Hrithik in the movie Zindagi Na Milegi Dobara (ZNMD) is probably the first character that introduced us, at least the millennials, to early retirement. That movie came out in 2011, when 'FIRE' — Financial Independence, Retire Early — wasn't even a thing. His character is one of the main reasons why the millennial cohort in India became obsessed with FIRE after Covid. But there are so many things that may go wrong with this plan.
May You Live Long
My grandfather, born in the late 1920s, lived beyond 75. He outlived India's life expectancy at birth not just during his own time (25-30 years), but even during the 1990s when I was born (55-60 years). By the 2060s, when I'll be around 70, life expectancy is expected to reach 90 in the US, Hong Kong, and Japan, and 80 in India.
These estimates don't account for potential scientific developments. Longevity researchers believe that humans may succeed in increasing life and health spans. Therefore, it is reasonable to expect that people in my cohort may live longer than 90 if we avoid accidents and adopt a healthy lifestyle.
When people lived for 75 years and retired at 60, the drive for early retirement at 40 felt romantic. In effect, 15-20 years of working funded the next 30-40 years. But with life expectancies going so high, the math changes. We need to ask if we have earned enough to sustain us for the next 50-60 years.
What About Prices?
Then comes the FIRE killer: inflation. Financial models assume inflation as a fixed component — 6-7% in the case of India and 2-3% for the US. Although one might feel that this is a reasonable assumption, there are a few complications to it:
- We like to believe the country's ability to manage inflation in the future, too. But that is not guaranteed. There can be multiple years when the inflation spikes could drain pockets by 20-40%. The causes of high or hyperinflation could range from climate-related uncertainties to economic mismanagement. Ask Zimbabweans or Argentinians about their FIRE plans.
- Consumer Price Index (CPI) is used in FIRE models. But your spending may vary from the CPI basket, especially as you get richer. Does your FIRE plan include a change from a Fastrack watch to a Rolex? Or from flying Economy to Business? Or from buying bananas to avocados?
- Now, someone might not change their lifestyle so much. But that doesn't mean they can escape inflation. If we assume India will grow, it is bound to become costlier. See how the cost of living in countries like South Korea and Singapore has increased in the last few decades.
- We cannot miss a phenomenon known as Baumol's cost disease. Technology may reduce the cost of goods, but not services. Evidence suggests that healthcare, education, hospitality, and personal services often become more expensive faster than general inflation.
- Similarly, a dream of "travel the world after FIRE" is filled with uncertainties around travel inflation, which has been rising faster than overall inflation.
- Lastly, healthcare inflation hits from both sides: prevention and treatment. Healthy food, fitness, mental wellness, preventive check-ups, and advanced diagnostics are expensive lifestyle choices. Even medicines, surgeries, hospitalisation, and long-term care are getting costlier. Then, after retirement, employer-provided health cover disappears, making healthcare one of the biggest financial risks of a longer life.
Geopolitical & Country Risks
Most FIRE frameworks assume a stable macro environment. History suggests otherwise. Wars, sanctions, political instability, capital controls, inflation shocks, or currency weakness can permanently alter a country's fate, long-term returns and retirement outcomes.
India has seen capital controls, financial crisis and a political emergency before. Countries like Argentina, Zimbabwe, and Iran have shown us that the stability - economic or political - can break over time.
A FIRE plan built on assumptions of stable returns and predictable inflation may look very different in a more uncertain world.
Societal Pressures & Job-Related Uncertainties
Most FIRE models are built around an individual or couple, without factoring in children and ageing parents. Projecting these expenses today is harder for any financial expert. Moreover, kids have become more dependent on parents' incomes due to higher education, unemployment, and career breaks.
There's another risk. If things go wrong, going back to work may not be easy. Finding a job at 50 that sustains the same lifestyle is difficult - and with AI reshaping industries, it could become even harder in the future.
Stock Market Vagaries
One can only achieve FIRE through investing in equities. But holding the portfolio for 50-70 years through multiple crashes, sideways markets, and sectoral obsolescence requires a psychological and financial resilience that most individuals underestimate in advance. Therefore, diversification across asset classes, geographies, and currencies is a must for building a long-term resilient portfolio.
At the same time, returns during your retirement matter more than returns during the investing phase. This is called sequence of returns risk. If markets crash after you retire, you will be forced to withdraw more to cover expenses. This weakens your portfolio, giving you hardly any time to recover.
Final Take
Personally, I see FIRE as a shift from money-chasing work to work one likes —art, hobbies, writing, or anything else. But one should keep earning money from some work, and not depend on interest and dividends.
As economist Ajay Shah points out, the biggest problem with FIRE models is the illusion of control. Many things can ruin our plans. Therefore, we cannot extrapolate the present situation into the future.
There is also a psychological cost. It trains people to save aggressively, but not to spend. Obsessing over one number can make people forget to live in the present, like Hrithik's character in ZNMD, or become stingy like the cartoon Scrooge McDuck.
The goal should not be one perfect number. The goal should be a sustainable system: save consistently, stay financially resilient, and still enjoy life. After all, you can skydive in your 30s and 40s, not in your 70s.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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