Financial Independence, Retire Early (FIRE)

What Is Financial Independence, Retire Early (FIRE)?

FIRE (Financial Independence, Retire Early) is a movement of people who are committed to a program of excessive saving and investing in order to retire significantly sooner than typical budgets and retirement plans would allow.

FIRE was inspired by Vicki Robin and Joe Dominguez’s best-selling book Your Money or Your Life, which stated that people should examine every expense in terms of the number of working hours is required to pay for it.

Key Takeaways

  • 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 retirement proponents aim to retire early and live off small withdrawals from their accumulated funds.
  • The FIRE movement was inspired by the 1992 book Your Money or Your Life, written by two financial gurus.

Understanding FIRE

The FIRE retirement movement takes direct aim at the conventional retirement age of 65 and the industry that has grown 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 65.

According to Vox, millennials, in particular, have embraced the pursuit of a FIRE retirement in recent years. Extreme savers stay in the workforce for several years, saving up to 70% of their annual salary. They may quit their day jobs or retire entirely after their savings reach nearly 30 times their annual expenses, or over $1 million.

FIRE devotees make small withdrawals from their savings, typically around 3% to 4% of the balance yearly, to cover their living expenses after retiring at a young age.

Depending on the size of their assets and desired lifestyle, this necessitates a high level of spending monitoring as well as a commitment to investment maintenance and reallocation.

Several FIRE retirement variations that dictate the lifestyle the FIRE movement’s devotees are willing and able to maintain have evolved within it, as reported by Forbes Advisor.

  • Fat Fire: This is for the individual with a traditional lifestyle who 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: 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.

For Whom Is FIRE Really?

Most people believe that FIRE is just for people who make a good living, usually in the six figures. That is most likely the case if your goal is to retire in your 30s or 40s.

However, everyone can benefit from the movement’s principles, which can help people save for retirement and even achieve an early retirement, if not quite as early as 40.

Remember that the first part of FIRE stands for financial independence, which can allow you to work on something you enjoy rather than something you have to do if you achieve it. FIRE, according to author Robin, is more than just about retiring early; it also teaches you how to invest well.

Detailed planning

Even tho it is critical for everyone to plan for their retirement, according to a May 2021 study from the Federal Reserve System Board of Governors, one out of every four Americans had no retirement savings in 2020, and 36% of those who did have savings felt that their plans were off track.

The FIRE movement emphasizes the significance of having a precise plan and sticking to it, which are principles that may help anyone save for retirement and keep a healthy emergency fund.

Economic discipline

In order to achieve a FIRE retirement, you have to maximize your income while minimizing your expenses.

Retiring by 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.

Wise investment

No one can achieve a secure retirement without investing in their retirement savings. Fire adherents invest larger portions of their income than the average person would 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, and is a term from the book Your Money or Your Life by Vicki Robin and Joe Dominguez, which was first published in 1992. A revised and updated version was released in 2008 and again in 2018.

According to comments by Robin, the aim of the book is not to convey a master plan for early retirement; it is to show people how to live well while consuming less in order to have a more rewarding life while wasting fewer of the world’s resources. Or, as Robin put it, “If you live to have it all, what you have is never enough.”

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 they are still in the workforce full time.

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.

To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% yearly. Both during their working years and in retirement, FIRE followers aim to reject excessive consumption and enjoy a simpler lifestyle.

What Are Some FIRE Variations?

Within the FIRE movement, there 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 9-to-5 rat race and are willing to cut back their spending while working only part-time to do so.

Naturally, more traditional financial advisors have been willing to jump in with their own variations on a FIRE retirement goal and how to achieve it.

One strategy requires a fire investor to include both U.S. and international stocks and bonds in their portfolio, potentially increasing their success rate by 20%.

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