What is FIRE?
FIRE (Financial Independence, Retire Early) is a movement focused on aggressive saving and investing to achieve financial freedom decades earlier than traditional retirement age. The goal is to accumulate enough wealth that the returns from your portfolio can cover your living expenses indefinitely.
FIRE isn't just about retiring early — it's about having the freedom to choose how you spend your time, whether that's traveling, pursuing passion projects, or simply not being dependent on a paycheck.
The FIRE Number
Your FIRE number is the amount you need invested to cover your expenses through passive income:
FIRE Number = Annual Expenses × 25
Based on the 4% rule
Example: If you spend $40,000/year, your FIRE number is $40,000 × 25 = $1,000,000.
The 4% Rule Explained
The 4% rule comes from the Trinity Study, which analyzed historical data to determine how much you can withdraw annually without running out of money.
- Withdraw 4% of your portfolio in year one
- Adjust withdrawals for inflation each year
- High probability (~95%) of lasting 30+ years
- Works for most historical 30-year periods
The 4% Rule Isn't Perfect
Types of FIRE
| Type | Description | Typical FIRE Number |
|---|---|---|
| Lean FIRE | Minimal expenses, frugal lifestyle | Less than 25× expenses |
| Traditional FIRE | Comfortable middle-class lifestyle | 25× annual expenses |
| Fat FIRE | Higher spending, more luxury | Often $2.5M+ |
| Barista FIRE | Part-time work covers some expenses | Lower than full FIRE |
| Coast FIRE | Stop saving, let compound growth do the work | Reach-now, retire-later |
Coast FIRE
Coast FIRE means you've saved enough that you no longer need to add to investments. Compound growth alone will get you to your target by traditional retirement age (65). You can work just enough to cover current expenses.
Barista FIRE
Named for retirees who work part-time at places like Starbucks for health insurance. Your investments cover half your expenses; part-time work covers the rest.
The Savings Rate
Your savings rate is the most important factor in how quickly you reach FIRE:
| Savings Rate | Years to FIRE* |
|---|---|
| 10% | 51 years |
| 25% | 32 years |
| 50% | 17 years |
| 65% | 10.5 years |
| 75% | 7 years |
| 80% | 5.5 years |
*Assuming 7% real returns, starting from $0
Increase Income AND Cut Expenses
Investment Strategy for FIRE
Common FIRE Investments
- Total stock market index funds (VTI, VTSAX)
- International stock funds (VXUS)
- Bond funds for stability (BND)
- Real estate / REITs
- Tax-advantaged accounts (401k, IRA, HSA)
Asset Allocation
FIRE investors typically hold 80-100% stocks during accumulation, then shift toward bonds as they approach or enter retirement.
Tax Optimization
Sequence of Returns Risk
The biggest threat to early retirees: bad market returns in the first few years of retirement can devastate a portfolio.
- A 30% drop in year 1 is worse than a 30% drop in year 20
- Mitigation: Keep 2-3 years expenses in cash or bonds
- Be flexible with spending in bad years
- Consider part-time work in early years as backup
Healthcare Before 65
Healthcare is the #1 concern for early retirees in the US:
- ACA marketplace plans (subsidies based on income)
- Part-time job with benefits (Barista FIRE)
- Health sharing ministries
- COBRA for 18 months after leaving job
- Spouse's employer plan
ACA Sweet Spot
Frequently Asked Questions
Q: What if I want to spend more later?
A: Your FIRE number should account for your expected future lifestyle. Fat FIRE builds in more buffer. You can also do part-time work for extras or if spending increases.
Q: What about Social Security?
A: It's a bonus! Most FIRE calculations don't include it. When SS kicks in (67+), it reduces the amount you need from your portfolio. Some FIRE plans count on it reducing the true FIRE number.
Q: Is 4% really safe for 50 years?
A: It's debated. Studies suggest 3.3-3.5% is safer for 50+ year retirements. Be flexible: cut spending in bad years, and you'll likely be fine even at 4%.
Q: Can I retire early with kids?
A: Yes, but factor in education, activities, and potentially larger housing. Some FIRE families focus on Coast FIRE until kids are older, then transition to full FIRE.
Q: What will I do with my time?
A: FIRE isn't about doing nothing. Most FIRE'd people pursue hobbies, travel, volunteer, start businesses, or work on passion projects. The freedom is the point, not the retirement.
Q: What if the market crashes right after I FIRE?
A: This is sequence risk. Mitigate with: 2-3 years cash buffer, flexible spending, and willingness to do some work in early retirement if needed.
Getting Started with FIRE
- Track your expenses — you need to know your annual spending
- Calculate your FIRE number (expenses × 25)
- Maximize savings rate (aim for 50%+)
- Invest in low-cost index funds
- Max out tax-advantaged accounts (401k, IRA, HSA)
- Reduce expenses where possible
- Increase income where possible
- Stay the course through market volatility
FIRE calculations are based on historical data and assumptions. Actual results depend on market performance, spending, and life circumstances. This is not financial advice. Consult a financial planner for personalized guidance.