FIRE Movement Simplified
FIRE = Financial Independence; Retire Early.
The concept, from a 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, is a program of maximum savings and investment that supports retirement much earlier than traditional budgets and plans would allow. Obviously, it entails many details, but the basic idea comes down to this: people should evaluate every expense in terms of the number of working hours it took to pay for it.
By assigning the bulk of their income to savings, FIRE followers hope to be able to quit their jobs and live exclusively off small withdrawals from their portfolios decades before they reach age 65.
Recently, a surge of individuals are now diving headfirst into the FIRE retirement journey. These new-wave advocates of the extreme-saving lifestyle work for several years, fiercely saving up to 70% of their annual income. When their savings reach approximately 30 times their yearly expenses, they may quit their day jobs or retire from work altogether.
What’s Your FIRE Style?
To cover living expenses after retiring young, FIRE devotees make small withdrawals from their savings, generally around 3% to 4% of the balance yearly. Depending on the size of their savings and their desired lifestyle, this requires extreme dedication to expense monitoring and attention to investment maintenance and reallocation. Several FIRE retirement variations, dependent on the lifestyle that practitioners are willing and able to maintain, have evolved within it:
Fat FIRE - for people with a traditional lifestyle who want to save considerably more than the average worker but want to maintain their current standard of living. It generally takes a higher salary and vigorous savings and investment strategies to work.
Lean FIRE - requires stringent adherence to austere living and drastic savings, requiring a far more restrained lifestyle. Many Lean FIRE adherents live on $25,000 or less per year.
Barista FIRE - a compromise between those two choices. People quit traditional 9-to-5 jobs, using a combination of part-time work and savings to live a less-than-minimalist lifestyle. They can maintain health coverage, but not have to dip into retirement funds.
Is FIRE for You?
Many assume that the FIRE approach is tailored for those with a substantial income, often in the six-figure range. While aiming for retirement in your 30s or 40s might necessitate such earnings, the core tenets of FIRE offer valuable lessons for anyone seeking to save for retirement and potentially achieve it before the traditional age of 65.
Planning
It is important for everyone to plan for their retirement. Yet, in 2020, one in four Americans had no retirement savings, while 36% who did have savings felt that their retirement plans were not on track. The FIRE movement stresses the importance of having a detailed plan and sticking to it, principles that will aid anyone in saving for retirement and maintaining a decent emergency fund.
Discipline
To achieve a FIRE retirement, you have to maximize your income while minimizing your expenses. Retiring in your 40s 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 side hustles or owning rental property.
Investment
It’s challenging to achieve a secure retirement without investing in a retirement savings plan. FIRE followers invest larger portions of their income than the average person. But the principle of setting aside a prescribed 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 your financial stability can be assured in later years.
A Balanced Perspective
The promise of early retirement beckons many, yet it's not without pitfalls. From the burden of healthcare costs pre-Medicare to the volatile nature of investments, one must tread wisely. Moreover, it's essential to recognize that while FIRE often frames work as a chain to break free from, its true essence lies in crafting a life that resonates with your aspirations. As you ponder the flames of FIRE, remember: this journey is neither simple nor light. But with resolve and foresight, you can redefine your narrative and truly live on your terms.