What is the FIRE movement?

The Financial Independence Retire Early (FIRE) movement focuses on extreme saving and investing with a goal to retire much earlier than usual. Many followers of FIRE aim to reach financial security by their 40s or even 30s.

Extreme types of FIRE may not be achievable for everyone. But the underlying financial principles can help anyone learn how to save, invest and prepare for retirement at any age. Learn what the FIRE movement is, how it works, the different types of FIRE and its advantages and disadvantages.   

What is the FIRE movement?

The FIRE movement directly challenges the traditional path to retirement. Instead of working and saving moderately over a 40-year career, some individuals may save and invest up to 70% of their income as fast as possible to achieve a FIRE retirement.

The goal? To make working for money optional and gaining the freedom to live on their own terms — decades before they reach traditional retirement age. Millennials have largely driven the FIRE movement in recent years, motivated by the desire to escape a 9-to-5 for more enjoyable pursuits that may pay less (or not at all).

How does FIRE work?

Followers of the FIRE movement combine extreme saving and investing to grow their portfolio as quickly as possible. For many, FIRE involves saving 50-70% of their annual income to prepare for early retirement. They put savings into tax-advantaged accounts like 401(k) plans and Individual Retirement Accounts (IRA). As contribution limits hit, they fund regular brokerage accounts. Some may also incorporate extra income streams to fuel financial growth.

Many variations of FIRE have developed over the years. But the foundation is the same: to build financial wealth quickly and retire — early and in perpetuity. Followers of FIRE often consider the 4% Rule and the Rule of 25 when planning for early retirement.

What is the Rule of 25?   

The Rule of 25 is a formula that gives individuals their FIRE number. A FIRE number is an estimate of how much money a person will need to live a comfortable retirement. Individuals determine their FIRE number by multiplying their anticipated annual expenses by 25.

For example, if an individual needs $5,000/month in retirement, their annual expenses would be $60,000. Using the Rule of 25, an individual would need to achieve a FIRE number of at least $1.5 million (60,000 x 25) before retiring.

The Rule of 25 is designed to cover a 30-year retirement period and does not factor in inflation. Since it is a baseline, it’s a good idea to consider inflation and market volatility when determining a FIRE number.

The more an individual can reduce expenses and invest, the faster they may reach early retirement. In every case, planning for retirement is personal and the money needed to retire varies. Family expenses, debt, medical bills or other factors can also affect the age at which someone can retire.

Not sure how much you need to retire? Learn more about budgeting and retirement planning.

What is the 4% Rule?

The 4% Rule is an investment concept first developed by William Bengen in 1994. Followers of the FIRE movement have been known to follow this rule as part of their strategy. The concept states that retired individuals can withdraw 4% from their portfolio during the first year of retirement. For all subsequent years, they aim to withdraw a similar amount adjusted for inflation. In an ideal scenario, by following this guideline, a retiree will never run out of their savings.

Application for followers of the FIRE movement can get tricky. Like the Rule of 25, the 4% Rule follows a 30-year retirement period. But many followers of FIRE aim for a much longer length of retirement. For some, this means 50 years or more.

The 4% Rule is not a one-size-fits-all approach. Instead of asking, “How much will my retirement savings last?” it may be more practical to think about desired retirement lifestyle first. Then adjust goals based on financial individual needs in retirement instead of following a prescribed rule.

If you’re not sure how to plan for retirement, consider meeting with a financial professional. You'll receive recommendations specific to your individual situation and goals.

What are the different types of FIRE?

Some people assume the FIRE movement is only focused on extreme lifestyle restrictions and delayed gratification. This is certainly true for some people. But there are different types of FIRE, with varying degrees of intensity.

Lean FIRE

Lean FIRE describes individuals who plan to live highly frugal lives before and during retirement. They have a minimalist and anti-consumerist lifestyle. They generally restrict spending to necessities, even when retired. Followers of lean FIRE can often put aside less to retire, enough to cover basic expenses.

For example, an individual following lean FIRE may decide to save around $1 million. This provides an annual income of $40,000 in retirement (25x annual desired salary).

Fat FIRE

Fat FIRE is for individuals who wish to maintain their same high quality of life in retirement. It can also be the goal of individuals who want to remain comfortable despite market volatility. This variation requires that individuals accumulate wealth as fast as possible. Many fat FIRE individuals have higher salaries and invest aggressively.

For example, an individual following fat FIRE wants to maintain a $100,000 annual income in retirement. They may need to aim for a portfolio closer to $2.5 million before retiring (25x annual desired salary).

Barista FIRE

Barista FIRE refers to individuals who focus on saving enough to cover most expenses during their retirement. These individuals don’t necessarily have a desire to fully stop working. Instead, they often quit a career to focus on part-time work that is meaningful to them.

For example, an individual following barista FIRE wants at least $40,000 in annual retirement income. They may only consider saving $500,000 (12.5x annual desired salary). They can withdraw $20,000 from their savings and supplement the rest with part-time work.

Coast FIRE

Individuals who follow coast FIRE focus on the snowball effect with their investments. They aggressively save with the goal of letting compounding interest do most of the work. They may still retire in their 60s. But they seek to reach their desired FIRE number without having to contribute to retirement throughout their life. Their initial investments will grow on autopilot, so they can “coast” into retirement.

For example, an individual desiring a $40,000 annual retirement income will need to save at least $315,000 by age 35. If interest compounds at 4% over the next 30 years, it will result in over $1 million total savings by age 65.

What are some advantages of the FIRE movement?

The FIRE movement is desirable to many people for several reasons. FIRE is more than a fast-track to financial independence. It offers individuals the freedom to choose how they want to spend their time for most of their adult life.

Here are a few possible advantages of the FIRE movement:

Financial security  — Over 50% of Americans say that money affects their mental health, causing stress.¹ Working to build a substantial nest egg can allow individuals to achieve financial security and life free from financial worries.

More free time  — The FIRE movement allows individuals to enjoy activities and passions without the requirement of a 9-to-5 income. Individuals who devote time to more enjoyable pursuits — such as hobbies, family or travel — can feel a greater sense of fulfillment in life.

Better money habits  — The FIRE movement requires individuals to think critically about their spending and saving habits. It also encourages them to invest strategically, whether into IRAs, 401(k) plans or a brokerage account (generally, a combination of all).

It’s important for individuals considering the FIRE movement to think about their goals for retiring early, including finding purpose in retirement. A clear picture can help ensure they have a fulfilling and happy retirement, no matter how many years it lasts.

What are some limitations of the FIRE movement?

Early retirement sounds ideal, but it does come with a few drawbacks. Achieving enough financial independence to retire early doesn’t happen overnight. It requires an extreme level of discipline and risk-taking that some people may not be able to tolerate.

Some additional limitations of the FIRE movement include:

Income level — FIRE may not be realistic for individuals who are living paycheck to paycheck or working a minimum wage job. Individuals need to be able to aggressively save a large amount while still having enough left to cover basic expenses.

Health insurance coverage  — Eligibility for Medicare does not begin until age 65. Individuals planning to retire before then will need to get private health insurance, which can be costly. This cost can end up increasing an individual’s withdrawal rate.

Market volatility — Invested money is vulnerable to market volatility, including recessions and inflation. An individual’s investments are always at risk of not performing well.

Longevity — Individuals run the risk of outliving their retirement savings. A 50-year retirement could come with any number of life situations, potentially depleting savings faster than expected.

No one is immune to risks during retirement. But those who retire years or decades before their 60s may face greater challenges. It’s important to understand the biggest risks in retirement as you develop and review your retirement strategy, regardless of when you plan to retire.

FIRE is not for everyone

The FIRE movement certainly has its appeal. But it may not be achievable or even desirable for certain people. Some may not have the financial capability to save to such extremes. Others may find fulfillment in a decades-long career and wish to retire later. Overall, FIRE helps establish a disciplined approach to personal finances. Adopting the principles of thoughtful spending, efficient budgeting and investing has many benefits.

Planning for retirement will look different for everyone. It's important that you know your financial goals and desired lifestyle for retirement. As you consider your future, it’s also a good idea to begin estate planning, including selecting your beneficiaries and creating a will.

Another important consideration of retirement planning is life insurance. In case of the unexpected, you want to be sure your loved ones are cared for financially. Options like term life insurance can provide a simple and cost-effective way to ensure your family has the financial stability they need — when they need it most. That could mean replacing your income, helping with education and student loans or even paying off a mortgage. Whatever the circumstances, term life insurance is there to help protect what matters most to you.

Get a free term life insurance quote from Protective.

Key takeaways

The FIRE movement requires extreme saving and investing to build wealth and achieve financial stability years or decades before traditional retirement age.

Followers of FIRE generally use the Rule of 25 to find their FIRE number and follow the 4% Rule to plan for early retirement.

The FIRE movement has several types — lean, fat, barista and coast — with different approaches to retirement planning, depending on an individual’s goals and preferences.

The FIRE movement has both advantages and limitations and may not be achievable or desirable for everyone.