The FIRE movement operates with the concept of making stern sacrifices now, in order to achieve financial freedom, to allow you to leave work completely and live the life you like, hence the name – Financial Independence Retire Early (FIRE). Essentially you are accumulating investments/savings to the point it provides enough income to cover all of your intended expenses.
Of course, not everyone has the same goals. There are multiple ways to achieve early retirement, so you can leave the job you don’t like and pursue those things which are important to you. The benefits of FIRE are more time for you to do what you want, less stress, less money worries and more fun. You may even find you can semi-retire right now!
Regular FIRE:
Most FIRE followers usually aim to create an investment portfolio to save 25x (or 20x) their annual expenses before entering early retirement. This figure (25x your expenses) is your Fire Number. Once you have achieved your Fire number people completely retire and draw an income from their investment portfolio that meets their expenses, this is typically called the ‘4% rule’, which advises ‘safe’ rates of withdrawal from retirement savings.
So, for example, if you have calculated that you spend $40,000 per year, you will need $1,000,000 to fully retire according to the FIRE concept. It’s all about saving hard and fast now all the way until you reach that Fire number, $1,000,000 in this case.
It can take a while to achieve the required Fire number, but the more frugal your lifestyle, the less money you will need in retirement.
Below we discuss a few variations on the concept of FIRE, some of which allow you to reduce your work commitments (semi-retired) but still achieve your target FIRE number.
Lean FIRE
As the name suggests, this method sees followers aim to survive on less — there’s an emphasis on survival here. The Lean FIRE approach usually results in people spending around $25,000 each year, which I’m not sure is classified as living. On the other side, you only need $625,000 for this. For some people, this may absolutely be enough to live the lifestyle they want.
As you can tell, this strategy is for the frugal. Lean FIRE best suits those willing to live a minimalist lifestyle to reduce their cost of living in retirement, which could look like enjoying camping holidays rather than venturing overseas. Having said that this could be much more realistic if you are more self-sufficient. Think along the lines of off-grid living, growing your own food, etc.
Coast FIRE
Next, we have Coast FIRE, which rather than waiting until you reach your Fire number, you move into semi-retirement and work just enough to cover your expenses while your investment grows in the background. You then move into full retirement once your investment has reached your FIRE number.
Specifically, Coast FIRE revolves around building your investments to the point, if left alone would grow to meet your FIRE number by the time you reach traditional retirement age (normally age 65). Once you reach this point, you don’t need to make any further contributions to your investment portfolio, so you stop saving altogether. As long as you don’t touch your investments, your portfolio will have grown to meet your target Fire Number by your retirement age.
For example, assume you are aged 45 and want to fully retire at age 65. If you have expenses of $60,000 per year, then you have a FIRE number of $1,500,000. Rather than try to accumulate that number, you could semi-retire at age 45 with about $387,000 (assumed to be invested at net 7% pa). So, from age 45 you are semi-retired and only working enough to cover your $60,000 of expenses, whilst the $387,000 will have grown into $1,500,000 by the time you are aged 65.
Flamingo Fire
This type of FIRE is basically a variation of Coast FIRE. The idea is that if you have a high-growth investment portfolio, theoretically it should double every 10 years if it earns a net 7% return. With this in mind, Flamingo Fire involves saving half your Fire number and then moving into semi-retirement to cover your expenses, whilst your investment portfolio should double over the next 10 years to achieve your overall FIRE number. So instead of working part-time to meet your expenses until your traditional retirement age (65) like with Coast Fire, Flamingo fire assumes you only need to work part-time for 10 years before you can fully retire once you reach your target FIRE number.
If we use the scenario from Coast FIRE, you could semi-retire with $750,000 at age 45 and then only work to cover your expenses. After 10 years your investment would have grown to the required $1,5000,000 and you can fully retire at age 55.
As you can see there are a few variations on the concept of FIRE and you can actually reduce your work commitments earlier than the
traditional retirement age. These figures can even be further reduced depending on a number of factors and investments, so you could move towards ditching the job even faster and moving into your own retirement.
If you would like more information or have any questions, please get in touch with us and we can map out a plan for you.