Asking how much money you will need in retirement is, on the surface, a simple question.

Far more difficult, of course, is working out an accurate answer. And with reports of an increasing retirement gap among UK pension savers, it seems that growing numbers of the population are struggling to solve the puzzle.

Indeed, it’s estimated that the percentage of people not on track for a minimum retirement lifestyle – as defined by the Pensions and Lifetime Savings Association – has grown to 38%, which translates to 1.2 million more people not meeting the threshold for a basic level of financial comfort in later life.

The same research, from Scottish Widows, also reports that the majority of future retirees (54%) expect to have to work longer and retire later than they would like.

Setting retirement objectives

These statistics underline the mismatch between many people’s hopes and the reality of their savings situation. And while the reasons for this mismatch will be different for every individual, it can often simply come down to poor engagement with pension saving.

Research from Standard Life, published to coincide with Pension Engagement Season, reveals that managing/checking pension savings is most likely to be at the bottom of Brits’ to-do list, with 14% never even having looked at their pension at all.

But that is certainly not the case for everyone. Indeed, there is a certain type of younger employee who, in contrast, has a very solid grip on their retirement objectives and a robust plan for hitting their financial goals. These are the members of the FIRE movement.

FIRE – which stands for Financial Independence, Retire Early – has built momentum over the past decades as a strategy for achieving the financial security to support personal freedom as early in life as possible.

A new roadmap

The concepts at the core of the movement are said to have their roots in the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez, in which the authors set out a nine-step programme designed to transform an individual’s relationship with money. Rather than follow the ‘nine-to-five ’til you’re sixty-five’, they advocate following a new roadmap based on frugality, saving and investment.

Followers of the FIRE movement are, at least in part, driven by the ambition to live with “enough”, which means trying to limit their consumption of the world’s resources to only necessary levels. They are also attracted to the idea of a fast-track plan for financial independence, shortcutting the more traditional model of saving into a pension throughout your working career and then retiring later in life, typically when you reach your 60s.

Spurred on by these motivations, FIRE followers choose to save a comparatively large proportion of their income – sometimes up to 70% – in order to accumulate savings and support investment strategies under an accelerated timeframe.  The model also relies on being able to restrict debts and other financial obligations to maximise saving potential.

Appetite for information

Clearly, FIRE is not going to be for everyone. At its most extreme, it demands a level of sacrifice that some people are simply likely to find unrealistic. For others, it might simply be too challenging to save such a high proportion of their income in the face of high everyday living costs.

The popularity of FIRE among younger generations of the workforce suggests, however, that there is a wider appetite for information that can help inform proactive personal finance strategies. And, given that FIRE advocates effectively preclude themselves from pensions as a savings mechanism (since they can only be accessed from 55 at the earliest), it could be inferred that this appetite extends beyond more traditional financial arrangements.

This could present an opportunity for employers to play a valuable role in helping employees tackle the challenge of retirement planning from different perspectives. Whether through information about pension contributions, salary sacrifice, or information on investment strategies, there are multiple ways for a company to support staff who are looking to put longer-term savings and investment plans in place, while also taking control of their immediate outgoings to reduce month-to-month expenditure.

This might not deliver the full FIRE dream of retiring decades ahead of time, but it could help ignite a greater sense of financial wellbeing and inspire greater levels of loyalty among younger workers who are eager to take more control over  their future prospects.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Corporate or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.