The FIRE movement (Financial Independence, Retire Early) is the aim to achieve financial freedom in order retire well before the traditional age (often as early as 30 or 40 years old), but it would be simplistic to claim that it is only about stopping working early. The main goal is to achieve financial independence over time by accumulating enough capital to live off the income it generates.
A commonly cited rule is the 4% rule: save about 25 times your annual expenses, then withdraw 3-4% of your savings each year to cover your living expenses. This withdrawal rate, combined with a diversified portfolio, typically 50% stocks and 50% bonds, is supposed to ensure that your savings last throughout retirement. Some advocates even prefer a more conservative plan (e.g., aim for 28-30 times your annual expenses, or a ~3.3% withdrawal) to account for a very long retirement and market fluctuations.
To achieve this goal, the FIRE movement is based on three key principles: extreme savings of up to 50% to 70% of the savers' income, strategic investments designed to grow the capital of these savers, and controlling expenses by adopting a minimalist lifestyle.
Origin of the FIRE movement
Originating in the United States in the 1990s and popularised among millennials in the 2010s via blogs, podcasts, and online forums, the FIRE movement has spread internationally in recent years. In the United States, younger generations are also showing early retirement ambitions: a 2023 survey indicates that 44% of American Gen Zers plan to retire before they are 60. In practice, however, very few people manage to retire in their 40s or 50s: between 2016 and 2022, only 1% of Americans aged 40-44 were retired.
Current trends
The FIRE movement continues to gain visibility, but its practices are evolving. The community has diversified between “strict FIRE” (retiring as young as possible) and those who adopt a more moderate approach, focused on financial independence without necessarily stopping working completely at age 35-40. There are therefore nuances in the FIRE movement, such as:
- “Lean FIRE”: Followers of this minimalist approach drastically reduce their annual expenses to accumulate sufficient capital. This often involves a simple lifestyle, with reduced housing and transportation costs, and a very optimised budget.
- “Fat FIRE”: aims to maintain a comfortable standard of living, similar to that of a middle or senior manager. This requires a much greater accumulation of capital on the part of the saver, in order to generate sufficient passive income while maintaining a pleasant lifestyle.
- The “Barista FIRE” or semi-retirement strategy, which allows for a smooth transition. Some leave their main job after having accumulated substantial savings but continue to work part-time. The goal is to reduce financial pressure by maintaining additional income, often by doing a lighter or more enjoyable activity.
- “Coast FIRE”, where the investments are left to grow, is based on the principle of saving massively at the beginning of a career, then letting the investments grow naturally without additional contributions. This approach makes it possible to no longer worry about active savings while continuing to work until the capital reaches a sufficient amount to cover the expenses.
The limits of the movement
Although attractive on paper, the FIRE movement nevertheless has several limitations that should be addressed:
- The FIRE movement does not seem to be within everyone's reach: achieving such a high savings rate is difficult for those on modest incomes.
- It requires strict financial discipline and a frugal lifestyle that can be difficult to maintain over decades and underestimates inflation and unexpected expenses, such as medical bills, housing or the need for family support, which can compromise the viability of an investment strategy.
- The dependence on investments in financial markets also carries risks, particularly in times of economic crisis when the value of investments can fall sharply.
- Finally, the economic context also has an impact on the viability of FIRE – rising inflation or unforeseen circumstances lead many experts to recommend flexibility and prudence (building up an emergency fund, adjusting the withdrawal rate if necessary, etc.).
In short, in the current context, the FIRE movement now seems to be part of a quest for financial freedom (working by choice rather than by necessity) as much as the idea of ultra-early retirement, with a tendency to adapt strategies so that they are sustainable in the long term.
The pension system in Luxembourg is often cited as one of the most generous in Europe. On average, the pension amount represents nearly 89% of the final salary, compared to around 58% in the European Union.
However, the Luxembourg pension system, although generous, is facing significant financial challenges. According to projections by the General Inspectorate of Social Security (IGSS), the current reserves of the general pension insurance scheme could be exhausted by 2045, two years earlier than initially planned.
Moreover, with a high cost of living, a minimum pension of €2,293.55 per month may prove insufficient to cover all expenses, especially for tenants or those who wish to maintain their standard of living. The system works well today, its future raises questions. The ageing of the population and the increase in the number of retirees will increase the country’s expenses, which will ultimately impact the pensions paid.
To ensure financial independence after working life, it is therefore essential to start saving as early as possible to supplement the legal retirement and maintain your standard of living in retirement.
The FIRE movement is based on an attractive concept: achieving financial independence to no longer be constrained by work. However, implementing this project requires in-depth thought and rigorous planning. Rather than taking early retirement, it can above all allow you to build up capital to secure your future. With this aim, it is essential to diversify your investments and establish a supplementary pension plan.
The FIRE movement is based on principles of saving and investing that can be difficult for some people to apply, especially those with modest incomes or high financial burdens. It requires great discipline and a long-term vision.
There is no specific or single amount, but the common rule advocated by FIRE followers is to have capital equivalent to 25 times your annual expenses to be able to live off your investments with a withdrawal rate of 4% per year.
The main risks include financial market volatility, inflation, life events (health problems, housing problems, etc.) and underestimating your long-term financial needs.
Yes, some FIRE followers choose not to stop working altogether, but rather to reduce their work activity. This choice allows them to supplement their income and benefit from a later pension.