The biggest risk in FIRE is running out of money after you’ve left work and your skills have gone stale. The main causes are a market crash in the first few years, a withdrawal rate set too high for a 40 or 50-year retirement, and the gap before you can access super at 60. A cash buffer, a lower withdrawal rate and some flexibility manage most of them.
FIRE stories online tend to show the happy ending. Retiring 20 or 30 years early is a big decision, and it’s hard to undo. Here are the risks to understand before you hand in your notice, and how to manage each one.
1. The big one: sequence of returns
If markets fall 30% just after you retire, you’re selling shares at low prices to pay your bills. Those shares are gone, so they can’t recover. The same fall 20 years later does much less damage, because your balance has had time to grow.
That’s why we hold a cash buffer: 1.5 to 3 years of spending in cash. After a good year you top it up from your ETFs. After a fall you spend the cash and leave your shares alone to recover. Our cash buffer guide explains how it works.
🎥 Watch me explain this
▶7:17Sequence of returns risk, explainedHow much do you need to retire in Australia? · from 7:17 · read the post
▶7:33The 3-year cash bufferHow to build a retirement portfolio with ETFs (Australia) · from 7:33 · read the post
2. Is 4% safe for a 50-year retirement?
The 4% rule was tested on US shares and bonds over 30 years. Retire at 40 and you may need 50 or more. A slightly lower rate makes a big difference to how long your money lasts:
Our view: plan at 3.5% to 4%, and be willing to spend a little less after a bad year. From 67, a part Age Pension may also help, especially as your balance falls. See how ETFs affect the Age Pension.
3. The super gap
You usually can’t access super until 60 and retired. If your money outside super runs out at 55, you may have to go back to work. Plan bucket 1 with a margin, keep it invested for growth, and remember it’s taxed at your marginal rate, with the CGT discount on shares held more than 12 months. The CGT rules change from 1 July 2027, which matters for anyone selling ETFs outside super to live on.
Our free FIRE calculator checks both buckets: money outside super to get you to 60, and super for after.
4. Eight risks, and how to manage them
5. Flexibility is your best protection
The FIRE plans that survive are the flexible ones. Being able to earn $20,000 a year from part-time work, or cut spending by 10% in a bad year, does more for your safety than any spreadsheet. Many people now aim for barista FIRE or coast FIRE first, and only stop work fully once their portfolio is well past their number.
🎥 Watch me explain this
▶0:50The retirement red zone: your riskiest yearsThe retirement red zone: super, SMSFs and your last 5 years · from 0:50 · read the post
▶0:24Cash is a position7 ETF investing lessons from 20 years · from 0:24 · read the post
Every FIRE guide, plus the calculator, in one place.
Frequently asked questions
What is the biggest risk of FIRE?
Running out of money, usually because markets fall sharply in the first few years of retirement. A cash buffer of 1.5 to 3 years of spending helps you avoid selling shares after a fall.
Is the 4% rule safe for early retirement?
It was tested over 30 years. For a 40 or 50-year retirement, many people use 3.5% (about 29 times spending) or plan to stay flexible with spending.
What is sequence of returns risk?
The risk that poor returns arrive early in retirement, when your balance is largest and you’re starting to withdraw. The same fall later does far less damage.
What happens if I run out of money before 60?
You usually can’t access super until 60, so you may need to return to work. Plan your money outside super with a margin, and keep it invested for growth.
Can I go back to work after FIRE?
Yes, and many people do, part-time or in a new field. Being able to earn some income is one of the best protections against the risks of retiring early.