The FIRE Movement

Introduction to FIRE

FIRE stands for “Financial Independence / Retire Early.” It can be used as a noun or a verb, such as “What is your FIRE number?” or “When do you intend to FIRE?” The idea behind attaining FIRE is to increase your savings rate to its absolute maximum potential and achieve financial independence well before the standard retirement age of 65-70.

One of the rules of thumb for achieving FIRE is to save and invest 25X your expected annual spend. Using the 4% rule, this nest egg would essentially never run out; and one would be able to live off their investment earnings for the rest of their lives! It’s a very exciting yet debated topic that, when I started diving into personal finance, grabbed my attention immediately.

Early on, the classic FIRE movement generally represented a younger crowd with high incomes and a very low spend rate. The original intention was to stopping work entirely once their FIRE number was hit. In more recent years, people have played around with this acronym to stand for “Financial Independence / Recreational Employment” to promote the idea that you don’t have to completely retire just because you can. Instead, you have the freedom to pursue work that brings you value and/or some sense of purpose. Work because you want to, not because you have to.

A Brief History of the FIRE Movement

While the origination of the term FIRE is not clearly documented, the concepts were first popularized by the bestselling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez in 1992. It addresses one’s relationship with money, how to get out of the paycheck-to-paycheck cycle, and how to start living your life “worry free.”

It wasn’t until the 2010s where the FIRE movement truly caught on fire 🔥 (pun fully intended 😂). The idea of retiring early was always a nice thought, but didn’t seem achievable. All of a sudden, guys like Mr. Money Mustache, the Financial Samurai, and the Mad Fientist (among many others) started showing that retirement in your early 30s actually was possible!

These founding fathers, if you will, of the movement started blogs, podcasts, and even wrote books about their journey. Through extremely high savings rates, and different tax planning strategies, it’s possible for just about anyone to retire sooner than the standard retirement age of 65!

In 2019 a documentary was made by 35-year-old Scott Rieckens called “Playing with FIRE” where he and his family made major life changes in pursuit of FIRE. Could it be possible for a regular guy with a family to make this a realistic goal? The craze for the fire movement hit all-time highs as people started imagining their lives without a day job. What would it be like to live your life without an alarm clock? Without an office to go to? Without, seemingly, a care in the world?

Over the years, different variations of FIRE have taken form:

  • Traditional FIRE
  • Lean FIRE
  • Fat FIRE
  • Barista FIRE
  • Coast FIRE

Let’s take a closer look at each of these.

Traditional FIRE

Here’s the basic concept: Annual Spend X 25 = Happiness Forever

We’ll address the 4% rule (of thumb) in a later post, but studies have shown that withdrawing roughly 4% per year on investments will survive an absolute minimum of 30+ years when put through the some of the worst economic storms in US history. Thus, saving and investing 25X your annual spend should be enough to live off your investments for the foreseeable future.

For example, if you think you’ll want approximately $60k per year, your FIRE number is $1.5 million in liquid investments. Sounds like a hell of a number to hit for such a low payout. I hear you; it didn’t seem feasible to me at first either, but maybe we need to change our thinking a bit and break down some expected monthly expenses in retirement:

  • Rent: $2,000
  • Utilities: $100
  • Food: $300
  • Car Insurance: $100
  • Health Insurance: $500
  • Cell Phone/Internet: $100
  • Memberships: $100
  • Hobbies: $300
  • Total Annual Fixed Costs: $42,000

Then of course you’ll have to factor in taxes, but those will be minimal since we are drawing from a long-term capital gains tax rate. In many cases (please seek advice from a CPA before planning or attempting to do this) there are ways to reduce your tax rate to 0%. There’s a solid chance here that $60,000 annually would be enough for you to live off of, AND have THOUSANDS of dollars left over each year!

If you had bought a residence to live in and fully paid it off before retirement (which is what my plan currently is); your fixed costs would go down which makes your target FIRE number go down and allows you to reach financial independence even faster! It’s fun to play around with the numbers and set some goals.

Mr. Money Mustache has a great article on how to run the numbers, and plan for FIRE. While the practices of attaining FIRE aren’t easy, the math is surprisingly simple. By increasing your income and reducing your spend, you’ll be able to raise your savings rate pretty drastically. The idea here is to cut unnecessary costs ruthlessly out of your life, invest the rest, and you’ll reach your financial goals sooner than you think is possible!

Lean FIRE

The idea of Lean FIRE is best for those who can comfortably live off far less than the average household. In general, these people have figured out a way to live off $35k per year or less. While I don’t see this in the cards for my future, there are several benefits here.

Living the simple lifestyle has a way of compounding on itself. First, the less money you bring in means the less you get taxed. Generally, you would be looking at minimal tax rates in this category. Plus, this might mean more government support for things like food or health insurance. It shouldn’t be anyone’s plan, per say, to live so tight that you have to go on Medicaid; but there’s something to be said for choosing to live a life of little needs. Choosing a low cost of living area and free/low-cost activities to keep you occupied allows for a lower FIRE goal.

The minimalistic lifestyle is key here. If you own something that isn’t being used, why not sell it? If you don’t have an office to go to every day, do you really need a vehicle? What if you retired in a place like Columbia or Thailand where the cost of living is so low you could almost afford to live it up? For the savviest of solos, it might be worth seeing if any friends are of the same mindset. A house-hack situation could benefit you both if you can reach some agreements up front.

The drawbacks on lean FIRE are evident. There’s no room for luxuries of any kind in your life. That trip to Europe isn’t for you. Living in a major city is most likely not for you. That hip new fancy steakhouse that just opened up in town… not for you. Hell, you might get all Ted Kaczynski and decide to live in a cabin in the woods all by yourself. This could result in a serious lack of relational health, and well… we all know how that played out 😬.

Most of us should probably aim our sights a little higher. So instead of barely scraping by, as fiscally skinny as we can get, let’s talk about the exact opposite.

Fat FIRE

The idea of Fat FIRE is that you’ll be able to live your very best life without batting an eye at expenses on just about anything (within reason). Many people in this category are living off passive investments raking in $200k + per year. Using the 4% rule, this would mean you would save and invest till you were right around the $5 million dollar mark or higher 😬.

Generally speaking though, people in this category don’t necessarily have that much saved in pure liquid assets. Many fat FIRE achievers will have several sources of passive income while technically retired. Through rental properties, digital product sales, dividend investing, and/or some type of passive business ownership, these people are able to spend an extravagant amount of money while spending minimal (if any) time on actual work.

Sounds like the dream right? Maybe, but maybe not. It should come to nobody’s surprise that I love goal setting. There is absolutely something to be said for shooting for the stars. In this case though, setting your sights extremely high might lead in disappointment, which could easily lead to abandoning the goal for better financial health all together.

The other side of the spectrum is that reaching your fat FIRE number will most likely take a very long time. In the process of spending decades trying to maximize your savings rate each and every month, it’s likely you are abandoning other areas of your 5POH. Don’t forget, the point here is to maximize the amount of value brought into your life, not necessarily some crazy high dollar amount.

Barista Fire

The idea of barista Fire is that you’ll have a lower to middling FIRE number to hit, and then plan to work part-time during retirement. This person would live off their smaller income and supplement their living expenses with a small portion of investment income. Presumably the money pulled from investments would be small enough to still let the nest egg grow through compound interest.

The big perk here for early retirees here is that you’ll have access to subsidized health insurance, and possibly other benefits depending on the company. The combination of bennies, a small income, and investment income makes your target FIRE number much more attainable, which is why this form of retirement has gained a lot of attraction.

There are a few drawbacks to this plan though. Part-time remote type work that offers benefits are far and few between. In essence, the part-time work could potentially lock you into a schedule that requires your presence in a certain place at a particular time. Like, well… a barista. This might appeal to those that aren’t looking to travel much, or those that get enjoyment from the work itself.

My struggle with this idea is that a good chunk of your time is still not up to you. This person still has to set the occasional alarm clock and check in with a manager to plan a vacation. Even if you are working part-time for your own small company, you are still in need of some level of income to live, therefor subject to market demands regardless of the value this work is bringing you.

Still, I like this idea for the solos who are using barista FIRE to attain greater goals. Maybe the additional 20 hours per week will allow you the time to start working on passive income streams. Perhaps the small company idea above has the potential to bring in real income in the future. Barista FIRE, at the very least, allows you the leeway to explore new pathways to full retirement.

Coast FIRE

The basic idea behind coast FIRE is to front load all of your savings into retirement accounts. After hitting a certain dollar amount, you’ll be able to completely stop saving entirely and let compound interest take over.

For example, let’s say someone at 22 years old is able to put $30k per year into their 401k and IRA accounts every year. By the time they are 30 years old, they will have saved $240k. With company match and compounding interest during this time, this number could easily be at $300k. If we go with a conservative 7% return on these investments, it will roughly double every decade. By the time they are 60 this nest egg will be around $2.4 million dollars! This person now would now spend as much of their current income as they want and “coast” into retirement.

Of all the variations of FIRE, this one gets the most criticism. First, the idea of stopping saving/investing entirely during your working years rubs many the wrong way (myself included). Nobody knows for sure what the future holds for inflation, taxes or even Medicare costs, there’s a decent chance you’ll project the wrong necessary income for yourself and get stuck in a bind in the future.

Second, you are potentially missing out on free money. If you stop investing into your company sponsored 401k all together, you are missing out on that company match. I might sound like a broken record at this point, but I cannot understate how important it is to contribute to the company match under almost any circumstance.

Third, you are taking tax planning out of your future hands. RMDs (required minimum distributions) are very real, and having too much in your tax advantaged account could lead to a real tax burden in the future. Sure, you can start doing a Roth Conversion Ladder (more on that in a future post), but that should really only be utilized as a backup plan. The intention should be to get it right the first time.

Fourth, your retirement accounts are not accessible (without penalty and taxes due) until 59-1/2 years old. Essentially your savings are all going towards an illiquid asset. Again, a plan with the Roth Conversion Ladder could help alleviate this issue for those looking to retire early; but it shouldn’t be the initial part of the plan.

Reaching coast FIRE is a huge accomplishment, but it doesn’t mean you are there yet. Taking advantage of the tax advantaged retirement accounts you have access to is extremely important for your overall financial health, but it’s not the “end all be all” of a solid FI strategy.

Instead consider a coast FIRE goal as a fantastic launching point on your FIRE journey. Figure out what number you would want in your retirement accounts to live comfortably from ages 60-90+. Then look at how compound interest is going to affect your current investments in the time till you are 60 years old and contribute accordingly.

For example, let’s say that I know I want a minimum of 40k of income per year from my retirement accounts starting at age 60 (this is not including social security or other investments). Using the 4% rule, this would mean my coast FIRE goal is $1 million in retirement accounts by the age of 60. Using a conservative investment return rate of 7%; this would mean we want $500k in these accounts by age 50, or $250k in these accounts by age 40. Max out retirement options each year until you reach coast FIRE, then contribute enough to get the match, and redirect all investments to a liquid taxable brokerage account. This is only one of many strategies, and not advice for anyone to adhere to, just worth thinking about.

Other Variations of FIRE

There are many other segments of FIRE, most of them are a different take or a combination of the above. Let’s touch on a few:

  • House-Hacking FIRE: One who has reached FIRE minus full housing expenses. They utilize some form of house-hacking (at least temporarily) to retire early.
  • Mini-Retirement FIRE: One who has accumulated enough wealth to take an extended leave from work; usually to spend time on passion project or to travel. They will, inevitably, have to go back to full-time work.
  • Slow FIRE: One who is almost at the finish line, but decides to reduce work hours/pay before fully leaving the workforce. Similar to Coast FIRE, but generally these people are able to stay at the same company.
  • Chubby FIRE: One who reaches FIRE with the plan of having a standard of living between traditional FIRE and fat FIRE.
  • Geoarbitrage FIRE: One who has reached FIRE minus current housing expenses. Instead of house-hacking, they move to a low-cost of living area in a different part of the country.
  • Side-Hustle FIRE: One who is accumulating enough income from side businesses (active and passive) to quit their 9-5 job. They aren’t really retired, instead finding more value from working for themselves.
  • ExpatFIRE: One who reaches FIRE with the intention of retiring early in a different country; generally, one with a very low cost of living.
  • Wife-FI: One who is able to retire and rest on the laurels (and company benefits) of their still working spouse.
  • Wi-FI: One who has achieved the goal of FIRE, and now has no idea why 😂. (Pardon the bad uncle joke)

SDB Thoughts

The traditional FIRE movement caught a ton of flak from the media. Obviously, not everyone can start a savings rate of 50% or greater tomorrow. In fact, hitting a savings rate of 30% or higher might be outright laughable for certain solos.

That said, it doesn’t hurt to take into consideration that real people are doing this all over the globe right now. What might seem absolutely impossible right now, might have a way of shifting gears when you really start to break down what your core values really are. Is it more important for you to look flashy in that BMW, or to have the ability to stop working a full-time job 6 years earlier? That crazy expensive gym membership might assist in physical health, but it could be delaying retirement by 3-4 years. No judgements at all from my end, I just ask that you go into your purchase decisions with eyes wide open and core values in mind.

Back when the FIRE movement was starting to catch on, they were portrayed as living as monks for years and years just to stop working. Most would agree that eating cat food and riding a bike 10 miles uphill in the snow each day to work is not ideal. Today’s idea of FIRE is much different and takes on different forms.

The overarching theme that financial independence is available for anyone is, in my opinion, the truth. The age at which you reach this ultimate goal is up to you.

The Savvy Solo Curveball

I would be remiss to not at least touch on the fact that many early FIRE achievers had one thing in common; a lot of them were DINKs (dual income/no kids). This obviously proves as a challenge to the Savvy Solo in pursuit of FI.

Many of us aren’t going to be able to produce the likeness of two full-time incomes on our own… but so what? Sure, they won’t have to save as much per person as the standard solo; and having two adults working allows for more leeway. That said, couples on this journey have their own problems.

Instead of focusing on our disadvantages, let’s take a look at a few of the perks:

  • You can make this decision for yourself, without having to confer with another before getting started
  • You can work at your own pace to achieve this goal, without the anxiety of someone else breathing down your neck
  • Vice versa, you don’t have to drag someone else to keep up with your pace
  • No “money/budget dates” to keep on the same page
  • No difficult conversations about that big expensive thing the other person wants

Not to get all JG Wentworth on you all; but “it’s your money, use it when you need it! …And save it when you don’t!” Isn’t that how the slogan went? 😂 Eh, maybe my memory is a bit hairy. Either way, you get the idea; it’s your game to play at the pace you want to play it.

In Conclusion

Surely, one of these forms of FIRE caught your eye! “No sir, and don’t call me Shirley!” Alright Mr. Leslie Nielson, fair enough.

Over the past 5 years or so, the craze over FIRE has drastically cooled 🥶. The classic practices of FIRE, being to survive off extremely low levels of income, have mostly dissipated. It’s believed that COVID in 2020, with a lot of people getting the experience to work from home, was a big culprit here. Many became less concerned with making sacrifices today for that great big, beautiful tomorrow; and more concerned with the lifestyle they live today. What’s the sense in living so frugally if we can live the life we want right now?

Other than the daunting task of reaching such a high savings rate; I think one of the hesitations here is that many people do not have any idea what they will do in retirement. I mean, a guy can only go golfing and fishing so many times, right? YES!

This part was fun for me, allow yourself to go there. Come up with an idea of what you want your retirement to look like, and then expand from there. Wes Moss has reported on his podcast, Retire Sooner, that studies have shown the happy retiree has an average of 3.6 core pursuits; or “hobbies on steroids” as he calls them. Having a strong WHY to retire, along with a plan of the who/what/where/when, is what will keep us motivated through the trying times of this path.

Many people lose their sense of purpose when they enter retirement. This is mainly due to lack of a plan on how to actually spend their time. You can reach FIRE and find work that gives you purpose. You can reach FIRE and find hobbies that give you purpose. What’s ill-advised would be to reach this massive goal with no idea how to spend all this found time. Don’t be a Wi-FI 😂, come up with a plan that will maximize your health and happiness.

If you happen to be working in a position you love for a company that matches your ideals and have no intention to retire early, awesome! You are on the right track, keep that passion going! Still, there will unfortunately come a day for all of us where we can’t rely on our physical and/or mental faculties to keep producing an income. Whether it’s at 65 or 95, the working world will eventually pass us by. Early retirement may not be for everyone, but the goal of financial independence is. Plan your timeline according to your core values and vision for the future.

Stay classy Solos! ✌️

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