How Young Indians Can Make The Most of Financial Independence, Retire Early (FIRE) For Early Retirement?

Every bird has a dream to soar high above in the skies and fly independently without any bondage whatsoever. Humans are no different. Among many dreams, they have one very important financial goal. This goal is to be financially independent and to retire with an adequate amount of savings and investments.

Financial independence is extremely important. It has a different meaning to different people. However, if you try to broadly arrive at a common interpretation, it simply means that an individual has enough financial resources to cover for its existing lifestyle without any dependence on employment. The financial resources could be in the form of savings, investments or inheritance. Individuals who have achieved this goal can pursue vocational subjects as a career or otherwise. Or they can simply afford not to do anything!!

One interesting trend that we are witnessing nowadays is to retire early. In olden times this concept was largely non-existent. Salaried people used to work from 9 am to 5 pm every day for decades till they officially retired at the age of 60. Businessmen used to slog long hours practically everyday till the next generation took over from them. We used to hear occasional murmurs of dissent but either they were silenced or absence of other alternatives would kill it immediately.

Things have changed dramatically in the last decade or so and this trend is building up fast like a tsunami in some sections of our society. It's called FIRE and the acronym stands for financial independence and retire early.
FIRE is essentially a people's movement devoted to extreme savings and investments accompanied by extreme frugality. This allows them to retire early without any financial worries. The concept was popularized by authors Vicki Robin and Joe Dominguez in their best-selling book Your Money and Your Life which was published in the year 1992.
There are 3 critical factors to consider while planning for FIRE-savings rate, investment rate and withdrawal rate.

Most FIRE practitioners save almost 70% of their annual income. They usually aim to save 25 times of their annual expenses. They also follow the 4% rule which recommends that upon retirement one should withdraw only 4% of their retirement savings to cover their living and lifestyle expenses. Careful retirement planning and a prudent investment plan are essential for such practitioners. Once all the calculations are in place and a FIRE number is ascertained it's important to figure out the investment rate. This investment rate determines how early one can achieve nirvana. More the investment rate, the faster you achieve FIRE.

There are some extreme variations of this rather harsh concept which makes it even more interesting. This variation advocates ultra-extreme frugality by sacrificing all small comforts in life. This includes turning off air conditioners or reducing coffee intake etc. This sounds ludicrous to many opponents of this concept who laugh at such measures. However, proponents argue that the idea of saving for the future by sacrificing small pleasures is worth it.

I once met a FIRE adherent who found the thought of quitting his job liberating and compelling enough to practice this concept. Another friend of mine had seen his father's health eating up all the finances of the house while he was growing up. His health motivation drives him to ensure that financial independence and retirement goals are met as soon as possible.

FIRE is clearly a theory not everyone can adhere to. It has its own set of risks. It requires extreme levels of discipline and a lot of practitioners give up midway. FIRE rules of 25% annual expenses are great in theory but poor in execution. An early retirement also means more years of retired life possibly without any earnings and therefore retirement planning can go haywire. A lot of advocates of FIRE also end up playing safe while investing their earnings in order to ensure achievement of goals and hence their investment earnings growth is curtailed.

I am personally not a big fan of FIRE. While the objective of the concept is indeed attractive, it's the practical application that requires a re-assessment. Sacrificing the present for the future is not ideal. Financial planning for the future is extremely important but not at the cost of simple pleasures in life. This concept originated in the Western world and blindly adapting it as it is in Indian conditions is not really a great choice. In any case, most Indians have lived a rather frugal lifestyle while growing up. A bit of spending on simple pleasure like an extra vacation or a movie is not uncalled for.

Instead, I advocate a more realistic investment planning from early years in life based on individual risk assessment to achieve retirement goals as early as possible. Living for the future is an elusive chase that never really crosses the finish line. So, it's better to FIRE your imagination, creativity and happiness engines than copying alien concepts.