The concept of early retirement feels like wishful thinking for many of us, conjuring up images of independently wealthy 35-year-olds sitting poolside with a cocktail. But the reality is that early retirement isn’t something reserved only for the extremely rich or privileged. It’s tough, but it’s doable. Enter FIRE.

FIRE—which stands for “financial independence, retire early”—is a popular goal that aims to shirk the conventional timeline of working until age 65. Is it possible? Yes. But it requires hard work and sacrifice. Let’s take a deeper look at what it takes to burn the concept of traditional retirement to the ground.

What Is the FIRE Movement?

Broadly speaking, the FIRE movement is a lifestyle that focuses on aggressive saving and investing to reach a point where work is optional and life flexibility takes center stage. The term “FIRE” was first coined in the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez. In it, Robin and Dominguez break down the journey to financial independence in nine steps, complete with stories and examples of people who’ve succeeded in their efforts.

Financial freedom is the ultimate goal for FIRE, though it is not a simple road to get there. FIRE followers sock away a significant portion of their income into savings and investments—often 50% or more—with the hope of retiring in their 40s or 50s.

Many people believe that FIRE is only attainable for high earners or high net-worth individuals. While those things certainly help, the principles of FIRE still have plenty to teach those from all economic backgrounds. And, while retiring decades early sounds like a dream come true, it’s worth remembering that retiring even a few years early is still an achievement worth celebrating.

How Can You Achieve FIRE?

Find Your FIRE Number

Kicking off the journey to “financial independence, retire early” begins with making a detailed financial plan. Your plan should include a comprehensive budget that factors in your income, expenses, and, most importantly, your savings.

The key here is to identify your “FIRE number”—the amount of savings you need to reach financial independence. This number is often calculated as 25 times your annual expenses. For example, if you calculate that you’ll need $60,000 per year in retirement, your FIRE number is $1.5 million. If you need some additional guidance with this part of planning, you could ask a financial advisor for help.

You also need to be wary of various withdrawal guidelines designed for traditional retirement timelines. For example, the 4% rule is a very common rule of thumb that suggests you can safely withdraw 4% of your retirement portfolio’s value in the first year; in subsequent years, you adjust this amount based on the rate of inflation. Following this formula, your wealth should last approximately 30 years.

However. If you’re planning on retiring decades earlier than normal, 30 years is not a long enough timeline for the 4% rule to work. You’ll need to adjust and revise what a safe withdrawal rate looks like for you.

Increase Your Income

Increasing your income gives you a significant leg up in achieving FIRE, especially if you have an aggressive savings rate of 70% or higher. Augment your income by finding a second job or side gig. This can be anything from doing freelance work online, starting a small home-based business, or even getting involved in the gig economy by driving for Uber or DoorDash where you can potentially make as much as $100 a day.

Remember, the more income you bring in, the more you can save and invest, fast-tracking your journey to financial independence. While this may require additional effort and sacrifice in the short term, the long-term benefits can be monumental in achieving early retirement.

Invest, Invest, Invest

Investing is the fuel that feeds the FIRE. Savings alone won’t get you there; your money needs to work for you.

The more you can invest, and the earlier you start, the quicker you can reach your financial independence. This also includes maxing out 401(k) and IRA contributions, which are $23,000 and $7,000 for 2024, respectively. If you are over age 50, you can make an additional $7,500 contribution to your 401(k) and an additional $1,000 contribution to an IRA.

Investing independently often comes with risk, so it’s important to educate yourself and possibly consult with a financial advisor to help nail down your long-term strategy.

Exercise Extreme Financial Discipline

Financial discipline is the backbone of the FIRE lifestyle. It means drastically reducing unnecessary expenses, such as dining out frequently, expensive vacations, or impulse buys. It’s all about living far below your means and saving as much as you can, as well as expertly navigating financial stress.

As stated earlier, some FIRE followers go so far as to live on less than half their income. Every dollar saved is a step closer to financial independence.

Biggest Challenges of the FIRE Movement

The path to achieving FIRE isn’t without its hurdles. Here are some of the most notable challenges associated with this lifestyle:

• You have to sacrifice: The aggressive saving strategy often means sacrificing your current quality of life in hopes of a stress-free future. This may mean living in a smaller home, taking fewer vacations, and not treating yourself to anything that isn’t a need.
  
• You might face financial uncertainty: Unexpected financial crises or a downturn in the market can derail even the best-laid plans. On an individual level, there is also always the risk that you may suffer a personal financial crisis, such as a major health issue or job loss.
  
• Don’t forget about healthcare costs: In many countries, especially the United States, healthcare is closely tied to employment. With Medicare not kicking in until age 65, early retirement could mean higher out-of-pocket healthcare costs for you in the interim.
  
• You might live a long time: Living longer than expected could pose a risk of running out of money. While this is hard to plan for, it’s something to be aware of—especially considering you’ll already need to plan for a longer retirement timeline.
  
• You have other financial obligations: If you are struggling to cover your basic needs, have no emergency fund, and are living with high-interest debt, FIRE may not be for you.

Variations of FIRE

The concept of “financial independence, retire early” isn’t one size fits all. There are several variations of the lifestyle, including:

• Fat FIRE: Fat FIRE is the most aggressive variation. Followers aim to retire early with a sizeable nest egg, allowing them to maintain a higher standard of living during retirement. It requires earning a high income during your working years, saving more money, and investing wisely—but it also provides the most comfort and flexibility in the post-work years.
  
• Lean FIRE: This approach to financial independence requires strict frugality. Think extreme budgeting and forgoing many of the traditional comforts or luxuries society deems essential. The goal is to amass enough savings to live a minimalist lifestyle during retirement.
  
• Barista FIRE: This variation involves semi-retirement. Individuals may quit their high-stress, full-time jobs but continue some form of part-time work (like a barista in a coffee shop) to cover expenses without touching their investment portfolio.
  
• Coast FIRE: In this version, individuals invest aggressively early in their careers. Once they reach a certain financial milestone, they only need to cover their living expenses, letting their investment portfolio grow until retirement.

Best Books About FIRE

Need a little nudge on your path toward FIRE? Here are some must-reads for anyone interested in embarking on the journey:

• Your Money or Your Life by Vicki Robin and Joe Dominguez: This book is considered the bible of the FIRE movement. It provides a step-by-step guide for changing your relationship with money and achieving financial independence to retire early.
  
• The Simple Path to Wealth by JL Collins: Collins’ book demystifies the world of investments and provides a clear path to financial independence. It’s a great starting point for beginners in the FIRE journey.
  
• Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence by Jacob Lund Fisker: This book goes beyond the basics of saving and investing, offering unconventional ideas to achieve financial independence faster.
  
• Playing With FIRE (Financial Independence, Retire Early) by Scott Rieckens: This is an inspiring account of a real-life journey towards financial independence and retiring early. Rieckens’ story is a motivating example of the dedication and sacrifices required to achieve FIRE.
  
• Choose FI: Your Blueprint to Financial Independence by Chris Mamula, Brad Barrett, and Jonathan Mendonsa: This book provides a blueprint for achieving financial independence based on the lessons learned from people who have walked the path.

Author