You may have heard the term “FIRE” when referencing retirement on social media and been confused, so today I’ll answer a question many people have been asking about in our mailbag, and that is what is financial independence, retire early – or FIRE – all about?
What Is F.I.R.E.?
FIRE is an acronym for financial independence, retire early, which is a way of life started in 1992 by a book called “Your Money or Your Life.”
The movement dictates spending habits towards frugality and investment. It allows followers of this movement to enjoy an earlier retirement that a more traditional way of budgeting and saving for retirement would encompass.
One of the principles of FIRE is that it’s encouraged to save up to 70% of your annual income and live off of tiny withdrawals of any accumulated cash.
How Does FIRE Encourage You to Handle Your Finances?
By allocating up to 70% of your income generated to a savings program, the people who religiously follow the FIRE movement have the potential to leave their jobs and live off of tiny withdrawals from their investment portfolios many years, or even decades, prior to the normal retirement age.
I’m going to be very BOLD here and say that this plan has its flaws, and for this reason, I’m not a subscriber to the FIRE investing plan. Flaws range from having to live many years with a lower quality of life all the way to being unable to take risks with your money and do things like start a business, see the world and treat yourself to a fancy dinner.
I’ll take it a step further, as my Father passed away just years into his retirement so this is close to home.
Retirement is not promised to anyone. Tomorrow is not promised to anyone.
For this reason, I choose to live the way I want, on my terms, for today, and I save very ample amounts of money each month and normally max out my SEP IRA and even contribute to a Roth IRA via a backdoor method.
However, as a financial blog focusing on early retirement, I had to weigh in on this subject.
Note: I’m not a financial advisor.
Note 2: I’m not a Doctor. You may live until 100.
The best-selling book was penned by Vicki Robin and Joe Dominguez and the FIRE movement was all about keeping expenses in check while saving hours of your life to live them however you choose. In the book, expenses are pitted against time spent generating income in order to achieve the purchase.
Once retirement is achieved at a much younger age, the FIRE participant will live off of tiny withdrawals from the accumulated savings. This number hovers around 3-4% yearly. At this point in life, monitoring expenses becomes very important and requires a lot of diligent planning and a mindful eye looking over the investment portfolio.
Different Views and Variations of FIRE
Over time, the FIRE movement has taken on many different modifications that have become popular:
- Fat FIRE: this lifestyle carries more of a traditional life but contributes more to savings than the average investor.
- Lean FIRE: this view carries a minimalistic lifestyle and focuses on extreme savings.
- Barista FIRE: describes followers of traditional FIRE with the exception that they have part-time employment to help assist with current expenses their retirement may not fully cover.
- Coast FIRE: like the Barista FIRE life, this term describes people who decide to work part-time, but by definition, these people have the means to not have to, yet they choose to.