Financial Independence, Retire Early (FIRE) is a community of individuals committed to a strategy of significant saving and investing, aiming to retire much sooner than what conventional financial plans typically allow.
The 1992 bestseller Your Money or Your Life by Vicki Robin and Joe Dominguez played a key role in bringing many ideas associated with this movement into the spotlight. While the exact origins of the term and acronym FIRE are unclear, it reflects a fundamental idea from the book: individuals should assess each expense based on the amount of work hours required to cover it.
Purpose of FIRE
The FIRE movement focuses on achieving financial independence by embracing a lifestyle of significant frugality and proactive investing. Followers of FIRE often aim to retire earlier than the traditional retirement age of 65 to 70, or they seek to enhance their financial freedom. Those looking to retire early might plan to rely on modest withdrawals from their investment portfolios or may choose to work part-time as part of their approach.
Advocates of this frugal lifestyle often remain employed for several years, saving as much as 75% of their annual income.
Once they hit their FIRE number, which is generally 25 times their annual expenses, they may decide to leave their full-time jobs or retire completely.
To manage their living costs after an early retirement, FIRE enthusiasts typically withdraw a small percentage, around 3% to 4% of their total savings each year (with adjustments for inflation). Achieving this requires careful tracking of expenses and a strong commitment to managing and reallocating their investments based on their savings and lifestyle goals.
The Type of FIRE
There are several FIRE retirement variations:
- Fat FIRE: This approach is for those who have a regular 9-to-5 job and aspire to save significantly more than the typical worker without compromising their current lifestyle. Achieving this usually requires a high income along with proactive saving and investing strategies.
- Lean FIRE: This lifestyle is embraced by individuals who prioritize minimalism and extreme frugality, leading to a much more constrained way of living. Many who pursue Lean FIRE manage to live on $25,000 or less annually.
- Barista FIRE: This option appeals to those who want a balance between the two previous paths. They leave their conventional 9-to-5 roles and rely on a mix of part-time employment and savings to enjoy a lifestyle that is more than just minimal. They may also invest in health insurance while preserving their retirement savings.
Pros and Cons
One great aspect of FIRE is its flexibility; you can tailor the specifics to suit your unique circumstances. There are various approaches, ranging from Fat FIRE to Lean FIRE. However, there are some drawbacks to consider. The high savings rate might not be feasible for everyone, particularly for those with children or elderly parents to support. Additionally, facing inflation or a bear market right before your retirement could complicate your plans, requiring you to make some adjustments.
Conclusion
The Financial Independence, Retire Early (FIRE) movement presents a different perspective on retirement planning compared to the conventional approach. Rather than setting their sights on retiring at 65, many individuals involved in FIRE aim for an earlier exit from the workforce. Some choose to continue working while striving for financial independence, which allows them to rely less on a steady paycheck from a full-time job.
If you’re interested in pursuing FIRE, it’s essential to plan meticulously. Remember that typical retirement advice is designed for those who expect to be retired for around 30 years. It might be beneficial to consult with a financial planner to refine your goals and strategies.