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What is FIRE Movement: Financial Independence, Retire Early?

FIRE movement

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Updated December 27, 2023

For generations, the message has been to work hard, save and invest your money. Then, at around 65 years old, you can finally retire and enjoy the fruits of your efforts. While this might work for some, others are questioning this old narrative. Is it necessary to work until age 65? Why wait until retirement to do the things you want to do? Others question why retirement is necessary at all. If you love what you do, do you even want to retire? 




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What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early. It’s a movement that started back in 1992 when authors Vicki Robin and Joe Dominguez used the term in their book, Your Money or Your Life. Their book asks readers to question how they think about their money and their values. It asks readers what in their lives they are willing to trade in the pursuit of more money.  

Financial independence is not about being rich, it’s about identifying what you personally need to have enough. It’s about having the financial security and ability to free yourself from the nine- to-five grind. It’s about spending with purpose and intention instead of thoughtlessly consuming. 

Those who pursue FIRE aim to have enough income to cover their needs and comforts without having to continue to work. The overall goal is to accumulate enough wealth that you can retire early and on your terms. Many of those pursuing FIRE aim to retire between 30 and 50. 

Who is FIRE for?

FIRE is for those who want to achieve financial independence and/or retire early. It is for those who want to control how they spend their time and money and are dedicated to cutting costs and saving as much money as possible. If your goal is to retire when you’re 40, it’s obviously easier to do this if you are pulling in a significant income. However, anyone can pursue a life of financial independence in which they decide when they want to work and the type of work they want to do. 

How does it work? 

When designing your FIRE approach, figure out how much income you need to maintain your lifestyle in retirement. Then decide when you want to retire.

If you need $80,000 a year to sustain your lifestyle in retirement and you want to retire by 40, your plan will look much different from someone who can live on $55,000 per year and wants to retire at 50. 

You can think of the FIRE strategy as a two-pronged approach. Those who want to retire early typically strive to cut costs while also saving as much of their income as possible. 

To cut costs, use strategies like buying used instead of new. Only buying what you need instead of purchasing everything you want and learning how to DIY many home improvement projects instead of paying someone else are two other approaches. 

On the savings side, many FIRE participants aim to save and invest 50% to 75% of their income. To increase your income, you can consider getting an additional part-time job or starting a side hustle

While investing strategies vary, many FIRE participants put their money in passively managed index funds or exchange-traded funds (ETFs). You also want to consider tax strategies to reduce the amount of taxes you pay on retirement income. Use IRAs and 401(k)s to invest in your retirement. To keep cash on hand and still allow it to grow, you can also save money for things like an emergency fund in a high-yield savings account (HYSA)

What to consider 

When trying to figure out how much money you’ll need to retire, you can consider the Rule of 25 and the 4% Rule. 

Rule of 25

You can use the Rule of 25 to estimate how much you have to save to retire early. Basically, you estimate how much you will need for retirement per year and then multiply that by 25. Let’s say you’ve calculated that you will need $80,000 a year for retirement. You’ve determined that Social Security and other sources will cover $30,000, so you are left with $50,000 that you need to fund each year. You multiply this number by 25 ($50,000 x 25) = $1,250,000. This is how much you need to save in order to withdraw 4% a year and preserve your capital. 

Note that the Rule of 25 is designed to cover 30 years of retirement. (If you retire at 65, it will cover you until 95.) If you plan to retire for 40 or 50 years, you’ll need more money to cover the difference. 

One of the flaws with the Rule of 25 is that it doesn’t factor in inflation. Inflation is the rate at which goods and services rise over time. The Federal Reserve aims to keep inflation at 2%, but it can fluctuate. It also doesn’t account for any other changes that might occur. For instance, what if you encounter a healthcare problem and rack up a significant bill? 

4% rule

The 4% Rule is a popular estimate for how much money you need to save up to last for 30 years of retirement. Many participants of the FIRE movement have used this as a rule of thumb to determine how much they can withdraw from their investment portfolios over 30 years of retirement.\ \ For instance, let’s say you have a portfolio of $1,250,000 million. Using the 4% rule, in the first year of retirement, you can withdraw 4% of your portfolio ($50,000). In each subsequent year, your withdrawals are adjusted for inflation. If inflation rises by 2% the following year, you will increase the 4% ($50,000) by 2%, ($50,000 x .02) = $51,000. 

While the 4% rule might work for some, others question if 4% is enough. Especially for those who want to retire in their late 30s or early 40s. The life expectancy at birth in the U.S. in 2021 was 76 years old. If you retire in your late 30s, you’re looking at close to 40 years of retirement, possibly 50 or more for those who live into their 80s, 90s, or beyond. This could well require a different set of strategies over time.

FIRE variations

There is no single way to achieve FIRE. There are now several variations of the FIRE movement, including:

Lean FIRE. This is a strategy for minimalists who plan to achieve financial independence by living a more frugal life both before and during retirement. 

Barista FIRE. People who follow Barista FIRE aim to save more now so they can work less later in life. But the goal is not to completely retire at an early age. Many people pursuing Barista FIRE continue to work, but work at less demanding jobs or part-time. 

Coast FIRE. This version of FIRE requires you to have enough invested or saved so that, even without additional contributions, your portfolio will grow to support your retirement. These people typically still work, but only to cover their current costs, using their savings to coast into retirement. 

Fat FIRE. If you want to ensure that you can afford the finer things in retirement, Fat FIRE might be for you. This involves earning as much as possible and saving as much as possible so that you don’t have to live frugally in retirement. 

FIRE pros and cons 

Financial Security. When you achieve financial security, you have enough money to cover your expenses without relying on your nine-to-five.
Not attainable. For those living paycheck to paycheck with little room for saving in their budget, the goal of FIRE can feel very unattainable.
Taking back time. There is nothing more valuable than time. Working a job you don’t enjoy is probably not how you want to spend your time. Once you achieve FIRE, you decide how you spend your days.
Risk. There is risk involved with FIRE. If you encounter unexpected healthcare costs or the market underperforms, you can be left with a shortfall of funds.
Less stress. Saying goodbye to a job you don’t like, early wake-ups, and a long commute can help you leave some of the daily stress behind. Plus, knowing you have enough money in the bank to take care of yourself can act as a major stress reliever.
Retirement might not be for you. After years of working, it can be difficult to wake up and have nothing to do. You might find, once you experience retirement, that it’s not the right fit for you.

Tips to reach financial independence sooner

  • Speak with a financial expert. To help you get started on your journey to FIRE, consider meeting with a financial adviser. This money expert can help you create a budget and financial plan to achieve your FIRE goals. If you don’t already have an adviser, you can use sites such as Empower to match with a counselor who will suit your needs. Complete a short profile about your financial goals and you will be matched with three fiduciary advisers. Then, review your choices to see who is the right fit. 



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  • Save more money. The more you can save, the faster you can achieve your FIRE goals. Take on DIY projects around your home instead of hiring out. Ride your bike to work or take public transit instead of driving your car. Cook at home instead of eating out at restaurants. Eliminate some of your streaming services and subscriptions. You can even consider moving to a lower-cost-of-living area to make your life more affordable.

  • Make more money. Look for opportunities to bring in more income. Start a side hustle, look for freelance opportunities, or invest in assets that can generate passive income.

  • Eliminate Debt. Try to get rid of any high-interest debt you are carrying, including car payments and credit card debt. Pay off debt as soon as possible, then redirect that money into a high yield savings account

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How to know if FIRE is the best choice for you

If you’re intrigued by the FIRE movement, you can determine if it will work for you by digging into your numbers and coming up with a plan. Ask yourself if you are willing to live a more frugal life in the pursuit of FIRE. Are you willing to make sacrifices today for your future? Determine if you can realistically afford FIRE. It’s definitely easier with a six-figure salary. 

Even if you don’t plan to retire in your 40s, you can use many of the FIRE ideas to design the financial future you want for yourself and your family. There is no one right way to live your retirement. Do what feels right and is feasible for you.  

Frequently asked questions (FAQs)

What else can you gain from FIRE besides retirement?

Even if you don’t want to retire early, you can still benefit from the idea of financial independence. You can get to a place financially where you no longer have to work a nine-to-five and can focus on pursuing employment and projects that make you happy. 

How much money do I need for FIRE?

You can use the Rule of 25 Times or the 4% Rule as a starting point to determine how much money you need to achieve FIRE. Ultimately it’s up to you to decide how much you want to have saved to feel comfortable in retirement. 

How much money do I need to retire at 40?

How much money you need to retire at 40 will depend on how much you estimate you will need for retirement per year. You can apply the Rule of 25 or the 4% rule to estimate how much you need to save to cover 30 years, but it’s worth investing in a financial adviser to help you come up with a savings goal and withdrawal rate that could cover 50 or more years if you live a long time. And remember that, if you’re no longer contributing to Social Security because you stopped working, your retirement income will also be lower.

Is FIRE realistic?

The FIRE movement is realistic for many, and there are a variety of different ways one can achieve it. While some people want to retire with financial independence at 30 or 40, others want to achieve financial independence at 50 while continuing to work doing something they enjoy.

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