FIRE movement: An overview of the Financial Independence Retire Early movement

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.

On average, Americans are working longer, delaying retirement into their mid-60s or beyond. As a result, they have less time and energy to enjoy the fruits of their lifelong labor. 

That’s why many young professionals are attracted to the FIRE movement.  

FIRE stands for Financial Independence, Retire Early. It is a lifestyle that allows motivated individuals to gain financial freedom and control over time.  

Essentially, individuals who follow the FIRE philosophy front-load their efforts, save, live simply, and invest responsibly. As a result, they may have the funds available to retire at a young age and seize life.  

In this guide, the financial experts at Raisin break down the philosophy behind FIRE retirement. Continue reading to learn if this approach to financial management is right for you. 

The Financial Independence Retire Early movement began in 1992 with the publication of Vicki Robin and Joe Dominguez's book Your Money or Your Life. The book inspired many individuals to contemplate what they’d be willing to give up to achieve financial independence.

Joe Dominguez, now deceased, was able to retire at age 31 through intentional living. After a 2010 resurgence in the movement, many young professionals are following his example and pursuing early retirement through frugality.

Per the book, there are 9 discrete steps that individuals can follow to achieve financial independence in this manner.

The 9 steps are:

1. Calculate your real hourly wage
2. Track your expenses, then convert into hours
3. Ask yourself three questions
4. Chart your money
5. Spend less
6. Redefine work
7. Find your crossover point
8. Invest

The main idea behind the FIRE movement opposes much popular financial advice. Rather than believing that more money is always better, FIRE followers believe that enough is enough.

The most thorough way to learn everything about the FIRE movement is to read the book. In brief, however, there are two core tenets behind this philosophy.

FIRE followers live extremely frugal lifestyles to save a high percentage of income. They often use simple living or frugality hacks to help them achieve their goals. It’s common for proponents of the movement to cook all of their own meals, do their own home and automotive repairs, drive older cars, and kick costly habits such as smoking or drinking.

Proponents of FIRE typically invest larger than average portions of their income. As a result, they begin earning interest on their savings early. Often, they choose more aggressive investments with a higher earning potential. Over time, their interest accrues, and they get closer to achieving financial stability.

FIRE followers prioritize compound interest. They also focus on asset allocation and diversification to ensure their investments pay off.

Those who follow the FIRE movement choose to save a minimum of 50% (and sometimes as much as 70%) of their income.

They also follow the Rule of 25. In other words, they believe one must save the equivalent of 25 times one's annual expenses to retire. The total amount is your FIRE number or the amount you need in savings to retire comfortably. Ideally, these funds will cover 30 years.

Some financial experts feel this formula is flawed because it does not account for inflation or adverse life events.

Successful FIRE also hinges on the 4% rule. The rule suggests that retirees withdraw 4% of the balance in their retirement accounts in the first year after retiring. Then, they should withdraw the same dollar amount (adjusted for inflation) every subsequent year.

Experts tend to disagree on whether this rule works for every individual. Depending on how early you retire, 4% may be too aggressive. With current interest rates, some financial experts suggest that 3% is a safer number.

Not all individuals who aim for early retirement approach the FIRE movement in the same way. There are several variations that can yield similar results.

• Lean FIRE: A variation for those willing to maintain a frugal lifestyle both before and during retirement. These individuals may not need to save as much to achieve their version of financial independence.
• Fat FIRE: The opposite of lean FIRE, those who follow Fat FIRE aim to save as much as possible so they can enjoy a higher quality of life post-retirement. They tend to be aggressive investors who aim to grow their nest egg to support an opulent lifestyle.
• Coast FIRE: In this variation, individuals coast into retirement by continuing to work part-time to cover their day-to-day living expenses. They may also choose to continue working to retain their insurance benefits or because they enjoy daily socialization.
• Barista FIRE: Similar to Coast FIRE, these individuals work and save aggressively earlier in their careers. They aim to ease into low-stress or part-time careers that may be less lucrative or demanding.

Ultimately, the FIRE movement may not be right for everyone. It requires a great deal of sacrifice, and there is risk along the way. You’ll need to consider your lifestyle preferences and level of risk tolerance.

There are many routes toward a comfortable and satisfying retirement. High-yield savings products can help you earn interest on your savings, no matter how much of your income you choose to save. Explore the suite of high-yield savings products offered by our network of federally regulated banks and credit unions to begin your savings journey.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.