What are your FIRE assumptions?

Are you looking to achieve FIRE – some time not in too distant future? Then you would probably have number at back of your mind. Something like – “If I have X amount at the age Y, I can achieve financial independence and choose to retire early if I want to”. This calculations will rest upon some assumptions. – which may or may not always be true. What are some common FIRE assumptions which FIRE aspirants have?

What are your FIRE assumptions?

Before reading the next few lines, suggest you to read – 5 underestimated financial risks in retiring early

Here are some of the FIRE assumption which people often have. Some of them may not necessarily turn out

  1. You will get a certain rate of returns on your investments. – Some may think of a (conservative?) 2-3% returns, some may aim for an ambitious double digit rate of return. This may or may not happen. The returns you’ll get may turn out to be different from what your projections say.
  2. Your expenses will not rise (or maybe rise only as per the rate of inflation) – This may turn out not to be true, especially if you pick up an expensive hobby – say, vacationing every few months or regularly eating out at a 5 star restaurant. And I am not talking about unforeseen circumstances or one time purchases like buying or renovating a house (which goes over budget)!
  3. Inflation will be as and when they happen – May or may not be true. In a long term horizon, lot of things need to go really well for this to happen. Good if it does. But maybe, one can be aware that it may not always be the case. A black swan event here and there can make your plans go haywire!
  4. You’ll plan for all emergencies – While it is good to plan for emergencies, unfortunately you can’t foresee all the unforeseen circumstances (Hence they are unforeseen!)
  5. Your health will be OK – Good to hope for that, but not always possible, especially as one ages. There are lot of issues that can crop up. Some can be cured permanently. Some probably can’t and you may need to live with it. Remember, we are talking about planning for a long time horizon, well into the old age …
  6. You have figured out what you want to do after achieving FIRE – Good if you have it all figured out. If not, give it a thought and have some thoughts in place. Imagine having not having anything worthwhile to do for few decades of your life …
  7. Your children will look after you in later stages (not just a financial point) – May or may not happen. This may be a very complex issue, and may mean different things for different people. (and a bit tangential to the “FI” part we are talking about)
  8. You will never run out of your principal amount & live off interests and dividend income only. Few fallacies here – it assumes a stable rate of returns, stability inflation (and hence, probably, inflation protected income)
  9. You’ll be able to “liquidate” your assets when needed – May or may not happen. More so, if the asset you are talking of is a home. Even more so, if you are living there and need to move somewhere afresh.
  10. If your want to un-retire and go back to working (*if need and your wish be …) you can do it any time – This will again depend upon lot of parameters like – market conditions, your skill set and relevance, your energy levels & health etc. Like many other things discussed here, this also may or may not be possible!

Any other FIRE assumptions you can think of & believe that any FIRE aspirant should be aware of?

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The idea of listing these FIRE assumptions is to be cognizant of some risks that may exist while making your assumptions. And if possible, take steps to mitigate it.

Not all of these risk may be applicable to your context. Neither can every risk can be mitigated. But maybe, few of these risks can be reduced.

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