What's the Financial Independence, Retire Early movement?

Have you ever dreamed of changing careers or retiring early? If you’ve researched early retirement strategies, you may have come across the FIRE movement.

The Financial Independence, Retire Early (FIRE) movement is a lifestyle some people follow to become financially independent and retire early—sometimes decades before the traditional retirement age of 65.

Many of the FIRE movement’s concepts were inspired by the book Your Money or Your Life by Vicki Robin and Joe Dominguez. They encouraged readers to rethink their approach to saving and spending money.

In this spirit, FIRE followers often live below their means so they can save and invest large portions of their income.

Read on to learn what the FIRE movement is and how it works.

Key takeaways

  • FIRE focuses on living below one’s means and aggressively saving money. 
  • FIRE followers often save 50% to 75% of their income. Many plan to retire in their 30s, 40s or 50s and then live off their savings and investments.
  • FIRE strategies differ based on variables, like a person’s current finances and retirement goals.
  • The FIRE movement can require extreme financial discipline and lifestyle changes, so it may not be right for everyone.

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How does the FIRE method work?

FIRE followers often plan to retire in their 30s, 40s or 50s. But reaching this goal can require extreme sacrifices. Followers may cut their expenses in order to increase the amount of money they can save and invest. 

Depending on their income, current debts and desired retirement age, FIRE followers might save up to 75% of their earnings. Others may choose to increase their income with side hustles or passive income streams.

For many, the goal is to invest enough money to retire early and live off withdrawals from their investments. And FIRE followers use different methods—including traditional retirement planning strategies—to make this happen. 

FIRE movement methods

The goal of FIRE is to create freedom and flexibility through financial independence. While early retirement is the movement’s main focus, it’s not the only focus. And that’s why there are different types of FIRE methods that followers can pursue.

Common FIRE strategies include:

  • Lean FIRE: People who follow the Lean FIRE model often live a minimalist lifestyle and plan for a modest lifestyle during retirement. Lean FIRE is a form of financial independence that covers basic needs. Someone who has reached Lean FIRE has usually saved 25 times their yearly expenses. 
  • Fat FIRE: The Fat FIRE lifestyle typically requires more savings than Lean FIRE does. These individuals don’t want a limited budget to restrict their retirement lifestyle. They may want extra retirement income for traveling, shopping and more. Reaching Fat FIRE may require saving more aggressively than the Lean FIRE lifestyle does. 
  • Barista FIRE: The goal of Barista FIRE is to save enough money to retire from full-time work and enjoy a flexible work-life balance. Reaching Barista FIRE means someone has saved enough money to partially cover their living expenses. They might maintain a part-time job to supplement their savings. As a result, Barista FIRE followers may not have to make the same strict sacrifices as those following the Lean or Fat strategies.

How to retire early with FIRE

Retiring early takes planning and dedication. If you decide FIRE is right for you, knowing if you want to live a Lean FIRE, Fat FIRE or Barista FIRE lifestyle can help you find the right saving-and-investing strategy for your goals. That said, there are a few strategies that may apply to all FIRE lifestyles: 

Calculate your FIRE number

A FIRE number is the amount of money needed to reach financial independence. And many FIRE followers use the 4% rule to determine their FIRE number.

According to the 4% rule, a person needs to invest 25 times their annual expenses to reach financial independence. The idea is that FIRE followers could maintain their current lifestyle for 30 years by withdrawing 4% from investments each year. 

You can multiply your current yearly cost of living by 25 to estimate your FIRE number. So if someone’s average cost of living is $50,000 per year, they may need $1.25 million to retire comfortably. 

Example of how to calculate a FIRE number estimate.  

The 4% rule might help you estimate how much money you’ll need for retirement. But it’s important to take other factors into account. FIRE followers might want to consider how market changes or collecting Social Security could influence their retirement saving strategy. They may also need to increase their yearly spending as they age to account for inflation and medical expenses. 

Track expenses

Tracking expenses can help FIRE followers manage their current cash flow and simplify their finances for retirement

Create a budget 

A budget can help FIRE followers reach their savings goals. Some FIRE followers may use zero-based budgeting to track every dollar they spend. Others may find different ways to cut costs, like eating meals at home, canceling gym memberships or driving older cars.

Increase income 

Making more money can help speed up the financial independence process. To do this, FIRE followers might ask for raises, try to find higher-paying jobs, take on side hustles or create passive income streams

Save and invest

Members of the FIRE community may save 50% or more of their income to reach their financial goals. Many FIRE followers also have an emergency fund to cover surprise expenses. But FIRE doesn’t offer all the answers. Qualified financial advisers could help create personalized savings strategies. 

That said, FIRE followers often use different investment strategies to grow their wealth. Here are a few ways they might save for retirement:

  • 401(k): Enrolling in a 401(k) plan could help retirement savings grow. It might be worth exploring whether your company matches 401(k) contributions—and how much you need to contribute—to get the most out of it.
  • Retirement savings accounts: If someone can’t access a 401(k) plan, an individual retirement account (IRA) may be an option. Traditional IRAs and Roth IRAs are two of the most common types. Each account has different tax advantages and contribution limits that are determined by the IRS. You can visit IRS.gov to learn more. 
  • Pay off debt: According to the Consumer Financial Protection Bureau (CFPB), having debt can make it harder to maintain your spending level in retirement. Putting residual or passive income toward paying off debt may help someone reach financial independence faster. 

Keep in mind that withdrawing money from some tax-advantaged retirement accounts before age 59½ could result in a 10% tax penalty. So it may be a good idea to factor early withdrawal costs into a FIRE savings strategy too.

A couple reviews their retirement account statements to track their FIRE movement progress.

FIRE plan benefits

Reaching FIRE may require sacrifices. But many followers believe the long-term benefits make these sacrifices worthwhile. Here are some common benefits of the FIRE plan: 

  • Taking control of finances: Followers say the FIRE way of life gives them a better understanding of financial freedom
  • Creating a nest egg for the future: Even if early retirement is off the table, FIRE plans might help followers reach other financial goals

FIRE limitations

Despite the benefits of the FIRE movement, it also has some limitations:

  • The FIRE lifestyle isn’t for everyone. Depending on one’s starting age, a FIRE plan can require strict sacrifices. Saving 50% to 75% of one’s income might mean forgoing vacations or nights out with friends. Some critics caution that this lifestyle isn’t sustainable for most people. 
  • Facing the unexpected can affect FIRE finances. Life doesn’t always go as planned. It could be hard to predict how things like inflation or illness may impact finances during retirement. 

FIRE misconceptions

There’s no one-size-fits-all approach to financial independence. If you’re wondering if the FIRE movement is right for you, it’s important to weigh some pros and cons. When you research the FIRE lifestyle, here are some common misconceptions you might come across:

  • A six-figure income is needed to achieve FIRE. A high income can help you reach FIRE faster. But you could still benefit from FIRE strategies even if you don’t earn six figures. 
  • You have to do without to reach financial independence. FIRE methods don’t restrict all spending. People may use FIRE strategies to prioritize spending for things that are important to them while cutting costs in other areas. 
  • Early retirement means being passive in life. For many, the movement is about having the financial freedom to spend their time the way they want to. When followers reach FIRE, they may change careers, start a business or travel the world.

Is the FIRE lifestyle right for you?

You may wonder whether this type of financial independence is even possible. The short answer is: It depends. Everyone’s financial situation is unique. And no two people follow the same exact path to FIRE. 

Here are some questions to ask when deciding whether the FIRE lifestyle is right for you:

  • Do you live in a high-cost-of-living area? High housing, food and transportation costs could make it more difficult to save for retirement. 
  • Could you move to a low-cost-of-living area? Reducing living expenses is one possible way to save more money.  
  • What’s your debt-to-income (DTI) ratio? A high DTI ratio might make it harder to reach financial independence. That said, paying down high-interest debt could be an important part of a FIRE plan.
  • How will you plan for health care costs in retirement? Leaving the traditional workforce could result in losing employer-sponsored health insurance. You may want to research the health care options available to early retirees.

Thinking through these questions may give you a better sense of whether the FIRE movement is aligned with your current lifestyle and future financial goals.  

The FIRE movement in a nutshell

The FIRE movement aims to change the way people think about retirement and financial independence. FIRE followers may use aggressive saving and investing strategies to retire early—sometimes decades before they reach 65. 

Even if FIRE isn’t right for you, it can be beneficial to have a plan for your financial future. Want to learn about more ways to save for the future? These tips could help you determine how much money you need to retire.

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