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-Remove the burden of living paycheck to paycheck
-To have the option to work should the day arise you no longer can or want to
-To have more time to pursue hobbies/passion projects
-To have the option of spending less time working and more time with those you love
While no two FI journeys are the same, end goals are most often the same: to have increased freedom, flexibility, and peace of mind.
So keep reading on, because the exciting about choosing FIRE is you get to determine if, when, and how you get there!
Should I retire early?
As you learn about FI, you may hear people reference the term F.I.R.E. (Financial Independence Retire Early).
Achieving FIRE carries all the benefits of reaching FI, plus it means the ability (not requirement) to retire earlier than the typical age of 65.
While often assumed that people pursuing F.I.R.E want to “retire early”, the traditional retirement path shouldn’t always be presumed.
If you ask around enough you’re sure to find people who have quit their 9-5’s, and are sipping Mai- Tai’s on the beach, and never work another day in their life. However, these few people would be the exception not the rule. For the majority of those attaining FIRE, the goal isn’t to never work again, it’s having options.
Retiring early isn’t mandatory for pursuit of FI or FIRE. There’s no law that says once you quit your current job you can never work again.
In fact, many within the FIRE movement find fulfillment in work, they just want the flexibility and freedom to determine when, where and what they work on.
Before we get into the overarching types of FIRE let’s review some guidelines that are consistently referenced among others in this community, the rule of 25 and the 4% rule.
The rule of 25 states you need to have invested 25 times your annual expenses before you retire.
Example #1:
If you expect your annual expenses to be $50,000 then you should have at least $1,250,000 invested prior to retirement
$50,000 x 25 = $1,250,000
Example #2:
If you wanted to retire with $120,000 expected annual expenses you would want $3,000,000 in investment vehicles.
$120,000 x 25= $3,000,000
Now that you’ve calculated your FI number with the rule of 25…
You can now implement the 4% rule which states: your retirement should safely last you 30 years if you withdraw 4% the first year, and continue withdrawing 4% annually after adjusting for inflation.
*The trinity study is accredited with the research behind stating a 4% withdrawal rate should safely last 30 years, however, longer retirement studies were not conducted.
Therefore it is possible, one might need to withdraw less than 4% annually, or have a greater amount invested than the rule of 25 if one plans to be retired greater than 30 years.
Example #1
So according to the first example, if you have $1,250,000 in investment vehicles and decide you’re ready to retire, studies find you can safely withdraw 4% enabling you to take out $50,000 for that year’s expenses.
$1,250,000 x 0.04=$50,000
Now that we have an idea of the math behind the numbers, Let’s talk FIRE types and strategies…
The general principles for reaching FIRE remain the same despite the various methodologies.
There are a few key variables within your control that can affect the speed with which your networth accumulates or the amount by which it accumulates.
They are as follows: your income, your savings rate, and to what type of accounts your investments are allocated.
The goal of Fat FIRE, is to have enough passive income or net worth to be able to retire with a higher standard of living than ones current lifestyle. The consensus for Fat FIRE is to live off at least $100,000 a year or greater.
A Fat FIRE number will enable you to withdraw in excess more than your necessary minimum expenses each month. You’ll have room in your budget for the “extra things” without concern of “breaking the bank”.
If you want to take that trip, buy a new car, live in the world’s most expensive cities, or keep up that expensive hobby, Fat FIRE will help you be able to do these things upon retirement.
How much excess you will need depends on you, and the lifestyle you want to live. Some people consider eating out 3 times a week excess, others consider a personal chef a necessity. The amount truly depends on what you find valuable.
Let’s be honest, seeing the process of reaching Fat FIRE step-by-step appears to be relatively simple.
Yet while the steps in themselves aren’t inherently difficult, you will find it takes most people many years and a lot of intentional work to accomplish this goal.
That being said, the most successful way to achieve Fat FIRE is to begin investing as EARLY as possible with as high of a savings rate that you can. Think 50% or greater(Take your cues from the Toddler above lounging with a handful of cash:)
Someone who begins maxing out a custodial roth when they start mowing lawns at the age of 15, is exponentially more likely to achieve Fat FIRE than the 35 year old who only invests 30% of their income. (sorry bud, just not gonna happen)
To achieve Fat FIRE, you must be willing to sacrifice things in the short term to gain the comfortable lifestyle that Fat FIRE provides upon retirement.
Let’s evaluate…Do you want to spend more than $100,000 annually in retirement? Then consider yourself on the path to Fat FIRE!
Typically Lean FIRE is considered the ability to live off of $40,000 a year or less.
Since you’re on a “leaner” annual drawdown you can’t afford to live a consumeristic lifestyle. (Note that I didn’t say people pursuing Lean FIRE were miserable.)
In fact, many on this FIRE path choose to live on as little as they possibly can because it means reaching their FIRE number more quickly and for many people that is the goal… therefore Lean FIRE makes sense. I have come across story after story of those who have accomplished Lean FIRE and enjoy it.
However, it is not for everyone.
You often spend your years leading up to Lean FIRE cutting costs and living as frugally as you can, but retiring early on this low-income lifestyle often necessitates keeping that bare-bones lifestyle after retirement.
By necessity, those achieving Lean FIRE inevitably become really competent on how to live frugally. The question is do you want to continue living this way after retirement?
There are some ways to compensate for this low-income lifestyle such as moving to a city/country with a lower cost of living, or growing your own food to cut down on food expenses, or practicing minimalism.
Maybe your objective is to reach Lean FIRE in order to pursue a passion project with the end goal of generating income in order to supplement your Lean FIRE withdrawal amount. (inherently, this kind of takes the retirement part out of Lean FIRE), but as I mentioned before, FIRE doesn’t necessitate “retirement”.
The AMAZING thing about the FIRE movement is you can make it what you want in order to achieve the life goals you’ve set!
Let’s evaluate…Do you want to spend less than $40,000 annually in retirement? then consider yourself on the path to Lean FIRE!
Upon reaching Coast FIRE you’ll still need to make enough money to support your monthly expenses until the age you plan to retire, but you’ll no longer need to continue saving toward your retirement.
Coast FIRE assumes you are frontloading the bulk of your retirement investments, and because you aren’t trying to rush your retirement timeline, compound interest has its most valuable friend on its side…time.
Because Coast FIRE implies you will retire near the traditional retirement age, your savings rate (unlike with Fat FIRE) doesn’t need to be quite as high.
Coast FIRE can be achieved at any age, however, it’s important to remember that compound interest needs time to work.
If you start in your 20’s to early 30’s your savings rate to reach Coast Fire can be considerably lower, than if you are starting in your 40’s -50’s. Waiting till your 40-‘s-50’s means you’ve lost out on two decades of potential compounding interest.
Take a look at a hypothetical case below…
If you started in your 20’s with no debt, and no money in the bank, and put $900 a month in the stock market (which has a historical annualized average return of 11 % since its inception in 1957 through 2021… inferring this hypothetical example of 7% return to be quite conservative).
With 30 years of growth you will be in your 50’s and your investment should have surpassed the $1 Million mark ( with your total contributions being $324,00 and the rest of that million dollars being interest EARNED!).
Keep in mind, this is without any other retirement accounts, assets, or additional investments, and this would be prior to the typical retirement age of 65.
Now, let’s say you don’t start until your 40’s. You would have to contribute $5,900 a MONTH for 10 years just to breach that same million dollar mark. This my friends is the POWER of compound interest!
So by starting early, your regular and consistent investment contributions should be enough to help you reach Coast FIRE and retire with peace of mind upon the traditional age.
However, if you find yourself in your 40’s and just now learning about FIRE, don’t lose heart! There’s no better time to take action than right now!!
You can’t change your past but you can certainly change your future!
Many people don’t consider what their potential retirement might look like until later in life when they get closer to retirement and start looking at the numbers.
If you feel you’ve started to late, and find yourself discouraged, I’d highly recommend listening to the “Millionaires Unveiled” podcast. They interview people from all walks of life, and with varying degrees of wealth.
Listen to a few interviews and you’ll be amazed at just how many people have done the hard work required (even at a later stage of life) to reach that million-dollar mark!
The main point is to get started as soon as you can.
If you need a glass half full perspective, one benefit of starting your FI journey later in life is that most people find themselves making more money, for instance, in their 40’s than in their 20’s giving them a greater opportunity to start filling up those investment buckets!
Let’s evaluate…Do you want to let your investments grow over time until you reach your retirement number at the typical age while you continue to work and earn income to cover your monthly expenses? Then consider yourself Coast FIRE!
-Takeaway #1: Regardless of which type of FIRE you might wish to choose, you get to customize your journey(how you get there) and your end destination( how much you ultimately save for).
You can live on a bare-bones budget enjoying free things like hiking a nature trail or checking out books/movies from your local library….if that’s the retirement lifestyle YOU want!
Or your goal could be to have a FIRE number that replaces your current earnings and covers your current expenses, freeing up your time to pursue a passion project like opening up a jewelry shop on Etsy…if that’s the retirement lifestyle YOU want!
Or maybe your preference is to have weekly brunch at the Four Seasons….and that’s the retirement lifestyle YOU want!
Your future retirement can and should be up to YOU!
Just remember, at the end of the day, the math needs to “work”.
If you make comfort-based decisions today, it WILL affect your ability to reach your future goals.
So do some planning, really think about what YOU want and what you’re willing to sacrifice to get there.
Come up with your FI number and make an action plan to get there. As Paula Pant so wisely states, “You can afford anything…but not everything”.
-Takeaway #2: Reaching your goals certainly won’t be easy, but it WILL BE worth it!
Listen, I’m not here to sugarcoat it. Reaching your FI/FIRE goal will require hard work and determination.
You don’t have to live a destitute lifestyle but you WILL need to live with intention.
If it was EASY everyone would be doing it.
So consider pursuing the freedom to spend your time how you want.
The freedom that comes from not being anxious and fearful of how you’ll pay for whatever tomorrow brings.
The freedom afforded to the one whose finances are in order.
So come friend, and join me on this journey.
Let’s make the intentional choice, to not take the easy road, but the one worthwhile.
*** With a quick search on the internet you may find other “types of FIRE” mentioned. I simply chose to cover three of the most commonly referenced. Feel free to do your due diligence and see if there’s any other type of FIRE that might interest you!
Are you interested in reaching or already pursuing FIRE? Drop me a comment below, I’d love to hear how far along you are on your journey!
Some basic principles have stood the test of time, and are considered cornerstones to helping you reach Financial Independence (FI). Let’s take a look at these principles together, and see where you are on the road to FI. You might just be closer than you think.
Does the idea of working simply because you love what you do seem like a fairytale notion? What if I told you, you could reach a point in your financial portfolio where you only had to work, if you wanted to? Well that point is called Financial Independence, and there are many out there who have achieved this status and even been able to retire early. Read on to find out how you can achieve that same freedom too!
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THE FINE PRINT
The information within this website is for informational and recreational purposes only. I am not a financial professional. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. Investment products discussed (ETFs, index funds, etc.) are for illustrative purposes only, and there is no recommendation implied to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Some content may contain affiliate or referral links. I only feature credit cards, services, and apps that I personally find useful, and unless otherwise explicitly noted, the references to services and products are unpaid and unsponsored. Simpli-FI- Life, LLC