What is Financial Independence, Retire Early (FIRE)?
The Financial Independence, Retire Early (FIRE) movement is a lifestyle movement with the goal of gaining financial independence and retiring early. The model became particularly popular among millennials in the 2010s, gaining traction through online communities.
Core Principles
The main idea behind FIRE is to aggressively save and invest a high percentage of your income during your working years so that you can stop working for money decades before the traditional retirement age.
- High Savings Rate: Proponents of FIRE often aim to save 50% or more of their after-tax income. This is the most critical component, as it both builds your investment portfolio and keeps your living expenses low.
- Frugality and Optimization: This doesn't necessarily mean being cheap, but rather being intentional with your spending. It involves cutting costs on major expenses like housing, transportation, and food, and avoiding lifestyle inflation as your income grows.
- Investing in Low-Cost Index Funds: The most common investment strategy is to put money into low-cost, broad-market index funds or ETFs. The goal is to achieve compound growth over time without the high fees associated with actively managed funds.
- The 4% Rule (Safe Withdrawal Rate): This is a common guideline used to determine how much you can withdraw from your investment portfolio each year in retirement. Your "FIRE Number" is often calculated as 25 times your estimated annual expenses, which corresponds to a 4% safe withdrawal rate (SWR).
Types of FIRE
The FIRE movement isn't one-size-fits-all. Several variations have emerged:
- Lean FIRE: Living on a very minimalist budget in retirement (e.g., less than $40,000 per year).
- Fat FIRE: Aiming for a more traditional or even lavish retirement lifestyle, requiring a much larger nest egg.
- Barista FIRE: Retiring from a primary career but taking on part-time work or a "passion project" to cover living expenses or health insurance, while letting investments continue to grow.
- Coast FIRE: Having enough saved in retirement accounts that, without any further contributions, it will grow to support a traditional retirement. This allows you to work just enough to cover current living expenses.
Ultimately, FIRE is about creating options. It's the freedom to choose whether to work, what kind of work to do, and how you spend your time, without being constrained by financial necessity.