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FIRE extinguished: Can you still retire early in Australia?

Amid rising inflation and high household costs, is the FIRE method is viable for younger Australians? Hear from Brenton Tong, along with eight other financial experts, in this interview by Finder.

Financial Spectrum’s Brenton Tong was interviewed for this article by James Martin published on Finder.  You can view the original article here

Amid rising inflation and high household costs, we asked eight financial experts if the FIRE method is viable for younger Australians.

Let’s start with a reminder of the FIRE movement and how it works

FIRE stands for Financial Independence, Retire Early. Its supporters commit to making frugal choices with their lifestyle to save money.

At the same time, they will set big investment goals, typically focused on low-cost index funds, property and superannuation.

By making smart decisions while they’re young, FIRE fans will be in a position to retire early.

So, is FIRE really still achievable in 2022?

Financial adviser Brenton Tong said he recently worked with a young couple who were “well on their way” to a comfortable retirement before 40.

However, Tong noted that high prices and “strong rental pressure” weren’t making things easy, especially for those in expensive metropolitan areas or those who can’t work from anywhere.

“It has become harder to save and build wealth.  With higher cost of living and rents increasing, it’s going to get harder to squirrel away that money into your investment portfolio,” explained Tong, adding:

“But if you can move out of the expensive city areas and maintain your city job and salary, it’s in fact easier today to build your nest egg than it ever has been.”

Author and investment expert David Scollon was also upbeat. “A FIRE plan doesn’t avoid change; it accounts for it,” he said.

“How each person is impacted by inflation depends on their circumstances, income and capacity to reign in expenses. Some will face higher costs but are at a life stage where their income increases.”

Serina Bird, host of The Joyful Frugalista podcast – and who retired from her public sector job at age 47 – said: “There are also more ways to get a side hustle than ever before, or become part of an online FIRE community to connect with others who share your goals.

“The sharing community now is huge. It’s hip to be frugal – not just to save money but also for sustainability reasons.”

But these are tough times – not least for wannabe retirees

Kylie Purcell, Finder’s investment editor, noted the “terrible mix” of lower investment returns and high inflation meant it was a bad time for those looking to retire soon.

“For people withdrawing from their investment portfolios, they’ll be locking in losses until the market recovers.”

Purcell added that one way around this could be to diversify your portfolio. One such example is Finder Earn, where you can lock in more than 4% on your capital.

Those who follow the FIRE movement typically aim to have 25x their annual living expenses invested in a diversified portfolio, with a secure annual withdrawal rate of 4%.

Cameron Micallef, Finder’s investment writer, agreed it was tricky for those looking to retire soon: “The current investing landscape may negatively impact those who follow FIRE if they are planning to retire in the next year or 2.”

“Going off the S&P 500’s historical 100-year return rate of 7%, technically the S&P 500 is down 0.9% this year, meaning people are actually down nearly 6% in real terms when you account for inflation.”

FIRE followers are on the right track

Despite the recent bumps for investments, there is reason for optimism if you’re patient.

“I’ve spoken to a number of different experts on this and there’s general agreement that, yes, the short-term is bumpy for investors,” explained Micallef.

“But FIRE approach is all about buying broad-based exchange traded funds (ETFs). FIRE proponents would keep on buying these regardless.

“Over a longer period, there will be less impact and so fewer worries for bullish investors.”

Micallef added: “In many ways, FIRE followers won’t change their investment strategy in any way, shape or form.”

Key tips for growing your wealth

Our FIRE guide goes through the step-by-step process that many FIRE advocates follow to gain financial independence and retire early.

On making a start, the Association of Financial Advisers national chair John Cachia commented: “Understand what you want to achieve and build a plan to get there.  You need a clear, strategic plan which is your roadmap to your goals.”

Here are some further top tips:

Don’t ignore superannuation. Brenton Tong said: “You can’t rely on super to fund your life for the first 20 years [of an early retirement], but it’s incredibly gratifying to receive a massive cheque when you turn 60 because you were smart with your super fund. Make sure the fees are low and the money is invested well.”

Build useful connections. Hejaz Financial Services founder and CEO Hakan Ozyon said: “Your net connections are your net wealth … surround yourself with hardworking, successful people who will encourage you to go after challenges and set ambitious goals.”

Get a coach. Expert John Cachia said: “Ensure you have a coach to help you stick to the plan. Rafa Nadal just won his 21st Grand Slam and yet he’s got a coach.  You know the coach is probably not there to teach him how to hit the ball, but [is] mainly about helping him to continuously level up his mindset to keep him winning.”

And a final one from us: with the official inflation rate spiking to 5.1%, it could be time to see how much your pay needs to rise to get your financial game back to deuce.

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