The growing movement among some millennials and members of Generation X to aim for an extremely early retirement in their 40s, 30s, even 20s, which goes by the acronym “FIRE” (financial independence, retire early), is getting a lot of attention right now.
To some, early retirees are an inspiration, showing what’s possible when you opt out of society’s consumer narrative. But too often, stories on early retirees focus on intense money-saving tactics and present those in the movement as oddities. Highlighting the novelty of the movement, and the extreme lifestyle choices of a few adherents, distracts from the more important reality: For far too many Americans, early retirement is not a novelty, but an inevitability.
More than half of U.S. workers over age 50 are pushed out of long-held jobs before they choose to retire, according to a new analysis of Health and Retirement Study data by ProPublica and the Urban Institute, often resulting in irreparable financial harm that imperils their retirement and therefore the rest of their lives. Many never find work again, and those who do often have to take a massive pay cut or make other sacrifices that significantly diminish their quality of life. Only one in 10 ever matches their prior income before they were forced out.
Couple that with the fact that pensions are disappearing rapidly at the same time that retirement savings are stagnating. According to Economic Policy Institute (EPI) research, roughly half of retirement savings are accumulated after age 50, and even for those closest to retirement, aged 56-61, the median family retirement savings are only $17,000.
Our collective narrative insists that anyone can achieve the American Dream, and that we control our own destiny. We believe it’s our decision when we’ll retire. The problem is that for most of us, we’ll never actually get the choice.
Whether it’s getting downsized at work and being unable to find another job because of an ageist job market, being forced to quit by illness or disability as we collectively grow sicker, or needing to stay home to care for someone else, the fact is that most of us will not retire when we intend to. It’s why we see a continual increase in the age at which Americans expect to retire, from 60 in 1995 to 66 in 2018, but a large and persistent mismatch in terms of when Americans actually do retire. The average retirement age is 63, not the intended 66.
And of course we all know that automation, outsourcing, and shifts within industries are an ever-present threat to long-term job security. What you do now simply may not exist as a job by the time you’re 50 or 60, the years during which workers do most of their retirement savings. So even if you love your job and have zero desire to leave it before your 60s, you may not ultimately have that say, and you’re so much better off if you can give yourself the financial flexibility to leave work at a younger age than you plan to work to.
We need to better prepare ourselves for an early retirement, which starts by changing how we think and talk about retirement, not as something that can be predicted with perfect precision, but more like a natural disaster: something that can strike at almost any time, without warning. And early retirement must become something we all anticipate, not something we treat as a fringe phenomenon for entitled millennial tech bros.
Most of the oxygen in personal finance advice currently goes toward trying to convince people to work longer, for example, Suze Orman pushing people not to retire or claim Social Security until at least age 70. That’s great advice for those who have the choice to keep working until then, but the data show that that’s an increasingly small minority. And you can’t know whether you’re in that lucky few or not until it’s too late to do much about it. Those of us giving personal finance guidance need to continue advising people to work as long as they can if they’ve undersaved, but to balance it with more urgency to save more and save it sooner.
To truly address this, we also need policy solutions, including better options than 401(k) plans and individual retirement accounts (IRAs), investment vehicles that largely benefit the already-rich and which, according to EPI, fail most workers and do not adequately substitute for the pensions of the past. Those solutions must include pathways for lower income people to save more, too. The disappearance of pensions has created greater disparities between white Americans and people of color, according to EPI, and we must fix that.
We also need more financial education in schools. Currently, only five states earn an A grade for turning out financially literate students from the Champlain’s College Center for Financial Literacy. And 30% of states earn a D or F. Most American high-school students are never required to take a personal finance class to graduate.
But on a personal level, the best thing any of us can do is to see retirement not as something far off in the distant future, but as something you might transition to in the near term. Save more and save it sooner. Accept that even if you love your job, you may not always have the choice to keep doing it. Given the data we have, aiming to be fully set for retirement by age 50 should be our new universal financial goal, not 65, 70, or beyond.
The extreme early retirement movement may appear to many as an oddity, but it does offer hope to those with disposable income that it’s possible to transform your financial habits and future security entirely if properly motivated to do so. Now it’s time to make planning for early retirement not just some fringe movement, but the norm for everyone.