustle post retirement to supplement one's income. Retirement, the Oxford way! Or The long path to get FIREd.

Let’s elaborate the scenario and apply the 3 Retirement Curves we discussed here.

• Age: 40

• Status: Married with 2 kids

• Housing: Renting a 2 bed house in a metro

• Annual expenses: Including rent Rs.18 Lacs

• Life Expectancy: 90 years

• Years in Retirement: 50 years

• Inflation: 7%

• Future Commitments: Fund kids education till high school. Kids will take loans to fund their higher education and marriage. To keep it simple, assume one will not take on any new financial liabilities for either kids or parents. Also, no separate emergency fund. Everything is paid for from the annual income from investments. On the brighter side, there are no cutbacks either.

Deployment strategy for the corpus post retirement.

Case 1 Conservative ROI 7%

The Corpus needed Rs. 8.4 Cr

Case 2 Moderate ROI 9%

The Corpus needed Rs. 5.4 Cr

Case 3 Aggressive(Perpetual Fund) ROI 10%

The Corpus needed Rs. 5.4 Cr

With all the austerity applied to future commitments, the corpus required still comes to a steep 47 times the annual expenses(8400/18) for conservative option, 30 times for moderate. Adding on top the emergency funds and children's education corpus would only make it steeper perhaps shutting the door on early retirement for most. But if you've achieved the corpus by dint of your hardwork, FIRE yourself. You don't need to work a single day for the rest of your life for money's sake. Just put down your papers and enjoy life. If you aren't there yet, no worries, just checkout the alternatives. Chances are, there is a FIRE variant that's right for you.

Barista FIRE, Half way Home for FIRE Yatris

The base scenario stays the same. You are stuck in the wrong line of work. You do not like your job but it pays well. However, you have other passions that you’d like to pursue. Maybe Music, teaching, creative writing… These will bring you happiness and help you attain zen. These have some monetisation potential but can’t fund your current lifestyle entirely. At best, these alternatives can fund part of the expenses current and future.

If you fit the above criteria, you need to calculate the gap between your current expenses and what you think you can realistically earn in your alternate career. Suppose, you can earn Rs. 12 lac a year monetising your passion, then the income gap is 18 lacs - 12 lacs = 6 lacs. These 6 lacs need to come from your investments. In percentage terms the gap is 1/3 rd of your current annual expenses. Just take the 3 base cases above and reduce the corpus to 1/3rd e.g. for conservative approach the corpus needed now is 8.4/3 = 2.8 Cr. But remember your gig income needs to last your lifetime or you may need to cut back when that stops. Too taxing? FIRE has an alternative brand for you.

Coast FIRE a close cousin of Barista

Take the Barista FIRE scenario. If you have enough savings that if handed to Mr. Compounding till retirement age (60 years) without any additions or withdrawals will get you to the right Retirement Corpus or in the ballpark, then you may switch to a lower paying, less stressful job that allows you to just about meet your recurring expenses till Mr. Compounding is ready with your required retirement corpus. In other words if you can replace your existing job with a gig that meets all your recurring expenses till retirement age, you’d be Coasting. Honestly, I feel someone branding dude out there went crazy branching out FIRE for the heck of it. We could have just stayed with Barista and done just fine.

Long and short of Barista / Coast FIRE is to know what you are "retiring to" and be realistic about what financial support you can expect pursuing your the alternatives. Number crunching is the easy part. Being a financial realist is tough.

Fat FIRE or Sham FIRE!!

Fat FIRE is about retiring early and yet living lavishly. Reach your "No Compromises" Retirement Corpus and live an abundant lifestyle. Just live like a King! Not sure if this is it not the antithesis of FIRE ethos? Where is the grind of saving every penny, the gut wrenching tradeoffs, curbing your aspirations to carve out a frugal retirement. Like I said elsewhere, this multibranding of FIRE is tedious and at times works at cross purposes with what it originally set out to achieve.

You may turn incredulous if I told you there is another FIRE cousin that’s not as Fat as Fat FIRE but is Fatter than Lean(Core) FIRE. Any guesses? It’s called Chubby FIRE. I leave it there. Research if you must. But I’ve lost the FIRE. I’m exhausted!

My Personal Journey to Retirement

I retired at 50 and I do Not consider myself a F.I.R.E candidate till they create a brand for me or Fat Shame me into one of the existing ones. When I retired, I had the Oxford definition of Retirement in mind. Though along the way, I did follow some of FIRE tenets such as High Savings Rate and curbing Lifestyle Inflation. My spouse and I agreed on a lifestyle baseline and have "coasted" along without much escalation.

During the last few years of my Corporate Career I often asked myself, what upgrade would I do to my lifestyle with next year’s savings? A new car or a house or exotic vacation? In the end, all I did with the savings was to invest or make an FD and continued running on a corporate career treadmill.

Lifestyle is usually a one way street. You can scale up but it's brutal when you need to scale back. Ask yourself in all earnestness, are you and your family content with the present lifestyle, are there are no aspirational goals you seek such as a better car, a house, more vacations… Are you and your family ready to make the sacrifices needed for FIRE? Be careful here, lifestyle aspirations are sly creatures. They grow on you slowly till one day they bend your will and make you reckless.

Once I had saved for the planned living expenses and one time future expenses such as child’s education, marriage and emergency funds as separate buckets, felt comfortable in my own skin and achieved the Safe Withdrawal Rate (SWR) corpus, the marginal utility of one more year of savings melted away.