Retiring in 20 Years, FIRE For Everybody?

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BearMoney Team

BearMoney Team

BearMoney is the balanced finance blog for new and old Canadians alike. We are a team of people living international that research, write, and share

man with blue and maroon camping bag

What is FI

Financial independence is one of the most common goals of the personal finance community. At its most basic it refers to the ‘state of being able to cover your living costs without depending on external income’. Practically this means having investment income as your primary income source.

FIRE, or Financial Independence Retire Early is achieving this goal earlier than the average retirement age. There is no set age limit or money goal for this so it varies wildly from person to person. In fact, most people don’t even want FIRE, they really want FIRP, Financial Independence Retire Partially. So many case studies in FIRE take small side jobs or paid passion projects to keep themselves busy.

This is a very smart idea too as staying active in retirement helps ward off a lot of health issues. So the key is that being financially independent is about removing the need to earn money, not the drive to be economically active. Don’t reach FIRE all burnt out.

Most of the FI blogs you will see live this idea daily, it sounds ideal, but what does it actually require? Well, just like retirement plans, there’s a different form of FI to suit each individual person.

Whether you are a software developer in Texas or administrative staff in Hungary, there is a path to financial independence with partial retirement for you. As always though, context is key.

*For the purpose of this article we are assuming that you want to retire in 20 years and are starting from 0

silhouette of a person on a swing
We all dream of a tropical retirement

What You Need For Financial Freedom

There are a lot of variables when it comes to achieving financial independence. Martial status, parenthood, education, location, health, all of these and more play a role in determining what you will need to thrive after finishing your working life.

For example, children cost somewhere around $250,000 dollars to raise in Canada, or let’s say $14,000 a year. For your own personal context this amounts to 40% of the average take home pay for a single person.

In todays world it is a dangerous assumption to think that you will stop paying for your child after age 18 so the actual amount is likely closer to $300,000. This is without factoring in issues to do with education where if you live in the European Union you’re likely not going to have to outlay as much in educational support as in the United States. This can add significant ongoing costs.

Long Term Thinking Is Key for FI

So we need to take a long term view of our income and expenses. It is likely that our income will increase over time but it is not certain. In the same way, being married can help with stability and wealth building but can also be a huge financial hit if ending in divorce.

The simple rule of thumb for retirement has always been ‘the 4%’ rule, meaning that you need enough money to be able to withdraw your annual expenses 25 times over 25 years. Now this might not be suitable for people who retire early, especially considering the average life expectancy is going to hit the high 70s in the next while.

However, people with investment accounts will know that with a solid portfolio you can likely extend your 4% rule for many years. Nevertheless, as a basic guide it is incredibly useful. To calculate your FI number simply multiply your net income by 25. This will be more than enough to give you cushioning room for your ‘4% rule retirement’.

motherland monument among green trees on embankment in kiev
FI in places like Ukraine can be achieved but it is geographically limiting

The Reality For Non-Rich Countries

The single most common piece of advice in the financial independence sphere is the 500/30/10 rule. This rule states that with 500$ a month, in a US index fund, at 10% interest, you will be a millionaire after 30 years.

This logic is pretty sound based on the performance of the S&P 500 index over the past 40/50 years. Although current economic times are difficult and a market correction is likely soon enough, over the long term 500/30/10 will serve you well.

For the purpose of FIRE though, you don’t have 30 years unless you’re starting investing consistently at 18 years of age (in which case you’re settled for life, no need for this article). To achieve FIRE in 20 years under these conditions it is actually closer to $1,400 a month, almost triple! That’s the power of compound interest.

There are very, very few countries where the average worker could afford to save anything close to this much money. This reality is often overlooked in the personal finance space as it is dominated by people from Anglosphere countries (like yours truly).

Taking it back to the first principles of average income and percentages, this represents approximately 40% of net take home pay. It is certainly doable but it requires a very intentional and frugal strategy for the average person.

Most people reading this are likely able to meet the $1400 and that is great for them but what about people from less wealthy countries.

Assuming you have access to investments with the same level of technology and tax treatment as western countries you are likely facing much small amounts to achieve FIRE. If, for example, you live in Ukraine, your average earnings are approximately $500. This is nowhere near enough to retire based on the model above.

In this context your FI investment goals are somewhere around $200 a month giving you a FIRE number under our scenario of ~$150,000.

This is a good sum to have in Ukraine, but 4% of this sum in Canada would probably cover only a couple of months living expenses for most people.

For a country like Greece which is globally wealthy but outside the pack of the normal FIRE countries, you would be looking at a savings rate of $725 with an end goal of ~$515,000. This is a very frugal life in Canada, but technically manageable.

Retire Early is mostly for Rich Westerners
The $1million retirement is a pipe dream for most

FIRE at the Top

From the money required to retire early in other countries we can get a sense of around about what money is needed for an individual to achieve FIRE within the 20 year time frame in the standard countries.

You are more likely in these countries to make enough money to achieve your long term goals. There is also the added benefit of easier access to investment in your country, especially if you live in the US or Canada. While you may battle with inflation and ‘keeping up with the jones’ you definitely will not have to navigate the economic minefields that poorer countries do.

It’s actually a lot easier to calculate FIRE for ‘Western Countries’ because by and large the costs of living and wage differentials are so similar. $50,000 a year income is a very solid floor for the majority of G20 countries depending on the currency. In basic terms this comes out at about $1.2 million.

This holds pretty steady considering the comparative wealth between the United States/Canada and places like Greece and Ukraine.

Your actual income needs are likely to be greater if you have kids/grandkids and are married. But generally speaking, you can have a comfortable retirement with the 1400/20/10 investment approach of this article.

By looking at a mix of countries we can broadly find an FI number that is correct for the context at hand. Investing 40% of your net income into index funds is the simple straightforward path to your own personal financial indepdence.

But what does it take to be truly financially independent in the global sense? You have to attain Swiss FI.

Note: There are always serious outliers when it comes to Cost of Living. Retiring to live in San Francisco or Toronto is going to require a hell of a lot more money than if you retire to Denver or Madrid. You personal choices will affect the mileage of your FI plan.

Swiss FI is the ultimate goal
We’ll all be financially independent in the Alps

Being ‘Swiss FI’ ?

While not the wealthiest country in the world in terms of wages (that goes to Luxembourg and Iceland), Switzerland is the wealthiest country with a sizeable population (8.5 million people) and a world renowned wealth hotspot.

The average swiss wages adjusted for purchasing power tops off at a whopping $85,000. This is probably just as well given that a big mac costs almost $7!

To be Swiss FI then is to be financially independent to the point that you can live anywhere, even the land of chocolate and gold. If you retire early and comfortable in Switzerland then you can retire comfortably anywhere.

This is something that a lot of FIRE enthusiasts don’t talk about. Your financial independence is also linked to the cost of living environment that you want to live in. Yes we can all buy a duplex in Montana and achieve FIRE, but many people want to see the world and live as active a retirement as possible.

This means figuring out where in the world you’d like to retire/travel and planning for the most expensive scenario. To achieve FI in Switzerland your average savings rate is likely going to have to be an eye watering $2,500 a month to live a ‘Zurich lifestyle’ in early retirement. That’s about $1.8 Million. You would probably need to earn over $100,000 a year to achieve such a savings rate.

This is for a comfortable life at the top though. If you our Swiss friend Lionel over at ‘Cent-By-Cent’ decided to take a Zurich FIRE nestegg to Greece for example, he would be upper class overnight, while in Ukraine he could buy a house in cash every couple of years.

Simple FI Calculator

So what does your FI look like? Are you going to retire to the ancient coast of Greece and live in sunshine or are you going to hang out in foggy London town?

To find the general range for your retirement nest egg, take either your income (if you plan to live in cheaper places) or the high FI estimate of $65,000 and enter it into our calculator below. Then select the type of retirement you want and presto, you will have a nestegg goal and a monthly goal.

With these approximate numbers you can start to play around with your FIRE plan and see where the next 20 years are going to lead you.

Where is your ideal FIRE location? Tell us below where you want to go and what you dream of doing once financially independent.

For BearMoney the ideal FI is half the year in Canada, half the year in Europe, probably Croatia and Ireland. That’s the dream we’re working to achieve.

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    One Response

    1. Love the blog Bear Money! This is such an important post. You ran the numbers to show FI is possible for anyone. I also love the handy calculator at the end of your post. You know how to keep things simple. Keep up the great work!

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