​Financial Independence, Retire Early (FIRE) movement explained

What does it take to achieve financial independence early in life? The end goal for many FIRE followers is early retirement—but it’s not the only goal. If you’d like to spend less, save more, and build creative, new options for yourself by becoming more financially independent, the FIRE movement and its philosophy may be what you’re looking for.

What is the FIRE movement​ & how does it work​?

The Financial Independence Retire Early (FIRE) movement is a financial planning philosophy and lifestyle that encourages followers to drastically cut expenses and spend less, save aggressively, minimize or eliminate all debt, and invest wisely to achieve financial independence—and possibly retire well before your late 60s or early 70s.

Inspired by the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez, the FIRE movement invites and challenges you to consider accumulating wealth by being satisfied with less. While going full FIRE may not be something everyone will want or be able to strive for, FIRE tools can help you set some ambitious financial goals and provide a mindset for achieving them.

How does it work?

The FIRE movement encourages saving money and adjusting your lifestyle dramatically to reach financial independence as quickly as possible. It starts with your FIRE number, the amount of money you need to retire or to attain your vision of financial independence. Two formulas can help you calculate your FIRE number:

The rule of 25

The FIRE rule of 25 says you’ll need to save roughly 25 times your annual expenses to have enough of a nest egg to draw out expenses indefinitely without running out of money. If you need $60,000 per year to live, your FIRE number is $60,000 x 25 = $1.5 million.

The 4% rule

The FIRE 4% rule refers to the amount experts say you can withdraw from your retirement savings each year without running out of money over a 30-year retirement. There’s some debate about whether the 4% rule is the right rule of thumb for an early retirement that might go well beyond 30 years. The rule is also based on historical market data, which might not be matched in the decades to come. Some experts suggest using 3.3% as a guideline instead. Still, for estimating purposes, 4% gives you a quick calculation of what your savings might yield in retirement income. Say you already have $750,000 in retirement savings. Based on the 4% rule, you can withdraw $30,000 per year, adjusting each year for inflation, without worrying too much about depleting your savings.

Key elements of the FIRE lifestyle

How do you get to $1.5 million in retirement savings quickly? FIRE followers design their lifestyles around their financial goals aligned around a few key pillars:

Be frugal.

Many forgo expensive homes, cars, and other worldly goods in favor of saving 30% to 70% of their incomes. Getting there may require extreme measures. For example, FIRE followers may choose to live with family to save on rent, explore van life or tiny homes, or work remotely from a location with a lower cost of living.

Work hard.

To maximize income, FIRE followers may hold down multiple jobs or freelance in their spare time.

Avoid debt.

Carrying high-interest credit card debt or lingering student loan debt cuts into your ability to save. FIRE followers aim to pay down existing debt as quickly as possible and avoid taking on future debt.

Save aggressively.

In addition to putting aside a high percentage of their incomes, this group maximizes their tax advantages and returns by using a combination of savings accounts, traditional and Roth retirement accounts, and investments.

Does ​the FIRE philosophy work for everyone?

Some FIRE tactics, like saving as much as possible or cutting back on spending, work for just about anyone. However, the goal of saving 25 times your annual expenses by the time you’re 35 or 40 and retiring early on 3% to 4% of your savings may not be the right approach for everyone—especially people with lower incomes or people who live and work in major metropolitan areas where the cost of living is high. If your income barely covers your basic expenses, this plan may not be doable for you.

The FIRE lifestyle isn’t always sustainable. Missing out on vacations, swapping weekend time with the family for a second job, and denying yourself simple luxuries like owning a car ultimately may feel limiting to some. Setting ambitious FIRE goals may be more realistic if your income is high and your responsibilities are few. Throw a couple of kids and a mortgage into the mix, however, and early retirement can start to feel a lot more challenging.

Still, retiring at age 35 isn’t the only goal. Financial independence might mean saving enough money early in your career to give yourself better options in midlife. For example, you may want to take a sabbatical, start a new midlife career, downshift to part-time work or consulting, or simply worry less about meeting your day-to-day living expenses. For some, retiring early might mean exiting the workforce comfortably at 60, having paved the way with good financial habits over your adult lifetime.

FIRE can’t account for all of life’s unpredictability, especially if you’re young and the path forward is long. If the markets don’t perform as well in the next 25-30 years as they have in the past, you may have to save more, withdraw less, or continue working to make up the difference. You may have surprise medical expenses that consume a large chunk of your savings. (You may also inherit money or invent a million-dollar product.) FIRE can’t remove uncertainty, but it can help you to be resilient: Learning to budget, developing a savings habit, avoiding debt, getting serious about investing—these skills can help you navigate the changes life throws at you, pre-and post-retirement.

The FIRE movement isn’t everyone’s cup of tea, but many in the movement feel empowered by taking control of their finances and working toward their goals. FIRE followers encourage each other to stick to their plans and continually improve their financial standing, which is useful counterprogramming in a consumerist culture.

Is there a right way to achieve financial independence and retire early?

Achieving financial independence and retiring early means different things to different people. When thinking about your financial goals, FIRE encourages you to consider different versions of financial independence and early retirement. These may become your ultimate goals or may provide milestones to measure your success along the way. Here are a few ways some choose to interpret the FIRE movement:

Barista FIRE

Barista FIRE means saving enough money to exit the rat race and work in a less demanding job. Barista FIRE requires less money than traditional FIRE by lowering the amount you would need to withdraw from your savings. For instance, if you needed $4,000 to cover your monthly expenses and could earn $1,500 working part-time, your Barista FIRE number would be 25 x $30,000* = $750,000. This is much less than the $1.2 million if you had to plan to withdraw a full $4,000 per month with the traditional FIRE.

Attaining Barista FIRE can be an important psychological marker. Even if you don’t choose to work part-time when you reach Barista FIRE, it may be reassuring to know that you have the financial freedom to do so.

*$4,000 - $1,500 = $2,500 x 12 months = $30,000

Lean FIRE

Lean FIRE is the least amount of savings you would need to retire without working. Lean FIRE envisions a scaled-down version of retirement where you live minimally on $40,000 a year or less. If you were able to whittle your expenses down to $3,000 per month, your Lean FIRE number would be $900,000. Here, years of living frugally and avoiding debt may act as a training ground for a low-expense retirement—if it doesn’t burn you out.

In any case, reaching Lean FIRE means you’ve crossed an important line: Retirement is now possible for you.

Fat FIRE

Fat FIRE is for those who want to live on $100,000 a year (or more) in retirement. Fat FIRE followers plan to travel and enjoy life, and don’t want to worry about paying for medical expenses or elder care down the road. It provides for a less stressful retirement by giving you a bit more wiggle room in your budget. With Fat FIRE, reaching an annual income of $100,000 in retirement would of course require $2.5 million in retirement savings.

How do social security benefits play into FIRE? 

In any of these scenarios, the impact on whether and how much you will receive in Social Security benefits should be considered.

Essentially, early retirement will very likely decrease your Social Security benefit because you’ll be missing out on your prime earning years. The reason for this is because Social Security benefits are accrued over your working life and calculated by taking your highest 35 earning years and averaging them out to a monthly earning. If you’re not earning (or earning much less) during your prime earning years, it can have a significant impact on the Social Security benefits you’ll receive in retirement.

Depending on how much you do receive in Social Security benefits, it can help reduce the amount of money you’ll need in retirement (and the target expense figure you use to calculate your FIRE number). But depending on how early you hope to retire, you’ll also need to account for extra withdrawals during the years before your Social Security benefits begin. Your FIRE number is useful for estimating a savings goal and giving you a target to aim for.

Before you embark on FIRE, and well before you’re ready to retire, you’ll want to double-check your math to make sure your living expenses will be covered for the duration.

7 strategies to reach financial independence, retire early (FIRE) status 

The FIRE movement provides several strategies to help you quantify your goals and break them down into actionable steps. Your FIRE number and the goals that go with it are entirely up to you. Whether you go all-in or use FIRE strategies to attain smaller financial goals, these seven FIRE-inspired strategies may help:

1. Embrace a vision.

When your entire financial focus is on paying monthly bills, it’s hard to work toward big-picture goals like being financially independent and retiring early. Having a vision for your future can help guide you and deserves your attention. It’s important to lift your head from the grindstone long enough to make room for lifelong goals while also managing the day to day.

2. Get out of debt, stay out of debt.

High-interest debt can drag down your finances and keep you from reaching your financial goals. Manage your revolving debt carefully. Where you can, pay down high-interest credit card balances or consider using a debt consolidation loan to lower your interest costs and help eliminate your consumer debt. Refinancing a high-interest car loan or student loan debt may save you money or speed up the repayment process.

3. Maximize your income.

If your income doesn’t leave much room for savings, look for ways to reduce expenses and earn more on the side. In the short term, you might find a side gig or source of passive income to supplement your paycheck, or proactively move up the pay scale at your current job. Longer term, consider a career that will earn more income or think about starting your own business if your current job doesn’t offer the growth potential you’ll need.

4. Prioritize savings.

FIRE movement followers save 30% to 70% of their income to meet their financial goals. If saving this much feels unrealistic right now, how about a consistent 10% to 15%? FIRE followers also take savings seriously, seeking out high-yield savings accounts and using CD ladders to earn the most interest to grow their hard-earned dollars.

5. Invest wisely.

As you build wealth, investments play a critical role in getting to your FIRE number. Investing can also help you maintain your savings throughout your retirement years. Finding a good financial advisor can help, but don’t overlook the value of learning about investing yourself. The better you understand the fundamentals of investing, the more effective you can be at managing your money, whether you work with an investment pro or not.

6. Live below your means.

Our consumer culture encourages us to spend, spend, spend—on our homes, cars, kids, technology, fashion, dining out, travel, pets, fitness, on and on. But meeting your financial goals means channeling your money away from spending and toward debt reduction and savings. The difference is mathematical, but it’s also philosophical: Create a lifestyle that serves your financial goals.

7. Get an early start.

Embracing the FIRE movement early in your working career means getting a head start on long-term savings. The earlier your start puts more time on your side. Whether the goal is early retirement, financial independence, or simply putting yourself on a solid financial footing, now is the best time to start.

The bottom line

The FIRE movement brings the sometimes-distant goals of financial independence and retirement into focus. By putting numbers to big-picture financial objectives, FIRE makes long-term savings more concrete and measurable. And while there’s no way to make saving 25 times your annual expenses easy—or remove the risk of an entirely obligation-free retirement over multiple decades—FIRE offers real steps to get you there.

At the same time, FIRE provides a framework for thinking about money. By making conscious choices about saving and spending, by challenging yourself to consider how much money is enough (to live on or to retire on), you can use your money to do more than pay your bills or buy things. Even if you don’t become a dedicated FIRE follower, at the very least the philosophy of aiming for financial independence to retire early can help you be more intentional with what you do with your money. That alone is a step in the right direction.