Explaining the Military FIRE Movement

Key Takeaways:

1. Maximize your TSP
2. Save in a Roth IRA
3. Have an emergency fund
4. Passive income
5. Open a brokerage account
6. Pay down debt

The FIRE movement, an acronym for "Financial Independence, Retire Early," is a lifestyle and financial movement that gained popularity in recent years. The core philosophy of FIRE revolves around achieving financial independence and, subsequently, the freedom to early retirement and enjoy life on one's terms. The movement emphasizes frugality, strategic savings, and mindful spending to accumulate a sufficient nest egg that can sustain individuals and families throughout their lives without the need for traditional employment.

Key Principles of the FIRE Movement:

1. Financial Independence (FI): The primary goal of FIRE is to attain financial independence. This means having enough savings and investments to cover living expenses and maintain a desired lifestyle without relying on traditional employment income.

2. Retire Early (RE): FIRE enthusiasts aim to retire early, often well before the traditional retirement age of 65. Early retirement provides the freedom to pursue personal passions, travel, or engage in meaningful activities without the constraints of a regular job.

3. Aggressive Savings: FIRE followers typically save a large percentage of their income, often more than the standard recommendation of 10-15%. The savings rate can range from 50% to as high as 75% for those pursuing an extremely early retirement.

4. Frugal Living: Embracing a frugal lifestyle is a key tenet of FIRE. This involves conscious spending, avoiding unnecessary expenses, and making informed financial decisions to maximize savings.

5. Investing for Growth: FIRE proponents emphasize the importance of investing to grow wealth over time. Common investment vehicles include index funds, individual stocks, real estate, and other assets that have the potential for long-term growth.

6. Side Hustles and Additional Income Streams: Many FIRE adherents explore alternative income sources or side hustles to supplement their primary income. This additional income can accelerate savings and provide a safety net during retirement.

7. Minimalism: Adopting a minimalist lifestyle is often associated with the FIRE movement. Minimizing possessions and focusing on experiences over material goods aligns with the movement's emphasis on achieving financial independence through reduced spending.

8. Retiring 'On Your Terms': FIRE doesn't necessarily mean complete withdrawal from the workforce. Many individuals in the movement choose to pursue work that aligns with their passions or engage in part-time employment on their own terms.

Being enlisted in the military provides a unique benefit to those who want to FIRE. This is one of the few professions where you can potentially get lifetime income and retire at age 40 if eligible for the military pension serving 20 years. However, the unfortunate news is the pension will cover about half of your pay if under the old High-3 and around 40% under the new blended retirement system or BRS. As a result, you need to find our sources of income.

What are some of the other things you can do to maximize your income to get to FIRE?

1. Maximize the TSP contributions. As you know, the military matches 5% in your TSP under the new blended retirement system or BRS. Therefore, you should contribute at least this amount to the TSP, but if under 50, you should max out the TSP to $20,500 in 2022 (under 50). In addition, it is recommended that you pick an aged-based Lifecycle (L) fund. The lifecycle funds are designed to be more conservative when approaching retirement and more aggressive at your military career savings stage.

2. Save additional money in a Roth IRA. Roth IRAs are an excellent way to put money that grows tax-free and gets you tax-free distributions. You can always pull the principal out of the Roth. The recommendation is to put up to $6,000 in a Roth IRA in 2022, if under age 50. Remember that there are income limits on contributions to a Roth IRA contributions. If you exceed the income limits, do a backdoor, Roth.

3. Have an emergency fund of 3-6 months of living expenses in a high-yield savings account. To get the highest interest rate look for online banks that are FDIC insured. They typically offer higher interest rates that you can take advantage of compared to a traditional brick-and-mortar savings account. Not all savings accounts are the same, and many national banks offer very low-interest rates. These online banks can control costs and give you higher interest rates.

4. Get sources of passive income. To generate more income in retirement or financial independence, you can do this with passive income. For example, rental real estate is a popular choice for the military. When you are stationed on a certain base and purchase a home in the community, you can rent out the place to generate passive income when you leave the community. Hire a property management company to collect the rent while you are restationed somewhere else. You can always come back to the community and live in the house.

5. Open an individual brokerage account. With money beyond your emergency fund and retirement savings, it is wise to open a brokerage account and invest the rest of the money. Nowadays, there are many low-cost, easy options such as Robo Advisors. With a Robo Advisor, you fill out an online survey and specify how much you want to contribute, and a portfolio is designed and rebalanced for you.

6. Pay down any debt. It is strongly recommended before you do any investing in brokerage accounts to pay down any outstanding debt. Pay off all credit cards each month in full. The priority should be to pay off the highest-interest credit cards or debt first. If you have too much debt to manage, you could consolidate debt and get a lower interest rate by combining the individual loans. Make sure you create a budget and save at least 20% each month from your paycheck. If you want to F.I.R.E., you have to make many sacrifices, which means that savings more know to live in financial independence in the future.

The FIRE movement is, in my opinion, is about being able to make choices and not having to worry about money to achieve financial independence. The main point of this blog post, we want our money always moving and generating the best return given our risk tolerance. Having money parked in a low-yield savings account will not enable us to maximize the return and possibly retire early. On the other hand, not having to pay down any debt will not enable financial freedom. Talk to a financial planner to learn more about how to FIRE after your military career. Click on the contact page below to schedule a free 30-minute consultation.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.