FIRE Movement: What to Know About Retiring Early

Summary: The FIRE movement is a lifestyle strategy for achieving financial independence and early retirement through frugality, saving, and investing.

Are you tired of the 9-to-5 work grind and dreaming of a life where you can wake up and live on your terms? The FIRE movement might be just what you’re looking for. This lifestyle strategy is about taking control of your finances, minimizing spending, maximizing savings and investing wisely so you can retire early and have the financial freedom to pursue your passions.

What is the FIRE movement?

The FIRE movement, “Financial Independence, Retire Early,” is a lifestyle strategy for achieving financial freedom and retiring earlier than the traditional retirement age. The main idea is to save and invest a large portion of your income, often between 50% and 75%, by living frugally and minimizing expenses.

The FIRE concept traces its origins to the bestselling finance book Your Money or Your Life, written by Joe Dominguez and Vicki Robin. First published in 1992, the book encourages people to rethink their relationship with money. While Dominguez and Robin didn’t coin the term FIRE, their book inspired the movement’s goals.⁽¹⁾

The FIRE movement has grown in popularity over the years, especially among people who want to get away from working 9-to-5 to pursue their passions or hobbies without financial constraints.

The principles of the FIRE movement

The FIRE movement is guided by two primary principles—the 25x rule and the 4% rule.

25x rule

The 25x rule is a simple formula for estimating how much money you need to save to retire early and live off your investments. It’s based on the idea that you should save 25 times your annual expenses to retire.

The best way to calculate this is to figure out your monthly expenses and then multiply that by 12, giving you an estimate of your annual expenses. Then, multiply your annual expenses by 25 to determine how much you need in savings and investments to retire. This is called your FIRE number.

For example, say your average monthly expenses are $5,000. That’s $60,000 annually. So, you must save $1.5 million to retire under FIRE.

Find out how long your savings may last when you take regular withdrawals with this calculator.

4% rule

While the 25x rule involves how much you save for retirement, the 4% rule is about how much you spend after retirement. Under this rule, you would only withdraw 4% of your savings in your first year of retirement and then adjust that amount each following year based on the rate of inflation. So, if you have $1.5 million saved for retirement, you’d withdraw $60,000 during your first year in retirement.

Different variations for different lifestyles

Not everyone in the FIRE movement may follow the same approach. While they share the end goal of financial independence, there are several variations of the FIRE movement tailored to different lifestyles and financial goals.

Lean FIRE

Those who follow the Lean FIRE approach plan on spending less in retirement and, therefore, focus on a minimalist lifestyle and strict budgeting. They usually live on $25,000 or less yearly and prioritize needs over wants.

Fat FIRE

The Fat FIRE variation is designed for those who want to live a higher standard of living in retirement than they did when they were working. This may require them to save faster and invest more before retirement.

Barista FIRE

The Barista FIRE is for those who can’t imagine ever fully retiring and plan to work at least part-time after they retire. They aim to achieve a level of financial independence that enables them to work low-stress, part-time jobs that they enjoy without the pressures that come with earning a full-time salary.

Coast FIRE

Coast FIRE is meant for those who’ve saved and invested early enough that their investments and savings can grow without contributing more after retirement. Once they reach retirement age, they can coast through life just by working enough to help cover their current living expenses. Coast FIRE participants usually start investing wisely when they are in their 20s and early 30s.

Benefits: More than just retiring early

The FIRE movement offers several benefits, the biggest being creating a life that typically gives you more freedom and less financial stress. Once you achieve financial independence, you’re no longer tied to a job just to pay your bills. This opens up opportunities for you to pursue your passions, travel or even start a new venture.

Another major benefit is the freedom to make your own decisions based on what brings you joy rather than what pays the bills. This could be spending more time with family and friends, volunteering, or exploring new hobbies.

FIRE is designed to give you some peace of mind that you have a financial cushion to protect you from life’s uncertainties. By building up your savings and reducing your debt, you are likely in a better position to handle a job loss, unexpected medical expenses, or market fluctuations or fluctuations in the market.

The FIRE movement is about more than just retiring early. Incorporating the principles of FIRE into your daily life can help you become more mindful of your spending and more aware of your values and what matters to you.

Challenges and drawbacks

While the FIRE movement offers many benefits, it also has its challenges. One of the biggest hurdles is maintaining discipline when it comes to saving and budgeting. Sticking to a strict savings plan can be tough and can mean saying no to vacations, dining out or buying new things you may want. This all boils down to the age-old dilemma of living in the now or living for the future. Finding that balance you can stick with is the key. FIRE can help ignite creativity in solving your problems and finding alternative ways to do things, such as doing home projects yourself, rather than hiring someone.

Another challenge to retiring early is that many retirement accounts can’t be accessed until you are age 59.5, otherwise you will likely need to pay penalty fees and taxes. If you plan to retire early, you’ll need to consider other accounts that can help bridge the gap between the age you retire and when you turn 59.5. A financial professional can help you create a customized retirement plan that takes into account your retirement age, goals and income.

Also, retiring early may sound like a dream, but there are drawbacks. Most notable is that you may need to find an alternative source for health insurance if you lose an employer-sponsored plan and you don’t yet qualify for Medicare. Getting private insurance could increase your annual expenses substantially. One option is to look into alternative healthcare options through the Affordable Care Act marketplace that may be a better fit for your budget.

Is the FIRE Movement Right for You?

The FIRE movement offers an exciting possible path to financial independence and early retirement, giving you the freedom to live life on your terms. By focusing on aggressive saving, smart investing, and frugal living, it’s possible to break free from the traditional work cycle and pursue what truly matters to you. Whether you opt for Lean FIRE, Fat FIRE, Barista FIRE, or Coast FIRE, each approach provides a way to reach your financial goals based on your lifestyle and needs.

That being said, the FIRE movement is not for everyone. You may need to sacrifice things you enjoy—like dining out and traveling—to allocate much of your income to savings and investments so that you can achieve a stress-free retirement in the future. But, if you are willing to commit, the FIRE movement can give you the chance to focus on what makes you happy and fulfilled. At Mutual of Omaha, we are committed to helping you prepare for retirement, regardless of when you choose to do so.

Looking for guidance on if the FIRE movement is right for you? Contact a Mutual of Omaha financial professional today!

FAQs

Q1. How many people achieve FIRE?

While the FIRE movement has grown in popularity, only a small percentage of people have fully achieved financial independence and retired early. Recent data shows the number of adults in their 40s who are retiring early actually decreased between 2016 and 2022. The average retirement age in the United States in 2024 is 62, which is slightly under the official full retirement age of 67. ⁽²⁾

Q2. What is the savings rate for the FIRE movement?

The recommended savings rate for the FIRE movement ranges between 50% and 75% of your income. Experts often recommend that you save at least 20% of your income. One popular budgeting model is the 50-30-20 rule, where 50% of your income goes to needs, 30% goes to wants and 20% goes to savings and investments.

Q3. What percentage of people choose to go back to work after retiring?

About 20% of retirees have returned to work either full-time or part-time. The main reasons retirees return to work are financial (48%) and social or emotional (45%).⁽³⁾

Q4. How much does the average American have saved at age 55?

The Federal Reserve Survey of Consumer Finances (SCF) shows that 55-year-olds in the United States have an average retirement savings of about $537,560. The recommended retirement savings for people in their 50s is six times their annual salary. So, if you are earning about $60,000 a year, you should have at least $360,000 in your retirement savings by the time you turn 50.

Footnotes:

(1) Yourmoneyoryourlife.com, You Money or Your Life Book Summary, April 2024

(2) The Motley Fool, What Is the Average Retirement Age in the U.S.? October, 2024

(3) T. Rowe Price, “Unretiring”: Why Recent Retirees Want to Go Back to Work, March 2024

Disclosures:

All investing involves risk, including the possible loss of principal and there can be no assurance that any investment strategy will be successful.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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