Capital Markets Corporate

September 6, 2019

The FIRE movement: setting the world of pensions alight?


A new craze from the US is turning retirement saving into a cult-like lifestyle movement, and could be set to finally make pensions an engaging topic for younger generations.

The FIRE movement (Financial Independence Retire Early) refers to groups of uber-frugal millennials saving the vast majority of their annual income – roughly around 70% – in order to achieve a very early retirement in their 30s and 40s.

After years of being the butt of jokes about their spending habits, many millennials are overhauling their avocado-tainted reputation by doing a complete 180° when it comes to their financial habits.

The conversation around the FIRE movement is booming as a result, with close to 300 mentions of the movement across global media in the last 30 days alone.

Like any craze, questions are being asked by the financial advice community as to whether this movement is sustainable. How can notoriously struggling millennials afford to save such a chunk of their salary when accommodation, travel, student debt and living costs are taken into account?

What’s more, could this goal – which is out of reach for the vast majority of millennials – be dispiriting rather than encouraging? Many savers in this age group will struggle to build a pension pot that will enable them to retire at 65, so could these extreme success stories of retiring at 40 or 30 just be set to disengage and discourage millennials even further?

Even for those that reach the FIRE end goal of ‘retiring’ aged 40, the promise of decades of financial stability and security is being viewed dubiously. Albert Einstein may have referred to compound interest as one of the eight wonders of the world, but with global economic performance weakening and life expectancies increasing, can individuals really expect the investment of a decade or two’s earnings to sustain them up until the age of 79 – the UK’s current life expectancy?

While the practicalities of the FIRE movement may not stand up to scrutiny, pensions are finally having a moment, and this shouldn’t be discouraged. After all, when was the last time you read an article on pensions in GQ?

Rather than dismissing this movement as an unachievable ‘fad’, the pensions industry – which has spent decades working out how to encourage younger people to engage with their long-term savings – should capitalise on this retirement rebrand.

Once the extremity is taking out of the equation, the messages promoted by the FIRE movement are actually quite simple – spend less, save more, invest over the long term and plan for the future. This simplicity is cutting through the noise of confusing and conflicting financial advice and striking a chord with younger generations, so is a message that others in the industry should consider promoting – albeit with a dash more caution.