When you’re working towards achieving financial independence, sometimes all your focus is on the here and now. How do I make sure I’m controlling my spending, boosting my income, and making sure I get the best returns on investments.
I wanted to talk through some of the other ways you should prepare to FIRE, to give yourself the best chance for success.
When you give up your day job, and don’t have a plan to return to it, your life will change dramatically. Don’t underestimate how huge this change will be. You may think you know yourself, but yourself you know it is the person you know before you retire early. The post for retired you may be very different indeed.
- 1 Plan Your Physical Health
- 2 Develop your hobbies and interests
- 3 Build a network of “people with freetime”
- 4 Set-up your finances for deaccumulation
- 5 Decide on your location
- 6 Prepare for the mental health challenge
Plan Your Physical Health
You may not be aware of this, but almost all jobs exercise your body.
For some jobs this is obvious, like being a personal trainer, or working at a burger flipper. But even office-based jobs require you to get out bed, travel to the location, meet people, get your lunch, and generally move about.
Regular jobs often have obvious pretty points like lunchtime, where you get some movement in.
If you retire early, do you things happen. One is that you are likely to have plenty of free time to exercise. However, at the same time you are likely to have lost many of the structures that kept your body moving. There is nothing theoretically to stop someone who has retired early from staying in bed all day, every day, forever.
That shortcut to shortlife after work.
Compounding this, after early retirement, the opportunities to eat, drink, and be merry are much greater. You have no colleagues watching your choice of lunch to pressurise you into the salad. You have no crazy busy day meaning you barely have a chance to have a bite to eat. What’s more, you are more likely to be near your fridge at all times, able to rustle up any food you desire at short notice.
If you want to keep healthy, control or even lose weight, build up muscle, and all the other fantastic life benefits you dream of in a post retirement world, you need to plan as you prepare to FIRE.
Test your fitness
How far can you run, how much can you lift, how long can you hold your breath and balance on one leg. How flexible are you?
Set goals for your post FIRE health
Once you know what are your fitness level is now, set some goals for the future. What weight do you want to be? How strong do you want to be? How flexible do you want to be?
These targets are not set in stone, but it will inform your health goals in the short term after you retire early.
Get some practice in for your new, healthier life
Don’t wait until you FIRE in order to start getting fit and healthy. Prepare to FIRE now. The damage you do to your body if you wait will take years to recover. Take action now, even if that means sacrificing a few months before you reach financial independence to ensure you are getting exercise – whether that’s a gym, home-gym, classes or a personal trainer.
Develop your hobbies and interests
When you retire early you are presented with the “blissful” moment of having nothing to do.
This is a truly novel and exciting period for most people straight after years of working.
But, the novelty soon wears off, and existential questions about your purpose in life start to creep in. Now, you have the time to follow your passions, you better have some to follow.
You may have been thinking that you are too busy right now to develop interests, hobbies, side-hustles, and non-work activities. That you will wait until you retire to decide all that.
I warn you now that this is a risky strategy. If you do not have a way to keep yourself entertained in retirement, you may quickly tire of it.
Start trying out different activities now. If there’s a hobby you loved in your youth, from playing the guitar to amateur dramatics, pick up on that hobby again, even in a small way. Sign up to do different things and sniff out something you love.
This also can bring great benefits to your physical and mental health, plus give you opportunities to find “people with freetime”.
Build a network of “people with freetime”
One of the biggest shocks for many people who retire early is that they suddenly lose out on the huge social aspect of employment. When you are working, you may not always appreciate all the people you work with. I promise you, though, you will miss human contact when you FIRE.
This is because most other people of your age are working during the day. They aren’t free to go for a run, or grab a coffee, in the way you will be.
As you prepare to FIRE, seek out people who already have more flexible daytimes. These might people how do certain professions that have more free time than others, it might be other people who have FIRE’d already. Or it might be through your hobbies and interests. Start to cultivate those relationships now, because building them up after retirement is a long path to travel.
Set-up your finances for deaccumulation
In the run-up to financial independence, your mind needs to shift towards how you will access the cash to pay your monthly expenses as they fall due.
Some people this is a real penny drop moment. Their net assets would allow them to retire early, but their finances are set up in such a way that they cannot access their cash.
Here are a few examples of ways that your cash may be locked away, meaning that retiring early is not an immediate option.
Your money is locked up in a pension
Pension can be an excellent way to invest as you build towards financial independence. In general pensions allow you to keep your money without having to pay income tax. This can be a very valuable benefit.
But pensions often come with a catch in that you can’t withdraw money until a particular age.
If you cannot take money from your pension, and you require these assets in order to give you the cash to retire early, you are not financially independent.
If there is a relatively short window between when you want to retire early and now, you could consider a loan to bridge the gap. But very quickly this loan could balloon. For example if your annual expenses were £30,000 a year, if you were four years from being able to access your state pension you would need to borrow £120,000, in order to retire early. That is a huge amount, and likely to attract significant interest. You may even find the bank will not allow you to borrow money anywhere near this amount.
The secret here, if you want to prepare to fire before you are allowed to access your pension, is to have invested money outside of your pension too. You can use tax advantage accounts like IRAs or ISAs in the UK. Plus you can simply invest entirely outside the pension, for the cash flow amount you will need to bridge the gap.
Your money is locked up in house equity
It is quite possible to have a large amount of house equity, or even have paid your house off in full, but I have no monthly cash flow. The reality is that if money is being used to fund your home ownership cover it is difficult to spend it!
On top of this, if you do leave your regular job, it becomes much harder to access this Home Equity through a remortgage because you will not have a regular income to.
If you will need cash for a relatively short period, perhaps before your pension matures, and you are confident you could pay this mortgage back with your pension assets, remortgage before you FIRE.
You money is held up in taxable accounts
A key part of accessing cash when you are not working, is to insure your being tax efficient. Tax is a form of expense, unlike any other expense, you should be insuring that you only pay what you need to pay.
You may be sitting on capital gains that will crystallise if you take money out quickly.
The secret here is to use your capital gains allowances each year, especially in the run-up to an actual financial independence, and build up a sufficient reserve of cash and other liquid assets that will not attract a tax cost if you withdraw them.
You should also look to tax advantage accounts, be at pensions, IRAs or ISAs.
Decide on your location
Once you finish work, you have the opportunity to change your location. Of course, in theory, you always have this choice but you may be too busy to take it.
But while you prepare to FIRE, think about where you would really like to live and why. Use your vacations to seek out new places and understand your likes and dislikes.
You may want to be nearer family, or nearer the sun, or the mountains.
Rather than waiting until you reach retirement to see the world, see if you can fit byte sized moments into you life.
Prepare for the mental health challenge
Early retirement is hard on your mental health. This is because people do not do well in the short term with dealing with change.
In fact, you are likely to go through the stages of grief if you retire early. You’ll be grieving for your previous life. Yes, you may not have loved that previous life. And yes, your whole mindset may have been focus on reaching this point. But once you reach it, you will have to mentally adjust to make sense of everything that is new.
The positive emotions associated with financial freedom may get offset by a series of negative emotions.
Kubler – Ross defined stages of grief that you may encounter. These can come in a particular pattern or oscillate between various emotions.
Your brain may go into denial, where it refuses to except that you have ended your old life.
You may find yourself bargaining with your old life. This could take the form of considering whether to go back, to give up on your plan, or find some other way is to actually stay within your old life.
Past denial and bargaining, he may enter a stage of anger. This is an emotional state and so not entirely rational. You find yourself frustrated and confused that your early retirement plan is not as great as you thought it would be.
You may also find yourself entering a depression. This is when you find you can’t experience the joy and happiness that you feel you deserve. Life can feel grey and even emotionless.
The final stage of the grief curve is acceptance. In this stage you have found your new life, and have said goodbye to the old one, even if you miss certain parts of it.
As you prepare to FIRE, check in on your emotional state. Problems outside of work will get amplified. Be ready to hit the grief curve. There is no set time period for how long it will last. More important is for you to be able to identify if it’s happening to you, and recognise that this does not make you abnormal.
Develop a pre-retirement check-list
Before you decide to leave your job to FIRE, make sure you have checked all your bases, so you are fully prepared to retire early. Here’s some examples of what you should have considered as you prepare to FIRE:
- Access to annual cash flow to pay your expenses is planned and in place.
- Your FI calculation is up to date for your expected post-FI annual expenses.
- The asset allocation of your net worth is placed to ensure a great return.
- You have an emergency fund in place, outside of your FI funds.
- Dry run living off your investments rather than income
- Replace items you rely on work for with personal items – e.g. personal email address, personal cell phone number, now vehicle rather than a company car.
- Prepare to FIRE with a first 100 days of post-retirement planned
- Take out any loans, remortgage, get new bank accounts, move house, apply for visas, before you have no income to report.
- Set yourself goals, targets, and aspirations for your post FI life to benchmark against in the future.
- Write down your reasons for wanting to retire early so you can reference these in the future.
No doubt there are more. Let me know what I missed in the comments
Prepare to FIRE – Conclusion
It’s easy to spend all your time prior to retiring early working and investing. But there are a number of ways you can prepare for life as financially independent to ensure you have the best experience.
Why not read about the stages of financial independence to help you prepare to FIRE?
As you prepare to FIRE. you can learn about how to reach financial freedom and much more by exploring my blog.