FIRE, or Financial Independence Retire Early, is for those who don’t believe they will be employable for a full 45+ years or they won’t want to be. And to be honest, the most important part is the “FI”. Financial Independence is empowering, no matter what age, lifestyle, or income. JL Collins describes it as “F*!# You” money on his blog. And you don’t even have to be full FI to see the benefits. Your ability to say yes or no won’t come from a position of fear of losing your job or missing the next promotion, but one of “I don’t need you like all your other employees do”. And in a twist of fate, that will likely give you more options than them.
I won’t belabor the “How” as many have already covered this topic. Search “Trinity Study” and “3.5 to 4% Safe Withdrawal Rate” for more. Let’s focus on the “What” and “Why”.
None of these terms or definitions are my own, merely boiling down some of the FIRE acronyms for simple understanding…
FIRE
FI or Financial Independence: Have enough money invested where your passive income (no work other than occasionally re-balancing or meeting with advisors/agents) can completely cover your current and future lifestyle. Often earned through giving your all at a 40-60-80+ hr/week job for 10-15 years until you completely reach your financial goals, then working, or not, on your own terms. For many, this is $40-60k/yr of indefinite income from $1-1.5 million in investments.
Note: Owning rental property can lead to FI, but for many landlords, it’s a very active endeavor managing tenants and repairing/maintaining the property. So although you have the money/income, you technically aren’t FI because if you stop working, so will your income. Transferring the operation of your business, rental homes or otherwise, to managers and becoming an absentee owner may be all that is required, given you have enough business income to offset their fees and still afford your lifestyle.
RE or Retire Early: I mentioned earlier that Financial Independence is the most important goal. If you want, you can keep working, or find another gig with less hours or more meaningful work, or you can quit working altogether. The choice is yours. But don’t excuse not saving and investing because you cannot see yourself quit working before 65 years old.
PROS:
- Enjoy full retirement and FI earlier than any almost anyone else and for 50+ years
- Once you’re done working, you are done! No more levels of bosses, pointless meetings, endless policies and procedures, poor health and wellness, etc
CONS:
- 10-15 years of work that will almost certainly burn you out
- You may have to move from the HCoL area when you have earned FIRE, away from your existing social circles and old haunts
- You missed out on enjoying your 20’s and some of your 30’s
Lean FIRE
You will be eating lean and living simple with Lean Fire. For many, this is about ~$750k of investable assets generating $30k or so per year. The dollar amount varies, but most in this camp expect to need between $2k to $3k/mo to maintain a low cost of living indefinitely.
PROS:
- Reach FIRE earlier, because you have to save less
- Enjoy your 30’s, and maybe even some of your 20’s
- You’re going to move to a low cost of living area, maybe even internationally, so why would you slave away for more years than absolutely required?
CONS:
- Stuck with a lower middle class income for the rest of your life, regardless of future goals or surprise medical expenses
- No fudge factor
- Have to re-enter the workforce when you are much older and your skills are rusty if you eventually want a better lifestyle (see Barista FIRE)
Fat FIRE
You’ll have enough to live fairly well in a high cost of living area (HCoL) like New York City or SoCal, or live like royalty in a low cost of living area (LCoL). Many need $100k/yr and $2.5 million invested at a minimum to live like this indefinitely.
PROS:
- You will live like a king or queen enjoying a luxury vacation all day everyday, as long as it isn’t ridiculous
- Your social circle, family, and favorite places are all in expensive areas
- Leave a large inheritance to your adult children and even grandchildren
CONS:
- Your working career will likely span 15-20+ years in a high-stress, but high-paying job
- What if you only want to live with excess for a few years, then you delight in simpler things? You would have worked for 5-10 years longer than you needed to, maybe even missing out on your 40’s.
Barista FIRE
Similar to Lean FIRE, where you NEED to draw from your investments when you leave full-time work, but also MUST immediately pick up a part-time, lower-paying job or gig for additional income to offset a better lifestyle and perhaps provide some benefits/discounts. You could have reached Lean FIRE with your investments and the additional income takes you to full FIRE, or require the additional job to reach even Lean FIRE.
PROS:
- Reach almost-FIRE fairly quickly, as you might only need $500k saved and invested
- Barista-type jobs can be in pleasant places all over the world, where you might want to retire and plug into a local community anyways
CONS:
- The grass isn’t always greener: You’re probably glorifying a low-paying job from the cubicle or corner office of your high-paying job. Similar-enough boss, a schedule to follow, lower pay and you are burning your hands in hot water while washing dishes and dealing with impossible customers.
- What if you don’t want to work anymore, or can’t, or have surprise medical bills with no insurance?
Coast FIRE
With Barista FIRE, you’re “retired” but you MUST work?! With Coast Fire, cut back how much you save while keeping the same or similar job, or something completely different that still pays the bills. But you don’t have to save anymore nor will you withdraw from your investments until much later in life. You’re working to pay for your current lifestyle, letting your nest egg compound in the background. At Coast FIRE, you’ve saved enough in your nest egg, if left to compound until you reach your desired retirement age, you will have enough money to fully retire without contributing a single cent more (if your calculations are correct). And you’ll have a better lifestyle for the second half of your working career since you are saving less, or nothing, for retirement once you reach your Coast FIRE number.
PROS:
- Better lifestyle in your 30’s, if you saved up enough in your 20’s to start coasting
- Many people prefer to stay employed, but in a less stressful and/or only 40 hours per week job (or less). Provides health insurance, travel perks, sense of purpose, decent lifestyle, etc.
CONS:
- Be cautious of completely stopping all saving for retirement before reaching FIRE. Continue to contribute up to your employer match or maxing an IRA each year, at a minimum. When your coasting period is 15-20 years or less, there is a statistical 10-30% chance the 7-8% returns after inflation may not happen. The safer bet: decrease your savings rate from 50%+ down to 15%, so you can still inflate your lifestyle considerably while also building a safety net.
The advantage of Coast FI is access to more money, time, and a better Quality of Life at an earlier age. The tradeoff of Coast FI is a smaller retirement nest egg or retirement at a later age.
Flamingo FIRE
We recently discovered this term by an Aussie blog based on the same name, and we really like it. In fact, it is a really good way to view our own plan! In a nutshell, use your after-inflation return and calculate how many years for your portfolio to double. If it’s the historical stock market return of 7%, then your portfolio will likely double in 10 years. When your investment portfolio is 50% of your FIRE number, Coast FIRE for that many more years while your portfolio doubles in the background. And then do whatever you want! Like Coast FIRE, Flamingo FIRE lets you sample semi-retirement, easier work, or however you want to cover your current living expenses. Since many don’t/can’t quit all work cold turkey, and will likely get bored and pick up a income-producing hobby at some point, it’s a good way to step down your work.
PROS:
- See Coast FIRE pros, but likely fewer years of working/Coasting
CONS:
- Not many, but see the Coast FIRE cons
MISC
- BalloonFI – Inflate your lifestyle (balloon) to match your safe withdrawal rate
- LifestyleFI – Adjust your lifestyle to your net worth
Our Plan
Short Story: A mix between FIRE, Coast FIRE, Flamingo FIRE, and Fat FIRE.
Long Story: Between the Great Recession and taking a long time to discover a career then building skills and experience to earn >$40k/yr, earning a college degree while working 2 jobs and 70+ hours per week, plus several children who will graduate high school before we could reach full FI… We have decided to pursue FIRE as best as we can, then probably a Coasting Fat FIRE depending on how things go. For us, the current goal is saving $50k/yr and investing it mostly in a Total Stock Market index fund.
Because no one knows the future or what the job market will be in 15, 10, or even 5 years, we want to reach Lean FIRE and then full FIRE as soon as possible (~40-43 yrs old). But we also want to travel and spend time with our kids before they leave the house; so we are doing those things on a budget focusing on experiences rather than luxury vacations. Think road trips and staying with family near natural beauty.
Once we reach FIRE, likely after our oldest two kids leave the house, we will work fewer hours (just 40 hrs a week sound nice) and either continue to save 50% of our income to reach true Fat FIRE by age 50 or drop our savings rate to 10-20% and increase our travel budget. …and retire when we want to. Either way, our goal is to enjoy FI with our older teen/young adult children, and hopefully eventual grandchildren.