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FINANCIALLY Speaking Playing with F.I.R.E? Don't Get Burned! F.I.R.E. stands for Financial Independence/Retire Early. It is a movement, mostly popu- lar among Millennials, that has been gaining traction recently, and it’s not hard to understand the appeal. Financial Independence? Sounds terrifi c! Retiring Early? Sign me up! 1. Jeffrey M. Orth is a Chartered Financial Consultant, a Certified Advisor in Senior Living, and an Investment Advisor Representative, with over 15 years of experience as a business and personal planning, insurance, and wealth management specialist. Jeff is available for group lectures and private consultations. Visit integrated- or call 408.842.2716. Jeffrey M. Orth is a registered Representative of, and Securi- ties and Investment Advisory services offered through Homor, Townsend & Kent, Inc. (HTK). Registered Investment Advisor Member FINRA/SIPC,16845 Von Karman Ave, Ste. 225 lrvine, CA 92606 (949)754- 1700. I Fit is unaffiliated with HTK. CA Insurance License #0C49291 2331989PH_Jan21 60 So how does F.I.R.E. work? When most people think about retirement age, they think about their 50s, 60s or maybe even waiting until their 70s. While this is the standard age for most people, those who follow the F.I.R.E. lifestyle retire much earlier, usually in their 40s, 30s and sometimes, even in their 20s. For these people, fi nancial independence seems to be the primary goal that is driving them. Having the ability to pursue personal interests or causes without being constrained by the need for active income seems to be the attraction. Financial independence doesn’t always mean that you have to quit your job. It often means that you no longer feel tied to the income your job provides. And if this is the case, it creates leverage at work when negotiating benefi ts like pay increases and vacation time. You are working because you WANT to, not because you NEED to. Financial independence requires discipline in your spending. It means cutting back on expenses and living a much simpler, more frugal, lifestyle. It also requires a decent income at a relatively young age. The math behind F.I.R.E. is really simple: Spend less then you earn and invest the difference. And if you have learned to live on less, it is assumed that you will also need less money saved when you retire because you will only need to have enough to support that more frugal lifestyle. How can you use time to your advantage? For example, if you invested $522 at the beginning of every month for 40 years, or $1,021 at the beginning of every month for 30 years, and assumed a 6% growth, you would accumulate one million dollars! (Keep in mind that these calculations ignore the impact of taxes or infl ation, and do not refl ect any specifi c investment.) The point of this illustration is that there is value in starting early when it comes to saving and investing. GILROY • MORGAN HILL • SAN MARTIN What’s the problem? As a Chartered Financial Consultant, you would think that I would enthusiastically support a plan that has young people starting to save early in life! And, in fact, I do. I believe the goal of creating fi nancial independence as soon as possible is a worth- while goal. But the F.I.R.E. approach not only requires a great deal of work and discipline, it overlooks some major challenges to its success. Here are some things that can upset the Retire Early plan: • How about healthcare? If you retire early, you will be responsible for 100% of your healthcare costs, and these costs increase dramatically as you get older. • What about education costs? How will you be able to fi nance your children’s education on a modest fi xed income? • Will one million dollars be enough to last for all your retirement years—maybe 40 years or longer? • What if there is an economic downturn or fi nancial crisis and your investments don’t have the return you planned on? Why shouldn’t you retire really early, even if you can? • The F.I.R.E. lifestyle isn’t always easy and it’s not for everyone. • So much of who we are is tied to what we do, so that some really early retirees suffer a loss of identity. Also, losing the social interaction that is part of the work environ- ment is often an unexpected consequence. • For most Americans, wages tend to peak in their 50s and 60s. Individuals who retire early are choosing to terminate their earned income, often before they reach their peak earning potential. This is the primary defense against the predictable increase in life expenses that comes with time. And they are not just cutting off february/march 2019