What Is the Financial Independence Retire Early (FIRE) Movement?

Many American workers look forward to retiring between the ages of 62 and 67. If you're interested in speeding up the timeline, the financial independence retire early — or FIRE — movement might be the right choice. By following the principles of FIRE, you could be financially ready to retire 10 to 30 years earlier than normal.

What Is Financial Independence Retire Early (FIRE)?

FIRE is a movement that encourages participants to save the majority of their income to achieve financial independence well before the traditional retirement age. Typically, this process requires you to live below your means; that way, you can free up more cash to save and invest. Some FIRE hardliners live on just 30-40% of their income.

The end goal of FIRE is to retire early and live off your investment income.

FIRE is a flexible movement without memberships or specific rules — participants adapt a set of common principles to suit their unique situations. The movement's core ideas come from the book Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez. Since it was originally published in 1992, the FIRE movement has taken on a life of its own.

How Does FIRE Work?

The financial independence retire early method is different for everyone, but most people use a variation of a similar process.

1. Determine your cost of living: Examine your current expenses, and figure out how much money you need to live in retirement.
   
   
2. Find your FIRE number: The FIRE number is the amount of money you need to invest before you can become financially independent. One popular way to calculate your number is to multiply your annual cost of living by 25. This amount should enable you to live by the "4% rule," which suggests that you can withdraw 4% of your investment portfolio each year in retirement without running out of money in your lifetime. If your FIRE number is $1 million, you could theoretically withdraw $40,000 in the first year.
   
   
3. Reduce your living expenses: Living frugally is a key part of FIRE; you'll need to find ways to reduce your monthly expenses. How much you cut depends on your current income and standard of living.
   
   
4. Pay off debt: Interest payments on debt can reduce the amount of money you can save or invest. Typically, it's a good idea to pay off high-interest debt first. Some FIRE participants also pay off low-interest debt; others pay the minimum and opt to invest more right away.
   
   
5. Build an emergency fund: Before you start saving and investing, it's important to create an emergency fund to pay for unexpected expenses without affecting your FIRE investments. If you can save 3-6 months of living expenses, it creates a sizable financial cushion.
   
   
6. Save and invest aggressively: Once you cover basic costs, save or invest the rest of your income. The best investments will depend on your age and risk tolerance; it's a good idea to talk to a fiduciary financial professional for recommendations.
   
   
7. Make more money: To save enough money to retire early, you may need to increase your income. Options include going for promotions at work, starting a side hustle or opening businesses that produce passive income. The trick? Invest all extra revenue you earn.

Are There Different Types of FIRE?

There are many different variations of FIRE. Each one is designed to suit people of varying ages, income levels and retirement goals.

Traditional FIRE

Traditional FIRE participants usually follow the 4% rule when deciding how much money they need to live after retirement. This strategy offers a balance between frugality and comfort.

Slow FIRE

Slow FIRE is like traditional FIRE, but the process is spread out over a longer period. Instead of trying to retire in 10 years, you might aim for 20 years. This enables you to retire earlier than usual and live a comfortable life in the meantime.

Lean FIRE

This is the most extreme type of FIRE; you might use it if you want to retire as early as possible. To get there, you must live on the smallest possible amount of money, both now and in retirement. If you can live off of $27,000 per year, for example, you'd need to save $675,000 to retire.

Fat FIRE

Fat FIRE enables you to maintain a comfortable standard of living after you retire. For example, if you want an income of $100,000 per year in retirement, you'll need to save $2.5 million. To get to this goal, you need to make more money and invest aggressively. This method usually works best for people with high earning potential and a willingness to work long hours.

Obese FIRE

Obese FIRE takes Fat FIRE to the next level. It requires you to invest more than $5 million before you retire early; that way, you can safely withdraw a retirement income of at least $200,000 per year. Getting to this level usually requires an inheritance or a very high salary.

Barista FIRE

In this type of FIRE, you meet a FIRE number that enables you to survive off of investments as long as you work at least part-time. That income might pay for extra expenses and provide a more comfortable living situation. In some cases, participants find part-time work that offers healthcare benefits. That's where the name comes from — part-time Starbucks baristas are eligible for employer-sponsored medical, dental and vision coverage.

Coast FIRE

Coast FIRE involves saving and investing as much as possible for a few years to reach financial independence — essentially, living the Lean FIRE lifestyle. Then, you can work part-time or full-time to meet expenses while your investments build wealth.

How Do FIRE Participants Meet Savings and Investment Goals?

Retiring early is no small feat. To get there, FIRE followers use many strategies to spend less and save more.

• Base your budget on the money you have left after savings and investments.
• Choose tax-advantaged investments.
• Take advantage of employer retirement-matching plans.
• Buy used items whenever possible.
• Read reviews and look for deals before making large purchases to boost ROI.
• Buy affordable used vehicles with cash to reduce insurance and interest costs.
• Move to a home with lower rent or mortgage payments.
• Don't carry balances on credit cards.
• Negotiate rates on utilities, services and insurance.
• Reduce entertainment and restaurant expenses.
  
  

Do You Need To Stop Working After You Retire Early?

Despite the name "financial independence retire early," many FIRE participants continue to work after they reach financial independence. However, because they no longer need to work to pay for living expenses, they're free to pursue passion projects, philanthropic pursuits or become entrepreneurs.

Is FIRE Right for You?

The FIRE lifestyle is an extreme approach that's not right for everyone. Retiring in your 30s or 40s takes a great deal of effort. If you're not willing to sacrifice fun and comfort for 10 years or more, a traditional retirement strategy might be a better choice.