Is FIRE possible for us average Joes?

There’s been a lot of kerfuffle in the press lately about FIRE (Financial Independence and Retire Early). It seems that some FIRE advocates have either been writing about or been sourced for comment about it and it's caused a big fuss. The newspapers, typically, have published articles based on the far extreme of FIRE and suggested that it is possible for us all to retire at 30/40 financially independent and never need money again if only we practice extreme frugality (or something like that). This is just click-bait ruse and to generate comments that keep the newspaper at the top of Google. The comments are as expected, depending on which newspaper you read, from the polite scepticism of Telegraph readers to the no-holds barred outrage and insults from Daily Mail readers.

The trouble is, the newspapers do no-one any favours but themselves by reporting in this way (perhaps reporting is too strong a word, story-telling may be more apt).

The consensus is the average Joe couldn’t possibly do this so why bother trying? To be honest, they’ve probably got the first bit right to a certain extent but it annoys me that it is seen as a binary choice. Either Financial Independence or bust! Suppose some of those people had a go, and the most they managed to accomplish was paying down all their debt and building up some savings so they feel more secure. Surely that’s better than throwing their hands up and not bothering?

A lot of the comments on the Daily Mail site were very telling. One man commented that “I might as well enjoy it as I could be dead tomorrow” because he earned £17,000 a year, his rent for a one-bed house cost him 40% of his salary so financial independence for someone in his position was ridiculous to aim for. No-one has said to him that if you earn £17,000 a year and spend 40% of your take home pay on your housing you should not be renting a one-bed house. This guy is renting so he has flexibility that homeowners don't have. Rent/mortgage should not be more than 30% of a take home salary. That’s what the banks work to when assessing mortgage affordability and it’s a good starting point for personal finances. If rental on a one-bedroom property is crucifying you, either downsize to a studio flat and save the difference or go up to a two-bed and share with a friend. Either way, the percentage of your take-home pay spent on housing comes down and you can breathe…and save.

I speak from experience. Years ago, before I met DH, I rented a two bedroom house on my own and my housing costs were 43% of my salary. Ouch! If this guy got his housing costs to 30% of his take home he could save 10%.

The attitude that “might as well enjoy the money, you could be dead tomorrow” is short-sighted and defeatist. Statistically you are NOT going to die tomorrow. I think averaged out across the entire population (taking into account age and health) it is something like 0.002% or 1 in 50,000 chance of dying tomorrow. If you spend everything you earn on consumer goods and services you will get to retirement age and have nothing but a state pension and a poorly performing private pension (if you didn’t opt out). If you’ve bought a house you might have that to fall back on and/or if you are very lucky you might have an inheritance from relatives. If you have neither and you opted out of a personal pension you’re going to endure a lot of financial pain at an age where it’s hard to ride that out. 

Anyway, it's no secret that DH and I want to retire early. I’ve explained my reasons why here.  I have a few FIRE advocates in my blogroll that I keep up with, HOWEVER, that does not mean I am going for Financial Independence. I realised some time ago that Financial Independence is not possible for us.

Financial Independence is defined as the point where the ‘income’ from savings and investments pay your monthly outgoings. You are considered to have reached Financial Independence when you have accumulated 30 x your annual expenses, which you can then take 4-6% a year of as your income. DH and I will not accumulate enough money to achieve those kind of numbers, which for us is around £600,000 without mortgage payments. Why?

• We started late – I didn’t even think about retiring early until about 2009 at 36. 
• We earn the UK average salary for a two-person household. We’re unlikely to ever earn megabucks because we’re not keen on the idea of the stress and responsibility that goes with it. We generate money on the side here and there when opportunities arise but generally we do not have the drive or energy to chase larger sums of money or climb ladders. That’s a conscious choice on our part.
• We like the occasional meal out and want to have some interesting holidays over the next few years. I consciously cut some things to the bone to enjoy others.
• We made the decision to take on another mortgage two years ago.  If we had stayed at the last place we would have been mortgage free in 2021. And miserable. I hated that house at the end. We moved to achieve a dream, albeit an expensive one.
• We’ve benefited from rising property and financial markets over the last 10 years, which won’t last and we may be in for a bumpy ride during the next 10 years.
• I only started a proper pension in 2010 and, due to probationary periods and redundancy, only have about 6-7 years contributions.

Taking into account all of that, what we can do is achieve financial comfort (and a nice chunk of FU money) earlier than 65, so that is our aim. We’re going to use whatever tips and tricks we can glean from every possible source, and combine that with solid budgeting, saving, tax and investing principles to secure a better financial future for ourselves. That better future is DH retiring at 62 and me at 55 and then carefully running down our money (we may work after this but the crucial point is it will be because we want to, not need to). 

This is different to true Financial Independence, in that we are not living off 4-6% of the total retirement pot every year. We’re living off a lot more than that every year so it will deplete over time. At some point we may have to do an equity release or downsize – we’re not living in penury when we own a house outright. We’ll use it if we have to and enjoy a comfortable retirement. 

I don’t believe the average Joe can achieve Financial Independence, but I do believe they can achieve financial comfort with no debt and a nest egg of FU money. That’s got to be worth going for.