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The age pyramid does not bode well for today’s workers. Also the pension reform, which is being implemented only slowly. In addition, according to an Elabe survey for “Les Echos” from March 2022, 69% of the French reject raising the statutory retirement age from 62 to 64 years. And around 70% would like everyone to retire by the age of 60, according to a survey published by “JDD” in February 2022.
However, in our pay-as-you-go pension system, retiree pensions are funded by contributions from workers, and the retiree-to-worker ratio is deteriorating. In France in 1950 there were 5 workers for every pensioner. In 2019, there were 1.7 active contributors for every pensioner. The most pessimistic projections assume 1 retiree for every worker in 2070. In this context, the financing of pensions remains the thorny issue on which workers and public authorities appear to want to engage. Nonetheless, in this context, it seems difficult to be confident about future retirement ages and future retirement incomes.
There is a solution: prepare for retirement during your active life so as not to experience a sudden loss of purchasing power. In this context, a trend is emerging that is being imitated on the web in general and on social networks in particular: the FIRE movement. Why is ? How do you ? Is it applicable to everyone? Discover in this article all our explanations on the FIRE movement to get started or not.
The philosophy of the fire movement
The FIRE movement, an extreme form of financial independence, comes from the Anglo-Saxon acronym: “Financial Independence, Retire Early”, a term that can be translated as “Financial Independence, Early Retirement”. The aim is therefore to be financially independent in order to give up work as quickly as possible and be able to live on your investments. And as soon as possible, the followers of the movement are not targeting the 50-55 year olds, but the 30-40 year olds!
This method, closer to a philosophy of life elsewhere, is based on 4 pillars: drastically reducing expenses, massive savings, implementing aggressive investment strategies, maintaining a form of sobriety, even frugality.
The conditions that allow access to early retirement
The two prerequisites that make it possible to retire very early are a very high ability to save during working life and a massive investment in assets with high return potential.
In order to retire as soon as possible, it is important to put as much money aside as possible. For this, the savings rate must exceed 50% and ideally be around 75%. According to Mr. Money Mustache, apostle of the FIRE movement on YouTube, it takes 43 years to be financially independent at a 15% savings rate, 28 years at a 30% savings rate, and 7 years at a 75% savings rate.
Then this method requires investing everything in investments with high return opportunities. This means no more and no less that these are risky investments, albeit ones with no capital guarantee, mainly on the stock markets. You should therefore be relatively risk-averse, but also be aware that if the period you plan to retire falls in a recessionary phase, you may need to consider postponing your retirement a bit, unless , You have your funds secured as you approach retirement , but this also has an impact on the performance of your investments. Also, keep in mind that a long investment horizon also allows you to use the magic of compound interest, allowing you to grow capital with less effort.
Essential requirements, but difficult to achieve
For these reasons, with small incomes, the FIRE movement seems completely unthinkable and even a little more important to us. Keep in mind that the average salary in France fluctuates around €2,000 per month. If we consider that with such an income we can save 50%, i.e. save €1,000 per month, with an asset allocation that aims for us to achieve an annual return of 6%, we save even 20 to 30 years in order to achieve this average income.
The saving effort is thus counted over several decades, which is considerable for average and modest incomes and demands enormous sacrifices, but also varies greatly depending on the family group. While this method will be easier to implement for a childless couple than for a single person, it will be much more difficult for a couple with many children.
Also Read: Should You Prepare for Retirement via a PER?
Financial independence to simplify your life and not make sacrifices
The FIRE movement seems a bit extreme to us. Can we still talk about financial freedom when we put so many constraints on ourselves? We still think the easiest way is to find a job that fits your vision and desires, rather than trying to retire before your 40th birthday.
And while we fully agree that, given the current environment and weak pension provision, there is an urgent need to prepare for retirement in order to build up an additional income, these should make it possible to maintain a purchasing power comparable to that of one’s working life could benefit from than wanting to stop at all costs as soon as possible.
With the termination of employment, the question of alternative employment arises. What is the purpose of the retreat? The frugality of the retired FIRE movement seems to us to be pretty close to a will to reduce, which will not necessarily please everyone.
This extreme movement, which is difficult to implement, does not seem ideal to us. However, the enthusiasm for this method has at least the advantage of reminding us how important it is to prepare the financing of your retirement when the time comes, by investing in the stock markets, real estate, atypical investments, etc. And if it is possible , why not retire a little earlier?