I’m on track to retire at 38 with FIRE saving method – how you can too

JENNY Graudenz, 34, plans to bed down and retire within just four years using a savvy saving trick.

The medical writer is part of the so-called FIRE movement – people who save aggressively from a young age in order to retire earlier.

FIRE stands for Financially Independent, Retire Early and started in the USA in the 1990s, but has spread to other parts of the world.

Jenny, who completed a master’s degree in clinical research in 2016 and started planning for retirement in April 2019, is one such FIRE saver.

She originally planned to be financially independent at 40 but she’s now ahead of target and on track to retire at 38.

To put that in context, the current state pension age is 66, and is expected to rise to 68 by 2046.

She told Times Mentor: “For me, financial independence means freedom.

“It means not having to work for money, but to focus on what I want to do.

“My retirement will be funded from my investments, such as index funds, as well as a little additional income from my blog.”

Jenny plans to have saved £350,000 by the time she hits 38 by saving two-thirds of her income.

She also aims to have a property and a separate cash pot of savings at the same age.

She is going to carry on writing her blog, which she gets money from, so technically isn’t fully retiring.

When she does hit 38, she’ll be following the 4% rule, which involves limiting yourself to withdrawing 4% from your savings each year to ensure you don’t burn through your pot of money.

This should give her £14,000 a year, meaning she can live on £1,000 to £1,200 a month.

It might not sound a lot, but Jenny’s used to living frugally.

She currently doesn’t spend a lot month-to-month, only really splashing out on clothes, organic food and travel.

She also plans to leave London when she retires to reduce her living costs, as she currently pays £850 a month for rent.

And she’s been able to save so much up until now by putting money into ISAs and using money-saving apps and cashback websites.

Around 75% of her savings are in ISAs while the remaining 25% is in pensions.

How can I retire early?

If you want to be part of the FIRE movement, there are a few steps you can take.

Firstly, it’s worth working out the maths and what you actually plan to live off each month in retirement.

Many people use the 4% rule, like Jenny.

So, if your annual outgoings – mortgage, bills, groceries, holidays and everything else – were £20,000, your retirement number would be £500,000.

You could expect this to last you around 25 years, but bear in mind it doesn’t factor in inflation.

If you’ve got other assets, such as a business or buy-to-let property that can provide you income after you’ve retired, even better.

Other FIRE savers shift to part-time or freelance work rather than quitting work entirely.

Make sure you factor in other savings too, such as your state pension, which will obviously hit later on in life.

Plus, you can invest your money into ISAs early on which can pay out much more later on down the line.

Stocks and shares ISAs are riskier, but if the markets perform well, can see your earnings grow substantially.

What are the risks involved in FIRE saving?

While joining the FIRE movement might seem appealing, there are some downsides.

It can be risky, especially if you put all your income into one pot, for example, a pension.

You can counteract this by splitting your money between ISAs and pension pots though, like Jenny has.

Meanwhile, if you’ve done your calculations and you know you’ll be covered every month then fine.

But if you think what you’ve set aside might not be enough to live off every month, it could be worth putting off your retirement age until a bit later.

Bear in mind there are risks involved if you’ve already retired too.

The markets might crash, leaving you without enough money to cover your living costs.

This is a good time to have set up an emergency fund, to cover any losses.

If you don’t have one of these, you can always buy a credit card as a short-term solution.

Of course, you’ll want to make sure you can pay it off so you don’t end up in a debt spiral.

And in the end, you might just have to go back to work to make up any losses.

Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk