What Is Financial Independence, Retire Early (FIRE)?

Financial Independence, Retire Early (FIRE) is a movement dedicated to a program of extreme savings and investment that allows proponents to retire far earlier than traditional budgets and retirement plans would allow. By dedicating up to 70% of income to savings, followers of the FIRE movement may eventually be able to quit their jobs and live solely off small withdrawals from their portfolios decades before the conventional retirement age of 65.

Of course, FIRE isn't a surefire plan, and extremely high rates of saving at the expense of current quality of life and lifestyle should be considered.

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 annual income, FIRE proponents aim to retire early and live off small withdrawals from accumulated funds.
  • The FIRE movement was born from a 1992 book "Your Money or Your Life," written by two financial gurus.

How Financial Independence, Retire Early Works

Borne out of the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, FIRE came to embody a core premise of the book: juxtaposing expenses and time spent at work against hours of your life. Every expense is compared to the time spent at work in order to earn the purchase.

In more recent years, Millennials in particular have embraced the FIRE movement with the aim of retiring well before the traditional retirement age of 65. Proponents of the extreme-saving lifestyle often begin by remaining for several years in the traditional workforce in order to save up to 70% of their yearly income. Once their savings reach approximately 30 times their yearly expenses, often roughly $1 million, they may quit their day jobs or completely retire from any form of employment altogether.

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. Depending on the size of the savings and desired lifestyle, this requires extreme diligence to monitor expenses and continued maintenance and reallocation of their investments.

When stock markets fall and/or interest rate environments are low, the FIRE plan may fall short.

Variations on FIRE

Within the FIRE movement are several styles that dictate the lifestyle devotees are able and willing to abide by:

  • Fat FIRE: an individual with a more traditional lifestyle who saves more than the average retirement investor
  • Lean FIRE: refers to stringent adherence to minimalist living and extreme savings, necessitating a far more restricted lifestyle.
  • Barista FIRE: refers to followers who have quit their traditional 9-to-5 job but still employ some form of part-time work to cover current expenses that would otherwise erode their retirement fund
  • Coast FIRE: also applies to followers with a part-time job, but these proponents do have enough saved to fund their retirement and current living expenses