5 Things You Should Know About the FIRE MovementJune 1, 2021
After decades of working hard, you’re finally ready to retire when you turn 65. Now it’s time to travel the world or relax by the beach.
How does that picture sound to you? If the idea of working well into your 60’s isn’t appealing, you’re not alone. And that means the FIRE — financial independence, retire early — movement may be a good match for you. By pursuing FIRE, you could retire years or even decades ahead of schedule, giving you the freedom to pursue your passions.
What is the FIRE Movement?
According to the U.S. Government Accountability Office, the average American worker is 61 years old when they retire. If you started working full-time when you were 21, that means you’d have to work for 40 years before you could enjoy your retirement. That’s 40 years of putting off taking time off to write a book, travel through Europe, or indulge in your hobbies every day.
The FIRE movement is a different approach to managing money and planning for retirement. Rather than planning to retire in their 60’s, people with the FIRE mindset save aggressively so they can achieve financial independence much earlier. Some FIRE advocates have retired in their 50’s, 40’s, or even their 30’s.
By retiring early, you can enjoy more freedom and have more control over your schedule and plans. It gives you a level of autonomy you wouldn’t have otherwise.
5 Important Things to Know About FIRE
If you’re new to FIRE and are trying to learn more, the amount of information out there can be overwhelming. To help you understand the movement, we identified the five most important things to know about FIRE:
1. There are many different types of FIRE
There is no one way to pursue FIRE. While some people will aggressively save huge chunks of their incomes for retirement, that’s not the only approach you can take. There are several different types of FIRE:
Under the traditional — and original — concept of the FIRE movement, the goal is to save at least 25 times your desired income in retirement. Once you reach that number, the idea is you can comfortably retire without having to work or contribute more money to your retirement fund.
With the traditional concept of FIRE, you’d retire early and not work at all. It requires you to save a substantial amount of income and make a lot of sacrifices.
A less rigorous version is BaristaFIRE. With this approach, you leave your full-time career and take on a part-time job that is less demanding and stressful once you reach your savings goal. It’s called BaristaFIRE because working in a coffee shop is a common job for FIRE followers, especially since chains like Starbucks offer health insurance benefits for part-time employees.
BaristaFIRE allows you to continue earning income, so you don’t have to dig into your savings. Because you’re earning money longer, you don’t have to have such an aggressive savings rate, making this strategy more appealing to some.
CoastFIRE is where you have enough money saved at a young age that, if you never contributed another dime, you’d still have enough to retire at 65.
How does CoastFIRE work? Let’s say you determine that you need $1 million at age 65 to retire comfortably. Assuming an average annual return of 8%, you’d need to have $100,000 in your retirement fund by the time you turn 35 to meet that goal.
However, hitting that target doesn’t mean you stop working completely. With CoastFIRE, you could take a less stressful, lower-paying job once you reach your target savings number. You only need to cover your living expenses — you don’t have to save any more money for retirement — so you don’t have to worry about boosting your earning potential.
FatFIRE is an alternative approach to retirement planning for high-income earners. Advocates of FatFIRE don’t cut back their spending so substantially and may travel or indulge in luxury goods before they retire. But because they earn more than the average person, they can still retire years earlier than most people.
FatFIRE gives those people significantly more freedom; they can start their own business, take months off work, switch career paths, or buy their dream car without worrying about their retirement.
LeanFIRE is the opposite approach to FatFIRE. Instead of indulging, LeanFIRE followers slash their spending to the bone, eliminating non-essentials and reducing their necessary expenses.
LeanFIRE advocates tend to follow minimalist lifestyles with the idea that sacrificing now will help give them more options later on. It’s appealing to those who have moderate or even low incomes, as it makes it possible to retire early even if you don’t earn six figures.
2. Boosting your income is a key step
With all the different types of FIRE, earning more money is essential to achieving financial independence. If you decide to adopt a FIRE mindset, think about a different way to boost your income, such as:
- Asking for a raise
- Switching to a more lucrative career
- Freelancing or consulting
- Picking up a side hustle
- Becoming a landlord
3. Reducing your expenses can help you achieve independence
For many FIRE movement followers, especially proponents of LeanFIRE, reducing or eliminating some expenses is a key step in accomplishing their goals. Downsizing to a smaller home, getting a roommate, becoming a one-car family, or cutting out dining at restaurants can all make a major difference.
By reducing your expenses, you can also put more money toward your debt, such as your student loan balance. By paying off those loans earlier, you can free up more money for your retirement and improve your cash flow.
4. The earlier you start, the better
While it’s never too late to save for retirement, the earlier you start pursuing FIRE, the easier it is. Consider these examples:
Sarah is 25. She starts saving $350 per month for retirement. Assuming an average annual return of 8%, she’d have $206,157 saved by the time she turned 45. If she stopped contributing to her retirement fund and just let her money continue to grow, she’d have over $1 million saved by the time she turned 65, thanks to market growth. At 45 — and after working just 20 years — she could quit her job and work part-time since her retirement is taken care of already.
By contrast, Jen doesn’t save for retirement until she turns 35. To reach $1 million by the time she turns 65, Jen would have to save $700 per month. And, she’d have to work and contribute that amount every month until she turned 65.
When you’re young, start saving as much as you can. Even saving a few bucks from your paycheck can make a difference over time.
5. FIRE isn’t for everyone
Advocates of the FIRE movement are diehard. However, pursuing FIRE isn’t right for everyone. You may not want to sacrifice comforts now to save more for retirement, or you may enjoy your work and intend to continue working right into your 60’s. And that’s okay! The important thing is to come up with a retirement plan that works for you.
To find out when you may be able to retire and how lifestyle changes affect your targets, you can use the FIRE retirement calculator.