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The FIRE movement is a lifestyle geared toward retiring decades before traditional retirement age. FIRE (short for "financial independence, retire early") has its practitioners live frugally and invest their money in order to build up assets and passive income that allow them to achieve this goal.
FIRE followers invest as much as they can toward retiring early, often choosing to forgo an upscale lifestyle they could afford in favor of more modest living. Here's how the FIRE movement works.
How Does FIRE Work?
Rather than planning to retire at a more traditional retirement age in their mid- to late 60s, those who follow the FIRE movement aim to retire early, often as early as their 40s, 50s and early 60s. They do this by saving at least 50% and as much as 75% of each paycheck—an aggressive and challenging goal that typically requires making major lifestyle changes.
For most, however, the demands of this lifestyle may not be realistic. About half of households headed by seniors ages 55 and older have no retirement savings at all, and many Americans retire with debt. According to the National Council on Aging, the median debt of senior households was $31,050 in 2019. And over 15 million adults 65 and older are economically insecure, according to the Kaiser Family Foundation.
Those who do pursue FIRE follow some variation of these steps:
Find Your FIRE Number
Setting a goal is an important first step for saving for retirement, whether or not you're aiming to retire early. FIRE followers often use the 4% rule as a metric for when they've become officially financially independent. The 4% rule is based on the theory that with 25 times your yearly cost of living invested in a mix of stocks and bonds, you can safely withdraw 4% per year without running out of money.
To find the investment asset value you'll need to retire (called your "FIRE number"), multiply your yearly expenses by 25:
FIRE number = annual expenses x 25
For example, if your average annual expenses add up to $60,000, your FIRE number is about $1.5 million.
But FIRE followers have to practice caution applying the 4% rule. The math draws on historical rates of return and is modeled on a 30-year retirement period. Some experts suggest that factors such as longer life expectancy and unstable investment markets mean the rule has become outdated, and you should plan for more time in retirement if you retire early.
Decrease Your Spending
Jim White used FIRE to retire at age 43. He lives in Panama with his wife, Lisa, who is also retired, and their daughter. He describes his FIRE journey on his blog, Route to Retire.
Before retirement, his savings ratio peaked at 60%, and his net worth exceeded $1.7 million at the start of 2022. But White doesn't promote extreme saving. "If you're saving [so] aggressively that you're missing out on today, then you're doing it wrong," he says.
Instead, White recommends striking a balance between maximizing saving and enjoying the present. For example, his family loves going on vacations, so they kept them in their budget and then cut back on what mattered less. For White, that meant going without "new cars, fancy clothes, expensive groceries and a home that's too big," he says.
On top of leaving you with more cash to invest toward retiring early, decreasing your spending to become comfortable living with less means you can retire with less in the bank and sustain your current lifestyle. For example, if you're spending $50 a week dining out, opting to cook at home instead could save you $200 a month, or $2,400 a year. Using the 4% rule, this shaves a boggling $60,000 off your retirement goal: $2,400 x 25 = $60,000. Suddenly, takeout may be less tempting.
Increase Your Income
FIRE followers often look for ways to increase their income and funnel the extra money into savings, taking care to avoid lifestyle creep and continue living on as little as they comfortably can.
Asking your current employer for a raise is one way to increase your income. When that's not an option, seeking employment opportunities with higher pay rates can help you save more for retirement. If relevant to your field, earning an in-demand professional certification may help you increase your pay.
Many FIRE followers seek out additional sources of income on top of their full-time jobs. Pursuing a side hustle, freelancing in your current field and investing in real estate are a few possibilities.
The FIRE movement is blueprinted in the 1992 book "Your Money or Your Life" by Vicki Robin and Joe Dominguez. The book teaches readers to reenvision their relationship with money and find satisfaction consuming less so that they can invest a large portion of their income. The aim is to reach a "crossover point" when your investments generate more income than your expenses.
Today's FIRE movement has evolved into several variations, each tailored to a different retirement lifestyle goal:
Goal: Retiring with enough savings to support your current lifestyle.
How it's done: Fat FIRE practitioners aim to amass higher savings to achieve the flexibility to do what they like in retirement without having to work or prioritize frugality.
Goal: Retiring with enough savings to support a modest lifestyle in retirement.
How it's done: Lean FIRE involves planning for frugality in retirement by cutting costs now.
Goal: Retiring with enough savings to partially cover your cost of living, but continuing to work part time.
How it's done: Barista FIRE means working a part-time job that provides a less demanding source of income and other benefits. Barista FIRE is a popular middle path, in part as a way to keep health insurance coverage.
Pros and Cons of the FIRE Movement
Pros of FIRE
- You'll aim for early retirement. FIRE's major appeal is the pursuit of early retirement. Even if retiring early isn't within reach, investing consistently toward retirement can get you closer to the more conventional goal of retiring by age 67.
- Basic FIRE lessons help everyone. Setting a retirement goal, sticking with a budget, looking for ways to increase your income and paying yourself first is practical advice that all people can put into practice to improve their finances, even if not in pursuit of early retirement.
- You can customize FIRE goals. You can tweak FIRE savings ratios according to your income and lifestyle. For example, on an income of $50,000 a year and a more conventional savings rate of 20% or $10,000 a year, an investor could reach $1 million in about 27 years, based on Vanguard data on historical returns for a portfolio composed equally of stocks and bonds. Someone with an income of $100,000 might, in true FIRE fashion, invest 50% of their income to shoot for $1 million in just under 12 years.
Cons of FIRE
- FIRE requires considerable sacrifice. Living frugally to invest the majority of your pay toward retirement is a big choice. For example, if you make $60,000 and invest 50%, you're choosing to live a lifestyle for substantially less than you can afford, forgoing some of the luxuries your paycheck could afford you. If you're also saving for goals like putting a down payment on a home or having children, living on a fraction of your pay becomes even harder.
- Early retirees may need more than 25 times their expenses. If you're retiring decades earlier than the conventional age, relying on the 4% rule could leave you in a bind. You may need to save more for retirement, be cautious in planning your withdrawals or plan to work to supplement your savings.
- Early retirement is impossible for many. Personal sacrifice and strategic investing alone don't guarantee an early retirement—more on this below. FIRE enthusiasts are often quick to point out that saving large portions of each paycheck requires a high salary.
Is the FIRE Movement Right for You?
Proponents of FIRE tend to agree that earning a higher income opens the door to maximizing your savings. FIRE followers use retirement accounts like 401(k)s, Roth IRAs and traditional IRAs to increase their retirement savings, sometimes building their budget around what's left after maxing out accounts. Just keep in mind that if you retire before age 59½, you'll pay penalties on early retirement account withdrawals. It may be a good idea to have additional investments if you don't want to incur those charges.
Realistically, finding the funds to max out a retirement account is only practical for some. U.S. Census Bureau data estimates that the national median income was $41,000 in 2020. To reach the 2022 401(k) maximum contribution of $20,500, the median earner would have to defer half of their pay into a 401(k), an impractical choice that would leave them with just $1,708 a month left before taxes. In reality, only 8.5% of taxpayers who invest in a defined contribution plan contribute the maximum. Among those with a 401(k), the average contribution ratio was 9.4% in 2021, according to Fidelity.
Even without crunching the numbers, it's clear that someone living on a low income and shouldering substantial student loan or credit card debt can't simply dial back spending and come up with the money to amass $1 million in a decade or two.
"The math might just not add up," White, the FIRE blogger, says. Still, he believes FIRE has some worth for everyone, and advocates the habit of paying yourself first. "Maybe you won't be able to retire early, but it might lead to an emergency fund and setting yourself up for a much nicer retirement at a more traditional age." Indeed, whatever your retirement goals, building up an emergency fund is key to a sound financial strategy.
Make a Plan for Retirement
Whatever your goal for retirement, coming up with a plan and investing as early as possible can help you make progress toward your goal. Working with a financial planner can help you develop an individualized plan that makes sense for your goals, income and time between you and retirement.