Variables and Variations of FIRE – Financial Independence Retire Early
The Variables of FIRE
The numbers that are entered into an investment calculator are the only real variables that matter.
- Target Amount
- Starting Amount
- Return Rate
- Contributions
- Investment Length
Target Amount
The biggest and most discussed variable of FIRE is of course your target amount, aka your FIRE number. How much money you need to retire depends on how much you want to spend in retirement. You can budget to spend more or less in retirement to greatly affect your fire number. You can also supplement your retirement spending with other sources of income, either active or passive, to reduce your FIRE number.
For a simple FIRE number calculation see my tips here.
Starting Amount
Starting amount could also mean “current amount”. Where you’re at now even if you’ve already been saving and investing for years. That could also mean zero if you’re literally starting today. It’s also the variable that could see step changes. Jumps or dips if you for example inherit a windfall or worse incur a large debt.
Return Rate
Return rate is highly variable, and somewhat out of your control. In my last post we used 7.2% as and easy example of the rule of 72. But over the past almost 100 years the S&P 500 has averaged closer to 10% returns per year. Sure there have been some negative years but we’re looking at investing on a much longer horizon.
Contributions
Contribution is the variable that you have the most control over. You can pay down debt, trim expenses, work overtime, and live frugally to maximize your savings contributions. As discussed in the last post, the power of compounding interested is harnessed by making frequent small contributions as soon as possible rather than saving to invest later.
Investment Length
Investment length is the key output usually. Although, you could pick when you want to retire and work to that goal. More often, you maximize savings and hustle any possible way you can to contribute, invest smartly, and your retirement age is what it is. Hopefully sooner rather than later. This is more so the outcome of how diligent and dedicated you are to the FIRE lifestyle. Budgeting to live on less after retirement (target amount) can also make for an earlier retirement date.
Honorable mention, Savings Rate
Savings rate is the next most common term you’ll hear in the FIRE community. This is simply what percentage of your income you are saving to invest. This could be as low as zero. But I’m going to say if you’ve made it this far it better not be any lower than your company’s 401k match. It can be as high as 100% for someone who is supported by someone else. This is highly dependent on wage rate/salary and personal tolerance for deprivation.
There’s a cool calculator that directly correlates savings rate to years until retirement. It also has the common values for a bunch of different countries which is neat to consider. While I think this is interesting, it’s pretty low value because of the assumptions required to make it work. The withdrawal rate option doesn’t work correctly. You must assume that your expenses before and after retirement remain the same.
Aside from this cool visual, savings rate isn’t a variable in the investment calculators, so it doesn’t truly matter. You’ll see it get thrown around as a bragging right as well. Good for those who can brag about high savings rates, but if you can achieve your desired level of FIRE with only a 5% savings rate then also good for you!
The Variations of FIRE
In our last example we explored straight up regular vanilla FIRE on a modest middle-class level. As with everything, when we go down the rabbit hole, we find a way to complicate it even more. The FIRE community has come up with all sorts of variations of FIRE to describe the manner in which you get to and stay at FIRE, or just FI and keep working in another capacity. Let’s look at a few examples and their impact on your FIRE number.
There’s some variation in definitions by average annual spending and net worth but typically we’ll find the calculations add up to somewhere around: less than $1 million invested = Frugal FIRE, $1-3 million invested = Standard FIRE, and greater than $3 million invested = Fat FIRE.
Types of FIRE
Frugal FIRE
Frugal FIRE is when you spend as little as possible before and after retirement. Spending as little as possible before retirement makes it possible to maximize your investment contributions. Spending as little as possible after retirement makes your FIRE number remain smaller. Combine those two slimming factors and we’re talking about people who can live off as little as $5,000 a year. They would only truly need $125,000 to live off of their investments!
These are the “cheapskates” people typically think of when they first learn of the FIRE movement. But it’s not all pain and sacrifice! 4% of $1 million invested still equals $40,000 annual spend in retirement, just 2/3rds of the national average. You can still be responsibly frugal while living a fun life traveling and going out to eat on occasion.
Standard FIRE
This is the normal FIRE group centered around the typical American spending habits of $61,000 per year. While there’s some sacrifice to get this amount of money saved up in a person’s lifetime, it’s still very attainable for the average American. Even without denying oneself completely of all pleasure and life experience.
The end result is a comfortable retirement with no money worries. A modest sized house, maybe 3-4 bedrooms and 2-2.5 bathrooms. Money left over for hobbies, vacations, and other interests. Children’s college expenses covered. Reliable and safe modern vehicles but no exotics or luxury yachts.
Fat FIRE
Fat FIRE is the top of the spectrum in which high net worth individuals have a very large pool of funds to invest. Often these are people who sell off all or large portions of a business they created. They could also be executive level, or in high salary fields like doctors, lawyers etc. People who have received large windfalls from inheritance or legal settlements could find themselves in this category too. Most likely not lottery winners though, they’ll spend it all and be broke.
Those who have achieved fat FIRE can draw down on that investment using the same 4% annually rule. Except 4% of millions or billions is still a ridiculous amount of money to spend each year. 4% of $3 million is $120,000 spend annually, or about TWICE the national average. This enables even earlier and/or more lavish retirement. International first-class travel, brand new top tier vehicles, large custom home(s), and anything else you can spend money on.
If the market goes down and spending needs to be reduced, there’s plenty of opportunity to cut discretionary spending in fat FIRE. This is what makes it different from rich people just spending lots of money continuously. While it can seem ultra luxurious, it’s at a conscious self imposed spending limit to ensure it lasts “forever”.
Ways to Get to FIRE
Coast FIRE
Coast FIRE is when you reach a milestone, for example that 50% invested mark of your FIRE number, and just stop contributing because you know that in 10 years it’ll be at your FIRE number regardless of contributions. In this case you can start increasing your spending BEFORE retirement. Just don’t let that get out of hand.
Or you could reduce your income by lowering your hours/salary to match only your annual expenses since you’re no longer worried about saving. This is becoming more and more common in millennials who went to college and got a job because they were supposed to but never found satisfaction in that path. Which leads to the next version.
Barista FIRE
Finally, a crowd favorite, Barista FIRE, aka Arby’s FIRE. This is a more defined variation of coast FIRE in which you leave your field of work completely! Then you go work an “easy” job. In this variation you presumably leave behind the high stress and responsibilities of your rat race 9-5 and work something that is more fun and fulfilling to you.
Of course you’ve got to have a nest egg built up and already be well on your path to FIRE, but this can help with burnout and metal health if you’ve pushed a little too hard up front. This is also a great plan to get out of corporate world but still retain some healthcare benefits. And possibly even employer matching of some retirement benefits, free money!
Blogger FIRE
Then there’s me with Blogger FIRE. Just kidding, sort of. I’m only blogging as a fun new challenge, cheap hobby, and creative outlet at the moment. It would be nice if I were able to monetize it into something that would pay my bills and allow me to retire even earlier while doing something that I enjoy.
There’s quite a few success stories out there from Mr. Money Mustache to Financial Samurai to Bigger Pockets. They were all sparked by blogging about FIRE to get more engaged with the community and track their own progress. Leading to forums, podcasts, books, courses, and other forms of community interaction, ultimately producing an income stream of their own.
This category could really be expanded into side-hustle FIRE. When you start building up a second income stream of a non-traditional/passion project, then retire from your traditional income stream when the side-hustle overcomes it as the new primary income source.
Closing Thoughts
The variables and variations of FIRE can range so drastically that you can most certainly find a comfortable spot for FIRE to fit your life and career aspirations. There’s also no rules that say you can’t revise your plan as life happens and things change.
Leave a comment or reach out to me through our contact page if you’ve heard of any other interesting or funny forms of FIRE you’d like to share. I get a kick out of reading some of the odd-ball approaches on Reddit these days.
