What FIRE means
FIRE stands for Financial Independence, Retire Early. You are financially independent when your investments can cover your spending for the rest of your life. What you do then is up to you: stop working, work part-time, or keep going on your own terms.
FI number = yearly spending ÷ withdrawal rate
At 4%: FI number = 25 × yearly spending
Spending $50,000 a year means an FI number of $1.25 million. With $15,000 a year of part-time income in retirement, savings only need to cover $35,000, and the number falls to $875,000.
Why the savings rate is everything
Your savings rate does two jobs at once. It sets how fast you add to your investments, and, because spending is what is left, it sets how big the target is. Someone who saves 10% of take-home pay needs about 51 years to reach FI at a 5% real return. At 25% it takes about 32 years, at 50% about 16, at 70% under 9. The chart above draws that curve. Income only matters through the savings rate it allows.
Lean, regular, fat and coast
- Lean FIRE: a frugal budget, often below $40,000 a year for a household.
- Fat FIRE: a generous budget, often above $100,000 a year, and a much larger target.
- Barista FIRE: enough invested that part-time work covers the rest. Set the retirement income field to try it.
- Coast FIRE: enough invested today that, with no further saving, growth alone reaches your FI number by a normal retirement age. After that you only need to earn what you spend.
Is 4% safe for an early retirement?
The 4% rule comes from US market history over 30-year retirements. Early retirees may need their money for 50 years or more, and research on longer horizons points to 3.25% to 3.5% as the safer rate, which means 29 to 31 times spending. Flexibility helps a lot: people who can cut spending in bad years, or earn a little, can safely start higher.
Practical notes for US savers
Money in a 401(k) or IRA is normally locked until 59½ without a 10% penalty, but early retirees have legal routes: a Roth conversion ladder, Rule 72(t) substantially equal payments, and the rule of 55 for 401(k)s from the employer you leave. Health insurance before Medicare at 65 is often the largest cost to plan for; ACA marketplace premium credits depend on the income you report, which early retirees can manage.