What does FIRE mean?

FIRE stands for “Financial Independence, Retire Early.” It’s a lifestyle that involves often extreme levels of scrimping and saving to achieve financial freedom, allowing participants to retire at a much earlier age than traditional means might allow. This could be as early as their 30s. This obviously leaves them a very long time to plan how to live if they’re not focused on work (and in the case of Childfree and childless people, if they’re not raising children). It is perhaps not so surprising that this lifestyle appeals to the Childfree community, as we’re already used to breaking societal conventions with our life choices.

The term FIRE originates from a 1992 book by Joe Dominguez and Vicki Robin, called Your Money or Your Life. FIRE involved implementing a different way of viewing your relationship to money, and seeking to prioritize your own goals and values in the process. And for many people, the goal is to be able to stop working for money altogether – an “off switch” for work (unlike Dr. Jay’s FILE, which is more of a “dimmer switch”).

There are different levels of FIRE. For example, “lean FIRE” refers to cutting as many of your expenses as you can manage, and for some people, that means living with roommates well into adulthood, eating as cheaply as possible (think rice and beans, or ramen noodles), and even making their own household products, like soap. At this extreme level, you save every spare penny (after cutting your costs to the bone) and then retire as early as possible, and live on minimal income.

On the other end of the spectrum is “fat FIRE,” where participants aim to save as much money and create as many passive income streams as possible. This enables them to put several million dollars into the bank and live as well as they want in retirement. If lean FIRE is eating rice and beans and living with roommates (or perhaps in an RV), fat FIRE could be having your own chef and living abroad in a country with high living costs.

While the idea of quitting your job and living off your substantial savings long before you might be too old to truly appreciate it sounds good, there are some practical considerations to make before settling on this course of action.

Early retirement sounds great, right? Well, a big question to answer before pursuing it is  “What are you retiring to?” It’s a good idea to have a plan for the next several decades of your life if you won’t be working. And if you are planning to do some kind of paying work, you’re looking at FILE, rather than FIRE. This is also referred to as “barista FIRE,” where you’re working enough to get benefits through work and human interaction, but you’re not working yourself to death in a career.

One reason people retire is so they can spend more time with those who are important to them. But if your peers and loved ones are all still focused on working, you might have a lot of time on your own to fill. That said, being able to steer your own ship and pursue your own goals is certainly worth it, whatever that looks like for you.

If you do want to pursue FIRE, some of the financial basics will be the same: paying off debt, saving money, budgeting, investing. But from here, you’ll need to work with a CERTIFIED FINANCIAL PLANNER™ to figure out how your money situation in retirement will look.

In terms of the math for retirement, you’ll need to decide how much you want to live on every year, and calculate how much you’ll need to save based on how long you hope to live in retirement. This is generally easier for those planning a more traditional retirement timeline. For these people, they might plan on 25 years of retirement, and if they aim to live on $40,000 a year, that’s a million dollars saved and a withdrawal rate of 4% per year. There are a few factors at play here. First, living on $40,000 per year looks very different depending on where you’re living. And second, the 4% rule has been debated and may not be sustainable now, thanks to inflation.

Another factor to consider is health insurance until you reach Medicare age. If you’re not covered by employer-subsidized health insurance because you’re not working, you’ll likely need to turn to the healthcare marketplace for your state. Health insurance is extremely expensive in this country, but depending on your financial circumstances, you may be able to find more affordable coverage this way.

You’ll also need to ensure you have money saved and invested in accounts you can access easily before age 59 ½. Unfortunately, the types of accounts (such as traditional IRAs) that give savers the biggest tax breaks also penalize you for withdrawing before a more traditional retirement age. A CFP® professional can help you work through these considerations and make a FIRE plan, if that’s in the cards for you.