What is FIRE
How much you need to stop working, and how long it takes to get thereFIRE stands for financial independence, retire early. You save a large share of what you earn, invest it, and keep going until the portfolio can pay for your life on its own. From then on work is optional. Some people stop completely, others switch to work they enjoy more or that pays less.
The idea goes back to the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez, and spread widely after 2011 through the Mr. Money Mustache blog. Today it has large communities on Reddit, including a European one that deals with local taxes and funds.
Your FIRE number
The FIRE number is how much you need invested. Most people work it out with the 4% rule. If you take out 4% of the portfolio in your first year and raise the amount with inflation after that, the money lasted at least 30 years in almost every period of US market history. Flip it around and you need 25 times your yearly spending.
FIRE number = yearly spending ÷ withdrawal rate €30,000 ÷ 4% = €750,000
The rule comes from William Bengen's 1994 research and the 1998 Trinity study, both based on US stocks and bonds. Someone who stops at 40 may need the money for 50 years, so many early retirees plan with 3.5% (29 times spending) or 3% (33 times).
| Withdrawal rate | Multiple | For €30,000 a year |
|---|---|---|
| 4% | 25× | €750,000 |
| 3.5% | 29× | €857,000 |
| 3% | 33× | €1,000,000 |
How long it takes
Your savings rate matters more than your income, because it sets both how fast the portfolio grows and how much it has to pay for. Say you have €50,000 invested, add €1,000 a month and earn 7% a year before 2% inflation. You reach €750,000 in about 25 years. Double the monthly saving to €2,000 and it takes about 17.
The last stretch is the fastest. With those numbers the first quarter of the way takes almost eight years, the last quarter a little over four, because by then the portfolio's own growth is doing most of the work.
Take inflation off your expected return and keep every amount in today's prices. Then €30,000 in 25 years means what €30,000 means now, and the FIRE number doesn't need to move.
The four main kinds of FIRE
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Lean FIRE
Retiring on a tight budget. The number is smaller and you get there sooner, with less room for surprises.
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Fat FIRE
Retiring without cutting your lifestyle. It takes a much bigger portfolio and usually a high income.
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Coast FIRE
Investing enough early that you can stop saving and still retire on time. You keep working, but only to cover what you spend.
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Barista FIRE
Leaving full-time work while a part-time job pays for some of your life, so the portfolio only covers the rest.
What the 4% rule leaves out
The rule assumes the same withdrawals every year whatever the market does. In practice a crash in your first years without work hurts most, because you sell low to pay the bills. Being willing to spend a little less in bad years makes a big difference. So does a state pension that starts later, which means you need less from the portfolio from then on.