The F.I.R.E. Community
Financial. Independence. Retire. Early.
You don’t have to wait till retirement age to retire. If you plan early and stick to your plan, you can have the freedom to enjoy more of your life.
There are many different types of F.I.R.E. Check them out below to see if one will fit you.
What is F.I.R.E.?
F.I.R.E. is a movement that became popular in the early 2000s and has since spread like fire (pun intended). The idea is to find ways to live frugally and invest aggressively to achieve financial independence (F.I.) earlier in life so you can have more options including the option to retire early (R.E.).
F.I. or financial independence doesn’t necessarily mean sitting on a tropical beach or playing golf all day (as fun as those sound). It can mean reaching the point where you don’t have to work a full-time job or stay in a position you dislike because you are stuck financially. You can scale back to part-time or work in a position you enjoy, even if it pays less. F.I.R.E. gives you the freedom of choice as it is no longer necessary for you to exchange your time for money to survive.
The goal for most in F.I.R.E. is to lower your monthly expenses thus speeding your path to F.I.
Also, the less money you need to live, the less money you will need to save for retirement, thus helping you achieve F.I. more quickly.
4% Rule
This is a common rule used in the F.I.R.E community. It states that you can safely withdraw 4% from your retirement each year to cover your expenses without completely depleting your account because your investment should continue to work and earn income over time. It is said that your investments should last you at least 30 years with a 4% withdrawal rate. This could be a little higher or lower depending on your exact plan (when you plan to retire and the amount you plan to retire with), but this could be a good figure to remember to get you started.
If you plan to retire earlier than the average retirement age, then you might want to lower this rule (to maybe 3%), however, if you are retiring later, you may be able to bump this up to say 5% or more. This really depends on how long you plan your retirement to last.
*Please Note: The 4% rule is highly debated, but this could give you a good starting point when first figuring out your F.I.R.E. numbers. Be sure to consult with a professional before pumping the breaks on your retirement investing. A professional should be able to stress test your plan to ensure it will be sufficient for your needs. If you quit your job too early, it may be harder to get back into your field or profession. Be sure you know what you are retiring to before you retire.
Types of F.I.R.E.
Traditional F.I.R.E.
Traditional F.I.R.E
The idea of F.I.R.E. is to find ways to live frugally and invest aggressively to achieve financial independence (F.I.) early, giving you more options including the option to retire early (R.E.). The goal for Traditional F.I.R.E. is to have enough saved to retire sometime in your 30s or 40s. That means you sacrifice a lot of time early in life to reach that amount.
To achieve this, most must save and invest between 50-75% of their income. Traditional F.I.R.E. is not for everyone as you might have to give up a lot of your early years working extremely hard, living very frugally, and saving aggressively to retire this early. This is what led to Barista F.I.R.E. and Coast F.I.R.E. Read below for more information about those.
Full/Traditional F.I.R.E. Equation
(Expected Annual Expenses) / (intended withdrawal rate) = F.I.R.E. Number
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(Expected Annual Expenses) x (Expected Years in Retirement) = F.I.R.E. Number
Example
($40,000) / (4%) = $1 million - or - ($40,000) x 25 = $1 million
So, if you plan to spend $40,000 per year in retirement with a 4% withdrawal rate you will need to have $1,000,000 in retirement by the time you retire.
Barista F.I.R.E.
Barista F.I.R.E.
Barista F.I.R.E is when you aim to retire early with enough invested to cover part of your expected yearly expenses in retirement and plan to work a part-time job (like a barista job) in retirement to cover your remaining yearly expenses. Can also be known as semi-retiring. Barista F.I.R.E. will be much faster than Full/Traditional F.I.R.E. but with Barista F.I.R.E., you will be dependent on your part-time salary. Be sure to do your research, run your numbers, and know what you are retiring to before you retire.
Simplified example: Let’s say your expected annual expenses in retirement are $40,000. If you wish for your retirement to last for 25 years then $40,000 x 25 = $1,000,000. That means you would need $1 million for full retirement, but with Barista F.I.R.E., you wouldn’t have to wait until you reach $1 million. You can save $250,000 which would give you $10,000 per year (based on the 4% rule), and then plan to work a part-time job that pays $30,000 per year to cover the remaining expenses and give you health insurance benefits. Ideally, this part-time job would be one you enjoy and could lead to a happier lifestyle since you would have more time for the things you love such as family, friends, and adventures. This is the appeal of Barista F.I.R.E.
Benefits of Barista F.I.R.E.
Less sacrifice
Since you will not have to reach your full F.I. (Financial Independence) number, you will not have to make as many sacrifices such as living more frugally to invest aggressively as other F.I.R.E. methods require. You can take it slower not worrying about living as frugally and investing as aggressively, or you can push to live frugally and invest aggressively, but not have to do that as long as other F.I.R.E. methods require.
More freedom
You might be able to reach Barista F.I.R.E. earlier than other F.I.R.E. methods since, again, you will not have to reach your full F.I. (Financial Independence) number. You could gain the freedom to switch jobs to a lesser-stress position even if it pays less or cut back your working hours.
Potentially eligibility for health insurance.
Health insurance can be a problem for those who retire early since most would not yet be eligible for Medicare, and insurance on the open market can be expensive. By working at least 20 hours per week, most employers offer some healthcare coverage that is typically much cheaper than on the open market.
Stay connected with your community.
Studies show retirees experience mental health issues after they stop working. Working part-time can keep you connected to your community which is seen as a mental health benefit as well.
How to Calculate Your Barista F.I.R.E. Number
To calculate your Barista F.I. number, you must first find your F.I. (Financial Independence) number. This is the dollar amount you believe should keep you comfortable during retirement.
F.I. Number Equation
(Expected annual expenses) x (Expected years in retirement) = Your F.I. #
Example: If your expected annual expenses are $40,000 per year, and you plan to be retired for 25 years, then
$40,000 x 25 = $1,000,000
This means your retirement goal is to hit $1,000,000 by the time you fully retire as you believe this should last you at least 25 years.
Now let’s find your Barista F.I. number using the equation below. (Note: There are lots of online calculators to help with this as well.)
Barista F.I.R.E. equation
(Expected Annual expenses - Expected Part-Time Job Salary) / (intended withdrawal rate) = Barista F.I. #
Example: If your expected annual expenses are $40,000 per year, and you plan to work and make $30,000 per year in retirement with a 4% withdraw rate, then
($40,000 – $30,000) / (4%) = $250,000
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First take, (Expected Annual Expenses) - (Expected Part-Time Job Salary) = (Supplemental Income Needed)
$40,000 - $30,000 = $10,000
$10,000 is what you need to make yearly in retirement from your retirement accounts.
Then take, (Supplemental Income Needed) x (Expected Years in Retirement) = Barista F.I. #
($10,000) x 25 = $250,000
So, instead of waiting to hit the $1 million mark in your retirement accounts to retire, you may only need to hit $250,000 as you plan to “semi-retire” and work during retirement to make up the additional income required to cover your expenses.
Coast F.I.R.E.
Coast F.I.R.E.
The goal of Coast F.I. is not to retire early, but to secure enough in your retirement accounts earlier in life so that if you stop investing, your retirement portfolio should continue to grow to be what you need at retirement age. This means you can now coast and enjoy life. Coast F.I. is one of the more popular versions of F.I.R.E. because it can be less intense than full F.I.R.E. while still helping you achieve the freedoms you desire.
The goal for Coast F.I.R.E. is not to retire early, but to give you more freedom with your daily living. The aim is to have enough money accumulated in your investments earlier in life, to give you more freedom later in life. Once you reach your Coast F.I. number, you will no longer need to stress over investing because even if you stop investing, your investments should still grow to a comfortable amount for you by your retirement age (typically age 65).
Example: Instead of needing to reach $1 million by age 30 (as may be needed for full F.I.R.E.), you may only need to reach $200,000 by age 30 as that should still grow to be $1 million by the time you are 65. (*I know with current inflation rates, we may need more than $1 million for retirement, but this is an example and should give you a good starting point.)
Benefits of Coast F.I.R.E.
More Freedom
Reaching your Coast F.I. number is equivalent to eliminating an expense from your life permanently. This means you no longer have to worry about investing since you already have your designated Coast F.I. amount invested. You can then choose to keep investing for a bigger retirement or have more spending money or freedom for your life now. The choice is yours.
Example: If your budget is 50/30/20 (50% expenses, 30% investing, 20% savings) you will no longer need to put 30% into investing giving you more money for other things.
More Flexibility
Reaching your Coast F.I. number could mean you no longer have to work full-time, stay in a high-stress position, or work a job you dislike simply for the money.
Work part-time: Working part-time hours may be enough as you will only need to cover your current expenses since you no longer need to worry about investing. This will give you more of your time back.
Work with less stress: You may have the option to take a lesser-stress position even if it pays less since you only need to cover your current daily expenses. This can give you more of your health back.
Work a job you simply enjoy: You may have the option to work at a job not for the money, but in a position you are passionate about or that you find interesting or fun. This can give you more fulfillment in life.
More Security
It’s not a matter of IF, but WHEN unexpected circumstances arise. Imagine if you no longer had to worry about investing because you’ve reached your Coast F.I. number and know your retirement should still grow to a comfortable amount for you by your retirement age, even if you don’t invest anymore. This could give you a more freeing feeling. When something arises, you have the option to lower, pause, or stop your retirement contributions (if you haven’t already) allowing you to put more focus on the here and now.
Less Sacrifice than full F.I.R.E.
Going full F.I.R.E. can be intense as the goal is to hit your full desired retirement amount ($1 to $2 million) as early as possible. Most aim to be retired by age 30 or 40. That means you sacrifice a lot of time early in life to reach that amount by your 30s or 40s. The goal with Coast F.I. is not to retire early, but to secure your retirement funds early giving you more freedom with your daily living. Again, instead of reaching $1 million by age 30, you may only need to reach $200,000 by age 30 to reach your retirement goal of $1 million by age 65. The earlier you begin, the fewer sacrifices you will have to make to hit your goals.
How to Calculate Your Coast F.I. Number
To calculate your Coast F.I. number, you must first find your F.I. (Financial Independence) number. This is the dollar amount you believe should keep you comfortable during retirement.
F.I. Number Equation
(Expected annual expenses) x (Expected years in retirement) = Your F.I. #
Example: If your expected annual expenses are $40,000 per year, and you plan to be retired for 25 years, then
$40,000 x 25 = $1,000,000
This means your retirement goal is to hit $1,000,000 by the time you fully retire as you believe this should last you at least 25 years.
Now let’s find your Coast F.I. number using the equation below. (Note: There are lots of online calculators to help with this as well.)
Coast F.I.R.E. equation
F.I. # / (1+Expected Growth Rate)^(# of years until retirement) = Coast F.I. #
Example: If your F.I. # = $1 million and your Expected Growth Rate = 5%, and you have 25 years till retirement, then:
$1,000,000 / (1.05)^25 = $295,334
This means by age 40, you will only need $295,334 in retirement accounts with approximately 5% expected growth to reach your F.I. number ($1 million) 25 years from now when you turn 65.
*Please Note: This is a rough estimate, giving you a good starting goal. More could factor into this number. When nearing your projected Coast F.I. goal, please be sure to discuss your retirement plan with a professional before pumping the brakes on investing. A professional should be able to stress test your retirement plan to ensure it will be sufficient for your needs. If you quit your job too early, it may be harder to get back into your previous profession. Be sure you know what you are retiring to before you retire.
Here are some online Coast F.I. calculators that can help give you a rough estimate as well:
Coast FIRE Calculator - Coasting to FIRE | WalletBurst (https://walletburst.com/tools/coast-fire-calc/)
Coast FIRE Calculator – Marriage Kids and Money (https://marriagekidsandmoney.com/calculators/coast-fire/)
Click here for several great free resources from the Money Guy Show. Their “Are You On Track to Be A Millionaire” source could help give a rough estimate when figuring your Coast F.I. number as well.
Lean and Fat F.I.R.E.
Lean and Fat F.I.R.E.
Lean F.I.R.E
This is the ability to retire early with a very lean and simple lifestyle. Lean F.I.R.E usually means your investments will only cover your basics like food, transportation, and maybe rent. With Lean F.I.R.E., you could still achieve some of the financially independent freedoms you are looking for such as reducing your work hours, working a job you enjoy even if it pays less, or just retiring, however, there will not be much wiggle room for luxuries with this option.
Fat F.I.R.E
Fat F.I.R.E. is the opposite of Lean F.I.R.E., and it is usually for entrepreneurs and high-income earners who choose not to fully embrace frugality or give up certain comforts as they should still be able to enjoy retirement without sacrificing as much.
For example, if someone planned to spend $100,000/year in retirement using the 4% rule, that would require them to have $2.5 million in retirement or an equivalent budget with passive income.
Steps to Figure your F.I. Number:
1. Figure your current monthly expenses – this can give you an idea of what you think you might need to fund your future, and/or what you can do to curb your expenses if needed. Track all your expenses and have a written budget to know where your money is currently going.
Many suggest keeping your cost of living or cost of surviving under $40,000 a year (per 2019 stat). This is not the extras, just the essentials you need to survive (the roof over your head, the lights on, and food on the table type of stuff).
Some questions to ask yourself to help plan what you might need in retirement:
How often you will purchase new vehicles?
Will you have any children or take any trips during this time?
Will you pay for any upcoming weddings or college expenses after you retire?
What type of health insurance will you be eligible for if retiring before the traditional government retirement age?
2. Once you figure the amount you will need per month, use a F.I.R.E equation, or a compound interest calculator to figure the amount you will need to have in retirement. The general rule of thumb is the 4% Rule but be sure to do your research as everyone and every situation is different.
4% Rule - This is a common rule used in the F.I.R.E community. It states that you can safely withdraw 4% from your retirement each year to cover your expenses without completely depleting your account because your investment will continue to work and earn income over time. It is said that your investments should last you at least 30 years with a 4% withdrawal rate. This could be a little higher or lower depending on your exact plan (when you plan to retire and the amount you plan to retire with), but this could be a good figure to remember to get you started.
If you plan to retire earlier than the average retirement age, then you might want to lower this rule (to maybe 3%), however, if you are retiring later, you may be able to bump this up to say 5% or more. This really depends on how long you plan your retirement to last.
*Please Note: The 4% rule is highly debated, but this could give you a good starting point when first figuring out your F.I.R.E. numbers. Be sure to consult with a professional before pumping the breaks on your retirement investing. A professional should be able to stress test your plan to ensure it will be sufficient for your needs. If you quit your job too early, it may be harder to get back into your previous profession. Be sure you know what you are retiring to before you retire.
F.I.R.E Equation
Your needed yearly amount divided by your withdrawal rate is the amount you will need to have in retirement by the time you hit your intended retirement age.
Another way to think about it (if using the 4% rule) is to take your needed yearly amount and multiply that by 25. These will give you your F.I.R.E number, or the amount you will need to have in retirement by the time you hit your intended retirement age.
Full/Traditional F.I.R.E. Equation
(Expected Annual Expenses) / (intended withdrawal rate) = F.I.R.E. Number
-or-
(Expected Annual Expenses) x (Expected Years in Retirement) = F.I.R.E. Number
Example:
($40,000) / (4%) = $1 million - or - ($40,000) x 25 = $1 million
So, if you plan to spend $40,000 per year in retirement with a 4% withdrawal rate you will need to have $1,000,000 in retirement by the time you retire.
1. Max employer contributions
2. Max HSA contributions
3. Max Roth IRA’s (also move any old employer 401k’s to IRA’s)
4. Max 401k contributions
5. Fund taxable brokerage accounts in low-cost index funds
6. If you have kids, start funding a 529 or UTMA/UGMA account
F.I.R.E. Order of Investing:
Steps to achieve F.I.R.E.
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The stronger your why the more motivated you will be to stick with your goal. Why do you want F.I.? Why do you want to R.E.? Identify what you want to do in the next 5, 10, and 20 years; where you want to be geographically, what you want to do, and what you want your family life to look like. Once you know that, you can mold your money to match what you want.
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Your net worth includes all your assets (cash, bank accounts, retirement funds, investments, and items of value, like houses and cars) minus all your liabilities (student loans, consumer debt, car loans, etc.). This will show you where you are so you’ll be able to plan how far you will need to go.
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Figure out how much your lifestyle costs per year, and how much you are saving. This will also help you know what you need to do with your expenses to get the F.I. number you need.
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Find ways to shrink your expenses so you can increase your savings, and when you spend money, spend more mindfully/carefully.
- Lower your housing costs (“house hacking” is something the F.I.R.E. Community made popular)
- Drive used cars
- Cut the cable
- Lower your tax liability by maxing out your tax-deferred vehicles such as your 401(k), 457, 403(b), IRA, HSA, etc.
- Switch to a cheaper cell phone service
- Use credit card rewards (only if you can use credit cards responsibly)
- Reduce your grocery bills
Here are a few articles that could help reduce your spending:
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Whether paying off high-interest debt, investing in index funds (or other funds), or buying real estate, your money should be getting the max return.
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Extra income = F.I.R.E. faster.
Consider adding multiple income streams
Rental properties and passive income streams can be great vehicles to help you achieve F.I.R.E.
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Invest in low-cost index funds
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Surrounding yourself with people who share your same path & values is vital to sticking with F.I.R.E. (especially when the going gets tough).