the well-th report
The Growing FIRE to Retire Early
Planning strategies for turning the retirement mirage into reality
Having upended life as we know it, COVID-19 has brought into focus one often underappreciated aspect of our life: our health. This has led many to reevaluate their priorities and strive to live more balanced and rewarding lives.
Perhaps that’s why the smallest percentage of workers since March 2014 (when the New York Federal Reserve Bank began tracking such data) expect to work beyond the age of 62. This is several years prior to the government’s definition of the full retirement age — at least in terms of social security benefits.
While perhaps cultivated by the pandemic, the resolve to retire early has been growing for some time.
Case in point: FIRE (Financial Independence, Retire Early) a lifestyle movement of people committed to maximizing savings for the sake of early retirement. Its followers seek to live simply, cut costs aggressively and save large percentages of their income. The movement has been around for decades but has gained momentum in recent years.
At the same time, many of the financial practices put forth by FIRE adopters are being called into question. Longer lives, low interest rates and other market dynamics make FIRE a risky proposition.
To help those interested in early retirement, we provide an up-to-date perspective on FIRE planning assumptions, with the help of research from Vanguard. We also offer examples of additional planning techniques that can make a meaningful impact on retirement readiness to review with your financial advisor.
A Growing Desire to Retire Early
Source: Federal Reserve Bank of New York, Center for Microeconomic Data. Retrieved from on Sept. 16, 2021.
Rethinking The 4% Rule
Followers of FIRE have traditionally used the “4% rule” to determine how much they will be able to withdraw from their portfolios in retirement. This 4% rule originated in 1994 from research by William Bengen, a now retired financial advisor, in the Journal of Financial Planning. It has since become widely adopted in financial services as a rule of thumb to help guide retirement planning. While Bengen has since updated his research, the 4% withdrawal rate remains ubiquitous.
New research from Vanguard highlights the need to update it. Its authors, Paulo Costa, Ph.D.; David Pakula, CFA; and Andrew S. Clarke, CFA, point to the oversimplification of the rule’s underlying assumptions and provide suggestions for fine-tuning them. These include:
Using more modest return assumptions based on current market conditions
Bengen’s model used historical performance to predict future returns. As Vanguard’s authors reiterate, past performance does not guarantee future results. To highlight this point, they provide Vanguard’s much lower return forecasts (than would be assumed using long-term historical averages), which reflect actual expectations for future stock valuations, interest rates and inflation.
Lengthening the retirement time horizon
The 4% rule was based on an investor with a 30-year retirement horizon. With people living longer and retiring early, this horizon is likely not long enough to minimize the risk for many retirees of outspending their assets. Vanguard suggests a 50-year horizon but also reiterates that retirees’ time horizons should reflect their unique situations.
Using a dynamic — rather than fixed — spending rule
The 4% rule seeks to provide a constant standard of living. However, as Vanguard discusses, this rule can be inefficient due to market volatility. For example, it involves boosting spending to account for inflation even in years with significant market downturns, which could result in unnecessarily selling assets at depressed prices. The authors propose an alternative, dynamic spending method, whereby retirees adjust spending up and down, within a range, depending on market performance.
The authors also include suggestions for updating assumptions around investment fees and geographic diversification, which can be found in Vanguard’s research report: Fuel for the FIRE: Updating the 4% rule for early retirees.
Revisiting Other Retirement Planning Practices
In addition to updated FIRE assumptions, a range of longstanding planning strategies deserves more attention as retirement horizons expand and retirement assets must stretch further.
These include:
A comprehensive review of your retirement goals – focusing not only on lifestyle spending but also your vision for any large purchases (e.g., an additional home), philanthropic gifts and inheritances for your family.
Asset location – placing tax-inefficient assets (e.g., high yield bonds) in tax-deferred retirement accounts and tax-efficient assets (e.g., municipal bonds) in taxable accounts.
Planning for tax-efficient withdrawals – evaluating if you should spend from your taxable accounts before tapping into retirement assets to allow your retirement assets to grow tax-free for as long as possible.
Tax diversification – carefully considering your mix of retirement accounts, including traditional, tax-deferred IRAs and Roth accounts.

These are just a few examples of strategies your advisor can help you evaluate and implement as you set your sights on earlier retirement. The common theme to keep in mind is that even seemingly minor adjustments to your portfolio and tax profile can go a long way toward meeting your goals. This is true even if your risk of outspending your assets is low; more money in retirement means accomplishing more for yourself and your loved ones than you previously thought possible.
While early retirement is not for everyone, its appeal appears to be growing. But it may prove only a mirage if not accompanied by a sound financial plan. Fortunately, help is available, especially from advisors familiar with your priorities and invested in your future. Take advantage of it.
Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.
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