FIRE (“Financial Independence Retire Early”) in the Australia

The idea of Financial Independence, Retire Early (FIRE) has captured the imagination of Australians who want more freedom, flexibility, and control over their lives.

While FIRE has strong roots in the US, achieving it within the Australian financial system brings unique challenges and opportunities due to superannuation rules, tax structures, and the social security system. This blog explores how Australians can pursue FIRE, the hurdles they may face, and strategies to make it achievable.

What is FIRE?

FIRE is a lifestyle and financial movement that focuses on achieving financial independence earlier than the traditional retirement age. The goal is to build enough wealth to cover living expenses through passive income, often a combination of investments, superannuation, and other income sources, so that you are no longer reliant on full-time work.

Some FIRE adherents aim to retire in their 30s or 40s, while others may target a more flexible approach, such as reducing work to part-time or taking mini-retirements throughout life. In Australia, FIRE can take several forms:

• Lean FIRE – Retiring on a modest lifestyle with strict spending control.

• Fat FIRE – Retiring early with a higher income to support a more comfortable lifestyle.

• Coast FIRE – Accumulating enough investments early so that compounding does the heavy lifting while you only cover basic expenses through work.

• Barista FIRE – Semi-retirement supported by part-time work to cover some expenses while investments cover the rest.

FIRE and the Australian Financial System

A high savings rate is the cornerstone of FIRE. Australians aiming for FIRE often save 40–60% of their income. As a very high savings rate is required, it is typically a strategy reserved for high income earners, unless you are prepared to be extremely frugal with your expenses. These surpluses are then allocated towards personal investments and superannuation to benefit from compounding returns.

Australia’s high property prices make FIRE more challenging, especially for younger generations. Many strategies focus on owning a debt-free home before retiring early to reduce living costs.

Since superannuation is locked away until age 60, Australians pursuing FIRE need build up sufficient non-super investments (such as shares, ETFs, property and fixed interest income) to fund potentially decades of early retirement.

Additionally, these Australians need to make sure they have enough superannuation to last from age 60 to their 90's.

US FIRE communities often refer to the 4% withdrawal rule: This means that the investment balance you accrue can allow you to take out 4% for living expenses, whilst approximately another 3% of investment returns are designed to keep pace with inflation and the time value of money.

This means that if you accrued $1,000,000, whilst it may make ~$70,000 of total returns per annum on average, only $40,000 should be spent so that 3% can be used to increase the value of the portfolio to keep pace with inflation.

Do you need a Financial planner for FIRE?

Whilst you don't technically need a Financial Planner to implement FIRE, we do make it easier by:

• Being able to accurately determine how much money you need to accrue to meet your desired living expenses at your nominated retirement age. We do this via sophisticated Financial Planning Modelling Software.
  

• Developing a strategy to achieve the savings target required.
  

• Determining how much to allocate to each bucket: personal investments versus superannuation.
  

• Helping you meet your cashflow savings targets.
  

• Implementing tax effective strategies to help you build your balance quicker.
  

• Providing strategic investment advice to ensure your investments are performing appropriately for the strategy.

If you would like to know more about the FIRE movement:

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