Personal Finance

If These 5 Things Happen, the F.I.R.E Movement Might Be Doomed

David Beren

Published: February 1, 2025 2:33 pm

There is no question that the F.I.R.E movement, or the hope to achieve Financial Independence [and] Retire Early, has continued to gain momentum over the years. As far too many of us work to live instead of living to work, there is a growing desire to try and stop living the corporate lifestyle as soon as you can achieve a strong financial position. 

The challenge with the FIRE movement is that it’s not without risks. Aside from the idea that you are reducing your income without steady work, you have to evaluate how well you want to live and what lifestyle you hope to enjoy. As wonderful as this idea of financial independence can be, it goes without saying that it can just as quickly go away with a few economic and life changes. 

Watch Out For A Bear Market

One of the most prominent aspects of the FIRE movement is the idea that you can live around the 4% safe withdrawal rule. This understanding relies heavily on the continued performance of a bull market, in which this type of portfolio growth is not only possible but probable enough to rely on this withdrawal amount. 

However, what happens if things take a turn and we enter a bear market? If the market starts to underperform for an extended period, the portfolios of those hoping to start or already amid the FIRE lifestyle would be threatened as long-term growth starts to look less and less likely. 

The smartest idea would be to hold a cash buffer so you can best navigate a bear market and downtowns, but even an average market recovery may not be enough to restore any lost capital. Should this happen, there is no question that those heavily reliant on market performance to continue funding their FIRE lifestyle might find themselves returning to work. 

Jump In Healthcare Costs

Another big risk to the FIRE movement may be uncertainty in healthcare costs. While the hope is that by the time someone turns of age to qualify for Medicare, this becomes less of a risk, but for those who want to FIRE in their 30s, 40s, and 50s, unforeseen healthcare costs can pose a serious risk to cash flow. 

Any significant emergency healthcare expense, alongside rises in premiums and deductibles, may dramatically eat into free cash flow. The challenge is that healthcare costs often jump and climb faster than inflation, so there is a definite risk to the movement here. 

Should the government reduce subsidies or eliminate them, or if something were to happen to the Affordable Care Act under President Trump or a future president, affordable coverage could disappear. The hope is that anyone participating in the FIRE movement is building rising healthcare costs into their buffer funds to offset any unforeseen expenses. If someone doesn’t plan correctly, it could be hazardous to their ability to stay retired early and maintain the same lifestyle they are accustomed to. 

Concerns Over Taxation 

Anyone in the FIRE movement has to have a realistic perspective on what taxes will look like as soon as they leave the workforce. While it’s easy to plan now if you have a Roth or Traditional IRA, capital gains, or any other type of tax-deferred account, what happens if government regulations change? 

Consider for a moment that Congress could potentially phase out or start to reduce the number of benefits available to those growing retirement funds in 401(k), Roth IRAs, or Health Savings Accounts. While this might seem unlikely at the moment, everything is on the table in the future, and this means you have to consider what might happen should tax-advantaged accounts no longer have the advantages they have today. 

There is no question that any scenario affecting the tax benefits with these accounts would dramatically affect the FIRE movement. 

Inflation Impacting Buying Power

There is no question that anyone looking to get into the FIRE movement should consider the impacts inflation would have on their lifestyle. This shouldn’t be a surprise, considering we’re already living in a period of high inflation, where eggs can cost as much as $12, insurance prices are skyrocketing, and dining out is no longer an affordable option for millions. 

The big concern is that people in the FIRE movement might not adequately plan for their living costs and consider what happens as purchasing power declines. This would impact their housing, food, travel, and energy expenses. However, the bottom line is that another period of high inflation in the coming years isn’t unlikely and could lead to any projected lifestyle costs growing beyond FIRE movement projections. 

The best way to counter this idea would be to consider keeping some funds in passive income streams that don’t see an impact with inflation. In addition, investing in dividend stocks could allow income to continue steadily, and the same goes for real estate, which likely grows in value during inflationary periods. 

Strict Budgeting Required 

Ultimately, strict budgeting is the most significant way to offset any impacts of inflation. While there isn’t much question that those in the FIRE community are already focused on budgeting, to avoid the effects of inflation, you will have to take your budgeting plans up a notch. 

FIRE already relies on precise spending plans, so there must be a mitigation strategy for rising prices due to inflation. One strategy could be ensuring a robust emergency fund with at least 12 months of buffer cash to help offset short-term inflation effects. 

This also supports the idea that a passive income stream might be helpful, but without the same stress levels of corporate life that led to FIRE. If you maintain your skill set, consultation or contract opportunities may allow you to live a more flexible lifestyle without being in an office. 

Most importantly, the budget should be continuously assessed to keep up with rising costs. There is no telling how long an inflationary period could last, so regularly reassessing spending will be key to outlasting these periods of instability. 

Remember to Adapt and Diversify

As noted previously, diversifying is one of the smartest ways to navigate periods of uncertainty while living the FIRE life. This means you shouldn’t ever invest in just stocks or just bonds, etc., but should have multiple revenue streams. This could mean a portfolio that includes stocks, bonds, real estate, and passive income streams, so you don’t feel the effects of market volatility as much as others. 

Another consideration is to relocate to a lower cost-of-living area, lowering your overall costs. There should also be a contingency to work part-time or bring in some side income that would help offset rising costs around inflation. There may even be an opportunity to do part-time contract work for a company remotely, including some that may offer benefits like insurance or paid time off.