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How to retire by 40 using FIRE (Financial Independence Retire Early) strategies

The FIRE movement is helping more Australians fast-track their way to early retirement. Here we share three FIRE strategies that may help you hit your retirement goals sooner too.

Traditionally, the transition to retirement occurs once a person passes the age of 55. But due to rising living expenses and increasing life expectancies, more Australians are having to work later and look beyond superannuation to adequately set themselves up for retirement.  However, with some smart financial planning early on, it doesn’t have to be this way.  A trend that is quickly gaining popularity in Australia is the FIRE movement.  It’s helping Australians retire sooner by living frugally and making smart investment choices early in their working life.  This blog will explain how to retire early in Australia through three FIRE strategies.

What is the FIRE movement?

FIRE stands for financial independence retire early, a financial movement that allows Australians to retire early. FIRE involves investing and saving as much of your income as possible to achieve financial freedom before the age of 40, or the standard retirement age. The goal of implementing FIRE finance strategies is to live off your investments, without the need for a regular income stream, like a salary.

FIRE participants traditionally save up to 70 percent of their annual income and withdraw 4 percent of these savings annually during retirement to cover living expenses. This is known as the 4 percent rule. For instance, if you saved $1 million for retirement, you would withdraw and live off $40,000 for the year.

While FIRE is an aggressive way to retire early, Australians involved in the FIRE movement learn how to live more frugally.  They make consistent investments to grow their wealth, helping them achieve their goal of an early retirement. Let’s take a look at some common strategies for helping Australians learn how to retire early.

Strategy #1 — Discover what early retirement looks like for you

One of the benefits of the FIRE movement is that there is no hard and fast rule on how to do it. Early retirement looks different for everyone. For some, it’s putting their tools down as soon as they hit 40.  Others may want to continue working on their own terms, such as on a part-time or casual basis that fits with their lifestyle.

Once you understand your ideal retirement, you can work backwards with how much you need to save. While doing this might not seem like a strategy, it’s a simple way to determine which investment and saving tactics work best for you so that you can fast-track your way to FIRE.

Strategy #2 — Invest in low-cost index funds

Whether you’re a newbie to investing or a seasoned pro, you may know that investing in exchange-traded funds (ETFs) is an easy, way to diversify your portfolio and manage risk — and it’s also a top investment option for FIRE investors.

ETFs help FIRE investors take the guesswork out of selecting the most profitable stocks, as they allow you to invest across a range of stocks, giving you more exposure to the market.  Similar to ETFs, listed investment companies (LICs) expose investors to hundreds of different companies in just one trade.

Australians that participate in the FIRE movement tend to invest as much money as possible into ETFs or LICs. Aside from diversity, these stock choices are also low-cost with low brokerage fees — an ideal option for FIRE retire early fans.

Strategy #3 — Consider property investment

Property investment is a debated topic within the FIRE community, as it requires a substantial upfront payment. However, some FIRE participants consider it a viable way to receive a passive income that can be used to unlock greater wealth. By becoming a property investor, you’ll be able to receive rental income from your tenants, which can help you pay off your mortgage or be funnelled directly into your FIRE savings.

And when you’re ready to sell or retire, you’ll be able to make a decent profit for your FIRE fund. Just keep in mind that while it can be a profitable endeavour, many responsibilities come with being a landlord, so be sure it aligns with your financial values before making the investment.

Financial Spectrum — your experts in financial independence retire early in Australia

When using FIRE to retire early, having a solid strategy is essential. The talented team at Financial Spectrum can help you construct a FIRE strategy tailored to your goals. We’ve worked with clients from all financial backgrounds, and we’d love to get you on your way to unlocking financial freedom. Book an appointment with us today, or have a read through our blog for even more financial tips and tricks.  Remember the earlier you start, the more you’ll benefit from compounding returns and the greater your ability to create long-term wealth.

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