Retire Early with the F.I.R.E Method | OneUnited Bank

FIRE Breakdown

Highlights

• How you will approach FIRE will depend on your current finances and retirement goals.
• FIRE calls for an aggressive saving level of 50% to 75% of income.
• Requiring extreme discipline and lifestyle changes, FIRE may not be right for everyone.

FIRE aims to achieve freedom and flexibility through independence. Followers of the movement aim to retire in their 30s, 40s or 50s with great sacrifice. Depending on outstanding debts, desired retirement age, and current income, some aim to save up to 75% of their earnings. Others may instead increase their income with side hustles or passive income streams.

While austerity might not always be a realistic option and real life complications can derail ambitious levels of savings, there are several ways to flip FIRE and approach it differently.

Lean FIRE

Fat FIRE, which is the standard FIRE approach, requires a “FIRE Number” that is 25 times your estimated annual expenses during retirement.

For example, at a $50,000 annual expense during retirement, you would need $1.25 million saved. Per the 4% rule, you would withdraw 4% of your investments per year at $50,000 of the $1.25 million.

Lean FIRE differs by setting your annual expenses lower for a more frugal lifestyle. For example, by setting your target budget to 40,000, your saving goal would decrease to $1 million.

Barista FIRE

Barista changes the end goal and focuses on control over how much you work. To achieve optimal work-life balance, Barista FIRE changes from full-time work to part-time work.

While saving enough to partially cover living expenses, this semi-retirement approach offsets the excessive sacrifices of other FIRE approaches. Full retirement is not achieved with this approach.

Flamingo FIRE

This more complicated FIRE approach consists of three phases: accumulation, semi-retirement, and financial independence.

Stage 1 – Accumulate:

Reach half of your FIRE number. Once you have reached this, you can move onto stage 2.

Stage 2 – Semi-retirement:

• Once you hit this stage, you enter semi-retirement, letting the half egg nest you’ve accumulated grow in the background. While you let it grow, you will be partially employed–enough to cover your living expenses.
• Granted your nest egg grows in an account with returns of 7% per year, it will double in ten years. To find out the time it will take to double, divide 72 by your estimated annual return.

Stage 3 – Financial Independence:

Once you have reached your FIRE number, you can stop working and start withdrawing 4% annually from your retirement accounts.