What is FIRE? Financial independence, explained simply

FIRE stands for Financial Independence, Retire Early. You’re financially independent when your investments can pay for your living costs for the rest of your life. From that point, work becomes a choice rather than a necessity. Some people stop working entirely; many keep doing work they enjoy, on their own terms.

How does FIRE work?

Spend less than you earn, invest the difference in low-cost, diversified investments, and keep going until the investments are large enough to cover your spending for good.

The idea isn’t new. The 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez framed money as “life energy” you trade your time for. The modern FIRE movement grew from blogs and forums in the 2010s and is now followed in almost every country.

How do you work out your FIRE number?

Your FIRE number is the amount you need invested to stop depending on a salary. The quick rule of thumb is:

FIRE number ≈ 25 × your yearly spending

That comes from the “4% rule”: if you take out 4% of your investments in the first year and raise the amount with inflation after that, historical US data suggests the money would have lasted at least 30 years in most periods. Spend 40,000 a year, and 25 × 40,000 = 1,000,000.

For an early retirement that might last 40 or 50 years, many people plan more cautiously, at 28 to 33 times their spending (a 3 to 3.5% withdrawal rate). We explain why in Is the 4% rule safe?.

Two things make the real number personal:

• Inflation until you stop working. If you’re 15 years away, today’s spending will cost more by then. At 3% inflation, 40,000 a year today becomes about 62,300.
• How long the money must last. Retiring at 40 and planning to 90 is very different from retiring at 65.

Our FIRE calculator handles both, year by year, in your own currency.

Why does your savings rate matter more than your returns?

The share of your income you invest decides how fast you get there, far more than picking the “best” fund. Higher savings do two things at once: more money goes in each month, and you’re getting used to living on less, so you need a smaller FIRE number.

As a rough guide, assuming about a 5% return after inflation and starting from zero:

These are illustrations, not promises; real returns vary year to year.

What are Lean, Fat, Coast and Barista FIRE?

• Lean FIRE: a FIRE number based on a frugal, essentials-only budget. Reachable sooner, with less room for surprises.
• Regular FIRE: your current, comfortable lifestyle, fully covered.
• Fat FIRE: a bigger budget with plenty of room for travel, help and generosity.
• Coast FIRE: you’ve invested enough that, with no new investing, it will grow into your full FIRE number by a later age. You still need to earn your living costs today, but nothing more.
• Barista FIRE: your investments cover most of your spending and part-time or lower-stress work covers the rest.

What are the risks of retiring early?

• A crash right after you stop. Selling investments after a big fall locks in the loss. Many early retirees keep several years of spending in bonds and cash, a bucket strategy, so they never have to sell stocks at a low. Our planner builds and stress-tests one for you.
• Health costs. Where healthcare isn’t fully public, costs often rise faster than general prices, and employer cover usually ends when you stop working.
• Locked accounts. Many retirement accounts can’t be touched until 55 to 60, so they can’t fund the early years.
• Spending creep. A FIRE number based on today’s budget only works if the budget holds.

How do you start working towards FIRE?

1. Track what you actually spend for a few months.
2. Put that into the FIRE calculator to see your number and the monthly investment it takes.
3. Raise your savings rate a little at a time, especially after pay rises.
4. When you’re ready, build the full picture in the financial planner: pensions, goals, and a plan for after you stop working.

For education only, not financial advice. Read the disclaimer.