FIRE: Financial independence, retire early

This growing movement ignites aggressive savings so you can focus on life’s passions earlier.

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If you’ve got an ear to personal finance, you’ve likely picked up digital chatter on this growing retirement strategy. Called FIRE, this movement emphasizes lowering your everyday expenses while steadily increasing your income so that you can aggressively invest your way to a life that isn’t built around work.

What is the FIRE movement?

FIRE — also styled F.I.R.E. or FI/RE — is a movement sparked online through blogs like Mr. Money Mustache and built around the concept of maximizing investing with the goal of retiring earlier than the standard 60s and 70s modeled by our parents’ generation.

That it’s short for “financial independence, retire early” sums up what it’s about:

  • Gain full control over your finances. Accumulating assets, leveraging savings and creating passive income enough to comfortably pay for living expenses without a job or outside help.
  • Withdraw from the workforce. We’re talking a goal of retiring in your 30s or 40s by carefully building the assets and savings to support it.

FIRE proponents don’t always see eye to eye about how to get there. But most widely agree that it’s underpinned by aggressively saving far more than the typical 15% of your pretax income recommended by many financial experts — at least 50% of your salary or more. The movement folds in other familiar elements of financial hygiene, like eliminating debt, living on less and buying quality items that last.

Hating your job isn’t the reason to join FIRE

While getting out from under The Man is part of it, that’s not the sole reason to commit to the movement. FIRE is underpinned by an objective to make paid work optional, helping you free up your time to pursue hobbies, spend time with loved ones, see the world — even find a day job that’s a choice, rather than an obligation. Whatever helps you to live your happiest, most valuable life.

How much do I need to save for early retirement?

Rather than work backward from your retirement age, the FIRE movement focuses on narrowing down the expenses required to support the lifestyle you imagine in retirement — your target number. An advantage to this approach is that, unlike getting older, the rate at which you spend money is something you can actually control.

Target numbers vary wildly depending on your lifestyle, family, spending habits and even where you live. A programmer in San Francisco may need $125,000 a year in retirement to live comfortably, for example, while a family in Wichita may be just as happy living on $40,000 a year.

The “financial independence” part of FIRE encourages stockpiling at least 25 times the amount you estimate needing to live comfortably in each year of retirement — before you retire. So if you want to live on $53,000 a year when you retire, based on a salary that’s close to the national average, you must have at least $1.3 million in the bank before sliding over your resignation leter.

Generally, the more you can cut down your living expenses and save each year, the sooner you can retire. Super savers diligently sock away at least 50% of their income before and after taxes in a portfolio of diversified investments and assets, which, if FIRE planning pans out, should safely support a withdrawal rate of 4% in each year of retirement for up to 30 years.

FIRE by the numbers

Thinking about it mathematically, by saving only 1% of your income, you’d have to work 99 years to afford to take one year off. The tipping point is 50%, where for every year of work, you’re buying a year of basic living expenses in retirement.

You can more clearly see the magic of FIRE as you scale up that savings ratio.

Savings rateYears of work to equal 1 year of living expenses
10% of salary annually9 years
25% of salary annually3 years
50% of salary annually1 year
75% of salary annually0.33 years

What is the 4% rule of retirement?

The 4% rule of retirement is an established rule of thumb that encourages the accumulation of enough cash and assets in your portfolio to support your living expenses while, importantly, outliving your cash. Generally, it assumes a diversified portfolio of stocks and bonds.

The 4% refers to the withdrawal rate from your portfolio for your first year of retirement. For each year after, you increase your withdrawal to align with the consumer price index — a metric of inflation — to sustain your cost of living. This is what financial planners mean when they talk about “adjusting for inflation.”

Say you’ve saved up $500,000 by the time you retire. The 4% rule says that you can safely withdraw $20,000 in your first year of retirement. For the next year, you’d adjust that $20,000 for inflation. For each of the following years, you’d continue to adjust the previous year’s amount for inflation. And so on, and so on, with the idea that your retirement will last at least 30 years and you won’t run out of money during that time.

Strategies for achieving FIRE

Commitment and diligence fuels FIRE goals, but there’s more than one way to increase your income and decrease expenses. It comes down to finding a strategy that combines multiple ways to save more than you spend.

Eliminate bad debt

Good debt helps you make money, like a mortgage that gets you into a real estate investment or a car loan that helps you get to work. Bad debt is the result of expensive tools designed to help you buy things that quickly lose value or don’t contribute to your assets, like high-interest credit cards and short-term loans.

Strategies like the debt snowball and avalanche methods can motivate you to pay down multiple bad debts efficiently until you carry the minimal amount possible — or, ideally, none at all.

Reduce your expenses

It’s an easy equation: The less you spend, the more you save and the more you have to invest. And yet, FIRE stresses a balance between saving and living your life.

Start by taking a hard look at what you spend your money on regularly. And then take up the challenge to trim spending you’re not going to miss.

It doesn’t mean cutting costs mercilessly or giving up all pleasures entirely. If you love a morning coffee at your neighborhood cafe, keep it part of your routine, but maybe visit one fewer day a week. Fancy yourself a film buff? Keep up your moviegoing, but look into a theater loyalty program for savings on tickets and refreshments. Even worldwide globetrotters can benefit from the cheaper fares that come with off-season adventures.

Commit to conscious spending to meet your needs at the lowest costs you’re comfortable with and preserve as much of your income as possible.

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Automate your savings

You can’t miss what you never get. Most banks allow you to divvy up your paycheck into designated savings and investment accounts as soon as it hits your checking account.

Better yet, if your employer offers a way to divert your pretax income toward transportation or a tax-advantaged health savings account, sign up to contribute what you think you’ll use. Some plans allow you to leverage pretax contributions for preschool, summer camps and other child care, saving you thousands each year.

Position yourself for passive income

The Holy Grail of FIRE, passive income turns an initial investment of time or money into consistent cash that requires little to no effort to maintain.

Make compound interest your friend with a high-yield savings account that earns you interest of 1.5% or more on your savings. Use a beginner-friendly investment app like Robinhood or Stash to explore ETFs and dividend-paying stocks that can return 15% or more on low minimum starting balances.

Have a blog? The addition of an informational e-book or online course might prove so valuable, your readers are willing to pay for it. Or look into affiliate marketing, which earns you a commission from third parties with each click from your site. (It’s one of the ways that Finder makes money.)

A more serious investment is real estate, which requires a hefty down payment but could produce a steady stream of monthly rental income, especially in a hot market — and especially when mortgage rates are at their lowest.

Boost what you bring home

Increasing the number of pennies you have to pinch is key to aggressive savings. Asking for a raise is an obvious way to boost your income, as is trading your time or effort for extra cash.

Get your brain into business mode with questions like:

  • What hobbies can I turn into a business? Maybe your friends rely on your workout advice, or you enjoy the art of copyediting. You might find people willing to pay for help on Upwork or Fiverr.
  • What skills or assets can I market? If you speak another language or are willing to tutor math, post an ad on Craigslist to teach others what you know. If you have a spare bedroom, consider renting it out.
  • Am I getting paid what I’m worth? Look to sites like Glassdoor or PayScale to learn what other people in similar roles are making in your area or nationwide. Even if your salary is close, it’s worth asking your employer for a moderate raise, especially after a successful performance review.
  • Am I due a new job entirely? Even if you’re happy with your employer, keep a roving eye on LinkedIn, ZipRecruiter, Indeed and similar job boards to make sure you’re not missing out on a career move that could net you higher pay, stronger benefits — and, ultimately, a happier 9-to-5.

6 side hustles to boost your income

Look for low-hanging loot

Analyze your regular expenses for opportunities to shave savings off of what you’re spending.

Your loyalty to banks and service providers might be costing you. Shop around for new accounts to land stronger interest rates, lower fees or lucrative signup bonuses just for switching.

Ask your Internet, mobile and other providers about promotions or discounts, or let them know you’re shopping around for a shinier service to see whether they offer to match the competition.

You could be due money that’s already yours. Search your state’s official site for unclaimed checks, security deposits and other funds.

Track your progress

Need a way to eyeball your goals against your budget? A personal finance app like Mint or You Need a Budget (YNAB) pull multiple savings, brokerage and investment accounts as well as bills and expenses into one convenient dashboard, helping you to more easily manage your FIRE progress.

Alerts can help keep you from straying too far off budget, and spending breakdowns provide stark visuals of where your money is going, potentially motivating long-term changes to your financial health.

4 different ways to FIRE up

FIRE is one of many strategies out there designed to help you get to a risk-free retirement by prioritizing saving. But it’s not one thing to all people.

Get to know the strategic variations within the FIRE movement:

  • LeanFIRE. Preaching frugality loudly, LeanFIRE focuses on living on as little as you can today for faster financial independence — and committing to those bare minimums in retirement.
  • FatFIRE. This variation steps up savings to at least 30 times your annual expenses for retirement, covering the basics and then some to support a lifestyle at your highest salary — with no scrimping.
  • BaristaFIRE. This fat/lean hybrid helps you semi-retire early and rely on freelance or part-time gigs — like that of a barista — for extra income and potential health care to draw down less of your nest egg.
  • CoastFIRE. This one encourages aggressive investments early with the goal of maximizing compound interest, which ensures you grow investments more quickly to the point where you can “coast” by — scaling back both aggressive investing and “traditional” employment.

What are the risks of FIRE?

FIRE naysayers cite silly-sounding risks that include a lonely retirement of not working while your loved ones put their noses to the daily grind, or a loss of self-worth when you’re no longer contributing to society.

That’s not to say committing to this movement is free of all risk. But it goes beyond wringing your hands at all the free time:

  • You’re at the mercy of your investments. An unexpected downturn in the market can put a hole in your cushion — and potentially flatten your finances.
  • You’re on your own for health care. The earlier you plan to retire, the longer you’ll need to budget for medical coverage until Medicare kicks in.
  • One emergency can topple your goals. An ailing parent, divorce or other unforeseen crimp in your planning can derail your retirement.
  • It might not sustain a growing family. Older parents may find that early retirement needs to come much later than anticipated.

At the end of the day, however, you’re saving more than you’re spending with this movement. And that fires up the best of us.

Bottom line

The FIRE movement has ignited so much conversation about how we should be saving that even Dave Ramsey’s contributed his thoughts. If you have the kind of mindset — and salary — that makes saving up to 50% of what you bring home sound like an exciting challenge, you could be looking at a retirement that comes earlier than 65. And includes just about any lifestyle you enjoy.

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