What Is Financial Independence, Retire Early (FIRE)?
Financial Independence, Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit.
The 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez popularized many of the concepts used by people who are part of this movement. The origins of the term and acronym FIRE are unknown, but the term came to embody a core premise of the book:People should evaluate every expense in terms of the number of working hours it took to pay for it.
Key Takeaways
- Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality, extreme savings, and investment.
- By saving up to 70% of their annual income, FIRE proponents aim to retire early and live off small withdrawals from their accumulated funds.
- Typically, FIRE followers withdraw 3% to 4% of their savings annually to cover living expenses in retirement.
- Detailed planning, economic discipline, and wise investment are key components in achieving a FIRE retirement.
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What Is the Purpose of FIRE?
The FIRE movement takes direct aim at the conventional retirement age of 65, and the industry that has grown up to encourage people to plan for it. By dedicating a majority of their income to savings, followers of the FIRE movement hope to be able to quit their jobs and live solely off small withdrawals from their portfolios decades before they reach age 65.
In recent years, many people—millennials in particular—have embraced pursuing a FIRE retirement. Proponents of the extreme-saving lifestyle remain in the workforce for several years, saving up to 70% of their yearly income. When their savings reach approximately 30 times their yearly expenses, or roughly $1 million, they may quit their day jobs or retire from work altogether.
To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% of the balance yearly. Depending on the size of their savings and their desired lifestyle, this requires extreme diligence to monitor expenses and dedication to the maintenance and reallocation of their investments.
There are several FIRE retirement variations:
- Fat FIRE—This is for the individual with a 9-to-5 job who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. It generally takes a high salary and aggressive savings and investment strategies for it to work.
- Lean FIRE—This individual is devoted to minimalist living and extreme savings, necessitating a far more restricted lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
- Barista FIRE—This individual wants to exist between the two choices above. They quit their traditional 9-to-5 job and use a combination of part-time work and savings to live a more-than-minimalist lifestyle. They might purchase health coverage while keeping their retirement funds intact.
Who Is FIRE Designed for?
Most people think that FIRE is meant for people who can pull in a substantial income, generally in the six figures. And indeed, if your goal is to retire in your 30s or 40s, that probably is the case. That said, a lot of people can learn from the movement. These principles can help people save for their retirement and even achieve an early one, if not quite as early as 40.
And remember, the first part of FIRE stands for financial independence, something that, if achieved, can allow you to—instead of retire—work at something you love rather than something you have to do.
In Your Money or Your Life, author Vicki Robin says that FIRE is not just about retiring early; instead, it teaches you how to consume less while living better.
Detailed Planning
It's important for everyone to plan for their retirement. Yet according to a 2023 report—the latest available—from the Board of Governors of the Federal Reserve System, only 31% of people who weren't retired felt that their retirement savings plans were on track. The FIRE movement stresses the importance of having a detailed plan and sticking to it, principles that will aid anyone in saving for retirement and maintaining a decent emergency fund.
Economic Discipline
To achieve a FIRE retirement, you have to maximize your income while minimizing your expenses. Retiring by age 40 requires you to go to extremes to succeed, but everyone can benefit from making and sticking to a budget while doing all they can to earn as much money as possible, whether it’s by getting a better job, adding a second one, or creating additional revenue streams through side businesses or owning rental property.
Wise Investment
It is difficult to achieve a secure retirement without investing in a retirement savings plan. FIRE adherents invest larger portions of their income than the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings to a point where you are more likely to enjoy financial stability in your later years.
What Does FIRE Really Mean?
The acronym FIRE stands for Financial Independence, Retire Early. It's a concept and method that can be used to fund an early retirement.
How Does FIRE Work?
Followers of FIRE plan to retire much earlier than the traditional retirement age of 65 by dedicating up to 70% of their income to savings while still in the full-time workforce. When their savings reach approximately 30 times their yearly expenses, or roughly $1 million, they may quit their day jobs or completely retire from any form of employment.
What Are Some FIRE Variations?
Within the FIRE movement are several variations. Fat FIRE is a more easygoing attempt to save more while giving up less. Lean FIRE requires devotion to minimalist living. Barista FIRE is for those who want to quit the nine-to-five rat race and are willing to cut back their spending while working only part-time to do so.
