Key Takeaways
- Your FIRE Number = Annual Expenses / Safe Withdrawal Rate (typically 4%)
- A 50% savings rate can lead to financial independence in about 17 years
- Coast FIRE lets you stop aggressive saving once you hit a certain number
- The 4% Rule is based on historical data suggesting a 30-year safe withdrawal period
- Starting early with compound interest is more powerful than saving more later
What Is the FIRE Movement?
The FIRE (Financial Independence, Retire Early) movement has revolutionized how millions of people think about work, savings, and retirement. Rather than following the traditional path of working until 65, FIRE advocates aim to achieve financial independence decades earlier by maximizing savings rates, investing wisely, and minimizing expenses.
At its core, FIRE is about accumulating enough wealth that the returns from your investments can cover your living expenses indefinitely. This is typically calculated using the safe withdrawal rate, with the 4% rule being the most commonly cited benchmark.
Understanding Your FIRE Number
Your FIRE number is the total amount of savings and investments you need to achieve financial independence. It is calculated by dividing your annual expenses by your safe withdrawal rate.
FIRE Number = Annual Expenses / Withdrawal Rate
This number represents the portfolio size that can theoretically sustain your lifestyle indefinitely, assuming your investments generate returns at least equal to your withdrawal rate plus inflation.
The 4% Rule Explained
The 4% rule originated from the Trinity Study, which analyzed historical stock and bond returns to determine sustainable withdrawal rates over 30-year retirement periods. The study found that a 4% initial withdrawal rate, adjusted annually for inflation, had a high probability of lasting at least 30 years without depleting the portfolio.
Pro Tip: Adjust for Early Retirement
If you're planning to retire very early (in your 30s or 40s), consider using a more conservative 3-3.5% withdrawal rate to account for the longer retirement period. This provides a larger safety margin for market volatility.
Understanding Coast FIRE
Coast FIRE represents an intermediate milestone on the path to full financial independence. When you reach Coast FIRE, you have accumulated enough savings that, even without any additional contributions, your investments will grow to your full FIRE number by your target retirement age through compound returns alone.
Coast FIRE = FIRE Number / (1 + Return Rate)Years
Once you reach Coast FIRE, you could theoretically stop saving for retirement entirely and still reach your goal. This provides flexibility to take lower-paying but more fulfilling work, reduce hours, or pursue other life goals.
Types of FIRE
Lean FIRE
Minimalist lifestyle with expenses under $40,000/year. Fastest path to independence.
Traditional FIRE
Comfortable middle-class lifestyle with $40,000-$60,000/year in expenses.
Fat FIRE
Luxurious lifestyle with $100,000+/year expenses. Requires higher income or longer timeline.
Barista FIRE
Barista FIRE describes a situation where someone has enough savings to be partially financially independent but continues working a low-stress, part-time job primarily for benefits like health insurance or supplemental income. This bridges the gap between full-time work and complete retirement.
The Power of Savings Rate
Your savings rate is the most powerful lever in determining how quickly you can achieve FIRE. The savings rate represents the percentage of your take-home pay that you save and invest rather than spend.
Here's how savings rate affects your timeline to FIRE:
- 10% savings rate: ~50 years to FIRE
- 25% savings rate: ~32 years to FIRE
- 50% savings rate: ~17 years to FIRE
- 75% savings rate: ~7 years to FIRE
Getting Started with FIRE
The first step toward FIRE is understanding your current financial situation: income, expenses, savings rate, and net worth. Track your expenses for several months to reveal spending patterns and opportunities for optimization.
From there, you can calculate your FIRE number using our calculator above and create a savings plan to reach it. Whether you're just beginning to explore FIRE or are well on your path to early retirement, having clear numbers and goals is essential for staying motivated and on track.