At the age of 33, Mathew Pezon of Easton, Pennsylvania, achieved FIRE, which stands for financial independence, retire early. The FIRE movement involves saving enough to step away from a job before the age of 66 or 67, which for many is the full retirement age for Social Security benefits.
In Pezon’s case, achieving financial freedom took years of planning and following a regimented schedule. “From early on, I had a strong drive to do well financially and never wanted to struggle,” he says. He now supports his family with income from the 200 properties he owns.
Retiring early can have many advantages, but there are some drawbacks to be aware of too. To avoid regrets with FIRE, you can:
— Know your starting point.
— Have a plan to follow to reach FIRE.
— Understand the flexibility of FIRE.
— Be ready to build new social networks.
— Recognize the risks involved.
— Be prepared to go back to work.
[Related:How to Retire on $500K]
Know Your Starting Point
When Pezon graduated from college with a degree in chemical engineering, he didn’t have anything saved. He also had $50,000 in debt from student loans. After getting a job, he became interested in learning about ways to generate passive income. “I knew I wanted to go to business school and figure out investing,” Pezon says. After further study, he decided he wanted to be a real estate investor.
If you’re interested in FIRE, it can be helpful to evaluate your current levels of income and debt. Look at how much you have in savings and review your expenses each month.
“Proponents of FIRE strive to live well beneath their means during their working years, ideally saving upwards of 70% of their salary, putting that money to work for them in the broader market,” said Mark Murphy, CEO of Northeast Sequoia Private Client Group in Roseland, New Jersey, in an email.
“Rent, utilities, groceries, transportation, insurance and emergency savings are what I call the nonnegotiables,” Murphy said. Once you know the cost of these, you can see if you have any funds left over each month above that amount.
Have a Plan to Reach FIRE
Saving became a big part of Pezon’s lifestyle. “To achieve FIRE, I had to get my budget right to reflect my mindset, and I lived extremely frugally,” he says. He saved enough to make a down payment on a four-unit apartment building. “I lived in one unit and rented out the rest,” he says. He continued his day job and worked nights and weekends to build his real estate portfolio.
As you look at your own budget, you might find areas where you can cut back on spending. Or you might opt to take on an extra job to earn more.
Once you have money to save, you’ll need to find the best account for it. “If you’ve saved through bank accounts or traditional taxable brokerage accounts, the ability to access that money is less restrictive than a 401(k), IRA or other employer-sponsored plan,” said James N. Osborn Jr., founder, partner and certified private wealth advisor at Envest Asset Management in Ridgefield, Connecticut. In most cases, you’ll need to be at least 59 1/2 years old to take withdrawals penalty-free from retirement accounts.
[Related:How I Save Money by Living Simply in Retirement]
Understand the Flexibility of FIRE
One of the main advantages of FIRE is the freedom to schedule your days. “I’m now able to spend my days entirely the way I choose, without needing permission from bosses or managers or having workplace duties infringe on my time,” Pezon says. “I have the liberty to wake up at the time I want, spend time with my three children under the age of 3, structure my schedule how I see fit, take breaks as needed and fully control how I spend each moment.”
With endless flexibility, there can be benefits from setting up a personal routine. “Without the built-in schedule and demands of a regular job, I had to be proactive about planning out my days and weeks,” Pezon says. “I set daily goals, use calendars to organize my time and make myself accountable to stick to my own routines.”
If you retire early, you might be able to focus more on your health and nutrition. With no commute, you’ll be able to prepare your meals at home and head to the gym or catch a workout to maintain your fitness levels. You could also sleep more at night or take naps during the day as needed.
Be Ready to Build New Social Networks
For Pezon, stepping away from the office created the chance to build relationships in other circles.
Some of your connections might not understand your decision to step away from the corporate world. “You may experience some distance with friends and even family members,” Pezon says. Since Pezon has real estate properties, he decided to build relationships in that space, which provided a chance to network and create social ties outside of his home.
Recognize the Risks Involved
By leaving an employer before you’re eligible for Medicare at age 65, you’ll have to find a way to pay for your health expenses. If your spouse has health insurance, you may be able to get medical coverage through their health plan. “Without the traditional W-2 income, it may be a little more challenging to qualify for traditional financing such as car loans, mortgages and credit cards,” Pezon says.
If investments support your lifestyle, know that there are no guarantees. “There’s little to no safety net if things go wrong,” Pezon says.
Be Prepared to go Back to Work
To successfully pursue a FIRE strategy, you’ll want to carefully consider everything from your budget to withdrawal strategies, and realistically assess your health care and lifestyle spending. “Those who put in the work across all those areas of their lives often thrive with decades of rewarding early retirement,” Pezon says. “However, those who do not adequately prepare may find themselves back in a corporate job because they discovered they did not actually achieve FIRE.”
Reaching true financial independence and retiring early requires commitment and sacrifice, but the payoff is a lifetime of freedom and control. Pezon adds, “With diligence and preparation, the pot of gold at the end of the FIRE rainbow can absolutely be worth the effort.”
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Why I Don’t Regret Retiring by FIRE originally appeared on usnews.com
