FIRE up!

by Robert DeVries

Could you learn a thing or two from a millennial?

Millennials have gotten a bad rap.  Millennials are generally described as those born in the late 1980 and 90s to baby boomer parents.  Now adults, they have been blamed, in various business articles, for the death or decline of several industries including: golf equipment, razors, beer, mayonnaise and certain casual dining chain restaurants.

But for all the bad press, a few enterprising Millennials have written (blogged!) about how to have financial independence and retire early, like, really early, like by 30.  This phenomena even has a clever acronym of FIRE (Financial Independence, Retire Early). While there has been some skepticism of how many people have achieved this goal and the wisdom of retiring so young, there are a few principles of FIRE which could help everyone on their financial journey.

Save (a lot!)

The main feature of FIRE is save, save, save and the obvious flip side, spend less.  Frugality is the hallmark of FIRE. While living barebones is not attractive or feasible for many of us, the lesson to be taken is the more you save and the earlier in your life you save it, the more you will have because of the magic of compounding.

Withdrawal rate

A criticism of FIRE is the uncertainty that comes with being retired for fifty plus years.  A major component of the formula for success for being retired that long is the withdrawal rate from the portfolio.   What percentage is safe to draw off of the portfolio? Is the 4% rule, an old financial planning maximum, too high of a withdrawal?   

Do what you love while you can

A common theme for the FIRE devotees is spending more time doing what they love, particularly while they are young.  That means different things to everybody, but the principal to grasp here is what is important to you? Would having financial freedom better allow you to do it?  Can your financial plan accommodate a bucket list trip earlier, while still working or recently retired?

Killing me softly

According to Business Insider and Fox Business, here is a list of products, industries or activities that have taken a hit from the lack of interest from Millennials:

American cheese singles
Canned tuna

Casual Dining Restaurants
Department Stores

Starter Homes

Bar Soap
Fabric Softener

Tax rates

There is a great deal of uncertainty around future tax rates.  What would be the impact on your plan should marginal tax rates be significantly higher in the future?  What is the estate tax and gift limits were lowered significantly. Could you adjust your plan to contemplate these changes?

What does all this mean for you?

The bottom line, there is a great deal of complexity and uncertainty around planning your financial future.  This is amplified over a 50 year time period. Working with financial professionals like the WealthCoaches at FirstWave Financial can help you manage the complexity that wealth brings, keep your plan up to date, thereby helping you live with confidence about your financial path.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.