Aussies warned over FIRE trend helping people retire early: 'Spiral out of control'

A financial advisor has sounded the alarm over a retirement trend that could do more harm than good if you aren't savvy. The Financially Independent Retire Early (FIRE) movement has been around for a few years and promotes the idea of quitting your full-time job earlier than the usual retirement age of 65.

To get to that stage though, you need to have plenty of money saved from investments or property that are additional to your superannuation. While the idea of retiring in your 40s, 50s or early 60s sounds idyllic for some, Link Wealth Group financial advisor Josh Lee told Yahoo Finance there's an easy trap that people can fall into.

"What do you actually do with your time?" he said.

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"Where do you derive happiness? Where's your energy gonna go? Where's your passion? Because that's the whole FIRE movement. You retire early. But then it's like, then what?

"I think that's probably the part that a lot of people miss in that whole equation."

You need to have a plan for all that free time

He said the clients in their 20s and 30s who come to him and talk about wanting to retire early usually don't know what they would do with all that free time.

Recent data revealed a single person in Australia needs at least $52,085 per year to have a comfortable retirement. That amount goes up to $73,337 for a person in a relationship.

Lee explained that if you don't have a well-thought-out plan for your retirement, especially one that comes well before 65, you could end up churning through all your money early because you're spending it unwisely.

"There's only so much sitting on the beach and drinking cocktails that you can do," he said.

"You're likely going to lose yourself, you're going to lose your mind, your health's going to spiral out of control, and then you're probably going to die early."

Is it worth all the hassle when you push FIRE to its limits?

Lee highlighted a "rare" element of the FIRE trend that he advises against.

Some who hop on the movement put every cent they earn into investments in the belief that compound interest will turn their few hundred dollars into millions over a few decades.

These people might live incredibly frugally during their working lives so that their early retirement will finally allow them to be relaxed and splurge on all the fun things.

While that might suit those people, the financial advisor had reservations about that mentality.

"If you're going to go full FIRE mode and live off as minimal as possible and save as much as possible, and you've got to do that for 15 or 20 years to hit your FIRE figure, I think just a lot of things can go wrong along the journey," he told Yahoo Finance.

He said he would advise clients to think about how they can earn as much as possible now and have a bit more balance in their lives, rather than live on the bare minimum.

Pilot Pablo Ripa has adopted the FIRE mentality and hopes to retire by the time he hits his mid-50s. He allocates 10 to 15 per cent of his pay to his share portfolio and while it was a big cost at the start, it's now second-nature.

"We just don't even think about it," he said to Yahoo Finance. "Some months, if we get paid more, sure, I'll boost it up a little bit or whatever, but that's the amount and I don't think about it."

FIRE can be gradual if you need

The Link Wealth group advisor explained that if you want to retire early, you don't have to completely hang up your boots.

He suggested those who don't have a game plan for what they want to do in retirement should look at stepping down from full-time to part-time work first to ensure their week still has a bit of structure.

That way, you're still earning a bit of money but you have more spare time to enjoy the things you like.

Then, if you want even more time up your sleeve, he said you can pull the trigger and enjoy your retirement in full.

"I see a lot of clients transition into [retirement]," he told Yahoo Finance. "So it's not a hard stop at a certain age, it's actually more of a transition into it."

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