The FIRE Movement: Financial Independence, Retire Early
FIRE is about building enough wealth to live off investment income—permanently. The goal isn't necessarily to stop working, but to make work optional. Once you hit your FIRE number, you can pursue passion projects, travel, or work part-time on your own terms.
The Math Behind FIRE: The 4% Rule
The 4% rule is the foundation of early retirement planning. It states:
"You can safely withdraw 4% of your portfolio annually in retirement, adjusted for inflation, without running out of money."
This is based on the Trinity Study, which analyzed historical stock/bond returns from 1926-1995. A portfolio with 4% withdrawals survived 100% of 30-year retirement periods.
The formula:
- Annual expenses × 25 = FIRE number (portfolio needed)
- Example: $40,000/year expenses × 25 = $1,000,000 FIRE number
- At 4% withdrawal: $1,000,000 × 0.04 = $40,000/year income
Your portfolio generates enough passive income to cover expenses indefinitely. You're financially independent.
The Three Levels of FIRE
1. Lean FIRE: $25,000-40,000/year expenses
Live frugally, minimize expenses, retire on $625K-$1M. Example: $30K/year = $750K portfolio needed. This is achievable for most people in their 30s-40s if they save aggressively (50-70% savings rate). Requires lifestyle optimization but not deprivation.
2. Regular FIRE: $40,000-70,000/year expenses
Comfortable middle-class lifestyle. $1M-$1.75M portfolio needed. Example: $50K/year = $1.25M portfolio. This is the most common FIRE target—enough to live normally without luxury but with financial security.
3. Fat FIRE: $80,000-150,000+/year expenses
Live well in retirement with travel, hobbies, and nice housing. $2M-$4M+ portfolio needed. Example: $100K/year = $2.5M portfolio. This requires high income and aggressive saving but allows early retirement without lifestyle compromise.
How Savings Rate Determines Retirement Age
Your savings rate matters more than income or investment returns. Here's why:
| Savings Rate | Years to FIRE | Retirement Age (if you start at 25) |
|---|---|---|
| 5% | 66 years | 91 (traditional retirement) |
| 10% | 51 years | 76 |
| 25% | 32 years | 57 |
| 50% | 17 years | 42 🔥 |
| 65% | 10.5 years | 35 🔥 |
| 75% | 7 years | 32 🔥 |
Notice: A 50% savings rate = retire in 17 years, regardless of income. Someone making $50K saving 50% ($25K/year, living on $25K) retires at the same time as someone making $200K saving 50% ($100K/year, living on $100K). The math is identical.
Real FIRE Success Stories
Case Study 1: Software Engineer - Retired at 32
- Income: $120K/year after-tax
- Expenses: $30K/year (lived with roommates, cooked at home)
- Savings rate: 75%
- Worked 7 years, saved $630K, retired with $800K portfolio (investment gains)
- Now lives on $32K/year (4% of $800K), travels, and builds side projects
Case Study 2: Married Couple - Retired at 38
- Combined income: $150K/year after-tax
- Expenses: $50K/year
- Savings rate: 67%
- Worked 13 years, saved $1.3M, retired
- Now lives on $52K/year from portfolio withdrawals, raises kids without job stress
Case Study 3: Teacher - Retired at 45 (Coast FIRE)
- Income: $55K/year after-tax
- Expenses: $35K/year
- Savings rate: 36%
- Saved aggressively ages 25-35, then stopped contributing
- Let $300K grow to $875K by age 45, now lives on part-time income + withdrawals
How to Achieve FIRE: The 5-Step Plan
Step 1: Calculate Your FIRE Number
Annual expenses × 25 = FIRE number. If you need $40K/year, your FIRE number is $1,000,000.
Step 2: Maximize Income
Switch jobs every 2-3 years for 10-30% raises. Learn high-value skills. Start side hustles. Negotiate relentlessly. Income is your most powerful wealth-building tool.
Step 3: Minimize Expenses (Without Deprivation)
Cut the big three: housing (get roommates or house hack), transportation (buy used cars or bike), and food (cook at home). Ignore small expenses like coffee—focus on saving $500-1,000/month on housing.
Step 4: Invest Everything in Index Funds
80-100% stocks (VTSAX, VTI, or S&P 500 index funds) until age 50, then shift to 60/40 stocks/bonds. Contribute to 401k, Roth IRA, and taxable accounts. Never stop investing.
Step 5: Track Progress and Adjust
Calculate net worth monthly. Adjust savings rate if needed. The journey takes 7-20 years depending on savings rate—stay consistent.
Common FIRE Mistakes
- Underestimating expenses: Budget $40K/year but actually spend $55K. Your FIRE number is wrong and you run out of money.
- Being too conservative: 100% bonds returns 3-4%. You need 8-10% returns (stocks) to retire early.
- Not accounting for healthcare: Health insurance costs $400-800/month before Medicare (age 65). Include this in your budget.
- Withdrawing more than 4%: Withdrawing 6-8% will deplete your portfolio in a down market. Stick to 4% or less.
- Giving up too early: FIRE takes 10-20 years. Most people quit after 2-3 years. Those who persist win.
Is FIRE Worth It?
Yes, if you value time over money. Retiring at 40 gives you 25+ extra years of freedom compared to traditional retirement at 65. You can travel, pursue hobbies, spend time with family, or work on passion projects—all without financial stress.
But FIRE requires sacrifice. Saving 50-70% of your income means living below your means for years. Most people won't do it. But for those who do, the payoff is immense: financial independence decades before your peers.