F.I.R.E fire! 🔥

Nostalgia

LIC has come a long way, from your childhood memory of your friendly neighborhood uncle coming to your home on a Sunday morning to ask insist your parents on buying a Life Insurance through him to now, waking up to the news that LIC is going public. A Life Insurance is a contract wherein an insurance company pays a sum to the policyholder or nominees in case the policyholder meets with an untimely demise in exchange for the premium payments made towards the policy. In simple words, you pay a certain sum every month and the insurance company guarantees future financial protection. In even simpler words, it is a safety net. Just like FIRE but you are outsourcing it instead of doing it yourself.

FIRE!

Not the one that you are thinking about. F.I.R.E stands for Financial Independence, Retire Early and this FIRE is spreading like fire (sorry, not sorry). FIRE is a movement that is sweeping particularly GenZ’s and Millennials across countries. What is this movement all about? Because certainly the two phrases are something that every individual chases- Financial Independence and Retiring Early.

Decoding the movement

A lot of people who have been FIRE practitioners would tell you that the goal for them isn’t retiring early, it’s the first part- Financial independence. The aim is to save enough money to have the freedom they desire and remove dependency on a regular month-to-month job to pay their bills. But FIRE has different faces, it isn’t a one size fits all sock. In its most extreme form, FIRE followers give up the littlest comforts of their life, like buying a cup of coffee or ordering pizza once in a while. But then again there are a lot of followers who take the moderate route and moderate sacrifices.

The working

FIRE practitioners follow something called the 25X rule which is the aim to save 25x their annual expenses. These savings give the power to choose when to stop working, hence also having a liberating feeling. The three main approaches to FIRE are-

Fat FIRE: no change to current standard of life and aggressive saving and investing strategies

Lean FIRE: having a minimalist lifestyle to cut expenses

Barista FIRE: The mid route between Fat and Lean

Beyond the fancy

There are also hidden risks to practicing FIRE. It is said that the 25X rule is based on the traditional 4% rule which says that you should be able to comfortably spend a year in 4% of your retirement fund. This rule will lead to a “safe withdrawal rate” for a 30-year retirement. That rule although now is outdated as stock and bond returns aren’t expected to give massive returns. 

But with FIRE some individuals might choose to retire at 40 instead of 60 which could mean they outlive their savings. Retiring at 30 is unrealistic but is being dangerously glorified. FIRE is a direction not the destination. It is said that cutting down on everything including the small pleasures of life can also lead to a psychological regret of feeling a sense of unfulfillment later in life. Although there are counter questions that people need to ask themselves before embarking on this journey which are: What is really important to me? And what is not? And then accordingly build their financial goals around it.

Its relevance in the context of LIC

With life insurance entering common lingo, LIC entering common markets and the FIRE movement sweeping across the world, are we leaving behind the world where debts and hard older lives were common as they were terrible and are we heading towards a world where people would be more secured later in their lives and have a much better quality of life? Time will tell.