Savings, expenses, investing
The primary driver of success for FIRE followers is an extremely high savings rate and managing expenses, advisers said. So FIRE is theoretically attainable for any client, not just super-high earners. But investments are also important. Advisers recommend relatively aggressive stock allocations: not less than 50/50 in stocks and bonds, and likely skewing toward 75/25.
Daniel Kenny, an adviser about to launch the firm FI-nancial Planner dedicated to FIRE clients, called the Affordable Care Act the "best thing" to happen to the FIRE movement. Clients can buy health insurance over an ACA exchange if they don't have access to employer coverage through a spouse, or through health-care share ministries, which help cover health-care costs for members with the same religious beliefs. If clients want to work part-time, they may be able to negotiate a lower salary in exchange for employer health coverage.
Renting is typically less expensive than buying a home, and changing location — perhaps even moving abroad — can substantially lower living expenses, taxes and health-care costs.
Advisers may have to get creative with drawing down a client portfolio, as there's a 10% tax penalty for taking funds from IRAs and 401(k)s before age 59½. Advisers may have to rely more on nonretirement accounts in the intervening years. They may also withdraw contributions made to a Roth IRA free of tax and penalties.
Paying taxes on retirement accounts over time to move them into a Roth IRA could help give investors access to assets sooner, Mr. Kenny said. Tax rules allow investors to convert a traditional IRA to a Roth account and withdraw the conversion principal tax- and penalty-free after five tax years — even if the investor is younger than 59½.
Have clients reach out to other FIRE adherents who've already retired to gauge their experience, said Linda Rogers, owner of Planning Within Reach. Did they get bored? Did having kids upend the plan?
Be honest about what could happen. Building in escape routes so clients aren't "walking a tightrope" is key, especially to help clients draw income during down markets, said Eric Roberge, founder of Beyond Your Hammock. That may include some sort of side income or passive income stream, such as real estate if a client is interested in being a landlord.
Figure out whether early retirement is really a client's goal or whether they're just trying to run away from something, said Roger Ma, founder of lifelaidout. What actions can be taken to achieve the life they want now? It may not be retirement.