The Coronavirus Crisis Has Tested the Retire-Early Movement. But Its Followers Are Unbowed, and It’s Winning New Fans.

When Ali and Alison Walker sold their Seattle home, said goodbye to their jobs, and set off on an around-the-world journey in 2018, the markets were still on the upswing and their early retirement was unfolding with hardly a hitch.

Then came the coronavirus pandemic and an abrupt turn in markets that slammed the Walkers’ investments and confined them to an Airbnb in San Miguel de Allende, Mexico, amid global travel restrictions.

Yet the Walkers, like many proponents of the “financial independence, retire early” movement, seem largely unfazed. FIRE adherents pursue their goals by saving aggressively, and in the past 11 years, many have taken advantage of a historic bull market to build solid nest eggs.

“We planned for some type of a black-swan event,” says the 46-year-old Ali, who worked in marketing and business development. “We couldn’t have planned for the coronavirus, but we assumed there would be a tough bear market or a prolonged down market for one reason or another.”

Still, the coronavirus crisis is a big test for the FIRE philosophy, with some observers wondering if the crisis will knock devotees off track—or even extinguish the FIRE flame and push those who have achieved their goals back into an office cubicle.

Yet far from dousing interest in FIRE, so far it seems as if the crisis may lead more people to investigate the philosophy. Just as people flocked to the movement in the wake of the 2008 financial crisis, those who feel burned by the current crisis may find themselves turning to FIRE strategies in a bid to be more self-sufficient.

“What part of ‘biggest unemployment spike in history’ makes you want to be more reliant on your job?” says Tanja Hester, author of the book Work Optional and the FIRE blog “Our Next Life.” “It’s a huge reminder that workers are expendable, and there isn’t a great safety net out there for us.”

All-Weather Approach

Many FIRE adherents start out in good financial shape. They are often financially disciplined millennials or Gen-Xers with well-paid jobs, banking big chunks of their salary in hopes of making an early exit from the workforce. Given their relatively long time horizons, they often take on a lot of investment risk.

Yet even though many pursuing a FIRE strategy invest aggressively, they employ some strategies that may leave them particularly well suited to weather the economic storm. They often emphasize large emergency funds, low costs of living, and well-diversified investments and income streams.

Consider the Walkers: The couple set aside five years of cash to cover their expenses in the case of a sustained downturn, and decided on a conservative annual withdrawal rate of 3% of their savings. They also gave themselves plenty of wiggle room in their budget to pare back expenses if needed.

“One of the great things about the FIRE movement is that it talks a lot about the different scenarios you should prepare for before deciding to retire,” says the 56-year-old Alison, who had worked retouching images for catalogs and corporate clients.

Marcus Miller, a financial planner who specializes in working with FIRE clients at the Indianapolis offices of Deerfield Financial Advisors, says the philosophy attracts disciplined investors of a cautious mindset. “If you take a look at the people who comprise the FIRE movement, it’s people who often live below their means and have built this war chest to live off of. They may be better equipped to weather a storm like this than the majority of Americans.”

Challenges Remain

Even among the best-prepared, some who are following the FIRE path are likely to face challenges in the current environment. This may be especially true of people who are close to, or just starting, their early retirement. The sharp downturn in the financial markets ratchets up the risk that drawing down investments now—rather than waiting for markets to rebound before tapping investments—can throw off assumptions about long-term returns and savings growth.

This “sequence-of-return risk” can have a big impact on what you’re able to spend later in your retirement, says Matt Ryan, a financial planner at San Diego–based Creative Capital Management Investments. “Two months ago, the people who are close to financial independence and retiring may have been pretty close to their goals,” he says. “But now they may have to adjust their timing.”

What’s more, Ryan says, is that this risk comes as even the most risk-tolerant FIRE investors had become inured to down markets. “There’s a recency bias, especially among younger investors who saw the market continuously going up over the last 10 years that’s led to an overallocation to stocks.”

Generally speaking, he says, investors should have an emergency fund and a portion of their portfolios in conservative investments. Those who don’t have adequate savings outside of equities may find themselves in a predicament—needing income but loath to sell while stocks are down.

For those who find themselves short on cash, the advisor suggests paring back expenses or seeking income from a side gig, two familiar principles of the FIRE movement. People who previously had a side gig may qualify for unemployment under the Cares Act, which extended benefits to freelancers.

“I think it’s definitely a lot harder to pursue financial independence and FIRE in the traditional sense at this exact moment given that most of the economy has just been paused,” says Grant Sabatier, a personal-finance blogger and author of Financial Freedom: A Proven Path to All the Money You Will Ever Need.

Sabatier suggests that those who can’t pursue the strategy now can still take the time to understand their values and plan how they want to save, spend and invest in the future. “Use this moment while we’re all stuck inside to figure out your relationship with money and how to be more intentional about it when this is all over.”

Increase in Interest

The current environment may lure a new demographic into the world of FIRE. While millennials felt the sting of the 2008 financial crisis—many left college loaded with debt during a lousy job market—younger generations may have known only a bull market. “A lot of younger people haven’t experienced anything like this,” Ryan says. “It’s going to be a wake-up call for those who aren’t putting enough away in savings or don’t have an adequate emergency fund.”

Colin Loretz was drawn to the FIRE movement right before the pandemic struck. The 32-year-old freelance software engineer would frequently find himself chasing late invoices from clients—delays that were exacerbated by his lack of savings to carry him between paychecks. Before committing to financial independence, he used credit cards as a stand-in for an emergency fund, leaving him with considerable personal debt.

While he hasn’t begun aggressively investing, he is working to pay off his debt and weighing whether to use his stimulus check to erase that debt or bolster his emergency fund. Loretz, who lives in Reno, Nev., says he feels the crisis has made him more committed to the FIRE principles. “I wanted to get out of living invoice to invoice as a freelancer and on to a different path,” Loretz says. “I don’t want to be caught in a situation like this again.”

Write to us at retirement@barrons.com

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