How does leaving the workforce 20 to 30 years earlier than your peers sound? That's exactly what the Financial Independence, Retire Early (FIRE) movement is all about. It involves saving and investing aggressively while you're young and living frugally so you can afford to retire much sooner than the average person. 

It sounds like a novel concept, but it actually leverages some tried-and-true retirement savings principles, just carried out at a slightly different pace. Yet it also relies upon some assumptions that could threaten your retirement security if you're not careful. Here's a closer look at three things the FIRE movement gets right and three things it gets wrong.

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What the FIRE movement gets right

Here are some key principles from the FIRE movement you may want to incorporate into your own retirement planning, even if you don't plan to join the movement yourself.

1. They begin planning and saving for retirement early

FIRE movement participants prioritize retirement savings from a young age. It starts by calculating your FIRE number, which tells you how much you must save to retire. This is different for every person and is based on how long you expect to live and how much you'll spend annually, among other things. You can use a retirement calculator to estimate how much you must save for retirement.

Once a FIRE movement adherent has their number, they can tweak it by saving a little more per month so they can retire sooner or delaying retirement so they can save a little less per month. When they have a plan they're happy with, they commit to it and begin saving regularly, prioritizing retirement savings behind only their monthly living expenses.

Regular contributions from a young age makes reaching your savings goal much easier, because contributions you make to your retirement account while you're young have more time to grow before you must withdraw them in retirement. If you contribute $500 per month beginning at 20, you'll have almost $567,000 by the time you're 50 with a 7% average annual rate of return. If you waited until 25 to begin saving this amount, you'd only end up with a little over $379,000 by the time you're 50, assuming the same average annual rate of return.

2. They live frugally

Frugal living is a cornerstone of the FIRE movement. Reducing your monthly expenses now frees up more cash for you to invest for your retirement, and if you carry this frugal lifestyle into retirement, you will need less savings than someone who plans to live more lavishly. 

You should avoid spending money on unnecessary items and keep a careful budget to hold yourself accountable. Some FIRE movement participants take frugal living to the extreme of renting only small, affordable apartments and never going out to dinner or a movie. But you don't have to go this far. Just do what you're comfortable with, leaving a little money for you to enjoy now and putting the rest away for retirement or your other long-term goals.

3. They have multiple sources of income

FIRE movement participants rarely rely upon a single job to provide them income. They're earning money through investing and they typically also have side hustles, which some of them carry through retirement. Having multiple sources of income increases your cash flow, and it can also increase your financial security, because if you lose your job, you'll still have other sources of income to cover your basic expenses.

Finding a side hustle that aligns with your interests is a great way to boost your retirement preparedness, even if you don't plan to retire early. Just remember to set aside money for taxes if you're self-employed. Keep these funds in a separate savings account so you don't accidentally spend them.

What the FIRE movement gets wrong

While the FIRE movement does a lot of things right, there are a few aspects of the philosophy that could cause problems in retirement.

1. They use the 4% rule for retirement withdrawals

The 4% rule states that in your first year of retirement, you should withdraw 4% of your savings. Then, in every subsequent year, you should increase this amount slightly to counter inflation. It's a popular withdrawal strategy among retirees of all ages, not just FIRE movement participants, but it has a serious drawback. It's too cookie-cutter to work for everyone.

You might want to travel more in your early retirement and need to spend more than 4% of your savings to do that. Conversely, when you're older, you may prefer to stay closer to home and spend less. Or you might have a large expense in one year that throws off your budget, or inflation might rise more quickly than you'd expected, forcing you to withdraw a lot more money than you planned.

You can't predict every financial up and down in retirement, but if you'd like to hedge your bets, you could use a 3% rule instead. This is the same as the 4% rule, except you only withdraw 3% of your portfolio in your first year and adjust for inflation from there. It will require you to save more before retiring, but it will reduce the likelihood of you running out of money early because you're withdrawing less of your portfolio every year. You can also build a cushion into your estimated annual retirement costs to account for unplanned expenses or travel costs. Ultimately, you have to do whatever you're comfortable with.

2. They use today's tax brackets as a guide

We have no way of knowing how the tax brackets might change between now and our retirement, so it's logical that FIRE movement participants would base their assumptions about taxes on our current tax brackets. But taxes could be higher when you retire than you planned for, and that could drain your savings more quickly than you anticipated. This is a concern for retirees of any age, but when your retirement is longer, there's an increased risk of variables like taxes throwing off your retirement plan.

Again, you can build a cushion into your target retirement savings amount so you have extra money to cover taxes if they end up being more than expected. But it's also wise to have a backup plan in case you do find yourself running out of money ahead of schedule. Going back to work part time to supplement your personal savings is one option.

3. They requires you to carry your frugal lifestyle into retirement

Most FIRE movement participants maintain their minimalistic lifestyle into retirement, which is fine if you're comfortable with that. But if you envision doing a little more with your retirement, like traveling frequently or making some big-ticket purchases, you may not be able to stick to the frugal budget you used during your working years in retirement.

If you know you want to spend more money in retirement, you can build a retirement plan that accounts for that. It might require you to work a few more years to save the money you need, but it is possible. If you plan to live frugally in retirement and later change your thoughts about how you'd like to spend your time, you may have to alter your retirement plan at that point.

Ultimately, whether you adhere to the FIRE movement or not, good retirement planning is about finding the right blend of consistency and adaptability. The FIRE movement does the first part well, but it's important to treat your retirement plan as a living document, rather than a static one, so the three issues listed above don't come back to haunt you.