How to advise FIRE investors who want to retire early

Advising the FIRE client: Fan the flames or put them out?

June 29, 2023 6:38 PM

Financial advisors sometimes have to throw cold water on clients' dreams of FIRE, or 'Financial Independence, Retire Early.'

Financial advisors typically recommend saving around 10% to 15% of one's income for retirement. Alex Kamerman is saving 50%.

That's because Kamerman, a 35-year-old elder law attorney in New York, subscribes to a movement called FIRE, or "Financial Independence, Retire Early." Definitions vary, but FIRE practitioners typically try to save so much of their income — up to 70% — that they can retire decades ahead of schedule.

"The less time you have to save, the more aggressive you have to be," Kamerman said. "I'm basically saving more than what I expect my annual expenses to be per year."

Many FIRE savers aim to retire as early as their 30s or 40s. Kamerman isn't quite that ambitious — he aims to retire by age 50 — but that's still over a decade younger than the norm. The average retirement age for Americans is 61, a recent Gallup study determined. For men in particular, it's a little higher — 64.7, according to the Center for Retirement Research at Boston College. In both cases, these ages have steadily risen since the 1990s.

Aggressive savers like Kamerman are trying to buck that trend. Why? The motive has a lot to do with the "I" in FIRE: independence.

"I think financial freedom is the best thing money can buy," Kamerman said. "I highly value being in control of how I spend my time and my attention."

But what happens when this freedom isn't feasible? With a lawyer's salary, Kamerman might be able to pull it off. But for many others, the FIRE approach may simply not make sense — almost a third of Americans, for example, would have trouble covering a $400 emergency, let alone setting aside half their salaries for retirement.

This raises a tricky question for financial advisors: What should they do when a client is alight with dreams of retiring extremely early? Should they try to talk the client out of it, or do their best to make the plan work? Or is there some other, better approach?

The answer depends on the advisor. Here's how wealth managers from around the country handle "the FIRE question":

Keep the flame alive

Even if FIRE isn't realistic for a client, financial planners say it's important not to reject it out of hand. The job of the advisor, they say, is to listen, not judge — and then try to make a plan.

"Any financial planner worth their salt should be able to serve FIRE clients," said Landon Tan, the founder of Query Capital in Brooklyn, New York. "The whole point of financial planning is to make recommendations based on clients' unique goals and circumstances."

Fortunately, Tan said, FIRE clients typically do a lot of research before meeting with their financial advisors. In fact, they've usually worked out a plan already and want an expert to look it over. This can still involve a lot of work — fact-checking what the client has learned, stress-testing the plan and bringing up factors the client may have overlooked. If, after all that, the plan doesn't work, the advisor can recommend against it — but it's important to have the discussion.

"Highly motivated people make really fun clients, and they might be especially likely to appreciate the in-depth analysis that planners can do to double-check and stress-test their plans to retire uncommonly early," Tan said.

Don't get burned

On the other hand, it's important to warn the client when FIRE isn't for them. Retiring decades early requires a high level of austerity in daily life, and clients should have a clear, detailed picture of what that means before they attempt it.

"I had clients interested in the FIRE movement, but we then found that the savings required would put them into a lifestyle that they would not want to lead," said Kristy Jiayi Xu, the founder of Global Wealth Harbor in Walnut Creek, California.

Other investors learn this the hard way. Noah Damsky, a chartered financial analyst at Marina Wealth Advisors in Los Angeles, recalled a client who tried out the FIRE lifestyle. For months, he took no vacations, never ate at restaurants, bought the generic brand of all products and only took public transportation. The pressure of pinching every penny began to build.

"He compared it to his high school wrestling days, when he was dieting without an end date or a 'cheat meal,'" Damsky said. "The complete and permanent lack of flexibility weighed on him mentally to the point where he needed to see a therapist … but he couldn't afford it."

After about a year, the FIRE was out.

"He ultimately gave it up for a more balanced life," Damsky said. "He seems much happier today!"

Turn down the heat

Another approach is to find a middle path between fanning the flames and snuffing them out. Instead of endorsing or rejecting FIRE, advisors can help clients learn from some of its best principles without taking them too far.

"I tell my clients it's all about finding a healthy balance that works for the individual," said Trishul Patel, the founder of Investing Forever Advisory in West Palm Beach, Florida. "This balance comes down to exploring the trade-offs involved between saving more and working longer."

Jay Zigmont, the founder of Childfree Wealth in Water Valley, Mississippi, has a word for this balanced approach: FILE, or "Financial Independence, Live Early." The idea, Zigmont said, is to find creative ways to improve clients' lives long before they retire. That might mean a couple chooses to live off just one spouse's salary, or an individual uses paid time off to write their first novel.

"If FIRE is an on/off switch for work, FILE is a dimmer switch," he said. "I have clients in their 30s and 40s, embracing FILE and changing their lives now, versus waiting for retirement."

There's also another potential solution, however unlikely it may seem sometimes: enjoying work more. Erik Baskin, the founder of Baskin Financial Planning in Sugarcreek Township, Ohio, said that as some of his clients found more meaning in their jobs, their FIRE dreams began to seem less urgent.

"I have a few clients that are on this path and are adjusting not because of the economic environment, but because of life," Baskin said. "Over time, they come to understand that if they enjoy their job, they don't have to retire early."