The FIRE Approach to Early Retirement

The FIRE Approach to Early Retirement

While the idea of retiring early often seems appealing, it might also seem unlikely, or even impossible. Your current retirement plans may involve working into your 70s, after decades of saving to afford the lifestyle you want. Alternately, the Financial Independence, Retire Early (FIRE) movement, aims to speed up this process, allowing its followers to retire as early as their 30s or 40s.

While the approaches advocated by the group may appear extreme to some, it appears they are very effective.

The central idea behind FIRE is to save as much as you can, while living as frugally as possible. There are various methods employed to achieve these goals. Once you have reached your financial goals, you should be ready for retirement a few decades early. This approach may not be suitable for everyone, for a number of reasons. However, if you have never before considered the possibility of early retirement, you might be surprised to find that you could reach this goal. Learn how to initiate the FIRE approach for yourself, and find out if it is a good fit for you.

Frugal Living

One of the core tenants of FIRE, as well as the area in which many might struggle the most, is dedicating yourself to the most frugal life you can. This means cutting back on more than some luxury expenses. FIRE followers often implement extreme lifestyle changes in order to save 50 percent or more of their income. Some of the changes that could be used when following the FIRE movement might include:

  • Moving in with your parents or sharing your home.
  • Using only one car, or no car at all.
  • Tracking all expenses.
  • Using coupons, taking advantage of discounts and other saving measures.
  • Eating out very rarely, choosing no-cost ways of socializing instead.
  • Only purchasing necessary items, using free resources whenever possible.
  • Reducing travel and other big expenses.

Related article: Do you have what it takes to be an extreme saver?

While these changes can be highly difficult to implement, the mindset that supports the FIRE movement focuses on the value of freedom over money. FIRE followers aim to value a life with less, enjoying pleasures that are free, or at least less expensive, than those they used to want. The idea behind the movement is that its followers are able to find the more frugal lifestyle liberating instead of restrictive.

Hours Spent

An important aspect of FIRE is the idea that your hours should be valued with the same care you might give to your money, and you consider any purchase in terms of hours of your life. Many followers of FIRE choose the movement because they feel they would rather have the freedom to enjoy the hours of their day than the purchases they could make by working. A routine question asked is: “How much of my life is this activity purchasing?”

Your Income

The FIRE approach also suggests saving between 50 and 80 percent of your income. The challenges of saving this high percentage of pay check differs depending on your salary. Those who have lower incomes will likely not be able to make as many lifestyle changes in order to save the amount suggested by FIRE. However, some FIRE followers claim that a family should be able to live on as little as $25,000 with the correct planning.

Related article: Best Budgeting Practices for Retirement

If you have a higher income, you may retire even earlier. You could follow a subset of FIRE known as Fat FIRE. This means you are saving with the goal of enjoying a more luxurious lifestyle than most FIRE followers.


Ideally, FIRE suggests you set aside a large percentage of your income every month. Automated savings can help with this. However, once you have the savings separated from your living expenses, you need to invest them. The recommended investment strategies among FIRE followers usually involve index funds with low costs. Traditional retirement accounts are not preferred, as they are designed to benefit longer term savings, and may have an age restriction placed on them. Alternately, if you are tempted by the benefits of multiple options, consider diversifying your investments accordingly.

Retirement Spending

As well as living frugally in order to save enough to retire, FIRE followers may plan to live frugally after retirement. Typically, a FIRE follower adheres to the four percent withdrawal rule, in which he or she withdraws only four percent of his or her funds every year.

This four percent rule can also serve as the savings goal for FIRE followers. The dollar amount that allows them to retire should allow a four percent yearly withdrawal, which is enough to live on. By reducing your expenses dramatically, you lower this yearly amount, bringing your potential retirement date even closer. Those who prefer to live less frugally after retirement will set an even higher goal.

If you choose to follow the FIRE method, you must commit to your yearly budget while living on your retirement fund, even if you have allowed for higher living expenses than most. Additionally, you must keep your portfolio in good shape, to ensure that your funds are in place for years to come.

Retirement Goals

While some might see the FIRE movement as a way to avoid working, many of those who follow FIRE do so in the hope that they can use their time as they choose. This can involve other types of work, such as volunteering. You may also be free to pursue a passion you would not have been able to take on as a career when trying to support yourself. A number of FIRE followers keep part time jobs to cover some of their expenses after they have retired, while others work even though their expenses are completely covered.

Adapting FIRE for You

The FIRE movement does not appeal to everyone. Many might not have the extra money to save the amount that is required to retire early. Others might prefer to work for longer, knowing they can afford more luxuries during retirement as a result.

However, some of the principles of FIRE can be adapted to any lifestyle. If you are interested in FIRE, but unsure of whether you could manage it, consider if you could implement the following:

  • Value the hours of your time.
  • Look at which expenses you can cut from your budget.
  • Consider what you are willing to change in order to work less.
  • Automate your savings, and invest what you save.

Related article: The Pitfalls of Early Retirement

By Admin