What Is the FIRE Movement?: How It Works + How To Do It

Most people think of retirement as being something that happens in our 60s. After all, 67 is when most of us will be able to collect our full Social Security retirement benefits. That means spending an average of between 18 and 23 years in retirement.

But that doesn’t have to be the case. The FIRE movement is based on the premise that it’s possible to retire in your 30s, 40s, or 50s with careful financial planning and aggressive saving. It acknowledges that retirement isn’t an age, but a number in your bank account.

If you’ve ever dreamed of leaving the workforce early, whether to travel the world, take on volunteer opportunities, or simply spend more time with your family, then FIRE might be for you. Here’s everything you need to know about the FIRE movement and whether it’s right for you.

Key takeaways

• FIRE is a financial movement that allows you to leave the workforce early, but it requires a frugal lifestyle and aggressive savings and investment strategies.
• The FIRE movement may be right for someone who wants to retire early or someone who simply wants the security and peace of mind that come with financial independence.
• Many people seeking FIRE save between 50% and 70% of their income, but the right savings rate for you depends on your income and retirement goals.
• To reach FIRE, start by calculating your FIRE number, building your financial safety net, and looking for ways to decrease your spending or increase your income.

What is the FIRE movement?

FIRE is an acronym that stands for “financial independence, retire early.” People who are a part of the movement take extreme measures to make sure they can retire as early as their 30s or 40s. This is achieved through a combination of boosting income and cutting costs.

The concept of FIRE was introduced in 1992 with the release of the book “Your Money Or Your Life” by Joe Dominguez and Vicki Robin. However, it became more popular later on when personal finance bloggers began publicly sharing their FIRE journeys.

The aggressive savings tactics of the FIRE method have downsides that may not appeal to everyone. Some would rather strike a balance between spending on the things they enjoy and building wealth for the future. Others simply don’t want to retire early since they enjoy their work and already have a lot of control over their schedule.

Still, it’s worth learning about the FIRE movement, even if you pick and choose the pieces that are relevant to your financial situation and goals or take another path entirely.

What is the primary goal?

For most people, the goal of FIRE is to leave the workforce or become work optional earlier than they might otherwise be able to. While many people think of their 60s as the traditional retirement age, those seeking FIRE want to speed that timeline up.

Not everyone wants to reach FIRE to leave the workforce. Some people’s goal is to have a large enough nest egg that they can work on passion projects — even if they don’t pay as much — rather than having a traditional career their entire lives.

And even for those who have no plans to leave the workforce, FIRE can provide peace of mind. If you have millions of dollars invested, you know you’ll be able to weather just about any financial storm that life might throw at you.

How FIRE works

The entire premise of FIRE is to save and invest enough money early on to leave the workforce (or have the option to do so) early. Figuring out how much you need to save for retirement, whether you’re seeking FIRE or not, can be a challenge.

Additionally, most people can’t actually save enough money to reach FIRE. If you’re just depositing money into your savings account, you’ll likely never reach the millions of dollars you might need to reach FIRE. That’s where investing comes in.

There are a few basic principles that FIRE relies on, both in helping your money to grow, in helping you figure out how much you need to save, and in helping you figure out how much you can safely spend from your nest egg each year to make sure you don’t run out of money.

The rule of 25

The rule of 25 is a good guideline you can use to figure out how much you’ll need to have saved to retire comfortably. It states that you should have 25 times your annual expenses saved before you retire.

So, if you decide that you want $40,000 to live off every year, you'll need to have $1,000,000 saved up in investments (25 x 40,000 = 1,000,000).

Keep in mind that it’s 25 times your annual expenses during retirement, not your expenses now. Some people end up spending less money during retirement, while others plan to spend more. For example, if you want to reach FIRE so you can travel the world, you’ll probably need to budget more per year than you spend today.

Compound growth

As we mentioned, most people can’t save their way to financial independence. That’s where investing and compound growth come in. The principle of compounding means that each year, you’ll earn money both on your original investment and on your previous earnings.

For example, let’s say you invest $10,000 in your brokerage account. With a 10% return, you’d earn $1,000 throughout the year. The following year, you aren’t just getting a return on your original $10,000 investment — you’re getting a return on the full $11,000 in your account. As a result, you can expect your returns to be a bit higher than the previous year.

The principle of compounding is why it’s so important to start investing early, regardless of whether you’re trying for FIRE.

The 4% rule

Based on historical data, experts estimate that you can safely withdraw 4% from your investment portfolio during your first year of retirement, adjusting the number for inflation each year after.

This withdrawal rate ensures that you have enough money to live on while also keeping enough of your invested money to last you through retirement.

Let’s say you have an investment portfolio of $1,000,000. That means you can comfortably withdraw up to 4% per year, adjusted for inflation, to maintain your savings over the long term. The table below shows how much you can withdraw each year based on the initial 4% withdrawal rate and hypothetical inflation rates.

Year	Inflation Rate	Withdrawal Amount
Year 1	N/A	$40,000
Year 2	2%	$40,800
Year 2	3%	$42,024
Year 3	1.5%	$42,654.36
Year 4	2.5%	$43,730.72
Year 5	4%	$45,469.55

Different types of FIRE movements

Not everyone reaching toward has the same goal or motive. There are a few different types of FIRE that describe the intensity with which someone is reaching toward FIRE or what they envision their retirement looking like:

• Lean FIRE: Lean FIRE is a way to retire early on a minimalist budget by spending less on living expenses than the average household. While there’s no set definition, some consider lean FIRE to be planned spending of $50,000 or less during retirement.
• Fat FIRE: Fat FIRE is the opposite of lean FIRE — it describes early retirement with high annual spending. Someone who achieves fat FIRE likely has millions of dollars in their portfolio and spends six figures per year.
• Barista FIRE: Barista FIRE is a bit of a hybrid type of FIRE. It generally involves someone continuing to work part-time once they achieve financial independence, which allows them to cover their living expenses and avoid eating into their savings.
• Coast FIRE: Coast FIRE is a term that describes someone who has enough money in savings to retire at their desired time without having to invest any more money. In other words, they’re just coasting until their investments have time to compound enough for them to retire.

Who is the FIRE movement good for?

There are some specific situations where it might be the right choice:

You want to retire early

The FIRE movement is probably for you if you want to leave the workforce or become work optional early. Many people think of the retirement age as 65, but that doesn’t have to be the case for everyone. If you want to retire in your 40s or 50s — or even as early as your 30s — FIRE could be a good framework to help you get there.

You can easily cut back your spending

The FIRE movement is a good fit for someone who can live happily on a limited budget for an extended period of time. Since saving for FIRE is an aggressive project, you may need to practice some extreme frugality. That could mean completely cutting things like shopping for fun, dining out, and entertainment. Many people working toward FIRE save more than half of their income.

Our own FinanceBuzz survey revealed that about 36% of respondents would be willing to go two years without buying something new, and 32% of respondents would be willing to get a second or third job if it meant early retirement was in their future.

You want financial security

FIRE isn’t necessarily about leaving the workforce for everyone. Some people are reaching for FIRE because they want the financial security that comes with it.

For most of us, if we lost our jobs tomorrow — or decided we didn’t want to stay in our current jobs — we’d have to hustle pretty hard to find a new one as quickly as possible. But if you’ve reached FIRE, financial setbacks like job loss aren’t as big of a deal. You know you have a nest egg to last as long as you want.

Many people also like the idea of having “F-You Money.” In other words, they want enough money set aside so that they can easily leave their current situation — whether it’s a job, a business, a marriage, or something else — without financial stress.

Who FIRE isn’t right for

Of course, FIRE isn’t right for everyone. Many people can admit that something about their lifestyle just doesn’t mesh well with the FIRE movement. Here are a few examples:

• You have high annual spending: Some people can’t cut their budgets back enough to make FIRE work. As a parent with a mortgage and kids in daycare, it would be impossible for me to save the majority of my income — and I’m sure other parents can relate! That’s okay because I have other financial priorities right now.
• You have a low income: Unfortunately, FIRE is often only achievable for those with generous incomes. Sure, most people could find places to cut back their budgets. But if you’re living on a low income, even if it’s not minimum wage, then you almost certainly can’t cut back enough to save the majority of your income.
• You want to live it up today: Not everyone wants to wait until retirement to spend their money. If you enjoy spending your hard-earned money on travel, personal care, or other expenses, then you might be perfectly fine spending longer in the workforce.
• You want to work until your 60s: While early retirement is a goal for some people, plenty of others envision themselves working until they’re older. If you have a career you really love, you might see no reason to leave the workforce decades ahead of schedule.

FIRE movement risks

FIRE has some clear benefits, including financial stability and the option to leave the workforce early. However, there are also some key risks to consider:

• Investment risk: The biggest risk you might face when achieving FIRE is the risk of not having enough money. Your investments may not perform as well as you expect, either while you’re still working or during retirement. That could mean not actually having enough to make it on your savings alone.
• Inflation risk: Your investments underperforming aren’t the only reason you could run out of money. If inflation is too high, especially early in your retirement, it could lead to you running out of money earlier than you expected.
• Insurance risk: FIRE comes with several possible insurance risks. First, you will lose your employer-sponsored health insurance and won’t be eligible for Medicare yet, so you could end up paying a lot for insurance. Additionally, if you’re underinsured in other areas, you could end up blowing through a large chunk of your money that you didn’t expect to.
• Mental health risks: The risks to your mental health that can come with FIRE are definitely undersold. Living on such a small budget can easily lead to burnout. And you could even experience feelings of isolation if you feel like everyone else has shared experiences that you can’t enjoy because of your budget.

How to get started with FIRE

If reading all this has you excited about the possibility of early retirement and you’re ready to jump on board the FIRE movement, here’s a step-by-step guide to help you get there:

1. Find your FIRE number

It’s often easier to reach a goal if you know exactly what that goal is. Use the rule of 25 to estimate how much you’ll need to save to reach FIRE. Of course, this number could change over time. But having a specific goal in mind can help you determine how much you want to invest and help you recognize when you’ve met your goal.

2. Build an emergency fund

With an emergency fund in place, a single financial emergency, whether it be a job loss, major medical bills, or something else, could completely wipe out your progress. This emergency fund will be equally important once you reach FIRE, helping you avoid tapping into your investments earlier than you planned.

While there’s no perfect amount to have in your emergency fund, experts generally recommend between three and six months of expenses.

3. Pay off any debt

Student loan debt, credit card debt, and personal debt are all major roadblocks to early retirement. If you want any hope of retiring early, it’s essential that you pay off all your debt. Not only does debt increase your monthly overhead, but you may be wasting money by paying a high interest rate on that debt.

You may need to consolidate or refinance your debt in order to lower your interest rate and pay off your debt. You could also use a strategy like the debt avalanche method to pay down your debt faster.

4. Cut your expenses

If you plan to retire early, you’ll need to do more than just cord-cutting or couponing, though those can be great places to start. You may need to do things like:

• Avoid a car payment
• Move somewhere with a lower cost of living
• Move somewhere that will pay you to live there
• Live in a smaller space or with roommates
• Prepare most of your meals at home
• Reduce discretionary spending, including travel and entertainment
• Buy second-hand items when possible

If some of these seem extreme, it’s because reaching FIRE often takes drastic measures. FIRE movement followers typically aim to set aside 50% to 75% of their earnings toward savings. If you’re used to living on most or all of your current salary, reaching FIRE will take some major lifestyle changes.

5. Increase your income

You can only cut so much from your budget. The best way to save enough to reach FIRE is to increase your income. You may need to think beyond just asking for a raise to switching to a higher-paying field, picking up a second job, or finding ways to earn passive income.

Here are some other ways you can increase your income:

• Rent out your spare room (or couch)
• Rent out your car
• Sell your old stuff
• Drive for a delivery service or rideshare service
• Monetize your online presence
• Sell your skills by teaching online courses
• Offer freelance services
• Become a reseller
• Start a small business venture

6. Prioritize saving and investing

Prioritizing saving means that any extra cash immediately gets put aside in a savings or investment account. There are plenty of investment options to consider, including:

• Investing in real estate or rental properties
• Investing in the stock market
• Becoming a peer-to-peer lender
• Buying parking spots or storage facilities to rent
• Purchasing bonds

If you're new to the stock market, consider investing in something straightforward like index funds. In fact, plenty of leaders of the FIRE movement, including J.L. Collins, the author of The Simple Path to Wealth, recommend investing solely in diversified index funds.

A retirement account is a great place to start, thanks to its tax advantages. Accounts like 401(k)s and IRAs offer tax-free growth and either tax-free contributions or tax-free withdrawals.

However, you may need more than just tax-advantaged accounts since they often penalize you for taking out money before you reach age 59 ½. In that case, you’ll likely want a bridge account in the form of a taxable retirement account, which you can access no matter when you retire, whether it’s in your 30s or 60s.

If you’re looking for a good place to start, you can try one of our favorite online brokerage accounts or the top investment apps, which can help you get into investing without a lot of money.

8. Decide on your next steps

Once you reach FIRE, you have the option to either keep working in your current field, switch to a more laid-back or less time-intensive job or leave the workforce altogether. You don’t have to take any immediate steps once you’ve reached your FIRE number, though many people are likely eager to start their retirements — after all, that was the goal of FIRE!

But you’ll still have plenty of things to keep in mind once you reach FIRE:

• How you’ll spend your time: Retiring early can free up a lot of time in your life, but you’ll probably get bored quickly hanging out at home every day. Make a plan for how you’ll spend your time that includes personal fulfillment and opportunities for socializing. Maybe you’ll get a part-time job, join local organizations, travel the world, or spend your time volunteering.
• Finding health insurance: Most people in the U.S. get their health insurance from employers. Once you leave the workforce, you’ll have to find another solution. Many people purchase plans under the public marketplace through the Affordable Care Act, but you have other private options as well.
• Protecting your savings: One of the most important considerations once you reach FIRE is how you’ll protect your savings. This is more complicated than you might think. You’ll have to consider what to invest your money in during retirement, the best accounts to hold your money, your distribution schedule, and more. It may be worth enlisting the help of a financial advisor, at least to help you craft your initial strategy.

FAQs

Bottom line

The FIRE movement helps people leave the workforce decades before they might otherwise be able to, but it takes some serious sacrifices, including living a frugal lifestyle and taking on additional work to increase your income.

Even if you find the FIRE movement too extreme, there’s plenty you can learn about retirement planning from its devotees. After all, the basic principles of spending less and saving more are beneficial no matter when you plan to retire.

Every little bit of extra money you’re able to save for retirement counts, and it will help you live life on your own terms when you retire.