Icon (Close Menu)


Trend of Extreme Savings Catching FIRELock Icon

8 min read

Sarah Catherine Gutierrez first noticed the shift on social media. Fewer young professionals were posting their new Mercedes SUVs or boats, and more were celebrating their final student loan payments or rolling over 200,000 miles in their well-worn cars.

Young clients are increasingly coming to Aptus Financial in Little Rock, where Gutierrez is a partner, for aggressive savings options. She ties the trend to a movement called FIRE — Financial Independence Retire Early — planted by a 1992 book and fueled by bloggers who preach thrift and almost obsessive saving.

“Some of the bloggers were able to stop working young, in some cases as early as their 30s, by going to extreme measures to save and spin off $30,000 or $40,000 a year to live off the rest of their lives,” Gutierrez said. But those extremes, including eeking by on maybe 10 percent of income, aren’t realistic for most of Gutierrez’s clients. And folks seeking financial independence aren’t necessarily ready for retirement.

“They want the ability to stop what they’re doing if they want to,” she said. “We jokingly call it FIWO — financially independent work optional.”

One emphasis is breaking free of student debt, which Gutierrez says handcuffs young professionals whose good salaries are devoured by high payments. Other clients want alternatives to lavish lifestyles that lock them into high-paying jobs.

“There’s a shift toward being proud of paying off student loans, proud of putting 20 percent of pay away for retirement,” Gutierrez said. “They’re proud to pull their old Honda into a lot filled with late-model cars. We’re seeing a shift from conspicuous consumption to conspicuous savings.”

Young workers value experiences more than possessions, Gutierrez says. “They’re not buying big houses or expensive cars, so we create a cash-flow system that keeps the same amount coming into their bank account to spend,” she said. “The rest is just piling up. FIREs want to get rid of student loans, want to travel, want work to be optional, and we have formulas to make that happen.”

At 56, a ‘Grand Adventure’
A basic structure might put 30 percent of income to taxes, 15 percent to retirement savings, 10 percent into “squirrel funds” to cover emergencies and 30 percent for bills, including housing. “The rest you spend,” Gutierrez said. (Disclosure: Aptus handles the retirement savings plan for Arkansas Business Publishing Group employees.)

Russ Thornton, an Atlanta financial adviser with clients nationwide, told Arkansas Business that financial independence differs from the traditional concept of retirement. “I think of financial independence as reaching a point where paid work becomes optional,” he said. “If we discount those that inherit money or have a large liquidity event … I believe most people reach financial independence through a combination of above-average savings and below-average spending.” Saving 20 to 30 percent of income while living well below your means “makes for a potent combination,” he said.

It’s an approach that allowed Lisa Ray to be sitting by the pool when a reporter called recently. She retired last month at 56 after 29 years with Arvest Bank. While she’s not in the FIRE movement, she and her husband, David, 59, applied many of the same strategies. “We’re about to start our grand adventure,” she said, envisioning a Caribbean duplex where they might live in one unit and keep the second for visiting loved ones.

“When David and I started dating 30 years ago, we talked about a plan to retire young enough to travel and play before we get too old,” she said from her home in Tontitown. “I’m grateful our 30-year plan worked out. For many years we maxed out on what you can contribute to retirement, and with every pay raise we kept our same lifestyle and banked the extra pay.”

Ray, who was a regional executive for Arvest Bank Group Inc., took advantage of colleagues’ financial planning expertise and learned that savers can put cash both into 401(k)s and individual retirement accounts. “It’s really the best way to save long term, and the tax deferment helps in present years.”

She plans to keep her hands off her retirement accounts for 15 years — they’re designed to pay income starting at age 70½ — but she has other savings to tide her over. “We’ll probably try to find a Caribbean place. Or if we have grandchildren, we’ll be able to be near them.”

Where Does Your Money Go?

Taxes and Withholdings 25% 25%
Retirement Savings 25% 0%
Student Loan Repayment 15% 5%
Rent or Mortgage 10% 30%
Other Spending 25% 40%

* Financial Independence Retire Early
** Indebted, Compulsory Employment
Source: Aptus Financial

Questioning Every Purchase
FIRE devotees employ tactics like tracking every penny, questioning every purchase, and finding cheaper options like biking instead of owning a car or buying consignment clothes. Favored investments include low-cost index mutual funds and exchange-traded funds known as ETFs. Ray’s idea of multi-unit real estate is also popular, offering the option of renting out the extra units.

“People get into keeping up with the Joneses,” Ray said. “We never got caught up in that. We’ve seen people buy boats that sit in storage. They have vacation homes they don’t go to. We did better by renting a boat or a place. And we never borrowed money on anything other than a house and a car, and we worked to pay those off quickly.”

Well-paid professionals have an easier shot at independence, but the concepts apply to any budget, Gutierrez said. “The majority of clients coming to us are physicians who identify with the FIRE movement,” she said. “But within the past year, we’ve been getting local millennials, also professionals like doctors, lawyers or people in marketing. But they are making anything from $40,000 a year to $400,000 a year. Obviously if you’re making a lot of money and living on far less, it’s easier to accelerate.”

Hating your job is a bad reason to commit to aggressive savings, she said. “If you hate your job, you should find a job you love. The point is that people want work to be optional. Even if they like their jobs, if the time comes that they want to walk away, they can.”

Locking In the Workforce
Companies once urged junior executives and rising employees to buy costly homes and cars “because they were kind of locking in the workforce by encouraging a lifestyle that will require keeping that high salary,” Gutierrez said. “Millennials are rejecting that, the notion that they’ll forever have to make a certain salary.”

Just as they’ve come to loathe student debt, millennials are starting to see luxuries — and the cycle of big earnings and big consumption they exemplify — as a straitjacket.

“It isn’t about wants,” Gutierrez said. “Some of my FIRE people spend $40,000 a year on travel. But they can! They live in a tiny house, drive a small car and put away money. Some are saving not for retirement but for a dream of starting a business. Some want the option to leave a profession making $200,000 so they can work for a nonprofit at $50,000.”

Many millennials take note of parents or grandparents working well into old age or struggling to live on Social Security benefits alone. “They’ve seen an entire generation unprepared for the shift to 401(k) retirement plans,” Gutierrez said. “When pensions went away and baby boomers retired, they didn’t have enough saved. Millennials don’t want that. They want the option to retire someday, which is no longer a guarantee.”

Gutierrez said the gig economy has reshaped attitudes. One client boasts of having a “one-car, one-Uber family.” Another couple, both physicians, applied a huge wad of their income to retire student debt while living as dorm parents at the university where they work. During that rent-free three years, they welcomed their first child.

“They were happy, and now they’re able to buy a house,” Gutierrez said. “FIRE people are not living deprived lives. They’re having a great time finding creative ways not to have to consume, and they find they’re more content with less. Second, they’re bringing with them a different view of life. Maybe life isn’t punching a card eight hours a day every day. Why not, while your children are young, take them to Europe for a month?”

A financial plan is essential because basic psychology works against saving, Gutierrez said. “We adapt to whatever salary we’re making. People say they would save if they made a little more money, but it’s not true. We have people who make $400,000 and live to their last dollar. If you don’t have a plan, you won’t naturally save.”

1992 Book Still Resonates
Gutierrez said changing mindsets, not necessarily promoting early retirement, was the thrust of the book that helped set off the FIRE movement, 1992’s “Your Money or Your Life,” by Vicki Robin and Joe Dominguez.

“She has updated the book because it was so popular,” Gutierrez said (Dominguez died in 1997), and because millennials face a level of student debt unheard of when the book came out. “Her premise is that your time is worth money, and do you want to work your whole life for things, or do you want your life under your own control?”

Thornton, the Atlanta adviser who has a strong following at WealthCareforWomen.com, says motives are important. “If you’re able to retire at 35, but don’t really have a passion or purpose in life, what have you really accomplished? This also applies to 55-year-olds. I’ve met workaholics who when asked what their goals, hobbies and interests are, say it’s their work.”

In a work-optional mindset, he says, “if you continue to work or volunteer, or whatever, it’s because you want to, not because you have to.”

Gutierrez offered a couple of examples. “A FIRE friend who’s a physician drives an old Honda with 90,000 miles on it; he proudly pulls into work among the luxury cars. In a class I taught among a small group of residents about to finish training, three self-identified as FIRE physicians, and they have plans to pay off $400,000 in student loans in less than five years.”

The quest comes down to envisioning your life, Gutierrez said. “Imagine a person who by age 45 or 50 can say, you know, I can stop working right now. It’s hard to imagine, because we’re living longer lives, and even retiring at 65 is hard now. This is what people want to do.”

Send this to a friend