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F.I.R.E. Could this be a new strategy for a new decade?

13 February 2020

Maybe, says Jacqueline Lockie, head of Financial Planning, CISI.

First published in the February 2020 issue of Professional Paraplanner

In 2019 what is probably best described as a financial movement became more prominent in the USA. It is called Financial Independence, Retire Early (F.I.R.E). We love our anacronyms don’t we. So, what is it and could it help clients?

The concept isn’t really new. It was born form a book written in 1992, ‘Your Money or Your Life’ by Vicki Robin and Joe Dominguez and suggested that for some people a concept of consciously living frugally now and investing more towards their retirement, could drastically reduce their time in work and they could retire very early and enjoy the life that they wanted to lead.

Who might it be suitable for? Well, I’m sure you can think of a few scenarios. Perhaps adults without dependants, perhaps some in extremely stressful jobs or where they know that the job they do cannot last. That could include professional sportsmen and women, fund managers, professional dancers such as those on Strictly! But they would all need to be earning a substantial amount of money to enable them to cut back severely on their living expenses.

There is a bit of a conflict here isn’t there, in that often these people often live fairly lavish lifestyles. Many are also younger and so might believe that whilst their current occupations might not last, they would still find alternative occupations which would pay close to the same amount.

That concept of rosy coloured specs is one I have come across myself when I used to give advice. If they have a young family, perhaps children at private school, this all makes living frugally very hard to achieve.

But certainly, it does seem that it can be useful for some.

I used to have a couple who were clients and they were both surgeons. Whilst they had one young child, they admitted that as a couple they rarely saw each other and all their dreams for travelling together as they had done prior to marriage, jobs and children, had faded. They were naturally quite frugal people. They watched and accounted for every penny. Their main reason for doing so, was that they wanted to retire earlier than most of their colleagues. They had things to do!

They chose to invest their excess money and also to take on additional private client consultancy work. That private (non-NHS) work was all saved. They made some personal sacrifices along the way. They chose only to have one child, they chose not to move to a new house as their income rose, they chose to pay for their child to go to private school. So, there were some cutbacks and some outgoing financial commitments.

This would not be classed as F.I.R.E. But you could bet that every time we met, every time I ran the analysis and every time they inherited money they would also ask, “Do we have enough?”

What is enough?

That’s an interesting concept, enough. When you run analysis for clients, you might come across this too. But what is enough? Enough is different for everyone. Good cashflow planning will enable you to determine for any given clients, what is enough.

This concept is predicated on giving up things in the here and now and that pay you back in the future. A future which is uncertain and where investment returns, taxes, your health and that of your family are not guaranteed.

Could F.I.R.E. work for some clients? Yes, I expect so. Not that many of mine though. How about you? For me life is the journey that we should enjoy. One that needs living. There are no ‘do-overs’ as the Americans like to say. But maybe we can take on board some of these concepts and help clients live a fulfilling life now but also a fulfilling future?

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