Financial Independence Retire Early (FIRE)

Financial Independence Retire Early, or FIRE, is an ideology of aggressive saving and investing. The movement’s goal is to save at least 25 times your average annual expenses in order to retire in your 30s or 40s. FIRE followers also tend to be frugal and make small withdrawals during retirement.

What Is FIRE?

The Financial Independence, Retire Early movement can be traced back to a 1992 book by Vicki Robin and Joe Dominguez called “Your Money or Your Life.”

Over the last decade, millennials have embraced the movement, giving way to numerous books, blogs and online forums.

Several factions exist within the FIRE community, but two core principals prevail:
  1. Save and invest more.
  2. Spend less.

By cutting expenses and living cheaply, FIRE followers aim to acquire enough money to exit the workforce well before the traditional retirement planning age of 65. Many strive to achieve financial independence in their 30s or 40s.

The primary goal of FIRE is financial independence, but many followers continue to earn income after quitting their day job.

The idea is you don’t need to work to survive. You only work if you want to.

“FIRE is all about having the work-life balance that you want,” Justin Chidester, a financial planner and owner of Wealth Mode Financial Planning in Logan, Utah, told RetireGuide.com.

“The people I’ve met don’t want a life of leisure — they want a life of intention. They don’t plan to retire early and not ever work again. It’s usually more to transition to working at something that doesn’t feel like work.”

How the FIRE Strategy Works

Practicing FIRE means working hard when you’re young, saving and investing an average of 50 percent or more of your income and adopting a strict budget.

Most experts recommend saving about 10 percent to 15 percent of your salary to create a suitable retirement nest egg. But FIRE requires much more. The money must be invested aggressively in stocks and index funds to grow as quickly as possible.

Many people who practice FIRE are white-collar, college-educated professionals with high salaries — including corporate executives, lawyers and successful entrepreneurs — who can afford to set aside at least half of their earnings.

Those without six-figure salaries must get creative and live modestly in order to achieve financial independence at an early age.

Common Practices of FIRE Followers
  • Funnel salary bumps, bonuses, commissions, tips and tax refunds into savings and investment accounts.
  • Automate saving and investing through payroll deductions.
  • Eliminate credit card debt and other loans.
  • Maximize retirement account contributions.
  • Reduce housing costs by moving to a cheaper area, renting a room or even living with parents for a few more years.
  • Shop for better quotes on auto insurance, internet and other reoccurring bills.
  • Buy food in bulk, cook at home and eat out less.
  • Purchase used items, such as furniture and clothing.

Most FIRE followers create a goal of saving 25 times their annual expenses. Then, they apply the 4 percent rule, a standard retirement withdrawal strategy.

Let’s assume your annual income is $80,000, and you manage your annual expenses to about half of this, or $40,000 a year.

You will need to amass about $1 million in retirement assets (25 X $40,000) to reach the 25-times expenses milestone.

FIRE is all about having the work-life balance that you want. It’s usually more to transition to working at something that doesn’t feel like work.
Justin Chidester Wealth Mode Financial Planning

FIRE Strategies

Over the years, the FIRE movement has divided into several subgroups. Each requires varying levels of discipline and sacrifice.

Different Factions Within the FIRE Movement
Lean FIRE
This is the most frugal FIRE follower. They often adopt a minimalist lifestyle and aim to survive on roughly $25,000 a year or less in order to maximize savings before and after retirement.
Fat FIRE
This FIRE type applies a more traditional lifestyle while saving more than the average retirement investor.
Barista
This option falls between the two extremes of Fat and Lean FIRE. Here, a person quits their traditional 9-to-5 job but still works some part-time job or side hustle to cover current expenses. They maintain more than a minimalist lifestyle while withdrawing from savings and investments.
Coast FIRE
This is similar to Barista, where someone maintains a part-time job to supplement income. However, Coast FIRE followers typically don’t tap into their investments or retirement accounts.

Criticisms of the FIRE Movement

FIRE followers may swear by the lifestyle, but the movement has attracted critics, too.

One of the most-often cited drawbacks is how difficult it is for the average American to achieve FIRE.

Making more money is key to saving more, and if you earn less than $50,000 a year, FIRE may be more fantasy than reality.

Some FIRE followers also neglect to mention sizeable inheritances, inherited property or other family hand-me-downs that accelerate their path to financial independence. Most working-class Americans don’t enjoy this luxury.

You have to make a lot of sacrifices on how you spend. People who do it really aggressively make six-figure incomes, but they live like paupers.
Justin Chidester Wealth Mode Financial Planning

But even top earners must make sacrifices to achieve FIRE, according to Chidester. And many young people may not be willing to put the work in.

“You have to make a lot of sacrifices on how you spend,” Chidester said. “People who do it really aggressively make six-figure incomes, but they live like paupers.”

FIRE can also be more difficult if you’re single and don’t have a partner to split the bills with. And having children is another financial hurdle to extreme early retirement.

Finally, the biggest drawback with FIRE is risk. More time in retirement means a higher risk of an economic crisis or unexpected life event derailing your plans.

This was financial expert Suze Orman’s biggest gripe with FIRE when she appeared on a 2018 episode of the Afford Anything podcast.

“Many people are living to 95 or 100. Are you sure your money is going to last that long?” Orman said.

She pointed to numerous potential pitfalls, including unforeseen health care costs, emergencies such as accidents, Social Security’s shaky financial future, paying for aging parents’ care, inflation, stock market crashes and missing out on the effect of compounding interest by dipping into retirement accounts early.

As Orman put it, “If a catastrophe happens, if something happens, what are you going to do? You are going to burn up alive.”

Last Modified: September 30, 2020

7 Cited Research Articles

  1. Smith, K. A. (2020, June 29). The Forbes Guide To FIRE. Retrieved from https://www.forbes.com/advisor/retirement/the-forbes-guide-to-fire/
  2. Derousseau, R. (2020, April 22). Here’s How A Deep Recession Could Alter The FIRE Movement. Retrieved from https://www.forbes.com/sites/ryanderousseau/2020/04/22/how-downturn-could-alter-fire-movement/#1fb71b935fa4
  3. Grob Plante, S. (2020, March 25). Inside FIRE, the implausible millennial movement to save, invest, and quit the American workplace. Retrieved from https://www.vox.com/the-highlight/2020/3/18/21182018/financial-independence-retire-early-fire-early-retirement-mr-money-mustache-pete-adeney
  4. Frugal Friends Podcast. (2019, September 13). Episode 73: Financial Independence Through Frugality | The Frugal FIRE Movement. Retrieved from https://www.frugalfriendspodcast.com/episode-73-financial-independence-through-frugality-the-frugal-fire-movement/
  5. Loudenback, T. (2019, November 5). There are 3 main types of early retirement, and the only difference is how much you spend. Retrieved from https://www.businessinsider.com/personal-finance/what-is-fatfire-vs-leanfire-early-retirement-fire
  6. Afford Anything Podcast. (2018, October 1). Suze Orman: Why I Hate the FIRE Movement. Retrieved from https://www.youtube.com/watch?v=JbeLhKKg9RI
  7. Kurutz, S. (2018, September 1). How to Retire in Your 30s With $1 Million in the Bank. Retrieved from https://www.nytimes.com/2018/09/01/style/fire-financial-independence-retire-early.html