Why failing the FIRE challenge isn't just about finances

Rising rates, inflation, and housing affordability aren't the only reason early retirement plans don't pan out, says financial planner

Why failing the FIRE challenge isn't just about finances

For many followers of the Financial Independence, Retire Early (FIRE) movement, the economic and market challenges of the past two years may have felt like the kiss of death. But as one financial planner argues, they might have been too hasty to escape the world of work to begin with.

“Clients should do what makes sense for them after a thorough understanding of their goals and values,” says Samuel Lichtman, financial planner at Achieve Wealth Management. “Most people like the idea of retiring early, but the truth is that work brings meaning to life.”

Read on its own, the phrase “financial independence” leaves plenty of room for interpretation. One possible reading, which Lichtman supports, is having the freedom to do the work that one finds fulfilling.

“Personally, I find work fulfilling and challenging,” he says. “It gives me something to get up to every day, and most of the career-driven millennials that I work with feel the same way.”

Forging financial resilience in FIRE

One extreme approach under the FIRE movement, Lichtman notes, is to put up to 50% of income into savings, ruthlessly avoid or eliminate debt, and share living spaces. That means for some people who adopt this aggressive style, the recent skyrocketing of interest rates, record inflation, and housing affordability challenges may not have been as impactful compared to the average Canadian.

“The biggest thing with the FIRE movement – it encourages heavy sacrifice today to reap the rewards at 45 or 50. That’s not necessarily a bad thing,” he says. “I think people trying to start [with the FIRE movement] today would have a hard time saving extra due to inflation and rising interest rates on debt and homes.”

Not every FIRE journey ends well. As one New York Times story from 2020 on FIRE points out, the movement got its start and gathered steam amid the decade-long bull market. Generating returns was arguably easier than it should have been, and there’s no shortage of investors who were only too happy to join in the wealth-creating binge.

The music stopped with the arrival of the COVID-19 pandemic. As markets tanked and economies shut down, it was a rude awakening for countless individuals who thought they’d be cruising for the rest of their lives on investing autopilot. Adding on more recent affordability challenges, and it’s not hard to see how some Canadians who won the FIRE challenge earlier are now having to back-pedal.

On the plus side, those having to un-retire after clocking out extremely early still have time to rebuild financially. And as Lichtman points out, life goes on, especially for people still at the traditional midlife point.

“I won’t cry too many tears for a 45-year-old that might have to re-enter the workforce,” he says. “It’s extremely important to not retire mentally. You have to keep busy. Learn a new skill, volunteer, stay sharp.”

Finding life after work

Despite the almost obscene abundance of retirement calculators available to Canadians online, Lichtman says financial independence is hard to quantify. With more people realizing the importance of going beyond satisfying income needs in retirement, Lichtman says the real heavy lifting of retirement planning comes from asking deep, almost philosophical questions.

“I encourage clients to think about questions like: what is enough? How will I know when I have achieved it? What am I lacking now?” he says. “It’s a pretty introspective process, and it brings a lot of clarity.”

For advisors whose clients might be rushing toward retirement, Lichtman suggests the best course is to step back and examine their motivations.

“Ensure they know what they are retiring to, not just away from,” he says. “Running away from a bad job or a 70-hour work schedule may seem like something that is enticing. But not working can have some negative mental health effects as well.”

For many retirees, Lichtman says life after work loses its shine after a temporary honeymoon period. After years of being needed, valued and productive, they may find themselves struggling to find new purpose.

“It’s imperative they retire to something that they can still find that meaning in life – whether that’s volunteering, working as a contractor, or just working part-time. Keep busy, stay sharp,” he says. “Financial planners can and should play an important role in defining this for a client. We have a responsibility to make sure they have retirement plans, not just a retirement plan.”