What is FIRE (financial independence, retire early), and is it worth pursuing?

For many people, retirement seems like a far-off dream or unachievable entirely. In fact, according to a 2023 Gallup poll, only 43% of non-retirees expect they’ll have enough money to live comfortably in retirement. However, those pursuing FIRE (financial independence, retire early) buck the trend, building a substantial net worth early on through investments and strategically withdrawing a portion of it as their primary source of income through retirement. While the idea of retiring early may seem unrealistic, the math behind it is surprisingly simple. Discover what FIRE is and whether pursuing the strategy is right for you.

How FIRE works

While many consider retirement an age-based milestone, it’s more accurate to consider it a financial milestone. Certain age-related milestones do help people retire, such as Social Security benefits and the ability to access contributions to retirement accounts like a 401(k) or IRA without penalty, but there is nothing prohibiting someone from retiring earlier if they have the financial means to do so.

Those pursuing FIRE build up their investment portfolios at an accelerated pace, often investing a significant percentage of their income. Saving and investing the majority of their income is common among those pursuing FIRE.

By saving and investing aggressively starting at a young age, FIRE pursuers can accumulate a large net worth with the power of compound interest well before full retirement age. Most financial experts agree a 4% withdrawal rate is a safe amount to pull from investment accounts every year to sustain retirement. This means someone with a $1 million portfolio would live on a $40,000 income in retirement.

What to consider before pursuing FIRE

How much you’re comfortable saving

To effectively pursue FIRE, you’ll have to save much more than the average person. While there’s no specific amount or percentage of your income you need to achieve, a high savings rate is necessary to achieve FIRE. Unless you make a very high income, you’ll need to go through your budget and determine what sacrifices you are comfortable making. This could involve living in a smaller home, driving older cars, taking less luxurious vacations or cooking more of your meals.

Family planning

To achieve FIRE, you need to understand what your future expenses will look like. The expenses for a single person without kids will look drastically different than those of a married parent of three or that of a single parent. If you think your family could grow in the future, you’ll need to consider that when planning how much you need for early retirement.

Housing

Your housing situation is also critical to FIRE. While there are benefits to both renting and owning, homeownership makes projecting your future expenses much easier. Additionally, many people pursuing FIRE seek to retire with a paid-off mortgage, which will significantly reduce retirement expenses.

Healthcare

While projecting healthcare expenses and needs is difficult, there are a couple of things for those interested in FIRE to remember. First is how to cover the gap between retiring and Medicare eligibility, which begins at age 65. A common solution is to use the Health Insurance Marketplace on healthcare.gov. While this is often more expensive than what employers include in their benefits package, there’s no way around needing health insurance.

You should also account for healthcare expenses as best as possible. While these expenses are impossible to project, expensive medical care, assisted living homes and nursing homes add up quickly. For this reason, many FIRE pursuers add cushion to their investment portfolio to help cover these expenses.

Types of FIRE

These sub-groups of FIRE follow the same basic principles, but they add an additional twist that may align better with your goals.

Lean FIRE

Those pursuing lean FIRE seek to lower their expenses even more than the average FIRE pursuer. This could be due to a lower income or a desire to retire as early as possible. Since “FIRE” isn’t a formal group, there is no hard line of expenses you must be beneath to be considered lean FIRE. However, adhering to lean FIRE typically means spending little beyond what you need to survive, while employed and in retirement.

Fat FIRE

The opposite of lean FIRE, fat FIRE is all about having a large budget for early retirement. Since spending more makes retiring early difficult, those pursuing fat FIRE are typically high-paid professionals. As with lean FIRE, there is no strict spending requirement to be considered fat FIRE, but many pursuing this kind of FIRE seek to enjoy numerous luxuries and a lavish lifestyle in their early retirement.

Coast FIRE

Despite the name, coast FIRE doesn’t involve retiring early at all. This strategy begins much like other forms of FIRE, with a high savings rate and aggressive contributions to investment and retirement accounts. However, those pursuing coast FIRE will use investment projection calculators to see when they’ve fully funded their regular-aged retirement. At that point, they can stop contributing to retirement, “coasting” the rest of the way there. This method has both big benefits and drawbacks. For those who enjoy working, aggressively funding retirement can make sense, as compound interest is far more powerful given a longer time frame. In other words, the total amount of retirement contributions can be lower over a normal retirement contribution timeline. On the other hand, this method makes it easy to grow accustomed to high spending budgets, which necessitates additional retirement savings to keep that same lifestyle in retirement.

Barista FIRE

This is a semi-retirement option for those looking to leave a high-stress work environment. Instead of fully retiring, barista FIRE involves quitting a high-paying, high-stress job in favor of a low-key, part-time gig, such as being a barista or a part-time role for a non-profit. This gives something to occupy time, a sense of fulfillment and an income supplement to investment withdrawals.

This can be an excellent happy medium for some people, but some who pursue barista FIRE decide it’s not what they thought. For many, these supposedly “low-stress” jobs don’t end up being very low-stress at all, especially since many are in the service industry and involve interacting with the public.

While pursuing FIRE allows many people to live the life of their dreams, it’s not for everyone, and there are many factors to consider when attempting to retire early. Still, those on the fence can benefit from investing aggressively for retirement at an early age—you can always ease up on how aggressively you invest and keep working if you decide FIRE isn’t for you after all. Whatever you decide, knowing that FIRE is an option at all can be an empowering aspect of your financial journey.

Learn more about retirement:

• Important questions to ask your parents about their retirement or will
• Are you making the most of your retirement benefits? By Suze Orman
• Playing retirement catch-up