What the FIRE movement is all about

As more savers in Ireland look for ways to take control of their finances and retire earlier, the FIRE movement is gaining momentum. This page explains exactly what the FIRE movement is, how it works in practice, and the steps you can take if you wish to start planning an early retirement yourself. 

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

The FIRE movement in Ireland is a financial lifestyle that encourages individuals to save aggressively and live frugally to work towards financial independence and early retirement – often as early as their thirties or forties.

The movement was popularised in the 1992 book Your Money or Your Life. It has gained momentum in recent years among millennials and Gen Z, who are looking for alternatives to the traditional pension-focused retirement system.

Although there are different variations of FIRE (ranging from more flexible to more disciplined approaches), followers typically aim to save between 50% and 70% of their income to reach their goals as early as possible. This makes it a demanding but potentially rewarding lifestyle change for many people. 

FIRE is an acronym that stands for “Financial Independence, Retire Early”. Here, Financial Independence means having enough savings and investments to cover your living expenses without relying on a salary, while Retire Early means leaving full-time work earlier than the traditional retirement age in Ireland.

The FIRE movement isn’t one-size-fits-all, and many people adapt it to fit their own lifestyle and goals. Here are some of the most common approaches to FIRE:

• Lean FIRE aims to achieve financial independence with minimal expenses. This approach requires aggressive saving and extremely frugal living, with the intention of reaching early retirement faster.
• Fat FIRE aims to achieve a comfortable or even luxurious lifestyle. This typically means a larger investment portfolio is needed. The idea is to enable greater financial flexibility later on.
• Barista FIRE aims to achieve partial financial independence while still working part-time or in a low-stress job. This might be preferred by people who want financial freedom without leaving the workforce entirely.
• Slow FIRE aims to balance steady savings with a comfortable lifestyle, without extreme frugality. This is a more gradual approach to financial independence.

The 4% rule is a popular guideline used by many in the FIRE community to estimate how much money you might need to retire. The rule assumes a 30-year retirement and suggests you could safely withdraw 4% of your retirement investment fund each year without running out of money.

Although this rule is widely used, it was initially developed in the U.S., so there may be some additional considerations for savers in Ireland, including:

• Inflation: Ireland’s inflation rates may differ from U.S. historical averages, which could affect how much you can safely withdraw without losing purchasing power.
• Taxes: Income tax and capital gains tax in Ireland can reduce your overall returns, so these might be factored into your plan.
• Healthcare costs: While Ireland has public healthcare (unlike the U.S.), private insurance or additional medical costs may still need to be budgeted for.

However, the 4% rule can still serve as a helpful starting point when planning your FIRE journey. 

Let’s say you plan to live on €40,000 per year in retirement. Using the 4% rule, simply divide your desired annual income by 0.04:

€40,000 ÷ 0.04 = €1,000,000

This means you would need roughly €1,000,000 invested to aim for an annual withdrawal of around €40,000 per year over a 30-year retirement, without running out of money.

Another way to calculate your FIRE goal is the 25x rule, where you multiply your expected annual expenses by 25 to estimate the total savings you’ll need to retire comfortably.

Before deciding whether FIRE is right for you, it’s helpful to understand some of the key advantages and potential drawbacks of this approach.

Starting your journey on the FIRE movement requires a clear, realistic plan. In Ireland, you could begin by:

1. Building a financial safety net: Before diving into long-term savings or investments, many experts suggest setting aside three to six months’ worth of living expenses as an emergency fund.
2. Calculating your annual expenses and target portfolio: Then, determine how much you will need annually to live comfortably, and use the 4% rule to find your FIRE number.
3. Setting a savings rate: FIRE savers typically aim to save 50 – 70% of their income, adjusting for lifestyle and income.
4. Budgeting and tracking spending: Keep a close eye on where your money goes, cutting unnecessary expenses while maintaining essential costs.
5. Monitoring and adjusting: You may want to review your portfolio periodically to account for inflation, investment growth, and changes in your lifestyle or goals.

Investing plays an important role in working towards FIRE. It helps to first consider your risk appetite, your timeline, and what feels realistic for your personal situation. Younger savers may choose options with higher growth potential, while those closer to their target FIRE date may focus on lower-risk approaches to protect what they’ve already built.

As always, you should do your own research to understand the risks and potential returns of any investment before committing your money. Investment options include:

Diversified ETFs and index funds: Investors sometimes pursue passive investments to spread risk across markets and aim for long-term growth potential, though returns can vary.

Property investment: Buy-to-let or property development can generate rental income and capital appreciation, although property taxes and mortgage regulations are important considerations.

High-interest savings accounts: For medium- to long-term goals, competitive savings accounts offer a way to grow cash. Flexible, short-term accounts can also serve as a place to earn interest while keeping funds accessible for emergencies.

Reinvesting dividends and interest: Letting any earnings accumulate over time can help your savings grow steadily through the power of compounding.

Saving efficiently for FIRE often involves making the most of Irish tax relief and investment vehicles. Some tax-efficient ways to save include:

• Pensions, including PRSA and employer schemes: Contributions to pension plans often receive tax relief, which reduces your taxable income and can help your savings grow more efficiently. Employer contributions can also add to your overall retirement pot.
• Tax-efficient savings accounts: Some deposit accounts in Europe may offer interest that is either free from or subject to reduced DIRT, making them a more tax-friendly way to grow your cash over time.

The information provided here is for informational and educational purposes only and does not constitute tax advice. You should consult with a qualified tax professional or adviser regarding your individual tax situation. Tax laws and regulations are complex and subject to change, and the information provided may not be applicable to your specific circumstances. We are not liable for any tax decisions or actions you take based on this information.

Whether you’re fully committed to the FIRE (retire early) approach or you’re just starting to explore your options, taking small, consistent steps toward saving and investing can make a big difference over time. With Raisin, you can plan for your long-term goals by accessing a range of high-interest deposit accounts from our European partner banks.