Personal FinanceVitalii Vodolazskyi / Shutterstock.comDavid BerenThere 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 concept of financial independence and retiring early has really grown over the last few decades.
The challenge is that a bear market or emergency medical expenses can dramatically change your circumstances.
It’s best to be prepared for every eventuality if you adopt the FIRE movement.
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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 MarketOne 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 CostsAnother 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 h