Guide to Early Retirement with FIRE

The FIRE movement, which stands for financial independence, retire early has gained widespread popularity in the last few years. Members of the community have claimed that due to their frugality, they have been able to retire decades before their peers.

What is FIRE?

The concepts of the fire movement are aggressively aggressive saving, investing, and frugality. Community members claim to retire early by saving approximately 25-30 times their annual expenses, which is also known as the 4% rule. The movement aims to tackle conventional retirement proposed by the industry and offer alternative strategies to achieve financial freedom.

How does FIRE work?

FIRE has three different strategies. Choosing one to implement will be dependent on your desired lifestyle and retirement age.

• Fat Fire is the most aggressive of the three. The concept is to save 25 times what you desire to spend a year. This number can be around $100,000/year. Those who choose this method can retire comfortably because it takes into account expenses as well as luxuries. Your FatFIRE number would be calculated as such: $100,000 x 25 = $2.5 Million.


• Lean Fire is the least aggressive of the three. This approach is for individuals who aim to live on $25,000 annually. With the lean approach, one would have to embrace the minimalist's way of retirement. This means your investments can only cover your basic needs such as rent, food, and transportation. There isn't much room for luxuries.


• Barista Fire is the more moderate approach of three. With this approach, individuals would be able to maintain more than the minimalist lifestyle and have some room for luxuries. This is typically achieved through part-time or freelance work.

	Annual Exp.	Multiplier	Retirement number
LeanFIRE	$25,000	25	$625,000
BaristaFIRE	$50,000	25	$1.25 million
FatFIRE	$100,000	25	$2.5 million

Investing

While saving the majority of your income may get you close to your goal, it may not get you all the way there. Most FIRE members invest a portion of their savings in hopes that it will yield enough return to help them reach their goal. A typical investment can be in stocks or low-fee index funds that yield anywhere between 5-8% annually.

Adding real estate to your investment portfolio can be a great way to diversify and provide a strong income yield. For those who want to invest passively and not be too hands-on, there are indirect ways to invest. Fundrise and Groundfloor are great options used to invest and make passive income.

Risks of FIRE

While the FIRE movement has become increasingly popular, there has been a lot of criticism due to its aggressive concepts. Critics argue that FIRE members are sacrificing too much in the present for hopes of an easy life in the future. Other critics bring up the uncertainty of the future and that the cost of living is likely to rise by retirement age. In many places, real estate costs have risen by more than 50% in the last ten years, so one can assume that the market will continue to follow the trend.

Another risk pointed out was rising healthcare costs. When you are unemployed, you lose access to employer-provided healthcare, and if you retire before the age of 65, you won't have access to government-provided healthcare either. That cost will need to be factored into your retirement plans.

All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. All references to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.