A few years ago, SMI wrote about FIRE, a growing movement among younger workers committed to living frugally while saving and investing a large percentage of their income. Their goal: Financial Independence, Retire Early.
The movement was spurred on by online writers such as “The Mad Fientist” and “Mr. Money Mustache” (a pseudonym for blogger Peter Adeney, an early FIRE adherent who retired at age 30).
Today, the FIRE movement remains robust, but it has evolved into multiple manifestations, including “Lean FIRE,” “Coast FIRE,” and even “Barista FIRE.” Each approach seeks financial independence, but with different lifestyle goals in mind.
Although FIRE strategies — and individual motivations — may differ, devotees share this in common: They stay laser-focused on living well below their means so they can save and invest as much as possible. FIRE isn’t intrinsically “anti-work,” and the end goal isn’t necessarily to get rich. Instead, FIRE adherents want greater personal freedom over when to work, where to work, and what kind of overall lifestyle to pursue.
Defying convention
The conventional approach to retirement savings calls for investing 12%-15% of one’s current income. Followers of FIRE strategies consider that too little. In some cases, they increase their retirement savings to as much as half of their pay. They not only max out workplace retirement accounts, but they build savings accounts to robust levels and invest heavily (typically using low-cost, tax-efficient index funds and ETFs) in non-retirement accounts.
As you might imagine, dedicating such a large share of income to saving and investing requires a radical reduction in living expenses. Common FIRE approaches to cutting expenses include living in modest housing (perhaps a fixer-upper or small apartment), rarely eating out, minimizing debt, and owning only one car (thereby cutting insurance and maintenance costs).
Nest eggs and lifestyles
In FIRE circles, “financial independence” is commonly defined as amassing a nest egg equal to 25 times first-year retirement expenses. For example, a FIRE follower with a retirement goal of a $60,000-a-year lifestyle (i.e., $5,000 per month in living expenses) would reach “FI” at $1.5 million ($60,000 x 25). Assuming a 4% annual withdrawal, adjusted for inflation, a nest egg that size would last for many years.
Obviously, any projection of future annual living expenses is subject to change, perhaps significantly, but for purposes of illustration, let’s assume a 25-year-old worker named Fred earns a tidy $100,000 a year. His frugal lifestyle allows him to save/invest 40% of that amount, or $40,000. At a 7% annual rate of return, Fred would reach a $1.5 million financial independence target in less than 20 years and could retire in his early 40s, well before typical retirement age.
Not all FIRE followers share the same retirement-lifestyle target. “Regular” FIRE adherents plan for a moderate-cost retirement lifestyle, not overly frugal but also not excessive. In contrast, devotees of “Lean FIRE” seek a minimalist retirement, characterized by living in a lower-cost area, avoiding unnecessary expenses, and paying lower taxes. At the other end of the lifestyle spectrum is “Fat FIRE,” an approach for high-income earners who, after years of scrimping and saving despite earning a good income, plan to spend freely in retirement.
Obviously, regular (moderate) FIRE, Lean FIRE, and Fat FIRE are all variations on the same idea, each setting a nest egg target based on a preferred “flavor” of retirement, whether it’s moderate, frugal, or free-spending.
The number of years required to reach a particular nest egg target depends heavily on the person’s savings rate (somewhat controllable) and investment performance (uncontrollable). In other words, FIRE may be a useful planning tool, but you can’t project the timeline and outcome with precision.
Financial downsides
Although retiring significantly early may seem attractive, leaving the paid workforce, even with plenty of money stashed away, creates its own set of financial challenges. For people who’ve had employer-provided health insurance, early retirement means losing that insurance well before reaching age 65, the minimum age to qualify for Medicare. An early retiree could face sizable health premiums for many years before being able to enroll in Medicare. (One option for covering the “gap” years is to join a Christian-based Health Care Sharing Ministry.)
Retiring early could also negatively affect future Social Security benefits. Because benefits are based on 35 years of inflation-indexed earnings, cutting a career short can hurt because several of those 35 years are likely to show zero income. Also, a shorter earnings record means that low-income years will have a larger impact on the benefit calculation.
More variations of FIRE
COVID-era inflation was a rude awakening to some FIRE followers, calling future cost-of-living projections into question and sharply underlining how rising costs undermine purchasing power. In the wake of that inflation surge, two more variations of FIRE have gained popularity. Both de-emphasize early retirement and focus instead on “financial flexibility.”
Like other FIRE followers, adherents of “Barista FIRE” seek to amass a nest egg, but not necessarily one large enough to enable full retirement. Instead, Barista FIRE followers want enough set aside to leave the full-time workforce early and work only part-time, perhaps doing freelance or “gig” work. (As with other FIRE approaches, however, leaving full-time work likely would require forfeiting workplace health insurance.)
Meanwhile, devotees of “Coast FIRE” seek to maximize the benefits of investment compounding. This strategy emphasizes fully funding workplace accounts and personal IRAs, while also investing heavily in non-retirement accounts, as early as possible in one’s career.
Eventually, the growth of their holdings will be sufficient to cover projected retirement costs, allowing them to stop making further contributions and to “coast” — perhaps for two or more decades — to normal retirement age. (A Coast FIRE investor with a workplace retirement plan that offers matching investments should probably continue contributing enough to receive a full employer match.)
Get FIRE’d up?
The prospect of leaving the paid workforce (or perhaps cutting back to part-time) and living on one’s savings and investments may be enticing, but as with any significant lifestyle change, unintended consequences are likely.
Several years ago, the Mad Fientist, who retired last year at age 33, wrote about his first year of retirement. “This is a great position to be in, but losing your main source of motivation” — i.e., his focus on wealth-building for early retirement — “is incredibly disorienting,” he wrote. “I’ve had to reevaluate my entire life and all my plans.”
If you’re considering a FIRE strategy — or perhaps have more modest plans to retire early — check your motivation. Is your goal simply to enjoy a lot of leisure or to “retire to” something that’s helpful to others and productive for the Kingdom of God? Here are more questions to weigh:
If you’re married, are you and your spouse aligned on pursuing FIRE?
If you have children, is it realistic to cut your living expenses enough to save and invest aggressively?
Where does generosity fit in? Can you live on a smaller share of your income, significantly increase your retirement savings, and still give generously?
Prayerful consideration of these questions will help you determine whether “Financial Independence, Retire Early” — or some variation of it — is right for you.
