12th December 2023

Many of us dream about retiring early so we can devote more time to things we enjoy; but financial realities inevitably mean few of us actually realise those dreams. A growing number of people though are turbo-charging their chances of early retirement success by embracing the FIRE principles of investing. 

We didn’t start the fire 

The FIRE movement began in the US but now has a growing band of UK-based devotees. The acronym stands for ‘Financial Independence, Retire Early’ with followers adopting extreme saving techniques in order to invest as much as possible during their working years so they can attain financial independence at a relatively young age. For some, the ultimate goal is retirement in their late thirties or early forties, while for others it’s simply the financial freedom to be able to work part time. 

Playing with fire 

Some of the key principles associated with the FIRE movement include maximising savings, with followers setting aside up to 70% of their income every month; paying off all debt, including a mortgage; and living exceptionally frugally. Devotees also save via investment products, such as a stocks and shares ISA, in order to maximise returns while sheltering proceeds from the taxman. 

Eternal flame 

Another pillar of the FIRE movement is the ‘4% rule’, a formula used to calculate when someone has enough money to stop work. In simple terms, 4% is the amount someone can typically afford to withdraw from their retirement pot each year without too much risk of running out of money. So, if someone expected to spend £20,000 a year, they would need a pot worth at least £500,000. 

Light my fire 

Creating a clear, appropriate investment goal is key to financial planning success, and FIRE investors have certainly nailed that. Furthermore, the basic principles do make sound financial sense. So, if early retirement is a burning desire for you, it might just be worth joining the FIRE brigade. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.