Financial Independence Retire Early (FIRE)

Key Takeaways:

  • FIRE is short for “Financial Independence, Retire Early.”
  • The FIRE movement has four principles.
  • The movement believes the status quo retirement age of 65 is far too old.

How to Retire Early: FIRE Movement

Retiring doesn’t have to be done at 65. With hard work, dedication, smart investing, and a lot of self-control, retiring early can be an option for everyone.

If you listen to current personal finance podcasts or have read any of the latest financial books, you’ll know that the FIRE movement has taken many smart, hardworking millennials by storm. 

The FIRE (Financial Independence, Retire Early) movement is about about being focused on gaining financial independence through frugality, saving, and investing for the purpose of retiring early.

The FIRE movement has become a popular goal amid an overall rise in anti-consumerism and an unusually long bull market cycle for stocks. 

But what is the FIRE movement exactly? How does it work?

What is the FIRE Movement?

The FIRE movement is focused on doing everything possible to retire early. It’s not about getting rich enough to spend the rest of your life on a yacht in the Mediterranean.

The concept is about gaining the financial freedom to be able to afford to live without having to work.

It doesn’t mean that you won’t work. It simply means that you don’t have to work unless you want to. 

The idea is to move past the conventional thinking of having to work for money until you reach retirement at age 65. Proponents often feel that waiting this long to retire means you will have no energy to do the things that you love.

FIRE provides a goal of financial independence which allows you to create options for yourself and your family.

Once you have achieved financial independence you are free to pursue purpose and live out your dreams and values. 

How the FIRE Movement Works

The FIRE movement is possible if you can consistently save and invest as much of your income as possible until you have enough of a portfolio to cover your ongoing expenses.

To retire in your 30s or 40s you will generally need to save at least 50% of your current income. It is important to invest these funds diligently, so they continue to grow and provide earnings. 

You may be thinking the FIRE movement is not for me at this point, right? How is it even possible to save half your annual income?

Well, it is certainly not for everyone, and a high income makes it easier to follow the FIRE principles.

The ability to retire using the FIRE movement method will differ for everyone.

    FIRE Movement Method

  1. Save at least 50% of your income

    You will generally need to earn at least six figures. If your regular income is less than this, it is still possible to apply the FIRE method. However, it just may take longer to gain financial freedom. Look for ways to increase your income. Whether it’s by upskilling or taking on a second job, every little bit adds up. 

  2. Keep expenses low

    One of the FIRE movement’s key elements is keeping costs as low as possible for as long as possible. Don’t upgrade unless it is necessary. Make do with what you have for as long as you can.

  3. Be mindful of your spending

    So much of our spending is emotional. The FIRE movement focuses on knowing where you are spending your money and only spending it on things that matter.

    It’s not about never spending money. Rather, it is spending on things you value and knowing exactly where your money is going. 

  4. Prioritize saving and investing

    Saving your income and then looking for great investments is what the FIRE movement is all about. As the old saying, “there are many ways to skin a cat” implies, investment opportunities and choices will differ for everyone.

    Don’t get overwhelmed and start somewhere. Do your research and seek out experts. Diversify your investment portfolio so that you mitigate your risk. Start with some mutual funds or ETFs, or even a rental property. If you open your mind and research opportunities that are around you, something will stick.

How has the FIRE Movement Changed Views About Retirement?

This growing movement believes that the status quo retirement age of 65 is far too old.

By saving a large portion of your income, investing inexpensively, and living frugally, it’s possible to reduce this age substantially.

Subscribers to this lifestyle rarely believe in living a miserly, deprived existence just to save every penny.

Instead, they use careful planning and honest assessments of their finances to determine exactly how much they’ll need to save to maintain their lifestyle indefinitely during retirement.

You can learn more about saving and investing here.

What is the 4% Rule?

For years, financial experts and advisors have relied on the 4% rule, which states that the maximum annual withdrawal amount from a portfolio should equal no more than 4% of the total savings.

The thinking is that this would ensure that the funds would last in retirement.

Like many other cases of “traditional financial wisdom,” the 4% rule has come under increased scrutiny in recent years.

Does the 4% rule for retirement spending also apply if you’re striving towards the goal of the FIRE movement — Financial Independence, Retire Early?

So what are the drawbacks of this financial approach to retirement spending?

  • It’s incredibly conservative. Many would argue that it’s entirely too conservative and often leads to retirees having large sums left to pass on through inheritance or other means.
  • It doesn’t take fluctuating market conditions into account. The 4% rule is based on a relatively low rate of return on your savings and investments. It doesn’t consider the possibility that your gains will exceed this conservative estimate, and that you can safely spend more in this case.
  • It’s not dynamic or flexible enough. Just applying the 4% rule across your retirement portfolio fails to consider other income sources and the timing of when you’ll receive them. An example would be someone who retires at age 62 but doesn’t begin collecting Social Security until they’re 70 years old. In their case, the 4% rule would be an unnecessary austerity measure during the years before age 70.

Does the 4% Rule Make Sense if Your Goal is Early Retirement?

While the 4% rule can be a good starting point, it just doesn’t fit with the FIRE mentality where you would suddenly “set and forget” retirement spending.

When you value making informed decisions about your finances and take a hands-on approach to achieve financial independence, it wouldn’t make sense to abandon these principles as soon as you reach your retirement goals. This active approach is even more important when retiring early.

Use our compound interest calculator to see how your savings can grow over time.

Most people who achieved financial independence through the FIRE movement, continue to play an active role in their investments to ensure they maintain financial freedom throughout the years. 

Whether your goal is to retire early at 45 or work until you’re 65, taking actionable steps toward retirement savings is vital for a financially free future.

There is no one-size-fits-all approach to achieve financial freedom. 

Here are 10 steps to ensuring financial freedom:

  1. Start saving – whatever amount you can
  2. Cut down expenses – really analyze your budget
  3. Live out your values
  4. Set goals and financial stepping stones
  5. Do what you can to increase your income
  6. Pay down debt and then increase mortgage repayments
  7. Become financially literate
  8. Learn simple investment principals
  9. Seize the opportunities in front of you
  10. Stay the course until you reach financial freedom

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AuthorLauren Scungio

Lauren is a mortgage professional and personal finance writer in Scottsdale Arizona. She enjoys creating interesting and educational content geared towards spreading financial literacy and helping people make the best financial decisions.

Financial information reviewed byRoss Loehr - CFP®, MBA
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Last Updated: July 19, 2022

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