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.
- Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and 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.
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.
Several FIRE retirement variations that dictate the lifestyle that the FIRE movement’s devotees are willing and able to maintain have evolved within it.
- Fat FIRE—This is for the individual with a traditional lifestylewho 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 requires stringent adherence 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 is for people who want to exist between the two choices above. They quit their traditional 9-to-5 jobs but use a combination of part-time work and savings to live a less-than-minimalist lifestyle. The former lets them obtain health coverage, while the latter prevents them from dipping into their retirement funds.
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. However, there is plenty for everyone to learn from the principles of the movement that 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. Author Robin says in the book that FIRE is not just about retiring early; instead, it teaches you how to consume less while living better.
It is important for everyone to plan for their retirement. Yet, according to a May 2021 report—the latest available—from the Board of Governors of the Federal Reserve System, in 2020, one in four Americans had no retirement savings, while 36% who did have savings felt that their retirement plans were not 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.
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 sideline businesses or owning rental property.
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 they can assure you financial stability in your later years.
What Does FIRE Really Mean?
The acronym FIRE stands for Financial Independence, Retire Early, a term for financial independence concepts and methods 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.
Correction—Nov. 13, 2022: A previous version of this article inaccurately credited the term "Financial Independence, Retire Early" (FIRE) to Vicki Robinson and Joe Dominguez and their popular book, Your Money or Your Life,first published in 1992. The article was updated to include further context on the origins of the term.
As an enthusiast deeply immersed in the world of financial independence and early retirement, I bring a wealth of knowledge and experience to shed light on the concepts explored in the article about Financial Independence, Retire Early (FIRE).
The FIRE movement, rooted in extreme savings and investment, gained prominence through the 1992 best-selling book "Your Money or Your Life" by Vicki Robin and Joe Dominguez. While the origins of the term and acronym FIRE remain unknown, the core premise of the movement is to evaluate every expense in terms of the number of working hours required to pay for it—a principle introduced by the aforementioned book.
Key takeaways from the article:
FIRE Defined: Financial Independence, Retire Early is a financial movement characterized by frugality, extreme savings (up to 70% of annual income), and strategic investments. The goal is to retire far earlier than traditional retirement plans would allow.
Purpose of FIRE: The movement challenges the conventional retirement age of 65, encouraging followers to dedicate a significant portion of their income to savings. By doing so, they aim to retire and live off small withdrawals from their accumulated funds long before reaching the age of 65.
FIRE Retirement Process: FIRE proponents typically withdraw 3% to 4% of their savings annually to cover living expenses after retiring early. Detailed planning, economic discipline, and wise investment play crucial roles in achieving a FIRE retirement.
- Fat FIRE: Aimed at those with a traditional lifestyle, it involves saving substantially more than the average worker without reducing current living standards.
- Lean FIRE: Requires stringent adherence to minimalist living and extreme savings, leading to a more restricted lifestyle.
- Barista FIRE: Allows individuals to quit traditional 9-to-5 jobs, opting for a part-time work and savings combination to sustain a less-than-minimalist lifestyle.
Target Audience for FIRE: While many associate FIRE with individuals earning six figures, the principles of the movement can benefit anyone looking to save for retirement. Financial independence, a core aspect of FIRE, enables individuals to work at something they love instead of being bound by necessity.
Detailed Planning: The FIRE movement emphasizes the importance of having a detailed plan and sticking to it. This is highlighted by the statistic that, as of 2020, one in four Americans had no retirement savings.
Economic Discipline: Maximizing income while minimizing expenses is crucial for a FIRE retirement. Even for those not aiming for early retirement, adopting a budget and seeking additional income sources is beneficial.
Wise Investment: Investing in a retirement savings plan is essential for a secure retirement. FIRE adherents invest larger portions of their income, emphasizing the principle of setting aside a set percentage every month for investment.
In conclusion, Financial Independence, Retire Early is a lifestyle choice that requires careful planning, economic discipline, and strategic investment. The movement offers various paths, allowing individuals to tailor their approach to fit their desired lifestyle and financial goals.