top of page
  • Writer's pictureInvesting Bestie
    • 4 min read

Financial Independence Retire Early (F.I.R.E)

Financial Independence Retire Early (F.I.R.E.) is a movement in the personal finance community that encourages people to start investing as much as possible early in their careers to reach an FI (Financial Independence) number, often 25x their annual expenses, so that they are no longer dependent on income from a job for their expenses.


Financial Independence

Individuals pursuing F.I.R.E. rely on income from their investments or other passive income such as rental income to support them. There is a strong emphasis on investing in low-cost, broad-based index funds. The building stage of investing is often paired with extreme frugality and saving more than half of your income, although some people find a balance between saving and spending that is less extreme.


The withdrawal stage is often based on the 4% rule, which states that a 4% withdrawal rate will allow your money to last through retirement. There is some discussion within the community about whether this number is valid for early retirees, as it was originally designed for a 30-year retirement. You can read more about retirement income calculations and the 4% rule in our investing course.


Retire Early

The age range for early retirement can be anywhere from age 30 to a few years before traditional retirement. Often F.I.R.E. individuals retire from their traditional jobs to start a new side business, usually with more flexibility around pay and work schedules due to their financially stable situation.


Advocates of F.I.R.E. pursue financial independence for different reasons. Some are motivated by a desire for financial security. Others want to have a more flexible lifestyle so they can spend more time with their families or pursue less lucrative passions. Some want location flexibility so that they can travel, often pairing travel with a blog or digital nomad income.


Geoarbitrage, or choosing to reduce expenses by living in a low-cost area, is a strategy utilized by some members of the community. Some choose to live in a camper and travel the country. Some choose to live simply in a low-cost-of-living area of the country. Others travel the world to more affordable countries and either do not own a home or rent out the home while traveling. If you are especially adventurous, you can retire early and travel the world on a sailboat. Successful F.I.R.E. looks different for everyone and is highly personalized.


It is important to acknowledge a degree of privilege in the F.I.R.E. community. Most people who are pursuing F.I.R.E. are well-paid from a relatively young age, but there are examples of people who have managed to reach F.I.R.E. on a teacher's salary. The key attributes of pursuing F.I.R.E. are being very intentional with your spending and saving and investing a large amount of that savings early. Admittedly, this plan is easier to implement if you have excess income at a young age.


Types Of F.I.R.E.

There are a variety of definitions of F.I.R.E. that can be viewed as different milestones of F.I.R.E., with some levels being the final goal for some individuals. It's important to note that even within the same type of F.I.R.E., there can be quite a bit of variation regarding the actual numbers. Financial independence is extremely dependent on one's personal lifestyle and expenses. One person's FI number may vary from another's depending on how much they need to pay their expenses. Here are a few of the most popular types of F.I.R.E:

  • Barista F.I.R.E. - you have enough saved to quit the daily grind and supplement your life with a part-time job that doesn't pay well. This title seems mildly offensive to baristas who are working their asses off at their full-time job, but I didn't come up with the name.

  • Coast F.I.R.E. - you have enough invested that if you didn't invest another dollar, you would meet your FI number by normal retirement age due to interest and compounding growth.

  • Lean F.I.R.E. - your investments support your minimalist lifestyle.

  • Fat F.I.R.E. - your investments support your lavish lifestyle.


My Thoughts On F.I.R.E

I admire the intentionality of the F.I.R.E. movement, the thoughtfulness around how you direct your money in spending and saving. I also admire the reflection that goes into visualizing your ideal life and structuring your life in a way that allows you to achieve that goal.


I am also eternally grateful to the F.I.R.E. movement for creating a conversation around investments and how individuals can use DIY buy-and-hold index investing to grow their wealth with a specific goal in mind. Stumbling on those conversations took the mystery out of investing and retirement goals and gave me a clear pathway and plan for my money. I have no plans to retire early, but I like the idea of being work-optional at the end of my career.


I ran the calculations on the Investment Growth Calculator and Retirement Income Calculator and was surprised to discover that I am Coast F.I.R.E. If something happened to me and I couldn't contribute any more to my retirement account, I would have enough to get by in retirement. It wouldn't be lavish, but it would be enough. And I have to admit that's a great feeling. So while I'm not a hardcore F.I.R.E. member, perhaps I can be considered Fringe F.I.R.E. - someone who admires, dabbles in, and loosely embraces F.I.R.E. principles.


Sidenote: You can see if you are Coast F.I.R.E. by entering your portfolio balance into the Investment Growth Calculator, leaving monthly contributions at zero, and changing the years to however many years until you retire. Then enter that balance into the Retirement Income Calculator and see if the annual income would cover your annual retirement expenses.


Even if you aren't Coast F.I.R.E., you can play around with the calculator to see how much you need to contribute each month to get to your goal. Knowledge is the first step, Bestie.


Learn More

If you would like to learn more about F.I.R.E. from members of the community, here are a few notable sources worth checking out:



Commentaires

Les commentaires ont été désactivés.
bottom of page