[Financial Planning for the 100-Year Life] A Proper Understanding of the FIRE Movement

Many office workers dream of becoming part of the FIRE movement (Financial Independence, Retire Early), which means achieving financial independence early and then retiring to live a free life. Given the economic difficulties and the lack of job security in society, it is understandable that young workers might have such thoughts. Also, since this is a matter related to their personal life philosophy, there is no need to view such choices solely in a negative light. However, the issue is whether young workers dreaming of the FIRE lifestyle truly understand it correctly and prepare thoroughly before starting.

The FIRE movement first emerged in the United States in the 1990s and spread worldwide after the 2008 financial crisis, especially among people in their 30s and 40s in countries such as the US, the UK, Australia, and the Netherlands. FIRE adherents aim to retire early, not at the typical retirement age of 50s or 60s, but by their late 30s or at the latest early 40s. From their 20s, while working in companies, they choose extreme frugality by reducing consumption and saving more than 70-80% of their income. Their goal is not to become wealthy by reaching a certain target amount but to live doing what they want, even if it means spending and eating less. To save living expenses, FIRE followers downsize their homes, drive old cars, reduce dining out and travel, and even grow their own food.

What about domestic FIRE followers? First, their methods of raising funds for financial independence focus more on short-term financial strategies using stocks or real estate rather than the extreme frugality seen in American FIRE followers. This is also reflected in the previously introduced JobKorea survey results. When asked about methods to prepare funds for early retirement, 51% answered stock investment, 9% real estate investment, making aggressive investment methods account for 60%. Stable methods such as savings and deposits accounted for 30%, and side jobs or part-time work 11%. Those who answered that they are not preparing funds accounted for 36% (multiple responses allowed).

What is unfortunate is the style of investment. For example, in stock investment, rather than following the principle of long-term diversified investment, the mainstream is short-term trading based on market forecasts. In other words, they hope to hit the jackpot with stocks or real estate and quit their jobs quickly. According to the “Report on Individual Investor Trading Behavior during the COVID-19 Phase” published by the Korea Capital Market Institute in 2022, the annual average turnover rate of all individual investors was about 1600% from March 2020 to February 2021, right after the COVID-19 outbreak. This means they bought and sold about sixteen times a year on average. Especially, the average annual turnover rate for male investors in their 20s was 6800%, meaning they traded almost twice a week. As mentioned earlier, while occasional success may happen, continuous success with such short-term trading is nearly impossible.

Of course, there are cases where people earn money through short-term financial strategies and retire early. However, the problem is that there is no guarantee that the money earned this way will last 10 or 20 years later. When working at a company, although there may be ups and downs, a steady salary is paid regularly. But short-term financial strategies do not guarantee continuous success and may even result in losses. Also, even if there is no money worry, many people in middle age feel emptiness due to a lack of roles assigned to them. The biggest concern is having no place to go despite no worries about living expenses. The word pension in English comes from the French word pension, which originally meant “a regular payment for years of service” recorded in the 1520s. In the 1640s in France, pension also came to refer to lodging facilities where retirees rented out spare rooms cheaply, worked a bit, and earned some profit while staying inexpensively. This shows that the word pension is deeply connected with “work.”

Kang Changhee, Head of the Happy 100-Year Asset Management Research Association