For those who want to play with FIRE, here's how

To help clients achieve extreme early retirement, advisers recommend focusing on these primary factors

Jan 19, 2019 @ 6:00 am

By Greg Iacurci

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.

Health insurance

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.

Housing

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.

Withdrawing income

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.

(More: Advisers throw cold water on FIRE movement)

Roth conversion

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.

Support network

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?

(More: Here's a financial adviser who wants to help FIRE spread)

Realistic expectations

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.

Another goal?

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.

0
Comments

What do you think?

View comments

Most watched

INTV

Schwab's Jeff Kleintop: Prep for volatility given China trade uncertainties

China could be considered a developed market in five to seven years , according to Jeff Kleintop, chief global investment strategist, Charles Schwab.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Funding for Reg BI, other SEC advice reform efforts denied in Waters amendment

House likely to approve measure that effectively kills rule package, but it faces uphill battle in Senate

Wall Street lashes out at Sanders' plan to pay off student debt with a securities trading tax

Financial pros argue that a transaction levy will hurt mom-and-pop investors along with investment houses.

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.

Give us a break, active managers say

Seven portfolio managers share their outlooks for the rest of the year, generally agreeing that it's been hard for active managers to stand out.

GPB Capital reports decline in value of two biggest funds

One has dropped by 25.4% and the other by 39%, according to the company.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print