The FIRE movement, which stands for Financial Independence, Retire Early, is a financial strategy focused on achieving financial independence as early as possible, allowing individuals to retire well before the traditional retirement age.
It is based on the principles of aggressive saving, smart investing, and controlling expenses to build enough wealth to sustain a comfortable lifestyle without relying on employment income.
The core idea behind FIRE is to save and invest a large percentage of income, often 50% or more, during working years.
By maintaining a low-cost lifestyle and prioritising financial growth, individuals aim to accumulate enough assets to generate passive income, which can replace a salary. Once financial independence is reached, they can choose to retire early or continue working in a way that aligns with their personal interests rather than financial necessity.
A common rule used in the FIRE movement is the 4% rule, which suggests that if a person withdraws no more than 4% of their investment portfolio annually, their savings should last indefinitely. This rule is based on historical market returns and based on assumptions that may (or may not) come to fruition. Hence, it is important to do your research before committing.
There are different variations of FIRE, depending on individual goals and lifestyle preferences.
Lean FIRE is for those who aim to retire early by maintaining a minimalist, low-cost lifestyle, often requiring a smaller savings target.
Fat FIRE is for individuals who want to retire early while maintaining a higher standard of living, requiring a larger financial cushion.
Coast FIRE is where individuals save aggressively early on and then let their investments grow passively while working in a less demanding job until retirement.
One of the main criticisms of the FIRE movement is that it requires extreme discipline and may not be realistic for everyone.
Saving such a high percentage of income can be difficult, especially for those with lower earnings or significant financial obligations. Additionally, relying on long-term investment returns carries risks, as economic downturns and inflation can impact the sustainability of early retirement plans.