What is the FIRE movement and is it for you?

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Saving enough to live on your terms.

© Scott Sanders, Claudia/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Have you heard of the financial independence, retire early (FIRE) movement? It’s certainly an alluring pitch. Imagine checking out early from the soul-crushing day job to live on your terms while you’re still young. Hike the mountains, see the world, and spend time with your family. All you have to do is live frugally—well below your means—and save like crazy in the first phase of your working years.

It’s not just a movement. It’s a lifestyle that, if you follow the playbook, could let you retire years—or even decades—before a traditional retirement in your 60s or 70s. FIRE adherents often set aggressive savings goals, live modestly, and invest as much as they can, while building streams of passive income.

A 2022 spike in inflation—combined with a spate of market volatility—caused many to rethink FIRE’s feasibility. Still, the discipline that’s required—in both saving and spending—can help you hit your retirement goals.

With the goal of building up enough assets and passive income to retire early, many FIRE participants make drastic lifestyle changes to reach their “FIRE number”—the total amount of assets they need to walk away from the rat race.

Here’s one version of the FIRE playbook:

The idea is that after reaching your target number for FIRE, you can quit your job and pursue your passions, such as a less lucrative but more meaningful career, staying home to raise your family, volunteering, or buying a tiny house and living off the nest egg.

To figure out how much you need to retire, do a quick calculation. Figure out how much you need to live on for a year and multiply that by 25. For example, if you need $60,000 a year—over and above other income sources—to live comfortably and meet your goals, you need to save up $1.5 million before you retire.

The FIRE number calculation is similar to the math behind the 4% rule of retirement. According to the 4% rule, by withdrawing roughly 4% or less per year from your savings, adjusted for inflation, you can raise the probability that your savings may last several decades.

Now let’s do another calculation. If you need to save $1.5 million in order to retire early, and you’re saving over a period of only 15 years (ages 25 to 40, let’s say), your savings (plus your investment earnings) would need to average $100,000 per year.

Reality check: That’s a lot of money. Unless you’re a high wage earner in your early years, have an inheritance or a trust fund, or invested in the right start-ups or cryptocurrencies, an early checkout from the workforce might not be feasible.

Not every FIRE participant uses 4% or the 25x calculation as a hard-and-fast rule. Many FIRE participants assume they’ll supplement their investment portfolio with passive income or some type of meaningful work. Other members of the FIRE movement don’t mind drawing down their portfolios during their early retirement. And the risk of outliving their money? They’ll cross that bridge if and when they come to it.

FIRE isn’t one-size-fits-all. The basic strategies for FIRE include:

However, not everyone follows the same path to FIRE. Over the years, different variations have emerged in the movement, with participants tailoring their approach based on income, family situation, and other factors.

Fat FIRE

Lean FIRE

Barista FIRE

Slow FIRE

Pros of FIRE

Cons of FIRE

If you’re a FIRE adherent, make sure you have a contingency plan. What if a major medical issue, a market meltdown, or a series of everyday financial emergencies derails your efforts? If your view truly is that you’ll cross that bridge when you come to it, what if you can’t physically cross it? Then what?

The FIRE movement isn’t for everyone, and there are certainly risks to the approach. But its key components—a disciplined approach to saving, investing, and budgeting—can certainly benefit you, even if you plan to stay in the workforce until the traditional retirement age.

That’s something to get FIREd up about.