Understanding Financial Independence, Retire Early (FIRE)

Brought to light from the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominquez, the Financial Independence, Retire Early (FIRE) community was born as a movement that analyzes spending in terms of working hours as the ‘payment.’ For example, if your hourly pay is $12, a tube of toothpaste at $4 is 20 minutes of work. Being founded on the extreme frugality of spending, the movement is heavy on saving and investing, too.

With their dedication to saving and investing, FIRE followers aim to retire decades before 65. Those within the community typically work to save, invest that money, and when their assets are about their 25-30 times their projected annual expenses, will retire fully in their 30s or 40s. Some may work part-time. To maintain their desired lifestyle, FIRE folks will withdraw 3-4%. There have been various FIRE perspectives come to life since its rise in 1992 depending on lifestyle needs. The core three are as following:

  • Fat FIRE – This style takes aggressive savings and investment strategies and is more suitable for those with larger incomes than the average worker. Oftentimes this is the FIRE lifestyle for someone who does not want to reduce their standard of living.
  • Lean FIRE – With extreme saving and investing methods and a minimalistic lifestyle, the restricted living often has these folks living on $30,000 or less a year.
  • Barista FIRE – As the mid-grounds for Fat and Lean, folks here typically quit their traditional full-time jobs and use a combo of minimalistic living with freelance or part-time work. This is typically to maintain health benefits, support themselves, and not touch their retirement funds.  

More to FIRE than Meets the Eye:

FIRE does not mean entirely quitting work nor does just apply to retiring early. There are many accessible elements that could be applied to your retirement planning and financial health. Planning for your future is the core of the FIRE community. It is about getting better with your money—be it better saving, methodical investing, or intentional spending:

  1. Planning – In 2021, a study showed 25% of Americans did not have a retirement savings at all. Of those, almost 40% felt they would never get on track to have the retirement they want. FIRE emphasizes the importance of planning and saving.
  2. Discipline – To achieve what your plan entails there is a great amount of discipline involved. FIRE is about maximizing your income and minimizing your overall expenses. Setting a budget, strictly sticking to it, creating income streams now and saving.
  3. Invest wisely – Ideally, taking a certain percentage of your monthly income to invest is the idea of FIRE. The money adds up over time and grows. Strategies under FIRE are a little more extreme, encouraging to sometimes invest large amounts than the typical working person.

For further information on FIRE and much more, listen to our podcast episode “F.I.R.E., Side Hustles, and Retirement with the Financial Panther” of The Retirement Risk Show.


Finding Happiness in Retirement

Ever heard “home is where the heart is?” During retirement, finding and keeping what makes your heart smile is as important as your financial well-being. 

Foremost, maintaining relationship during your retirement is most important. This could be keeping in touch with family or old friends. Or joining a club and creating new friendships. If you are married or live with another, your home life relationships will be what matters most to you. Now, maintaining these relationships will take time and effort, but keeping your loved ones close will make you much happier down the road. 

Outside of maintaining your social circle, activities will help, too! Invest in your hobbies that lead to your desired social interactions. Hiking, crafting, bingo club, or a book club. In retirement the number one reported activity is watching television. While relaxation is important, so is getting out of the house! Social activities not only keep you moving but keep your mind acute. 

Studies have found that financial health is correlated to retirement happiness. Having funds secured and your retirement planned out means you can maintain your lifestyle as desired. Living comfortably is what makes retirees the happiest. 

Moreover, trends show that within the first year of retirement spending mirrors that of the last working year. The only difference is a different amount of income is reported. Without having to pay certain taxes, more money is essentially available the first year of retirement. 

Another trend found is inflation-adjusted spending decreases as retirement continues. Sadly, this is partly due to the fear of running out of funds. Another reason is retirees become comfortable leading a newer lifestyle that may call for less spending and expenses. In a 2019 survey, 84% of participants reported being uncomfortable spending their nest egg especially when they did not have a guaranteed pension. 

When spending time with children, retirees are reportedly happier. The youth keep them active and engaged. If retirees have grandkids doing weekly activities and keeping in touch by phone also produce happiness. 

Housing is a key factor when it comes to happiness during retirement. Some relocate, downsize, or move into a retirement facility. Homeowners are oftentimes happier than those who rent late in life. On the contrary, moving into a retirement or assisted-living facility has been found to make over 50% of retirees happier and their lives easier—especially those dealing with a long-term care event individually or with a spouse. 

When it comes to your retirement, find what makes your heart smile. Be social and stay in touch with family. Invest in yourself. Prepare for and secure your retirement so you can enjoy those golden years.