Join the Popular Movement to Retire Early
FIRE is a lifestyle movement in which the goal is to strive for Financial Independence and Retiring Early (FIRE).
For many, like myself, the FIRE isn’t about retiring early per se but focused on the financial independence part so you have the ability to retire when you want. It’s the ability to not rely on a job or employers to pay your bills, which makes the FIRE movement so popular.
About 65% of Americans are living paycheck to paycheck. This means to pay their bills they rely on the money of their next paycheck from their employers. This creates a dependency on their employer.
The employer because of this has a lot of power over the employee. If the employer knows that you are living paycheck to paycheck they know you don’t have the ability to leave the job at a moment’s notice. They then can overwork you and give you tasks that you don’t want to do at the threat of being fired. Knowing you can’t get fired as you are dependent on your employer you oblige. This creates a power imbalance in favor of the employer.
The idea of FIRE is to shift that power imbalance in your favor. Earn enough money to become financially free so your employer has no power over you. Where you can leave your job at any time and know you will be okay because you don’t rely on your employer to live. This allows for stronger negotiations and the employer giving in to you not the other way around. So how do you achieve FIRE?
The 4% Rule
The goal of FIRE is achieved by following the 4% rule. The rule states that you can comfortably withdraw 4% from your investments each year without having to worry about running out of money for at least 30 years. Depending on how well your investments do it could be even longer before you exhaust your nest egg.
The way this rule works is that you will take out 4% of your investments the first year and every year after you take out the same dollar amount plus the amount adjusted for inflation. It works similarly to how social security works, the amount your receive in social security goes up by the same percent as the inflation rate of the previous year.
The 25x Rule
In conjunction with the 4% rule, FIRE enthusiasts also use the 25x rule. This rule states that you must save and invest 25x of your annual expenses to retire with your current lifestyle.
Following these two rules is a safe and effective way to retire very comfortably. It is important to note that while these are good rules to follow they aren’t perfect and do not take into account the unexpected events that life throws your way. So it is always best to prepare for the worst.
Types of FIRE
While the FIRE movement is well known to retire early and achieve financial independence the degree to which these are achieved is different within the community. Some may people may be more aggressive in their goals than others.
Traditional FIRE
This is the most basic form of FIRE. When people refer to the FIRE movement this is what they are referring to. They find their desired annual expenses in retirement and use the 25x and 4% rules to find the amount they need to be invested in order to retire.
Lean FIRE
This FIRE method focuses on reaching financial independence much quicker. You must be significantly more frugal with your money and save a large amount of your income. You will be able to retire much quicker than any other method but there is a cost and that is your annual retirement expenses must be very low. Less than $40,000 a year, sometimes even down to $25,000.
The amount required to reach Lean FIRE is significantly less than Traditional but for many, it can be very difficult to live off of such little income a year.
Fat FIRE
Fat FIRE has the goal of retiring with upper-middle-class income, around $100,000 – $200,000 a year. This requires no less than a $2.5 million nest egg. This is very difficult to achieve especially if your annual income isn’t that high. If you are unwilling to make many sacrifices in retirement then this method may be the way to go.
Obese Fire
Like Fat FIRE your goal is to retire with millions or tens of millions invested. It is unlikely to achieve Obese FIRE through an average income earner, you’ll either have to be a very high earner or have inherited your wealth. This method is best if you want to leave some wealth for your family and create generational wealth or if you want to go all out in retirement.
There are other variations and combinations of FIRE but the premise is still the same for all of them. Save and invest your money until you have 25x the amount of your expected yearly expenses.
Read more about the different methods on the FIRE subreddit! Here you can also read about how other people’s FIRE journey is going and get some useful feedback if you plan to take on the FIRE lifestyle!
Where to Start
If you want to start your own FIRE journey here are the basic steps to follow:
- Choose the amount you want your annual income to be when you retire. The lower the number the easier it will be to achieve your FIRE goals.
- Multiply the amount you chose by 25. This is the amount you need to have invested to be able to retire.
- Choose how many years from now you want to retire. The greater the years the less frugal you have to be with your money and the less you have to save each year.
- Divide the amount you must have invested you calculated in step 2 by the number of years from now you want to retire. This is the amount of money you must save and invest each year to reach your FIRE goal.
- Divide the amount you must save and invest each year by your current annual income to find the percent you must save each year to achieve your goal.
- Be Financially Independent and Retire Early!
Consequences of FIRE
Although the thought of being Financially Independent and Retiring Early sounds great it does come with consequences. It can be very difficult to save and invest a large portion of your annual income, especially if you are a low earner. It may retire you to live significantly below your means. Even give up basic comforts of life like heat and AC.
Some say they have to give up their current lifestyle to live a better one in retirement. That is a big sacrifice for something that doesn’t give you a 100% guarantee of a better life in retirement.
Join FIRE by Opening a Roth IRA
Joining the FIRE lifestyle is a daunting task but many have taken on the challenge and have been very successful in achieving their goals! I recently started my journey in the FIRE lifestyle and I am starting by maxing out my Roth IRA! It is an individual retirement account that allows for tax-free growth!
Interested in starting a Roth IRA? Open an account with Webull and receive 2 free stocks when you fund your account and start your FIRE journey the right way!