Careful planning and frugal living can lead to early retirement if the clients are truly committed to making big changes.
“People always assume there’s an external circumstance: ‘Oh, you must have received an inheritance,'” Carl Jensen, recently told the New York Times about his decision to retire at 43.
“We’ve just chosen to live far below our means. That itself is a radical idea.”
Jensen was one of a few early retirees the Times interviewed. He’s a part of a movement that goes by the acronym FIRE for Financial Independence and Retire Early.
But is this something financial advisors recommend? What are the benefits to early retirement? What are the drawbacks? Financial Planning cast its net to find out what your peers think of this movement and how and when they’ve helped clients stop working much earlier than normal.
“It’s not a new idea,” says advisor Danilo Kawasaki of LPL-affiliated Gerber Kawasaki Wealth & Investment Management in Santa Monica, California. “I’ve had so many clients ask me what it would take to retire in their 40s, some even in their 30s.”
But when they see what it takes, “that number quickly dissipates,” Kawasaki says.
Scroll through to read more commentary from advisors and get their thoughts on early retirement. Responses have been lightly edited.
“Early retirement is not something we recommend for clients,” says advisor Kelly Hokanson of the Planned Approach in Kansas City, Missouri. “Research shows that people who retire early suffer in many ways — physically, emotionally, etc. We have seen this with our own clients and provide a cautionary tale when asked about it.”
That said, some of her clients are enjoying semi-retirement.
“Switching from a fast-paced, high-stress job to one where they are giving back or to consulting seems to provide the purpose that people need,” she says, “while allowing them more freedom to enjoy retirement activities such as travelling and hobbies.”
“The FIRE movement has great intentions. However, in my opinion, it misses the mark,” says advisor Anthony Badillo of Gen Y Planning in Charlotte, North Carolina. “I see firsthand how difficult it is for people to save for retirement in their 60s and 70s, which is intended to last 20 to 30 years. To condense that timeframe so that they can retire in their 40s and 50s and have their retirement last 40 to 50 years is extremely difficult.”
In order to achieve a work-optional lifestyle in their 30s and 40s, many clients will need to live on “shoestring budgets” and forego life’s pleasures like vacation, dining out and even going to the movies, Badillo notes.
“Don’t get me wrong, I’m all for aggressive savings strategies, and I firmly believe in savings upwards of 20% of one’s gross income,” he says. “But I also believe that there is a better strategy that doesn’t require quite as much sacrifice while allowing just as much satisfaction.”