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What Is The Fire Movement?
Before starting my blog, I had no idea how many “normal” people retired early! I always thought you had to have an inheritance in order to retire earlier than 67 years old. Truth be told, I never even considered retiring early.
It’s true what they say, who you surround yourself with matters. If you want to be a successful entrepreneur- get to know more business minded folks. If you want to retire early, involve yourself in communities with others pursuing early retirement.
In today’s society, most people retire at age 65-67. The average life expectancy in the US is currently 78 years old. So, most people spend their lives working and have less than a decade to “be free.” This is where the Financial Independence Retire Early movement was born (FIRE). People are starting to realize that there’s more to life than working.
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The Origins Of The FIRE Movement
This movement is fairly new and it is becoming popular with millennials fed up with corporate America. It was inspired by the book Your Money or Your Life by Vicki Robin and Joe Dominguez which was published in 1992. “FIRE came to embody a core premise of the book: juxtaposing expenses and time spent at work against hours of your life. Every expense is compared to the time spent at work in order to earn the purchase.”
The original FIRE movement focuses on extreme frugality to the point where you’re sacrificing luxuries in the days before you reach your retirement. Over time, a few different avenues of early retirement came about and now there are five main types that people follow.
5 Types of FIRE
There are multiple paths those who want to retire early can take. The original method was “Regular FIRE” but since then, four more categories have developed.
Lean FIRE
If your annual expenses fall below $40,000 you will be able to hit FIRE earlier than you think. This type of FIRE is called Lean FIRE. Many who have paid off their house and all of their debt can reach Lean FIRE pretty quickly.
Regular FIRE
If you’re planning to spend $40,000-$100,000 per year in retirement then you will fall into this category of FIRE. This category is what started the movement and it is what most people fall into.
Fat FIRE
If you want to live luxuriously and not worry about any expenses when you retire then look into Fat FIRE. This is for those who plan to spend over $100,000 per year. This takes longer to achieve but it’s the safest financially.
Barista FIRE
If you’d like to work part-time or pursue a career you’re passionate about without worrying about finances then consider Barista FIRE. This is semi-early retirement. It means you switch from the common 40-hour work-week or perhaps you change careers into something that pays less but you enjoy more.
Many choose this option so they can hold onto health insurance and other benefits. Or they think they’ll get bored with complete retirement!
This level of FIRE can be reached quickly just like Lean FIRE.
Coast FIRE
This type of FIRE is a bit more confusing. With Coast FIRE, you are simply waiting for enough time to pass that your retirement grows naturally. During this period you continue to work but only need to earn enough to cover your annual expenses so you’re not dipping into your retirement.
This type is very similar to Barista FIRE but the main difference is that you’re withdrawing money from your retirement portfolio during Barista FIRE and you’re not touching it with Coast FIRE until you’re fully retired.
Keep in mind you can always do a combination of these types. I personally want to save as much money as possible so I can reach Fat FIRE but I probably will spend less than $40,000 per year. I’d like to leave the remaining money for my future children.
Resource: 6 Kinds Of FIRE
How To Calculate Your FIRE Number
In order to calculate your FIRE number, most followers of this movement base their calculations on the 4% rule. This states that “if you save 25 times your desired annual retirement salary, you can withdraw 4% of that amount each year and it will last 30 years.”
Example: Say you are pursuing regular FIRE and spend roughly $50,000/year. Using the 25x rule you will need to invest
25*$50,000= $1,250,000.
Your FIRE number would be $1,250,000. Once you reach this in your retirement portfolio, you will be able to retire!
You can double-check this by using the 4% rule. This rule states that you can withdraw 4% once you retire:
0.04*$1,250,000= $50,000
(If you’re wondering how this math works, remember that 4%= 4/100 which simplifies to 1/25. So essentially you’re saying 1/25 * 1,250,000= $50,000. Okay, I’ll get off the math tangent a bit. It took me a hot minute to realize why the two calculations were similar so I wanted to share with you in case you were scratching your head!)
Why Do People Retire Early?
There are a number of reasons people might want to retire early. Among those here are the most popular ones:
- You want to spend more time with your family
- You hate your job and want to pursue passion projects
- You want the freedom to travel more
- Corporate America takes a toll on your mental health
Issues I See With The FIRE Movement
Have you seen Mrs. Dow Jones viral video arguing against FIRE? The common thread I’ve seen from FIRE influencers is that they hate their jobs. They spend 10-15 years dragging themselves out of bed, hating everything about their work, and counting down the days until they can quit and retire. This can take an extreme toll on your mental health.
You shouldn’t live in anticipation of something that happens a decade from today. You should be enjoying what you do every day.
Many of these influencers suffer through their work days while also living in extreme frugality all so they can enjoy being free years from now. These miserable days will take a huge toll on their mental and physical health. Look at some of the diseases that you can get from stress.
You can’t just retire early because you hate your job and are miserable. I believe there’s something out there everyone can enjoy and earn money from. Whether you work as a big shot lawyer or for a local animal shelter, there’s a job out there for everyone.
I love the idea of financial independence, but I think it should be reached by enjoying your current life. Your early twenties aren’t meant to be thrown away. It’s ironic because the premise of FIRE is that you enjoy your life and not waste it on work. Many FIRE followers end up drowning in multiple streams of income in pursuit of FIRE though…
I grew up thinking your career has to be your passion. My family doesn’t think of their jobs as just ways to earn money. They think of them as ways to leave a legacy and change the world. They fought hard to find jobs that they love.
You need to find something you love to do so you “never have to work a day in your life.” This doesn’t necessarily mean you can’t retire early from it. But you have to retire because you are ready for retirement. You can’t just use it as an escape from your current life.
Some other items you need to consider if you’re thinking of retiring early:
- Be weary of getting financially obsessed- many FIRE followers start tracking their net worth every day and it can become too consuming.
- Health insurance costs- losing job benefits like health insurance can really eat into your retirement portfolio.
- Potential health issues- unfortunately you can’t anticipate future health issues and costs. You need to plan ahead for extreme cases.
- Stock market crash- what if the stock market is on a huge down turn?
- Withdrawal penalties- make sure you read up on how to withdraw money from your retirement portfolio if you plan to retire early!
Are you planning to retire early? If so, which FIRE category do you fall in?
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