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The age pyramid does not bode well for today’s workers. Neither is the pension reform that takes time to be implemented. In addition, 69% of French people oppose an increase in the legal retirement age from 62 to 64, according to an Elabe survey for “Les Echos” from March 2022. And approximately 70% want to return to retirement to all at 60 according to a survey published by the “JDD” in February 2022.
However, in our pay-as-you-go pension system, retirees’ pensions are financed by workers’ contributions and the ratio between retirees and workers is deteriorating. In 1950 there were 5 workers for every retiree in France. In 2019 there were 1.7 active contributors per retiree. The most pessimistic projections foresee 1 retiree per worker in 2070. In this context, the financing of pensions continues to be the thorny issue on which workers and public administrations seem to want to kick each other. In any case, it seems difficult in this context to have confidence in future retirement age and future retirement income.
There is a solution: prepare during your active life for your retirement so as not to experience too sudden a drop in your purchasing power. From this trail arises a trend that is being emulated on the web in general and on social networks in particular: the FIRE movement. What is it about ? How to do ? Is it applicable to everyone? Discover in this article all our explanations about the FIRE movement to start, or not.
The philosophy of the Fire movement
The FIRE movement, an extreme form of financial independence, comes from the Anglo-Saxon acronym: “Financial Independence, Retire Early”, a term that can be translated as “Financial independent, early Retirement”. The objective is, therefore, to be financially independent in order to cease a professional activity and live on one’s own investments as soon as possible. And as soon as possible, the followers of the movement are not targeting 50-55 year olds, but 30-40 year olds!
Cette méthode, plus proche d’une philosophie de vie d’ailleurs, repose sur 4 piliers: baisse drastique de ses dépenses, épargne massive, mise en place de stratégies d’investissement agressives, maintien d’une forme de sobriété, voire de frugalité retired.
The conditions that allow access to early retirement
The two requirements that make it possible to have a capital that allows very early retirement are a very important savings capacity during working life, as well as a massive investment in investments with high potential returns.
To retire as soon as possible, it is essential to set aside as much money as possible. For this, the savings rate must exceed 50% and ideally be around 75%. According to Mr. Money Mustache, apostle of the FIRE movement on YouTube, with a savings rate of 15% it takes 43 years to be financially independent, 28 years if you have a savings rate of 30% and 7 years with a savings rate of 75%.
So, this method requires investing everything in investments with high return potential. This means neither more nor less than it is about risk investments, not guaranteed in capital of course, mainly in the equity markets. So you need to be relatively risk-averse, but you also need to be aware that if the time you plan to retire falls into a recession, you may need to think about postponing your retirement a bit, unless you’ve secured your funds as retirement approaches. , but this also has an impact on the performance of your investments. Also, remember that a long investment horizon also allows you to take advantage of the magic of compound interest and thus boost capital with less effort.
Essential but difficult to achieve prerequisites
For these reasons, the FIRE movement seems totally unthinkable to those of us with small incomes, and even a little more important. Remember that the average salary in France is around €2,000 per month. If we consider that with an income like this we are capable of saving 50%, that is, a saving of €1,000 per month, with an allocation of assets that allows us to aspire to a 6% annual return, we will even save between 20 and 30 years to that saving income reaches that of this average income.
The saving effort is therefore counted in several decades, although this effort is considerable for medium and modest incomes and requires enormous sacrifices, but it also varies greatly depending on the family unit. In fact, this method will be easier to implement for a couple without children than for a single person, but much more difficult for a couple with many children.
Also read: Should you prepare for retirement through a PER?
Financial independence to simplify your life and not impose sacrifices on yourself
The FIRE movement seems a bit extreme to us. Can we still talk about financial freedom when we impose so many restrictions on ourselves? In our opinion, the simplest thing, instead of trying to stop your professional activity before reaching the age of 40, is to find a job that corresponds to your aspirations and desires.
And while we completely agree that, given the current context and the weakness of retirement pensions, it is urgent to prepare for retirement in order to accumulate additional income, these should allow us to maintain a purchasing power comparable to that of those who one could benefit during his working life than to want at all costs to stop working as soon as possible.
With the cessation of professional activity, the question of replacement activity arises. What is the purpose of the retreat? The frugality advocated by the retired FIRE movement seems to us quite close to a desire for reduction that is not necessarily suitable for everyone.
This extreme move, difficult to implement, does not seem ideal to us. However, the enthusiasm surrounding this method at least has the benefit of reminding us of the importance of preparing to finance your retirement when the time comes through investments in the stock markets, real estate, non-standard investments, etc. And if possible, why not consider retiring a little earlier?
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