Most people assume they'll start a career, regularly contribute to one of the best retirement plans, work until they're 65, and then enjoy a comfortable retirement. But many have found an alternative: the financial independence, retire early (FIRE) movement.
While not a new concept, the FIRE movement has gained popularity in recent years, perhaps due to factors like more bloggers and social media influencers sharing their FIRE journeys to inspire others. Many people pursuing FIRE seek to retire at a relatively young age, such as in their 50s, 40s, or even earlier. Others don't necessarily fully retire but simply want the option to pursue work they're passionate about, without being as concerned with income.
Here is everything you need to know about the FIRE movement, and how U.S. workers achieve it.
What is Financial Independence, Retire Early (FIRE)?
Definition and principles of achieving financial independence
The financial independence, retire early movement (FIRE for short) is a financial lifestyle aimed at saving enough to become financially independent, — i.e., not dependent on a job for income — and retire long before the traditional retirement age of 65. Typically, participants save and invest more than half of their income and live on a very strict budget to achieve this independence.
"The importance of spending less and investing more is a Finance 101 concept called the "time value of money,'" says Jordan Taylor, an independent financial advisor with Core Planning. "If I give you $1 today, what will it be worth in four years? In 20 years? That depends on what you do with it. If you invest it wisely, time equals more money."
Setting aside most of your income allows you to amass a large investment portfolio that can grow to the point of replacing your income. In particular, by investing a lot of money early on, you're giving the market time to do its job, where your investments have time to grow and compound, reaching a point that can be far higher than what you can simply save on your own.
History and evolution of the FIRE movement
The FIRE movement's origins are somewhat unclear, but many credit the 1992 bestseller "Your Money Or Your Life" by Joe Dominguez and Vicki Robin for setting the stage. In the book, the authors explain that you don't necessarily have to continue working as long as you can grow your investments large enough to live off your returns.
The movement has continued to gain popularity, especially with the rise of social media and blogs. Many financial influencers started websites and social media accounts documenting their journeys toward FIRE, inspiring their readers and followers to do the same.
Types of FIRE strategies
FIRE looks different for everyone. Some hope to live lavish lifestyles during retirement, while others simply want to save enough to pay their bills. Therefore, there are several different variations of FIRE that someone might pursue. These are some of the most common:
- Regular FIRE: According to Taylor, the most popular type of FIRE people pursue is that which allows them to maintain their current lifestyles during retirement. Someone pursuing regular FIRE might aim to have a portfolio ranging from $1 million to several million, depending on their income needs. This standard FIRE goal is often based on saving 25 times your annual expenses and then withdrawing 4% of your portfolio per year, which can make your portfolio last indefinitely as modest investment gains offset withdrawals.
- Lean FIRE: Someone pursuing Lean FIRE is planning for a considerably lower income during retirement. With a FIRE number generally less than $1 million, the goal is to retire early and live a more frugal, minimalist lifestyle.
- Fat FIRE: You can think of Fat FIRE as the opposite of Lean FIRE. Someone pursuing this type of FIRE plans to live luxuriously in retirement, perhaps at a higher standard of living than their current lifestyle. Someone seeking Fat FIRE likely aims to have at least $2.5 million in investments, which translates to at least $100,000 in retirement income per year using the 4% rule.
- Barista FIRE: If you don't mind working after you reach financial independence, then Barista FIRE might be for you. Barista FIRE usually involves saving a little less than what you need to cover all of your expenses during retirement, meaning you may need to work a bit to make up the difference. However, there's more flexibility in the type of work you need to do since you might not need much income and can work a job that you might find more enjoyable than a desk job, such as being a barista. This strategy often has the added benefit of employer-provided health insurance.
- Coast FIRE: Coast FIRE doesn't necessarily involve early retirement. Instead, someone who has reached Coast FIRE has enough in their investment portfolio to retire at traditional retirement age without investing another dollar. In other words, they can coast on their retirement savings, but they're not ready to retire yet as they need more time for their portfolio to grow. This may be a starting point before building up to other FIRE goals.
"Most notably, many FIRE community members use a hybrid plan or have switched between different versions," Taylor says.
Benefits of achieving FIRE early retirement
It's easy to see the benefits of the FIRE movement. After all, who doesn't want to leave the workforce (or change to a new job without worrying about pay) at a younger age, thanks to financial independence?
More specifically, though, some of the top advantages of FIRE include:
Personal freedom and flexibility
When someone reaches FIRE, they have more time and energy to focus on things they're passionate about, such as hobbies, travel, and time with loved ones. FIRE provides this freedom and flexibility.
Suppose you're in a high-paying job that you really dislike. If you reach financial independence, you could opt for a lower-paying or part-time job that excites you. It's no longer about the money. Instead, it's about doing something you genuinely enjoy.
Reduced financial stress
Financial independence can give you a strong financial foundation. You know that you're in a solid place financially vs. trying to make ends meet every month. You also have a plan you're following consistently rather than guessing what to do with every paycheck.
Not only could these benefits offer a clear boost to your mental and emotional health, but freedom from a demanding job and more time to relax and be outside could potentially improve your physical health.
Is FIRE right for you?
To determine whether FIRE retirement is the path that makes sense for you, consider your priorities. Yes, FIRE gives you total freedom over your time once you reach financial independence. But that comes at the expense of freedom over your time and money during your working years. You might work more early in your career to save and invest more, and you might pass on things like traveling or going out with friends.
According to Lauren Keen Aumond, the creator of Adulting Is Easy and someone who reached FIRE with her husband, FIRE means different things to different people.
"This movement is about becoming work optional," Aumond says. "You could continue to work, as my husband and I are right now. You could travel, volunteer, work part-time, change careers, go back to school, etc. It's all about owning your time and spending it how you want to rather than stopping work altogether."
As Aumond notes, many people who reach FIRE don't actually leave the workforce altogether. Yes, many do choose to retire and spend their time on other activities. But some may continue to work in their current jobs, while others might take on jobs they're more passionate about, but that pay less.
Still, while you can find FIRE movement success stories online from influencers offering advice, FIRE isn't for everyone. Someone with a high income might achieve FIRE with relatively little sacrifice. However, most people in the FIRE movement have to live a quite frugal lifestyle. And, someone working paycheck to paycheck may not make enough to save large sums of funds.
Steps to achieve FIRE
Knowing how much you need to save
One of the most important steps in pursuing FIRE is knowing the amount you must have in your investment portfolio to be financially independent. This is often referred to as your FIRE number.
"Depending on the math you use, who you listen to, and which FIRE community you frequent, you may be introduced to different 'rules of thumb' that people use to calculate what they need and how much income it can produce," Taylor says.
One common FIRE number can be calculated by multiplying your desired income during retirement by 25, if you're following the 4% rule. The resulting number is how much you should have in your portfolio when you retire if you want to live off of 4% annual withdrawals. However, that won't work for everyone, depending on factors such as how long you estimate your retirement will last, your tax situation, health, etc.
To create a more individualized number, you can use helpful tools like a retirement calculator to help determine how much you need to save to ensure a long, comfortable retirement, using different assumptions such as around investment returns and years in retirement.
Establishing an investment strategy
A FIRE investing strategy may differ from a normal retirement investment strategy, considering that your FIRE strategy might involve trying to reach a higher number in your portfolio than you would otherwise, along with needing to tap that money sooner and for longer than in a typical retirement.
As such, you might take steps like investing aggressively when first starting your career but then tapering to more conservative investments at a younger age than you would otherwise, since you might be closer to your target retirement age.
Like with any good investment strategy, diversification is often key to FIRE investing, as it can help you manage risk while still investing for growth.
Creating a detailed budget
FIRE typically encourages workers to maximize their income and save as much as possible as early as possible. As such, creating a detailed, comprehensive budget is a key strategy for early retirement and should be included as part of your financial plan. A thorough budget outlines realistic monthly financial restraints based on your goals, income, and expenses. It should also include paying off any existing debt, particularly by prioritizing clearing high-interest debt.
However, depending on your income, this may prove more difficult. Although intense saving is a key part of achieving FIRE, don't neglect your current well-being in the hope of a more lucrative future. Ensure you maintain a healthy balance of mindful spending while achieving a comfortable and healthy lifestyle.
Building an emergency fund
An emergency fund is a savings bucket intended to be used for sudden and unexpected expenses, such as medical bills or home renovations. Building an emergency fund is a basic financial planning strategy that you should generally aim for even before approaching FIRE goals, as having one can prevent you from dipping into your retirement savings prematurely when you have unforeseeable expenses.
A general rule of thumb is to save at least three to six months of living expenses in your emergency fund, held in somewhere liquid like a high-yield savings account. Depending on your budget and lifestyle, you may want to save more.
Common challenges and how to overcome them
Dealing with market volatility
No one can predict the market, and while short-term fluctuations generally have minimal long-term impact, significant economic events like a stock market crash could wipe out a good chunk of your portfolio and throw off your FIRE timeline.
All investments, even low-risk fixed-income investments like bonds, pose some degree of risk. The best way to combat this is often by diversifying your portfolio. Moreover, as you near your preferred retirement age, you should gradually invest in more conservative investments to mitigate risk and potential loss.
Balancing lifestyle and savings
One major downside of FIRE is the extreme hustle often required to earn enough to reach your financial goal. Working long hours or multiple jobs could lead to burnout and exhaustion. You may also be neglecting your current lifestyle by missing out on non-budget-friendly opportunities.
"A huge drawback is the delayed gratification, the hard work, and the discipline required," Aumond says. "Some days, I wish I had a new boat and a house on the water and one job instead of house hacking with a job and all the real estate."
While you work hard to increase your income, you don't necessarily get to enjoy some of the perks of a high salary, as pursuing FIRE still requires major sacrifices when it comes to spending. Living on a small percentage of your income is likely to impact almost every area of your life. You must ask yourself: Is it worth being less satisfied with my lifestyle right now so I can retire early?
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FIRE movement FAQs
What is the FIRE movement?
The FIRE acronym stands for Financial Independence, Retire Early, and there's a movement of people aiming for this goal. It focuses on saving and investing aggressively so you can achieve early retirement, perhaps decades before age 65, a common retirement age. FIRE participants often live a frugal lifestyle with a restrictive budget to retire early.
How much money do I need to achieve FIRE?
How much money you need to save to achieve FIRE depends on your retirement age, preferred lifestyle, and estimated expenses. A common target for a FIRE savings plan is reaching 25x your annual expenses.
What are the best investment strategies for FIRE?
The best investment strategies for FIRE include saving and investing more than half of your income from an early age to maximize your revenue and diversifying your investments to mitigate risk. Creating a detailed and realistic budget is another proven strategy to achieve FIRE.
Can anyone achieve FIRE?
Not everyone can achieve FIRE, as it requires time, dedication, sufficient income, and a lifestyle conducive to relatively low expenses. If you're living paycheck to paycheck before accounting for retirement, it can be hard to get ahead. High-income workers have a notable advantage over lower-income employees, as it's generally easier to save and invest more. That said, many in the FIRE community achieve their goals through discipline and planning, rather than being high-income earners.
