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Early retirement may sound like a pipe dream, but for members of a growing movement, it’s the goal.
The Financial Independence, Retire Early movement, also known as FIRE, is made up of people who hope to build up enough wealth that they can ditch their jobs long before they reach traditional retirement age.
Although the movement has attracted critics, with skeptics arguing that FIRE members are making big sacrifices now for their future, it’s also gained a loyal following. With that increased popularity has come an expansion of the original idea, giving rise to new types of FIRE savers.
Here are 5 different types of FIRE.
What is the FIRE movement?
Much of the FIRE movement comes down to two strategies for building wealth: saving and investing, and limiting spending.
Participants typically calculate their FIRE number —the amount of money they’ll need to save to support their lifestyle in retirement —by multiplying their expected annual expenses in retirement by 25. The calculation is based on the 4% rule, which suggests retirees can safely withdraw 4 percent of their portfolio value annually.
Many FIRE participants plan to reach their goal and retire as soon as their 30s or 40s.
But the traditional FIRE movement isn’t for everyone. Jannese Torres, a Latina money educator, found that when she first learned about the FIRE movement, the number she calculated for herself was daunting. She opted for a version of FIRE that involves creating multiple income streams to replace the paycheck you’ve been using to sustain your lifestyle. This is called Cash flow financial independence.
“There are a lot of different flavors of the FIRE movement,” Torres says.
What are different kinds of FIRE?
There are numerous approaches to FIRE. Here are a few:
- Lean FIRE: If you’re planning to have lower-than-average expenses in retirement, you may want to consider Lean FIRE. This approach is typically for minimalists who can live off a lot less money than others,and who plan to do so in the future. While you may be able to get to your savings goal faster via Lean FIRE, you likely won’t have much room for spending beyond strict necessities.
- Coast FIRE: Savers who implement the Coast FIRE approach aren’t necessarily trying to retire early. They focus on saving and investing enough money that eventually they can stop making contributions but still watch their money grow. In other words, they’ll be able to “coast” into retirement.
- Fat FIRE: If you’re hoping for lavish vacations, lots of eating out and shopping in retirement, Fat FIRE may be the method for you. It requires saving and investing aggressively so that you don’t have to limit your spending in retirement. Understandably, it’s one of the more challenging approaches to gaining financial freedom since you’re aiming for a high annual expenditure in retirement.
- Barista FIRE: The FIRE movement doesn’t require earning six figures and it doesn’t have to mean saving for total retirement. Instead, some people use the Barista FIRE approach to save now so they can work part-time or more relaxed jobs later in life. They may want to replace their traditional nine-to-five gig for a few hours of work a week as a barista, for example, hence the name.
- Cash flow financial independence: This approach, also called Cashflow FI, focuses on generating income streams — with some of them ideally being passive income streams —to cover living expenses, Torres says.
Who is FIRE for?
The FIRE movement is for those who are willing to purposefully save, invest and limit their spending now in order to give themselves more flexibility later.
“For most people, it’s really just about wanting more autonomy and freedom over their lives,” Torres says.
Traditionally, the FIRE movement has been for people who want to retire early. While many FIRE participants still hope to ditch their day jobs before they hit age 65, others are simply hoping to give themselves more freedom by working less. There are many ways to apply aspects of the FIRE strategy to personal finances, even if you don’t want to follow the “rules” of the movement to a tee.
“There are elements of financial independence that we can build into our lives even if we’re not 100% financially independent,” Torres says.
FIRE’s growth has also made room for more diverse voices within the movement.
Bottom line
FIRE is a way to gain financial freedom and possibly early retirement by saving, investing and cutting expenses. As the movement has grown, various types of the approaches have developed. Lean FIRE, Coast FIRE, Fat FIRE and Barista FIRE are just four flavors of the FIRE movement.
FAQs
Fat FIRE: Fat FIRE is when you retire early and live a lavish lifestyle afterward. LeanFIRE: Lean FIRE means to retire early but with an amount where you can lead a lean and simple lifestyle. CoastFIRE: Coast FIRE refers to when you have savings for retirement but you need to work to cover your living expenses.
What are the different types of financial independence retire early? ›
FIRE is a way to gain financial freedom and possibly early retirement by saving, investing and cutting expenses. As the movement has grown, various types of the approaches have developed. Lean FIRE, Coast FIRE, Fat FIRE and Barista FIRE are just four flavors of the FIRE movement.
How to calculate coast FIRE number? ›
FIRE Number = Annual Expenses x 25
To calculate your Coast FIRE number, first, calculate how much time your invested assets will have to compound, and their approximate rate of return. Then divide your FIRE number by this figure to arrive at your investment portfolio target.
What is my fat fire number? ›
Luckily, there is a simple way to calculate fat FIRE. First, you'll need to estimate your average annual expenses after you retire, and then you'll need to see how much you're currently saving each year. To figure how much you'll need to achieve fat FIRE, multiply your expected annual expenses by 25.
Is FatFIRE a real thing? ›
Fat FIRE (Financial Independence Retire Early) is being able to live it up in retirement without having to sacrifice your spending. If you are Fat FIRE, you can easily survive without a job because your investment income more than covers your best life's living expenses.
What counts as FatFIRE? ›
Fat FIRE is an interpretation of the Financial Independence, Retire Early (FIRE) movement that expects higher expenses in retirement, sometimes defined as needing an annual budget of $100,000 per year or more.
What are the 5 financial life stages? ›
We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
- FORMATIVE STAGES - AGES 0-19. ...
- BUILDING THE FOUNDATION - AGES 20-29. ...
- EARLY ACCUMULATION - AGES 30-39. ...
- RAPID ACCUMULATION - AGES 40-54. ...
- FINANCIAL INDEPENDENCE - AGES 55-69.
My advice to you is “Be smart!” Maintain work-life balance by following the “4 Ds”- DO IT! DELAY IT! DITCH IT! DELEGATE IT!
What is the 4 rule for early retirement? ›
One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.
How much money do I need to retire? ›
By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.
According to the Bureau of Labor Statistics (BLS), the average income of someone 65 and older in 2021 was $55,335, and the average expenses were $52,141, or $4,345 per month.
What is 25 times living expenses? ›
The rule of 25 says you need to save 25 times your annual expenses to retire. To get this number, first multiply your monthly expenses by 12 to figure out your annual expenses. You then multiply that annual expense by 25 to get your FIRE number or the amount you'll need to retire.
How to retire early with no money? ›
If you are thinking of retiring at age 65 with $0 saved, here are some strategies that you may want to consider:
- Create your budget.
- Scale back to a part-time job.
- Take a look at your home.
- Investigate reverse mortgages.
- Put off collecting Social Security for as long as you can.
- Get a financial team together.
You're probably fine if you anticipate that your monthly expenses will be lower than your income. But if you think your expenses would be higher than your early-retirement income, Rob suggests that you take one or more of these measures: Retire later. Save more now to fill some of the potential gap.
How much money to be financially independent? ›
Americans say they'd need to earn about $94,000 a year on average to feel financially independent. That's about $20,000 more than the median household income of $74,580.
What is the difference between a CoastFIRE and a FIRE? ›
The difference between CoastFIRE and traditional FIRE is that with traditional FIRE, you do not need income to retire. With CoastFIRE, you continue to need income to cover expenses; however, you no longer need to worry about saving money for retirement.
What is the difference between CoastFIRE and barista FIRE? ›
Barista FIRE is a form of semi-retirement since you continue to work but also withdraw funds from your savings. With Coast FIRE you also stop saving but do not withdraw funds from your retirement account while you continue working until the age of retirement.
What does LeanFIRE mean? ›
Lean FIRE: People who follow the Lean FIRE model often live a minimalist lifestyle and plan for a modest lifestyle during retirement. Lean FIRE is a form of financial independence that covers basic needs. Someone who has reached Lean FIRE has usually saved 25 times their yearly expenses.
What is the opposite of FatFIRE? ›
Lean FIRE: Someone pursuing lean FIRE is planning for a considerably lower income during retirement. With a FIRE number generally less than $1 million, the goal is to retire early and live a more frugal, minimalist lifestyle during retirement. Fat FIRE: You can think of Fat FIRE as the opposite of Lean FIRE.
