FIRE vs. DIRE: The Debate on Early Retirement and Financial Independence

Published on October 23, 2024 | LPL Financial

For nearly everybody who enters the workforce, retirement is something they work toward, think about, and plan for. However, there are different strategies when it comes to retiring. For some, the thought of being able to retire early is exciting. A movement known as “FIRE, (financial, independence, retire early)” has gained momentum as more and more millennials in the workforce show interest in becoming financially independent and retiring early.

Conversely, there is a debate about whether it is more financially beneficial to retire early with financial independence or to delay retiring, also known as “DIRE” (delay, inherit, retire, and expire). Do either of these philosophies appeal to you? Let’s break down the pros and cons of each.

First, we will look at FIRE. To retire early with financial independence, not only do you need to save up enough money, but you should also have sustainable portfolio withdrawal strategy, affordable health care, and a plan for long-term care (just in case).

FIRE Pros

• Beneficial for your health – Early retirement could offer health benefits. You might feel less stressed, sleep more, eat healthier, and spend more time getting fresh air and exercising.
• Ability to pursue hobbies – You can now pursue hobbies you couldn’t while working, such as traveling.
• Family time – There could be more free time to spend with family.
• Begin a new career – You worked hard and earned enough money to retire young, however, your job may not have been what you dreamt of doing. Now you have the time to start a new career and fulfill your dreams.

FIRE Cons

• Money troubles – Retirees may realize they don’t have enough money saved up to maintain their financial independence.
• Loss of purpose or motivation – Some young retirees lose their motivation when they don’t wake up with a purpose. They can struggle mentally and even physically with the sudden loss of drive and motivation.
• Frustration and depression – When people realize they aren’t saving nearly enough to retire as early as they like, it can impact them psychologically. As cost of living increases faster than income for some people, it may be difficult to avoid negative emotions like frustration and disappointment.
• Your Social Security benefits will be less – If part of your strategy for retiring early means taking your Social Security earlier, for example, at age 62, your monthly benefits will be 30% less than if you had waited until age 67 or even 70.
• Health and potential long-term care coverage – If you aren’t working, you may need to find your own insurance, which could be expensive. You also must consider the possibility of having to pay for long-term care for you and your spouse if you have one.

Next, we will look at DIRE. Delaying your retirement is another strategy that appeals to some individuals. Some people prefer the benefits of working longer, staying busy, getting employer-sponsored healthcare (unless self-employed), waiting for the inheritance if you are lucky enough to get one, and finally hanging up your hat and enjoying the new free time.

DIRE Pros

• Purpose-driven life – Working gives people a purpose. Not long after people retire, they often grow bored and return to the workforce or pursue part-time work to keep themselves busy.
• No need to find your own health insurance – Since you are still working you will likely receive health care coverage from your employer.
• Larger Social Security checks – If you claim your Social Security benefits later because you decide to continue working longer, your Social Security checks will be larger.

DIRE Cons

• Your health – Many jobs involve a tremendous amount of stress that could have a negative impact on your health.
• Less time to enjoy retirement – If you choose to retire later, you will have less time to enjoy your retirement.
• Tax consequences – Some retirees find they face considerable tax bills after retiring. This may occur because distributions from 401(k) plans and tax-deferred IRAs create taxable income. If you continue to work and are a super saver you may experience what is known as a “tax bomb.” This when you are hit by a large tax burden you didn’t expect. Working with a financial professional before and during retirement can potentially help you prepare for future challenges and develop strategies to overcome them.

Consider consulting a financial professional

Planning for retirement, whether you want to retire early or continue working long after many others call it quits, can be complex. Getting the help you need from a financial professional can provide you with ideas for designing strategies, creating attainable goals, and deciding which retirement approach would work for you and your financial and retirement aspirations.

Remember, retirement isn’t just about money. It also includes your health and family, and getting the most out of what retirement has to offer. Finding a financial professional to build a long-term relationship with now could be beneficial as you modify your strategy to better align your changing interests, beneficiary updates, and the constantly evolving world and market.

Sources:

Is it better to go after ‘FIRE’ or pursue ‘DIRE’ with your career? (knoxnews.com)

Financial Independence, Retire Early (FIRE) Explained: How It Works (investopedia.com)

5 Myths About FIRE And Early Retirement That Just Won’t Die (forbes.com)

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by LPL Marketing Solutions.

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